Teitz, Trustee v. Mount Storm Coal Supply, LLC et al

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
IN RE:
BUFFALO COAL COMPANY, INC.,
Debtor.
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JOHN W. TEITZ, Trustee,
Plaintiff,
v.
VIRGINIA ELECTRIC POWER
COMPANY, INC.
Defendant.
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Case No. 06-366
Chapter 7
Adv. Proc. No. 08-41
Administratively Consolidated with Adv.
Proc. No. 08-38
MEMORANDUM OPINION
Virginia Electric and Power Company, d/b/a Dominion Virginia Power (“DVP”), seeks
summary judgment on Count III of the adversary complaint filed against it by John W. Teitz, the
Chapter 7 trustee for Buffalo Coal Company, Inc. (collectively, the “Debtor”). Count III of the
Debtor’s complaint alleges that DVP tortiously interfered with a coal supply agreement executed
between the Debtor and Mount Storm Coal Supply, LLC (“MSCS”).
For the reasons stated herein, the court will grant DVP’s motion for summary judgment
I. STANDARD OF REVIEW
Summary judgment is appropriate when the matters presented to the court “show that there
is no genuine issue as to any material fact and that the moving party is entitled to judgment as a
matter of law.” Fed. R. Civ. P. 56(c); Fed. R. Bankr. P. 7056; Celotex v. Catrett, 477 U.S. 317, 322
Dated: Tuesday, January 26, 2010 1:45:19 PM
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(1986). The party moving for summary judgment has the initial burden of proving that there is no
genuine issue as to any material fact. Adickes v. S. H. Kress & Co., 398 U.S. 144, 161 (1970). Once
the moving party has met this initial burden of proof, the non-moving party must set forth specific
facts sufficient to raise a genuine issue for trial and may not rest on its pleadings or mere assertions
of disputed facts to defeat the motion. Matsushita Electric Industrial Co., Ltd., v. Zenith Radio
Corp., 475 U.S. 574, 586-87 (1986) (stating that the party opposing the motion “must do more than
simply show that there is some metaphysical doubt as to the material facts”). The mere existence
of a scintilla of evidence in support of the opposing party’s position will not be sufficient to forestall
summary judgment, but “the judge’s function is not himself to weigh the evidence and determine
the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 252 (1986). In ruling on a motion for summary judgment, “the
evidence of the nonmovant is to be believed, and all justifiable inferences are to be drawn in his
favor.” Id. at 255. A fact is not “genuinely disputed” unless the factual conflict between the parties
requires a trial of the case for resolution. Finley v. Giacobbe, 79 F.3d 1285, 1291 (2d Cir. 1996) (“If
there is any evidence in the record from which a jury could draw a reasonable inference in favor of
the non-moving party on a material fact, this Court will find summary judgment is improper.”).
II. BACKGROUND
On January 14, 2005, DVP and MSCS executed a Coal Consulting Agreement whereby DVP
promised to inform MSCS about sources of coal, coal purchasing strategies, and coal suppliers. In
addition, DVP promised to assist in the negotiations and discussions regarding MSCS’s coal supply
contracts, the scheduling coal shipments to MSCS by its suppliers, and enforcing the supply
contracts.
Like MSCS, DVP was also the recipient of coal. On October 27, 2005, DVP executed a coal
supply agreement with the Debtor. In accordance with DVP’s Coal Consulting Agreement with
MSCS, it also advised MSCS to execute a November 2005 coal supply agreement with the Debtor
(the “Synfuel Feedstock Agreement”). 	In the event that the Debtor sold coal to MSCS under the
Synfuel Feedstock Agreement, that sale automatically reduced, on a corresponding basis, the
quantity of coal that DVP was or remained obligated to purchase from the Debtor under the DVP-
Debtor coal supply agreement.
On February 22, 2006, DVP terminated its coal supply agreement with the Debtor. DVP
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1 DVP has asserted that West Virginia law applies to the Debtor’s claim for tortious
interference with contract on the basis that any alleged injury resulting from the tort would have
occurred in West Virginia and the Synfuel Feedstock Agreement was performed in West
Virginia. The Debtor does not dispute DVP’s determination as to the applicable state law.
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states that its termination was based on the Debtor’s insolvency and inability to pay debts when due.
DVP informed MSCS of that termination and stated that MSCS would no longer be receiving coal
from the Debtor. Under DVP’s direction, MSCS then terminated the Synfuel Feedstock Agreement.
III. DISCUSSION
The Debtor asserts that DVP acted improperly and dishonestly in making statements to
MSCS about DVP’s termination of its Coal Supply Agreement with the Debtor, and that DVP
caused MSCS to terminate the Synfuel Feedstock Agreement in an unjustified manner.
