Coal Resources, Inc. v. Gulf & Western Industries, Inc.

• Decision Date: 31 May 1989
• Docket Number: 86-3825,No. 11,Nos. 86-3824,11,s. 86-3824
• Citation: 865 F.2d 761
• Parties: COAL RESOURCES, INC.Coal and Construction, Inc; and Green Mountain Coal Company, Plaintiffs-Appellees, Cross-Appellants, v. GULF & WESTERN INDUSTRIES, INC.; Virginia Met Coal Company, Inc.; Jersey Kentucky Coal Company, Inc.; and New Jersey Zinc Company, Defendants- Appellants, Cross-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 761

865 F.2d 761

COAL RESOURCES, INC. No. 11 Coal and Construction, Inc; and Green Mountain Coal Company, Plaintiffs-Appellees Cross-Appellants, v. GULF & WESTERN INDUSTRIES, INC.; Virginia Met Coal Company Inc.; Jersey Kentucky Coal Company, Inc.; and New Jersey Zinc Company, Defendants- Appellants, Cross-Appellees.

Nos. 86-3824, 86-3825.

United States Court of Appeals Sixth Circuit.

Argued May 19, 1987.

Decided Jan. 13, 1989.

As Amended on Denial of Rehearing and Rehearing En Banc May

31, 1989. ^*.

Jacob K. Stein (argued), Donald J. Mooney, Jr., Paxton & Seasongood, Cincinnati, Ohio, for defendants-appellants, cross-appellees.

David P. Kamp, Nancy C. Cody, Vincent B. Stamp, Lead Counsel (argued), Dinsmore & Shohl, Thomas S. Calder, Cincinnati, Ohio, James K. Robinson, Detroit, Mich., for plaintiffs-appellees, cross-appellants.

Before KENNEDY, RYAN and BOGGS, Circuit Judges.

PER CURIAM.

Defendant Gulf & Western Industries, Inc., appeals a jury verdict in favor of plaintiff Coal Resources, Inc., in this diversity of citizenship breach of contract action. ¹ Defendant acquired the assets of plaintiff under a contract called an Acquisition Agreement. A separate Assumption of Obligations clause was entered into whereby the defendant agreed to assume plaintiff's rights and obligations under certain leases of Virginia coal mining property previously acquired by plaintiff. The jury determined that defendant breached the Assumption of Obligations clause and awarded damages.

Prior to the trial, defendant confessed judgment on a claim by plaintiff for a $500,000 payment under a promissory note plaintiff had earlier given a bank and which amount defendant agreed to pay under the Acquisition Agreement. The district court granted pre-judgment interest on the confessed judgment at the actual rate of interest rather than the statutory rate, and denied pre-judgment interest on the jury award. The plaintiff cross-appeals the denial of interest on the jury award.

We reverse as to the award of actual interest on the confession of judgment issue, and reverse and remand for a new trial on the contract claim.

I.

This is the third time this case has been considered by this court: an original appeal, a rehearing of that appeal, and this appeal following a second trial. A brief history is necessary to an understanding of the issues.

Coal Resources, Inc. (CRI) obtained leases on coal properties in Virginia and Kentucky and began mining operations in the early 1970s. The leases required CRI to "diligently mine" the properties and to pay minimum royalties to the lessors regardless of the amount of coal mined. In 1975, CRI entered into negotiations for the sale of its assets to defendant Gulf & Western (G & W). On July 11, 1976, the parties reached an agreement. CRI's assets were transferred to G & W subsidiaries Virginia Met Coal Company and Jersey Kentucky Coal Company. G & W paid CRI $2.1 million, promised to pay $500,000 one year after the date of the sale on a promissory note CRI owed to a bank, assumed CRI's equipment debt of $1.7 million, and agreed to pay CRI 2.8 times any annual adjusted net profits ("the multiple") of Virginia Met Coal Company for the two years following the sale after deduction of certain amounts already paid and with a maximum limit of $11,666,000. In a separate agreement G & W also assumed CRI's obligations under the leases.

After acquiring the leases, G & W was unable to mine the leased property profitably. Eventually G & W lost the leases, either through failure to pay minimum royalties to the lessors, through litigation settlements with its contract miner, or through voluntary surrender. No money was ever paid to CRI under the multiple because Virginia Met Coal operated at a loss. CRI then brought suit.

In 1981, following the first trial in this case, the jury found G & W liable for breach of contract, promissory fraud, and securities fraud. The jury awarded CRI more than $17 million in compensatory damages, and more than $11 million in punitive damages and attorneys fees. The trial court ordered a remittitur to $12,050,000 and granted G & W's motion for judgment notwithstanding the verdict on the securities claim.

