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CENT. ILL. PUB. SERV. v. ATLAS MINERALS

May 27, 1997

CENTRAL ILLINOIS PUBLIC SERVICE COMPANY, PLAINTIFF,
v.
ATLAS MINERALS, INC. AND INDIANA COAL COMPANY F/K/A BUCK CREEK MINING, INC., DEFENDANTS.



The opinion of the court was delivered by: Richard Mills, District Judge:

    OPINION

A contract between a coal company and a public utility to supply coal.

During the term of the contract, things did not go well for the coal company.

Now that the term of the contract has expired, the parties disagree whether each side held up its end of the bargain.

To resolve this case, the Court must untangle the parties' extensive dealings and must unravel and apply two provisions of the Uniform Commercial Code.

I. BACKGROUND

A.  Parties and Characters

Defendants Atlas Minerals, Inc. (Atlas) and Indiana Coal Company (Indiana Coal) are both Indiana Corporations. Indiana Coal is the successor to two merged companies, Buck Creek Coal, Incorporated and Buck Creek Mining, Incorporated. Atlas was the marketing representative for the Buck Creek companies (for simplicity's sake, the Court will call Defendants collectively: Atlas).

Atlas Minerals, Inc. was wholly owned by Walter Pieper. Pieper was also a principal in Buck Creek. From 1986 to 1994, Richard Bartholomew acted as the Vice President of Marketing for Atlas. Charles Schulties became an investor in Buck Creek in 1992, and assumed an active management role in mid-1994 when Pieper became ill.

Central Illinois Public Service Company (CIPS) is an Illinois public utility supplying electricity to central and southern Illinois. CIPS operates several coal-burning power plants in Illinois. CIPS buys coal to burn in its power plants by entering long-term purchase contracts (like the one at issue in this case) and by making "spot" purchases (open market purchases with durations of less than one year).

In 1988-89, CIPS' Fuel Procurement Section handled the utility's purchases of coal. Mark Cochran, an engineer and attorney, headed the Fuel Procurement Section. The Fuel Procurement Section fell within CIPS' Purchasing and Stores Department, headed by James Birkett. John Prier and Bruce Garner worked for Cochran in the Fuel Procurement Section. In 1990, Dennis Kirchner took over Cochran's post when Cochran was promoted.

B.  The Contract

On June 22, 1989, Atlas and Indiana Coal entered into a Coal Sale and Purchase Agreement (the contract) with CIPS. Through the contract, Atlas agreed to sell coal from the Buck Creek mine near Sullivan, Indiana to CIPS to burn at its Newton, Illinois Generating Station Unit Number 2. Due to a geologic anomaly, the Buck Creek mine produces both high and low sulphur coal. The contract was for the purchase of "compliance coal," coal that produces less than 1.2 pounds of sulphur dioxide per 1,000 BTUs of energy released when the coal is burned. At the Buck Creek mine, compliance coal came from the north section and high sulphur coal from the south section of the mine.

The parties' sixteen page contract specifies delivery schedules and prices for the coal, and describes in detail the properties of the coal to be supplied. It also specifies its term: "This Agreement shall commence on June 22, 1989, and continue through December 12, 1995. No suspension of an obligation under this Agreement by reason of Force Majeure (as hereinafter defined) shall extend the term of this Agreement, except upon mutual consent of the SELLER and BUYER." The parties agreed that Illinois law would govern the contract. For purposes of this litigation one of the most important contract provisions is this: "This Agreement contains the entire agreement between the parties hereto, and no alteration or modification thereof shall be binding unless in writing and signed by the BUYER and SELLER."

The contract specified that from June 1, 1990 to December 31, 1990 Atlas would sell and tender a minimum of 100,000 tons of coal, less any tonnage excused by reason of a force majeure. From January 1, 1991 to December 31, 1995, Defendants were required to sell at least 235,000 tons per year and not more than 250,000 tons per year (the contract allowed CIPS to elect to receive any quantity between 235,000 and 250,000 tons per year). The contract set prices for the coal that started at $22.27 per ton for the first 50,000 tons of coal delivered during the June 1, 1990 to December 31, 1990 period. The final price, for the January 1, 1995 through December 31, 1995 period was either $27.37/ton or $27.85/ton depending on the method of shipment. At the time the parties entered the contract, the prices were below the market price for purchases of coal on the "spot" market. The contract did not contemplate delivery of any coal beyond the specified annual allocations, unless the parties amended the contract.

