Poundstone v. Patriot Coal Co., Ltd.

• Decision Date: 10 May 2007
• Docket Number: No. 05-5421.,No. 05-5344.,05-5344.,05-5421.
• Citation: 485 F.3d 891
• Parties: W.N. POUNDSTONE, D.C. Hall, Jr., E.R. Phelps, Dennis Hall, Plaintiffs-Appellees/Cross-Appellants, v. PATRIOT COAL CO., LTD., Defendant-Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

485 F.3d 891

W.N. POUNDSTONE, D.C. Hall, Jr., E.R. Phelps, Dennis Hall, Plaintiffs-Appellees/Cross-Appellants, v. PATRIOT COAL CO., LTD., Defendant-Appellant/Cross-Appellee.

No. 05-5344.

No. 05-5421.

United States Court of Appeals, Sixth Circuit.

Argued: November 28, 2006.

Decided and Filed: May 10, 2007.

ARGUED: David Domene, Blackburn, Hundley & Domene, Louisville, Kentucky, for Appellant. George E. Stigger, St. Marys, Georgia, for Appellees. ON BRIEF: David Domene, Winfrey P. Blackburn, Jr., Blackburn, Hundley & Domene, Louisville, Kentucky, for Appellant. George E. Stigger, St. Marys, Georgia, for Appellees.

Before MARTIN and GUY, Circuit Judges; ROSE, District Judge.^*

OPINION

BOYCE F. MARTIN, JR., Circuit Judge.

In this action for breach of contract, Defendant Patriot Coal Co. appeals certain orders entered by the district court related to the calculation of damages, and asks us to modify the law of the case by finding that a decision by a prior panel of this Court was clearly erroneous. Plaintiffs D.C. Hall, Jr., Ed Phelps, Dennis Hall, and William Poundstone cross-appeal, challenging the interest rate selected by the district court to govern the award of pre-judgment interest. For the following reasons, we affirm the district court's decisions, decline the invitation to modify the law of the case, and reverse only with regard to Plaintiffs' cross-appeal as to the prejudgment interest rate required by Kentucky law.

I.

The four issues before us now are a small subset of those that have been raised during the entire course of this litigation, and we set forth here only the facts that are centrally relevant to the issues that are raised in this appeal — the second in this case. A more complete version of the facts is reported in the decision of the first panel, Poundstone v. DEW Res., Inc., 75 Fed.Appx. 353, 357 (6th Cir.2003).

Plaintiffs formed a corporate entity, DEW Resources, and entered a coal mining lease with Reynolds Metal Company (the "Reynolds Lease") to mine and develop certain coal reserves in Henderson County, Kentucky in 1984. The following year, DEW subleased the property to Defendant Pyramid Coal Company. Plaintiffs subsequently sold their stock in DEW to Pyramid for $1.2 million, and entered into two separate agreements with Pyramid that called for Plaintiffs to receive certain contingent benefits for profits recognized from the property. These agreements were entitled the Contingent Benefit Agreement (or "CBA") and the Contingent Interest Agreement (or "CIA").

In 1994, Pyramid sold its mining assets to Defendant/Appellant Patriot Coal Company, including its rights under the lease of the mining property it had received from Plaintiffs. As part of the deal, Patriot explicitly agreed in a separate Assignment Agreement to assume the duties and obligations Pyramid owed to Plaintiffs, including the CBA and CIA. A dispute later arose over the benefits owed to Plaintiffs under their original sale of stock to Pyramid, and Plaintiffs filed this lawsuit on September 16, 1997 against Pyramid, Priot, and DEW to recover payments they claimed were owed to them under that arrangement.¹ Jurisdiction lay in the district court based on the parties' diversity of citizenship under 28 U.S.C. § 1332.²

The district court initially granted summary judgment on behalf of Plaintiffs on several of their contractual claims while rejecting several others. Plaintiffs appealed, and Patriot cross-appealed the district court's denial of its defenses of estoppel, laches, and waiver. On September 3, 2003, a panel of this Court reversed the district court's conclusion that Pyramid — and not Patriot — was solely liable for the contingent benefits payments to Plaintiffs resulting from the sale of the Reynolds Lease to Patriot. 75 Fed.Appx. 353 (2003). The panel also reversed the district court's ruling regarding the meaning of an amendment to the CIA involving the method of calculating royalties owed to Plaintiffs. Id. The panel affirmed all the other relevant portions of the district court's summary judgment order, including those challenged by Patriot in its cross-appeal. Id.

