Aquila, Inc. v. C.W. Mining

Decision Date07 November 2008
Docket NumberNo. 07-4255.,07-4255.
PartiesAQUILA, INC., Plaintiff-Appellee, v. C.W. MINING, d/b/a Co-op Mining Company, Defendant-Appellant.
CourtU.S. Court of Appeals — Tenth Circuit

Before McCONNELL, EBEL, and GORSUCH, Circuit Judges.

GORSUCH, Circuit Judge.

This diversity action implicates a contract between C.W. Mining ("CWM") and Aquila, Inc. ("Aquila"), pursuant to which CWM supplied Aquila, a public utility that produces electrical power, periodic shipments of coal from CWM's Utah mine. At trial, Aquila claimed that CWM breached the parties' contract by failing to perform as promised and that, as a result, it had to purchase coal from other sources at prices higher than those specified in the contract. CWM conceded its failure to perform, but argued that its nonperformance was excused by virtue of a labor dispute that amounted to a force majeure event under the terms of the contract. The district court disagreed with the factual premise underlying this defense, finding that geological, not labor, problems were the primary force inhibiting CWM's performance. The district court further rejected CWM's alternative theory that the geological difficulties themselves qualified as force majeure events because Aquila had actual notice of them that substituted for the written notice required under the contract; instead, the court found that Aquila never received adequate notice that CWM considered its geological difficulties to constitute force majeure events. Finally, the district court found that Aquila properly mitigated its losses and that it was entitled to approximately $24 million in damages. CWM appeals each of these determinations. Because we agree with the district court's legal conclusions and find no clear error in its factual findings, we affirm.

I
A

On September 16, 2003, the parties signed an agreement obliging CWM to provide Aquila with a total of 1,550,000 tons of coal during the years 2004-2006, with an option for Aquila to extend the contract through 2008. Pertinent for our purposes, the contract also contained a force majeure provision providing in relevant part as follows:

Section 13 Force Majeure

(A) Defined

The term "Force Majeure" as used herein shall mean any and all causes beyond the reasonable control of the party failing to perform, including but not limited to acts of God; ... labor disputes; boycotts; lockouts; labor and material shortages; ...; breakdowns of or damage to plants, equipment, or facilities; ... or other causes of a similar nature which wholly or partly prevent or make unreasonably costly (i) the mining, delivering, or loading of the coal by Seller; or (ii) the receiving, transporting, accepting, or utilizing of the coal by Buyer at the Station. To be considered unreasonable such increased costs must be substantial and sustained so that mining is no longer possible. This Section shall not be construed to require either party to prevent, settle or otherwise avoid or terminate a strike, work slowdown, or other similar labor action.

(B) Effect Hereunder

If, because of any Force Majeure, either party hereto is unable to fulfill any of its obligations under this Agreement, and if such party shall promptly give to the other party concerned written notice of such Force Majeure, then the obligation of the party giving such notice shall be suspended to the extent made necessary by such Force Majeure and during its continuance, and the obligations of the party receiving the notice shall be equally suspended; provided, however, that the party giving such notice shall use its best efforts to eliminate such Force Majeure insofar as reasonable, with a minimum of delay. Any deficiencies in deliveries or acceptance of coal hereunder caused by Force Majeure shall not be made up except by mutual consent. If a Force Majeure continues for more than six (6) months then either party may terminate this Agreement by giving written notice to the other party without penalty or cost. During an event of partial Force Majeure by either party, a fair and reasonable allocation of deliveries of coal or the ability to consume coal shall be made to mitigate the impact on each party.

Aplt.App. at 129-30 (Section 13 of the contract).

The contract further included a choice of law clause specifying that Missouri law was to control the parties' agreement, id. at 132 (Section 18), as well as a nonwaiver clause indicating that

[t]he failure of either party hereto to insist in any one (1) or more instances upon strict performance of any provision of this Agreement by the other party hereto, or to take advantage of any of its rights hereunder, shall not be construed as a waiver by it of any such provisions, or of the obligation to comply with such provisions in the future and the same shall continue and remain in full force and effect.

