Upload
votu
View
214
Download
0
Embed Size (px)
Citation preview
William W. Mercer Michael P. Manning Holland & Hart LLP 401 North 31st Street Suite 1500 P.O. Box 639 Billings, Montana 59103-0639 Telephone: (406) 252-2166 Facsimile: (406) 252-1669 Email: [email protected] Email: [email protected] ATTORNEYS FOR PLAINTIFF
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MONTANA
BILLINGS DIVISION Western Minerals LLC, Plaintiff, vs. KCP, Inc.; Ambre Energy North America, Inc.; Ambre Energy Limited, Defendants.
) ) ) ) ) ) ) ) ) ) ) )
No. ______________________ COMPLAINT AND JURY DEMAND
Plaintiff Western Minerals LLC, by and through its counsel of record,
Holland & Hart LLP, for its Complaint against Defendants, states and alleges as
follows:
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 1 of 52
-2-
PARTIES
1. Plaintiff Western Minerals LLC (“Western Minerals”) is an Oregon
limited liability company with its principal place of business in Gillette, Wyoming.
2. Defendant KCP, Inc. (“KCP”) is a Delaware corporation with its
principal place of business in Broomfield, Colorado.
3. Defendant Ambre Energy North America, Inc. (“Ambre North
America”) is a Delaware corporation with its principal place of business in Salt
Lake City, Utah.
4. Defendant Ambre Energy Limited (“Ambre Limited”) is an
Australian entity with its principal place of business in Brisbane, Queensland,
Australia.
5. KCP, Ambre North America and Ambre Limited are collectively
referred to herein as the “Ambre Entities.”
JURISDICTION
6. This Court has subject matter jurisdiction over this action pursuant to
28 U.S.C. § 1332(a)(3) because the parties are citizens of different states or
citizens of a foreign country and the amount in controversy exceeds $75,000.
7. This Court has personal jurisdiction over KCP because, at all times
relevant to this Complaint, KCP was registered to do business in Montana and was,
in fact, conducting business in Montana.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 2 of 52
-3-
8. This Court has personal jurisdiction over Ambre North America
because, as further described below, Ambre North America has substantial and
continuous contacts with Montana and its contacts with Montana give rise to the
causes of action in this Complaint. More specifically, Ambre North America
directly participates in the Decker Coal Company’s production and sale of coal
from the property known as the “Decker Mine” in Montana and controls KCP to
such a degree as to render KCP a mere instrumentality of Ambre North America.
Members of Ambre North America’s Executive Management team, including its
President and CEO Everett King, Tracy Welch, Tay Tonozzi, and Tim Fagley
either serve as KCP’s representatives on the Decker Coal Company’s Management
Committee (“Management Committee”) or have attended and participated in
Management Committee meetings. Tim Fagley additionally serves as both the
Decker Mine General Manager and a member of the Ambre North America
Executive Management Team. Michael Mewing, Ambre North America’s
President from December 2008 to December 2010, also led the business
development efforts related to the other Ambre Entities’ acquisition of KCP and
the associated 50% interest in the Decker Coal Company in November 2011.
9. In addition, KCP serves as Ambre North America’s representative
because it performs services – the production and sale of coal from the Decker
Mine, subject to Management Committee approval – that are sufficiently important
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 3 of 52
-4-
to Ambre North America (as more fully described in Paragraphs 14-154 below)
that if KCP did not perform them, Ambre North America itself would undertake to
produce or sell coal from the Decker Mine or would do so via a new
representative.
10. This Court has personal jurisdiction over Ambre Limited because, as
further described below, Ambre Limited has substantial and continuous contacts
with Montana and its contacts with Montana give rise to the causes of action in this
Complaint. More specifically, upon information and belief, Michael Mewing, a
member of the Ambre Limited Board, is responsible for management of Ambre
North America, including oversight and development of the Decker Mine; Ambre
Limited has been involved in the unauthorized marketing of coal from the Decker
Mine and in making unauthorized business decisions related to the Decker Mine;
and the Ambre Limited Board authorized and directed Everett King to purchase a
tub for the Decker Mine dragline. Upon information and belief, Michael Mewing,
on behalf of Ambre Limited, on various dates in 2011 and 2012 also toured the
Decker Mine with prospective Ambre Limited customers from South Korea.
11. On or about February 15, 2012, Ambre Limited issued a press
release announcing plans related to its proposed initial public offering on the
Australian Stock Exchange. This press release quotes Ambre Limited’s CEO,
Edek Choros as saying, “our prime strategy is to optimize coal assets in the US. . .
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 4 of 52
-5-
” The press release then references Ambre Limited’s acquisition of the 50%
interest in the Decker Mine and represented that it had “assumed full operating
responsibilities” for the Decker Mine.
12. In addition, KCP serves as Ambre Limited’s representative because
it performs services – the production and sale of coal from the Decker Mine,
subject to Management Committee approval – that are sufficiently important to
Ambre Limited (as more fully described in Paragraphs 14-154 below) that if KCP
did not perform them, Ambre Limited itself would undertake to produce or sell
coal from the Decker Mine or would do so via a new representative.
VENUE
13. Venue is proper in the District of Montana pursuant to 28 U.S.C.
§ 1391(b)(2) because a substantial part of the events or omissions giving rise to
Western Minerals’ claims occurred in Montana and the Decker Mine is located in
Montana. This case is properly filed in the Billings Division pursuant to L.R.
1.11(a)(1).
SUMMARY OF DISPUTE
14. This is a dispute between two 50% owners of the Decker Mine:
(1) Western Minerals, owned indirectly by Cloud Peak Energy Inc. (“Cloud Peak
Energy”), which has held its interest in the mine since 1993; and (2) KCP, owned
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 5 of 52
-6-
indirectly by Ambre Limited, which has held its interest in the mine, under Ambre
Limited ownership, since November 2011.
15. Prior to the Ambre Entities’ involvement, management
arrangements for the Decker Coal Company generally worked constructively for
many years. During the almost 20-year tenure of Western Minerals’ ownership of
50% of the Decker Mine, Western Minerals made significant capital investments in
the mine and the mine produced approximately 160 million tons of coal.
16. As described further in this Complaint, since being acquired by the
other Ambre Entities, the relationship between KCP and Western Minerals has
taken a dramatic and negative turn. Under its new ownership and with the direct
involvement, direction and assistance from the other Ambre Entities, KCP is
significantly abusing its obligations and responsibilities as day-to-day Manager,
unilaterally acting outside the approved budget and underlying mine plan,
engaging in a campaign of public and other unauthorized communications to
pursue the Ambre Entities’ unapproved agenda for Decker, and engaging in
various self-dealing transactions among the Ambre Entities and their affiliates, all
of which are in breach of KCP’s legal duties and are causing ongoing substantial
harm to Western Minerals.
17. Stated simply, the Ambre Entities seek to unilaterally force a
significant change in the long-standing direction of the Decker Mine and its
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 6 of 52
-7-
associated business and financial risks by redeveloping and expanding the mine for
planned future Asian exports. However, among other significant concerns, the
Ambre Entities’ export redevelopment proposition is not that the Decker Coal
Company should sell coal from the Decker Mine to Asian utilities with an equal
return to both 50% owners. Rather they proposed that the Decker Coal Company
should sell coal from the Decker Mine to the Ambre Entities, so the Ambre Entities
can retain undisclosed revenues and profits from such coal, while Western
Minerals bears 50% of the expense and risk of redevelopment of the mine. When
Western Minerals expressed concern about an April 30, 2012 Ambre Limited press
release regarding an unauthorized Ambre Limited sales contract with Korean
utilities and explicitly mentioning the Decker Mine, Mr. Everett King brushed off
the inquiry, saying such activities “did not require a discussion” with Western
Minerals.
