McLouth Steel Corp. v. Jewell Coal & Coke Co.
| Decision Date | 12 January 1978 |
| Docket Number | No. 76-1525,76-1525 |
| Parties | McLOUTH STEEL CORPORATION, Plaintiff-Appellee, v. JEWELL COAL AND COKE COMPANY, Defendant-Appellant. |
| Court | U.S. Court of Appeals — Sixth Circuit |
James D. Ritchie, Butzel, Long, Gust, Klein & Van Zile, George E. Brand, Jr., Detroit, Mich., for defendant-appellant.
W. Gerald Warren, William B. Cudlip, Douglas D. Roche, Dickinson, Wright, McKean & Cudlip, Stephen E. Dawson, Detroit, Mich., for plaintiff-appellee.
Before EDWARDS and CELEBREZZE, Circuit Judges, and ZIRPOLI, * Senior District Judge.
Plaintiff McLouth Steel Corporation, the tenth largest steel producer in the nation, filed this complaint under the diversity jurisdiction of the United States District Court for the Eastern District of Michigan, Southern Division, against Jewell Coal and Coke Company, a Virginia corporation with principal offices in Knoxville, Tennessee, and its affiliated coal companies, seeking enforcement by injunctive relief of a contract for sale and purchase of coke used in McLouth's furnaces. The contract was executed in 1961 with an initial term of 15 years and an option on McLouth's part to extend same for an additional 15 years.
The District Judge who heard this 54-day trial found all issues in favor of McLouth. He held the contract to be "an unambiguous requirements contract" and that Jewell was obligated to supply all coke (over 59,000 tons a month supplied under another contract) which McLouth required and ordered. He issued a mandatory injunction requiring Jewell to furnish coke as McLouth ordered it and to build replacement or new production facilities as needed to accomplish same. He reserved for later adjudication any Jewell claims of production cost increases due to inflation or antipollution laws. He also reserved computation of McLouth's claims for breach of contract damages and Jewell's counterclaims for similar damages. He then certified that the judgment was a final one and that there was no just reason for delay of this appeal, under Rule 54(b).
This case reminds us of stories from the Klondike gold rush of partners who willingly shared danger, cold and starvation in the search for gold and then fought (sometimes to the death) for sole possession of the gold strike with which fortune favored them.
Here in the early 1960's, at a time when the coal industry was greatly depressed, McLouth Steel Co. contracted with Jewell Smokeless Coal Corp. 1 for Jewell to build a coke plant and furnish coke to McLouth for 15 years, the contract being renewable at McLouth's option for another 15 years. The unilateral nature of the option which is now the major source of controversy is explicable in that Jewell, in the midst of lean years, approached McLouth with the proposal that McLouth give it a binding contract for coke which would provide Jewell with the necessary cash flow to secure the capital required to build a coke plant. The parties lived under the contract without major dispute until coal once more became king of the energy producers of the United States and its value went up in multiples. Then, suddenly, McLouth wanted to buy more coke than it had ever bought and Jewell wanted to supply much less. Each, as might be guessed, found reasons. This bitter controversy resulted.
We find it impossible to describe the contract which is the center of this litigation without employing words which have interpretative shadings. In view of its relative brevity, we quote it in full, with the paragraphs which we believe to be critical emphasized:
This Agreement, made and entered into this 21st day of August, 1961, by and between Jewell Smokeless Coal Corporation, a corporation organized under the laws of the State of Virginia, with an office in Knoxville, Tennessee, hereinafter called the "Seller", and McLouth Steel Corporation, a corporation with an office in Detroit, Michigan, hereinafter called the "Buyer".
Witnesseth:
That the Seller hereby agrees to sell and the Buyer hereby agrees to buy and pay for, coke, under the terms and conditions, for the period hereinafter named, and the price hereinafter stated.
Term of Contract: This contract shall become effective as of the first day of May, 1963, and continue for a period of fifteen (15) years from that date with an option on the part of the Buyer to renew the contract for an additional term of fifteen (15) years by written notice to Seller on or before November 1, 1976, on the same terms and conditions as herein stated.
