Williams v. Jader Fuel Co., Inc.

Decision Date01 October 1991
Docket NumberNo. 90-2333,90-2333
Citation944 F.2d 1388
Parties, 34 Fed. R. Evid. Serv. 150 Billie WILLIAMS, Plaintiff-Appellant, v. JADER FUEL COMPANY, INC., Defendant-Appellee.
CourtU.S. Court of Appeals — Seventh Circuit

John Ewart (argued), John H. Armstrong (argued), Craig & Craig, Mattoon, Ill., Paul R. Lynch, Craig & Craig, Mt. Vernon, Ill., George P. Latchford, River Forest, Ill., for plaintiff-appellant.

Joshua G. Vincent (argued), Hinshaw & Culbertson, Chicago, Ill., William F. Trapp, Harvey B. Stephens, Brown, Hay & Stephens, Springfield, Ill., James H. Smith, Shawneetown, Ill., D. Bradley Blodgett, William Hardy, Hinshaw & Culbertson, Springfield, Ill., for defendant-appellee.

Before COFFEY, FLAUM and MANION, Circuit Judges.

FLAUM, Circuit Judge.

Plaintiff Billie Williams was the part owner of Lovilia Coal Company. In 1981, Lovilia entered into a contract with defendant Jader Fuels, like Lovilia a coal-mining concern. Under the contract, Lovilia was allowed to mine by sub-surface methods on certain land leased by Jader. Lovilia mined beyond the boundaries of the tract identified in the agreement, and began to tunnel under an adjacent piece of land, also leased by Jader. Jader began strip mining on the second tract, and Jader's strip mine cut into Lovilia's sub-surface mine, causing flooding which damaged mining equipment owned by Lovilia and made continued operation of its mine impossible. Williams sued Jader, claiming that Jader had breached the covenant of good faith and fair dealing implicit in their agreement, that Jader was negligent or willful in strip-mining through Lovilia's sub-surface mine, and that Jader trespassed upon Lovilia's sub-surface mine. The district court granted Jader a directed verdict on all counts except negligence. The jury found in favor of Williams on the negligence issue, but found that the company he part-owned, Lovilia, was thirty percent contributorily negligent. Williams appeals, challenging the district court's grant of directed verdicts on the contract claim, the willfulness claim, and the trespass claims. He also challenges the district court's refusal to strike several affirmative defenses tendered by Jader, as well as a number of evidentiary rulings. We affirm in part, reverse in part, vacate in part, and remand for a new trial.

I. FACTS AND PRIOR PROCEEDINGS

This is a tale of two mines. Before 1981, defendant Jader Fuel Company ("Jader") obtained the right to mine coal located on land owned by the Green family in Gallatin County, Illinois ("the Green tract"). On December 1, 1981, Jader entered into an agreement with Lovilia Coal Company ("Lovilia"), a partnership owned by Tommy Wignall and plaintiff Billie Williams. Under the agreement, Jader gave Lovilia the exclusive right to mine, by sub-surface methods, two seams of coal that ran under the Green tract. Lovilia agreed to mine these seams "on a continuing and continuous basis," until the seams "shall have been completely mined." Contract Mining Agreement ("Agreement"), p 6. Jader agreed to market the coal Lovilia extracted from these seams, and to pay Lovilia seventy percent of the sales price it received from coal buyers. Jader retained the right to strip mine on the Green tract.

The Agreement between Jader and Lovilia also contained terms relating to a second tract of land. This land ("the Shawnee tract") was located in an area of Shawnee National Forest which bordered the Green tract to the west. At the time the parties entered into the Agreement, Jader had not yet acquired mining rights to the Shawnee tract, but contemplated that it soon would. Jader granted Lovilia a right of first refusal on the opportunity to mine by sub-surface methods on the Shawnee tract. However, the parties agreed that Lovilia could not mine past the border between the Green tract and the Shawnee tract unless Jader allowed it to do so. Although the contract provision concerning the possibility that Jader would allow Lovilia to mine the Shawnee tract did not specifically require that Jader give its assent to Lovilia in writing, the Agreement specified that "[a]ny and all notices provided for herein shall be in writing." Agreement, p 13. The Agreement also contained a merger clause stating that it represented the only agreement between the parties, as well as a clause that required all modifications to be in writing. Id., p 18. The parties agreed that the Agreement would terminate if Lovilia failed to mine coal for six successive months.