18. The Ambre Entities have engaged in such conduct despite the fact
that, when they purchased their 50% interest in the Decker Mine in November
2011, they knew that the mine owners and Management Committee, including the
Ambre Entities’ predecessor-in-interest, Level 3 Communications, Inc. (“Level
3”), had approved a “Life of Mine” plan that provided that the mine would
complete its then only-existing sales contract with Detroit Edison and, barring any
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 7 of 52
-8-
additional, approved economic sales that would justify continuing production
under a new sales contract, transition to full reclamation of the mine.
19. Further, when the other Ambre Entities purchased KCP, they knew
that the Decker Mine has historically operated at a loss. In 2011, the Decker Mine
represented a net loss of $21.1 million (100% equity interest basis) of which
Western Minerals recognized 50% of that operating loss in its earnings. The 2011
loss excludes all final reclamation costs incurred as that is charged to the balance
sheet liability. The approved 2012 budget projects a full year operating loss of
$11.9 million (100% interest) which assumes final reclamation costs incurred of
$13.2 million are charged to the balance sheet liability.
20. The principal document governing the management of the Decker
Coal Company is a 1970 agreement that has been supplemented and amended
twelve times, referred to hereafter as the “Joint Venture Agreement.” A true and
correct copy of the Joint Venture Agreement, together with all of its amendments,
is attached hereto as Exhibit A.
21. Under the structure of the Joint Venture Agreement, with the
purchase of KCP, the Ambre Entities became not only a 50% owner but also
assumed the obligations of the Manager of the Decker Mine. The Manager bears
responsibility for managing the day-to-day operations of the Decker Mine in a safe
and efficient manner, in accordance with regulatory requirements and pursuant to
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 8 of 52
-9-
the approved budget and decisions of the Management Committee and the 50%
owners. Under the Joint Venture Agreement, the conduct of the Manager and all
major decisions are subject to oversight and approval by the Management
Committee, which is appointed equally by each co-owner. Neither party is
permitted to unilaterally make decisions related to the operation of the mine or
disregard the objections or disapprovals of the other party. The Decker Mine is
owned 50/50 with a 50/50 Management Committee.
22. In November 2011, shortly after the Ambre Entities’ acquisition of
their 50% interest in the Decker Mine, the representatives of the Ambre Entities
met with representatives of Western Minerals. During this meeting, the Ambre
Entities’ representatives represented to Western Minerals that the Ambre Entities
would manage the Decker Mine in accordance with the Joint Venture Agreement,
in a collaborative and fair manner, with full transparency and consensus from both
owners and based on a fundamental premise that all value derived from the assets
of the Decker Coal Company would be shared relative to the 50/50 ownership of
the assets.
23. At this meeting, and repeatedly on other occasions, representatives
of the Ambre Entities assured Western Minerals that the Ambre Entities would
fully engage Western Minerals and that 2012 would be a “status quo” year in
which the companies could undertake an orderly process to evaluate and reach a
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 9 of 52
-10-
mutual decision on whether to modify the longstanding, previously agreed plan
calling for the Decker Mine to transition into reclamation after the existing Detroit
Edison sales contract was completed.
24. Contrary to these representations, and despite the Ambre Entities’
full knowledge of KCP’s legal obligations to Western Minerals when the other
Ambre Entities purchased KCP, the Ambre Entities have aggressively used KCP
and its responsibilities as Manager to act contrary to the approved budget, enter
into unauthorized contracts, enter into self-dealing business arrangements, make
unauthorized and inaccurate public and other statements about the future of the
Decker Coal Company and unilaterally redefine the future of the Decker Mine, all
without the consent of Western Minerals and despite repeated objections from
Western Minerals.
25. For example, the Ambre Entities – through various related party
transactions and arrangements involving their proposed west coast coal export
terminal and marketing arrangements by their affiliates – have made it clear that
they intend to keep for themselves a disproportionate share of any potential value
of the coal from the Decker Mine that would be sold by the Decker Coal Company
to the Ambre Entities as a result of the Ambre Entities’ proposed export
redevelopment.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 10 of 52
-11-
26. Further, despite numerous requests, the Ambre Entities have yet to
provide Western Minerals with a complete and transparent business proposal for
redevelopment of the mine, including the commercial terms for the Ambre
Entities’ proposed self-dealing transactions involving coal from the Decker Mine.
Instead, the Ambre Entities have sought to implement their unilateral strategy to
force Western Minerals to fund unapproved expenses in support of an unauthorized
and unsupported dramatic shift in the longstanding business plans for the Decker
Mine.
27. Without any approval of the Decker Management Committee and in
the face of Western Minerals’ specific and repeated objections to such unilateral,
unapproved conduct, the Ambre Entities have made decisions regarding the 2012
mining operations and reclamation plans that are inconsistent with the approved
2012 budget (which includes, among other things, the associated mine plans,
mining/staffing/equipment schedules, capital and operating cost plans, reclamation
plans, and line items for cost of mining, reclamation accrual expenses, as well as
other specific expenses).
28. As a result, the Ambre Entities’ operation of the Decker Mine is in
breach of the Joint Venture Agreement. As more fully detailed herein, the Ambre
Entities have negotiated unauthorized new coal sales, made public and other
unauthorized statements about plans for increased production from the mine and
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 11 of 52
-12-
additional jobs, deviated from the “Life of Mine” plan presented by KCP as part of
the annual budget approval process (“Mine Plan”) and spent significantly less on
reclamation and significantly more on production than was approved by the
Management Committee, made decisions on the deployment of major equipment
that deviates from the Mine Plan, and planned to and/or made major new
equipment purchases.
29. These actions constitute breach of contract and related duties by
KCP and the other Ambre Entities, and caused considerable damage to Western
Minerals’ economic and business interests. Further, the injury to Western Minerals
interests and reputation is ongoing and likely to increase unless the Court
intervenes to prevent the Ambre Entities ongoing unilateral actions concerning the
Decker Mine and the Ambre Entities’ efforts to force its various self-dealing
transactions involving coal from the Decker Mine.
FACTS COMMON TO ALL COUNTS
History of Western Minerals and Cloud Peak Energy
30. Western Minerals was originally incorporated as Josephine
Development Co., Inc. in Oregon on July 24, 1962, and was a wholly owned
subsidiary of Pacific Power & Light Company.
31. On October 22, 1970, Josephine Development Co., Inc.’s Articles of
Incorporation were amended to change the name of the company to Western
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 12 of 52
-13-
Minerals, Inc. At the same time, the Articles of Incorporation were amended to
emphasize that one of the purposes for which the entity was formed was to engage
in a joint venture or partnership.
32. Western Minerals filed Articles of Conversion on October 21, 2009,
converting the company from a corporation to a limited liability company known
as Western Minerals LLC.
33. Following various transfers of ownership and control, Western
Minerals became a wholly owned subsidiary of Cloud Peak Energy on
November 19, 2009.
34. Western Minerals, Cloud Peak Energy, and its predecessors-in-
interest have been a 50% co-owner of the Decker Mine and joint venture
participant in the Decker Coal Company since 1993.
