Coalview Centralia, LLC v. Transalta Centralia Mining LLC et al, No. 3:2018cv05639 - Document 34 (W.D. Wash. 2018)
Court Description: ORDER granting 3 Plaintiff's Motion for Preliminary Injunction; signed by Judge Ronald B. Leighton.(DN)
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Coalview Centralia, LLC v. Transalta Centralia Mining LLC et al Doc. 34 HONORABLE RONALD B. LEIGHTON 1 2 3 4 5 6 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA 7 8 9 10 11 12 COALVIEW CENTRALIA, LLC, v. 15 16 17 18 19 20 21 22 23 ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION TRANSALTA CENTRALIA MINING LLC, Defendant. 13 14 Plaintiff, CASE NO. C18-5639 RBL THIS MATTER is before the Court on Plaintiff Coalview’s Motion for a Preliminary Injunction [Dkt. # 3]. The case arises out of a dispute over the performance of series of agreements related to the environmental cleanup (reclamation) of Defendant TransAlta Central Mining’s coal mine and associated power plant near Centralia. The mine closed in 2006. The power plant is scheduled to begin shutting down in 2020. Under the Department of Labor Mine Safety and Health Administration (MSHA)’s supervision, and with its approval, the site is to be cleaned up and restored by 2030. In 2013, TCM hired Coalview to perform the reclamation work, and specifically to clean up and restore three waste coal slurry impoundment sites, or “ponds.” Each pond is more than 24 ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION - 1 Dockets.Justia.com 1 100 acres. Because the ponds had usable, fine coal solids within the slurry, the parties planned to 2 recover and use that coal at the power plant, which would offset the cost of the reclamation 3 project. In general terms, the plan was to dredge the ponds, extract the usable coal fines, and 4 deliver the remaining slurry to a new and presumably better reclamation pond for final disposal. 5 Coalview was to be paid based on the weight (not the volume) of the waste slurry (and coal) it 6 removed from the ponds. The mechanisms and formulae for measuring this removed and 7 recovered slurry are technical, complicated and disputed. Coalview claims it invested more than 8 $31 million1 to build a processing plant and the dredging operation preparing to perform the 9 contracts. 10 The contract specifically at issue is the Master Services Agreement (MSA). Coalview 11 claims and demonstrates that the MSA contemplated that Coalview would regularly invoice 12 TCM for the work it was performing (and TCM’s agreement to promptly pay those invoices), to 13 pay for Coalview’s capital investments in the project. To the same end, TCM agreed that 14 Coalview would continue the Work through 2025. Coalview’s monthly invoices were based on 15 the weight of the slurry removed and the weight of the usable coal recovered, and TCM was 16 obligated to pay the greater price within 30 days. The MSA also imposed a strict deadline on 17 TCM to review and object to any invoice, and provide that any invoice was final after one year. 18 From Coalview’s perspective, a critical feature of the MSA was the parties’ agreement to 19 “diligently” continue working (and paying for work) in the event of “any dispute” arising out of 20 the agreement: 21 22 23 24 1 Of this, Coalview obtained a $26,500,000 loan funded by bonds issued by the Washington Economic Development Finance Authority. Coalview pledged is assets as security for the loan. ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION - 2 1 [Dkt. # 4-7 (Fish Affidavit), Exhibit G (MSA), at 17]. A dispute arose in May of this year. Coalview claims it sent three2 invoices totaling about 2 3 $850,000, which TCM has refused to pay. In June, TCM sent Coalview a letter objecting to 4 invoices dating to December 2014, claiming it had already overpaid Coalview by some 5 $16,000,0003, advising Coalview would not pay any more, and purporting to terminate the 6 parties’ contractual relationship if Coalview did not refund the excess payments in 30 days: 7 8 9 10 11 12 [Dkt. # 4-11 (Fish Affidavit), Exhibit K (TCM’s June Letter), at 17]. Attached to the letter was a report by Santec (a consultant), estimating the volume of coal 13 14 slurry and coal fines left in the three ponds—far more than should have remained, based on 15 TCM’s initial estimates of the total volume, and on the amount Coalview removed and invoiced. 16 The implication of Santec’s report is that Coalview actually removed far less slurry and coal fine 17 solids than it claimed, and that TCM paid far too much for the work actually accomplished. 18 Coalview sued, claiming TCM breached the parties’ agreements. It now seeks to enjoin 19 TCM from terminating the relationship, and requiring TCM to comply with the “continuing to 20 diligently perform while the dispute is resolved” aspect of the MSA. It seeks to preserve the 21 22 23 24 The number is presumably higher as of the date of this Order. As the parties now know, the Court has had medical issues that delayed the resolution of this Motion, precluded oral argument, and led to the relatively truncated nature of this Order. 