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UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF KENTUCKY
SOUTHERN DIVISION AT LONDON
NEW LONDON TOBACCO MARKET,
INC. and FIVEMILE ENERGY, LLC

Civil Action No. 6:12-cv-91-GFVT-HAI
Judge Gregory F. Van Tatenhove

Plaintiffs,
V.
KENTUCKY FUEL CORPORATION and
JAMES C. JUSTICE COMPANIES, INC.,

MEMORANDUM IN SUPPORT OF
MOTION OF DEFENDANTS TO
ALTER OR AMEND OR TO
RECONSIDER SEPTEMBER 23,
2019 MEMORANDUM OPINION
AND ORDER

Defendants.
Defendants, Kentucky Fuel Corporation (“Kentucky Fuel”) and James C. Justice
Companies, Inc. (collectively, “Kentucky Fuel” or “Defendants”), through counsel, submit this
Memorandum in support of their Motion pursuant to Rules 59 and 60 of the Federal Rules of
Civil Procedure to alter or amend or to reconsider the Memorandum Opinion and Order (the
“Opinion and Order”) entered September 23, 2019 [Doc. 445]. The grounds supporting
Defendants’ Motion are addressed below.
I.

INTRODUCTION.
This matter has been pending for over seven years, and as would be expected over the

course of the years has taken many procedural turns and involves extensive facts and factual
allegations.1 As the Court is well aware, the matter is now one of damages, a default judgment
having previously been entered in Plaintiffs’ favor against Defendants. That default judgment
resulted from alleged discovery violations on the part of Kentucky Fuel, and in particular the

1

The Court is well aware of the facts in evidence and the procedural machinations.
Defendants therefore do not include a factual summary or procedural history. Relevant
factual and procedural points are included where necessary.

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inadvertent failure of Jay Justice to appear for his scheduled deposition. Although then-counsel
for Defendants attempted to reschedule the deposition with counsel for Plaintiffs, those efforts
went unheeded. Plaintiffs’ counsel instead went silent until hitting Defendants with a Motion for
Default Judgment. Defendants recognize that on this issue the Court has remained firm, but
nevertheless respectfully submit that there was never any bad faith on their part and that this
matter could and should have been addressed through lesser sanctions and allowed to proceed to
a decision on the merits.
Because that did not happen, the question of what damages are to be awarded based on
the imputed liability was addressed at a three-day hearing before the Magistrate Judge. Many of
the recommendations set forth in the June 26, 2019 Report and Recommendation and Order (the
“Report and Recommendation”) [Doc. 437] were adopted in the Opinion and Order. Without
relinquishing the right to contest other aspects of the Opinion and Order in an Appeal, if
necessary, Defendants request, first, that the Court review whether the entry of default judgment
and the hearing on damages denied Defendants their due process rights and, second, that the
Court reconsider three of the findings in the Opinion and Order: the award of monthly retainer
fees to Mr. Brownlow through the entry of final judgment; the award of lost tonnage royalties
based on the disputed report of Plaintiffs’ “independent” arbiter; and, finally, the 1:1 ratio
adopted for punitive damages in light of the already harsh sanction of default judgment.
II.

LEGAL STANDARD.
Rule 59 of the Federal Rules of Civil Procedure provides that a “motion to alter or amend

a judgment must be filed no later than 28 days after the entry of the judgment.” Fed. R. Civ. P.
59(e). Rule 60 provides for reconsideration of a “final judgment, order, or proceeding.” Fed. R.
Civ. P. 60(b). Defendants recognize that a Judgment has not yet been entered, and that the

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Opinion and Order is nowhere designated as a “final” Order, however out of an abundance of
caution Defendants file this Motion now.
Motions to alter or amend judgment may be granted if there is a “clear error of law,
newly discovered evidence, an intervening changing [sic] in controlling law, or to prevent
manifest injustice.” Curry v. Eaton Corp., 2010 U.S. App. LEXIS 19704, *59 (6th Cir. 2010)
(emphasis added) (quoting GenCorp, Inc. v. Am. Int’l Underwriters, 178 F.3d 804, 834 (6th Cir.
1999) (other citations omitted)).2 The Sixth Circuit “has interpreted the term ‘judgment’ to refer
to a judgment or a final order.” Keith v. Bobby, 618 F.3d 594, 597-98 (6th Cir. 2010) (citing
CGH Transp., Inc. v. Quebecor World, Inc., 261 F. App’x 817, 823 n. 10 (6th Cir. 2008); Inge v.
Rock Fin. Corp., 281 F.3d 613, 617 (6th Cir. 2002)). In this case, the aspect of the Opinion and
Order discussed infra were based upon certain errors of fact and law and is therefore appropriate
for review and reconsideration.
III.

