Opinion
C. A. N24C-03-061 VLM CCLD
11-08-2024
CNX RESOURCES CORPORATION, Plaintiff/Counterclaim Defendant, v. CONSOL ENERGY INC., Defendant/Counterclaim Plaintiff.
Blake Rohrbacher, Esquire, Nicole M. Henry, Esquire, and Sandy Xu, Esquire of Richards, Layton & Finger, P.A., and pro hac vice counsel of Jones Day, Attorneys for Plaintiff. David E. Ross, Esquire, S. Reiko Rogozen, Esquire, and Dylan T. Mockensturm of Ross Aronstam & Moritz LLP, and pro hac vice counsel of Jenner & Block LLP, Attorneys for Defendant.
Submitted: August 13, 2024
Upon Consideration of Plaintiff's Motion for Partial Summary Judgment, GRANTED.
Blake Rohrbacher, Esquire, Nicole M. Henry, Esquire, and Sandy Xu, Esquire of Richards, Layton & Finger, P.A., and pro hac vice counsel of Jones Day, Attorneys for Plaintiff.
David E. Ross, Esquire, S. Reiko Rogozen, Esquire, and Dylan T. Mockensturm of Ross Aronstam & Moritz LLP, and pro hac vice counsel of Jenner & Block LLP, Attorneys for Defendant.
MEMORANDUM OPINION
Medinilla, J.
I. Introduction
This is an indemnity dispute between two halves of a previously unified corporation, CONSOL Energy Inc. (Pre-Spin CONSOL), that operated both coal and natural gas businesses. It bifurcated its business lines by spinning off the coal business under a Separation and Distribution Agreement (SDA).
Defendant/Counterclaim Plaintiff CONSOL Energy Inc.'s Answer, Affirmative Defenses, and Counterclaims (hereafter "Answer") f 75, D.I. 5; Plaintiff and Counterclaim Defendant CNX Resources Corporation's Reply to Counterclaims (hereafter "CC Reply") ¶¶ 15, 21-22, D.I. 7.
CC Reply ¶¶ 16-17.
The gas business remained in the original corporation but changed its name to CNX Resources Corp., now Plaintiff/Counterclaim Defendant (CNX). The coal business became a new corporation, retaining the name CONSOL Energy Inc., now Defendant/Counterclaim Plaintiff (CONSOL).
Id.
Id.
CNX filed this action for failure to indemnify CNX under the SDA, and seeks partial summary judgment for its breach of contract claim under Superior Court Civil Rule 56. CONSOL contends it owes no obligation to indemnify. For the reasons that follow, CNX's Motion for Partial Summary Judgment is GRANTED.
See Complaint ¶¶ 134-51, Prayer for Relief, D.I. 1.
See generally Plaintiff/Counterclaim Defendant CNX Resources Corporation's Opening Brief in support of Its Motion for Partial Summary Judgment (hereafter "MPS J") D.I. 8.
Defendant/Counterclaim Plaintiff Consol Energy Inc.'s Answering Brief in Opposition to Plaintiff/Counterclaim Defendant CNX Resources Corporation's Motion for Partial Summary Judgment (hereafter "MPSJ Opp'n") at 10-31, D.I. 26.
II. Factual and Procedural Background
Although the issue before the Court is a Motion for Partial Summary Judgment, "discovery has yet to begin." MPSJ Opp'n at 3-4. Thus, the Court draws its facts from the parties' pleadings.
A. Parties
Plaintiff CNX is a Delaware corporation with its principal place of business in Pennsylvania. Pre-Spin CONSOL became CNX as part of the spinoff transaction.
Complaint ¶23.
CC Reply ¶¶16-17.
Defendant CONSOL is also a Delaware corporation with its principal place of business in Pennsylvania. CONSOL was created as a new corporation as part of the spinoff transaction.
Complaint ¶24.
CC Reply ¶¶16-17.
B. The Spinoff
In 2017, Pre-Spin CONSOL decided to separate its coal and gas businesses into two entities. To accomplish that, Pre-Spin CONSOL-referred to as "Parent" in the SDA-created the entity that is now CONSOL-then CONSOL Mining Corporation and referred to as "CoalCo" in the SDA-and the two executed the SDA. The "whereas" section of the SDA makes clear that Pre-Spin CONSOL sought to separate its "Coal Business" into a new publicly traded corporation.
Id.
Id. ¶¶ 15-17; Answer at 1-2.