35. Cloud Peak Energy is a long-standing and experienced operator of
coal mines in the Powder River Basin (“PRB”). In addition to its interests in the
Decker Mine held by its subsidiary Western Minerals, Cloud Peak Energy also
currently owns and operates three other surface coal mines in the PRB including
the Antelope and Cordero Rojo Mines in Wyoming, and the Spring Creek Mine in
Montana. In June 2012, Cloud Peak Energy acquired an undeveloped surface mine
project in North East Wyoming from Chevron U.S.A. Inc. and CONSOL Energy
Inc.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 13 of 52
-14-
History of KCP
36. KCP was originally incorporated in 1970 as Wytana, Inc. and has
since undergone a series of name changes. First, in 1986, Wytana, Inc. changed its
name to Kiewit Mining Group Inc. Then, in 1991, Kiewit Mining Group Inc.
changed its name to Kiewit Coal Properties Inc. Finally, in 1998, Kiewit Coal
Properties Inc. changed its name to KCP, Inc.
37. Through various transfers, ownership of KCP was eventually
transferred to Level 3.
38. On November 10, 2011, Level 3 entered into an agreement with an
affiliate of Ambre Limited to sell all of the common stock of the holding company
via which Level 3 ran its coal mining operations. The transaction between Level 3
and Ambre Limited closed on November 14, 2011, and the parties satisfied post-
closing conditions on November 23, 2011.
39. Following the closure of the transaction between Level 3 and Ambre
Limited, KCP became a wholly owned subsidiary of Ambre Limited.
The Ambre Entities Corporate Structure
40. Upon information and belief, KCP is a wholly owned subsidiary of
AE Coal, LLC, a Delaware limited liability company.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 14 of 52
-15-
41. Upon information and belief, AE Coal, LLC is a wholly owned
subsidiary of Ambre North America. Ambre North America is the principal
United States subsidiary of Ambre Limited.
42. Upon information and belief, Ambre North America is a wholly
owned subsidiary of AE Minerals Pty Ltd., an Australian entity.
43. Upon information and belief, AE Minerals Pty Ltd. is a wholly
owned subsidiary of Ambre Limited.
44. Ambre Limited’s United States operations, through various
subsidiaries, include: coal infrastructure facilities on the west coast including a
62% interest in the proposed Millennium Bulk Terminal and a proposed marine
terminal business known as the Morrow Pacific project; and interest in coal mines
including two operating coal mines - the Decker Mine (Montana) and the Black
Butte Coal Mine (Wyoming), and two non-operating reclaimed coal mines known
as Big Horn and Rosebud both in Wyoming.
45. As more fully described below, according to Ambre Limited’s
website, its ultimate goal is “to acquire and operate producing assets, with idle
production capacity, in a relatively undervalued domestic market and utilize that
idle capacity to service the booming export market, particularly Asia.” Further,
“[t]he company’s plan is to load barges at the Port of Morrow in Oregon and
transship to panamax sized vessels nearer the mouth of the Columbia River.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 15 of 52
-16-
[Ambre Limited] plans to ship first coal via transshipment in 2013 followed by
coal through [its] Millennium shore based terminal in 2014-15.”
Management of Joint Venture Between Western Minerals and KCP
Creation of the Decker Coal Company
46. On September 1, 1970, Western Minerals (then, Western Minerals,
Inc.), KCP (then, Wytana, Inc.), Montana Royalty Company, Ltd (a limited
partnership between Resource Development Co., Inc., a Washington corporation,
and Rosebud Coal Sales Company, a Wyoming corporation, as limited partners),
and Peter Kiewit Sons’, Inc., a Nebraska corporation, entered into the Joint
Venture Agreement creating the Decker Coal Company, a joint venture. The Joint
Venture Agreement was subsequently amended twelve times: by a supplement
dated as of January 1, 1974; by Amendment No. 2 dated December 1, 1977; by
Amendment No. 3, dated August 24, 1978; by Amendment No. 4, dated January 1,
1982; by Amendment No. 5, dated July 9, 1983; by Amendment No. 6, dated May
7, 1985; by Amendment No. 7, dated January 1, 1989; by Amendment No. 8, dated
January 1, 1989; by Amendment No. 9, dated December 13, 1990; by Amendment
No. 10, dated January 1, 1999; by Amendment No. 11, dated April 9, 2002; and by
Amendment No. 12, dated January 20, 2012.
47. Western Minerals and KCP are herein referred to as “Venturers.”
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 16 of 52
-17-
48. The Venturers entered the Joint Venture Agreement for the purpose
of mining and selling coal from the properties known as the Decker Properties (as
defined in the Joint Venture Agreement) (referred to herein as the Decker Mine).
49. Pursuant to Section 5 of the Joint Venture Agreement, the Venturers
recognize that each of them may have coal interests other than the Decker Mine
and that other coal interests may be developed independent of any obligation under
the Joint Venture Agreement.
The Management Committee
50. The Joint Venture Agreement vests all executive supervision,
control and management of the Decker Coal Company in the Management
Committee.
51. A majority of the Management Committee must consent to any
decision related to the Decker Coal Company. The Management Committee is a
50/50 committee; it is not controlled by either owner.
52. According to the terms of the Joint Venture Agreement, the
members of the Management Committee are to be appointed as follows: three
members to be selected by Western Minerals and three members to be selected by
KCP. In practice, however, the Management Committee is composed of two
members selected by Western Minerals and two members selected by KCP.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 17 of 52
-18-
53. Under the terms of Section 9 of the Joint Venture Agreement, “[n]o
decision with regard to the operation of Decker Coal [Company] regarding the
development of the Decker Properties, construction of improvements, mining
operations, reclamation plans, acquisition of equipment or property, or sales or
other disposition of coal mined by Decker Coal shall be made except by and
through the Management Committee.”
54. Under the terms of Section 9 of the Joint Venture Agreement, “[a]ll
decisions relating to the activities of Decker Coal [Company] shall be arrived at
solely upon the consent of the majority of the Management Committee.”
55. Under the terms of the Joint Venture Agreement, authorization for
the sale or disposition of coal must be consistent with the Joint Venture Agreement
and authorized by the Management Committee.
56. Under the terms of the Joint Venture Agreement, any contracts for
the sale or disposition of coal from the Decker Mine shall be in the name of the
Decker Coal Company.
The Manager
57. The Joint Venture Agreement also defines the duties of the
Manager, who has the responsibility of seeing that: the Decker Coal Company
performs its mining operation and performs its reclamation work; the Decker Coal
Company maintains the buildings and equipment used in connection with the
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 18 of 52
-19-
mining operation; all necessary personnel are hired and that operating and
maintenance expenses are paid for, including labor, payroll, fuel, water, power,
materials and supplies.
58. In addition, under the Joint Venture Agreement, “[t]he Manager at
all times shall supervise and be responsible for (subject to the direction of the
Management Committee) the mining, production, sale and delivery of coal and
reclamation activities in connection therewith, and shall keep the Management
Committee at all times advised as to the operations of [the Decker Coal Company]
in such detail as is requested” and “Subject to the direction of the Management
Committee over reclamation, the Manager shall have sole authority to supervise,
control and direct all … activities related to reclamation of stripped lands and
maintenance of the environment…” Finally, the Manager is responsible for
various financial accounting tasks, including but not limited to furnishing specific
financial information to the Management Committee, preparing the necessary
income tax returns, keeping books of account, keeping records of coal mining
operations, maintaining insurance coverage, and preparing the annual proposed
budget for the Management Committee’s consideration.