LEGAL ARGUMENTS.
A.

The Denial Of Due Process.

The Fifth Amendment to the United States Constitution provides that no person shall be
deprived of “life, liberty, or property, without due process of law.” U.S. CONST. AMEND. 5, §1.
The Due Process Clause applies to civil cases, just as it does to criminal ones. Societe
Internationale Pour Participations Industrielles Et Commerciales, S. A. V. Rogers, 357 U.S. 197,
209 (1958). The fundamental requirement of due process is the opportunity to be heard.
Goldberg v. Kelly, 397 U.S. 254, 267 (1970). “Being heard” means more than being permitted to
file documents in the record. It means the Court gives the litigant an opportunity for a hearing
“at a meaningful time and in a meaningful manner.” Armstrong v. Manzo, 380 U.S. 545, 552

2

Pursuant to Sixth Circuit Rule 28, a copy of the Curry opinion is attached as Exhibit A.
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(1965). Where the issues in the case require proof, due process requires that the litigants be
afforded an opportunity to present it, and where proof is presented by their opponents, they have
a right to dispute it by cross-examination. “In almost every setting where important decisions
turn on questions of fact, due process requires an opportunity to confront and cross-examine
adverse witnesses.” Goldberg, 397 U.S. at 267.
Due process considerations apply even when the Court has entered a default judgment on
liability. While a Court may enter such an order where its principled discretion demands it, such
an order remains subject to the limits of due process. “The provisions of Rule 37 which are here
involved must be read in light of the provisions of the Fifth Amendment that no person shall be
deprived of property without due process of law….” Societe Internationale, 357 U.S. at 209.
The imposition of default judgment as a sanction for discovery violations “is a drastic
step which should be resorted to only in the most extreme cases.” Prime Rate Premium Fin.
Corp. v. Larson, 930 F.3d 759, 769 (6th Cir. 2019) (quoting United Coin Meter Co. v. Seaboard
Coastline R.R., 705 F.2d 839, 845 (6th Cir. 1983)). The factors to be considered by the
reviewing Court are whether the party acted in bad faith, whether the opposing party was
prejudiced, whether the Court gave adequate warning and if a less drastic sanction could have
ensured compliance by the “offending” party going forward. See Larson, supra, 930 F.3d at 769
(citing Grange Mut. Cas. Co. v. Mack, 270 F. App’x 372, 376 (6th Cir. 2008). Here, Defendants
have denied any bad faith in their actions with respect to the Jay Justice deposition, a sentiment
that Mr. Justice reiterated during his testimony at the evidentiary hearing. Jay Justice Testimony,
Trans. (2), 65:19-66:13; 66:23-67:7. See also Bank One of Cleveland, N.A. v. Abbe, 916 F.2d
1067, 1073 (6th Cir. 1990) (citations and internal quotations omitted) (“Just as dismissal of an
action for failure to cooperate in discovery is a sanction of last resort that may be imposed only if

