Am. Land Holdings Of Ind. LLC v. Jobe

• Citation: 604 F.3d 451
• Decision Date: 06 May 2010
• Docket Number: No. 09-3151,09-3265.,09-3151
• Parties: AMERICAN LAND HOLDINGS OF INDIANA, LLC, et al., Plaintiffs-Appellants/Cross-Appellees,v.Stanley JOBE, et al., Defendants-Appellees,andWilliam Boyd Alexander, Defendant-Appellee/Cross-Appellant.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

604 F.3d 451

AMERICAN LAND HOLDINGS OF INDIANA, LLC, et al., Plaintiffs-Appellants/Cross-Appellees,
v.
Stanley JOBE, et al., Defendants-Appellees,
and
William Boyd Alexander, Defendant-Appellee/Cross-Appellant.

Nos. 09-3151, 09-3265.

United States Court of Appeals,
Seventh Circuit.

Argued March 30, 2010.
Decided May 6, 2010.

604 F.3d 452

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604 F.3d 453

G. Daniel Kelley (argued), Ice Miller, Indianapolis, IN, for Plaintiffs-Appellants/Cross-Appellees.

Jeffrey B. Kolb (attorney), Emison, Doolittle, Kolb & Roellgen, Vincennes, IN, David F. Mcnamar (argued), McNamar & Associates, Indianapolis, IN, for Defendant-Appellee/Cross-Appellant.

Before POSNER, ROVNER, and TINDER, Circuit Judges.

POSNER, Circuit Judge.

This diversity suit, brought by affiliates of the Peabody Energy Corporation (for simplicity we'll pretend there is a single plaintiff and call it Peabody), seeks both a declaration that Peabody has the right to strip mine coal on the defendants' land, and specific performance of an option to purchase the land. The land is in Indiana, and the substantive issues in the case are governed by Indiana law. The district judge, after conducting a bench trial, entered judgment for the defendants, 655 F.Supp.2d 882 (S.D.Ind.2009), and Peabody appeals. One of the defendants (Alexander) cross-appeals-improperly, because he is seeking not to modify the judgment but merely to defend it (so far as it affects him) on an alternative ground to the district judge's. Wellpoint, Inc. v. Commissioner, 599 F.3d 641, 647-51 (7th Cir.2010). The other defendants also filed a cross-appeal, but have dismissed it.

The defendants own a total of 62 acres of farmland in Sullivan County, Indiana; there are farmhouses and other buildings on the land. The land is an island in an area that Peabody is busy strip mining for coal, and it is eager to strip mine the defendants' land as well, and insists that a 1903 deed entitles it to do so. The coal beneath the land is worth $50 million (of course minus the cost of extraction) at the current spot price of $42 per ton for coal of this type and quality. The parties say the coal is worth $180 million, but that appears to be an arithmetical error; for the quantity of coal that Peabody expects to extract if it is allowed to strip mine the land is only 1.2 million tons. There is, however, more at stake for Peabody, because if it cannot extend its existing strip mine across the defendants' land it will apparently be unable to get at another 2.5 millions tons of coal in the land immediately surrounding the defendants' land.

604 F.3d 454

Peabody contends that the deed entitles it both to strip mine the land without compensating the owners and also, if it wants, to obtain full title to the land (that is, fee simple) for $30 an acre. Under the first entitlement the right to use the surface would revert to the defendants when Peabody was finished strip mining it; under the second it would be Peabody's property to do with it as it wanted, forever.

One might wonder why Peabody would prefer litigating rather than just digging an underground mine, as the deed allows. But the district judge found that strip mining was necessary to remove all the coal-underground mining wouldn't do it because the coal seams aren't very thick and in places they are layered over one another so that a good amount of the coal would have to be left in place in order to support the shafts required for getting at and extracting the rest of the coal.