By April 1982 Lovilia had dug its mine and was removing coal from the Green tract. At some point in 1982, Lovilia began to tunnel to the west, along one of the two seams of coal it was allowed to mine under the Agreement. In the summer of 1982, Williams' partner Tommy Wignall attended a meeting with two Jader employees, mining engineer Gary Carr and mine superintendent Ed Downen. At trial, Wignall testified that Carr and Downen told him that Jader had acquired the right to mine the Shawnee tract, and that Lovilia was free to extend its mine tunnel west across the boundary between the Green tract and the Shawnee tract. Lovilia availed itself of this opportunity, following one of the seams of coal it was permitted to mine across the western border of the Green tract. Jader admits that it became aware of Lovilia's incursion onto the Shawnee tract, but denies that it authorized Lovilia to cross the property line, in writing or otherwise.

After mining to the west along one of the seams of coal, Lovilia began to mine the portion of the other seam lying under the surface of the Green tract. By February 1984 it had reached the northern and eastern limits of the Green tract, and resumed mining to the west along the second seam of coal. Its progress was marked on mine maps prepared monthly by a Lovilia engineer. The engineer prepared a copy of the monthly map for Jader, but the map was not delivered to Jader. Rather it was kept at Lovilia's office at the mine site, and was made available to Jader engineer Gary Carr at Carr's request. Williams testified at trial that the maps accurately described the extent of Lovilia's mine, and that Carr could have seen for himself that at some point in late 1984 or early 1985 the westernmost end of Lovilia's mine tunnel crossed the boundary between the Green and Shawnee tracts.

As Lovilia dug west, the price of coal headed south. Lovilia began to lose money, and in late March 1985 it stopped mining operations and laid off its miners. However, it continued to employ a skeleton crew to look after the mine and tend the electric pumps that kept the tunnels from flooding. Wignall testified at trial that the shutdown was temporary and that he and Williams anticipated reopening the mine when coal prices rebounded. The halt in mining, however, caused Lovilia to experience serious cash-flow problems. Lovilia's efforts to obtain a loan proved unsuccessful, and in the summer of 1985 it defaulted on payments owed to suppliers from whom it had leased mining equipment. Some of these suppliers repossessed their equipment, removing the belt feeders that carried coal from the mine to the surface as well as other equipment. However, the pumps and the electrical equipment that powered them stayed in place.

In the spring of 1985, Jader applied for a permit to strip mine on the Shawnee tract. While reviewing Jader's application, the state inspector asked Jader's representative about the possibility that the proposed strip mine would cut through underground mine tunnels. The final permit Jader obtained from the state specified that any tunnels cut by the strip mine would be sealed with compacted clay. Jader began strip mining on the Shawnee tract in June 1985. At that time, Carr marked the western limits of Lovilia's mine with two large stakes topped with brightly-colored ribbons. At some point, however, Carr and Downen decided to extend the trench Jader was digging into the surface of the Shawnee tract beyond the stakes. On August 6, 1985, the Jader strip mine cut through Lovilia's mine at a point below the surface of the Shawnee tract. As it had indicated in the state permit, Jader sealed the Lovilia tunnel with fire clay, concealing the entries by August 29, 1985.

John Tucker, a member of the crew Lovilia employed to maintain its sub-surface mine, inspected the mine's western tunnel before and after it was cut by the Jader strip mine. After Jader cut through Lovilia's tunnel, Tucker observed that the flow of water into the Lovilia mine, which had always been a "wet" mine plagued by seepage, increased. The pumps in the Lovilia mine, though apparently old and in poor condition, could cope with the flow of water into the mine until early September 1985, when three days of heavy rains struck southern Illinois. The pumps were unable to handle the heightened flow, and water reached the power transformer that supplied the pumps with current. The transformer shorted, knocking out the pumps, and flooding large portions of Lovilia's mine.

In the wake of the flooding, Tommy Wignall, the Lovilia partner who played the more active role in the mine's operations, filed for bankruptcy. Billie Williams, Lovilia's other partner, filed suit against Jader in district court. 1 Williams' complaint comprised six counts. Count I alleged that Jader had breached the covenant of good faith and fair dealing implicit in the Agreement between Jader and Lovilia when it cut through Lovilia's tunnel. Williams sought ten million dollars in damages for this breach of contract. Count II alleged that Jader failed to exercise due care and caution in cutting through Lovilia's mine, and sought ten million dollars for the damage caused by Jader's negligence. Count III alleged that Jader's actions in cutting through the Lovilia tunnel were willful, and sought ten million dollars in compensatory damages and an additional ten million in punitive damages. Count IV charged...

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