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the court concludes that a party’s failure to cooperate in discovery is due to willfulness, bad faith,
or fault, so, too, is entry of default judgment.”).
Any prejudice to Plaintiffs occasioned by Mr. Justice’s failure to appear at his deposition
could have been addressed through monetary sanctions, especially in light of the efforts of
Defendants’ then-counsel to have the deposition rescheduled. Finally, a much less drastic
sanction could certainly have ensured that Defendants would comply with their discovery
obligations going forward. Defendants therefore submit that the entry of default judgment was
an unnecessarily harsh response to Defendants’ actions and omissions.
But even if the Court’s decision to enter a default judgment were correct, it applied only
to liability. This Court itself wrote:
A party who has been found liable by default judgment “still has the opportunity
to respond to the issue of damages.” Antoine, 66 F.3d at 110, and a finding of
default “is not considered an admission of damages.” Greyhound, 973 F.2d at
158.
Plaintiff’s reliance on the Independent Arbiter’s report, a mere two pages that did
not consider the market or the ability for Defendants to remove coal from the
ground, is inadequate.
Memorandum Opinion and Order [Doc. 321], pp. 4, 6 (quoting Antoine v. Atlas
Turner, Inc., 66 F.3d 105 (6th Cir. 1995), and Greyhound Exhibitgroup, Inc. v.
E.L.U.L. Realty Corp., 973 F.2d 155 (2d Cir. 1992), cert. denied, 506 U.S. 1080
(1993)).
Yet the Magistrate Judge’s consideration of the evidence at the damages hearing, and the Court’s
adoption of it, deprived defendant of a meaningful opportunity to be heard. The Court’s reliance
on the “independent” arbiter’s report of Robert Conway – a report whose sources, methodology,
and underlying assumptions could not be challenged by Defendants because of the untimely
death of its author – inappropriately deprived Defendants of their property rights without due
process of law.

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The use of the Conway report to calculate the damages for “lost tonnage royalties” was
likewise improper. Mr. Conway’s death precluded Defendants the opportunity to cross-examine
him about his report. Coupled with Defendants’ inability to put on their own damages expert
and to challenge the assumptions relied upon by Mr. Conway (for example, the assumption that
the coal at issue could have ever been mined for a profit), Defendants were provided with no
meaningful opportunity to demonstrate the myriad reasons that the Conway report was unreliable
and unsuitable as a measure of damages. The Supreme Court has stated that due process means
“notice and opportunity for [a] hearing appropriate to the nature of the case.” See Mullane v.
Cent. Hanover Bank & Trust Co., 339 U.S. 306, 313 (1950). In this case, Defendants were
precluded from challenging the Conway report in the only ways possible to do so – either by
cross-examining Mr. Conway, or by presenting evidence as to why the assumptions of
methodologies of his report were erroneous.
Obviously there was no way to cure the inability to cross-examine Mr. Conway, and his
report should not have been permitted into evidence for that reason alone. However, because the
Court determined that Plaintiffs could use the Conway report, the failure to consider Defendants’
evidence regarding the mineability and merchantability of the coal, the poor quality of the coal,
the failures by other entities to successfully mine the coal, and the regulatory obstacles to mining
the coal, effectively deprived Defendants of a fair hearing “appropriate to the nature of the case,”
i.e., the correct measure of damages.3 In other words, the Court has deprived Defendants of a

3

Plaintiffs did retain another expert witness who appeared at the hearing and was going to
testify, but when Plaintiffs learned that Defendants intended to call the expert themselves
if Plaintiffs did not, Plaintiffs sent him away. This precluded Defendants from bringing
out the flaws in his report and questioning him regarding the flaws in the Conway report.
Defendants were precluded from calling any experts of their own. See Trans. (1), 199:1202:6.
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property right – to the tune of over $35 million – without the procedural due process to which
they are constitutionally entitled.
B.

The Monthly Retainer Payments.

In the Opinion and Order, the Court cited to the Report and Recommendation that “the
effect of default judgment is a finding for Plaintiffs that retainer fees have continued to accrue to
the date of final judgment.” Opinion and Order [Doc. 445], p. 3. The Court adopted this portion
of the Report and Recommendation – as to Count I of the Amended Complaint – and found that
Defendants “currently owe $1,000,000 [in unpaid retainer fees], compounded annually at 8%
interest.” See id., p. 15 (emphasis in original). Defendants respectfully submit that the law cited
by them in response to the Report and Recommendation amply demonstrates that the obligation
to pay retainer fees ceased at least as early as the filing of the original Complaint in this matter
on May 8, 2012, Mr. Brownlow stopped his work for Defendants and Defendants’ obligation to
continue to pay him likewise ceased.
The Court suggests in its Opinion and Order that no evidence was presented as to “how
the agreement to pay minimum royalties may be terminated, or whether it was terminated.” See
id., p. 4. Respectfully, this statement is not entirely accurate. In their April 1, 2016 Response
(Prehearing Memorandum) [Doc. 262, pp. 22-23/Page ID# 3246-3247], Defendants put Plaintiffs
on notice that any continuing relationship between Defendants and Mr. Brownlow was
terminated in accordance with the Fourth Amendment. Defendants subsequently also presented
evidence that Mr. Brownlow’s work for them had ceased when Plaintiffs filed their Complaint.
Specifically, at the evidentiary hearing, Plaintiffs introduced a list of contacts Mr. Brownlow
made, allegedly on behalf of Defendants, over the years. See P. Hg. Ex. 10. After the Complaint
was filed on May 8, 2012, through November 2017, Mr. Brownlow reported some 102 contacts

