Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-87-01716/USCOURTS-ca10-87-01716-0/pdf.json

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

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PUBLISH 

FILED 

Uoited Scares Court of Appeals 

·renth Cir:-Jit 

UNITED STATES COURT OF APPEALS OCT .. ~ 1989 

ROBERT L. HOECKER 

Clerk 

FOR THE TENTH CIRCUIT 

BILL'S COAL COMPANY, INC., a ) corporation~ WILLIAM D. PATCH; ) 

SAVANNA LEE PATCH; LLOYD F. ) 

BURKDOLL; ANNA FAYE BURKDOLL~ ) 

JOHN E. BURKDOLL; VIRGINIA L. ) 

BURKDOLL, and all the general ) 

partners of and d/b/a CHEROKEE ) 

COAL COMPANY, a general partner- ) 

ship, ) 

v. 

Plaintiff-Appellants/ 

Cross-Appellees 

BOARD OF PUBLIC UTILITIES OF 

SPRINGFIELD, MISSOURI d/b/a 

UTILITIES, and CITY OF 

SPRINGFIELD, MISSOURI, 

Defendants-Appellees/ 

Cross-Appellants. 

CITY 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

) 

Nos. 87-1716 

87-1719 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE NORTHERN DISTRICT OF OKLAHOMA 

{D.C. Nos. 80-C-187-E, 80-C-580-E, 81-C-127-E) 

George P. Coughlin (Paul Scott Kelly, Jr. with him on the briefs) 

of Gage & Tucker, Kansas City, Missouri, for PlaintiffsAppellants/Cross-Appellees. 

Mark E. Gardner of Hall, Ansley, Carmichael & Gardner, 

Springfield, Missouri (Randell D. Wallace of Hall, Ansley, 

Carmichael & Gardner, Springfield, Missouri; Stan P. Doyle of 

Doyle & Harris, Tulsa, Oklahoma; and Turner White, III, 

Springfield, Missouri, with him on the briefs}, for DefendantsAppellees/Cross-Appellants. 

Before McKAY, LOGAN, and TACHA, Circuit Judges. 

McKAY, Circuit Judge. 

Appellate Case: 87-1716 Document: 01019401698 Date Filed: 10/06/1989 Page: 1 
•',\: ,•-.;'•. . ... ·. 

This diversity case involves a contract dispute between the 

Board of Public Utilities of Springfield, Missouri d/b/a City 

Utilities and the City of Springfield, Missouri (collectively the 

"purchaser''), and Bill's Coal Company, Inc. and Cherokee Coal Co. 

(collectively the "sellers"). The long, tortured, p rocedural history of this case is recounted in our prior opinion, Bill's Coal 

Co. v. Board of Public Utilities of Springfield, 682 F.2d 883, 

883-85 {lOth Cir. 1982), cert. denied, 459 u.s. 1171 (1983). A 

brief reprise of pertinent facts provides the setting for this 

appeal . 

In 1970, Bill's Coal agreed to supply purchaser with its coal 

requirements on a cost-plus basis through 1980 and possibly 

beyond. The coal contract was assigned to Cherokee Coal in 1976, 

although Bill's Coal continued to operate the mines. In 1978 spot 

coal prices began to drop and the relationship between the parties 

deteriorated. After the parties were unable to resolve a dispute 

involving the administration of the contract's cost- plus features, 

purchaser filed suit against sellers, seeking a declaration as to 

the propriety of their disallowance of certain cost and expense 

items. 

Ultimately, purchaser questioned the legality of the coal 

contract, withheld payments to sellers, and stopped taking deliv~ 

eries of coal. However, sellers obtained a preliminary injunction 

requiring purchaser to perform the contract. Before a hearing on 

purchaser's motion to dissolve the injunction, the parties 

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settled. The settlement was in the form of a final amendment to 

the contract, executed in 1979 (hereinafter the "1979 amendment"). 