59. The original Joint Venture Agreement designated Peter Kiewit
Sons’, Inc. as the Manager of the Decker Coal Company. Kiewit Mining &
Engineering Co. replaced Peter Kiewit Sons’, Inc. as the Manager of the Decker
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 19 of 52
-20-
Coal Company by Amendment No. 4 to the Joint Venture Agreement dated
October 1, 1982. In 1988, Kiewit Mining & Engineering Co. was merged into
KCP, with KCP as the surviving entity. As a result of the merger, KCP became the
Manager of the Decker Coal Company, and has had the responsibilities of the
Manager since that time.
60. Prior to the acquisition of KCP by the other Ambre Entities, Kiewit
Mining Group Inc. (“Kiewit”) provided operation and management services for the
Decker Mine under a management services agreement with KCP.
61. KCP’s role as the Manager of the Decker Coal Company does not
give it unilateral decision making authority to the exclusion of Western Minerals.
To the contrary, under the terms of the Joint Venture Agreement, the Manager is
responsible on a day-to-day basis for carrying out the approved decisions and
direction of the Management Committee.
Mine Plan and Budget
62. Mines, such as the Decker Mine, are customarily administered
according to an established mine plan and budget.
63. Consistent with its responsibilities as Manager, KCP has presented a
Mine Plan to the Management Committee as part of the annual budget approval
process.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 20 of 52
-21-
64. The annual budget requires approval from the Management
Committee.
65. Similarly, modification of the budget and the associated Mine Plan
also requires approval from the Management Committee.
66. The 2012 Decker Coal Company budget, dated November 14, 2011,
was approved by KCP and Western Minerals at the December 2011 Management
Committee meeting (the “Approved 2012 Budget”). Such approval by KCP was
affirmed by email dated February 21, 2012, from Everett King to Nick Taylor
wherein King stated “It was not our intention to withhold approval [of the 2012
budget]…. The budget as presented is approved by KCP as the base case for
2012.”
67. The Decker Mine has historically been a customer-limited mine.
Prior to August 2011, the only existing coal sales contract for coal from the Decker
Mine was with Detroit Edison (“DE Contract”). The DE Contract is set to expire
at the end of 2013.
68. Due to a combination of operational and economic reasons, for the
last two years, the Mine Plan for the Decker Mine has been to cease all coal sales
upon termination of the DE Contract and transition to full final reclamation of the
Decker Mine at the end of 2013.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 21 of 52
-22-
69. The Approved 2012 Budget includes line items for cost of mining
(including total reclamation performed – both contemporaneous and final),
reclamation accrual expenses, as well as other specific expenses.
70. The Approved 2012 Budget document also includes an associated
Mine Plan forecast for the years 2013 through 2019. The Mine Plan calls for coal
sale tonnage to decline over time with no further significant coal sales beyond
2013 sales to Detroit Edison.
71. The Mine Plan also forecasts reclamation performed for the years
2013 through 2019. According to the Mine Plan, final reclamation costs increase
over time.
72. The significant increase in the reclamation budget from 2013 to
2014 reflects the Mine Plan’s call for coal mining to cease and the Decker Coal
Company to redeploy the remaining workforce to reclamation activities at the end
of 2013.
73. As communicated to the Ambre Entities numerous times, Western
Minerals has been and remains open to consideration of modifying the existing
Mine Plan to extend coal production beyond 2013 if an objective economic
analysis indicates that the potential economic benefits to be obtained outweigh the
associated costs and risks, and that the intended benefits for making such a
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 22 of 52
-23-
significant change and investment in the mine are shared based on the 50/50
ownership of the mine.
74. To date, no such opportunity has been presented to the Management
Committee and thus the current Mine Plan calls for transition to full final
reclamation at the end of 2013.
75. The Ambre Entities’ loosely defined export redevelopment proposal
lacks basic information and transparency and is built upon a foundation of self-
dealing among the Ambre Entities.
History of the Decker Mine
Cost of Operations
76. The Decker Mine has historically incurred higher costs to produce
coal than similarly situated competitors.
77. The factors in these higher costs were recognized by Ambre North
America’s predecessor in interest, Level 3.
78. Specifically, Level 3 disclosed the following in its 2010 and 2011
Form 10-K filings: the Decker Mine is served by a single railroad, whereas many
of its western coal competitors are served by two railroads and such competitors’
customers often benefit from lower transportation costs because of competition
between railroads for coal hauling business. Level 3 also disclosed that other
western coal producers – particularly those in the PRB of Wyoming – have lower
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 23 of 52
-24-
stripping ratios (the amount of overburden that must be removed in proportion to
the amount of minable coal) than the Decker Mine, often resulting in lower
comparative costs of production. Level 3 reported that, as a result of these factors,
production costs per ton of coal at the Decker Mine can be as much as four and
five times greater than production costs of certain competitors.
79. In a March 15, 2012 letter from Everett King, the President and
CEO of Ambre North America, to Nick Taylor, one of Western Minerals’
appointees to the Management Committee and Western Minerals’ Senior Vice
President, Technical Services, Ambre North America acknowledged that “the mine
has not been competitive and profitable in recent years.”
80. In 2011, Decker Mine represented a net loss of $21.1 million (100%
equity interest basis) of which Western Minerals recognized 50% of that operating
loss in its earnings. The 2011 loss excludes all final reclamation costs incurred as
that is charged to the balance sheet liability.
81. The Approved 2012 Budget projects a full year operating loss of
$11.9 million (100% interest) which assumes final reclamation costs incurred of
$13.2 million are charged to the balance sheet liability.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 24 of 52
-25-
Historical Coal Sales
82. The Decker Coal Company sold the following tons of coal in the
years indicated: 2007 – 7.0 million tons; 2008 – 6.6 million tons; 2009 – 4.6
million tons; 2010 – 2.8 million tons; and 2011 – 3.0 million tons.
83. The historical downward coal sales tonnage trend is a product of the
non-competitive nature of marketing coal from the Decker Mine on the domestic
market.
The Ambre Entities’ Acquisition of KCP
84. Prior to the other Ambre Entities’ acquisition of KCP, as part of
their due diligence, the Ambre Entities met with representatives from Western
Minerals on several occasions in 2010 and 2011 to discuss operations at the Decker
Mine and the potential acquisition of KCP by the other Ambre Entities.
85. In fact, by letter dated October 18, 2010, from Nick Taylor to
Michael Mewing, Taylor, on behalf of Western Minerals, stated “its opposition to
Ambre’s proposed redevelopment of the Decker Mine” and highlighted various
concerns and issues, including “the proposed structure of coal sales agreements
between Decker and an affiliate of Ambre, with the Ambre affiliate reselling to
third party customers. Such a structure would deprive Cloud Peak Energy of a fair
mutual benefit in the joint venture in favor of Ambre’s group of affiliates.”
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 25 of 52
-26-
86. According to Ambre Limited’s 2011 Annual Report, the Ambre
Entities spent "five years … evaluating US coal regions and deposits to identify
acquisition opportunities that would build a supply base for sale through the
company’s coal marketing business to domestic and international customers.” “In
particular, [Ambre Limited] conducted technical due diligence and market
assessments” over KCP’s assets including the Decker Mine.
87. The Ambre Entities acquired a 50% interest in the Decker Coal
Company after completing significant due diligence and with full knowledge of
Western Minerals and Cloud Peak Energy’s interest and with full knowledge of the
existing Mine Plan that provides for a transition to full final reclamation at the end
of 2013.