The contract defined the term "force majeure" as:

  [A]ny causes beyond the reasonable control of the
  party affected thereby, such as acts of God; acts
  of the public enemy; insurrections; riots;
  strikes; labor disputes; fires; explosions;
  floods; breakdown or damage to plants, equipment,
  or facilities; accidents of navigation;
  interruptions to transportation; river freeze-ups;
  embargoes; orders or acts of military or civil
  authority (executive, judicial, or legislative),
  including but not limited to, any regulation,
  direction, order, or request (whether valid or
  invalid) made by any governmental authority or
  person acting therefor, which is complied with in
  good faith; or other such causes of a similar or
  dissimilar nature which wholly or partly prevent
  the mining, delivering, and/or loading of coal by
  SELLER, or the receiving, transporting and/or
  delivering of coal by the carrier of the coal, or
  the accepting, utilizing and/or unloading of the
  coal by BUYER. The doctrine of ejusdem generis
  shall not be applied to exclude any event
  dissimilar to the enumerated events, but which is
  beyond the reasonable control of a party.

The effect of a force majeure under the contract was to allow the party suffering the force majeure to cease performance upon notice to the other party. Thus, if one party suffered a force majeure event and gave notice to the other party, the notifying party was excused from performing its obligations under the contract from the beginning of the force majeure until the condition ceased. The contract specified, however, that "[a]ny deficiencies in deliveries of coals hereunder, which are excused by Force Majeure, shall not be made up except by mutual consent of the parties."

C.  The Course of Performance

The relationship between CIPS and Atlas was troubled, primarily because the Buck Creek mine did not live up to expectations. The mine's disappointing performance has led to bankruptcy for Indiana Coal and, predictably, to this lawsuit.

    Because of the poor mining conditions
  experienced by Atlas during the start-up and your
  discussions regarding the effect it has had on
  cash flow of the mine, CIPS would be willing to
  discuss 1) the delivery of the subject tonnage at
  such time when production levels of compliance
  coal have stabilized (including delivery after
  December 31, 1995); and 2) a price or pricing
  mechanism for the subject coal that is agreeable
  to both parties.

Representatives of the parties again met on January 25, 1991. At the meeting, Atlas proposed making up the 1990 shortfall in two installments of 15,000 tons each in 1994 and 1995 followed by a third installment of 39,629 in 1996. On February 7, 1991, John Prief wrote to Rick Bartholomew of Atlas and stated:

    During our meeting of January 25, 1991, in
  Springfield, Illinois, you proposed the following
  possibilities for making up the shortfall of the
  1990 shipments (69,629 tons):
    For each of the years 1994 and 1995, deliveries
      would be accelerated by approximately 15,000
      tons. CIPS would pay the applicable price for
      each year, as stated in our Agreement.
    2) For the year 1996, deliveries would be
      accelerated by approximately 39,629 tons. CIPS
      would pay the 1995 price, plus any escalation
      that would be based on an indicator agreed to
      by both parties.
    As stated in our letter of December 21, 1990,
  CIPS is agreeable to making up the tonnage at an
  agreed-to price that differs from the contract
  price. We would, however, prefer to have the
  tonnage made up as soon as production levels
  permit. This would afford both parties the
  possibility of making up tonnage in any future
  adverse mining conditions.

On February 18, 1991, Rick Bartholomew responded to Prief's letter:

    In response to your letter of February 7, 1991,
  I have listed below for your review our thoughts
  regarding the 1990 shortfall tonnage — 69,629
  tons.
    (1) 1994 — 15,000 tons delivered in
      addition to the 1994 base contract tonnage.
      This tonnage would be priced at the 1994
      contract price.
    (2) 1995 — 15,000 tons delivered in
      addition to the 1995 base contract tonnage.
      This tonnage would be priced at the 1995
      contract price.
    (3) 1996 — 39,629 tons delivered in
      addition to the contract tonnage elected by
      [CIPS] — 1996. The 1996 shortfall tonnage
      would be priced at the 1995 contract price,
      adjusted () by an escalator of 6%. The base
      contract tonnage for 1996 would follow the
      pricing guidelines of our agreement.
    (4) Tonnage considered as surplus to (1) our
      operations and (2) our required base contract
      tonnage, during 1991, 1992, and 1993, will be
      shipped to satisfy our shortfall tonnage
      requirement. This coal will be delivered
      following negotiation of, and approval by
      [CIPS]. Pricing would be governed by the
      contract price in effect at the time of
      delivery.
    John, if the above conditions are satisfactory
  to [CIPS], we are prepared to execute a Memorandum
  or Letter of Agreement, following these
  guidelines.

In a February 22, 1991 telephone call, CIPS indicated to Bartholomew that Atlas could ship its excess production to make up the 1990 shortfall. Then, on March 6, 1991, J.L. Lisenbee, CIPS' Vice President for Corporate Services*fn1, responded to Bartholomew's February 18, 1991 letter. He wrote:

    After reviewing your letter of February 18,
  1991, regarding the 1990 delivery shortfall of
  69,629 tons, [CIPS] would like to propose the
  following:
    1. During each of the contract years 1994 and
      1995, CIPS shall receive, in addition to the
      contractual tonnage stated in Article III,
      15,000 tons at the applicable ...

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