Coronado Coal II, LLC v. Blackhawk Land and Resources, LLC

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE
CORONADO COAL II, LLC, )
)
Plaintiff, )
)
v. ) C.A. No. 2022-0039-AML
)
BLACKHAWK LAND )
AND RESOURCES, LLC, )
)
Defendant. )
Submitted: October 4, 2022
Decided: January 12, 2023
Corrected: January 24, 2023*
MEMORANDUM OPINION
Upon Defendant’s Motion to Dismiss: GRANTED.
John Sensing, Esquire and Carson Bartlett, Esquire, of POTTER ANDERSON &
CORROON, LLP, Wilmington, Delaware; M. Shane Harvey, Esquire of JACKSON
KELLY PLLC, Charleston, West Virginia, Attorneys for Defendant Blackhawk Land
and Resources, LLC.
Geoffrey Grivner, Esquire of BUCHANAN INGERSOLL & ROONEY PC, Wilmington,
Delaware; Gretchen Jankowski, Esquire, and Jordan Webster, Esquire of BUCHANAN
INGERSOLL & ROONEY PC, Pittsburg, Pennsylvania, Attorneys for Plaintiff
Coronado Coal II, LLC.
LeGrow, J.1
1
Sitting as a Vice Chancellor by designation under Del. Const. art. IV, § 13(2).
* Reissued to correct footnote numbering on page 7. No other changes were made to the Court’s
opinion dated January 12, 2023.
The parties to this action entered into a lease allowing the plaintiff to mine a
certain seam of coal below the defendant’s mining operations. The plaintiff contends
the lease gives it the right to mine the greatest possible amount of coal from the
leased seam, and the defendant interfered with that right by refusing to approve the
plaintiff’s mining plans. The plaintiff first sought to litigate that dispute in the
Superior Court, but that court dismissed the action in favor of arbitration as required
by the arbitration clause in the parties’ lease.
While the Superior Court case was pending, the defendant initiated
arbitration, appointed an arbitrator, and invited the plaintiff to appoint a second
arbitrator as permitted by the lease’s arbitration provision. The plaintiff refused,
arguing the Superior Court claims were not arbitrable. The defendant then appointed
a second arbitrator—a result expressly contemplated in the arbitration clause. After
the Superior Court dismissed the action there in favor of arbitration, the plaintiff
filed its current claims in this court, seeking (i) a declaratory judgment that the
defendant’s appointment of the second arbitrator was invalid, and (ii) an injunction
requiring the defendant to withdraw that appointment and allow the plaintiff to
appoint its own arbitrator. The pending motion to dismiss requires this Court to
determine whether it has subject matter jurisdiction to intervene and resolve the
parties’ dispute regarding the arbitrators’ selection. Because the Court does not have
subject matter jurisdiction over this procedural question, the complaint must be
dismissed.
FACTUAL AND PROCEDURAL BACKGROUND
The following facts are drawn from the complaint and the documents it
incorporates by reference. This dispute arises out of a lease between Plaintiff
Coronado Coal II, LLC (“Coronado”) and Defendant Blackhawk Land and
Resources, LLC (“Blackhawk”). Coronado is a subsidiary of Coronado Global
Resources Inc., a company that produces metallurgical coal.2 Blackhawk leases and
mines numerous coal tracts in West Virginia.3 In 2015, Blackhawk subleased to
Coronado a tract known as the Powellton Seam (the “Sub-Sublease”).4
A. The Sub-Sublease Dispute
The Sub-Sublease was made “subject to and in accordance with the terms and
conditions” of an original lease dated July 1, 1937 (the “1937 Lease”) and expressly
provided that any conflicts between the 1937 Lease and the Sub-Sublease would be
controlled by the language of the 1937 Lease.5 Article Twenty of the 1937 Lease
(the “Arbitration Clause”) required arbitration of questions arising under Articles
Six through Ten of the 1937 Lease.
2
Pl.’s Verified Am. Compl. (hereinafter, “Compl.”) ¶ 3.
3
Def.’s Opening Br. in Supp. of Mot. to Dismiss Verified Am. Compl. (hereinafter “Def.’s
Opening Br.”) at 2.
4
Id. at 2.
5
Id., Ex. B, § 1.