DVP claims that its statements to MSCS were made honestly, and its actions in instructing
MSCS to terminate the Synfuel Feedstock Agreement were authorized and proper under its Coal
Consulting Agreement with MSCS.
In Syllabus Pt. 2 of Torbett v. Wheeling Dollar Sav. & Trust Co., 314 S.E.2d 16 (W. Va.
1984),1 the Court set forth the requirements to establish prima facie proof of tortious interference
with contract and further outlined the contours of the tort:
(1) existence of a contractual or business relationship or expectancy;
(2) an intentional act of interference by a party outside that relationship or
expectancy;
(3) proof that the interference caused the harm sustained; and
(4) damages.
If a plaintiff makes a prima facie case, a defendant may prove justification or
privilege, affirmative defenses. Defendants are not liable for interference that is
negligent rather than intentional, or if they show defenses of legitimate competition
between plaintiff and themselves, their financial interest in the induced party’s
business, their responsibility for another's welfare, their intention to influence
another’s business policies in which they have an interest, their giving of honest,
truthful requested advice, or other factors that show the interference was proper.
Id.
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2 In Tiernan v. Charleston Area Med. Ctr., Inc., 506 S.E.2d 578, 593 n.26 (W. Va. 1998),
the Supreme Court of Appeals of West Virginia affirmed its decision in Torbett, supra, and held
that it “adopt[ed] § 722 of the Restatement in its entirety.” The Restatement provides:
One who intentionally causes a third person not to perform a contract or not to
enter into a prospective contractual relation with another does not interfere
improperly with the other's contractual relation, by giving the third person
(a) truthful information, or
(b) honest advice within the scope of a request for the advice.
§ 722.
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Even assuming (without admitting) that the above four elements necessary to establish a
prima facie case for tortious interference with contract are present in this case, DVP asserts that it
has an absolute defense to any such tort claim because its advice to MSCS to terminate the Synfuel
Feedstock Agreement is honest advice rendered within the scope of its Coal Consulting Agreement
with MSCS. 	DVP bears the burden of proof on this issue. 	E.g., id.; Syllabus Pt. 2, Bryan v.
Massachusetts Mut. Life Ins. Co., 364 S.E.2d 786 (W. Va. 1987) (stating that a defendant on a
tortious interference with contract claim has the burden to prove justification or privilege).
The so-called “consultant’s privilege” or “honest advice” defense to a claim of tortious
interference with contract requires that the advice be honest and within the scope of the request for
advice. Torbett, 314 S.E.2d at 215-16; Restatement (Second) Torts § 772 (1979).2 The defense is
necessary because “[i]t would cast quite a large, dark cloud over the consulting business if
consultants could be hauled into court for having given advice that in hindsight could be
characterized as having been ill-advised, ill-informed, or otherwise negligent.” 	J.D. Edwards &
Co. v. Podany, 168 F.3d 1020, 1022 (7th Cir. 1999). The defense is lost, however, if the advice is
not within the scope of the request for advice, or is dishonest. Restatement (Second) Torts § 772.
If the requested advice is honest, “it is immaterial that the actor also profits by the advice or that
he dislikes the third person and takes pleasure in the harm caused to him by the advice.” Id. at cmt.
(c).
Regarding the scope of MSCS’s request for advice, it is set forth in the Coal Consulting
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Agreement between DVP and MSCS. The Agreement was executed, in part, because MSCS desired
to retain DVP to “locate and arrange an adequate supply of feedstock coal and to ensure that
[MSCS] purchases coal that conforms to Coal Quality Standards.” 	(Doc. No. 357, Ex. 2, p.5).
Under the Agreement, DVP was to act as an “independent contractor” (Id. at §§ 4.1, 5.1). DVP’s
duties under the Agreement are outlined in Article VI:
SECTION 6.1 Provision of Nonspecified Coal Consulting Services.
[DVP] shall, at the reasonable request of [MSCS] . . . provide any additional
services related to the purchase of coal to the Facility . . . .
SECTION 6.2 Explanatory Information.
(a) 	[DVP] shall (i) provide to [MSCS] information regarding sources of
coal that will enable [MSCS] to obtain coal that will, at a minimum, meet the Coal
Quality Standards . . . (ii) assist [MSCS] . . . by providing certain recommendations
and certifications . . . and (iii) assist [MSCS] in exercising [MSCS’s] remedies with
respect to the delivery of coal under a Supplier Contract that does not conform to the
requirements of such contract. . . .
SECTION 6.3 Selection and Purchase of Coal.
. . . .
