Long Island Lighting Co. v. Bokum Resources
| Decision Date | 16 December 1983 |
| Docket Number | Bankruptcy No. 81-00666. |
| Citation | 40 BR 274 |
| Parties | LONG ISLAND LIGHTING COMPANY, Plaintiff and Counterdefendant, v. BOKUM RESOURCES CORPORATION, Defendant and Counterplaintiff. |
| Court | U.S. Bankruptcy Court — District of New Mexico |
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Montgomery & Andrews by Michael W. Brennan, Santa Fe, N.M., for plaintiff and counterdefendant.
Melton & Puccini, P.A. by Stephen P. Curtis, Albuquerque, N.M., for defendant and counterplaintiff.
THIS MATTER comes before the Court for trial on Counterclaims II, III and IV of Bokum Resources Corporation against the plaintiff, Long Island Lighting Company. "COUNT II" seeks a declaratory judgment that the Long Island Lighting Company (LILCO) and Bokum Resources Corporation (BRC) were engaged in a mining partnership to extract uranium ore from the Marquez mining properties owned by BRC near Marquez, New Mexico. BRC contends the mining partnership resulted from a Uranium Concentrates Purchase Contract entered into by and between the parties on January 30, 1976. This contract is known as the "1976 UCPC". Further agreements were entered into between LILCO and BRC in 1978. BRC claims these agreements continued and expanded the original partnership to include two more mines and the construction of a mill.
It is then alleged that as a result of this mining partnership, LILCO owed fiduciary responsibilities to the shareholders of BRC and that it violated those fiduciary responsibilities by virtue of its conduct toward BRC. BRC also argues that LILCO wrongfully prevented BRC from making current contracts for future deliveries of uranium to third parties from the Marquez Property until LILCO had received all of its deliveries from BRC. This conduct, according to BRC, prevented it from obtaining financing elsewhere, with the result that BRC was compelled in 1978 to enter into a series of agreements with LILCO containing terms so onerous that BRC was placed in a position of imminent default. BRC claims these agreements granted LILCO sufficient control over BRC that LILCO had a further fiduciary responsibility to disclose to BRC shareholders, the SEC and others that BRC was under the control of LILCO. LILCO denied this control. It is also noted that BRC denied such control at the time it obtained stockholder approval of its 1978 agreements with LILCO. Nevertheless, BRC contends the conduct of LILCO constituted acts of economic coercion against BRC, all to its damage.
The declaratory judgment sought by BRC asks the Court to find that by virtue of the mining partnership and the conduct of LILCO in violating the asserted fiduciary responsibility, in wrongfully preventing BRC from selling uranium forward, and in interfering with BRC's ability to obtain alternative financing, LILCO should be obligated to pay all third party creditors of BRC relating to the Marquez Property and mill. Additionally, BRC seeks to have the Court declare that LILCO should be obligated to pay damages to BRC in order that BRC might be restored to the condition it would have enjoyed except for the wrongful acts of LILCO, and that LILCO should recover nothing on any alleged indebtedness from BRC to LILCO as a result of funds advanced by BRC by LILCO.
"COUNT III" alleges that as a result of the aforementioned conduct of LILCO, BRC has been damaged in the amount of at least $55,000,000.00 in addition to any indebtedness due from BRC to LILCO and that the wrongful acts of LILCO were maliciously and willfully committed, giving rise to punitive damages.
"COUNT IV" alleges that the conduct of LILCO constituted fraud, for which BRC should be awarded compensatory damages in an amount of not less than $55,000.000. in addition to the forgiveness of any indebtedness of BRC to LILCO, together with punitive damages in the amount of $5,000,000.
The salient facts are as follows:
BRC is a uranium mining company doing business in the State of New Mexico. LILCO is a supplier of electrical power, with home offices in New York. In order to supply such power, it became necessary in the 1970's to construct nuclear power plants for the generation of electricity. These nuclear power plants require, as a source of fuel, large quantities of uranium concentrates. These uranium concentrates are commonly referred to as "yellowcake."