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with or related to Kentucky Fuel – however, a number of those entries on their face relate to the
litigation. Surely Kentucky Fuel should not be required to pay Mr. Brownlow for his contact
with them related to his claims against Kentucky Fuel?
Other numerous contacts consisted of nothing more than forwarding e-mails. Finally,
and as explained previously, after Plaintiffs filed suit and through the end of 2012, Mr.
Brownlow claimed 12 contacts (with no contacts in 4 of those months); in 2013 he claimed 37
contacts – one month with no contacts, and two contacts consisting of forwarding e-mails; 36
contacts in 2014, 22 of which were forwarding e-mails; 12 contacts in 2015 (4 months with zero
contact); only 4 contacts in 2016, and only 4 contacts through November 2017. In other words,
Mr. Brownlow himself has demonstrated that he performed almost no work for Kentucky Fuel
after his entities filed suit, making an award of fees for his services post-Complaint nothing more
than a windfall.
In the end, however, the contract language and the evidence are of no real relevance in
light of the case law. When one party breaches a contract, the other party’s obligation to
continue performance is excused. See Metro Louisville/Jefferson County Government v. Abma,
326 S.W.3d 1, 8 (Ky. Ct. App. 2009) (to succeed on a breach of contract claim in Kentucky, the
complaining party must prove a valid contract existed, a breach of that contract, and damages
flowing from the breach) and Dalton v. Mullins, 293 S.W.2d 470 (Ky. 1956) (a material breach
by one contracting party excuses the other party from performing his contractual obligations).
Likewise, when the non-breaching party is no longer required to perform, the obligation to pay
for that performance also ends. Stated more simply, Mr. Brownlow stopped working for
Kentucky Fuel and sued Kentucky Fuel and, Plaintiffs’ damages for the monthly retainer fees
should have been cut off as of May 8, 2012.

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C.

The Award Of Lost Tonnage Royalties.

The Court also awarded $16,990,900 in lost tonnage royalties, based on the report of the
“independent” arbiter, the late Bob Conway. See Opinion and Order, pp. 9-11, 16. Defendants
respectfully submit that the Court’s statement that Defendants’ arguments about the mineability
and merchantability of the coal at issue and the unreliability of the Conway report were “mooted
with the entry of default,” is erroneous. Id., p. 10. By accepting the Conway report as “gospel,”
without allowing for any consideration of its (many) failings, the Court has removed from
Plaintiffs any burden to actually prove their damages.
Defendants understand and accept that their liability was cemented with the entry of
Default Judgment, but submit that this judgment should not obviate Plaintiffs’ burden to prove
its damages. It was for that reason that the Court overruled the first Report and
Recommendation and required an evidentiary hearing. Indeed, as stated by this Court in
ordering that an evidentiary hearing on damages take place:
The independent arbiter’s report [R. 40-6] is barely over one page and estimates
that the lost royalties on the Fivemile lease are $16,990,990.00. … this Court is
hesitant to rely primarily on the very short independent arbiter’s report to award
damages of such a magnitude. Though this Court has entered default judgment
against Defendants and will not consider the scope of liability, Defendants should
still have the opportunity to speak meaningfully towards the damages calculation
this Court will award and present any evidence regarding mitigation of damages
or any other analysis they think is important for this Court to consider.
Memorandum Opinion and Order [Doc. 321], pp. 2, 5 (emphasis added).
It is for this reason that Defendants have attempted to convince the Court to consider their
arguments about the unreliability of the Conway report and about the implied covenant of
mineability and merchantability that should be read into the parties’ agreement.
While it is certainly true that, upon entry of default, the well-pleaded allegations of the
subject Complaint are accepted as valid, this does not mean that the Court can completely wash
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its hands of its duty to enter a judgment that conforms with the applicable law. See Wright &
Miller, 10A Federal Practice & Procedure Civ. §2688 (4th ed.) (emphasis added) (“Even after
default, however, it remains for the court to consider whether the unchallenged facts constitute a
legitimate cause of action, since a party in default does not admit conclusions of law.”). Of
particular importance as to this issue is the Kentucky Court of Appeals’ statement in Deskins v.
Estep, 314 S.W.3d 300, 304 (Ky. Ct. App. 2010) (emphasis added), that “[n]otwithstanding that
a default judgment has been entered, the law still requires a legal basis to support a damages
claim.” See also Dirs. Of the Ohio Conf. of Plasterers & Cement Masons Combined Funds, Inc.
v. Akron Insulation & Supply, Inc., 2018 U.S. Dist. LEXIS 77549, at *13 (N.D. Ohio, May 8,
2018) (citing Ford Motor Co. v. Cross, 441 F.Supp.2d 837, 848 (E.D. Mich. 2006)) (“the wellpleaded allegations in a complaint are taken as true as to liability when a defendant is in default,
but not as to damages”).
Without reiterating the arguments set forth by Defendants in their objections to the
Report and Recommendation, Defendants would emphasize a few key points. First, Mr. Conway
made no effort to determine the amount of coal that could have been mined between the date of
the Fourth Amendment, November 22, 2010, and the date of his report, May 1, 2012. A proper
analysis would have tested and analyzed both the coal at issue – its quality, quantity, and
mineability – and the market conditions during the November 2010 – May 2012 time frame to
determine the amount of coal, if any, that Kentucky Fuel would have had the ability to profitably
mine. “Lost tonnage royalties,” as characterized by the Court, would then be the minimum
royalties and/or the royalties payable for the coal that could be mined under the prevailing
conditions.

