Opinion ID: 415230
Heading Depth: 1
Heading Rank: 3

Heading: determination

Text: 23 In the Findings of Fact and Conclusions of Law entered pursuant to its judgment, the district court held that the contract is unambiguous on its face and that the term new ... regulation ... does not apply to mere enforcement of regulations already existing. The court found for the plaintiffs and awarded them some $10.1-million, which had been the stipulated amount of damages should the plaintiffs prevail on the liability portion of the case. 16 24 Our initial question in reviewing this dispute concerns the correct standard of review. 25 This circuit, in conformity with other circuits, has consistently held that the interpretation of a contract is a matter of law reviewable de novo on appeal. Matador Drilling Co., Inc., v. Post, 662 F.2d 1190, 1197 (5th Cir.1981). See also Eaton v. Courtaulds of North America, Inc., 578 F.2d 87, 90 (5th Cir.1978). The stated and logical reason for de novo review is that this Court is in as good position to interpret the ... written contract as was the district court. Illinois Central R.R. v. Gulf, Mobile & Ohio R.R., 308 F.2d 374, 375 (5th Cir.1962). 26 This broad standard of review includes the determination of whether the contract is ambiguous. This initial determination is, equally with other aspects of contract interpretation, a question of law. In re Stratford of Texas, Inc., 635 F.2d 365, 368 (5th Cir.1981). 27 We must keep in mind that  '[c]ontracts are not rendered ambiguous by the mere fact that the parties do not agree upon their proper construction', Freeman v. Continental Gin Co., 381 F.2d 459, 465 (5th Cir.1967), quoting Whiting Stoker Co. v. Chicago Stoker Co., 171 F.2d 248, 250-51 (7th Cir.1948). 17 28 With this caveat in mind, and mindful of the prescriptions of Montana law which govern contract interpretation; we find the contract unambiguous, as did the lower court, but find that the contract evidences an intent that a determination of the type made by MDSL in February-March 1976 comprised a new ... regulation within the meaning of the contract. 18 29
30 Turning to Montana law, we note initially that courts are to give effect to the mutual intent of the parties which existed at the time of contracting, so far as the same is ascertainable and lawful. 19 That intent is to be ascertained from the writing alone if possible. 20 The entire contract is to be looked to in determining intent 21 and [t]he words of a contract are to be understood in their ordinary and popular sense rather than according to their strict legal meaning unless used by the parties in a technical sense .... 22 31 Our task is to look to the entire contract and to give effect to every part if reasonably practicable, each clause helping to interpret the other. 23 We are bound by the contract and may not reconstruct it by outside reference.
32 The City of Austin argues that the action taken by MDSL did not constitute new ... regulation within the meaning of the contract for two reasons. First, the action was not new because the statute prohibiting mining operations on Section 9 lands was in effect prior to the critical date, i.e., March 31, 1974, and this statute constituted the regulation.... Second, the City of Austin argues that MDSL's action was merely administrative enforcement of an existing regulation and was not itself a regulation within the meaning of the paragraph 9.06. 33 Decker argues that the action taken in February-March 1976 establishing Upper Deer Creek floodplain as Section 9 land and precluding mining activity on that land was both new, i.e., occurring after March 31, 1974, and a form of regulation within the meaning of paragraph 9.06. 34 In order to determine the intent of the parties in the creation of paragraph 9.06, an analysis of the relevant sections of the contract is required. 35 The prefatory language provides that the purpose of the contract is to provide an assured and dependable supply of low sulphur coal.... 36 Article I states simply that Decker owns leases from which the coal shall be mined. At the time of execution of the contract, Decker is planning to open the Mine. 37 Article II provides a twenty-six year contract term with delivery to commence sometime between January 1 and September 30, 1978. 38 Article III provides that, during the term of the contract, between 51.6--56.76 million tons of coal are to be delivered. 39 Article IV specifies the quality of the coal, with an approximate average per pound heat content of 9,200 BTU. A reduction of 50cents per ton from the then-current price is provided for usable coal with less than 9,000 BTU per pound. 24 40 Article V provides that Decker will install the most modern machinery, equipment and other facilities, that it will operate the machinery in order to produce the coal efficiently and economically, and that the machinery, equipment and facilities will be acquired by Decker with its own capital. 41 Article VIII provides a base price of $7.00 per ton, subject to adjustments provided in articles IV and IX. 42 Article IX contains the major price adjustments and is discussed below. 43 Article XI is the force majeure clause. 44 Article XV provides that the City of Austin can discontinue acceptance of delivered coal when its sulphur content exceeds or its BTU content falls below article IV requirements for any two consecutive months. 45 The remaining portions of the contract cover such matters as billing, severability, accountants' reports, waivers and notices, and nondiscrimination in employment. 