American Elec. Power Service Corp. v. Beshear, 75--1574

• Decision Date: 20 January 1976
• Docket Number: No. 75--1574,75--1574
• Citation: 529 F.2d 1113
• Parties: AMERICAN ELECTRIC POWER SERVICE CORPORATION, Defendant-Appellant, v. C. O. BESHEAR, Plaintiff-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 1113

529 F.2d 1113

AMERICAN ELECTRIC POWER SERVICE CORPORATION, Defendant-Appellant, v. C. O. BESHEAR, Plaintiff-Appellee.

No. 75--1574.

United States Court of Appeals Sixth Circuit.

Argued Oct. 14, 1975.

Decided Jan. 20, 1976.

Martin Roach, Roach, Cox & Brown, Louisville, Ky., Robert W. Brigham, Cincinnati, Ohio, William E. Olson, New York City, for defendant-appellant.

Victor W. Ewen, Ewen, MacKenzie & Peden, William A. MacKenzie, Louisville, Ky., for plaintiff-appellee.

Before PECK, Circuit Judge, MARKEY, Chief Judge, United States Court of Customs and Patent Appeals, ^* and ENGEL, Circuit Judge.

MARKEY, Chief Judge, United States Court of Customs and Patent Appeals:

This is an appeal from the judgment of the United States District Court for the Western District of Kentucky ordering and adjudging that plaintiff Beshear recover $4,766,203.00, with interest at the rate of 6 per cent per annum from June 29, 1973 until paid. We affirm.

Facts

Beshear, a former landman ^** for Peabody Coal Company, and his partner John Vogler, acquired options for coal on approximately 14,275 acres in Southern Indiana. By design, the options were obtained on acres arranged in a checkerboard pattern. Because the optioned acres were primarily in Posey County, with a few in adjoining Gibson and Vanderburgh Counties, the area of interest

Defendant-Appellant, American Electric Power Service Corporation, (AEP) had plans to construct an electric power plant near Henderson, Kentucky, directly across the Ohio River from the Posey In the spring of 1969, Beshear, without Vogler's knowledge, approached AEP and offered to sell the options. Subsequent meetings produced a general agreement that AEP would purchase the options and retain Beshear to acquire additional options. In October of 1969, without disclosing the AEP deal, Beshear offered to by Vogler out.

Field. Operation of the plant would entail the need for an assured supply of coal.

AEP and Beshear, after exchanging several drafts, finally executed an agreement on January 3, 1970 (agreement), the pertinent portions of which read:

5. Upon the assignment of your options under items 2 and 3 above, AEP will promptly begin an exploratory program to determine the tons of coal in said reserves, the coal quality and the expected cost of producing the coal. If such program proves that the coal in this area is minable and it also proves possible to consolidate all or substantial part or parts of the aforesaid acreage and any additional areas which might be acquired into minable tract or tracts, then AEP will either exercise or advise you of its intention to exercise the options for such acreage assigned to it by you in items 2 and 3 above.

If such program proves the coal is not minable, or it becomes impossible to consolidate the coal into minable tracts, AEP will not exercise the options assigned to it by you. AEP will re-assign to you said options, if you so desire, provided you will reimburse AEP for any amounts expended by AEP in connection with this coal reserve. For the purposes of this agreement, the options shall be deemed to have been exercised by AEP if they were not re-assigned to you or offered for reassignment to you within three years from the date when you assign the options to AEP as provided in items 2 and 3 above. Upon such offer by AEP to re-assign said options to you, you shall have a six-month period in which to accept such offer.

6. At any time within five years after AEP has exercised its options as provided in item 5 above, you may, at your election from time to time, request AEP to pay you, an advance royalty for such coal covered by all or any number of such options which you have acquired and assigned to AEP (excluding the 7,500 acres mentioned above in item 2), at a rate of $0.015 per ton, using a reasonable recoverable factor (which is expected to be 3,750 tons per seam per acre) to arrive at the total amount due. Upon such payment by AEP, you shall have no further claims with respect to such coal.

8. Once we have progressed beyond item 1 above, you shall continue to acquire options on additional areas acceptable to AEP in Posey and Vanderburgh Counties, Indiana. AEP will pay the cost of obtaining such additional options and shall in addition reimburse you as provided in item 6 or 7 above, as the case may be. In the event AEP independently acquires coal without your help within the limits of the coal field, then the reserves in such areas shall be included under items 6 and 7 above for the payment of royalties to you.

