Federal Court Enjoins Owner From Withholding Payment of Disputed Invoices Based on Contract Provision Requiring Parties to “Diligently Proceed With Performance” Notwithstanding Any Dispute

Coalview Centralia, LLC v. Transalta Centralia Mining LLC, 2018 U.S. Dist. LEXIS 185914 (W.D. Wash. Oct. 30, 2018)

This case involves a dispute over Coalview Centralia, LLC’s (“Coalview”) performance of environmental cleanup work at a coal mine and associated power plant near Centralia, Washington.  TransAlta Central Mining (“TCM”) hired Coalview to remediate and restore three waste coal slurry impoundment ponds.  In general terms, Coalview agreed to dredge the ponds, extract the coal fines for use in the power plant, and deliver the remaining slurry for final disposal.  Coalview was to submit monthly invoices – and to be paid – based on the weight of slurry removed or the weight of usable coal recovered, whichever is greater.

The Master Services Agreement (“MSA”) between TCM and Coalview provided, in pertinent part, that: (1) TCM had 30 days to “dispute” an invoice and explain the reasons for its dispute; (2) the parties had a one-year period to correct invoice “inaccuracies”; and (3) “[n]otwithstanding any disputes … contractor and owner shall diligently proceed with performance of this Agreement.”

In May 2018, a dispute arose regarding three invoices submitted by Coalview, which totaled $850,000.  In June 2018, TCM sent Coalview a letter objecting to invoices dating to December 2014, claiming TCM had overpaid Coalview by $16 million and threatening to terminate the parties’ contract if Coalview did not refund these excess payments in 30 days.  TCM claimed that Coalview “defrauded” and “deliberately overcharge[ed]” TCM by invoicing for significantly more slurry and coal fine solids than it actually removed from the ponds. Coalview filed suit, claiming that TCM waived any objections to the invoices by failing to object within the strict time periods imposed by the MSA and that TCM anticipatorily breached the parties’ agreements.  Coalview also moved for a preliminary injunction to enjoin TCM from terminating the MSA and to require TCM to “continu[e] to diligently perform while the dispute is resolved.”

The Court concluded that Coalview met all four factors for the grant of a preliminary injunction.  First, Coalview showed a likelihood of success on the merits since not only did the MSA impose a clear deadline for disputing invoices, but regardless of any disputes, TCM was required to “diligently proceed with performance of [the MSA].”  The Court also found that the MSA did not permit the withholding of payments that TCM was attempting.  Second, the Court found that Coalview showed that it would suffer irreparable harm in the absence of injunctive relief since, if TCM terminated the MSA, Coalview would go out of business, be forced to layoff its employees and lose its substantial investment ($31 million) in the project.  Third, the balance of the equities tip in Coalview’s favor since continued performance of the MSA will benefit both parties.  Specifically, if Coalview went out of business, TCM would be unable to recover the alleged $16 million owed and would have to hire a new contractor.  Finally, the termination of the MSA and the delays caused by a complete stop of the remediation work and the hiring of a new contractor would not be in the public interest.

Therefore, the Court ordered that: (a) TCM was immediately required to proceed under the MSA; (b) TCM was immediately required to pay Coalview its outstanding invoices; (c) TCM was required to timely pay Coalview for the work done or to be done under the MSA; and (d) TCM was prohibited from setting off any prior payments made to Coalview against any of Coalview’s future work absent a Court order.

To view the full text of the court’s decision, courtesy of Lexis®, click here.

Luke Nicholas Eaton