See Complaint, Ex. A. (hereafter "SDA") at Recitals.
Relevant here, SDA Section 2.1(a)(ii) states:
the applicable members of the CoalCo Group shall accept and assume, agree to perform, discharge and fulfill, or succeed to, all the Coal Liabilities in accordance with their respective terms.... Coal Co and such members of the CoalCo Group shall be responsible for all Coal Liabilities, regardless of when or where such Coal Liabilities arose or arise, or whether the facts on which they are based occurred prior to or subsequent to the Effective Time, regardless of where or against whom such Coal Liabilities are asserted or determined (including any Coal Liabilities arising out of claims made by Parent's or CoalCo's respective directors, officers, employees, agents, Subsidiaries or Affiliates against any member of the Parent Group or the Coal Co Group) or whether asserted or determined prior to the date hereof;
SDA§2.1(a)(ii).
The SDA had a broad, multi-paragraph definition of "Coal Liabilities." SDA Sections 2.4(c), (f), and (j) are most relevant. Section 2.4(c) defines as Coal Liabilities:
Id. § 2.4.
all Liabilities relating to, arising out of or resulting from the actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Effective Time), in each case to the extent that such Liabilities relate to, arise out of or result from the Coal Business or a Coal Asset[.]
Id. § 2.4(c).
Section 2.4(f) adds to the definition:
all other Liabilities to the extent relating to, arising out of or resulting from the ownership or operation of the Coal Assets, Coal Business, Coal Contracts, the Coal Intellectual Property, the Coal Software, the Coal Know-How, the Coal Permits, Leatherwood Property, or the Coal Surface Property; provided that to the extent a contract that relates to the Coal Business is a Shared Contract, only that portion that relates to the Coal Business will be assumed[.]
Id. § 2.4(f).
Section 2.4(j) continues:
all Liabilities arising out of claims made by any Third Party (including Parent's or CoalCo's respective directors, officers, stockholders, current or former employees, agents, Subsidiaries or Affiliates) against any member of the Parent Group or the CoalCo Group only to the extent relating to, arising out of or resulting from the Coal Business, the Coal Assets or otherwise relating to Coal Liabilities (whether such claims arise, in each case before, at or after the Effective Time).
Id.§2.4(j).
Regarding CONSOL's indemnity obligations, SDA Section 4.2 provides in relevant part:
Except as otherwise specifically set forth in this Agreement or in any Ancillary Agreement, to the fullest extent permitted by Law, CoalCo shall, and shall cause the other members of the CoalCo Group to, indemnify, defend and hold harmless Parent, each member of the Parent Group and each of their respective past, present and future directors, officers, employees and agents, in each case in their respective capacities as such, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the "Parent Indemnitees"), from and against any and all Liabilities of the Parent Indemnitees relating to, arising out of or resulting from, directly or indirectly, any of the following items (without duplication):
(a) any Coal Liability[]
Id. § 4.2(a).
With respect to the consent requirement, SDA Section 4.5(e) provides:
Neither Party may settle or compromise any Third-Party Claim for which either Party is seeking to be indemnified hereunder without the prior written consent of the other Party, which consent may not be unreasonably withheld, unless such settlement or compromise is [1] solely for monetary damages that are fully payable by the settling or compromising Party, [2] does not involve any admission, finding or determination of wrongdoing or violation of Law by the other Party and [3] provides for a full, unconditional and irrevocable release of the other Party from all Liability in connection with the Third-Party Claim.
Id. § 4.5(e) (emphasis added).
It is the exception following the word "unless" at issue in this litigation.
C. The 1974 Plan Claim
In 2021, CNX received notice of a potential claim based upon a transaction by Pre-Spin CONSOL that occurred in 2013. Specifically, the United Mine Workers of America 1974 Pension Plan (the "1974 Plan") alleged that Pre-Spin CONSOL's 2013 sale of certain coal subsidiaries to Murray Energy Corporation (the "Murray Transaction") was illicitly designed to allow Pre-Spin CONSOL to avoid "withdrawal liability" in violation of ERISA. The 1974 Plan alleged CNX could be liable for up to $6.2 billion (the "1974 Plan Claim").
Answer ¶ 24, 75; Complaint, Ex. B at 2.
Complaint, Ex. B at 2-3.
The details behind the 1974 Plan Claim are not particularly important to this dispute. But for context, Murray Energy assumed Pre-Spin CONSOL's obligations with respect to the 1974 Plan.