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Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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FIL ED 

Unit~d Scares Court of Appeals 

T~mh Circuit 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

MAR - 6 1990 

ROBERT L HOECKER 

Clerk 

TURNER BROTHERS, INC., 

Plaintiff-Appellant, 

v. 

PUBLIC SERVICE COMPANY 

MEXICO; SUNBELT MINING 

INC.; and TRANSWESTERN 

COMPANY, 

OF NEW 

COMPANY, 

MINING 

Defendants-Appellees. 

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TURNER BROTHERS, INC., 

Plaintiff-Appellee, 

v. 

PUBLIC SERVICES COMPANY OF NEW 

MEXICO; and SUNBELT MINING 

COMPANY, INC., 

Defendants, 

and 

TRANSWESTERN MINING COMPANY, 

Defendant-Appellant. 

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No. 88-2977 

(D.C. No. 86-C-646-E) 

(N.D. Oklahoma) 

No. 89-5001 

(D.C. No. 86-C-646-E) 

(N.D. Oklahoma) 

ORDER AND JUDGMENT* 

*This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

Appellate Case: 89-5001 Document: 01019966027 Date Filed: 03/06/1990 Page: 1 
Before LOGAN, BARRETT, and MOORE, Circuit Judges. 

This is an appeal and cross-appeal from a judgment of the 

district court in a breach of contract action. We affirm the 

judgment on the appeal but reverse on the cross-appeal. 

This case arises out of a contract dispute between two coal 

mining companies, Turner Brothers, Inc. (TBI), and Transwestern 

Mining Company (Transwestern). · Transwestern is a subsidiary of 

Sunbelt Mining Company which, in turn, is a subsidiary of the 

Public Service Company of New Mexico (PNM). 

While in Chapter 11 bankruptcy proceedings, TBI sold its 

leases, permits, and coal contracts to Transwestern (the Purchase 

and Sale Agreement). In addition, the parties also executed an 

allied contract (the Mining Agr~ernent) under which TBI agreed to 

mine coal from the mines covered by the Purchase and Sale 

Agreement. In exchange, Transwestern agreed to pay TBI the sum of 

i ts contractually determined "Reimbursable 

fee, and a residual based on revenues . 

Costs," a management 

The parties performed 

under the Mining Agreement for one year; then Transwestern gave 

TBI a proper notice of its intent to terminate the agreement. 

TBI brought this action seeking damages for breach of the 

Mining Agreement, joining Sunbelt and PNM on a theory of imputed 

liability . TBI also sought recision of the Purchase and Sale 

Agreement, alleging bad faith negotiation by Transwestern, and 

punitive damages for bad faith on the part of all defendants in 

the performance of the Mining Agreement. Transwestern 

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Appellate Case: 89-5001 Document: 01019966027 Date Filed: 03/06/1990 Page: 2 
counterclaimed that TBI had breached the Mining Agreement by 

failing to meet its output requirement. 

Upon the recommendation of a magistrate, the district court 

dismissed the claims against Sunbelt and PNM for lack of personal 

jurisdiction. The court also granted Transwestern's motions for 

summary judgment on the claims for bad faith negotiation and 

punitive damages. After an ensuing trial, the court denied TBI's 

claims for Reimbursable Costs, premiums, and excess cost savings. 

It ruled in favor of Transwestern on its counterclaim, but refused 

to award damages against TBI on the conclusion Transwestern had 

not produced sufficient evidence of damages. 

Exhibit "C" to the Mining Agreement generally defines 

''Reimbursable Costs" as "those costs, expenses and losses paid or 

incurred in connection with, and allocable to, TBI's performance 

under the 

committee 

.Agreement." 

consisting of 

Under the Mining Agreement, a management 

two TBI representatives and two 

Transwestern representatives would produce an Annual Mine Plan and 

Production Schedule (the Annual Plan) and an Annual Budget which 

included monthly projections of Reimbursable Costs. TBI would 

send Transwestern monthly invoices for actual Reimbursable Costs. 

