Union Electric Co. v. Consolidation Coal Co.

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 98-3450
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Union Electric Company, a *
Missouri Corporation, *
*
Appellant, *
*
v. * Appeal from the United States
* District Court for the
Consolidation Coal Company, a * Eastern District of Missouri
Delaware Corporation; Consol, Inc., *
a Delaware Corporation; Consol *
Energy, Inc., a Delaware Corporation, *
*
Appellees. *
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Submitted: April 21, 1999
Filed: August 27, 1999
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Before McMILLIAN, LOKEN and MURPHY, Circuit Judges.
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McMILLIAN, Circuit Judge.
Union Electric Co. (UE) appeals from a final judgment entered in the United
States District Court1 for the Eastern District of Missouri granting summary judgment
in favor of Consolidation Coal Co. (CONSOL). See Union Electric Company v.
Consolidation Coal Company, Case No. 4:96CV1881JCH (E.D. Mo. Aug. 31, 1998)
("Memorandum and Order"). For reversal, UE argues that the district court erred in
finding that the terms of the gross inequities clause of the contract between it and
CONSOL were clear and unambiguous and that the clause created no enforceable
obligations on the parties. For the reasons discussed below, we affirm.
Jurisdiction in the district court was proper based upon 28 U.S.C. § 1332.
Jurisdiction in the court of appeals was proper based upon 28 U.S.C. § 1291. The
notice of appeal was timely filed pursuant to Fed. R. App. P. 4(a).
BACKGROUND:
In 1966 UE and CONSOL entered into a long-term contract in which CONSOL
agreed to supply coal to UE for use in production of electricity at a power plant in
Labadie, Missouri. The contract was a “base price plus escalation”contract, in that the
contract set a price per ton of coal in 1966 and contained provisions to adjust that price
for changes in inflation and other factors. Most of these provisions related to specific
production costs, such as labor or materials. Some of the provisions "passed through"
external increases in production costs directly to the purchase price, while others
contained equations for determining price increases in relation to changing production
costs. The controversy in this case centers on a price adjustment provision referred to
as the Gross Inequities Clause (GIC).
1
The Honorable Jean C. Hamilton, Chief Judge for the United States District
Court for the Eastern District of Missouri.
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The GIC provided an additional means to address inequities caused by economic
conditions not contemplated at the time of the contract. The GIC in the contract stated:
Any gross inequity that may result from unusual economic conditions not
contemplated by the parties at the time of the execution of this Agreement
may and should be corrected by mutual agreement; provided, however,
that nothing contained herein shall be construed as relieving any party
from the continued performance of its obligations hereunder,
notwithstanding the existence of a claim of inequity or the failure of the
parties to reach an agreement with respect thereto. Each party hereto
shall, in case of a claim of gross inequity, furnish the other party with
whatever documentary evidence may be requested in effecting a
settlement of such claim.
During the 1960s and 1970s CONSOL presented to UE several requests for increased
payment, under both the price adjustment provisions and the GIC. UE granted the
majority of these requests, and the price-per-ton UE paid to CONSOL under the
contract was increased several times.
Appellant claims that in 1994, it realized that in the 1980s the conditions which
prompted CONSOL’s requests had reversed themselves, and since UE continued its
higher payments, CONSOL benefitted from a substantial windfall. Appellant contends
that as a result of this reversal of conditions, appellant over-paid CONSOL $169
million under the contract.
In early 1995, UE contacted CONSOL demanding a decrease in the price-per-
ton for future shipments and that CONSOL reimburse UE for the over-payment.
CONSOL indicated that it did not believe such action was possible under the contract.
In late 1995 appellant made a formal GIC request to CONSOL, which CONSOL
rejected because it concluded that UE had not suffered any gross inequity or indeed any
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financial hardship as a result of the supposed overpayment and that CONSOL's
improved production capabilities were irrelevant to UE’s GIC claim.
UE then initiated this suit in federal district court alleging that CONSOL
breached the contract and seeking recovery of the over-payment. The district court
granted CONSOL's motion for summary judgment, finding that CONSOL's failure to
accept UE's GIC claims did not constitute a breach of contract because the language
of the GIC was clear and unambiguous and created no enforceable contract rights under
which CONSOL was bound to accept UE's GIC application. See Memorandum and
Order at 7-9. The district court also rejected UE's claims that CONSOL acted in bad
faith in rejecting UE's GIC request as well as UE's unjust enrichment claims against
CONSOL. See id. at 11-16. This appeal followed.
DISCUSSION
We review decisions to grant summary judgment de novo, applying the same
standard as the district court and viewing the facts in the light most favorable to the
non-moving party. See Hutchins v. International Brotherhood of Teamsters, 177 F.3d
1076, 1080 (8th Cir. 1999) (citing Breading v. Arthur J. Gallagher & Co., 164 F.3d
1151, 1156 (8th Cir. 1999)). Summary judgment is proper when there is no genuine
issue of material fact, and the moving party would be entitled to judgment as a matter
of law. See id.
