Construction Law Insights

Knox Energy, LLC v. Gasco Drilling, Inc., 2018 U.S. App. LEXIS 15646, 2018 WL 2944408 (4th Cir. June 11, 2018)

Knox Energy, LLC and Consol Energy, Inc. (collectively, “Consol”) filed a declaratory judgment action against Gasco Drilling, Inc. (“Gasco”), seeking a declaration that a drilling contract between Consol and Gasco was unenforceable because there was no meeting of the minds. Gasco filed a counterclaim, alleging that the contract was valid and enforceable. A jury returned a verdict in favor of Consol, finding there was no meeting of the minds. On appeal, Gasco argued: (1) the district court erred in instructing the jury on mutual assent; (2) Consol engaged in discovery misconduct, which warranted a new trial; and (3) the district court abused its discretion in excluding a document that Gasco sought to introduce during trial, which Gasco claimed also warranted a new trial. The Fourth Circuit Court of Appeals affirmed the district court’s decisions.

In Virginia, a party seeking to recover in a breach of contract action must establish the existence of a legally enforceable agreement, which requires mutuality of assent, i.e. the meeting of the minds. If a person’s words and acts, judged by a reasonable standard, manifest an intention to agree, it is immaterial what may be the party’s real but unexpressed state of mind. Therefore, the district court’s following jury instruction was correct and proper: “If a party’s words or actions warranted a reasonable person in believing that it intended a real agreement, its contrary, but unexpressed, state of mind is immaterial.” When one party’s mistaken entry into a purported contract is coupled with the other party’s knowledge of that mistake, there is no mutual assent. Therefore, the district court’s following jury instruction did not conflate mutual assent with the affirmative defense of unilateral mistake: “If either party knew, or should have known, that the other had made a mistake with respect to the alleged agreement, then there was no meeting of the minds, and no contract.” Because a party cannot claim a valid contract exists if it knew that the other party never intended to enter into an agreement, the district court did not err in instructing the jury that a party “cannot snap up an offer that is too good to be true.” Finally, the district court did not err in denying Gasco’s proposed instruction that assent turns “exclusively on the express communications between the parties at the time the [contract] was executed.” The district court substantially gave Gasco’s proposed instruction, but did not limit the jury’s consideration to communications at the time the contract was executed because such a limitation is not supported by case law or commonsense.

To warrant a new trial under FRCP 60(b)(3), Gasco had to: (1) demonstrate that it had a meritorious claim; (2) prove the misconduct by clear and convincing evidence; and (3) demonstrate that the misconduct prevented Gasco from fully and fairly presenting its claim. The district court did not abuse it discretion in denying Gasco’s FRCP 60(b)(3) motion because the district court considered Gasco’s arguments in the broader context of the discovery process and concluded that Gasco had failed to prove by clear and convincing evidence that Consol had engaged in any misconduct or that Gasco was prevented from presenting its claim. Finally, the district court did not abuse its discretion in refusing to admit a document that Gasco (i) obtained a week before the trial via a subpoena on a non-party, (ii) did not list in its exhibit list, and (iii) tried to introduce on the third day of the trial without prior notice to Consol. 

PLDR Law Mark Burgin 1 PLDR Law Scott Kowalski 1 Wolf Tom v2 Stout Kenneth 2016

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