Court Opinion

ID: 814092
Source: CourtListenerOpinion
Date Created: 2012-12-20 20:29:27+00
Date Added: 2024-06-11T18:00:50.843540
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                             No. 11-1835

THE KANAWHA-GAULEY COAL & COKE COMPANY,

                Plaintiff - Appellee,

           v.

PITTSTON MINERALS GROUP, INCORPORATED,

                Defendant - Appellant.

                             No. 12-1037

THE KANAWHA-GAULEY COAL & COKE COMPANY,

                Plaintiff - Appellant,

           v.

PITTSTON MINERALS GROUP, INCORPORATED,

                Defendant - Appellee.

Appeals from the United States District Court for the Southern
District of West Virginia, at Charleston.   Joseph R. Goodwin,
Chief District Judge. (2:09-cv-01278)

Argued:   October 24, 2012                 Decided:   December 20, 2012

Before TRAXLER, Chief Judge, KEENAN, Circuit Judge, and R. Bryan
HARWELL, United States District Judge for the District of South
Carolina, sitting by designation.
Affirmed by unpublished per curiam opinion.

ARGUED: Wade Wallihan Massie, PENN, STUART & ESKRIDGE, Abingdon,
Virginia, for Appellant/Cross-Appellee.      Marshall R. Hixson,
STITES    &   HARBISON,    PLLC,    Lexington,    Kentucky,  for
Appellee/Cross-Appellant.   ON BRIEF: Stephen L. Thompson, BARTH
& THOMPSON, Charleston, West Virginia, for Appellant/Cross-
Appellee. Paul O. Clay, Jr., Charleston, West Virginia; Gregory
P. Parsons, STITES & HARBISON, PLLC, Lexington, Kentucky, for
Appellee/Cross-Appellant.

Unpublished opinions are not binding precedent in this circuit.

                                2
PER CURIAM:

        Kanawha-Gauley     Coal      &    Coke     Company       (“KG”)   and    Pittston

Minerals Group (“Pittston”) bring this cross-appeal, challenging

the judgment of the district court following a bench trial.                             We

have reviewed the record.                 For the reasons below, we find no

reversible error and affirm the judgment of the district court.

                                            I.

                                            A.

     In      January    1998,   KG       entered    into     a    lease   with   Kanawha

Development Corporation (“KDC”), a subsidiary of Pittston at the

time.       KG agreed to lease several thousand acres of its land in

Fayette County, West Virginia, to KDC for mining purposes in

exchange for receiving wheelage on coal transported across the

premises and royalties on the coal mined from the premises.                            KDC

also agreed to additional obligations under the lease, which

included paying property taxes and taxes on the coal.                              In an

agreement 1 attached to the lease, Pittston agreed to serve as a

surety to KDC. 2

        1
        In the         suretyship        agreement,    Pittston       agreed      to   the
following:

     (i) to be jointly bound with [KDC] in the performance
     of [KDC’s] covenants set forth [in the lease] to the
     same extent as if it had been a joint lessee; (ii) to
     hold [KG] harmless from any cost, charge, expense or
(Continued)
                                            3
      Pittston     sold   its   interest      in     KDC    to   Appalachian         Coal

Holdings (“ACH”) in November 2003. Despite Pittston’s attempts

to   end   its   surety    relationship,        KG   declined      to    modify       the

agreement.         Both   the   lease     and      the     agreement,     therefore,

remained    in   effect    after      ACH’s   acquisition        of     KDC.         After

several    years    passed,     the    relationship         between     KG     and    KDC

declined.    KDC ceased mining on the property in mid-April 2008.

By September of that year, KDC had failed to pay property taxes,

as required by the lease, and soon thereafter KDC began failing

to pay royalties on the coal it mined and sold.

      In early March 2009, KG and KDC negotiated a payment plan

to bring KDC’s obligations current.                  Although ACH contributed

      loss due to default under [the lease by KDC]; (iii)
      that   [Pittston]    consents   in   advance   to   any
      modification of [the] lease and that its liability
      shall be deemed modified in accordance with any such
      modification; (iv) that this guaranty applies to
      renewals,   extensions   and  holdover   terms  of  the
      [l]ease; (v) that this guaranty shall remain in effect
      notwithstanding an assignment of [the lease] or
      subletting of the [l]eased [p]remises by [KDC]; . . .
      (vii) that any and all agreements, modifications and
      supplements hereafter entered into between [KG] and
      [KDC]   respecting    [the]   lease    and/or  [l]eased
      [p]remises shall not relieve, change or discharge the
      obligations of [Pittston] nor shall the consent of
      [Pittston] be    required to make any such agreement,
      modification or supplements effective.
      2
       The parties do not dispute the district court’s finding
that the agreement was a suretyship agreement.