(c) 	[DVP] and [MSCS] will consult on a regular basis . . . to discuss the
performance of the coals being acquired, current inventory levels, proposed shipment
schedules, and coal purchasing strategies. . . .
(d) 	[DVP] shall use commercially reasonable efforts to arrange and
present to [MSCS] for approval and acceptance Supplier Contracts . . . . [DVP] shall
assist [MSCS] in the identification of potential suppliers of coal . . . and shall advise
and assist [MSCS] in evaluating all bids received . . . .
(e) 	[DVP] shall assist [MSCS] in administering the Supplier Contracts,
including scheduling and coordinating orders and deliveries with Suppliers to the
Station, pricing determinations, arbitrations, and other enforcement actions under or
pursuant to such coal contracts.
(Id. at art. VI).
According to the Debtor, the facts of this case relevant to evaluating DVP’s defense of
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honest advice rendered within the scope of MSCS’s request for advice are as follows: (1) at 5:12
p.m. on February 22, 2006, DVP terminates the coal supply agreement between itself and the
Debtor; (2) in the late afternoon on February 22, 2006, DVP informs MSCS that the Synfuel Plant
would no longer receive coal from the Debtor and that the coal supply agreement between DVP and
the Debtor was terminated; (3) on the morning of February 23, 2006, DVP speaks directly to
MSCS’s management and notifies MSCS that it will no longer be receiving coal from the Debtor;
(4) at 10:43 a.m. on February 23, 2006, DVP states to MSCS that its counsel is preparing appropriate
notices regarding termination of the Synfuel Feedstock Agreement; (5) at 11:40 a.m., MSCS’s
counsel emails MSCS and asks how DVP could just “shut off” its supply of coal from the Debtor;
(6) at 5:23 p.m., DVP provides MSCS a form letter for termination of the Synfuel Feedstock
Agreement, tells MSCS to print the letter on its letterhead, and have it signed.
According to the Debtor, DVP did more than merely offer advice regarding termination of
the Synfuel Feedstock Agreement; DVP outright instructed MSCS to terminate the Agreement and
then put the termination into motion by directly informing the operators of the Synfuel Plant that
they would not be receiving any more coal from the Debtor. 	In the Debtor’s view, DVP
“commandeered,” and “orchestrated” the termination of the Synfuel Feedstock Agreement such that
its actions were outside the scope of the Coal Consulting Agreement. The Debtor also argues that
the Coal Consulting Agreement did not specifically authorize DVP to “assist in pursuing any
remedies” such as termination.
The court, however, cannot conclude that DVP’s communications or actions fell outside of
the consultant’s privilege to interfere with the contracts of its client. Section 6.2(a) of the Coal
Consulting Agreement obligates DVP to provide MSCS with information regarding coal supply
sources, § 6.3(c) obligates DVP to consult on a regular basis with MSCS on the coals being acquired
by it, and § 6.3(e) requires DVP to assist MSCS in administering supplier contracts – including
enforcement actions under those contracts. 	Regarding termination actions, § 6.3(e) of the
Agreement specifically states that “[DVP] shall assist [MSCS] in administering the Supplier
Contracts, including scheduling . . . orders and delivers . . . pricing determinations, arbitrations, and
other enforcement actions under or pursuant to such coal contracts.” (Emphasis added). This plain
language is broad enough to incorporate a request by MSCS to DVP to advise and assist it with any
termination of the Synfuel Feedstock Agreement.
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3 The “Events of Default, Early Termination and Limitation of Liability” provisions of
the Synfuel Feedstock Agreement and the coal supply agreement between DVP and the Debtor
are identical. (Cf. Document No. 357, Ex. 7 § 9.1 with Ex. 8, § 9.1). Kirby Martin, an officer of
MSCS, testified that MSCS had no independent knowledge of the Debtor’s insolvency or
inability to pay debts when due – MSCS was completely relying on DVP as its coal consultant
for that information. (Document N. 357, Ex. 3, p. 119).
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In fact, MSCS also contemplated that such enforcement actions included termination, as
evidenced by a February 23, 2006, email from Kirby Martin at MSCS to Keith Carney at DVP that
states, “I am requesting [DVP] to furnish [MSCS] with any required documentation relative to
[MSCS’s] termination [of the Synfuel Feedstock Agreement].” (Document No. 357, Ex. 10). Mr.
Martin also testified that MSCS relied on DVP to administer its coal supply contracts from “cradle
to grave” and that he expected DVP to assist in enforcement actions such as termination. (Document
No. 357, Ex. 3, p. 165-67). Consequently, the court finds that DVP’s communications to MSCS
regarding its termination of its own coal supply agreement with the Debtor, DVP’s communication
that MSCS would no longer be receiving coal from the Debtor, and its instructions regarding the
termination of the Synfuel Feedstock Agreement all fall within the requested scope of advice as set
forth in the Coal Consulting Agreement.
