The Kentucky Court of Appeals upheld a multi-million verdict last month against a Knott County coal company that officials report still owes funds to the City of Wayland.
On Dec. 20, the Court of Appeals issued an opinion affirming a 2018 verdict given by Knott County Circuit Judge Kim C. Childers.
Ray and Barbara Slone and their daughter Virginia Cornett Couch, represented by Prestonsburg attorney Ned Pillersdorf, sued Quest Energy in 2016, alleging that the company breached a contract used to buy assets of Samuel Coal Company, which the family previously owned. They allege that Quest failed to give them royalty payments totaling more than $2 million and failed to provide an accounting of the coal that Quest mined after it acquired the mine.
Over the past year, Wayland officials have also made allegations about the company failing to pay royalty payments and failing to account for coal mined in the city.
Quest, represented by attorney Calvin R. Tackett of Whitesburg, denied the allegations in the court case, but Childers ruled in favor of the Slone family, ruling in Jan. 2018 that Quest owed more than $2.5 million to the family as well as an annual minimum payment of $600,000 in royalty payments until the remainder of the $7 million purchase price of the coal mine assets were paid in full.
Quest asked the Court of Appeals to reverse the judgment, however, claiming the findings of facts in the case were not supported by evidence and that Childers should have amended the asset purchase agreement to relieve the company of further obligations and awarded damages to Quest for fraud.
The Court of Appeals ruled that Quest failed to prove that Ray Slone made false statements to entice Quest to buy the mine assets, as alleged.
“Quest Energy argues that the undisputed facts prove fraud and deliberate misrepresentation,” the Court of Appeals ruled. “It stresses that neither its CEO, Mark Jensen, nor its CFO, Thomas Sauve, had much experience in the coal mining business at the time of the acquisition and that neither had any legal or engineering training.”
Jensen and Sauve “relied to its detriment” on a report issued by Bocook Engineering showing “millions of tons of coal were ready to be mined immediately” when it purchased Samuel Coal, the ruling explains.
“It argues that Dewey Bocook ‘got it so wrong’ because he relied on misinformation provided to him by Ray Slone and that the ‘thread of fraud’ began here,” the order says.
The ruling explains that, with these allegations, Childers “observed the witnesses and evaluated the conflicting testimony.”
“It was in the best position to assess the credibility of each witness, and it found that Quest Energy failed to establish — through clear and convincing evidence — that Ray Slone made a material misrepresentation of fact which was known to be false (or made in reckless disregard of truth) for the purpose of inducing Quest Energy to enter into the acquisition agreement,” the ruling states.
The Court of Appeals determined that the court’s ruling was “amply supported by substantial evidence.”
Pillersdorf said, with interest, the amount awarded in last month’s Court of Appeals judgment has grown to about probably $2.7 million at this point, but Quest has 30 days from the date of the order to seek a review from the Supreme Court in the case, if the company chooses to do so.
The Mine Safety and Health Administration reports that Quest Energy is listed as the controller for three coal mines in the state, all of which are temporarily idled: the refuse site in Wayland and two Samuel Coal locations in Knott County.
In 2018, when Quest started mining coal in Wayland, MSHA reported it was affiliated with 36 mines, six of which were active at the time.
The Wayland City Commission ended its contract with Quest Energy last year, with officials alleging that the company had missing and inadequate reporting of coal mined in Wayland and alleging the company owes the city money for coal mined from the site. Mayor Jerry Fultz said last week that officials there estimate Quest owes Wayland about $40,000 for coal mined in the city, and he said that number could change if the city obtains accurate documentation about the coal mined there.
In December, the same month that the Court of Appeals issued this ruling, American Resources Corporation, the parent company of Quest and Perry County Coal, laid off 75 coal miners in Perry County without giving them their final paycheck or paying them for unused vacation days, the Lexington Herald reported.
On Jan. 7, the Lexington Herald Leader reported that American Resources Corporation and none of its subsidiaries — including Quest — had posted a performance bond, as required, that would have provided funds to those employees.
This week, employees of Quest are protesting alleged nonpayment for their work in Pike County.
On its website, American Resources Corporation reports that it bought Perry County Coal in the bankruptcy of Cambrian Coal in Sept. 2019. In November, it reported a net loss from operations of $7 million.