At trial, TBI disputed Transwestern's refusal to reimburse it for 

numerous alleged Reimbursable Costs. TBI now appeals only the 

district court's denial of reimbursement for depreciation costs, 

interest costs, and imputed rental value as well as for premiums 

and excess cost savings. 

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Appellate Case: 89-5001 Document: 01019966027 Date Filed: 03/06/1990 Page: 3 
. . 

DEPRECIATION COSTS 

Exhibit "C" to the Mining Agreement makes no provision for 

the reimbursement of depreciation as a Reimbursable Cost. TBI 

contends, however, since usual principles of accounting would 

include capital depreciation as an item of cost, it was expected 

by the parties that TBI would be able to recover such a cost. TBI 

also asserts depreciation falls within the contractual definition 

of a Reimbursable Cost. 

The district court concluded the parties did not intend to 

reimburse TBI for depreciation. The Mining Agreement contains a 

detailed scheme for determining TBI's equipment-related 

Reimbursable Costs, and those provisions are silent regarding the 

recovery of depreciation. Similarly, the Annual Budget and TBI's 

Mine Expense Reports did not include any amount for depreciation 

even though TBI carried depreciation on its internal books. 

Moreover, at the time the parties negotiated the Mining Agreement, 

TBI's equipment was subject to such debt that TBI had no equitable 

interest to depreciate. Finally, the Mining Agreement reimbursed 

TBI for its equipment-related expenses through a stream of income 

based on revenue to pay TBI's equipment-related debt. 

Additionally, the district court found TBI's equipment did not 

depreciate during the year in which TBI performed under the Mining 

Agreement, 1 and, after Transwestern terminated the Mining 

Agreement, TBI's largest creditor repossessed all of its equipment 

and forgave all of TBI's debts. Since those debts exceeded the 

1TBI's own records indicate the market value of the equipment was 

greater after TBI had performed under the Mining Agreement than 

when it filed for Chapter 11 reorganization. 

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Appellate Case: 89-5001 Document: 01019966027 Date Filed: 03/06/1990 Page: 4 
· market value of the repossessed equipment, TBI lost nothing as a 

result of the use of its equipment under the contract. 

Under the circumstances, we find no fault with the trial 

court's reasoning. TBI has not shown us where the trial court's 

factual determinations were clearly erroneous: hence, those 

findings control here. 

West Bank, F.2d 

Las Vegas Ice and Cold Storage Co. v. Far 

, 1990 WL 1292 *3 (10th Cir. 1990). 

Moreover, whether accounting principles include depreciation as a 

cost is irrelevant, for the parties are entitled to define costs 

as they choose. The trial court was obliged to view parole 

evidence to resolve the ambiguity of the contract, and we have not 

been shown any reason to reverse the court's conclusions with 

respect to that evidence. 

INTEREST PAYMENTS 

TBI contends the trial court erred by adopting the 

magistrate's recommendation not to allow TBI to recover interest 

payments which it made to its bankruptcy creditors during its 

performance of the Mining Agreement. Those payments applied to 

debts incurred by TBI prior to its entry into the Mining 

Agreement. TBI asserts it should have been able to recover those 

costs because they were essential to TBI's continued use of the 

equipment it needed to perform its obligations under the Mining 

Agreement. TBI failed to object to the magistrate's 

recommendation in the district court (Vol. I, doc. 62): therefore, 

the issue is not reviewable in this court. Niehaus v. Kansas Bar 

Ass'n, 793 F.2d 1159, 1164-65 (10th Cir. 1986). 

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Appellate Case: 89-5001 Document: 01019966027 Date Filed: 03/06/1990 Page: 5 
IMPUTED RENTAL VALUE 

The Mining Agreement provided for recovery of the "fair 

market rental value" of any unencumbered equipment TBI owned and 

used full time on Transwestern's mines. The trial court held TBI 

failed to prove which equipment, if any, was encumbered; which 

items, if any, were used on Transwestern's mines; and the amount 

that would reflect the fair market rental value of the equipment. 

TBI argues that the court's conclusion was erroneous because 

by combining information available in several lists of equipment 

set forth in different exhibits, the critical information could be 

discerned. TBI suggests the trial court erred in failing to make 

a studious application of those exhibits. 

