Big Horn Coal Co. v. Commonwealth Edison Co.

• Citation: 852 F.2d 1259
• Decision Date: 28 July 1988
• Docket Number: Nos. 85-1829,85-1830,s. 85-1829
• Parties: , 26 Fed. R. Evid. Serv. 845 BIG HORN COAL COMPANY, Plaintiff-Appellee, v. COMMONWEALTH EDISON COMPANY, Defendant-Appellant. BLACK BUTTE COAL COMPANY, Plaintiff-Appellee, v. COMMONWEALTH EDISON COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1259

852 F.2d 1259

11 Fed.R.Serv.3d 1016, 26 Fed. R. Evid. Serv. 845

BIG HORN COAL COMPANY, Plaintiff-Appellee, v. COMMONWEALTH EDISON COMPANY, Defendant-Appellant.

BLACK BUTTE COAL COMPANY, Plaintiff-Appellee, v. COMMONWEALTH EDISON COMPANY, Defendant-Appellant.

Nos. 85-1829, 85-1830.

United States Court of Appeals, Tenth Circuit.

July 28, 1988.

A. Daniel Feldman (John W. Treece and D. Maria Majeske with him on the briefs) of Isham, Lincoln & Beale, Chicago, Ill. (James J. White, Ann Arbor, Mich., of counsel, also with him on the briefs), for defendant-appellant Commonwealth Edison Co.

Donald S. Young (Kathleen McCree Lewis, Jeffrey M. Lipshaw, and Daniel J. Stephenson with him on the brief) of Dykema, Gossett, Spencer, Goodnow & Trigg, Detroit, Mich. (George F. Heiden, of counsel, Omaha, Neb., and Bruce A. Salzburg of Freudenthal & Bonds, also with him on the brief), for plaintiffs-appellees Black Butte Coal Co. and Big Horn Coal Co.

Before McKAY and SETH, Circuit Judges, and SAFFELS, District Judge ^*.

McKAY, Circuit Judge.

This diversity case arises out of long-term coal contracts between an Illinois public utility, Commonwealth Edison Company (Edison), and two Wyoming coal producers, Black Butte Coal Company and Big Horn Coal Company (collectively, the Coal Companies). The coal contracts together call for the supply and purchase of more than 180 million tons of coal through the end of the century. The Coal Companies brought this breach of contract suit when Edison invoked a contract clause to reduce its scheduled purchase obligations. A jury rendered a verdict in favor of the Coal Companies and judgment followed. Edison now appeals, claiming error in the admission of evidence, numerous errors in instructions to the jury and an error in one portion of the judgment.

I. THE CONTRACTS

On May 13, 1976, Edison entered into a contract with Black Butte (Black Butte Contract) for the purchase of low-sulphur western coal. Under section 3.01 of the Black Butte Contract, Edison agreed to buy and Black Butte agreed to sell a base amount of coal--with a set minimum and maximum quantity--each year for the twenty-year period between 1979 and 1998. ¹ Record, vol. 32, exh. 4, at 2-3. The parties agreed that the coal would meet certain specifications, id. at 3-4, and anticipated that the coal would be usable at any of Edison's nine coal-fired generating stations. Record, vol. 18, at 138; vol. 20, at 24. Edison was to receive the coal FOB mine and then arrange transportation to one of its nine coal-fired generating stations.

Section 3.01 also contained a provision which allowed Edison to reduce its annual purchase obligations under certain conditions:

If prior to January 1, 1984, Buyer notifies Seller that, due to the requirements of civil or military authorities, it cannot utilize the coal or that continued utilization of the coal would unreasonably delay Buyer's receipt of or prevent Buyer's continued maintenance of any permit, license or variance necessary to the operation of any one or more of the plants at which the coal has been used, without (i) modifying one or more of the plants where such coal has been used (including, but not limited to stack gas treatment systems), (ii) blending the coal with other coal for the purpose of reducing sulphur compound emissions or (iii) using additives, for environmental reasons, Buyer may, upon written notice to Seller, reduce the minimum annual quantities it must purchase during the 10 year period beginning January 1, 1989....

Record, vol. 32, exh. 4, at 3. ² Section 3.01 has remained unchanged since the original contract was signed in 1976 and, until this suit arose, had not been the subject of litigation between the parties.

The 1976 Black Butte Contract also contained a force majeure provision which reduced the tonnage obligations of the parties if the seller was "reasonably prevented" from complying with the delivery schedule of the contract. Similarly, the force majeure provision reduced or suspended the obligations of the parties if the buyer was "reasonably prevented" from complying with the contract. Id. at 23-24. In November 1976, Edison also entered into a coal contract with Big Horn (Big Horn Contract) which contained a force majeure provision. The force majeure provision in the Big Horn Contract allowed the parties to reduce the tonnage obligations if either the buyer or the seller was "reasonably prevented" from performing its obligation under the contract. Record, vol. 34, exh. 717, at 27-28.