88. Immediately following the other Ambre Entities’ acquisition of
KCP, in November 2011, members of the Ambre Limited Board met with
members of the Management Committee from Western Minerals to discuss the
potential future operations of the Decker Mine (the “November 2011 Meeting”).
89. During the November 2011 Meeting, the Ambre Entities represented
that they would fully engage Western Minerals in transparent discussions, based on
sharing any potential benefits pursuant to the mine’s 50/50 ownership, and allow
time for the parties to collectively move forward in evaluating whether there was a
business case for redevelopment of the Decker Mine.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 26 of 52
-27-
The Ambre Entities’ Efforts to Force Redevelopment of the Decker Mine to Facilitate Unilateral Business Plan for Self-Dealing
The Ambre Entities’ Goal
90. The Ambre Entities’ goal with regard to operation of the Decker
Mine is in direct conflict with the current Mine Plan associated with the Approved
2012 Budget.
91. As described publicly on its website, Ambre Limited’s stated
strategy is to “acquire sustainable coal resources and develop long-term mining
and coal upgrading operations; acquire and develop coal-related infrastructure to
expand its markets and facilitate trading activities; … and develop and supply
domestic and international markets with our products.”
92. Among other public disclosures, the Ambre Entities have stated the
following:
a. “The Union Pacific transcontinental rail line, also historically
used by BNSF, provides the [Port of Morrow] with a direct rail link to coal mines
in Montana, Wyoming, Colorado and Utah, including Ambre Energy’s mining
operations at Decker and Black Butte . . . . Ambre Energy expects to make
significant progress on this development over the coming year with a goal to barge
and ship first coal to Asia in 2013/14.”
b. “Coals such as those at Ambre Energy’s newly acquired
Decker coal mine based in Montana are the best suited coals for the Asian export
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 27 of 52
-28-
market. In addition to the state’s geographical advantage to the US west coast, the
Montana coals have higher energy levels compared to the southern PRB in
Wyoming.”
c. “Successful negotiations during 2010/11 resulted in Ambre
Energy acquiring … 50% ownership of the [Decker Mine]. With [this acquisition]
complete, Ambre Energy is on track to becoming a major supplier of US thermal
coal to the international market”; and
d. “The Morrow Pacific project is being developed to provide a
coal export route to U.S. trade allies. The project will ship low-sulfur PRB coal to
the Port of Morrow by train.”
93. During the November 2011 Meeting, and repeatedly since then, the
Ambre Entities have assured Western Minerals that no discussions or negotiations
or decisions have taken place, or would take place, with third parties involving
redevelopment of the Decker Mine without the direct involvement and approval of
Western Minerals.
94. During the November 2011 Meeting, and repeatedly since then, the
Ambre Entities have assured Western Minerals that they would provide to the
Management Committee a detailed redevelopment proposal including:
a. engineering, including cost and productivity assumptions as
well as coal quality projections;
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 28 of 52
-29-
b. permitting issues, including effects on reclamation costs and
bonding;
c. capital expenditures, including a detailed schedule by item,
discussion of cost risks, and calculated net present value on the investments;
d. market assessment, including price forecast, customer
targeting, and competitive analysis;
e. commercial terms for all proposed domestic and export
marketing of coal from the Decker Mine, including indicative sales prices and
terms for domestic and Asian export sales;
f. schematic of shared costs and how all potential value derived
from coal from the Decker Mine would be shared between the 50/50 owners
(including their affiliated entities); and,
g. risk assessment, including key assumptions, market risk, credit
risk, competitive risk, transportation risk, terminal development risk, capital risk,
reclamation cost risk, and other sensitivities that could negatively impact the
redevelopment business model.
95. To date, KCP has not submitted a full redevelopment proposal to the
Management Committee.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 29 of 52
-30-
96. Since the other Ambre Entities’ acquisition of KCP, the
Management Committee has not approved any revision to the Mine Plan or
extension of the life of the Decker Mine.
97. KCP has failed to abide by the contractually agreed process for
decision-making, including providing the necessary information that would allow
Western Minerals to evaluate whether a proposed change in the Mine Plan or
future operations of the Decker Mine are economically viable or not and whether
the potential value of coal from the Decker Mine is being shared consistent with
the 50/50 ownership.
Costs and Risks Related to Redevelopment of the Decker Mine
98. Redevelopment of the Decker Mine would require significant capital
costs, and associated risk, for both Venturers.
99. Redevelopment of the Decker Mine would constitute a drastic
change from the long-standing Mine Plan.
100. Redevelopment of the Decker Mine would involve significant risks
for both Venturers related to future increased reclamation costs and liabilities.
101. The risks to Western Minerals are increased by the potential
financial instability of the Ambre Entities. As reported in The Australian on
April 2, 2012, according to Ambre Limited’s own auditor, “There exists significant
uncertainty whether [the Ambre Entities] would be able to continue as a going
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 30 of 52
-31-
concern” due to financial problems. The Australian article further noted that “the
group’s accounts highlight the risky nature of resources investments.”
Unauthorized Deviation from Approved 2012 Budget
102. The Decker Mine Manager prepares the Decker Coal Company
monthly financial statements showing expenditures of the Decker Coal Company
(“Financial Statements”).
103. The Financial Statement dated April 19, 2012, shows the financial
statements for the three months ending on March 31, 2012 (the “March 2012
Financial Statement”). The March 2012 Financial Statement indicates that KCP,
as Mine Manager, spent 167% of the amount allocated in the Approved 2012
Budget to Cost of Mining from January 1, 2012 through March 31, 2012.
104. KCP did not propose a budget modification to the Management
Committee, nor did the Management Committee approve KCP’s unilateral
decision to spend nearly twice the budgeted amount on Cost of Mining during the
period from January 1, 2012 through March 31, 2012.
105. The March 2012 Financial Statement indicates that KCP, as Mine
Manager, spent less than half of the amount budgeted for Reclamation Allocated to
Liability for the period January 1, 2012 through March 31, 2012.
106. KCP did not propose a budget modification to the Management
Committee and the Management Committee did not approve KCP’s decision to
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 31 of 52
-32-
spend less than half of the amount budgeted for reclamation expenses for the
period January 1, 2012 through March 31, 2012.
107. The Approved 2012 Budget projects a full year operating loss of
$11.9 million (100% interest) which assumes final reclamation costs incurred of
$13.2 million are charged to the balance sheet liability. Through March 2012
Decker has reported an operating loss of 142% of the year-to-date budgeted loss.
The majority of the operating loss variance is due to redirecting final reclamation
to predevelopment activities. Final reclamation completed year-to-date totaled less
than half of the amount budgeted.
108. KCP refuses to abide by the contractually agreed process for
decision-making, including providing the necessary information that would allow
the Management Committee to evaluate whether a proposed change to the annual
budget is in the best interest of the Decker Coal Company.
Unauthorized Pre-stripping
109. KCP represented to Western Minerals at the May 2, 2012,
Management Committee meeting in Salt Lake City that pre-stripping has been
taking place and more is underway to position the Decker Coal Company for future
redevelopment and pre-strip for coal that has not been contracted or approved for
any future sales.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 32 of 52
-33-
110. KCP did not propose additional pre-stripping activities to the
Management Committee, nor did the Management Committee approve KCP’s
decision to engage in pre-stripping for coal that had not yet been contracted or
approved for future sales. Tim Fagley, on behalf of KCP, admitted during the
May 2, 2012 Management Committee Meeting, that pre-stripping expenses were
not a budgeted item in the Approved 2012 budget.