2 3 At the time of the letter, TCM had paid Coalview something over $30,000,000 under the agreements. ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION - 3 1 status quo ante, and claims (and demonstrates) that unless it is so enjoined Coalview and its 2 investment and its business will cease to exist. It argues that Coalview’s current dispute of old 3 invoices is time-barred, and that the MSA requires it to continue to perform diligently 4 notwithstanding the dispute. It argues the MSA specifically prohibits TCM from “sitting quietly 5 by while Coalview performs the work, then objecting years later to the invoices it already 6 paid”—exactly, it claims, what is happening here. It also argues that the billing issue results from 7 the fact Santec measured what was left, not what Coalview removed from the ponds. And it 8 argues that TCM has anticipatorily breached the MSA by stating that it would be terminated if 9 the $16,000,000 “overpayment” was not re-paid by the end of July. 10 TCM argues that the agreements place squarely on Coalview the obligation to use good 11 practices, to correctly determine the dry weight of the recovered coal fine solids, and to submit 12 accurate invoices. It claims that the agreements also specifically provide that the failure to “pay 13 any amount due” is an event of default, permitting it to terminate the agreements. It also argues 14 that to the extent Coalview is unable to pay its debts (is insolvent), that too is a default under the 15 MSA. TCM argues that because Coalview has not paid (and apparently cannot pay) the 16 $16,000,000 TCM claims it owes, it is in default. TCM argues that it is entitled to invoke the 17 agreements’ set off provision, setting off Coalview’s $16,000,000 debt against its accruing 18 invoices4. 19 Of course, these arguments pre-suppose that Coalview does owe TCM $16,000,000. 20 TCM’s primary claim is that it recently learned that Coalview “deliberately” “cheated” it out of 21 that money, and that Coalview ‘does not dispute” that it did so—instead, it claims, Coalview 22 23 24 TCM made the same argument in its June Letter, which claimed the right to offset the debt against current and future invoices, while simultaneously demanding full payment within 30 days, under threat of termination. 4 ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION - 4 1 claimed only that it was “too late” for TCM to re-visit prior invoices. TCM claims that 2 Coalview’s work has been slowed by technical challenges, and that it has repeatedly missed 3 target completion dates (specifically with respect to Pond 3C). TCM claims that, despite the 4 amount of work and WCS it has paid for, it realized this spring that Pond 3C still seemed to be 5 “half full.” TCM claims it estimated at the start that Pond 3C contained about 3.7 million tons of 6 WCS, and Coalview had already billed it for removing about 3.7 million dry tons of WCS 7 through March of this year. 8 9 TCM engaged Santec to evaluate the situation. It claims Santec confirmed the accuracy of TCM’s initial estimate, and that Santec and TCM then each independently estimated that 10 Coalview removed only about 1.65 million tons. They arrived at this figure by subtracting the 11 WCS amount they estimate remains (apparently, 2.05 million tons) from the WCS amount it 12 estimated at the start (3.7 million tons). Based on this arithmetic, TCM claims that Coalview 13 deliberately overcharged it by more than 100% for the WCS it actually removed from Pond 3C. 14 TCM does not directly address the amount of WCS that Coalview removed (and 15 contemporaneously measured) over time. It describes a number of historical technical measuring 16 flaws, discrepancies, problems, and potential mis-calibrations. And it claims that since the Santec 17 report, it has been “closely” monitoring Coalview’s dredging and measuring, and Coalview’s 18 invoice amounts are “down”—a reduction it attributes to Coalview no longer fraudulently 19 inflating its invoices. It does not claim that the measuring equipment was off by more than 20 100%; instead, it claims that Coalview flatly lied about the amount of slurry it removed and 21 about how much useable coal fine solids it recovered for use in the power plant. TCM claims it 22 agreed to set off only the last year’s worth of overpayment ($5.65 million) against current and 23 accruing invoices, but that instead of responding, Coalview sued. 24 ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION - 5 1 Coalview emphasizes that the MSA (1) imposes a strict period for objecting to an invoice 2 and (2) requires continued performance while the dispute is resolved, but it does not “concede” 3 that it overcharged TCM. It also points out inconsistencies in TCM’s position: though it now 4 seeks to re-visit invoices dating to December 2014, its own narrative is that until 2016, 5 Coalview’s work was proceeding apace and it was on schedule to finish Pond 3C at the end of 6 2017. Coalview claims the calibration or measuring issue that arose (in 2016) was quickly 7 resolved, and it claims that the new 2017 ‘Ronan” Meter was properly calibrated despite TCM’s 8 claim to the contrary. 