In the early days of the contracts, Edison was apparently able to defer coal purchases, without invoking the force majeure provisions, by informally telephoning Black Butte or Big Horn and arranging for a later delivery. Record, vol. 19, at 24-25. However, when Edison sought to terminate some of its purchase obligations under the Black Butte Contract following a major coal dust explosion at its Powerton generating station near Peoria, Illinois, Black Butte objected to the use of the force majeure provision, claiming that the explosion was a foreseeable event that Edison could have prevented. In addition, other disagreements arose as Edison discovered difficulties in using Black Butte coal.

In 1981, these disagreements resulted in litigation between Edison and the Coal Companies in the federal courts of Wyoming and Illinois. See record, vol. 32, exh. 5, at 19-20; vol. 34, exh. 719, at 3-4. The litigation culminated on June 4, 1982, when the parties executed an Amendment and Procedure Agreement for each contract (1982 Amendments). Record, vol. 32, exh. 5 (1982 Amendments and Procedures Agreement to the Black Butte Contract); vol. 34, exh. 719 (1982 Amendments and Procedures Agreement to the Big Horn Contract).

The 1982 Amendments revised the force majeure provisions of both contracts by setting out in greater detail the circumstances that would modify the parties' obligations under the contracts. Section 11.02 of the amended contracts defines "an event of force majeure," while section 11.03 describes the scope of the parties' obligations to minimize the effect of such an event. Record, vol. 32, exh. 5, at 26-28; vol. 34, exh. 719, at 10-12. Section 11.01 limits the use of the force majeure provisions according to the type of event and its duration. Record, vol. 32, exh. 5, at 20-26; vol. 34, exh. 719, at 4-10. Both the Black Butte Contract and the Big Horn Contract continued to provide that the contracts would be governed and construed according to Nebraska law.

A. Edison's Exercise of Section 3.01

When Edison entered the Black Butte Contract, it operated nine coal-fired generating stations. Four of these stations utilized cyclone furnaces and the other five stations used pulverized coal (PC) furnaces. Cyclone and PC furnaces remove noncombustible coal (ash) by different methods; thus each type of furnace must burn coal with characteristics appropriate to the method of ash removal. ³ Low-sulphur western coal tends to be more suitable for PC furnaces but may be burned in cyclone furnaces that have been properly modified. Since Edison began receiving Black Butte coal, it has successfully used Black Butte coal in its PC furnaces at full load. Record, vol. 17, at 210-13. However, Edison incurred problems when it decided to use Black Butte coal in its cyclone furnaces at Powerton.

When Edison executed the Black Butte Contract in 1976, it planned to continue burning high-sulphur Illinois Basin coal at Powerton under an environmental "compliance plan" filed with the Illinois Environmental Protection Agency ("IEPA"). Record, vol. 20, at 27-29. However, the 1977 Amendments to Clean Air Act, 42 U.S.C. Secs. 7401-7626 (1982), brought Edison's compliance plan into conflict with the federal requirements by mandating full conformity with federal sulphur dioxide emission standards by July 1, 1979. Therefore, by the time the Black Butte mine opened in 1979, Edison had decided to use low-sulphur Black Butte coal at its Powerton station in order to bring Powerton within the federal emission standards. Record, vol. 20, at 29-30; vol. 23, at 205; Opening Brief of Appellant at 15.

The Powerton cyclone furnaces were not designed to burn low-sulphur western coal and, from the beginning, Edison experienced problems with the high viscosity of the molten ash from Black Butte coal. ⁴ Even so, Edison was gaining experience in using low-sulphur coals and successfully test-burned Black Butte coal from Area D. ⁵ Furthermore, in late 1980, during repairs of equipment and buildings damaged in the station's coal dust explosion, Powerton's cyclone furnaces were structurally modified to facilitate burning Black Butte coal. Record, vol. 20, at 48-49; vol. 23, at 213-19.

During the repair of Powerton, Black Butte began mining in Area J. When Powerton reopened in early 1981, Edison began shipping a blend of coal from areas D and J (DJ) to Powerton. Although the Area D coal had functioned in cyclone furnaces, the Area J coal was ill-suited for use in cyclone furnaces. Record, vol. 26, at 193-94. Black Butte advised Edison that Area J coal was unsuitable for cyclone furnaces and recommended that DJ coal be shipped to PC furnaces and that coal similar to Area D coal, ⁶ but from other areas of the mine or other mines, be shipped to Powerton. Record, vol. 26, at 188-89; vol. 18, at 189-92. Edison's response to Black Butte's recommendation was that Black Butte should make sure the coal met specifications and that Edison would "decide where to send the coal." Record, vol. 18, at 192. ⁷ Despite these warnings, Edison shipped DJ coal to Powerton in April 1981. Record, vol. 23, at 226-27. When the DJ coal was burned, it immediately "plugged up" all forty Powerton furnaces when slag blocked the furnace valves. Id. at 225. Because of this incident, Edison decided in April 1981 to discontinue using Black Butte coal as a regular fuel at Powerton. Record, vol. 16, at 165, 170; see also Opening Brief of...