In a pretrial ruling, the district court limited TBI's claim 

for imputed rental value to that equipment set forth in Schedule A 

submitted by TBI in .response to Transwestern's interrogatories. 

Charles Turner, who prepared Schedule A, testified the document 

was not prepared for the purpose of determining imputed rental 

value. He stated Schedule A was given to Mr. Mccloskey of 

Transwestern because "they needed some figure for supplemental 

equipment in the event that they mined on their own, and this was 

prepared for him for that basis." In light of this statement and 

the court's pretrial circumscription of the evidence, we cannot 

say the court's conclusion on the sufficiency of the evidence was 

clearly erroneous. 

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Appellate Case: 89-5001 Document: 01019966027 Date Filed: 03/06/1990 Page: 6 
PREMIUMS AND EXCESS COST SAVINGS 

The Mining Agreement includes the following provision_ for 

cost-savings and productivity bonuses: 

Seventy-five percent (75%) of any amount less than the 

projected Reimbursable Costs in the Annual Budget 

actually incurred by TBI shall be paid annually to TBI 

by [Transwestern] .... Such payment shall be a one 

time payment made following satisfactory resolution of 

any payments that are in dispute. All revenues derived 

from the sale of coal that exceeds [sic] the amount set 

forth in the Annual Mine Plan and Production Schedule 

("Excess Revenues'') ... or premiums earned on coal 

sold under the Annual Mine Plan and Production Schedule, 

shall be allocated as follows: 

For Excess Revenue up to $1,500,000, 50% to TBI and 50% 

to [Transwestern]. 

For Excess Revenue over $1,500,000, 95% to TBI and 5% to 

[Transwestern]. 

The district court denied TBI's claim for "premiums." 2 The court 

construed the bonus provision to mean TBI was not entitled to 

receive premiums unless its I 

revenues exceeded the revenues 

projected in the Anriual Plan. TBI's argument notwithstanding, 

this construction is supported by the language of the contract 

and, thus, not clearly erroneous. 

Although the questioned provision is ambiguous, the trial 

court's interpretation is supported by the fact the parties 

parerithetically inserted ''Excess Revenues" after the provision 

relating to the sale of coal in excess of projected revenues and 

then used the same form in 

distributions. 

the formula allocating the 

2 In its brief, TBI defines a "premium'' as a contractually 

determined sum paid for each installment of coal which exceeds an 

agreed upon BTU heat level. The Mining Agreement contains no such 

definition. 

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Appellate Case: 89-5001 Document: 01019966027 Date Filed: 03/06/1990 Page: 7 
TBI is correct, however, in asserting the district court 

should have deducted its disallowances from TBI's claimed 

Reimbursable Costs to determine whether the final sum was less 

than projected Reimbursable Costs. The Mining Agreement 

explicitly states Transwestern will pay the cost-saving bonus 

"following satisfactory resolution of any payments that are in 

dispute." Because the court made no determination of the effect 

this disallowance has made, if any, on the amount of TBI's savings 

in Reimbursable Costs, further consideration by the district court 

is warranted. 

BAD FAITH NEGOTIATIONS 

The Mining Agreement states in part: "If the Management 

Committee is unable to approve the Annual Mine Plan and Production 

Schedule and Annual Budget by February 1st, then it shall continue 

to meet and negotiate in good faith and resolve differences 

concerning the plan." TBI sought recision of the Purchase and 

Sale Agreement, claiming Transwestern failed to negotiate the 

second Annual Plan and Budget "in good faith.'' Transwestern moved 

for summary judgment, asserting the good faith negotiation clause 

was unenforceably vague and that it had negotiated in good faith. 

The magistrate found both parties had negotiated in good faith and 

that the clause was unenforceably vague since it set no standards 

by which the court could measure the conduct of the parties. The 

district court upheld the magistrate's findings. 

Oklahoma law requires "an agreement 

certain as to its terms and requirements 

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must be definite and 

The obligations 

Appellate Case: 89-5001 Document: 01019966027 Date Filed: 03/06/1990 Page: 8 
of the parties must be 

Stevenson, 249 F.2d 424, 

reasonably certain." 