The 1979 amendment shortened the contract from 1989 to 1985. In 

addition, the 1979 amendment created a termination clause in the 

contract. If any noncontract company was able to meet the contract specifications and submit a bid fifteen to twenty-five percent under sellers' price, purchaser could end the contract before 

1985. Pursuant to this clause, purchaser attempted to terminate 

the contract in 1980, 1981, and 1982. 

In March of 1980 purchaser sought a declaratory judgment of 

nonliability in the federal district court of Missouri with 

respect to its 1980 termination. Sellers filed suit in the federal district court of Oklahoma claiming purchaser breached and 

repudiated the contract in 1980 through wrongful termination. 

Sellers were granted a preliminary injunction by the Oklahoma 

court, requiring purchaser to perform the c~ntract pending litigation. After the Oklahoma court issued the preliminary injunction, 

it transferred sellers' action to the Missouri court (where purchaser's action was pending). In December of 1980, the -Missouri 

court transferred both cases back to Oklahoma where they were consolidated for all purposes (the "1980 case"). The parties submitted the 1980 case to the Oklahoma court, without a jury, in three 

phases. Phase ! · involved the interpretation of the 1979 Amendment 

to the coal contract. Phase II involved breach and liability 

issues. Phase III involved damages. 

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In Phase II purchaser sought a declaration that it had properly terminated the contract by contracting with a qualified 

bidder in each of the years 1980, 1981, and 1982. Purchaser also 

sought to cancel the contract because of sellers' breach, repudiation, and "bad faith." The district court, in its Phase II ruling, held that sellers had breached and anticipatorily repudiated 

the contract. Based on that conclusion, injunctive relief in the 

1980 case was dissolved. Sellers filed an immediate appeal to 

this court from the dissolution ruling. This court stayed the 

district court's order dissolving injunctive relief pending the 

appeal. Bill's Coal Co., 682 F.2d 883. We found the district 

court erred in its conclusions of law in its Phase II opinion and 

ordered the injunction reinstated. Id. at 886. The case was 

remanded to determine sellers' damages. We expressed no view on 

the trial court's other rulings in Phase I or II. 

On remand, the district court applied Missouri law to defeat 

an award of attorney's fees, applied Uniform Commercial Code (UCC) 

§ 2-708(1) to measure damages by the difference between the contract price and the market price at the time and place of tender, 

and denied interest charges and other expenses to sellers under 

UCC § 2-710. The court also denied reimbursement for purchaser's 

BTU adjustments and for the mistake in overpayment of depreciation 

credit. 

Sellers now appeal the district court's refusal to apply the 

lost profit damage measure of section 2-708(2), the district 

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court's application of Missouri law to defeat an award of 

attorney's fees, and the court's denial of interest charges and 

other expenses under UCC § 2-710. Sellers also appeal the 

district court's denial of reimbu~sement for purchaser's BTU 

adjustments and for the mistaken overpayment of depreciation 

credit. Purchaser cross-appeals, claiming error in the district 

court's determination of the market price for coal on sellers' 

spot purchases. They also claim error in the court's failure to 

find that sellers breached and repudiated the contract through bad 

faith performance and enforcement and through shipments of 

noncompliance coal. Finally, purchaser appeals the district 

court's grant of summary judgment against them on their antitrust 

claim. We deal with each of these issues in turn. 

I. Standard of Review 

Sellers and purchaser challenge the trial court's findings of 

fact and of law. We do not disturb the district court's findings 

of fact unless they are "clearly erroneous." Fed. R. Civ. P. 

52(a); United States v. United States Gypsum Co., 333 u.s. 364, 

395 (1948); Amoco Production Co. v. Weste-rn Slope Gas Co., 754 

F.2d 303, 309 (lOth Cir. 1985). A finding of fact will not be 

reversed as clearly erroneous unless "it is without factual support in record, or if the appellate court, after reviewing all the 

evidence, is left with the definite and firm conviction that a 

mistake has been made." LeMaire v. United States, 826 F.2d 949, 

953 (lOth Cir. 1987). The district court need not be "correct" in 

its finding, but its conclusion must be "permissible" in light of 

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the evidence. Volis v. Puritan life Ins. Co., 548 F.2d 895, 901 

(lOth Cir. 1977). 