9 Most importantly, Coalview emphasizes what was apparent on the Court’s first reading 10 of TCM’s response: Its “deliberate overcharging” claim necessarily depends on (1) the accuracy 11 of its pre-reclamation estimates of the volume of the waste coal slurry and coal fine solids in the 12 ponds, (2) the accuracy of its estimates about the volume remaining today, and (3) the deliberate 13 inaccuracy of the far-more-carefully measured WCS that Coalview removed from Pond 3C. 14 Coalview demonstrates that TCM initially estimated the ponds together contained 47 15 million tons. But—perhaps in an effort to secure government approval for its clean-up plan in the 16 first place—it reduced that estimate to 21 million tons (based on historic records of coal use by 17 the power plant), and then to the current figure, 18 million tons (for reasons that are unclear). 18 Coalview also argues that it told TCM that its estimates were low, and that TCM acknowledged 19 that the environmental clean-up costs were more than it anticipated earlier this year. Coalview 20 also claims its own expert does not agree with the 18 million ton estimate, and emphasizes that 21 the contract pays based on the weight of the removed coal slurry, not its volume. Finally, 22 Coalview emphasizes that under the contracts, TCM (the owner of problem and the entity liable 23 for the clean-up) bore the risk of under-estimating the size or cost of the problem, not Coalview. 24 ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION - 6 1 TCM filed a Surreply [Dkt. # 26], arguing primarily that Coalview was required to 2 dispute TCM’s claim that Coalview cheated it out of $16,000,000 in its initial motion, and that it 3 is too late to do so in reply to the Response that first made that accusation. This argument is not 4 persuasive. TCM’s Motion to Strike the Reply (and the Supplemental Fish Declaration) is 5 DENIED. 6 A. Preliminary Injunction Standard. 7 To obtain a TRO or a preliminary injunction, the moving party must show: (1) a likelihood of 8 success on the merits; (2) a likelihood of irreparable harm to the moving party in the absence of 9 preliminary relief; (3) that a balance of equities tips in the favor of the moving party; and (4) that 10 an injunction is in the public interest. Winter v. Natural Res. Def. Council, Inc., 555 U.S. 7, 20 11 (2008). 12 Traditionally, injunctive relief was also appropriate under an alternative “sliding scale” 13 test. The Lands Council v. McNair, 537 F.3d 981, 987 (9th Cir. 2008). However, the Ninth 14 Circuit overruled this standard in keeping with the Supreme Court’s decision in Winter. 15 American Trucking Ass’ns Inc. v. City of Los Angeles, 559 F.3d 1046, 1052 (9th Cir. 2009) 16 (holding that “[t]o the extent that our cases have suggested a lesser standard, they are no longer 17 controlling, or even viable”). Nevertheless, as Coalview argues and TCM seems to concede, 18 injunctive relief is warranted if the movant raises “serious questions” going to the merits, and 19 demonstrates that the balance of hardships that tips sharply in its favor (coupled with the other 20 factors). See Alliance for the Wild Rockies v Cottrell, 632 F.3d 1127,1131-36 (9th Cir. 2011). 21 B. Likelihood of Success on the Merits. 22 TCM argues that Coalview cannot show any chance of success on the merits. The Court 23 does not agree. First, Section 7.04 and provides TCM a 30 day window to “dispute” an invoice 24 and to explain what it is objecting to and why. Section 7.04 also provides a one-year period for ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION - 7 1 correcting invoice “inaccuracies.” These provisions are not in conflict. The parties clearly 2 contemplated substantive disputes over the Work, and the possibility of invoicing errors, and 3 they agreed in advance how (and when) any errors or disputes would be handled. Coalview’s 4 pointing to these intentionally short time frames in seeking an injunction (in response to a 5 termination letter) is not a “concession” that it defrauded TCM; it is simply a cleaner path. The 6 contract imposes a bright line deadline, while the accuracy of various estimates and 7 measurements raises far more complicated factual questions. 8 9 More importantly from Coalview’s perspective, TCM agreed to that “notwithstanding any Disputes” the parties “shall diligently proceed with performance of [the MSA].” Even if 10 TCM can substantively object to Coalview’s weighing and billing issues going back more than 11 30 days, it is patently clear that they agreed to keep performing in the meantime. The contract’s 12 “set off” procedure does not trump this provision when one party unilaterally claims the other 13 has defrauded it. The accuracy of TCM’s “cheating” accusation is an open question; it certainly 14 has not been resolved in TCM’s favor based on the Santec report. The MSA did not envision or 15 permit the “self-help” set off that TCM is seeking to impose. 