Coal exporter Xcoal Energy & Resources is suing West Virginia Gov. Jim Justice and two of his coal companies for allegedly failing to fulfill a contract for 720,000 tons of metallurgical coal destined for seaborne markets over the course of a two-year coal supply agreement.
A July 2 complaint alleges that one of Justice's companies, Bluestone Energy Sales, delivered less than one-quarter of the coal it was contractually obligated to deliver in May. Xcoal's complaint also alleges Bluestone failed to deliver on at least four of five scheduled coal deliveries and said one set of shipments in November 2017 was of "poor quality" and "materially underweight."
Xcoal could be entitled to nearly $7 million in damages for undelivered coal if the court determines Bluestone breached the agreement, according to terms cited in the complaint.
According to the complaint filed with the U.S. District Court for the District of Delaware, Bluestone was supposed to supply Xcoal, a Pennsylvania-based marketing and logistics company, with 30,000 tons of mid-volatile-quality coking coal each month from its Bishop mine in West Virginia.
Justice and his family-operated Southern Coal Corp. guaranteed Xcoal that it would meet obligations under the agreement, according to Xcoal's complaint. Justice's exposure, states the court filing, was capped at $10 million.
Xcoal planned to move the coal to export markets, where higher prices have recently proved a relative bright spot for the U.S. coal sector. The U.S. exported 55.3 million tons of metallurgical coal in 2017, up from 40.9 million tons the prior year, according to the U.S. Energy Information Administration.
Xcoal alleges that Bluestone's failures constitute an event of default under the coal supply agreement between the two parties. As a result, the company said it is contractually entitled to receive $9.88 per ton, multiplied by the number of tons remaining to be delivered on the agreement. The 24-month contract was inked in October 2017, and Xcoal alleges it received just 24,000 of the 210,000 tons scheduled for delivery between November 2017 and May.
The filing does not request a specific award, but based on Xcoal's formula, it would be entitled to $6.9 million if 696,000 tons remain undelivered
Xcoal's initial complaint was filed under seal and the nature of the allegations was only publicly known through responses in a counterclaim filed by Justice and his companies. A "redacted public version" of Xcoal's May 31 complaint was recently published, but portions of the document including tonnage, pricing and other information were retrievable from the text even though redacted.
A June 27 court filing from Justice and his companies asserted counterclaims against Xcoal, including an accusation that Xcoal fraudulently induced Justice and his company into an agreement that the exporter never intended to honor. The defendants said Xcoal made unreasonable commercial demands for coal shipments beyond Bluestone's delivery capacity. Previous filings also point to a "long history" of business dealings and litigation between the two parties.
The governor was issued a court summons June 6, according to court documents. Justice, who took office in January 2017, has maintained ownership of his coal companies, according to a 2017 state financial disclosure. He has said the business is managed by other members of his family, which is reflected in several federal mine safety records listing the controllers of his company's mines.