2
The Sub-Sublease gave Coronado the right to mine a coal seam below
Blackhawk’s mining operations. For that reason, the Sub-Sublease required
Coronado to regularly submit mining plans to Blackhawk for approval. In 2019, a
conflict arose regarding Blackhawk’s rejection of Coronado’s “retreat mining”
plans. Retreat mining is a process by which pillars of coal left in place to support the
mine roof during advance mining are “pulled” (i.e., mined) as the operator concludes
mining in an area and “retreats” back toward the mine portal. Blackhawk objected
that Coronado’s planned retreat mining in the Powellton Seam was problematic for
the continued development and safety of Blackhawk’s own mining operations above
Coronado’s operations.6
B. Litigation in Superior Court
In response to Blackhawk’s rejection of Coronado’s mining plans, Coronado
filed a complaint in the Delaware Superior Court in October 2021, alleging that
Blackhawk’s rejection of Coronado’s retreat mining plan violated Article Six of the
1937 Lease. On November 30, 2021, Blackhawk initiated an arbitration to resolve
the parties’ dispute. The Arbitration Clause in the 1937 Lease requires arbitration
to be conducted in front of two “disinterested” arbitrators, one selected by each party.
6
Compl., Ex. 1.
3
If one party fails to select an arbitrator within ten days, however, the other party may
name the second arbitrator. Specifically, the 1937 Lease states:
Questions in dispute to be determined by arbitration shall be submitted
to two disinterested arbitrators, one of whom shall be appointed by each
of the parties hereto respectively . . . and in case either party hereto
neglects to nominate an arbitrator for the space of ten days after
receiving notice from the other party to nominate any arbitrator then the
other party shall nominate two and the two thus appointed shall appoint
a third, all of them to be disinterested.7
Blackhawk’s November 30th letter appointed Bruce Cryder as the first disinterested
arbitrator under the provisions of the 1937 Lease as incorporated into the Sub-
Sublease. 8
Blackhawk further requested that Coronado “likewise nominate a
disinterested arbitrator pursuant to [the Arbitration Clause].”9 Coronado responded
to Blackhawk on December 10, 2021, noting its position that the parties’ dispute was
not arbitrable and therefore refusing to appoint a second arbitrator.10
On December 13, 2021, Blackhawk moved to dismiss the Superior Court
complaint for lack of subject matter jurisdiction, contending the Arbitration Clause
divested that court of jurisdiction to hear Coronado’s claims.11 Coronado opposed
dismissal, arguing the Arbitration Clause only governs disputes arising out of
Coronado’s performance under the lease, and therefore did not apply to the Superior
7
Def.’s Opening Br., Ex. C, Article 20.
8
Compl., Ex. 1.
9
Id.
10
Id., Ex. 2.
11
Def.’s Opening Br. at 5-6.
4
Court case, which Coronado characterized as one arising out of Blackhawk’s
conduct.
On December 30, 2021, after Coronado still had not nominated an arbitrator,
Blackhawk notified Coronado of its selection of a second arbitrator.12 On May 31,
2022, the Superior Court dismissed the action there, explaining that “Blackhawk’s
motion to dismiss both counts is granted because the 1937 Lease’s Arbitration
Clause governs the present dispute and divests this Court of jurisdiction over
Coronado’s claims.”13
C. Proceedings in this Court
Following the Superior Court’s decision, Coronado asked Blackhawk to
withdraw the second arbitrator’s appointment, which Blackhawk refused to do.14
Coronado then filed this action seeking (1) a declaration that Blackhawk’s
appointment of the second arbitrator was invalid; and (2) a permanent injunction (i)
prohibiting Blackhawk from arbitrating before the current panel, (ii) requiring
Blackhawk to withdraw its appointment of the second arbitrator, and (iii) allowing
Coronado to appoint its own arbitrator.15 In response, Blackhawk moved to dismiss
Coronado’s verified amended complaint.
12
Id. at 5.
13
Coronado Coal II v. Blackhawk Land and Resources LLC, 2022 WL 1772246, at *5 (Del. Super.
May 31, 2022).
14
Def.’s Opening Br. at 6.
15
Compl. at 8.
