PSI Energy, Inc. v. Exxon Coal USA, Inc.
| Decision Date | 03 January 1994 |
| Docket Number | No. 93-3191,93-3191 |
| Citation | 17 F.3d 969 |
| Parties | 22 UCC Rep.Serv.2d 999 PSI ENERGY, INC., Plaintiff-Appellee, v. EXXON COAL USA, INC., and Exxon Corporation, Defendants-Appellants. |
| Court | U.S. Court of Appeals — Seventh Circuit |
Alan S. Brown, Hugh E. Reynolds, Jr., Thomas L. Davis, Locke, Reynolds, Boyd & Weisell, Indianapolis, IN, Donald P. Bogard, Plainfield, IN, for plaintiff-appellee.
William P. Wooden, Katherine L. Shelby, Wooden, McLaughlin & Sterner, Indianapolis, IN, David J. Beck, Amy Murdock, Beck, Redden & Secrest, James K. Wilson, H.G. Hoskins, Exxon Coal and Minerals Co., Houston, TX, Robert Anthony Burgoyne, Keith A. Jones, Fulbright & Jaworski, Washington, DC, Richard J. Wilson, Fulbright & Jaworski, Houston, TX, for defendants-appellants.
Before BAUER, REAVLEY, *** and EASTERBROOK, Circuit Judges.
Our prior opinion, 991 F.2d 1265 (1993), held that the long-term coal contract between PSI Energy and Exxon Coal USA remains in effect. We remanded so that the district judge could determine the Base price of coal for the period 1993-97. Under the contract, Exxon's "last offer" sets the price for that period. According to Exxon, the "last offer" was a Base of $30 per ton. According to PSI, the $30 offer was incomplete and made in bad faith, and Exxon's bid of $23.266 per ton, matching a rival's proposal in the event it qualified as a "competitive offer" under the contract (which, we held, it did not), is the only suitable "last offer." The district court took additional evidence and held not only that Exxon had negotiated in bad faith but also that its $30 bid omitted essential terms. 831 F.Supp. 1430 (S.D.Ind.1993). As a result, the court held, the Base during 1993-97 is $23.266 per ton.
PSI raises a jurisdictional question. After January 1, 1993, PSI began accepting deliveries from Black Beauty Coal Company, believing that Exxon's failure to match Black Beauty's offer brought their contract to an end. Not until July 1993, three months after our opinion held that the PSI-Exxon contract remains in force, did PSI resume taking deliveries from Exxon. We issued a supplemental order on July 12, 1993, clarifying the issues to be resolved on remand; this order suggested that the proceedings should include a determination of the damages PSI owes for failure to accept Exxon's coal. The district court did not assess damages on remand, which, PSI believes, makes the order non-final. Cf. Liberty Mutual Insurance Co. v. Wetzel, 424 U.S. 737, 96 S.Ct. 1202, 47 L.Ed.2d 435 (1976). When issuing the order of July 12 we were unaware, however, that Exxon had commenced a separate action seeking damages. The district court has wrapped up all of the issues actually presented by this suit, and its decision is appealable.
The contract between PSI and Exxon provides for price renegotiation every five years. If the parties do not reach agreement, the price is set in one of two ways: either Exxon's "last offer" prevails during the ensuing five years, or PSI obtains a "competitive offer," which Exxon may match. If it elects not to match the rival's bid, then the rival gets the business (although PSI may require Exxon to supply coal for an additional two years, while the rival prepares to perform). Sections 7.03 and 7.05 of the contract describe the mechanism:
[Sec. 7.03] Either party may require renegotiation of the Base by giving to the other, at any time in the first thirty (30) days of the fourth year of any contract period ..., written notice of its desire to do so. Promptly after the giving of such notice, the parties will commence negotiations to agree upon a new Base to be effective as of commencement of the next contract period. Each party covenants with the other to participate in such negotiations in a good faith effort to reach agreement. If the parties are unable to reach agreement, BUYER will accept SELLER's last offer or present SELLER with a firm, written offer which it has received from another supplier, which it is willing to accept, for the supply of coal called for under the remaining term of this Agreement (herein referred to as a "competitive offer"). It shall also provide SELLER with documentary proof of such offer, and permit SELLER to examine all supporting data and information submitted with the offer. SELLER shall have the right to meet such competitive offer.