A
UE argues that the GIC required UE and CONSOL to come to a mutual
agreement regarding all GIC requests and that, as such, the GIC is an enforceable
contract right. UE contends that CONSOL breached the contract when it rejected UE's
GIC claim. We disagree.
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In order to succeed on its claims of breach of contract under Missouri law, UE
must allege "(a) the making and existence of a valid and enforceable contract between
the plaintiff and defendant, (b) the right of the plaintiff and obligation of the defendant
thereunder, (c) a violation thereof by defendant, and (d) damages resulting to the
plaintiff from the breach." Gilomen v. Southwest Mo. Truck Center, 737 S.W.2d 499,
500-01 (Mo. Ct. App. 1987). Appellant's argument fails because the plain language of
the GIC demonstrates that it did not create an enforceable contract.
First, the unambiguous terms of the GIC establish no more than an agreement
between the parties to attempt to come to an agreement about GIC requests. The
operative portion of the GIC--that GIC claims "may and should be corrected by mutual
agreement"--contains purely precatory language and no terms that suggest that such
agreement is mandatory. (Emphasis provided.) The parties could easily have made the
GIC obligatory by using mandatory language, such as "must and shall" rather than "may
and should." In fact, in other portions of the contract and the GIC itself, the parties did
use mandatory language to demonstrate that the terms were obligatory. For example,
the GIC states that the party raising a GIC claim "shall" provide supporting
documentation. In addition, the GIC provides no mechanism to resolve disagreements
or to enforce a GIC claim, which further undermines UE's argument that the GIC is
obligatory. See, e.g., Georgia Power Co. v. Cimarron Coal Corp., 526 F.2d 101, 105-
106 (6th Cir. 1975) (holding that a gross inequities clause was binding and subject to
arbitration since the parties had agreed in the contract to submit all disputes to
arbitration.) Furthermore, the GIC expressly forbids either party to seek enforcement
of its GIC claim by stopping performance of the contract, because it states that the
parties "shall" continue performance regardless of GIC claims or a failure to agree on
a GIC resolution.
In our opinion, the plain language of the GIC does not create any enforceable
contract right as it is merely an agreement between the parties to make good faith
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efforts to work out GIC disputes between themselves.2 As such, under the facts
presented, there is no information in the contract that would guide us on how we should
enforce such a contract term. See, e.g., Beech Aircraft Corp. v. Ross, 155 F.2d 615,
617(10th Cir. 1946)(holding that to be enforceable, a contract which provides for
revisions of the contract price during the term of the contract by agreement of the
parties must contain sufficient information for to enable the court to ascertain the price).
Thus, CONSOL's rejection of UE's GIC claim did not constitute a breach of contract.
B
Appellant attempts to overcome the clearly precatory language of the GIC by
introducing extrinsic evidence of the parties' dealings to demonstrate that they intended
the GIC to be obligatory. Specifically, UE argues that evidence that both parties
treated the GIC as obligatory during the period in which CONSOL made GIC claims
and that CONSOL threatened UE with litigation on two occasions if UE rejected
CONSOL's GIC claims demonstrates that the GIC should be considered more than an
agreement to attempt to agree. However, we are not at liberty to consider this extrinsic
evidence.
Missouri contract law strictly prohibits the use of extrinsic evidence to interpret
or cast doubt on a contract that is clear and unambiguous. See Royal Banks v. Fridkin,
819 S.W.2d 359, 361(Mo. 1991) (Fridkin) (en banc) ("The parol evidence rule bars
extrinsic evidence, unless an integrated contract is ambiguous."); accord Planet
Productions, Inc. v. Shank, 119 F.3d 729, 732 (8th Cir. 1997) (Planet Productions)
2
The obligation to act in good faith, unlike the agreement to agree on GIC claims,
is an enforceable contract right. However, UE provided no evidence that CONSOL
acted in bad faith when it rejected UE's GIC claim. See Memorandum and Order at 11-
15. As such, its claim on this ground fails as well.
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(applying Missouri law). Moreover, the "determination as to whether a [contract] is
ambiguous is a question of law to be decided by the court." Fridkin, 819 SW.2d at 361
(citing Jim Carlson Construction, Inc. v. Bailey, 769 S.W.2d 480, 482 (Mo.App.1989)).
Under Missouri law, contract terms are ambiguous only if they are reasonably
susceptible to more than one interpretation so that reasonable persons may honestly
disagree over the terms' meaning. See Planet Productions, 119 F.3d at 731-32;
Property Tax Research v. Falstaff Brewing Corp., 708 F.2d 1333, 1336-37 (8th Cir.
1983).
As we noted above, the plain language of the GIC created only an unenforceable
agreement between the parties to attempt to agree about the resolution of GIC
complaints. The terms of the GIC are clear and unambiguous. As such, the extrinsic
evidence of the parties' intentions and past dealings offered by UE to prove the GIC
was obligatory is barred under Missouri law by the parole evidence rule.
CONCLUSION
Because the terms of the GIC are clear and unambiguous and did not create an
enforceable contract right, we affirm the judgment of the district court.
A true copy.
Attest:
CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.
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