Key Points

  • The Sixth Circuit affirmed a $25,179,709.24 judgment, plus interest, against James C. Justice II on his personal guaranty of his family coal companies' surety-bond collateral and premium obligations to Lexon Insurance Company.
  • Applying West Virginia law, the court held that the Amended Agreement unambiguously defines "Total Indebtedness" to include premiums that become 60 days past due during the agreement's term, not a fixed $3,538,400.75.
  • The guaranty's limitation of liability to $20 million plus "the amount of the Total Indebtedness specified" in the Amended Agreement covers the full, growing Total Indebtedness.
  • The Amended Agreement's term runs at least until the companies pay the Total Indebtedness in full, not to the October 1, 2021 collateral deadline.
  • Because each contract question had one unambiguous answer, the panel did not reach the district court's alternative findings based on extrinsic evidence.

A federal appeals court on Oct. 9 upheld a judgment of about $25 million against Senator James C. Justice II. The court ruled that his personal guaranty of his family's coal companies' debts to their bond insurer covers every premium the companies kept missing, not only the $3.5 million they owed when he signed.

A three-judge panel of the U.S. Court of Appeals for the Sixth Circuit affirmed the $25,179,709.24 judgment, plus interest, that U.S. District Judge Waverly D. Crenshaw Jr. of the Middle District of Tennessee entered for Lexon Insurance Company. Circuit Judge Murphy wrote the opinion for a panel that also included Judges Stranch and Bush. The opinion carries no separate writing.

Justice had challenged the premium portion of the award, about $10.9 million, arguing that his liability for unpaid premiums was fixed at $3,538,400.75 or ended in October 2021. The panel rejected each of his three contract arguments. It held that the agreements were unambiguous under West Virginia law, so it never reached the trial court's alternative findings based on evidence outside the documents.

The dispute grew out of surety bonds, which coal companies often must secure to obtain state mining permits. In that arrangement an insurer guarantees that a company will perform duties it owes a state agency, such as restoring mined land after operations end. Unlike a typical insurer, the opinion explained, a surety cannot cancel a bond on its own when a company stops paying. Lexon protects itself by requiring annual premiums and collateral it can draw on.

Companies owned by Justice and his family began obtaining Lexon bonds in 2010, exposing the insurer to obligations that have "consistently exceeded $100 million in risk," Murphy wrote. As the coal market weakened, the companies started missing premium payments around 2016. A March 2018 agreement, which Justice personally guaranteed, required them to post $5 million in collateral and pay $3 million in overdue premiums. They did neither in full.

In February 2019 the companies signed what the court called the Amended Agreement. It required $20 million in new collateral by April 1, 2021, a deadline later extended to Oct. 1, 2021. It set the overdue premiums, labeled "Total Indebtedness," at $3,538,400.75 and required payments of $200,000 a month "until the Total Indebtedness is paid in full." A separate clause added to the debt any premium that went 60 days unpaid.

Justice signed a new guaranty capping his liability at "twenty million U.S. dollars ($20,000,000.00) plus (ii) the amount of the Total Indebtedness specified in the" Amended Agreement. The companies ultimately paid $5.75 million of the collateral and $4.21 million in premiums, and they stopped paying premiums in March 2021. Lexon demanded payment from Justice in July 2023. When he declined, it sued.

Crenshaw granted summary judgment on liability and on $14.25 million in unpaid collateral. After a two-day bench trial, he found that the companies had run up $7,391,308.49 in additional late premiums, bringing the Total Indebtedness to $10,929,709.24.

On appeal, Justice argued that "Total Indebtedness" referred only to the dollar figure printed beside the label in the agreement. The panel conceded that "the phrase might be ambiguous if we read this sentence in isolation," and that Lexon could have avoided the problem with clearer drafting. But Murphy wrote that West Virginia law requires reading the contract as a whole. Under Justice's reading, the companies never agreed to pay premiums that went overdue after February 2019, which would leave the growth clause with nothing to do. "Senator Justice's account would make this paragraph futile—something West Virginia courts try to avoid," he wrote.

The court found further support in Justice's own guaranty. One of its recitals described the monthly payments as continuing until the Total Indebtedness, "including any new premiums becoming due during the term," was paid in full. Because the Amended Agreement was unambiguous, the court declined to apply the rule that ambiguous contract language is read against the drafter.

The panel also rejected Justice's argument that the guaranty's cap limited him to $3,538,400.75. Murphy reasoned that the cap named a precise number for collateral but only "the amount" of Total Indebtedness "specified" for premiums. He offered a hypothetical contract defining a debt as $5 million plus 5% annual interest, writing that "nobody would read this language as limiting the guarantor's liability to just the $5 million—without the interest."

Justice contended that this reading left his premium liability uncapped. The court responded that the cap still excludes premiums the companies owe after the Total Indebtedness is retired. "Just because it does not limit his liability as much as he would have preferred does not render it meaningless," Murphy wrote.

On the third question, the agreement's duration, Justice argued that the term reasonably ended on Oct. 1, 2021, the collateral deadline, when the Total Indebtedness stood near $3 million. The court held instead that the word "until" tied the term to an event, full payment, and that the fixed deadline applied only to collateral. Justice also argued that the companies will never have the money to pay, so the agreement would effectively last forever. "But the Companies' unfortunate financial predicament provides no basis to rewrite the contract to help them," Murphy wrote.

The panel closed by holding that courts must enforce such contracts as written, whether or not the bargain was wise. "So the district court correctly followed the contracts' language where it leads: Justice must pay all of the Companies' Total Indebtedness," the opinion said.

David R. Pogue of Carey Douglas Kessler & Ruby PLLC argued for Justice. Jason M. Halper of Vinson & Elkins LLP argued for Lexon.

The affirmance leaves in place the full $25,179,709.24 judgment, plus interest, entered in Nashville. The opinion was recommended for publication.