427 (10th Cir. 1957). 

Heldenbrand v. 

Moreover, as a 

prerequisite to enforcement, the terms of a contract must be 

sufficiently definite to permit an award of damages with 

reasonable specificity. Forster-Davis Motor Co. v. Slaterbeck, _98 

P.2d 17, 18 (Okla. 1939). Since the parties did not agree on even 

the most essential terms of the 1986-87 Annual Plan, there is no 

basis for calculating damages that would not be entirely 

speculative. Moreover, the parties essentially agreed to 

negotiate in the future and come to terms on an Annual Plan and 

Budget, but the responsibilities of each party were not fixed 

until they were set in the very agreement upon which negotiations 

were to take place. Thus, the standard by which a court could 

measure their negotiating conduct was nonexistent. The estimates 

in the first Annual Plan and Budget for the following four years 

of the Mining Agreement had no binding effect, and formed no 

standard of good faith, because the Annual Plan and Budget were 

subject to yearly renegotiation. TBI's contrary assertion is 

specious. The trial court's conclusion was not erroneous. 

SUMMARY JUDGMENT ON PUNITIVE DAMAGES 

TBI claimed punitive damages for Transwestern's alleged 

tortious interference with its coal mining business and bad faith 

negotiation of the Mining Agreement and the second Annual Plan. 

Our resolution of the bad faith negotiation issue obviates TBI's 

contention that summary judgment should not have been granted. To 

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the extent TBI would raise an additional claim, 3 we simply point 

out the relationship between the parties was strictly contractual, 

and punitive damages are not available in Oklahoma for breach of 

contract. See Christian v. American Home Assurance Co., 577 P.2d 

899, 904 (Okla. 1977); Z.D. Howard Co. v. Cartwright, 537 P.2d 

345, 347 (Okla. 1975); see also Norman's Heritage Real Estate 

Co. v. Aetna Casualty and Sur. Co., 727 F.2d 911, 916 (10th Cir. 

1984). 

DISMISSAL OF CLAIMS AGAINST SUNBELT AND PNM 

TBI claims the district court could assert jurisdiction over 

Sunbelt and PNM because Transwestern was merely their alter ego. 

Applying the test of Luckett v. Bethlehem Steel Corp., 618 F.2d 

1373, 1378 & n.4 (10th Cir. 1980), the magistrate recommended the 

court grant defendants' motion for summary judgment. TBI failed 

to object to this recommendation; therefore, the trial court's 

order following the recommendation is not before us. Niehaus, 793 

F . 2d at 1164-65. 

TBI'S BREACH OF THE MINING AGREEMENT 

The Mining Agreement obligates TBI to "produce the quantity 

and quality of coal required by the Annual Mine Plan . " The 

district court found, counting the credits which Transwestern gave 

TBI, TBI's production was over 300,000 tons short of the 

requirement . The court also found Transwestern paid TBI 

approximately 88% of the maximum ceiling which the Mining 

3The arguments in the brief are unclear. 

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Agreement established for Reimbursable Costs, but TBI mined only 

77.5% of the coal required un9er the Mining Agreement. Based on 

these findings, the court concluded TBI breached the Mining 

Agreement. 

In a fanciful argument, TBI contends its only obligation 

under the Mining Agreement was to follow Transwestern's directions 

where and when to mine. Following these directions, it removed 

102% of the overburden contemplated by the Annual Plan; therefore, 

it could not have breached the contract. Because paragraph 2.l(b) 

of the Mining Agreement states one of TBI's obligations is "[t]o 

perform all tasks and produce the quantity and quality of coal 

required by the Annual Mine Plan," (emphasis added) its 

obligations could not be satisfied by merely removing overburden. 

The trial court did not err in its holding. 

TRANSWESTERN'S CROSS-APPEAL 

Transwestern counterclaimed that TBI's shortfall in 

production caused Transwestern to lose $2,090,714 in profits. The 

district court found that TBI's underproduction breached the 

Mining Agreement, but concluded the amount of damages was not 

clearly ascertainable. Consequently, the court refused to award 

damages on the counterclaim. Transwestern appeals, contending it 

was only required to prove the fact of damage was clearly 

ascertainable. We agree. 

