Kentucky Electric Power Co. v. Norton Coal Mining Co.

• Decision Date: 18 January 1938
• Docket Number: No. 7626,7627.,7626
• Citation: 93 F.2d 923
• Parties: KENTUCKY ELECTRIC POWER CO. v. NORTON COAL MINING CO. NORTON COAL MINING CO. v. KENTUCKY ELECTRIC POWER CO.
• Court: U.S. Court of Appeals — Sixth Circuit

93 F.2d 923 (1938)

KENTUCKY ELECTRIC POWER CO. v.NORTON COAL MINING CO.

NORTON COAL MINING CO. v.KENTUCKY ELECTRIC POWER CO.

Nos. 7626, 7627.

Circuit Court of Appeals, Sixth Circuit.

January 18, 1938.

Frank B. Ober, of Baltimore, Md.(Gordon, Laurent, Ogden & Galphin, of Louisville, Ky., Ritchie, Janney, Ober & Williams, of Baltimore, Md., and Robert G. Gordon, of Louisville, Ky., on the brief), for Kentucky Electric Power Co.

F. M. Drake, of Louisville, Ky.(Crawford, Middleton, Milner & Seelbach, of Louisville, Ky., on the brief), for Norton Coal Mining Co. et al.

Before HICKS and ALLEN, Circuit Judges, and FORD, District Judge.

FORD, District Judge.

These appeals grow out of consolidated receivership and mortgage foreclosure actions instituted by creditors against the Norton Coal Mining Company, in which, after the consolidation, the Kentucky Electric Power Company filed an intervening petition asserting the right to an equitable lien or easement upon a portion of the mortgaged real estate of the Coal Company on account of certain expenditures made by its predecessor, Kentucky Electric Power Corporation, in drilling and equipping an artesian well which, by mistake, was located on the property of the Coal Company.

Prior to this litigation, the Kentucky Electric Power Corporation was reorganized in a proceeding under section 77B of the Bankruptcy Act, 11 U.S.C.A. § 207, and it is stipulated that the intervening petitioner, Kentucky Electric Power Company, a new corporation, has succeeded to all the rights of the old power corporation with reference to the subject matter of this controversy.

The receivers of the Coal Company dispute the claim of the Power Company to any right whatever in the land of the Coal Company on account of the alleged expenditures or improvements, except the right to remove such of its property as may be taken without damage to the realty.As a further defense, the receivers assert the right to an accounting for the reasonable profit derived by the Power Company and its predecessor from the use of the Coal Company's property and the taking of water therefrom "to whatever extent same may be off-set against the lien claimed herein."

The District Court adjudged to the Power Company the right to remove all property used in connection with the well which is susceptible of removal without damage to the realty, but denied other or additional relief.

Although the District Court found that the Power Company and its predecessor took from the well located on the Coal Company's land four million gallons of water per month for a period of five years from June 1, 1931, upon which the profits realized were in excess of the cost of drilling the well, nevertheless it denied the Receivers any recovery on that account.

No error is assigned to that portion of the decree permitting the Power Company to take its removable property.

The Power Company appeals (appeal No. 7626), assigning error to the action of the District Court in denying the additional relief claimed.

The receivers of the Coal Company and the trustee for its bondholders appeal (appeal No. 7627), assigning error to the failure of the District Court to render judgment in favor of the receivers for the value of the water taken from the well.

Prior to 1926, the Coal Company was engaged in operating a large coal mining enterprise upon its extensive holdings of mineral lands near Nortonville, Kentucky.It then maintained upon its property a reservoir and a small power plant for its own needs.In 1926, on account of the strategic location of its power plant and adequate water supply, the Coal Company undertook the development of a central station for the sale and distribution of water and power in that territory and neighboring communities.With that end in view, it caused the incorporation of the Kentucky Electric Power Corporation, in which it took all the common stock and to which it conveyed its power plant and equipment, together with about seventy acres of land upon which the plant and reservoir were located.In order to finance the project, the Coal Company was instrumental in promoting the sale by the Power Corporation of a large bond issue secured by a mortgage on its property.It also made certain guarantees as to the earnings of the Power Corporation.Although, from the time of the organization of the Power Corporation, the same executive and operating officers served both the Coal Company and the Power Corporation, nevertheless the corporations were at all times engaged in separate and independent enterprises.It is not claimed that the Power Corporation was a mere adjunct or instrumentality of the Coal Company.Like the rest of its customers, the Coal Company was charged monthly water rental for the water service rendered it by the Power Corporation.In the nature of the situation, the relationship of the corporations to each other was intimate, but, so far as shown by the record, in all their transactions with each other, the Coal Company dealt fairly with its subsidiary.

In 1931, the Power Corporation, in order to secure a more abundant supply of water, drilled two artesian wells within a short distance of each other.It appears from the record that water was equally available at both wells, but for some reason pumping equipment was attached to only one of them.The location of both wells was selected by Mr. Sterling S. Lanier, Jr., who was then Vice President of both the Power Corporation and the Coal Company.After the Power Corporation passed through re-organization under section 77B of the Bankruptcy Act and was succeeded by the present Power Company, and after the Coal Company was placed in receivership, it was discovered that the well to which the Power Company's equipment was attached was located upon the land of the Coal Company.

It is established by the evidence that the location of the well on the land of the Coal Company was a mistake made by Mr. Lanier at a time when he was acting solely in the performance of his duties as Vice President of the Power Corporation, and for its exclusive interest.He intended to locate both wells on the land of the Power Corporation and his mistake was due to inexcusable carelessness in failing to ascertain the location of the boundary line between the property of the two companies, although the title papers clearly describing the boundary line were at all times easily accessible to him.The Coal Company knew nothing of the error, did not participate in the transaction in any way and took no cognizance of it.

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