Id. at 131 (Section 16(A)).

Less than a week after signing the contract, a labor strike hit CWM, and between 50 and 70 of its 120 employees walked off the job. Because CWM believed its collective bargaining agreement with the International Association of United Worker's Union prohibited its employees from striking, the company anticipated that the strike would be quickly resolved. As it happened, however, the labor dispute lingered unresolved for over two years.

Fall of 2003 also represented the beginning of other hardships for CWM. Several roof collapses that season culminated in the Federal Mine Safety and Health Administration ("MSHA") ordering CWM to seal its mine number one in January 2004. At that time, CWM anticipated it could still meet its contractual obligations to Aquila with coal from its mines three and four, but CWM soon encountered a slew of geological problems in mine three. These included roof collapses, muddy conditions, and "hot spots" of coal (essentially areas of extremely high temperatures). According to CWM's mining supervisor, Mr. Defa, the muddy conditions and the hot coal were the worst of those problems he had seen in thirty-eight years of mining. Supp.App. at 126, 128. Because of the muddy conditions in mine three, according to Mr. Defa active mining in that mine "almost stopped." Supp.App. at 131 (Testimony of Mr. Defa). And as to the "hot spots" of coal, they "slowed the mining way down. It stopped [CWM] from mining that area." Id. at 132. When the problems first erupted in mine three, mine four was not yet ready for coal production.

In December 2003, just before CWM's delivery obligations to Aquila were slated to begin, CWM notified Aquila in writing that it considered its labor dispute a force majeure event, as defined by the parties' contract, and that its coal shipments would be reduced as a result. Over the course of the following months, CWM sent several more letters to Aquila confirming the labor dispute's status as a force majeure event, and updating Aquila on the progress of its labor negotiations. For its part, Aquila accepted the coal CWM did deliver, but informed CWM by letter on August 25, 2004, that "[f]or the avoidance of doubt, Aquila does not, with this letter and the requests contained herein, waive any rights it has or excuse [CWM] from any obligations it has under the Agreement." Supp.App. at 148.

While CWM invoked the force majeure clause with respect to its labor problems, the geological difficulties it experienced were another matter. In March 2004, a coal purchasing agent for Aquila, Phil Rogers, visited CWM's mines and was shown maps of mines three and four, escorted through mine three, and told that mine number one had been closed by order of MSHA. Some months later Mr. Rogers again visited the mines, was escorted through both mines three and four, and was told of the geological problems CWM continued to face. At no point, however, was Mr. Rogers or anyone else at Aquila notified, in writing or otherwise, that CWM considered these geological problems force majeure events. To the contrary, CWM downplayed its geological problems and represented that they would be overcome shortly.1

In April 2005, CWM informed Aquila of its intent to cancel the contract entirely, citing the parties' force majeure provision. Until CWM cancelled the contract, Aquila accepted CWM's partial deliveries of coal and bought the remainder of its required coal on the spot market. Once CWM cancelled the contract, Aquila entered into a new long-term contract with Consolidated Coal Company ("Consolidated") on terms less favorable to Aquila than those contained in the CWM contract. In particular, the price of coal Aquila had to pay was higher, and the coal it received had a higher sulfur content, necessitating the purchase of sulfur emission credits before the coal could be burned.

B

In due course, Aquila brought suit against CWM in the United States District Court of Utah to recoup the damages it sustained as a result of CWM's impaired performance under—and eventual cancellation of—the contract. As its chief defense, CWM asserted that its labor dispute and geological problems, of which it argued Aquila had written notice of the former and actual notice of the latter, excused its deficient performance under the contract as force majeure events. CWM also asked the court to find that Aquila had waived its claim that CWM breached the contract by continuing to accept coal shipments from CWM, and that, if nothing else, Aquila had failed to mitigate its damages.

After a three-day bench trial, the district court rejected each of CWM's defenses and awarded over $24 million in damages to Aquila. In doing so, the court found (1) CWM failed to prove that its performance was excused by virtue of a force majeure labor dispute; (2) CWM did not inform Aquila in writing that it considered geological problems to be force majeure events, and neither...

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