16 It is not surprising that a major, long-term environmental clean-up turned out to be more 17 involved, slower, bigger, and more expensive than the parties thought it would be when they 18 started. That is often, if not typically, the case. Coalview points out (and TCM implicitly 19 concedes) that the contracts imposed those risks on TCM. 20 At the very least, there are serious questions going to the merits of Coalview’s claims. 21 Coalview has met the first requirement for injunctive relief. 22 C. Irreparable injury. 23 24 TCM’s response to Coalview’s claim that it will be irreparably harmed in the absence of injunctive relief is a little bit unusual. It does not dispute that its termination of the MSA and ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION - 8 1 other contracts will put Coalview out of business, cause it to lay off its employees, and to lose its 2 substantial investment in the project. Instead, it claims that that result is likely even if the Court 3 enjoins the termination and requires the parties to “diligently proceed” while they resolve the 4 underlying contract dispute. 5 Coalview claims that if TCM pays for current work it will ‘continue as a going concern.” 6 Coalview has demonstrated that it will suffer irreparable harm in the absence of injunctive relief. 7 D. Balancing of Equities. 8 9 10 11 TCM argues that the equities tip in its favor: If it is required to continue to perform the MSA (by permitting Coalview to continue to dredge the ponds and clean up the site, and to pay Coalview for doing so) it is unlikely it will ever recover the debt it claims Coalview owes. Coalview points out that in the absence of in injunction, Coalview will cease to exist and 12 its secured creditors will take its assets. In that case, TCM has no chance of recovering the 13 alleged debt, and it will have to find a new contractor to clean up the site. The balance of 14 hardships tips sharply in favor of Coalview, and in favor of an injunction. 15 E. Public Interest. 16 TCM similarly claims that the public has an interest in permitting it unilaterally to 17 terminate the MSA primarily because Coalview’s pace of work is “slow.” This too is 18 counterintuitive. Stopping work altogether is slower than whatever pace is occurring now. The 19 MSHA has not weighed in on this dispute, but it appears that it is forcing TCM to clean up the 20 site. The public interest is not served by having the clean-up work stop altogether, having it 21 delayed pending a lengthy litigation, or while a new contractor is located selected and hired to 22 continue the work, at an unknown pace and cost. This factor too weighs heavily in favor of 23 injunctive relief. 24 ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION - 9 1 F. Bond. TCM asks the Court to require Coalview to post a $5.6 million bond in order to obtain 2 3 injunctive relief. This amount is based on what it claims is one year of Coalview’s inflated 4 invoices. Coalview advocates no bond, arguing that the contract requires TCM to do what 5 Coalview asks the Court to force it to do—continue working while the underlying dispute is 6 resolved. It argues that a bond is supposed to protect a party from an improvidently entered 7 injunction, not to secure the other parties’ compensation—compensation that, in the absence of 8 an injunction, TCM is not likely to recover. See Metro PCS Mew York LLC v. 35-36 Broadway, 9 Inc., 2018 WL 3455500 at *1 (W.D. Wash, July 18, 2018). The Court will require Coalview to post a $500,000 bond as security for the injunction. It 10 11 should do so within seven days. Effective as of the date the bond is posted, Coalview’s Motion 12 for a Preliminary Injunction preserving the status quo ante is GRANTED: TransAlta Central Mining LLC and its officers, agents, servants, employees, and 13 14 attorneys; and all other persons who are in active concert or participation with TransAlta and 15 TransAlta’s officers, agents, servants, employees, and attorneys, ARE ENJOINED as follows: 16 (a) TransAlta is immediately required to proceed under the MSA and the parties’ related 17 agreements according to their terms, (b) TransAlta is immediately required to pay Coalview its 18 Outstanding Invoices, (c) TransAlta is required to timely pay Coalview for the Work done or to 19 be done under the MSA and the parties’ related agreements according to their terms, and (d) 20 // 21 // 22 // 23 24 ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION - 10 1 TransAlta is prohibited from setting off any prior payments made to Coalview against any of 2 Coalview’s future Work absent Order of this Court. 3 IT IS SO ORDERED. 4 5 Dated this 30th day of October, 2018. 6 A 7 Ronald B. Leighton United States District Judge 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 ORDER GRANTING MOTION FOR PRELIMINARY INJUNCTION - 11
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