On appeal, this court affirmed originally the judgment dismissing the securities law claim, reversed the judgment on the other claims and remanded those claims for a new trial. CRI then filed a petition for rehearing which was granted. Following supplemental briefing, the original hearing panel affirmed the j.n.o.v. on the securities law claim, reversed the judgment for CRI on the promissory fraud claim, vacated the judgment for CRI on the contract claim, and remanded for a new trial. Coal Resources, Inc. v. Gulf & Western Indus., Inc., 756 F.2d 443 (6th Cir.1985). In the course of its opinion, in a passage that controls the issues before us, the panel stated:

We hold that it is unclear what kind of harm the parties intended to protect against through the inclusion of the assumption of obligations clause in the acquisition agreement. On remand, extrinsic evidence will be admissible on this question. If the finder of fact determines that the assumption of obligations clause was breached in that Gulf & Western did not diligently develop the Virginia leaseholds, and if the finder of fact further decides that the purpose of the clause was to insure that Gulf & Western would diligently develop those properties so that Coal Resources would receive substantial payments under the multiple, then an award for breach of contract like the one under review here would be permissible. On the other hand, if the clause was intended to protect Coal Resources from damages resulting from the leases being terminated, then recovery may only be had for those damages proximately resulting from the termination of the Kentucky lease.

Coal Resources, Inc., 756 F.2d at 450-51 (footnote omitted).

At the second trial the jury again found in favor of CRI on the contract claim and returned an award of $7,850,000 from which G & W appeals.

In answer to special questions, the jury specifically found (1) that the purpose of the Assumption of Obligations clause was to insure that G & W would diligently mine the leased properties so that CRI would receive payments under the multiple, and (2) that the Assumption of Obligations clause was breached in that G & W failed to diligently develop the leased properties. G & W asserts that it was entitled to judgment as a matter of law on the duty to diligently mine issue, and that even if it were not, the district court's instructions on the issue and its special questions to the jury were error.

G & W also argues that the trial court erroneously (1) limited the parties to two expert witnesses each, (2) foreclosed it from calling two non-expert witnesses it wished to call, and (3) permitted CRI to introduce improper expert opinion testimony that was mere speculation.

On the first day of trial, G & W confessed judgment on CRI's claim that G & W failed in its obligation to make the $500,000 payment due one year after the sale. Because the $500,000 payment was to be made to Central Trust Bank on a note on which CRI was the maker, the trial court found G & W liable for the actual interest called for in the note rather than statutory interest.

We address first the issues raised in G & W's appeal.

II.

A. Minimum Royalties

G & W's first assignment of error is that it is entitled to judgment as a matter of law because the payment of minimum royalties to its lessors satisfies its contractual obligation to diligently mine the properties. This claim, however, mischaracterizes the issue that was sent back for retrial following the first appeal. This court specifically found that G & W was not entitled to judgment as a matter of law based on the payments of minimum royalties.

Gulf & Western's argument that it is entitled to judgment as a matter of law [because a duty of diligent mining cannot be inferred under a contract which has an integration clause and which calls for minimum royalties] is undermined, however, when the express language of the Virginia leases is considered. All of the leases require the lessee to develop the mines in a diligent, workmanlike manner in accordance with the standards of good mining practice. Coal Resources introduced evidence through witness Zegeer that Gulf & Western neither diligently developed the mines nor observed good mining practice in failing either to install deep mines or build a new coal washing facility. Accordingly, Gulf & Western is not entitled to judgment as a matter of law on the breach of contract claim.

Coal Resources, Inc., 756 F.2d at 450. Thus, the prior panel held that although Virginia law does not imply a duty of diligent development where minimum royalties are paid, the leases involved herein provided for both a minimum royalty and diligent development of the mines. Id. Therefore, the payment of minimum royalties does not satisfy the duty of diligent development. Id.

In remanding the breach of contract issue for a new trial, the previous panel stated:

Although [G & W] is not entitled to judgment as a matter of law, ... we are uncertain whether Gulf & Western's alleged failure to discharge its obligation of reasonably diligent development caused injury of a kind that the Assumption of Obligations provision in the Acquisition Agreement was intended to prevent.

Coal Resources, Inc., 756 F.2d at 450. The issue for the second trial, then, was not whether minimum royalty payment satisfied G & W's duty under the leases but, rather, whether the Assumption of Obligations clause, requiring G & W to assume, inter alia, the lessee's duty of diligent development, was intended to provide that CRI would receive payments under the multiple, or was intended solely to protect CRI from losses it would suffer if G & W's failure to diligently mine resulted in the termination of the leases. Id. at 450-51. The issue was...