111. KCP represented to Western Minerals at the May 2, 2012
Management Committee meeting that KCP intended to keep the 1300 dragline in
the West Decker section of the Decker Mine working through 2012, despite the
fact that it was not budgeted and imposed increased costs on the owners.
112. KCP did not propose such dragline activities to the Management
Committee, nor did the Management Committee approve KCP’s decision to keep
the 1300 dragline in the West Decker section of the Decker Mine working through
2012.
Unauthorized Mullinax Contract
113. On August 10, 2011, the Decker Coal Company – via the Decker
Mine Manager – entered a Coal Supply Agreement with Mullinax Concrete
Company Inc. for the purchase and sale of coal from the Decker Mine or such
other location mutually agreeable to the parties (“Mullinax Contract”).
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 33 of 52
-34-
114. KCP did not present the Management Committee with an
opportunity to vote on whether to enter the Mullinax Contract nor did the
Management Committee approve KCP’s decision to execute the Mullinax Contract
on behalf of the Decker Coal Company for stoker coal sales.
115. Despite subsequent repeated requests by Western Minerals for a
financial and risk analysis of the unauthorized Mullinax Contract, KCP has refused
to provide such an analysis.
116. The Mullinax Contract will terminate on May 31, 2016,
approximately three years after expiration of the only approved pending sales
contract (i.e., the DE Contract).
Unauthorized Purchase of a Dragline Tub
117. KCP represented to Western Minerals at the May 2, 2012
Management Committee meeting that, despite Western Minerals’ specific
objections, KCP intended to purchase a dragline tub at a cost of approximately $10
million to support redevelopment. Specifically, Everett King stated at the May 2,
2012 Management Committee meeting, that the Ambre Limited Board had
authorized and directed him to purchase a tub for the Decker Mine.
118. The Management Committee never approved the Ambre Entities’
decision to purchase a dragline tub at a cost of approximately $10 million to
support unauthorized redevelopment of the Decker Mine.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 34 of 52
-35-
Korean Contracts
119. Upon information and belief, Ambre Limited, through one of its
subsidiary business divisions, Ambre International Coal Marketing & Trading
(“AICMT”), has entered into two contracts with South Korean power generators,
Korea South East Power Co. Ltd (“KOSEP”) and Korea Southern Power Co. Ltd
(“KOSPO”), to supply up to 3.0 million metric tons of U.S. coal per year to
KOSEP and up to 2.0 million metric tons of U.S. coal per year to KOSPO for a
term of 10 years each (the “Korean Contracts”).
120. In its April 29, 2012 press release announcing the Korean
Contracts, Ambre Limited specifically referenced the Decker Mine and its plan to
barge coal down the Columbia River to a planned fully owned facility at Port of
Morrow.
121. KCP did not present the Korean Contracts to the Management
Committee for approval, nor did the Management Committee approve of the
Ambre Entities’ public statements referencing the Decker Mine as an asset to
provide at least a portion of the coal involved in the Korean Contracts.
Exploration License Application
122. On June 25, 2012, the Department of the Interior, Bureau of Land
Management (“BLM”), published a Notice of Invitation for Coal Exploration
License Application MTM-103852 (“Exploration Notice”) which invited members
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 35 of 52
-36-
of the public “to participate with Ambre Energy in a program for the exploration of
coal deposits owned by the United States” in lands immediately adjacent to and
surrounding the Decker Mine. In fact, a large proportion of the lands covered by
the Exploration Notice are owned by the Decker Coal Company.
123. According to the Exploration Notice, the Coal Exploration License
Application was submitted by “Ambre Energy” and not KCP and the address listed
in the Exploration Notice is that for Ambre North America.
124. The Coal Exploration License Application was submitted by the
Ambre Entities without approval of the Management Committee and without any
consultation with Western Minerals.
125. The Coal Exploration License Application submitted by Ambre
Energy North America and/or “Ambre Energy” is further evidence of that entity’s
direct involvement with KCP’s breach of its obligations to Western Minerals.
Western Minerals’ Attempts to Work with Ambre
126. Western Minerals has repeatedly attempted to address Western
Minerals’ concerns regarding the Ambre Entities’ actions related to the Decker
Mine at Management Committee meetings and in other communications with the
Ambre Entities.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 36 of 52
-37-
127. Western Minerals’ many attempts to have KCP treat Western
Minerals as an equal partner, as provided by the Joint Venture Agreement, have
been unsuccessful.
128. On May 30, 2012, Western Minerals sent Ambre Limited and
Ambre North America a letter detailing its concern and demanding that the Ambre
Entities – including KCP – take a number of specific actions consistent with the
Joint Venture Agreement.
129. In its May 30, 2012, letter, Western Minerals asked that KCP and
the other Ambre Entities agree to eleven items that KCP believed were necessary
to correct the ongoing disagreements with the operation of the Decker Mine.
130. Western Minerals asked KCP and the other Ambre Entities to
agree in writing to items such as comply with Management Committee decisions
and cease activities not approved by the Management Committee, provide an
accounting of expenditures related to the Decker Coal Company, provide a detailed
and transparent redevelopment proposal that the Ambre Entities had previously
promised but failed to deliver, and cease further unauthorized communications and
disclosures regarding the post 2013 production capabilities of the Decker Mine.
131. On June 8, 2012, Everett King, on behalf of Ambre North America
responded to Western Minerals’ May 30, 2012 letter.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 37 of 52
-38-
132. Ambre North America’s response letter failed to address the
specific requests made by Western Minerals and characterized them as “totally
unreasonable.”
133. Rather than provide any meaningful answer to Western Minerals’
concerns, in its response, Ambre North America questioned Western Minerals’
motives for sending its letter and attempted to insert the wholly unrelated issue of
Cloud Peak Energy’s longstanding, well-known ownership of another coal mine.
134. Under Section 5 of the Joint Venture Agreement, “each party
recognize[d] that the other party, or a corporation or corporations affiliated with
such other party, has interests in coal resources other than the Decker Properties,”
and that such other coal resources may be developed or disposed of without the
input of the other venturer and without obligation to the other venturer.
135. Thus, when the Ambre Entities purchased Level 3’s interest in
KCP, they expressly agreed that the development or disposition of non-Decker
coal resources by Western Minerals (or any corporation affiliated with Western
Minerals) was entirely separate from and irrelevant to issues related to the Decker
Coal Company.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 38 of 52
-39-
KCP and the Ambre Entities Disregard for Western Minerals’ Concerns
Public Statements by Tim Fagley, the Decker Coal Company General Manager and Member of the Ambre North America Executive Management Team
136. As evidence of KCP’s ongoing disregard for the concerns
expressed by Western Minerals as recently as June 13, 2012, Tim Fagley, the
Decker Coal Company General Manager and member of the Ambre North
America Executive Management team, gave a presentation at the Sheridan County
Chamber of Commerce’s monthly luncheon where he announced that the Decker
Coal Company intended to double production “in the next year.” This
announcement was made without consultation or approval of Western Minerals or
the Management Committee and occurred 14 days after delivery of Western
Minerals’ letter to the Ambre Entities requesting that they cease and desist.
137. As reported by The Sheridan Press, Mr. Fagley addressed the
Decker Coal Company’s “tough economic past, recent changes in the company’s
business model and future expectations for exports and jobs.”
138. Mr. Fagley elaborated on the Decker Coal Company’s new
economic plans and indicated the company: is “looking to export most of its coal
to Asia, specifically to South Korean and India”; “aims to increase exports,
revenue and jobs in the coming years”; “[expects] to be shipping 7.5 million tons
by sometime next year;” and “expects to add 60 to 80 new jobs over the next few
years.”