Prior to 1975, LILCO had relied upon Westinghouse as its source, or primary source, of yellowcake. However, on September 8, 1975, Westinghouse notified LILCO that it would no longer honor its supply contracts. The reason given was that a very steep rise in the market price of uranium at that time made it commercially impractical to continue under existing contracts. The price of yellowcake when Westinghouse declared its default was approximately $17.00 a pound. By January, 1976, it had reached $35.00. The price peaked at $43.40 per pound in 1978, and went steadily downward thereafter. By August, 1981, it had dropped to $23.50. These prices were based upon "spot delivery", i.e. delivery at that time. The prices for delivery in the future were much higher, due to inflationary factors in the expected costs of mining.
In September, 1975, LILCO had three power plants in the process of construction which it expected to have fully operational during the period 1979-1983. Its anticipated need for uranium was approximately 20,000,000 pounds through 1995 and 40,000,000 pounds over the life of the plants. Thus, it was necessary to locate an alternative source of uranium upon the default of Westinghouse. This lead to negotiations with BRC.
BRC was formed by Richard Bokum a few years prior to 1975 for the purpose of exploring for and developing uranium deposits. By 1975, BRC had acquired a property known as the "Marquez Property", in which there had been determined to exist at least 4.2 million pounds of uranium as of December, 1975. There was still much of the property left for exploration. BRC determined by the fall of 1975 to sell or make other arrangements to fully develop the property. Several contacts were made for this purpose, with LILCO being one of those contacts.
The first serious negotiations for the supply of uranium concentrates (yellowcake) by BRC to LILCO occurred in Santa Fe, New Mexico between Christmas 1975 and New Years 1976. This culminated in the contract, known as a Uranium Concentrates Purchase Contract of January 30, 1976 between BRC and LILCO. This is reflected in Exhibit 17, and is known as the "1976 UCPC".
This contract was the product of extensive negotiation, much of which was the subject of testimony by both sides. Objections were interposed, based on parol evidence. Some testimony was allowed for the purpose of bearing on the state of mind of LILCO on the fraud claim and the claim of economic coercion, and to bear on the issue of punitive damages. However, insofar as testimony relating to negotiations may tend to vary or explain the terms of the contract, I have chosen to disregard it. The reason for this is that Exhibit 17, the 1976 UCPC, is clear, unambiguous and expresses therein that it is fully integrated. (Article 19). I will later discuss herein what I perceive to be the legal consequences of the agreement, but what constitutes, as a matter of fact, the agreement of the parties is fully embodied within the terms of that instrument.
This contract resulted from the fact that BRC had significant quantities of uranium reserves to be developed on its leasehold near Marquez, New Mexico, but it had insufficient capital to mine, let alone mill, its uranium ore. LILCO was in need of immediate arrangements to satisfy long-term requirements for the production of large quantities of uranium concentrates. The production of the quantity of uranium sought by LILCO would necessitate a large capital expenditure and a substantial increase in the staff of BRC. Mr. Richard D. Bokum, the Chief Executive Officer of BRC, preferred to sell the company rather than develop the property, and so indicated to LILCO. Additionally, he was concerned about doing business with a corporate bureaucracy who was unable to make on-the-spot decisions or who might tie his hands in his operation. This, too, was communicated to Lilco personnel. Mr. Bokum was assured by those LILCO representatives present that if an agreement were reached he would only need to negotiate with those present and that "matters will run smoothly."
LILCO did not possess sufficient expertise to mine for uranium and preferred to rely on BRC in this regard. LILCO's primary objective was to make arrangements to be assured of a long term supply of uranium concentrates for its three proposed nuclear plants.
Pursuant to the contract ultimately reached by the parties on January 30, 1976, LILCO agreed to purchase from BRC 5,000,000 pounds of yellowcake at specified prices, ranging from $25.55 to $40.40 per pound. A purchase price security deposit was provided to BRC by LILCO in the amount of $15,000,000.00. This $15,000,000 advance was not totally for the use of BRC as it saw fit. Rather, $6,000,000 of this amount could be used by BRC for its own purposes, including the payment of any creditors it deemed appropriate. The sum of 7.5 million dollars was placed in an "Escrow Account" with the Albuquerque National Bank for use in the construction and development of the mine to secure performance of delivery obligations under the contract. Disbursements were only to be made upon the approval of both BRC and LILCO. The remaining 1.5 million dollars was to be held in an "Investment Account" for use in exploration and development of other uranium mining properties of BRC. Expenditures from this account were also on the approval of BRC and LILCO, jointly. LILCO had an option to purchase uranium from these properties.
The $15,000,000 was to be repaid to LILCO by crediting at least $3.00 per pound against the price of uranium...
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