If, by the one hundred and eightieth day preceding the end of the contract period in which notice of price renegotiation was given, the parties have agreed upon a new Base, appropriate changes shall be made to the adjustment factors provided in Exhibit "A". The Price of coal effective at the commencement of the next contract period shall be computed from the new Base adjusted under the provisions of Exhibit "A" from the reference date of the new Base. If, by such time, the parties have not reached agreement upon a new Base and SELLER declines to meet a competitive offer submitted by BUYER pursuant to the above provisions, this Agreement shall terminate at the end of the contract period in which notice of price negotiation was given, or at BUYER's election, at the end of the temporary continuance of deliveries as provided for in Section 7.04.
[Sec. 7.05] It is understood and agreed that the purpose and intent of Sections 7.01 to 7.04, inclusive, are only to provide for renegotiation of Base and Exhibit "A", and neither party shall inject into such negotiations, as a condition of agreement upon a new Price for the coal, any demand or request that other terms and conditions of this Agreement be altered.
"Base" is the negotiated figure; "Exhibit A" describes adjustments to be made while a Base remains in force. Exhibit A specifies the effects of 12 fluctuating factors, including labor costs, taxes, freight, and changes in the value of money.
After the parties reached a stalemate in April 1992, PSI asked Exxon to make a formal "last offer" within the meaning of Sec. 7.03. Exxon offered a Base of $30 per ton, F.O.B. PSI's Gibson generating station, effective January 1, 1993. The offer did not include a copy of the Exhibit A that would be effective on that date, but Exxon promised to update its figures: "The new Base of $30.00 per ton would be subject to adjustments in union welfare, taxes/fees and new laws/regulations between May 1, 1992 and the revised reference date of January 1, 1993." In other words, Exxon would absorb any increases in wages, freight, and the cost of living between April 1992 and January 1993, but changes in taxes and union welfare funds (plus the costs of new laws) from May through December 1992 would lead to adjustments under Exhibit A. The structure of Exhibit A would remain the same, but the figures would be updated as of January 1 (or May 1) so that only changes after those dates would alter the delivered price of coal. The offer does not state a price per ton as of January 1, 1993, but it provides the formulas from which the price could be computed once that date arrived. The district court concluded that this combination of a $30 Base plus a promise to update the table of adjustments is not a proper "last offer" under the contract because "[i]t is not possible to calculate the Price under the Contract without an accompanying Exhibit A." 831 F.Supp. at 1438. As a finding of fact--that only Base and Exhibit A put together yield a dollar price--this is unexceptionable. As a construction of the contract, a subject on which our review is plenary (given the parties' agreement that the contract is not ambiguous), it is incorrect.
Section 7.03 does not call for the parties to renegotiate the Price (a defined term, starting with Base and including adjustments per Exhibit A and several other portions of the contract). It provides, instead, that if either party gives the appropriate notice, "the parties will commence negotiations to agree upon a new Base to be effective as of commencement of the next contract period." Section 7.03 adds that once the parties agree on a new Base, "appropriate changes shall be made to the adjustment factors provided in Exhibit 'A'." Although the contract does not say what "appropriate changes" are, the context furnishes the explanation: the parties must update Exhibit A to reflect economic conditions on the date the new Base takes effect. In effect, the Base is the Price at the start of the new contract period; any later change in one of the 12 categories covered by Exhibit A will lead to an adjustment in the Price. Exxon's offer in April 1992 conformed to this approach, with the proviso that Exxon wanted to make adjustments for changes "in union welfare, taxes/fees and new laws/regulations between May 1, 1992 and the revised reference date of January 1, 1993." Exxon offered a Base of $30; PSI's inability to convert this into a Price as of January 1, 1993, until seeing what happened to the three open categories between May and December is neither here nor there under the contract.
Things would have been more complicated had the parties been negotiating some of the formulas in Exhibit A. Although Sec. 7.03 speaks of renegotiating Base, Sec. 7.05 says that "the purpose and intent of Sections 7.01 to 7.04, inclusive, are only to provide for renegotiation of Base and Exhibit 'A' ". We may assume, therefore, that PSI was entitled to put on the table a proposal to alter the extent to which Exhibit A translates changes in Exxon's costs into changes in the Price. For example, Part 2 of Exhibit A provides that whenever an adjustment is made under Part 1 for changes in labor costs, "an additional adjustment in the amount of fifty percent (50%) of the adjustment so made, shall be made effective on the same date for changes in the cost of administrative, supervisory, technical, and clerical help at the mine and for changes in SELLER's allocated administrative...
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