5
In its motion, Blackhawk argues this Court lacks subject matter jurisdiction
over Coronado’s claims because Coronado seeks judicial intervention into an issue
reserved for arbitration.16 Blackhawk asserts the parties’ differing interpretations of
Arbitration Clause’s process for arbitrator selection is an issue of procedural
arbitrability to be decided by the arbitrator and not the Court.17
Coronado responds that Blackhawk’s motion miscasts Coronado’s amended
complaint as asking this Court to rule on issues of procedural arbitrability, when
what Coronado seeks is to enforce its fundamental right to a fair, impartial arbitration
panel.18 Specifically, Coronado argues an arbitration panel comprised entirely of
arbitrators selected by Blackhawk is fundamentally unfair to Coronado.19 Coronado
contends this fundamental unfairness is exacerbated by the 1937’s Lease’s failure to
list any criteria for assessing arbitrator qualifications or determining whether an
arbitrator is “disinterested.”20 For those reasons, Coronado argues its request for a
declaration disqualifying Blackhawk’s second appointed arbitrator is not premature,
and interests of economy, efficiency, and practicality require the Court’s
intervention at this stage of the proceedings.21
16
Id. ¶ 18.
17
Def.’s Opening Br. at 8.
18
Pl.’s Br. in Opp. to Def.’s Mot. to Dismiss (hereinafter “Pl.’s Br. in Opp.”) at 4.
19
Id. at 5.
20
Id. at 9.
21
Id. at 10.
6
ANALYSIS
Blackhawk’s motion seeks dismissal under Court of Chancery Rules 12(b)(1)
and 12(b)(6). In considering a motion to dismiss for lack of subject matter
jurisdiction under Rule 12(b)(1), the court must assess “the nature of the wrong
alleged and the remedy sought to determine whether a legal, as opposed to an
equitable, remedy is available and adequate.”22 If the claim at issue is arbitrable,
this Court lacks subject matter jurisdiction because arbitration provides an adequate
legal remedy.23 Whether parties agreed to arbitrate is an issue of “substantive
arbitrability” to be resolved by a court. Issues of “procedural arbitrability,” on the
other hand, are within the arbitrator’s exclusive jurisdiction.24
In considering a motion to dismiss under Rule 12(b)(6), a court only will grant
the motion when “it appears with reasonable certainty that the plaintiff cannot
prevail on any set of facts that can be inferred from the pleadings.”25 Although the
Court accords a plaintiff all reasonable inferences that may be drawn from the
complaint, the Court “is not required to accept every strained interpretation of the
allegations proposed by the plaintiff.”24 Consequently, mere conclusory allegations
that are not supported by facts will not be accepted as true.25
22
Del. Ch. Ct. R. 12; Lefkowitz v. HWF Hldgs., LLC, 2009 WL 3806299, at *3 (Del. Ch. Nov.
13, 2009).
23
Lefkowitz, 2009 WL 3806299, at *3.
24
CLP Toxicology, Inc. v. Casla Bio Hldgs., LLC, 2021 WL 2588905, at *9 (Del. Ch. Jun. 14,
2021).
25
Lefkowitz, 2009 WL 3806299, at *4.
7
I. This Court does not have subject matter jurisdiction to resolve the
parties’ dispute concerning the selection of arbitrators.
Delaware courts lack subject matter jurisdiction to resolve disputes that
litigants contractually agree to arbitrate.26 “Once it is determined that the parties are
obligated to submit the subject matter of a dispute to arbitration, procedural
questions that grow out of the dispute and bear on its final disposition should be left
to the arbitrator.”27
Delaware courts consistently hold that these procedural arbitrability issues
include whether the parties have complied with the terms of an arbitration
provision.28 Whether an arbitrator appointed under the terms of an arbitration
agreement is biased, partial, or qualified is just such a question.29 It is settled that
objections to an arbitrator’s qualifications may be raised to a reviewing court as a
basis to vacate an arbitration award at the conclusion of the arbitration.30 Coronado,
however, argues courts will intervene and enjoin an arbitration when questions of
26
NAMA Hldgs., LLC v. Related World Mkt. Ctr., LLC, 922 A.2d 417, 429 (Del. Ch. 2007).
27
Viacom Int’l Inc. v. Winshall, 72 A.3d 78, 82 (Del. 2013) (quoting John Wiley & Sons, Inc. v.
Livingston, 376 U.S. 543, 557 (1964)); See also TMIP Participants LLC v. DSW Grp. Holdings
LLC, 2016 WL 490257, at *8 (Del. Ch. Feb. 4, 2016).
28
Lefkowitz, 2009 WL 3806299, at *8; See also Winshall, 72 A.3d at 78; In re Good Tech. Corp.
S’holder Litig. 2017 WL 4857341 (Del. Ch. Oct. 27, 2017).