We review issues of law, decided by the district court, 

de novo. In re Ruti-Sweetwater, Inc., 836 F.2d 1263, 1266 (lOth 

Cir. 1988). The standard of review on appeal is the same as that 

which would be·applied by the trial court in making its initial 

ruling. United States v. Ortiz, 804 F.2d 1161, 1164 (lOth Cir. 

1986). An appellate court is not constrained by a trial court's 

conclusions of law. State Distrib., Inc. v. Glenmore Distilleries, 738 F.2d 405, 412 (lOth Cir. 1984). 

II. Lost Profit Damage Measure 

The district pourt determined that UCC § 2-708(1) 1 applied in 

determining the proper measure of damages. The damages provided 

1 u.c.c. S 2-708(1). Seller's Damages for Non-acceptance or 

Repudiation 

(1) Subject to subsection (2) and to the provisions of this Article with respect to proof of market 

price (Section 2-723), the measure of damages for nonacceptance or repudiation by the buyer is the difference 

between the market price at the time and place for 

tender and the unpaid contract price together with any incidental damages provided in this Article (Section 2-

710), but less expenses saved in consequence of the 

buyer's breach. 

(2) If the measure of damages provided in subsection (1) is inadequate to put the seller in as good a 

position as performance would ~ave done then the measure 

of damages is the profit (including reasonable overhead) 

which the seller would have made from full performance 

by the buyer, together with any incidental damages 

provided in this Article (Section 2-710), due allowance 

for costs reasonably incurred and due credit for payments or proceeds of resale. 

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in section 2-708(1) are the difference between the market price 

and the contract price of the goods. UCC §. 2-708(2) provides for 

damages up to the amount of the lost profits from the contract 

which has been brea9hed. Sellers fall into section 2-708(2) only 

if they can demonstrate. that they would receive inadequate damages 

under section 2-708(1). Section 2-708(2) is basically designed 

for specific categories of sellers, such as lost volume sellers, 

component sellers, and jobber sellers. See J. White and R. 

Summers, Uniform Commercial Code, 3d ed. (1988) at 356-65 , for a 

full exposition on sellers that come under section 2-708(2). 

Sellers here argued that they were entitled to receive section 2-

708(2} damages. Sellers have the burden of proving that they are 

lost volume sellers and thus fall under section 2-708(2). Snyder 

v. Herbert Greenbaum & Associates, Inc., 380 A.2d 618 (Md. App. 

1977); National Controls, Inc. v. Commodore Business Machines, 

Inc., 163 Cal. App. 3d 688, 209 Cal. Rptr. 636 (lst App. Dist. 

1985); and Lake Erie Boat Sales, Inc. v. Johnson, 463 N.E.2d 70 

(Ohio Ct. App. 1983). A lost volume seller is one who has the 

capacity to perform the contract which was breached as well as 

other potential contracts,·due to their unlimited resources or 

production capacity. Although sellers seek to portray the analysis of lost volume seller as a question of law subject to de novo 

review (sellers characterize their appeal as being limited to 

"questions of law"), it is a decision dictated by the underlying 

facts and thus ultimately a question of fact reviewed under the 

clearly erroneous standard. 2 Even where there is a mixed question 

2 The district court's finding was based to a large extent on 

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of law and fact that involves primarily a factual inquiry, the 

"clearly erroneous" standard is appropriate. Supre v. Ricketts, 

792 F.2d 958, 961 (lOth Cir. 1986). 

Evidence presented at trial indicated that sellers did not 

have the production capacity to perform purchaser's contract as 

well as to sell to other potential purchasers. During the years 

following 1980, sellers often fell behind in shipping to purchaser 

the amount of coal required under the contract. In fact, one of 

the two principal mines on which sellers relied for shipments to 

purchaser was out of production for several months during this 

period. In order to meet purchaser's needs, sellers found it 

necessary to purchase coal from other suppliers. In addition, 

sellers claimed in the district court that they had lost sales to 

other customers because it was necessary to ship coal to purchaser 

from the Porter and Chetopa mines. This contention is in direct 

conflict with sellers' position that it had the capacity to 

perform the contract in dispute and also to sell to third parties. 

