A dirty fight over coal is heating up in West Virginia.

Allegations of fake contracts, forged signatures, bad-faith negotiations and extortion all loom large in a $50 million battle between two major companies.

But behind all the indignation and accusations lies a simple (and expensive) lesson — execute a proper contract, and make sure it’s actually signed.

Still, you’d think the parties, hardly legal naifs, would know better. On one side is Bayer CropScience, part of German pharmaceutical and chemical giant Bayer A.G., which burns through about 200,000 tons of coal each year at its industrial park in Institute, W.Va. On the other is Central West Virginia Energy Inc., a subsidiary of coal producer Massey Energy Co., most recently in the news for bankrolling the election of a West Virginia judge that led to a June U.S. Supreme Court decision on recusal standards.

The bottom line in the current dispute, now pending before a trio of arbitrators in Charleston, W.Va., is straightforward: Did Bayer have a valid contract to buy coal from Massey for $54 a ton, or is Massey correct in asserting that the binding price is $160 a ton?

The answer is far from clear in a fight that stands out for its sheer ugliness. “It’s jaw-dropping,” said Massey’s lawyer, Robert Luskin, a partner at Patton Boggs in Washington. “I’ve represented a number of clients at sentencing who have done something similar, but never as a commercial adversary in civil litigation.”

OFFER ACCEPTED

For more than a decade, Massey provided almost daily truckloads of coal to the West Virginia plant, which makes agricultural chemicals and leases space to other industrial tenants. The coal is used to fuel the plant’s boilers, which produce steam and must operate around the clock. “Any interruption in the boilers would have a disastrous economic and legal impact,” wrote Bayer counsel Bruce Stanley, a partner in the Pittsburgh office of Reed Smith, in Bayer’s Oct. 9 prehearing brief. Massey subsidiary Central West Virginia Energy was “one of a very few coal suppliers that could meet [Bayer's] needs.”

Stanley knows his adversary well — he also represents Hugh Caperton, the owner of Harmon Mining, who sued Massey for allegedly driving him out of business in the case that wound up before the Supreme Court. Stanley and Bayer declined comment on the current case pending a decision from the arbitrators.

Every year or two, the companies renewed their coal supply agreement without incident. That is, until August 2006. Two midlevel managers, one from Massey and one from Bayer, e-mailed each other to come up with a new coal price for 2007 and 2008: $54 a ton — a slight drop from the 2006 price of $60 a ton.

“Bobby, If you can confirm by return email today or COB Monday the deal we discussed regarding coal pricing, then we have a done deal,” wrote Gary Smith, vice president of Massey Industrial Sales Co. on Aug. 4, 2006.

“Offer is accepted. We’ll get together to work any details going forward later. Thanks,” replied Bayer purchasing manager Robert (Bobby) Norris.

To Stanley of Reed Smith, the case ought to begin and end right there. “This clear, unequivocal offer and acceptance constituted the [contract] extension,” he wrote in Bayer’s brief.

In prior years, the deal was formalized in a signed letter and, indeed, the original 1997 contract specified that any changes required a “written amendment executed by both parties.”

Smith sent a letter to Norris at Bayer to sign in October. Norris said in a deposition that he had no memory of signing the letter, and Smith testified that he didn’t remember getting it back.

But apparently no one from either company — not the salespeople, the procurement team or the in-house lawyers — gave it another thought. “If they had signed and returned the letter in October of 2006, we would not be having this dispute,” said Luskin, who argues that the e-mails were an informal agreement, not a valid extension of the contract.

Seventeen uneventful months went by, during which Massey charged Bayer $54 a ton for coal.

And then, in spring 2008, the market price for coal nearly tripled. On the heels of this price spike, Massey took a closer look at the $54-per-ton “contract” with Bayer — and found the file was empty.

But Norris said he had a copy of the contract, according to Massey’s prehearing brief. The first document he faxed was signed by him alone. Massey rejected it. With no proof of a current contract, Massey promptly raised Bayer’s price for coal to $110 a ton in May. Two months later, Massey bumped it to $150 a ton.

That month, Norris met with Massey executives in Richmond, Va., who said they wouldn’t keep selling coal to Bayer without a signed agreement, especially since Bayer had been late with recent payments. When Norris (who no longer works for Bayer) arrived, he was “blindsided,” wrote Stanley, and presented with an agreement that was “one-sided and grossly unfair.” The price for coal: a whopping $160 a ton. But Norris signed it. To Bayer, the act was “fraudulently induced, under duress,” and the price “wrongfully extorted.”

Massey lawyers respond that Norris was left alone to review the contract and that he declined to call anyone at Bayer for advice. Afterward, all the participants went out to dinner together.

THAT’S NOT MY CONTRACT

Until this point, the dispute had been contentious, even cut-throat. But it became decidedly strange a few weeks later. That’s when Norris and his boss met with Massey managers and produced what they said was the original $54-per-ton contract.

The contract was signed by Norris and Smith, who no longer worked for Massey. Except Smith’s signature looked more like what you’d expect from a 13-year-old girl. (“All that was missing was a heart over the ‘i,’ ” Luskin said).

When Massey reps saw the document, they immediately doubted the signature. Norris responded that he had another version of the contract with Smith’s true signature back in his office.

The second signature, while closer to Smith’s real one, didn’t match either. The format of the contract was wrong, too, and the agreement was with Massey Industrial Sales, which is not licensed to do business in West Virginia, instead of subsidiary Central West Virginia Energy.

Massey pointed out the discrepancies, but Bayer “made no effort to investigate the matter to determine whether its representatives were parties to fraud,” wrote Luskin in his prehearing brief. Instead, Bayer in-house counsel George Goodridge sent Massey a letter demanding the $54-per-ton price and threatening legal action to enforce the supposed contracts. Massey, incredulous, sued Bayer in the U.S. District Court for the Eastern District of Virginia in August 2008, seeking a declaration that neither contract was valid. Bayer filed a counterclaim seeking to enforce the contracts. In December 2008, Bayer dropped its counterclaim and, three months later, the court declared the contracts invalid.

Bayer never did provide an explanation just how these contracts came to be — in its prehearing brief, the company simply acknowledges they are not valid and calls them irrelevant to the dispute.

After Bayer withdrew its counterclaim, it initiated the arbitration against Massey. Bayer wants the panel to award it $10 million as a refund for being forced to buy higher-priced coal from Massey until it found a new supplier in January 2009. Bayer had “no viable alternative but to acquiesce to [Massey's] unlawful demands,” Stanley wrote. He asserts that Massey knew the e-mails were a valid agreement but concluded, “based upon a cost benefit analysis, that it would be more beneficial for it to breach the contract than honor it.”

Massey says the July 2008 agreement that Norris signed in Richmond is binding. It requires Bayer to buy 450,000 tons of coal from Massey at $160 a ton through Dec. 31, 2010. Massey is claiming damages of $39 million, because the highest price for which it can sell Bayer’s coal allotment now is $53 to $62 a ton. Further, Massey asserts that Bayer has unclean hands. “They are not permitted to attempt to perpetrate a fraud and, when that doesn’t work, attempt to achieve the same thing legally,” Luskin said. “When all is said and done, this case reminds me of stuff my kids did as teenagers.”

Jenna Greene can be contacted at jgreene@alm.com.