                                         4
several hundred thousand dollars on KDC’s behalf, KDC ultimately

failed to make its payments under the new plan.                 On May 22,

2009, KG sent notice of KDC’s default to KDC and Pittston, 3 and

Pittston received notice five days later.            Both companies were

given twenty days to cure the default, but they did nothing. 4

Having received no communication or payment from Pittston by

June 19, 2009, KG gave notice to both KDC and Pittston that it

was terminating the lease.

                                     B.

     KG    filed   suit   against   Pittston   on   September    25,   2009,

seeking unpaid royalties, property taxes, and fines.               KG also

requested legal costs and attorney’s fees.            The district court

denied the parties’ cross-motions for summary judgment; however,

the district court found KG, as a matter of law, “did not have a

duty to enforce its lien against KDC before proceeding against

Pittston, who unconditionally guaranteed KDC's performance under

the lease.”    The case then proceeded to trial.

     3
       Also, on June 10, 2009, KG gave a second notice of default
to KDC and Pittston concerning KDC’s failure to pay the required
taxes and maintain certain insurance coverages required by the
lease.
     4
         Pittston only contacted ACH to demand indemnification.

                                     5
       Following a bench trial, the district court found that KDC

had    breached    the    lease       and    that         Pittston     did    not   prove      its

affirmative defense that KG breached its implied duty of good

faith by failing to provide Pittston with timely notice of KDC’s

breaches under the lease.                 The district court also found that KG

took     reasonable       steps       to     mitigate           its    damages      and     that

reasonableness      did       not    require         KG    to   initiate      litigation        to

enforce a landlord’s lien against KDC before proceeding against

Pittston.

       The district court ultimately awarded KG $1,047,194.42 in

unpaid royalties, $134,080.32 in unpaid interest on late unpaid

royalties, $15,500 in late payment penalties, and $212,889.89 in

unpaid    taxes.         It   also        ruled      that    KG   was    not    entitled       to

attorney’s    fees        because         the        suretyship       agreement      did       not

unambiguously      provide          for    the       recovery     of    such    fees.          The

district    court,       therefore,         entered         judgment     in    favor      of   KG

against Pittston for a total of $1,409,664.63.                           Subsequently, KG

moved to alter or amend the judgment, contending that it was

also entitled to post-judgment interest at the rate of 5.25% per

annum for unpaid royalties.                 The district court, however, denied

its request, and this cross-appeal followed.

                                                 6
                                           II.

      Pittston first contends that the district court erred in

ruling at the summary judgment stage that KG had no duty under

West Virginia surety law to enforce a landlord’s lien on coal

and equipment owned by KDC. 5              Pittston asserts that, by failing

to enforce the lien, KG impaired the collateral securing the

debt KDC owed to KG.            Because the collateral exceeded the debt,

Pittston argues it cannot be held liable as a surety.                      We review

de novo the district court’s interpretation of West Virginia

state     law   at     the    summary    judgment    stage.       See   Delebreau   v.

Bayview Loan Servicing, LLC, 680 F.3d 412, 415 (4th Cir. 2012).

      We find no error in the district court’s interpretation of

West Virginia law.             The district court recognized the unique

nature    of    what    the    parties     refer    to   as   a   landlord’s    lien,

reasoning that “an unenforced inchoate landlord’s lien creates

an interest entirely different from an interest created by a

secured transaction or lien obtained by attachment, judgment, or

execution.”      The statutes cited by the parties codify the common

law   remedy     of     distress,       which    “authorized      [a    landlord]   to

distrain property of the tenant, and hold it as a sort of pledge

      5
       The district court assumed for the purpose of its analysis
that KG had a landlord’s lien against the coal and equipment on
the premises; however, it found the lien “inchoate” and held KG
did not have a duty to enforce the landlord’s lien.

                                            7
to    secure    payment      of    rent.”    Nicholas         L.   DiVita,         Conflicts

Between the West Virginia Landlord’s Lien and Article Nine of

the Uniform Commercial Code, 86 W. Va. L. Rev. 417, 417 (1983);

see    also    49   Am.     Jur.   2d     Landlord        &   Tenant      §    813.        The

codification modified the remedy of distress, adding procedural

protections for the tenant, but also giving the landlord the

option to later sell the personal property to satisfy a claim

for rent. W. Va. Code §§ 37-6-12 to -13; DiVita, supra, at 418

      The      statutory      “landlord’s         lien”       in   West       Virginia     is

therefore a derivative of the distress remedy coupled with the

superior priority of the interest a landlord has in a tenant’s

personal property once it is distrained.                           “This preferential

right of payment operates as and has been held to constitute a

lien.” DiVita, supra, at 420; see also 49 Am. Jur. 2d Landlord &

Tenant § 813 (“The right to distrain is not a strict lien, but

rather is a peculiar right which is in the nature of a lien.”).

