Tennessee Valley Authority v. Mason Coal, Inc.

• Decision Date: 26 June 1974
• Docket Number: Civ. No. 3-74-32.
• Citation: 384 F. Supp. 1107
• Parties: TENNESSEE VALLEY AUTHORITY v. MASON COAL, INC., a corporation, et al.
• Court: U.S. District Court — Eastern District of Tennessee

384 F. Supp. 1107

TENNESSEE VALLEY AUTHORITY v. MASON COAL, INC., a corporation, et al.

Civ. No. 3-74-32.

United States District Court, E. D. Tennessee, N. D.

March 5, 1974.

On Motion for Permanent Injunction June 26, 1974.

COPYRIGHT MATERIAL OMITTED

Robert H. Marquis, Beauchamp E. Brogan, L. Gray Geddie, Jr., Charles W. Van Beke, Div. of Law, Tennessee Valley Authority, Knoxville, Tenn., for plaintiff.

Claude K. Robertson, Fowler, Rowntree, Fowler & Robertson, David E. Smith, Hodges, Doughty & Carson, Foster D. Arnett, Arnett, Draper & Hagood, Knoxville, Tenn., for defendants.

MEMORANDUM

ROBERT L. TAYLOR, District Judge.

Plaintiff, the Tennessee Valley Authority, seeks a preliminary injunction restraining defendant, Mason Coal, Inc., (hereafter Mason) from selling, delivering, or otherwise disposing of any coal until defendant has first fulfilled its obligations under a supply contract formerly entered into between plaintiff and defendants. Evidence and oral argument were received in support of and in opposition on February 22, 1974. At the conclusion of the hearing on February 22, the Court advised the parties of its preliminary opinion but that a formal opinion would be withheld until a later date.

Findings of Fact

Plaintiff is a wholly-owned corporation of the United States. 16 U.S.C. § 831 et seq. The Tennessee Valley Authority (hereinafter T.V.A.) currently operates the nation's largest electric power generating system, which serves approximately 80,000 square miles in Tennessee, Kentucky, Mississippi, Alabama, Georgia, North Carolina, and Virginia. Approximately 80 per cent of T. V.A.'s electrical output is generated by coal-burning steam plants which consume more than 35 million tons of coal annually.

Mason is incorporated and principally located in Virginia and has authorized Coal Development Corporation, a Tennessee corporation, as its exclusive sales agent.

In seeking to maintain a constant and reliable coal supply, T.V.A. has entered into numerous long-term contracts with coal producers for the sale and purchase of coal for delivery to T.V.A.'s coal-burning steam plants. The award of these supply contracts is based upon a competitive bid system, requiring the coal supplier to affirmatively represent in his bid that he has the necessary experience and qualifications to produce the requisite quantity and quality of coal.

The inherent nature of the coal industry requires that the supply contracts include various provisions for price adjustments in the product, including changes in mining labor costs and welfare payments; changes in the cost of supplies and materials; changes in applicable state and federal regulations; and costs incurred by the coal company in complying with the Federal Black Lung Benefits Act of 1972. Accordingly, each contract sets forth in detail, including the contract under examination here, provisions for subsequent changes in costs.

The contract provides for an internal disputes procedure to be followed in the event that an adjusted price cannot be reached by the parties. To date, Mason has not submitted any claim for price readjustment under the contract pursuant to the escalation clause. On October 29, 1973, the date on which deliveries were to start under the contract, the agreed price for coal was $8.48 per ton. The energy situation, together with a seller's market, has resulted in November's price of $13.93 a ton. Current figures are unavailable.

On March 16, 1973, T.V.A. issued Regulation No. 25 in which it solicited offers from various coal producers for the sale of coal for use in various steam plants. This invitation set forth in considerable detail various requirements, including coal quality standards for the respective plants, mining plans, reclamation procedures, transport procedures, and price adjustments.

Defendant's bid for a 12-month period to sell to T.V.A. 1,500 tons of coal per week was submitted on August 20, 1973 for public opening on August 21, 1973. Defendant's bid noted the appropriate mode of acceptance:

". . . If TVA telephones or mails a notice to the bidder within 60 days after the bids are opened that this bid is accepted such acceptance creates a valid and binding contract. If the bidder is awarded a contract he will execute the contract forms attached hereto and will give bond with surety satisfactory to TVA for the faithful performance of the contract promptly after such contract and performance bond forms are filled out by TVA and forwarded to the bidder."