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Instead, Mr. Conway concerned himself solely with the amount of tons in situ along with
an estimated recovery rate. He then calculated the supposed damages based upon a multiple of
$2.00 per ton for the first 250,000 tons of coal that supposedly could be mined and a $1.00 per
ton for coal that could be extracted afterward [Doc. 1-8]. If this were the true measure for
damages intended by the parties, the total amount of coal reserves could have been calculated at
the time the Fourth Amendment was drafted. The parties would then have been able to negotiate
that figure or take into consideration the various realities associated within the “constraints of
industry standards.”
A more logical explanation is found in Paragraph 5(f) of the Fourth Amendment. It sets
out the minimum royalty clauses which were an actual part of the negotiations between these
Parties. In setting the minimum, the Parties would have taken into consideration the realities of
the coal market as it then existed and the factors affecting future mining. The minimum royalties
clause would have ensured Plaintiffs at least some compensation for the use of their grant of the
leases even where the industry was depressed. This interpretation is also consistent with the
Parties’ previous transactions. The first contract between New London and Kentucky Fuel
relevant to the subject properties was an Assignment of Leases and Permits dated October 5,
2005. [Doc. 1-5] An amendment was then made to the original assignment on October 31, 2005,
which was quickly followed by a Second Amendment to the Assignment of Leases and Permits
on November 23, 2005. Id. A Third Amendment was entered about June 1, 2006. Id. None of
these amendments included provisions for “minimum royalties”, “covenant to mine” or “event of
default” clauses. Whether it be because of changes in the industry or changes in the parties’
relationship over the years, the addition of the “minimum royalties” clause is evidence of an
intent to provide a standard for measuring compensable damages. Under such circumstances, it