Quantity: The coke to be purchased and sold hereunder shall be Buyer's requirements of Blast Furnace Coke in excess of the amount which it is presently obligated to purchase from Semet-Solvay Division, Allied Chemical Corporation. Buyer's contract with Semet-Solvay Division, Allied Chemical Corporation, is dated May 12, 1960, and requires that, after April 30, 1963, Buyer is obligated to purchase from them the first 59,000 CTM BRT 11/22/61 (handwritten changes underlined) net tons of coke per month. It is estimated that Buyer's requirements in excess of said purchases from Semet-Solvay Division, Allied Chemical Corporation, will average approximately 18,000 net tons of coke per month, and Buyer agrees that in no case shall purchases from Seller hereunder average less than 9,000 net tons per month.
Quality: Coke to be delivered hereunder shall be of Blast Furnace Quality, sized 1 X 4 , with an average analysis as follows:
Price: $14.25 per net ton f. o. b. cars at ovens, Vansant, Virginia.
Basis for Escalation: The base price per ton of coke listed herein is based on the present cost of producing, processing, washing and delivering coal to the coke ovens in effect as of the date of this contract at the mines of Seller. This present cost is $5.20 per ton. Effective at the end of each six months' period ending November 30 and May 31 during the term of this contract, there shall be added to or deducted from the price per net ton of coke f. o. b. oven to Buyer any increase or decrease in this cost due to change in wage rates, cost of supplies, taxes, laws, or any other item affecting this cost (of producing coal) as follows: For each variation of 10cents in the cost (of producing coal), the price per ton of coke to Buyer shall be adjusted 15cents per ton up or down. Coke plant labor shall also be escalated using as a base the wage scale in effect when the coke plant is placed in production.
Coal: The coal from which such coke is to be derived shall be from Seller's present miners to analyze approximately: 25.00 Volatile; 69.50 Fixed Carbon; 3.5 to 4.5 Ash; and .75 Sulphur.
Deliveries: Coke shall be delivered in approximately equal weekly quantities. Each shipment must, however, be of not less than the 25-car minimum which is required to secure the best freight rate advantage.
Weights: Railroad track scale weights shall establish the quantities which are being shipped, but in no case should cars of coke be weighed within twelve (12) hours after quenching.
Payment: Buyer will pay Seller within fifteen (15) days after Buyer's billing, which shall be monthly.
Contingencies: It is understood that Seller's failure to deliver, or Buyer's failure to accept, said coke in the event, and during the continuance, of any action by governmental authority (whether now or hereafter effective) preventing performance of this agreement in accordance with its terms, or failure to make or accept deliveries hereunder when due, if occasioned by act of God or the public enemy, fire, explosion, flood, war, riots, sabotage, strike, action of any governmental authority having jurisdiction in the premises, or any circumstance beyond either party's reasonable control, shall not subject such party to any liability to the other party hereto.
Buyer shall have the right to purchase from other sources any part of Buyer's coke requirements which Seller shall fail to supply Buyer.
In Witness Whereof, the parties hereto have set their hands and seals the day and year first above written.
(Emphasis added.)
The record discloses that, prior to the signing of this contract, Jewell was in the business of processing, cleaning and selling high grade, low sulphur metallurgical coal from mines which it held under leases. Prior to 1963 it had never been in the business of producing blast furnace coke, a material which plaintiff McLouth used in great quantity for firing its furnaces.
Faced with losses in 1959 and an excess of current liabilities over current assets in 1960, the Thompson family, which owned controlling interests in and ran Jewell and its affiliated coal companies, contacted McLouth and initiated discussions of Jewell's undertaking to build a coke plant and supply a portion of McLouth's needs for coke. The contracting parties understood from these discussions that if Jewell built the plant, it would need to borrow capital therefor, and that the contract would have to contain a minimum take or pay monthly tonnage purchase guarantee from McLouth to Jewell. All through the negotiations Jewell was informed and understood that McLouth already had a 10-year contract with Semet-Solvay Division of Allied Chemical Corporation, for McLouth to purchase 59,000 tons of the coke it used each month from Semet-Solvay. When it developed that 9,000 tons take or pay would probably serve to provide sufficient cash flow for financing the necessary coke plant construction loan for Jewell, the last sentence of the contract paragraph labeled "Quantity" was drafted by McLouth.
McLouth drafted this in terms of "Buyer's requirements of Blast Furnace Coke in excess of the amount which it is presently obligated to purchase from Semet-Solvay Division," and concluded with its estimate: "Buyer's...
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