Mr. Hirlinger, sellers' president, admitted that sellers were able 

to make the sale of 11,609 tons of coal to another customer only 

because purchaser ceased accepting coal from sellers. Based on 

this evidence, the trial court found that the sellers did not have 

the ability to perform the contract in dispute and sell to 

potential third parties at the same time. Based on our review of 

the credibility of sellers' witnesses. A reversal would require 

this court to "second guess" the district court's evaluation of 

the credibility of those witnesses and the weight to be given to 

their testimony. 

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the evidence, the district court was not clearly erroneous in its 

finding that sellers were not lost volume sellers, and thus 

section 2-708(1) was the proper measure of damages. 

II. Attorney's Fees 

Sellers contend that the Oklahoma district court, sitti~g in 

diversity, erroneously applied Missouri law on the issue of attarney's fees. They argue that the trial court should have applied 

Oklahoma's attorney fee statute because attorney's fees are purely 

procedural and the law of the forum (Oklahoma) governs. 3 However, 

the law in this circuit governing attorney's fees is clear. In 

Matter of King Resources Co., 651 F.2d 1349, 1353 (lOth Cir. 

1980), we held that "[t]hus in diversity cases generally, and certainly in this circuit, attorney fees are determined by state law 

and are substantive for diversity purposes." The substantive law 

of this case is Missouri law. 4 Therefore, the trial court properly applied Missouri law in determining whether attorney's fees 

were proper. We affirm the trial court's denial of attorney fees 

under Missouri law. 

3 Sellers rely on Toland v. Technicolor, Inc., 467 F.2d 1045 

(lOth Cir. 1972), for the proposition that Oklahoma law applies. 

In Toland, a diversity case, we applied the Oklahoma attorney fee 

statute; however, we did so in light of the fact that the alleged 

oral contract involved in the case was negotiated by telephone by 

parties in both Oklahoma and California. Thus, Oklahoma had the 

same number of contacts to the alleged contract as California. In 

addition, we concluded that no contract in fact existed. Thus, 

the law of the forum governed the award of attorney's fees. 

4 The parties agreed that Missouri law governed substantive 

issues. 

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III. Interest and Other Expenses 

Sellers argue they were entitled to recover interest expenses 

under UCC S 2-710.5 They argue that the district court erred in 

interpreting "Missouri law" by holding that these charges did not 

qualify as incidental damages under section 2-710. The district 

court held that in this case the expenses claimed by sellers were 

not properly recoverable under section 2-710. We agree. 

Incidental damages include commercially reasonable expenses 

incurred in stopping delivery in the transportation, care, and 

custody of goods after the buyer's breach. The purpose of section 

2-710 is to reimburse the seller for expenses reasonably incurred 

as a result of the buyer's breach. Here, the sellers' interest 

expenses were incurred as the result of preparing for this 

litigation. The trial court did not err in finding litigation 

costs and accounting fees not recoverable under section 2-710. 

Such expenses are not incidental damages under section 2-710. 

The sellers alternatively argue that they are entitled to the 

recovery of prejudgment interest under Oklahoma law. However, 

Missouri law governs the issue of remedies, and the Supreme Court 

of Missouri has held that the prevailing party may recover 

5 u.c.c. S 2-710. Seller's Incidental Damages 

Incidental damages to an aggrieved seller include 

any commercially reasonable charges, expenses or 

commissions incurred in stopping delivery, in the 

transportation, care and custody of goods after the 

buyer's breach, in connection with return or resale of 

the goods or otherwise resulting from the breach. 

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pre-judgment interest only in certain circumstances • Denton 

Constr. Co. v.·Missouri State Highway Comm'n, 454 S.W.2d 44 (Mo. 