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is logical to conclude that the arbiter would not be an engineer, but an accountant who
determines the amount of royalties that were paid or due as well as the interest on amounts that
were unpaid and owing.
In addition, the covenant to mine included in the Fourth Amendment to the Parties’
Agreement includes critical qualifiers: that Kentucky Fuel must use “commercial and reasonable
good faith efforts” to mine and that Kentucky Fuel must use those efforts to maximize recovery
“within the constraints of industry standard.” It is those qualifiers which limit a proper damage
award. Several factors combined to make it impossible for Kentucky Fuel to extract significant
amounts of coal from the property at issue, the testimony regarding which was unrefuted. For
example, Jay Justice testified that the lack of §404 Permits for valley or hollow fill areas in
which to put earth and rock displaced in the coal extraction process were virtually impossible to
obtain, and that even if they could be obtained, the cost was prohibitive:
(A)ny of the mining required a lot of valley fills.…In recent years…the federal
government has taken over the permitting of the valley fills….It (would take) four
or five or six years and millions and millions of dollars to get one….(I)f you need
a valley fill permit, you are just out of luck. That’s just what happened.
Jay Justice Testimony, Trans. (2), 210:1-3; 210:18-211:11.
Another obstacle to significant mining activity at Fivemile was the poor quality of the
coal. Mr. Justice testified that the standard makeup of steam coal was 12.5 BTU, 12% ash, and
1% sulfur. In contrast, the ash content of coal at Fivemile was “anywhere from probably 15
percent on the best seam to 35 percent on the worst seam. Sulfurs were 1 1/2 percent on the best
seams and as high as 7 percent on the worst seams. And so...it’s coal you just can’t mine. It’s
just not marketable.” See Jay Justice Testimony, Trans. (1), 209:2-8, 13-23. Defendants
demonstrated through this testimony that the coal at issue was not marketable – and nonmarketable coal would never have been mined by Kentucky Fuel, no royalties beyond the
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minimum royalties would have been due, and Plaintiffs cannot support their claim for $16.9+
million in damages.
The understanding of Defendants regarding the finished project was made clear with the
– again, unrefuted – testimony of Steve Ball:
Q.
And the [mineable and merchantable] language that was excised, the
interlineated language, how did you view its excision or deletion, I guess is what I
would say?
A.
To me, it didn’t change the intent of the agreement or what the agreement
says. It was just more specificity to the language above. So I didn’t feel like it
materially changed the agreement in any way….In my experience, these
provisions, as long as they have the elements of commercial reasonableness and
within the – as this one puts it, the constraints of industry standards, I'm
comfortable with that.
Steve Ball Testimony, Trans. (3), 141:21-142:16; 139:15-141:8.
Defendants’ unrefuted testimony about the proper interpretation of this language should have
been considered in the determination of damages because, again at the risk of repetition, it
demonstrates that, assuming that understanding was correct, there would have been no damage
to Plaintiffs beyond the minimum royalties.
Finally, and even accepting Plaintiffs’ argument that Defendants were required to mine
even unprofitable coal and that future damages could still be awarded under the Agreement, the
testimony of Jay Justice is that no more than 50,000 tons of coal could have been produced, and
that it is unlikely any mining would have occurred – an assertion borne out by the fact that none
of the prior or subsequent entities who attempted to mine the Fivemile property were able to do
so successfully. See Jay Justice Testimony, Trans. (2), 6:14-21; 209:2-14. Therefore, rather than
applying a compounded prejudgment interest rate to $16,990,900 from May 2012, the proper
damages calculation would need to reduce that amount by a reasonable present value discount
interest rate over thirty years. Any other methodology would result in the assessment of an
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unlawful penalty. See Paducah Area Public Library v. Terry, 655 S.W.2d 19, 24-25 (Ky. App.
1983) (adopting the “universal rule [requiring] that awards for lost future earnings be in present
worth … [a]ny other rule may tend to overcompensate … and turn injury into profit, a result
forbidden under our sense of justice.”).
Applying this rule, the Kentucky Court of Appeals in Moore v. Ford Motor Credit Co.,
778 S.W.2d 657, 659 (Ky. App. 1989) instructed the trial judge to reduce the amount owed on
the balance of the term of a lease to its present value to avoid imposing an unlawful penalty,
explaining:
…we hold that the failure of the default provision to discount the accelerated rent
to its present value constitutes an unlawful penalty. Under Kentucky law, only
those liquidated damages provisions which bear a reasonable relationship to the
anticipated damages are enforceable. Accelerated rentals that are not discounted
do not bear a “reasonable relationship” to actual damages suffered. Further, since
the penalty clause allows the lessor both the car and the rental payments (with one
year’s less depreciation than bargained for), failure to discount the accelerated
rents to present value obviously results in the lessor being unjustly enriched.
Moore, supra, 778 S.W.2d at 659 (citations omitted) (emphasis in original).
The same principles apply in this case. The lost tonnage royalties awarded constitute an
award of damages to Plaintiffs as if the Fourth Amendment required Defendants to mine every
ounce of coal underlying the property within eighteen months, by May 2012. However, even if
the Lease required Defendants to mine all of the coal regardless of its profitability, mining 17
million tons under the “constraints of industry standards” would have taken far more than
eighteen months. Discounting the damages based on a realistic assessment of how many tons of
coal per year could have been mined (if any) and over a realistic amount of time would
significantly reduce the amount awarded to Plaintiffs for royalties. Even in the default context,
the Court must decline to award damages that constitute an unlawful penalty. See Borek, Stockel
& Co. v. Slevira, 609 N.Y.S.2d 679, 679-80 (N.Y. Super. 1994)).
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The fact of default does not mandate that Plaintiffs’ chosen method of calculating
damages is also to be taken as fact. The case law cited supra is clear that even in a default
setting, Plaintiff must prove its damages. By failing to refute Defendants’ testimony about their
ability to mine and sell the subject coal for a profit, and their (reasonable and legally supported)
understanding of their obligations under the agreement, Plaintiffs have not demonstrated that
they are entitled to their chosen arbiter’s (minimal and highly disputed) calculation – a
calculation that the Court was “hesitant to rely primarily on” – of the value of the coal in place at
the Fivemile property. Defendants’ evidence and arguments about the correct interpretation of
the Parties’ agreement, and their evidence and arguments about the abysmal quality of the
subject coal and the near impossibility of obtaining necessary permits, or even effectively mining
much more than a maximum of 50,000 tons, were not presented to refute the finding of default
judgment and liability. They instead were presented to demonstrate to the Court that the Conway
report is not a valid analysis of the amounts Plaintiffs would have received but for the default
and is therefore not a valid calculation of Plaintiffs damages.
D.