29
See In re Good Tech. Corp. S’holder Litig., 2017 WL 4857341, at *3 (whether arbitrator that
recused himself may select a successor arbitrator is a question of procedural arbitrability);
Anadarko Petroleum Corp. v. Panhandle Eastern Corp., 1987 WL 17445, at *1-2 (Del. Ch. Sept.
21, 1987) (refusing to resolve petitioner’s objection to arbitrator’s appointment until the arbitration
concluded).
30
See Weiner v. Milliken Design, Inc., 2015 WL 401705, at *13 (Del. Ch. Jan. 30, 2015); Anadarko
Petroleum Corp., 1987 WL 17445, at *1-2.
8
procedural arbitrability implicate the “fundamental fairness” of the arbitration
proceedings.31 For the reasons set forth below, however, even if Coronado is correct
that there are circumstances in which a court will intervene to address procedural
issues that imperil an arbitration’s fundamental fairness, this is not such a case.
II. Coronado’s contention that Blackhawk’s selection of a second
arbitrator makes the arbitration “fundamentally unfair” does not
give this Court the authority to enjoin the arbitration.
The Delaware cases on which Coronado relies for its “fundamental fairness”
argument arose from unusual fact patterns distinct from the facts in this case. In the
first such case, Speidel v. St. Francis Hosp. Inc.,32 a former employee sued her
employer for breach of contract and negligence.33 The issue before the Court was
whether the Court could compel compliance with an arbitration settlement
agreement that named a specific arbitrator when that arbitrator disclosed during the
arbitration that he had a past adversarial relationship with a witness important to the
defendant’s case.34 Both parties already had selected the arbitrator and the arbitration
was underway when the potential conflict of interest between the arbitrator and a
witness was discovered.35 But the parties “did not agree to a process whereby a new
arbitrator would be selected if the agreed-upon arbitrator became ill or was otherwise
31
Pl.’s Br. in Opp. at 4, 11.
32
Speidel v. St. Francis Hosp. Inc., 2002 WL 1477828, at *1 (Del. Super. Jul. 11, 2002).
33
Id.34
Id.35
Id. at *5.
9
unavailable.”36 The Court strongly urged the parties to agree upon a new arbitrator
to conduct an arbitration consistent with the parties’ agreement.37
Similarly, in Lynn v. Ullrich,38 the other Delaware case on which Coronado
relies, Ms. Ullrich and her passenger, Ms. Brown, were injured when Ms. Ullrich’s
vehicle collided with Ms. Lynn’s vehicle. Ms. Ullrich and Ms. Lynn agreed to
submit their dispute to binding arbitration under Superior Court Civil Rule 16.39 Ms.
Brown filed claims against both drivers and agreed to participate in a separate
binding arbitration in front of the same arbitrator selected by Ms. Lynn and Ms.
Ullrich.40 Ms. Brown’s matter was arbitrated first, and when the arbitrator ruled Ms.
Lynn was not liable for the accident, Ms. Ullrich refused to arbitrate before that
arbitrator, even though he specifically was named in the parties’ arbitration
agreement.41 The named arbitrator then took the position he would not arbitrate the
case unless court-ordered to do so because he believed he could not fairly and
impartially judge the matter.42 Citing the “unusual facts” of the case and finding
itself bound by the arbitrator’s conclusion that he could not objectively judge the
36
Id.
37
Id. at *6 (Del. Super. Jul. 11, 2002).
38
Lynn v. Ullrich, 2013 WL 1934935 (Del. Ch. May 10, 2013).
39
Id. at *1.
40
Id. at *2.
41
Id. at *1.
42
Id.
10
matter, the Court refused to order the parties to arbitrate before that individual.
Instead, the Court ordered the parties to reach an agreement on a new arbitrator.43
Coronado concedes these are the only two cases in which a Delaware court
intervened to resolve disputes regarding an arbitrator’s selection or qualifications
before the arbitration was conducted.44 Both cases involved unusual circumstances
in which the parties’ agreement named a specific arbitrator who later identified a
conflict, and the parties required judicial intervention to clarify how to proceed with
arbitration in light of that unexpected turn of events. The Lynn Court expressly
stated that it would have reached a different conclusion if the named arbitrator had
testified he could objectively consider the case. Here, in contrast, there is no
agreement naming a specific arbitrator, and none of the selected arbitrators have
identified any bias or unwillingness to serve.
