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CENT. ILL. PUB. SERV. v. ATLAS MINERALS
May 27, 1997
CENTRAL ILLINOIS PUBLIC SERVICE COMPANY, PLAINTIFF,
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:
A contract between a coal company and a public utility to
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.
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 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
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.
Problems began early and continued through the life of the
contract. In 1990, Buck Creek experienced severe mining
difficulties and wrote to CIPS to claim a force majeure. In a
November 30, 1990 letter to CIPS, Rick Bartholomew stated that
Indiana Coal had encountered mining difficulties and wished to
excuse a production shortfall of 69,629 tons.
On December 4, 1990, representatives of CIPS, Atlas, and
Indiana Coal met to discuss the 1990 shortfall. On December 21,
1990, Dennis Kirchner of CIPS wrote back to Indiana Coal:
. . At this time, [CIPS] does not believe it
is appropriate to Force Majeure this tonnage. Our
Agreement guarantees CIPS 100,000 tons of coal
(less applicable Force Majeure) in 1990 and
250,000 annual tons of coal (less applicable Force
Majeure) for the period of January 1, 1991 through
December 31, 1995. Accordingly, CIPS would like to
further discuss this issue with Atlas [ ] and Buck
Creek [ ].
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
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
(1) 1994 — 15,000 tons delivered in
addition to the 1994 base contract tonnage.
This tonnage would be priced at the 1994
(2) 1995 — 15,000 tons delivered in
addition to the 1995 base contract tonnage.
This tonnage would be priced at the 1995
(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
John, if the above conditions are satisfactory
to [CIPS], we are prepared to execute a Memorandum
or Letter of Agreement, following these
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
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 ...