The Punitive Damage Award Was Excessive.

The third award Defendants ask the Court to reconsider is the 1:1 ratio of punitive
damages assessed. The punitive damages arise from the allegations of Count V of the Complaint
alleging fraud as follows:
At the time they executed the Fourth Amendment, Justice and Kentucky Fuel did
not intend to honor their obligations or to make the payments due when they were
required by the Fourth Amendment. Instead, they falsely represented…that they
would make the payments required under the Fourth Amendment and perform
their obligations thereunder in order to induce (the Plaintiff) to execute the Fourth
Amendment.
Amended Complaint [Doc. 40], p. 14.

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As litigation on the action ensued, and accepting without agreeing with the Court’s
finding of repeated egregious discovery errors on the part of Defendants (a different version
involving New London’s counsel refusing to cooperate on resetting Jay Justice’s deposition and
then pouncing on Kentucky Fuel with a sanctions motion was offered by Kentucky Fuel), the
Court penalized Kentucky Fuel with the most dramatic of remedies – default judgment against
them and in favor of Plaintiffs. In denying the Defendants’ Motion to Alter or Amend [Doc.
212], which attempted to contest entry of the Default Judgment as it pertained to certain aspects
of the allegation of fraud and request for punitive damages, the Court stated:
When a default judgment is entered, liability is established and the facts pleaded
in the Complaint must be taken as true. Accepting the pleaded facts as true, the
Plaintiffs have shown by clear and convincing evidence that the Justice
Companies acted fraudulently and, hence, owe punitive damages pursuant to KRS
Section 411.184.
Order [Doc. 227] (citations omitted) (emphasis added).
By its plain meaning, then, it is clear that the imposition of punitive damages is, itself,
born of a separate punishment imposed by the Court: the default judgment predicated on
discovery violations deemed so outrageous that an extreme remedy was required. Although it
was deemed by the Court to serve the interests of justice, the imposition of the default judgment
was a distinctly punitive measure which enabled New London to avoid scrutiny of the legitimacy
of its claims and denied Kentucky Fuel any further opportunity to contest liability – including
liability for punitive damages. With this in mind as a mitigating factor, the Defendants ask the
Court to reconsider the 1:1 ratio of punishment to damages.
The traditional manner to establish a reasonable punitive damage award is to focus on the
reprehensibility of the defendant’s conduct. See State Farm Mutual Auto Ins. Co. v. Campbell,

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538 U.S. 408, 419 (2002) (citing BMW of North America v. Gore, 517 U.S. 559, at 575, 116
S.Ct. 1589 (1996)).4 The factors for determining reprehensibility are whether:


The harm caused was physical as opposed to economic;



The tortious conduct evinced an indifference to or a reckless disregard of the
health or safety of others;



The target of the conduct had financial vulnerability;



The conduct involved repeated actions or was an isolated incident; and



The harm was the result of intentional malice, trickery, or deceit, or a mere
accident.

