Hendrickson v. Alcoa Fuels, Inc.

Decision Date21 September 2000
Docket NumberNo. 63A04-9910-CV-454,63A04-9910-CV-454
Citation735 N.E.2d 804
PartiesMarjorie HENDRICKSON, in her Individual Capacity and Jack O. Hendrickson, Appellants-Plaintiffs, v. ALCOA FUELS, INC., Peabody Coal Co., Peabody Development Co., Otterbein Hendrickson, Donald Hendrickson, Vera Lou Kippel and Olive Lewellyn, Appellees-Defendants.
CourtIndiana Appellate Court

George A. Barton, Rasmussen, Barton & Willis, L.L.C., Kansas City, Missouri, John W. Weyerbacher, Weyerbacher, Dewey & Weyerbacher, Newburgh, Indiana, Valentine Fleig, Gray, Fleig & Biesterfield, Petersburg, Indiana, Attorneys for Appellants.

Lee B. McTurnan, Steven M. Badger, McTurnan & Turner, Indianapolis, Indiana, Julie A. Coletti, Pamela W. Connelly, LeBoeuf, Lamb, Greene & MacRae, L.L.P., Pittsburgh, Pennsylvania, W. Stanley Walch, Lawrence C. Friedman, Christopher M. Hohn, Thompson Coburn LLP, St. Louis, Missouri, John B. Drummy, Kightlinger & Gray, Indianapolis, Indiana, Attorneys for Appellees.


RILEY, Judge


Appellants-Plaintiffs Jack O. Hendrickson and Marjorie Hendrickson (hereinafter collectively referred to as "Hendricksons") appeal the trial court's Order granting summary judgment in favor of Alcoa Fuels, Inc. (Alcoa), and Peabody Coal Company, Peabody Development Company, and Peabody Holding Company (hereinafter collectively referred to as "Peabody").

We affirm.


The Hendricksons raise seven issues for our review, which we consolidate and restate as follows:

1. Whether the trial court erred by concluding that collateral estoppel precludes the Hendricksons from re-litigating the timeliness of their breach of contract claim against Peabody and Alcoa.

2. Whether the trial court erred in granting Peabody's motion for summary judgment on Hendricksons' fraud claims because collateral estoppel precludes the Hendricksons from re-litigating their fraud claims against Peabody.2

3. Whether the trial court erred in denying Hendricksons' motion for leave to file a third amended complaint.


We adopt the trial court's findings of fact with respect to Peabody's Motion for Summary Judgment as follows:3