On April 18, 1970, test drillings having proved satisfactory, Beschear assigned to AEP the original options on 14,275 acres. In return, AEP reimbursed Beshear for the cost of buying out Vogler and paid Beshear his first annual advance royalty payment of $25,000. AEP also 'reimbursed' Beshear an additional $29,438 as Beshear's cost of acquiring the original options, although in fact Vogler had paid $27,000 of that cost.

Beshear commenced obtaining additional options for AEP, receiving his expenses and a per diem from AEP. About three months thereafter, without telling Beshear, AEP also hired one Taylor During late 1972, AEP drilled 75 core samples and, after evaluating the tests, elected to keep the coal rather than cancel under the provisions of paragraph 5 of the agreement.

to buy coal options in the Posey Field. Beshear quickly learned of this and complained that a 'competitor' (Taylor) was offering $100/acre whereas he, Beshear, was permitted to offer only $50/acre. AEP then authorized Beshear to offer $100/acre. By August of 1970, AEP had admitted hiring Taylor and had split the field between him and Beshear. In the spring of 1971, AEP notified Beshear that, effective June 30, 1971, he should cease obtaining options for AEP. As of June 30, 1971, Beshear had optioned an approximate total of 38,000 acres (including the original 14,275) and Taylor 20,000 acres. Subsequent to June 30, 1971, Taylor acquired options on another 25,000 acres. Thus AEP acquired options on a total of approximately 83,000 acres.

On April 21, 1973 and June 28, 1973, Beshear elected the provisions of paragraph 6 of the agreement. He requested $.015 per ton on the recoverable coal in seams 5 and 6 in a specified acreage which he computed to be 64,723 acres, but which was stipulated at trial to be 56,280 acres. On September 28, 1973 Beshear filed a complaint in the U.S. District Court for the Western District of Kentucky at Louisville.

During the discovery period, AEP supplied Beshear with a report by its chief geologist, covering the 131,000 acre Posey Field area, giving the average thickness of coal in Seam No. 5 as 51.75 inches and that in Seam No. 6 as 51.1 inches, and finding Seam No. 6 minable in 2/3's of the area. The amount recoverable was set at 50% in both seams. It was later stipulated that Seam No. 5 is present in 95% of the acreage.

At trial, AEP's chief geologist testified that a subsequent study on a 60,000 acre area, which included most of the stipulated 56,280 acres, found that the thickness of coal in Seam No. 5 was 50.9 inches and in Seam No. 6 was 50.5 inches and reported Seam No. 6 minable on 52% of the area. The amount recoverable was reported as 46% in Seam No. 5 and 43.5% in Seam No. 6. Coal of this type normally runs 150 tons per acre inch.

The only matter submitted to the jury was the amount that Beshear should recover. The jury was instructed to arrive, after weighing the evidence on each issue of fact, at a verdict for Beshear in an amount between $5,269,231 if they found all variables (coal thickness and minability) in Beshear's favor and $4,115,941 if they found all the variables in AEP's favor. The jury returned a verdict in the amount of $4,766,203, after crediting AEP with $100,000 in advance royalties it had paid to Beshear, $27,000 of the amount AEP had reimbursed Beshear, and certain per diem expenses paid Beshear above his actual out of pocket cost. The court granted Beshear's motion to add interest from June 29, 1973, the day after Beshear had requested payment of royalties.

Issues

The issues, as presented to us by appellant, are: (1) whether Beshear is precluded from recovering because he was not a licensed real estate broker; (2) whether fraud in the inducement should have been submitted to the jury; (3) whether an alleged ambiguity of paragraph 8 should have been submitted to the jury; (4) whether Beshear should have been denied recovery on acreage acquired by AEP after June 30, 1971; (5) whether Beshear's proof was insufficient to create a jury issue as to the persistency, availability and average thickness of the coal seams; (6) whether the court erred in allowing the jury to consider mutually exclusive evidence in arriving at a verdict; and (7) whether it was an abuse of discretion to award prejudgment interest.

OPINION

(1) Beshear was NOT Acting in a Brokerage Capacity.

Because we view the agreement as one for the sale of an interest in land, the fact that Beshear was not a licensed real estate broker is immaterial. That AEP knew or should have known of Beshear's non-licensed status is equally immaterial. Nor was the agreement one for employment, entitling Beshear only to commissions earned through his personal efforts.

At the heart of the controversy lies paragraph 8 of the agreement, which essentially provides--(1) that Beshear shall continue obtaining options at AEP's cost and (2) that royalties to be paid are to be based on the total acreage (with certain specified exclusions) acquired by AEP in the coal field.

The plain language of paragraph 8 establishes...