See State Farm, supra, 538 U.S. at 419.
Application of the factors to the actions of Defendants in this case demonstrates that
punitive damages should be reduced, if not eliminated. Even with the allegations of Plaintiff
taken as true, the harm to them was purely economic – no one’s health or safety was
compromised, there was no hint of financial vulnerability on the part of Plaintiffs (the entities
and Mr. Brownlow are well-heeled and financially successful), the fraud alleged to have been
occasioned by Defendants was confined to the events surrounding the adoption of the Fourth
Amendment, and the harm was alleged to have resulted from false representations as to an
intention to mine coal, not intentional malice, trickery or deceit.
In pointing out that there are no benchmarks for setting a punitive damage award, the
Supreme Court in State Farm noted that “(w)hen compensatory damages are substantial…a
lesser ratio, perhaps only equal to compensatory damages, can reach the outermost limit of the
4

In Campbell, the Supreme Court confirmed that the Due Process clause of the 14th
Amendment prohibits the imposition of grossly excessive or arbitrary punishments on a
tortfeasor. See Campbell, supra, 538 U.S. at 417 (citing Cooper Industries, Inc. v.
Leatherman Pool Group, Inc., 532 U.S. 424, 433 (2001)).
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due process guarantee.” State Farm, supra, 538 U.S. at 425. In this case, compensatory
damages are multiple millions of dollars. If a 1:1 ratio reaches the outermost limits of an award
when compensatory damages are substantial, then surely the 1:1 ratio is excessive in a case in
which Plaintiffs have been awarded damages exceeding $17 million and in which, without a
default judgment of liability, Plaintiffs might never have been awarded a judgment at all. The
question also arises whether, when compensatory damages are not awarded for breach of
contract, should punitive damages even be assessed.
In any case, it is clear that Defendant’s actions, resulting in a punishment in the form of a
default judgment, did not rise to such a high level of reprehensibility as to justify the devastating
imposition of $17,010,900 in punitive damages. Defendants respectfully submit that, at most,
ten percent of the amount computed as compensatory damages, or $1,701,090, is a more than
adequate punishment. The current award not only constitutes a hardship, but it will also unduly
enrich Plaintiffs, who already will take home nearly $20 million.
IV.

CONCLUSION.
For all these reasons, Defendants respectfully request that the Court reconsider the

Opinion and Order and alter or amend it and the eventual Judgment as requested herein.
Respectfully submitted,
/s/ Richard A. Getty
RICHARD A. GETTY
DANIELLE HARLAN
and
MARCEL RADOMILE
THE GETTY LAW GROUP, PLLC
1900 Lexington Financial Center
250 West Main Street
Lexington, Kentucky 40507
Telephone: (859) 259-1900
Facsimile: (859) 259-1909
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E-Mail: rgetty@gettylawgroup.com
E-Mail: dharlan@gettylawgroup.com
E-Mail: mradomile@gettylawgroup.com
And
KENT WICKER
DRESSMAN BENZINGER LAVELLE PSC
321 West Main Street
Suite 2100
Louisville, Kentucky 40202
Telephone: (502) 572-2500
Facsimile: (502) 572-2503
E-Mail: kwicker@dbllaw.com
COUNSEL FOR DEFENDANTS,
KENTUCKY FUEL CORPORATION AND
JAMES C. JUSTICE COMPANIES, INC.
CERTIFICATE OF SERVICE
A copy of the foregoing Memorandum in Support of Motion of Defendants to Alter or
Amend or to Reconsider September 23, 2019 Memorandum Opinion and Order was served on
the 21st day of October 2019, electronically in accordance with the method established under this
Court’s CM/ECF Administrative Procedures and Standing Order upon all parties in the
electronic filing system in this case.
/s/ Richard A. Getty
COUNSEL FOR DEFENDANTS
dhbpld2212

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