1970). Before prejudgment interest can be awarded, the claim must 

be liquidated or readily ascertainable by reference to recognized 

standards. The sellers' claim here has not been liquidated. In 

addition, the claim is not readily ascertainable. The sellers 

provided the trial court with several different calculations of 

damages. Purchaser contested all of sellers• calculations and 

provided alternative measures. Neither party had agreed to a specific dollar value of damages. Thus, the claim is not readily 

ascertainable by reference to a recognized standard. Therefore, 

we hold that the district court properly determined that sellers 

were not entitled to interest. 

IV. BTU Adjustments 

Sellers argue that BTU adjustments should not have been 

allowed purchaser, based on sellers' test results which demonstrated that purchaser was not entitled to the adjustments. The 

parties here agreed that there would be an adjustment for all 

shipments of coal which fell below 11,000 BTU. The parties then 

entered into a course of performance with respect to the BTU 

adjustments which allowed the purchaser to make adjustments based 

on its own test results. The district court refused to secondguess that course of performance. Sellers had the burden of persuading the district court that they were entitled to a refund. 

Given the course of·perforrnance, we cannot find the district court 

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clearly erroneous in refusing to grant sellers reimbursement for 

purchaser's BTU adjustments. 

v. Purchaser's Cross-Appeal 

. .. · ... :; 

Purchaser, in its cross-appeal, claims error in the district 

court's failure to find that the sellers breached and repudiated 

the contract through bad faith performance. Purchaser also claims 

that the district court erred in failing to find breach and repudiation by the sellers through their shipments of allegedly noncompliance coal. We do not find these factual conclusions of the 

district court to be clearly erroneous. 

During the liability phase (Phase II) of this litigation, 

purchaser presented two theories to the trial court on the 

sellers' liability. The first theory was that the sellers had 

breached and anticipatorily repudiated the coal contract in 1979, 

by asserting an overly literal contract interpretation that it 

knew did not reflect the parties' intent. This was purchaser's 

"bad-faith" breach theory. The other theory advanced by purchaser 

was that sellers had breached and repudiated the coal contract by 

shipping deficient coal. 

This court has already held that an assumed bad-faith assertion "of a particular interpretation of a termination clause is 

neither a failure to perform contract obligations (breach) nor an 

indication that those obligations will not be performed in the 

future (repudiation).n Bill's Coal, 682 F.2d at 886. The sellers 

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did not interfere with the performance of either party under the 

·coal contract, and purchaser gained no right to cancel or otherwise refuse performance or the coal contract. Id. at 885. This 

holding disposes of purchaser's first breach theory. 

Purchaser now argues that this court left open the possibility that, after remand, purchaser could present evidence which 

would show that additional sellers• conduct amounted to a breach. 

Purchaser now argues that sellers breached the coal contract based 

on the "totality of the circumstances." Purchaser's basic argument is that sellers shipped nonconforming coal to purchaser on 

various occasions and that these shipments constituted a "substantial.impairment" of the contract which resulted in either a general breach, a breach of warranty or a repudiation of the coal 

contract. 

The case law indicates that the question of "substantial 

impairment" under the Code presents a question of fact. CherwellRalli, Inc. v. Rytman Grain Co., Inc., 443 A.2d 984, 986 (Conn. 

1980}; Holiday Mfg. Co. v. B.A.S.F. Systems, Inc., 380 F. Supp. 

1096, 1102 (D. Neb. 1974); Stinnes Interoi1 Inc. v. Apex Oil Co., 

604 F. Supp. 978, 981 (S.D.N.Y. 1985). Purchaser frames the coal 

quality issue in terms of whether some of the sellers' shipments 

of nonconforming coal constituted a repudiation of the whole contract under ucc § 2-610. However, because the coal contract is an 

installment contract, the question of breach or repudiation falls 

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within the confines of section 2-612.6 Moreover, the Official 