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 39 of 52
-40-
139. None of these “changes in the company’s business model” or “new
economic plans” have been properly presented to the Management Committee,
voted on by the Management Committee, or approved by the Management
Committee.
140. Mr. Fagley also reportedly acknowledged that, “in recent years,
Decker has been in ‘shut down’ mode, with the goal of eventually shutting down
the site” and gradually dropping off and going into “closure mode.”
141. On or about June 22, 2012, Mr. Fagley stated the following about
the Decker Mine, “next year, we were scheduled for 1.5 million. We’re
negotiating with several customers and expect that to be at least 3.5 million next
year, if not higher.”
142. Through these unauthorized statements, Mr. Fagley is raising the
expectations in the local community regarding jobs and economic development
where such expectations may not be justified.
143. During his statements, Mr. Fagley failed to disclose that a change
from the current Mine Plan to implement the “changes in the company’s business
model” or “new economic plans” and the supposed plans to double production will
require approval by the Management Committee and involve significant risk and
capital expenditures by the Venturers.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 40 of 52
-41-
144. Through Mr. Fagely’s unauthorized communications, the Ambre
Entities are creating a situation that could severely damage the reputation of
Western Minerals and Cloud Peak Energy by forcing it to chose between
disappointing the local workforce or agreeing to a new business plan for the
Decker Mine that has not been the subject of proper analysis and that is built on a
foundation of self-dealing among the Ambre Entities.
145. Recent actions by the Ambre Entities demonstrate their pattern of
conduct and disregard for their legal obligations to Western Minerals.
Damages Suffered by Western Minerals
146. Based on the actions of KCP and the Ambre Entities and their
refusal to address the past, present and future concerns of Western Minerals,
Western Minerals has suffered damages and faces certain additional damages in
the future.
147. Mr. Fagley’s unauthorized recent public statements about the
future planned operations of the Decker Mine are in direct conflict with the Mine
Plan, statements made by Western Minerals, and decisions of the Management
Committee. The fact that co-owners could be in a position of making conflicting
public statements about the business plans for the Decker Mine may result in
negative reputational impacts to Western Minerals and, by virtue of its ownership
interest, Cloud Peak Energy.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 41 of 52
-42-
148. Furthermore, the statements made by Mr. Fagley omit the material
fact that all the Ambre Entities planned operations of the Decker Mine are subject
to approval by the Management Committee and ignore the economic realities
related to such plans.
149. Increased reclamation obligations at the Decker Mine resulting
from KCP and the other Ambre Entities unilateral deviations from the Approved
2012 Budget may also result in negative reputational impacts to Western Minerals
and, by virtue of its ownership interest, Cloud Peak Energy. Increased reclamation
obligations threaten the strong reputations with regard to the companies’
environmental programs, enjoyed by Western Minerals and Cloud Peak Energy.
150. As noted above, by a letter dated May 30, 2012, Western Minerals
enumerated its concerns to KCP and made specific requests for information and
commitments regarding future operations of the Decker Mine.
151. In the Ambre Entities’June 8, 2012 response, the Ambre Entities
failed to respond to Western Minerals’ request, and instead, threatened that “KCP
will be making the case to the relevant governments that [final reclamation of the
Decker Mine] is destructive, unnecessary and an act of bad faith on Cloud Peak
Energy’s part.” Any statements regarding Western Minerals’ or Cloud Peak
Energy’s position with regard to the future operations of the Decker Mine could
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 42 of 52
-43-
potentially have negative reputational impacts to Western Minerals and, by virtue
of its ownership interest, Cloud Peak Energy.
152. Such reputational impacts could extend to and impact Western
Minerals’ and Cloud Peak Energy’s relationships with the community, regulators,
and existing and potential customers, and other commercial counterparties.
153. As a result of KCP’s deviations from the Approved 2012 Budget,
Western Minerals has incurred additional capital expenditures, increased operating
losses, and an increased reclamation liability for the Decker Mine.
COUNT I – (BREACH OF CONTRACT AGAINST KCP)
154. Western Minerals incorporates all preceding paragraphs as though
set forth fully herein.
155. By its actions described in the previous paragraphs, KCP has
committed one or more breaches of the Joint Venture Agreement.
156. Western Minerals has been damaged by KCP’s breaches of the
Joint Venture Agreement and faces additional damages if KCP continues in its
conduct.
157. Western Minerals’ damages as a result of KCP’s breach of the
terms of the Joint Venture Agreement, include, but are not limited to additional
reclamation liability and expenses, damage to business reputation and goodwill,
and lost business opportunities.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 43 of 52
-44-
158. Because of its multiple breaches of the Joint Venture Agreement,
KCP is a “defaulting party” under the terms of the Joint Venture Agreement.
159. As a defaulting party, the Joint Venture Agreement requires that
KCP shall cease to have any voice in the management of the Decker Coal
Company or the Management Committee.
160. Under the terms of the Joint Venture Agreement, as a result of
being a defaulting party, KCP’s interest in the capital of the Decker Coal Company
shall immediately and exclusively vest, in trust, in Western Minerals.
161. Under the terms of the Joint Venture Agreement, due to KCP
becoming a defaulting party, the Decker Coal Company shall be managed
exclusively by Western Minerals.
COUNT II – (BREACH OF IMPLIED COVENANT OF GOOD FAITH AND FAIR
DEALING AGAINST KCP)
162. Western Minerals incorporates all preceding paragraphs as though
set forth fully herein.
163. As a contract subject to Montana law, the Joint Venture Agreement
contained an implied covenant of good faith and fair dealing.
164. As more specifically set forth in the preceding paragraphs, KCP’s
breach of the terms of the Joint Venture Agreement, failure to adhere to the
Approved 2012 Budget, and failure to adhere to the Mine Plan and other actions
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 44 of 52
-45-
constitute breaches of the Joint Venture Agreement’s implied covenant of good
faith and fair dealing.
165. Western Minerals has been damaged by KCP’s breach of the Joint
Venture Agreement’s implied covenant of good faith and fair dealing.
COUNT III – (BREACH OF FIDUCIARY DUTY AGAINST KCP)
166. Western Minerals incorporates all preceding paragraphs as though
set forth fully herein.
167. Under Montana law, KCP owed fiduciary duties to Western
Minerals as a co-joint venturer.
168. As more specifically set forth in the preceding paragraphs, KCP’s
breach of the terms of the Joint Venture Agreement, failure to adhere to the
Approved 2012 Budget, failure to adhere to the approved Decker Mine Plan and
other actions constitute breaches of its fiduciary duties to Western Minerals.
169. Additionally, upon information and belief, Ambre Limited
anticipates fulfilling the Korean Contract by engaging in various self-dealing
transactions, by selling to itself coal from the Decker Coal Company through either
Ambre Limited directly or an affiliated subsidiary and then re-selling such coal at a
higher price to KOSEP and KOSPO.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 45 of 52
-46-
170. This type of arrangement would result in increased profits to the
Ambre Entities to the detriment of Western Minerals and constitutes impermissible
self-dealing, which is a breach of KCP’s duty of loyalty.
171. Western Minerals has been damaged by KCP’s breaches of its
fiduciary duties.
COUNT IV – (INJUNCTIVE RELIEF AGAINST KCP, AMBRE LIMITED, AND AMBRE
NORTH AMERICA)
172. Western Minerals incorporates all preceding paragraphs as though
set forth fully herein.