A tenant’s personal property does not become collateral security

for   rent     until   a    landlord    petitions         a   court    for     a    distress

warrant, which in turn must be executed by a sheriff. See W. Va.

Code § 37-6-17 (outlining the procedure for obtaining an order

of attachment).            The district court characterized the lien as

inchoate;      however,      the    term     of     art       is   more       relevant     in

determining      the   priority      of     the    landlord’s         interest        in   the

tenant’s personal property compared to other lienholders. See

                                            8
United States v. White, 325 F. Supp. 1133, 1135 (S.D.W. Va.

1971).      The priority of KG’s interest is not at issue here.

Instead,    the   issue    simply    was       whether   the    character      of   KG’s

interest    in    KDC’s   coal    and     equipment      was    of    the    kind   that

required    KG    to   enforce      its    lien    before       proceeding     against

Pittston.

    West Virginia surety law provides as follows:

    [A] creditor [is] bound to use proper care and
    diligence in the management and collection of . . .
    collateral [securities in his hands], and . . . a
    surety is released, to the extent of the loss,
    actually sustained, by the negligence of the creditor,
    to the same extent as if lost by the positive act of
    the creditor.

First Nat’l Bank of Philippi v. Kittle, 71 S.E. 109, 110 (W. Va.

1911).      The   parties   do    not     dispute     the      fact   that    KG    never

petitioned a court for an order of attachment or a distress

warrant.     While KG may very well have had an interest in KDC’s

personal    property      under   the      distress      statutes,      no    specific

collateral was mentioned in the lease to secure the royalties

KDC owed.     As such, no collateral was impaired so as to provide

Pittston with a surety defense and reduce the damages KG could

seek from Pittston.         Thus, the district court did not err in

                                           9
finding KG “did not have a duty to enforce its lien against KDC

before proceeding against Pittston.” 6

                                          III.

       We now turn to our review of the district court’s judgment

following a bench trial.                 “We review a judgment following a

bench trial under a mixed standard of review-factual findings

may be reversed only if clearly erroneous, while conclusions of

law,       including    contract    construction,        are   examined    de   novo.”

Roanoke Cement Co. v. Falk Corp., 413 F.3d 431 (4th Cir. 2005).

                                           A.

       Pittston argues that the district court erred in concluding

that       KG   had   no   duty    to   mitigate    damages     by   enforcing    its

landlord’s       lien.      The    district      court   held   that,     under   West

Virginia law, the duty to mitigate “did not require [KG] to

institute        a    separate,    and    likely    costly,      legal    proceeding

       6
       The district court also found Pittston, in the suretyship
agreement, “provided [KG] with an unconditional guaranty of
KDC’s performance under the lease to the same extent as if it
had been a joint lessee.” Likewise, KG contends on appeal that
the language of the suretyship agreement modified the surety
relationship to the extent that Pittston waived its surety
defenses.   Due to this Court’s dispositive holding that KG’s
interest was not of the kind to bar proceeding against Pittston,
we need not determine the extent to which the agreement affected
the surety relationship.

                                           10
against its tenant to enforce [a] landlord’s lien.”                       Indeed, the

district court noted the duty “requires only that an injured

party take reasonable steps to avoid further losses.”                          We find

no error in the district court’s holding, especially in light of

its finding that KG acted reasonably in negotiating a payment

plan       and   ultimately       terminating    the    lease   to    avoid     further

losses. See Middle-West Concrete Forming & Equip. Co. v. Gen.

Ins. Co., 267 S.E.2d 742, 747 (W. Va. 1980) (“[A]n injured party

is     responsible       for     doing    only   those     things     which     can   be

accomplished        at      a     reasonable     expense     and     by      reasonable

efforts.”).

       Pittston      next       asserts   that   the   district      court    erred   in

finding KG’s notice to Pittston was adequate under the implied

duty of good faith that is owed to a surety.                    The district court

held the duty of good faith in West Virginia did “not require an

obligor to provide additional notice to a surety.” 7                         We find no

error in the district court’s finding.