Pursuant to this bid, T.V.A. telephoned acceptance of Mason's bid on October 10, 1973, and thereafter confirmed this oral acceptance in writing by letter dated October 12, 1973, within the 60-day period after the bids were opened.

The parties thereafter agreed to supplement No. 1 on October 26, 1973, which permitted shipments to begin on October 29, 1973. Under the contract's terms, T.V.A. forwarded to Mason a "filled out" contract for the latter's signature. Mason has refused to sign this contract. Defendants delivered more than 4,000 tons of coal but since November 30, 1973 refused to deliver any coal under the contract.

In support of plaintiff's motion for preliminary injunction, it has filed with the Court the affidavit of C. R. Wilkerson, Chief of the Fuels Procurement Branch, Division of Purchasing. Mr. Wilkerson's affidavit is instrumental in aiding the Court's development of a factual setting in which to couch any extraordinary remedy at this preliminary stage. Mr. Wilkerson asserts that a number of economic factors, both inside and outside the coal industry, have led to a sharp decline in coal supplies and a concomitant reduction in T.V.A.'s coal reserves.

"Due to the energy shortage and other factors, an acute shortage of coal supply has developed in those areas serving TVA, and the situation is rapidly becoming critical. Shortages of transportation equipment, mining equipment, explosives, fuels, and roof belts have interrupted deliveries under existing TVA contracts . . . As of July 1, 1973, the John Sevier Steam Plant, the plant to which Mason's coal was being shipped, had a 64-day supply of coal in its stockpile. That stockpile has since dwindled to a 22-day supply in spite of a sharp reduction in generation at this plant in recent months. Coal is urgently needed now for this plant."

Of similar significance in controlling a grant of extraordinary relief at this stage is the additional remark by Mr. Wilkerson that

". . . TVA's efforts to purchase coal for the TVA power system, including the John Sevier plant, have had very little success. To date, only one 500 tons per week proposal has been received by TVA.

* * * * * *

"In summary, TVA has not been able to obtain offers from other sources to offset delivery losses under the Mason Coal contract, much less meet burn requirements and maintain satisfactory stockpiles . . ."

Conclusions of Law

It is against this factual background that the Court concludes that plaintiff is entitled to extraordinary relief in the form of specific performance. Although the Court is not aided by specific case law in point, it is guided by traditional prerequisites that must be established before specific performance is compelled. Thus, it is generally understood that a federal court in exercising its inherent equity power must conclude prior to compelling performance under a contract that a valid contract exists between the parties, that the obligations under the contract are sufficiently clear, that the subject matter of the contract must be unique in character and, finally, plaintiff's remedies at law are inadequate. See generally, 71 Am. Jur. 13 et seq.

Initially, it should be noted that plaintiff's contention that there was never any formal execution of a binding agreement is misplaced. Thus, the "special nature of the Government contracting has been recognized and it has been held that merger cannot be strictly applied thereto. The courts have stated that the advertisement, bid, and acceptance constitute the real contract, and that the instrument is merely a reduction to form." Dana Corp. v. United States, 470 F.2d 1032, 1042, 200 Ct.Cl. 200 (1972). Additionally, it should be noted that defendant's bid expressly provided for the appropriate mode of acceptance.¹

In determining the unique character of this contract, the Court must look beyond the property of the subject matter itself to the surrounding circumstances at the present time. Accordingly, the scarcity of raw fuel materials can make an otherwise common product assume a unique character. The contract here does not provide for the supply of any coal from any source but instead requires with a relatively high degree of specificity the delivery of coal of a specified moisture, ash, sulphur, and heat content. Accordingly, it is generally accepted that specific performance of a contract will be granted where the subject matter is unique, as where the contract calls for specific goods from a specific source. Eastern Rolling Mill Co. v. Michlovitz, 157 Md. 51, 145 A. 378 (1929).

The supply contract under examination here provides for extensive contractual remedies both in the form of standard default procedures and the price escalation clause. In the absence of an alternative source of supply for plaintiff, it would appear that any legal remedies are both impractical and inadequate from plaintiff's standpoint. Texas Co. v. Central Fuel Oil Co., 194 F. 1 (8th Cir. 1912); Southwest Pipe Line Co. v. Empire Natural Gas Co., 33 F.2d 248 (8th Cir. 1929).

The fixed price contract with escalation does not guarantee a profit to the contractor. However, an inadequate profit margin does not necessarily constitute an inequitable hardship on defendants as it appears that the price escalation clause adequately protects defendant's financial recovery of increased costs.

In a similar case brought by T.V.A. in the United States District Court for the Western District of Kentucky,...