173. As detailed above, the Ambre Entities’ wrongful actions are
causing irreparable damage to Western Minerals’ business reputation and
goodwill.
174. If the Ambre Entities are not enjoined from continuing the
wrongful acts described above, Western Minerals will continue to suffer
irreparable harm.
175. In light of the Ambre Entities’ ongoing conduct, including but not
limited to, entering into new contracts, commitments and making public statements
without proper authority, Western Minerals does not have an adequate remedy at
law to protect against the loss of its business reputation and goodwill.
176. Any money damages awarded to Western Minerals may also be an
inadequate remedy due to the Ambre Entities’ risk of financial collapse.
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 46 of 52
-47-
177. The balance of equities favors an injunction.
178. Granting injunctive relief will be in the public interest.
179. Accordingly, the Court should enjoin KCP and the other Ambre
Entities from further breaches of their obligations under the Joint Venture
Agreement and remove KCP as Manager of the Decker Mine.
COUNT V – (ACCOUNTING AGAINST KCP)
180. Western Minerals incorporates all preceding paragraphs as though
set forth fully herein.
181. The Joint Venture Agreement provides that the Manager shall
(1) not later than the 20th of each month, furnish to the Management Committee a
job cost report showing the results of the prior month’s activities of the Decker
Coal Company, and (2) at the end of each calendar year, provide to the Venturers a
certified financial statement of the Decker Coal Company, including a balance
sheet and a statement of profit and loss for the preceding year.
182. The Joint Venture Agreement also provides that the Manager shall
keep books of account showing costs incurred in connection with the development
of the coal field, conduct of mining operations and sale and delivery of coal or coal
products, and all matters pertaining to the Decker Coal Company.
183. Under the terms of the Joint Venture Agreement, all such books of
account and other records of the Decker Coal Company shall be open for
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 47 of 52
-48-
inspection by authorized employees of Western Minerals, and by its auditors and
legal counsel at all times.
184. Under the terms of the Joint Venture Agreement, a periodic
certified audit of such books shall be made by such national accounting firm as
may be determined by the Management Committee, but not less than once a year.
185. Western Minerals is entitled to an accounting of all costs incurred
in connection with the development of Decker Mine and all contracts for the sale
or disposition of coal that KCP or the other Ambre Entities have entered into on
behalf of the Decker Coal Company, or otherwise, involving the sale of Decker
coal.
COUNT VI – (AIDING AND ABETTING BREACH OF FIDUCIARY DUTY AGAINST
AMBRE NORTH AMERICA)
186. Western Minerals incorporates all preceding paragraphs as though
set forth fully herein.
187. As described above, KCP’s conduct constitutes a breach or
breaches of its fiduciary duties to Western Minerals.
188. Ambre North America knew that KCP’s conduct constituted a
breach of its fiduciary duty.
189. As described in more detail in the preceding paragraphs, Ambre
North America has provided, and continues to provide, substantial assistance or
encouragement to KCP for its conduct. Such assistance or encouragement
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 48 of 52
-49-
includes, but is not limited to, members of the Ambre North America Executive
Management team – including Everett King, Tracy Welch, Tay Tonozzi, and Tim
Fagley – attending and participating in the Management Committee meetings and
participating in or being responsible for decisions made by KCP as Mine Manager.
For example, Tim Fagley, who is a member of the Ambre North America
Executive Management team, also serves as the Decker Mine General Manager
and has specifically authorized expenditures inconsistent with the Approved 2012
Budget and Mine Plan.
190. Accordingly, Ambre North America is jointly and severally liable
for any and all harm caused to Western Minerals as a result of KCP’s breaches of
its fiduciary duties.
COUNT VII – (AIDING AND ABETTING BREACH OF FIDUCIARY DUTY AGAINST
AMBRE LIMITED)
191. Western Minerals incorporates all preceding paragraphs as though
set forth fully herein.
192. As described above, KCP’s conduct constitutes a breach of its
fiduciary duties to Western Minerals.
193. Ambre Limited knew that KCP’s conduct constituted a breach of
its fiduciary duties.
194. As described in more detail in the preceding paragraphs, Ambre
Limited has provided, and continues to provide, substantial assistance or
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 49 of 52
-50-
encouragement to KCP for its conduct. Such assistance or encouragement
includes, but is not limited to, (1) members of the Ambre Limited Board –
including Michael Mewing – attending and participating in Management
Committee meetings; (2) Ambre Limited’s marketing of coal from the Decker
Mine; (3) Ambre Limited making business decisions related to the Decker Mine;
and (4) Ambre Limited’s involvement in events surrounding the Korean Contracts.
195. Accordingly, Ambre Limited is jointly and severally liable for any
and all harm caused to Western Minerals as a result of KCP’s breaches of its
fiduciary duties.
COUNT VIII – (CIVIL CONSPIRACY AGAINST ALL DEFENDANTS)
196. Western Minerals incorporates all preceding paragraphs as though
set forth fully herein.
197. KCP, Ambre North America and Ambre Limited had a meeting of
the minds as to the following object: maximizing long term profits for the Ambre
Entities from the sale of coal from the Decker Mine that the Management
Committee had not approved and taking actions that would maximize the benefits
to the Ambre Entities through various self-dealing transactions, but not Western
Minerals.
198. KCP, Ambre North America and Ambre Limited also had a
meeting of the minds as to the following unlawful course of action: operating
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 50 of 52
-51-
outside of the terms of the Joint Venture Agreement and in breach of KCP’s
fiduciary duties to Western Minerals as more specifically described above,
including but not limited to, entering into the Korean Contracts and authorizing
expenditures and activities inconsistent with the Approved 2012 Budget and Mine
Plan.
199. In furtherance of this objective, KCP, Ambre North America, and
Ambre Limited committed the following unlawful acts: operating outside of the
joint venture and in breach of KCP’s fiduciary duties to Western Minerals as more
specifically described above, including but not limited to entering into the Korean
Contracts and authorizing expenditures and activities inconsistent with the
Approved 2012 Budget and Mine Plan.
200. Western Minerals suffered damage as a result of the defendants’
unlawful actions.
PRAYER FOR RELIEF
Western Minerals prays as follows:
201. For removal of KCP as Manager of the Decker Coal Company and
appointment of Western Minerals as Manager of the Decker Coal Company.
202. For a court order requiring that KCP provide an accounting to the
Management Committee that: (1) itemizes all the Decker Coal Company
expenditures or commitments that (a) exceed or were inconsistent with the
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 51 of 52
-52-
amounts for such line items in the approved 2012 Budget, or (b) were not approved
by the Management Committee (including expenditures related to the Decker Mine
made by Ambre Limited, Ambre North America, or any affiliated entity, outside of
the Decker Coal Company governance structure); and (2) provides full disclosure
of all proposed transactions concerning coal from the Decker Mine between the
Ambre Entities and their affiliates.
203. For money damages in an amount to be proven at trial, but which
exceeds $75,000.
204. For any and all further relief that the court deems appropriate,
including injunctive measures to prevent further damages to Western Minerals.
JURY DEMAND
205. Western Minerals hereby requests a trial by jury of all claims or
causes of action set forth in this Complaint that are properly so tried.
Dated this 9th day of July, 2012.
/s/ William W. Mercer ATTORNEYS FOR PLAINTIFF
5647323_10
Case 1:12-cv-00085-RFC-CSO Document 1 Filed 07/09/12 Page 52 of 52