       Under West Virginia law, a creditor “is bound to observe

good faith with the surety.” Leonard v. Cnty. Court of Jackson

Cnty., 25 W. Va. 45 (W. Va. 1884).                     A creditor “must withhold

       7
       The district court also found the suretyship agreement
provided no additional notice requirement.

                                            11
nothing,    conceal       nothing,      release     nothing      which    may       possibly

benefit the surety.” Id.

      If a creditor does any act injurious to the surety, or
      inconsistent with his rights, or if he omits to do any
      act, when required by the surety, which his duty
      enjoins him to do, and the omission proves injurious
      to the surety, in all such cases the latter will be
      discharged, and he may set up such contract as a
      defense to any suit brought against him, if not at
      law, at all events in equity.

Id.

      Nothing      in    the    record        suggests     KG,    in     not    notifying

Pittston before May 22, 2009, withheld or concealed information

from Pittston.          Moreover, assuming that KG had a landlord’s lien

to    enforce     and    that    KG     had    a    duty   to    enforce       it     before

proceeding        against      Pittston,       no     collateral       that     may    have

possibly benefited Pittston had been released by KG before the

notice of default and Pittston’s right to cure was communicated.

Indeed, Pittston’s argument merely concerns KG’s failure to give

Pittston    earlier       notice   of    KDC’s      breaches.       As    the    district

court noted, after KG’s notice of default, Pittston had twenty

days to cure the breaches, but failed to do so.                            In light of

these findings, the district court’s finding was proper.

                                              B.

       In   its    cross-appeal,        KG    first    argues    that     the       district

court erred in denying its request for attorney’s fees.                                  It

                                              12
contends        the     suretyship        agreement        executed             by     Pittston

unambiguously provides for attorney’s fees in the event that KDC

defaults under the lease.            We disagree.

       Under     West    Virginia    law,        each    side       must    bear       its    own

attorney’s       fees     absent     “express           statutory          or     contractual

authority for reimbursement.” Corp. of Harpers Ferry v. Taylor,

711 S.E.2d 571, 574 (W. Va. 2011) (citing Sally-Mike Props. v.

Yokum, 365 S.E.2d 246, 248 (W. Va. 1986)).                          The district court,

in     denying    attorney’s       fees,    relied        on    Harris           v.    Allstate

Insurance Company, 540 S.E.2d 576 (W. Va. 2000), and found “the

agreement       between    [KG]     and    Pittston       does       not        unambiguously

provide    for    the     recovery   of    attorney        fees      and        costs.”       The

agreement at issue in Harris included a provision “to defend,

indemnify and hold [Allstate] harmless from and against any and

all judgments, awards, liabilities, settlements, or other costs

arising from such litigation, claim, or other action.” Id. at

579.      The    West    Virginia    Supreme       Court       of    Appeals          found   the

language unambiguously provided for the recovery of attorney’s

fees. Id.

       We agree with the district court that a general agreement

“to hold [KG] harmless from any cost, charge, expense or loss

due to default under [the lease by KDC]” does not unambiguously

provide for the recovery of attorney’s fees and costs.                                    While

the language in the agreement in Harris expressly referred to

                                            13
“costs arising from such litigation, claim, or other action,”

the language here regards only KDC’s default.                          The provision

reasonably includes costs, charges, expenses, or losses arising

from KDC’s default, such as the payment of unpaid royalties and

property      taxes.      Deviating     from      the     normal    rules     of    West

Virginia common law regarding the payment of attorney’s fees,

however, requires more clarity.                If the parties specifically

intended for the recovery of attorney’s fees and costs under the

suretyship     agreement,      they   were     capable      of     expressing      their

intent to do so unambiguously.

      Our finding is supported by a provision of the lease that

required KDC to “save harmless and defend, including paying or

causing to be paid the reasonable fees and expenses of counsel

reasonably selected by [KG], [KG] from all claims, loss, damage

or   injury    to    persons    and   property      arising      out   of,    from   or

incident      to    [KDC’s]    performance     of    [the     lease.]”       (emphasis

added).        This express agreement between KG and KDC for the

recovery of KG’s attorney’s fees and costs in suits by third

parties    amplifies     the    ambiguity    of     the    suretyship       agreement,

which made no express reference to attorney’s fees.                      Indeed, the

breach alleged by KG here was not KDC’s failure to indemnify KG

for some third party claim connected to the premises.