Comments to section 2-610 emphasize that issues of nonconformity 

to contract specifications are handled in the Code section dealing 

with installment contracts. UCC § 2-610, Official Comment 1. The 

issue, as properly stated under section 2-612(3}, is whether a 

"non-conformity or default with respect to one or more 

installments substantially impairs the value of the whole 

contract" so as to constitute a breach of the whole contract. The 

Official Comments to section 2-612(3) expressly state that this 

subsection ,.is designed to further the continuance of the contract" and that "[w]hether the non-conformity in any given 

installment justifies cancellation as to the future depends, not 

on whether such non-conformity indicates an intent or likelihood 

6 u.c.c. S 2-612. "Installment Contractu: Breach 

(1) An ,.installment contract" is one which 

requires or authorizes the delivery of goods in separate 

lots to be separately accepted, even though the contract 

contains a clause "each delivery is a separate contract" 

or its equivalent. 

(2) The buyer may reject any installment which is 

non-conforming if the non-conformity substantially 

impairs the value of that installment and cannot be 

cured or if the non-conformity is a defect in the 

required documents; but if the non-conformity does not 

fall within subsection (3) and the seller gives adequate 

assurance of its cure the buyer must accept that 

installment. 

(3) Whenever non-conformity or default with 

respect to one or more installments substantially 

impairs the value of the whole contract there is a 

breach of the whole. But the aggrieved party reinstates 

the contract if he accepts a non-conforming installment 

without seasonably notifying of cancellation or if he 

brings an action with respect only to past installments 

or demands performance as to future installments. 

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that the future deliveries will also be defective, but whether the 

non-conformity substantially impairs the value of the whole contract." UCC § 2-612, Official Comment 6. In Phase II, the district court found that "[s]ellers tried to meet the contract specifications on every load of coal shipped to Purchaser and never 

knowingly shipped deficient coal." It further found that sellers' 

occasional failure to meet the contract specifications "did not 

rise to the level of substantially impairing the value of the contract." The district court then concluded that sellers had not 

breached or repudiated the coal contract, nor had sellers breached 

any warranties that might· be applicable to the contract. 

Purchaser has failed to show that the district court was 

clearly erroneous in finding that there was no substantial impairment of the value of the coal contract. Purchaser presented no 

new evidence to the district court after remand that would necessitate a finding of breach on the part of sellers. Accordingly, 

the district court's ruling on the coal quality issues must be 

affirmed. See, ~, Automated Controls, Inco v. MIC Enterprises, 

Inc., 599 F.2d 288, 289 (8th Cir. 1979). 

VI. Antitrust Claim 

Sellers filed a motion for summary judgment with respect to 

purchaser's antitrust claim. The district court correctly held 

that the principle of res judicata barred purchaser's attempt to 

try the claim now because "based on the stipulation of the parties 

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••• the Missouri Court was to determine all the mutual liabilities of the parties and all issues which arose or could have been 

brought prior to the date of the order.» District Court Order, at 

6. 

Purchaser could have raised its antitrust claim at the time 

the district court reviewed the enforceability and validity of the 

1979 amendment. An examination of the antitrust claim shows that 

purchaser attacks the twenty-five percent termination clause as 

being unduly restrictive of competition among coal suppliers. The 

purpose of the clause and the mutual benefit of long-term coal 

contracts were referenced and discussed by the district court in 

its opinion. Nothing that occurred subsequent to the rendition of 

that judgment changed the fact that purchaser was required to 

secure a price twenty-five percent lower than sellers' price in 

order to take sellers out of the coal contract. Purchaser had a 

full opportunity to litigate its antitrust claim in the earlier 

case. Therefore, we affirm the district court's grant of summary 

judgment in favor of sellers. 

VII. Overpayment of Depreciation Credit 

Purchaser, in its brief, states that it does not dispute 

sellers• claim for the overpayment of depreciation credit. The 

sellers' requested adjustment of $4,592.00 was apparently overlooked by the district court. We therefore remand with directions 

for the district court to adjust its judgment by $4,592.00 and 

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. enter an appropriate order for payment of the depreciation credit. 

AFFIRMED as to all but the overpayment of the depreciation 

credit. REMANDED to make the necessary adjustment. 

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