Regarding the existence of “honest advice” the Debtor asserts that DVP’s communications
with MSCS were neither truthful nor honest. DVP informed MSCS that it would not be receiving
any more coal from the Debtor, but on the morning of February 23, 2006, the Debtor made two
deliveries of coal. The Debtor also expected to reorganize its future business around its coal supply
contract with MSCS and obtain financing on that basis. The Debtor asserts that without DVP’s
actions, it would have continued to service the Synfuel Feedstock Agreement.
DVP’s advice under the Coal Consulting Agreement consisted of an explanation of the basis
for DVP’s termination of its supply contract with the Debtor, and on how MSCS could terminate
the Synfuel Feedstock Agreement. Indeed, the grounds for DVP’s termination of its coal supply
agreement with the Debtor – that the Debtor was insolvent and not paying debts when due – was
also a basis for termination of the Synfuel Feedstock Agreement.3 Although the Debtor states that
DVP failed to provide “truthful and proper information” to MSCS regarding the termination of the
Synfuel Feedstock Agreement, absolute truth is not required as an element of the “honest advice”
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4 In Syllabus Pt. 2 of Torbett, 314 S.E.2d 16, the Supreme Court of Appeals of West
Virginia described the application of the consultant’s privilege (§ 722(b) of the Restatement) as
one that requires the rendering of “honest, truthful requested advice.” This point was later
clarified in Tiernan, 506 S.E.2d at 593, when the Court stated that its formulation in Torbett was
correct “within the confines of that case,” but, Torbett had not fully adopted § 722(a) of the
Restatement that provided a defense based on the offering of unsolicited, truthful advice. By
adopting § 722 of the Restatement in its entirety, Tiernan perforce eliminated any requirement in
West Virginia that the consultant’s privilege stated in § 722(b) of the Restatement be both honest
and truthful. Consistent with § 722(b) of the Restatement, a consultant’s advice need only be
“honest advice within the scope of the request for the advice.”
5 In an earlier decision, Teitz v. Va. Elec. & Power Co. (In re Buffalo Coal Co.), No. 08-
38, 2009 Bankr. LEXIS 3033 (Bankr. N.D.W. Va. Sept. 30, 2009), the court determined that
DVP had sufficient evidence of an event of default on which to base its termination of its 2005
coal supply agreement with the Debtor.
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defense to a tortious interference claim.4 Under the Restatement (Second) Torts § 772, wholly
adopted by the Supreme Court of Appeals of West Virginia in Tiernan, 506 S.E.2d at 593, “truthful
information” is one defense to a tortious interference claim, and “honest advice within the scope of
the request for advice” is another, disjunctive defense. As recognized by the Court of Appeals for
the Seventh Circuit, advice that, in hindsight, proves to be ill-informed or ill-advised or even
negligent is protected as “honest advice” because without such protection there would exist “a large,
dark cloud over the consulting business . . . .” J.D. Edwards & Co., 168 F.3d at 1022. Advice does
not have to be correct, it just has to be honest.
Here, DVP believed that the information it had regarding the Debtor’s insolvency and
inability to pay debts when due was sufficient to support its own termination of the DVP-Debtor
coal supply agreement, and it was aware that the Synfuel Feedstock Agreement had an identical
termination provision.5 The mere fact that the Debtor made two deliveries of coal to MSCS on the
same day DVP informed MSCS that the Synfuel Feedstock Agreement would be terminated, and
that it would no longer be receiving coal from the Debtor, does not render DVP’s advice dishonest.
Gerald Ramsburg, a former officer and owner of the Debtor, details in his affidavit the financial
problems of the Debtor and its contemplated bankruptcy filing. (Document No. 390, Appx. P).
Additionally, the Debtor expressly does not dispute that it was forced to cease operations as a result
of DVP’s termination of the DVP-Debtor coal supply agreement. 	(Document No. 389, ¶ 32).
Consequently, the court believes that DVP had ample grounds on which to base its advice to MSCS
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that the Debtor was insolvent, unable to pay its debts when due, and that a basis existed for
termination of the Synfuel Feedstock Agreement. DVP’s advice to MSCS was honest.
IV. CONCLUSION
The court will grant DVP’s motion for summary judgment and dismiss Count III of the
Debtor’s Amended Complaint. All other counts of the Amended Complaint having been settled, the
court will enter a separate order under Fed. R. Bankr. P. 9021 that grants the motion for summary
judgment and dismisses this adversary proceeding.
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