A. The 1966 Lease with Alcoa Fuels
1. On July 1, 1966, Garry O. Hendrickson, Ona Hendrickson, William O. Hendrickson, Annizene Hendrickson, Olive Lewellyn and Norman Lewellyn, as lessors, leased certain coal properties in Warrick County to Alcoa Fuels, Inc. ("Alcoa Fuels") as lessee, pursuant to the terms of a written lease (hereinafter called the "Squaw Creek Lease"). Plaintiffs, [Jack O. Hendrickson and James W. Hendrickson], inherited the interests of one of the original lessors (William O. Hendrickson) after mining ceased.
2. Alcoa Fuels subleased the coal properties to Squaw Creek Coal Company ("Squaw Creek"), a joint venture owned by Peabody Coal Company and by Aluminum Company of America, the parent company of Alcoa Fuels. Squaw Creek mined, removed and sold coal from the property from December, 1982 through August, 1987. Neither Peabody nor Squaw Creek was a party to the Squaw Creek Lease.
3. In addition to mining coal, Squaw Creek calculated the amount of royalties due and owing to the lessors (Plaintiffs' predecessors) under the Squaw Creek Lease. Squaw Creek sent this information to Alcoa Fuels. Pursuant to the terms of the Squaw Creek Lease, Alcoa Fuels made the royalty payments to the lessors. Neither Squaw Creek nor Peabody made any royalty payments to Plaintiffs or their predecessors, nor had any contractual relationship with them.
4. The Lease required Alcoa Fuels to submit each month to the lessors "a statement of all coal mined, removed, and sold from Subject Lands during the preceding calendar month, and to accompany such statement with the payment for any Earned Royalties due hereunder." (Lease, p. 4.) Pursuant to this provision, Alcoa Fuels sent the lessors a statement indicating the royalty being paid in the accompanying check.
5. Plaintiffs were not parties to the Squaw Creek Lease. One of the original lessors, William O. Hendrickson, died in 1984. He bequeathed any interest in the Squaw Creek Lease to his two sons (Jack O. Hendrickson and James W. Hendrickson), who were the original Plaintiffs in this lawsuit. When James W. Hendrickson died, his interest was assumed by his widow Marjorie Hendrickson. Jack O. Hendrickson and Marjorie Hendrickson are the only Plaintiffs in this lawsuit.
6. Plaintiffs never received or even saw the monthly statements that were sent to the lessors. Plaintiffs never received any royalties from Alcoa Fuels. After William O. Hendrickson's death in 1984, royalties were paid to his estate, not to Plaintiffs.
7. Plaintiffs filed this action against Peabody on November 17, 1995 — more than eight years after the final royalty payment by Alcoa Fuels.
B. The Federal Coal Taxes
8. Alcoa Fuels agreed to pay royalties calculated as a percentage of the "average invoice sales price of coal" mined and sold from the leased premises. (Lease, p. 2.) There is no definition of "sales price" in the Squaw Creek Lease.
9. More than ten years after the execution of the Squaw Creek Lease, two federal coal taxes were enacted: a reclamation or SMCRA tax in 1977, and a "Black Lung" benefits exercise tax in 1978. 30 U.S.C. § 1232; 26 U.S.C. § 4121. After the taxes were enacted, Squaw Creek collected the amounts charged for these taxes from its customers and passed the amounts collected on to the federal government.
10. When calculating royalties, Squaw Creek did not include these taxes as part of the "average invoice sales price of coal." The taxes were not treated as part of Squaw Creek's (or Peabody's) income or as part of the "sales price" of coal. When Squaw Creek billed its customers, its invoices specified an amount for the "coal" and an additional and separate amount for the taxes.
C. Plaintiffs' Audit Rights
11. The Squaw Creek Lease contains specific audit and inquiry rights to ensure the accuracy of the royalty payments:
The Lessee agrees that the Lessors shall have the right to check all books and records of the Lessee bearing upon the accuracy of the monthly statements to be rendered by the Lessee to the Lessors, pursuant to the provisions of Section 4, Article II hereof.
The Lessors shall further have the right, either themselves or through their agents or attorneys, to inspect all operations of the Lessee insofar as they reflect upon the accuracy of such statements. The Lessors, their agents and attorneys, shall have the right of ingress and egress for such purpose.
(Lease, p. 9 (emphasis added [by trial court]))
12. Neither Plaintiffs nor their predecessors ever invoked this audit clause. Nor did they ever ask Alcoa Fuels or Peabody any questions about any aspect of how royalties were calculated under the Lease. By the very terms of the Squaw Creek Lease, Plaintiffs could have exercised such audit rights at any time.
13. If Plaintiffs had ever made an inquiry, they would have learned that taxes were not included in the "sales price."
D. Plaintiffs' Lease with Other Coal Companies
14. The same Hendrickson family members who signed the 1966 Lease with Alcoa Fuels entered into a similar coal mining lease with Ideal Basic Industries, Inc. ("Ideal") on November 7, 1977. Under that lease, Plaintiffs' predecessors were also entitled to a royalty of ten percent of the "invoice sales price" for coal mined or removed from the premises. (Ideal Lease, p. 3) The Hendricksons defined the term "price" in this lease to exclude "any sales, severance, land or other taxes not based on income." (Ideal Lease, p. 3)
15. In 1994, the same Hendrickson family members (now including the Plaintiffs in this lawsuit) entered into another coal mining lease with Vigo Coal Company ("Vigo"). Under that Lease, Vigo agreed to pay royalties based on a percentage of the "gross realization of the sales price per ton ... of all coal mined and recovered." (Vigo Lease, p. 4)
16. In the Vigo lease, Plaintiffs specifically excluded SMCRA and Black Lung taxes:
the gross realization of the sales price as used in this Lease shall mean the amount equal to the total proceeds (the total amount received from the sale of Coal ... ) ... less any use, sales, excise, severance, ad valorem or other such taxes not based on net income, and any other regulation including, but not limited to, fees imposed by the Surface Mining Control Reclamation act [SMCRA], as amended from time to time, and the tax imposed by the Federal Mine Safety and Health Act [Black Lung tax].
E. Plaintiffs' Identical Federal Lawsuit
17. On April 16, 1966 (2½ months before they signed the Squaw Creek Lease), the same lessors signed an essentially identical lease of other coal properties in Warrick County (at the Lynnville Mine). The lessee of this "Lynnville Lease" was Peabody Coal Company. Royalties were to be calculated by Peabody in the same manner that Alcoa Fuels calculated them under the Squaw Creek Lease, i.e., based on a percentage of the "average invoice sales price" of the coal.
18. The Lynnville Lease had provisions regarding what information the lessee was required to provide, and what information the lessors could inquire about or audit, that are identical to the corresponding provisions in the Squaw Creek Lease that is at issue in this lawsuit.
19. On the same day that they filed this case, Plaintiffs filed an identical lawsuit against the three Peabody Companies in the United States District Court for the western District of Kentucky. Plaintiffs claimed that Peabody had breached the Lynnville Lease in the same manner as it (or Alcoa Fuels) breached the Squaw Creek Lease, i.e., by not including taxes in the "sales price." Plaintiffs also asserted fraud allegations identical to those in this lawsuit.
20. On October 7, 1997, the District Court granted summary judgment in favor of Peabody on all of Plaintiffs' claims. Hendrickson v. Peabody Coal Co., 37 F.Supp.2d 947 (W.D.Ky.1997). The United States Court of Appeals for

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