The deed, given by the defendants' predecessors to Peabody's predecessor, grants the latter and its successors “all the coals, clays, minerals and mineral substances underlying” the defendants' land, “together with the right to mine and remove said coals [etc.-we can ignore the reference to ‘clays, minerals and mineral substances,’ as do the parties] without further payment of any nature whatsoever.” Moreover, the coal company is not to be liable for any damages “occasioned by mining or removing of said coals ... not to exceed 5 acres”-in other words, it can damage five acres of the defendants' 62 acres without having to pay for the damage. And “at any time hereafter upon demand and payment therefor at rate of $30 per acre,” the grantors are to convey to the coal company “without further payments ... such portion of surface of said Real Estate as may be necessary for location of coal mines, tracks, tipples, railroads, railroad switches and all buildings necessary to carry on business of mining and transporting said ... coal.” The coal company is also “granted the use of so much of surface of said Real Estate as may be necessary in putting down test holes and holes for pumping water from and for ventilating and draining mines and for other like purposes necessary to secure [the coal company's] mining and removing that portion of said Real Estate thereby granted and conveyed to it.” However, “no ... coal ... [is] to be mined or removed from under any dwelling house now situated on said Real Estate,” and “five acres of surface where present buildings are now situated is reserved by the grantors.” Peabody argues that the conveyance of “all the coals” means that it owns all the coal under the surface of the defendants' land and so, since the deed entitles it “to mine and remove” the coal, it can extract it by any method it wants, including strip mining.

But the further portions of the deed that we quoted seem to confine the coal company's use of the surface to structures and activity relating to underground mining. For $30 an acre the company can purchase portions of the surface for structures related to such mining, but removal of the surface for purposes unrelated to under-ground mining is nowhere authorized unless by the reference to “all the coals.”

The tension between the right to mine “all the coals” and the limits on the mining company's use of the surface of the land marks the deed as ambiguous. And so the judge admitted extrinsic evidence (evidence beyond the deed itself) to help him decide whether the deed had conveyed, either directly or by grant of the purchase option, the right to strip mine the land. Extrinsic evidence is admissible to disambiguate an ambiguous deed, Symmes v. Brown, 13 Ind. 318 (1859);

604 F.3d 455

Hoose v. Doody, 886 N.E.2d 83, 89-90 (Ind.App.2008) Kopetsky v. Crews, 838 N.E.2d 1118, 1124 (Ind.App.2005) United States v. LaRosa, 765 F.2d 693, 696-97 (7th Cir.1985) (Indiana law), just as it is admissible to disambiguate an ambiguous contract.

The key extrinsic evidence presented at the bench trial was that there was no strip mining of coal in Sullivan County, Indiana, in 1903; and apparently no strip mining of coal anywhere in the United States at that time, beyond isolated experimentation. See Denver Harper, Chris Walls & Deborah DeChurch, “Coal Mining History of the United States With an Emphasis on Indiana” (Indiana Geological Survey 2003), igs.indiana.ed u/geology/coalOilGas/coalMiningHistory/coal_history.html (visited April 12, 2010); Denver Harper, “The Development of Surface Coal Mining in Indiana” 5-7 (Indiana Dept. of Natural Resources, Geological Survey Special Report No. 35, 1985). Commercially significant strip mining had to await the advent of the huge steam shovels developed for the construction of the Panama Canal, which began in 1904. Strip mining even on a modest scale seems not to have been done in Sullivan County until 1918, or to have become common anywhere in Indiana until the 1920s. See Harper et al., supra; Harper, supra, at 7-11; Harper, “Coal Mining in Sullivan County, Indiana” 2 (Indiana Dept. of Natural Resources, Geological Survey Special Report No. 43, 1988). The defendants' expert witnesses testified consistently with the published sources; Peabody offered no expert testimony relating to the history of strip mining in Indiana.

The judge concluded that the right to mine “all the coals” referred to extracting the coal beneath the surface of the defendants' land by underground mining only. That explained, he thought, why all the surface uses permitted to the coal company, and the purchase option as well, related expressly to underground mining-none to strip mining. His conclusion that the deed is ambiguous and the infeasibility of strip mining at the time it was granted allows the ambiguity to be resolved in favor of the surface owner is consistent with the case law. Phillips v. Fox, 193 W.Va. 657, 458 S.E.2d 327, 335 (1995); Skivolocki v. East Ohio Gas Co., 38 Ohio St.2d 244, 313 N.E.2d 374, 376, 378-79 (1974); Stewart v. Chernicky, 439 Pa. 43, ...