After remand, Patriot filed another motion for summary judgment in the district court, urging the district court to ignore this Court's ruling because it was clearly erroneous, and seeking a ruling that it only owed Plaintiffs payments based on coal sold by Pyramid after April 19, 1994, the date the Reynolds Lease was assigned from Pyramid to Patriot. The district court denied Patriot's summary judgment motion, rejecting its request to depart from the Sixth Circuit mandate, and ruling that Patriot owed payments based on all coal sales both before and after April 19, 1994. The case was then referred to a magistrate to determine the amount of the contingent benefits that Plaintiffs were owed. The district court subsequently adopted the magistrate's recommendation except for the recommended prejudgment interest rate. While the magistrate had recommended an interest rate of eight percent, the district court instead chose five percent.

Patriot now appeals, raising two arguments related to the denial of its post-remand summary judgment motion: first, that this panel should set aside the original panel order that Patriot is liable for the sale of lease liability to Plaintiffs, and second, that the district court's decision as to Patriot's liability on coal sold both before and after the assignment of the lease should be reversed. Patriot also appeals the district court's subsequent grant of prejudgment interest against it. Plaintiffs cross-appeal on the amount of prejudgment interest, contending that the district court abused its discretion in selecting a prejudgment interest rate of five percent instead of eight percent.

II.

Three separate standards of review apply to the issues raised in this appeal. First, Patriot's request that this panel modify the law of the case as determined by the prior panel can only be granted if the earlier decision was clearly erroneous. Coal Resources, Inc. v. Gulf & Western Industries, Inc., 865 F.2d 761, 767 (6th Cir.1989). Second, Patriot's appeal of the district court's post-remand summary judgment order that Plaintiffs are owed contingent benefit payments for the time both before and after the assignment of the lease is reviewed de novo. Bennett v. City of Eastpointe, 410 F.3d 810, 817 (6th Cir.2005). Finally, the challenges by both parties to the award of prejudgment interest is reviewed for an abuse of discretion. Conte v. General Housewares Corp., 215 F.3d 628, 633 (6th Cir.2000). The parties agree that Kentucky law governs the dispute.

III.

A. Was the prior panel decision that Patriot assumed the liability for payments to Plaintiffs for the sale of the Reynolds Lease clearly erroneous?

The prior panel decision that Patriot assumed the liability for payments to Plaintiffs for the sale of the Reynolds Lease based on the assignment from Pyramid to Patriot is now the law of the case. As such, we are precluded from reaching a different conclusion "unless one of three `exceptional circumstances' exists: [1] the evidence in a subsequent trial was substantially different; [2] controlling authority has since made a contrary decision of law applicable to such issues; or [3] the decision was clearly erroneous, and would work a substantial injustice." Coal Resources, 865 F.2d at 767. The first two circumstances — different evidence in a subsequent trial or a change in the law — are not applicable here. Thus, to warrant relief from the prior panel's decision and the district court's order on remand, Patriot must show that the decision was clearly erroneous and would work a substantial injustice.

When Pyramid bought the outstanding stock of DEW from Plaintiffs in 1988, the two sides entered the CBA (in this case, the Contingent Benefits Agreement, as opposed to a collective bargaining agreement) and CIA (the Contingent Interest Agreement, not the Central Intelligence Agency). These two agreements provided for payments to Plaintiffs based on profits from the future development of the Reynolds Lease land by Pyramid and its successors. The CBA provides in pertinent part as follows:

3. "Contingent Benefits" shall be the receipt by Buyer from any other person or party of (a) an overriding royalty on coal sold from Area III; (b) any other monetary consideration relating to Area I, Area III, or to other Reynolds properties in Henderson County, Kentucky, to which Buyer obtains mining rights pursuant to Paragraph 2.4 of the Reynolds Lease including any settlement of such rights with Reynolds . . .

4.

. . .

(a) With respect to item (a) in Paragraph 3 hereof, if the Contingent Benefit received by Buyer is in the form of an overriding royalty, for coal produced from Area III, fifty percent (50%) shall be payable to Sellers, provided, however, the amount payable to Sellers shall not exceed the equivalent of one-half (.5%) percent of the Gross Realization for all coal sold to consumers as defined in Paragraph 6 hereof.

(b) With respect to item (b) of Paragraph 3 hereof, Buyer and Sellers shall negotiate in good faith to determine the portion of the other monetary consideration which shall be payable as a Contingent Benefit to Sellers, provided however that the amount of the Contingent Benefit payable to sellers pursuant to item (b) of Paragraph 3 hereof shall be the lesser of (i) fifty percent (50%) of the monetary consideration received by Buyer, or (ii) the equivalent of one-half percent (0.5%) of the Gross Realization as defined in Paragraph 5 of the Contingent Interest Agreement from Area I for all coal sold to consumers.

Joint App'x at 35-37. The term "Buyer" is defined in the CBA as "Pyramid, any affiliate of Pyramid, DEW after Closing under the Letter Agreement, and any contractor, subcontractor, sublessee, assignee, successor to any interest of Pyramid or DEW. . . ." Id.

Based on these provisions (most...