Transwestern established it had projected profits of 

$2,996,382 for the first year of operations under the first Annual 

Plan, but it actually received only $905,668. Thus, after giving 

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Appellate Case: 89-5001 Document: 01019966027 Date Filed: 03/06/1990 Page: 11 
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TBI credit for certain loss of tonnage from a closed mine and 

permit delays, Transwestern claimed TBI's underproduction cost 

Transwestern $2,090,714 in lost profits. Recognizing 

Transwestern's evidence of the amount it could have made upon full 

performance was uncontroverted, the district court still refused 

to award damages. The court concluded "there is insufficient 

evidence to show that the profits actually realized were any less 

than what Transwestern would have made had TBI fully performed." 

The court further concluded it could not award damages 

because the amounts calculated for projected profits and actual 

profits did not appear to reflect the difference between projected 

profits on the shortfall and the profits actually realized. As a 

result, the district court held it could not ascertain 

Transwestern's damages to the degree of reasonable certainty 

required by Oklahoma law. 4 

Transwestern correctly argues Oklahoma requires it must prove 

only the cause and existence of damages. Hardesty v. Andra Corp.-

Webster Div., 555 P.2d 1030, · 1034 (Okla. 1976). It further 

contends once it proved the cause and existence of its damages, 

the trial court could have calculated damages on a reasonable 

4okla. Stat. Ann. tit. 23, § 21 (West 1987) states: 

For the breach of an obligation arising from contract, 

the measure of damages, except where otherwise expressly 

provided by the chapter, is the amount which will 

compensate the party aggrieved for all the detriment 

proximately caused thereby, or which, in the ordinary 

course of things, would be likely to result therefrom. 

No damages can be recovered for a breach of contract, 

which are not clearly ascertainable in both their nature 

and origin. 

(Emphasis supplied.) 

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basis with the best evidence available. Thompson v. Kerr-McGee 

Ref. Corp., 660 F.2d 1380, 1388 (10th Cir. 1981), cert. denied, 

455 U.S. 1019 (1982). Transwestern was entitled to recover lost 

profits if it proved: (1) the lost profits were within the 

contemplation of the parties ~t the time the contract was made; 

(2) the lost profits can be measured with reasonable accuracy; 

and, (3) the lost profits flow directly or proximately from the 

breach of contract. Morgan v. Underwood, 292 P.2d 1001, 1002 

(Okla. 

1952)). 

1956) (citing \ Megert v. Bauman, 246 P.2d 355, 357 (Okla. 

Transwestern easily met the first two of the three Morgan 

tests. It is uncontested that the parties contemplated 

Transwestern would make a profit. The extent of Transwestern's 

anticipated profit is documented and also uncontroverted. There 

is also evidence that Transwestern's lost _profits flow . from the 

breach. The sticking point, and what doubtless confounded the 

district court, is Transwestern's measure of damages. 

TBI asserts Transwestern essentially claims it would have 

made a profit of $6.53 on each ton of coal which TBI failed to 

mine despite its profit of only $.6864 per ton of coal actually 

mined. This assertion, however, overlooks evidence that 

Transwestern's profit margin would increase over the course of the 

Mining Agreement because Transwestern paid TBI approximately 88% 

of the maximum variable costs while TBI produced only 77.5% of the 

required volume of coal. Since the Mining Agreement provided that 

TBI would bear all costs above 110% of projected Reimbursable 

Costs, TBI would have been producing at least part of the 

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shortfall at no cost to · Transwestern, significantly increasing 

Transwestern's profits. 

The trial court erred in refusing to calculate damages; 

therefore, its judgment must be reversed. Upon reconsideration, 

however, the court must take into consideration the extent to 

which the damages claimed by Transwestern flow directly from TBI's 

breach. 

The judgment of the district court is AFFIRMED IN PART, 

REVERSED IN PART, and REMANDED for further proceedings in 

accordance with this order and judgment. 

Entered for the Court 

John P. Moore 

Circuit Judge 

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