      Furthermore, no other provision in the lease between KG and

KDC automatically authorizes attorney’s fees in the event of a

                                        14
default.          An arbitration agreement, for example, governs “any

disagreement        or        dispute       between       [KG]    and     [KDC]   as    to    any

covenants, agreements or conditions of [the lease], or as to the

performance or nonperformance thereof.”                           But that agreement only

provides that “costs [of the arbitrators] may be assessed to

either [KG] or [KDC], or both of them,” and that “any costs,

fees,    or    taxes      incident          to    enforcing       an    [arbitration]        award

shall    .    .     .    be     charged          against    the       party   resisting      such

enforcement.”             It    makes       no    sense    to    require      Pittston,      as   a

surety, to pay attorney’s fees and costs when it is unclear KDC,

as the principal to the lease, would be required to do so.

Accordingly, the district court properly found the suretyship

agreement did not unambiguously authorize attorney’s fees and

costs.

     KG also contends that the district court erred in finding

it   was      not       entitled       to    post-judgment             interest   at    a     rate

amounting to 5.25% per annum.                           Specifically, KG asserts that

language in the lease setting a rate of prime (3.25%) plus 2% to

unpaid royalties applies to the judgment as well.                              We disagree.

     The standard rate applied to post-judgment interest equals

“the weekly average 1-year constant maturity Treasury yield, as

published      by       the    Board    of       Governors       of    the    Federal   Reserve

System, for the calendar week preceding.” 28 U.S.C. § 1961(a).

This rate is applied in diversity cases. Forest Sales Corp. v.

                                                   15
Bedingfield,     881     F.2d       111,   113    (4th    Cir.     1989).        However,

despite the rate provided in § 1961(a), parties may “ ‘stipulate

a   different        rate,     consistent        with    state     usury      and      other

applicable law.’ ” Carolina Pizza Huts, Inc. v. Woodward, 67

F.3d 294 (4th Cir. 1995) (unpublished table decision) (quoting

Hymel v. UNC, Inc., 994 F.2d 260, 266 (5th Cir. 1993)).

     We find the district court properly denied KG’s motion to

alter or amend the judgment in order to apply a 5.25% post-

judgment interest rate.               In denying the motion, the district

court cited the doctrine of merger, which it explained was “the

basic   principle       that    a    contract      merges    into       the    judgment.”

Under   the    doctrine        of    merger,      any     contractual         rights    are

extinguished as they are “changed into a matter of record and

merged in the judgment, and the plaintiff’s remedy is upon the

later security while it remains in force.” J. & G. Const. Co. v.

Freeport Coal. Co., 129 S.E.2d 834, 838 (W. Va. 1963) (internal

quotation marks omitted).

     Because     of    the     doctrine     of    merger,     other      circuits       have

required      that     the     parties     first        “specify    a     post-judgment

interest      rate”     using       “clear,       unambiguous       and       unequivocal

language.” Westinghouse Credit Corp. v. D’Urso, 271 F.3d 96, 102

(2d Cir. 2004); see also Society of Lloyd’s v. Reinhart, 402

F.3d 982, 1004 (10th Cir. 2005); Kotsopoulos v. Asturia Shipping

Co., 467 F.2d 91, 95 (2d Cir. 1972) (“Once a claim is reduced to

                                           16
judgment, the original claim is extinguished and merged into the

judgment; and a new claim, called a judgment debt, arises.                              A

single rule should govern interest on any such debt, the nature

of   the    original      claim   having       become   irrelevant         under      the

doctrine of merger.” (citation omitted)).                        These opinions are

consistent both with the law of this circuit and the common law

of West Virginia. See Carolina Pizza Huts, 67 F.3d 294; State ex

rel. State Bldg. Comm’n v. Moore, 184 S.E.2d 94, 109 (W. Va.

1971)   (“[I]f      the   contract    provides        for    a    certain      rate    of

interest until the principal sum is paid . . . the contract

governs until the payment of the principal or until the contract

is merged in a judgment.”).

     Reviewing      the    lease,    we    find    no    express         agreement     to

overcome the doctrine of merger and § 1961(a).                           Specifically,

the agreement was that “[a]ny payment not promptly made by [KDC]

to [KG] shall bear interest from the date due at two percentage

(2%) points per annum above the prevailing prime interest rate

then charged by Bank One, West Virginia, N.A.”                            Without the

necessary     clear,        unambiguous,        and     unequivocal            language

indicating    the    parties’     express      intent   to       agree    on   a   post-

judgment interest rate, a finding otherwise is unwarranted.

                                          17
                                     IV.

     Based   on   the   foregoing,    we   affirm   the   judgment    of   the

district court.

                                                                     AFFIRMED

                                     18