Corornado also cites decisions in other jurisdictions in which courts
concluded that an arbitration presided over by an arbitrator chosen exclusively by
one party would be fundamentally unfair.45 All these cases involved challenges to
43
Id. at *6.
44
Pl.’s Br. in Opp. at 4, 10.
45
See McMullen v. Meijer, Inc., 355 F.3d 485, 494 (6th Cir. 2004) (holding that where one party
had unilateral control over the pool of potential arbitrators, arbitrator selection “inherently lack[ed]
neutrality”); Jean v. Bucknell Univ., 2021 WL 1521724 (M.D. Pa. Apr. 16, 2021) (noting the broad
authority arbitrators exercise over arbitration proceedings, then finding that “[i]t is thus fairly
obvious why allowing one party to select the arbitrator in a given matter becomes problematic”);
Roberts v. Time Plus Payroll Servs., Inc., 2008 WL 376288, at *3 (E.D. Pa. Feb. 7, 2008) (noting
that where only one side has a voice in choosing an arbitrator, it “raises an appearance of
11
the fundamental fairness of a contractual provision that allowed one side to
unilaterally control the selection of the arbitrator. Those courts ruled that the
selection provision itself was fundamentally unfair. This case is different. The
Arbitration Clause gives each side the right to select an arbitrator and only allows
one side to select both arbitrators if the other side declines to make the appointment
within the contractual timeframe. These types of contractual provisions routinely are
upheld as enforceable and fair.46
The facts of Universal Reinsurance Corp. v. Allstate Ins. Co. are similar to
this case. There, Allstate Insurance and Universal Reinsurance entered into an
agreement with an arbitration clause that gave each side the right to select one
arbitrator. The agreement further provided that if one party refused or neglected to
appoint an arbitrator within thirty days, the other party could appoint the second
arbitrator.47 Based on that provision, Allstate appointed a second arbitrator after
Universal delayed in appointing its arbitrator.48 In upholding the arbitration clause’s
partiality”); Nishimura v. Gentry Homes, Ltd., 338 P.3d 524, 534 (Haw. 2014) (holding that an
arbitration-selection process controlled by one party was “fundamentally unfair”).
46
See, e.g., Wallace v. Mt. Poso Cogeneration Co., LLC, 2021 WL 829495, at *1 (Del. Ch. Mar.
3, 2021) (enforcing arbitration provision providing that “[i]n the event that a Party fails to appoint
an arbitrator within the thirty (30) day period set forth above, the arbitrator appointed by the other
Party shall conduct the arbitration”); See also Clinton Water Ass’n v. Farmers Const. Co., 254
S.E.2d 5 692, 695-97 (W.Va. 1979) (interpreting arbitration provision providing for a selection
procedure of arbitrators in the event one party refused to appoint its own neutral arbitrator to stall
arbitration).
47
Universal Reinsurance Corp. v. Allstate Ins. Co., 16 F.3d 125, 127 (7th Cir. 1993).
48
Id. at 126.
12
express terms, the Court explained that since both parties had agreed to the outcome,
it was not the Court’s province to rewrite their agreement.49
The purpose of appointment provisions like the one contained in the
Arbitration Clause is to prevent one party from unilaterally stalling arbitration by
refusing to appoint an arbitrator. These clauses are not indicative of any fundamental
unfairness in the agreement. It is Delaware’s policy to enforce arbitration agreements
and respect the parties’ negotiated language, as with any other contract. If the Court
entertained injunction proceedings every time one side contended the selection of an
arbitrator was fundamentally unfair, it would fatally undermine the purpose of
arbitration and involve the courts in disputes that the parties contractually agreed to
submit to arbitration.
Finally, at oral argument, Coronado argued Blackhawk did not have the
contractual right to appoint a second arbitrator because Coronado objected to the
arbitration demand and reserved its rights. Again, however, whether or not
Blackhawk contractually was entitled to appoint a second arbitrator, or whether the
arbitrators appointed qualify as “disinterested” under the 1937 Lease, are questions
of procedural arbitrability for the arbitrators to resolve in the first instance.
49
Id. at 129-130.
13
CONCLUSION
For the foregoing reasons, Blackhawk’s Motion to Dismiss under Court of
Chancery Rule 12(b)(1) is GRANTED. Blackhawk’s alternative argument under
Rule 12(b)(6) is MOOT. IT IS SO ORDERED.
14