46 Article IX comprises the principal price adjustment clause in the contract. It covers eleven pages and provides eleven categories of price changes. The article IX paragraph, adjustment factor, base figure, base date, adjustment basis and party benefited are as follows: 47 NOTE--Some parts of this form are wider than one screen. To view 48 material that exceeds the width of this screen, use the right arrow 49 key. To return to the original screen, use the left arrow key. 50 Contract Adjustment Adjustment Paragraph Factor Base Figure As of Based On Party Benefited --------- --------------- ----------- ------- ------------------------- --------------- 9.01 Materials and $1.06 3-31-74 BLS Statistics Both Supplies (composite of monthly Wholesale Price Index for Contruction Machinery and Equipment and for Metals and Metal Products) 9.02 Labor, Salaries 1.35 3-31-74 Weighted Average Both and Related Costs Hourly Rate for Labor Based on Labor Classification Schedule 9.03 Costs Based on .23 3-31-74 Actual Costs (When Both Values such as ad coal is mined) valorem, production, severance, and real estate taxes 9.04(1) Costs Based on .635 3-31-74 Actual Costs Both Extraction (such as royalty, pension plan payments) 9.04(2) Other Costs No Base 3-31-74 Actual Costs Decker for the Right to Mine (payments by seller for surface damage 9.05 Other New, No Base 3-31-74 Actual Costs Both Increased Taxes 9.06 Additional No Base 3-31-74 Any direct cost of Decker Costs Imposed by required investment in Legislation, Regulation, order to comply with any Judicial new legislation, regulation, Action, Labor Agreement or judicial action Changes in Method of (other than codification Operation due to Material of the common law) or labor Shortages agreement...enacted, promulgated, or taken, or made effective after March 3, 1974. 9.07 Transfer Taxes No Base None Actual Cost Decker (such as sales Specified and use taxes) 9.08 Composite 50% of 3-31-74 Multiply by Adjustment % increase Both in the various 3.575 or decrease in weighted items making up the (1.7875) average hourly wage total base price rate (par. 9.02) which are not otherwise provided for in §§ 9.01, 9.02, 9.03 and 9.04(1) 50% of 3-31-74 % increase of decrease Both 3.575 in BLS Wholesale Price (1.7875) Index for Construction Machinery and Equipment (par. 9.01) .15 3-31-74 % increase or decrease Both in consumer price index 9.09 Quality No Base None % variation from Both Adjustment prescribed specifications Specified specifications 9.10 Price Controls No Base None Reduce Price if Austin Specified Unlawful 51 The contract provides that article IX adjustments be made quarterly. Thus, in the first quarter of actual mining, adjustments for 1974-1978 would be made. This price would in turn be revised each quarter. 25 52 In analyzing the effect of these various elements of the contract, we turn first to the question presented by a reading of article V, providing that Seller agrees that the machinery, equipment and facilities provided by it shall be acquired with its own capital. It is urged that this required Decker to absorb all start-up costs and prohibited its passing on to the City of Austin cost increases resulting from interim government-mandated mining changes. 53 There are critical flaws in such an analysis. First, the most obvious difficulty is that, if the parties did not intend interim government-mandated cost increases to be added to the price of coal, March 31, 1974, would not have been designated as the base date in paragraph 9.06; rather the start-up date would have been used. Second, although the exact nature of the government-mandated increases with which we are dealing remains to be elucidated, some of those increases undoubtedly bear on the various elements which comprise the $7.00 base price, viz.: materials, supplies, labor and so forth. Clearly under the contract interim increases in those costs are to be added to the price of coal. There is no evident reason why other interim cost increases, although mandated by the government, should be treated any differently. 26 Third, the critical word in article V is acquire. This implies that Decker was to obtain and make the initial payments for machinery, equipment and facilities. To acquire means to gain possession of; it does not imply that Decker was to bear the ultimate cost. 54 We grant that the costs which might result from MDSL's actions could affect the start-up costs. That paragraph 9.06 intended to cover such costs, however, is evidenced by its broad language, i.e., The price of coal shall be increased from the base price in the same amount that the cost per ton of mining coal at the Mine is increased by any direct cost or required investment.... The contract goes on to discuss the computation method for a capital investment required under paragraph 9.06. There is no distinction made between pre- and post-start-up costs or investments. 55 In our view, article V constitutes essentially boilerplate language which, when read in conjunction with article VIII and article IX, requires simply what it states--Decker was to use its own capital in purchasing equipment and facilities in the start-up of the mine. These capitalization costs were factored into the base price, and interim changes in these costs provided in paragraph 9.06 required per ton price adjustment just as did any other cost changes. 56 The $7.00 base price was primarily that--a basis. It was never intended to be the actual price for the coal. 27 As indicated by the fact that it was dated some four years before actual delivery, this base price is more important in its function as a gauge for future adjustments than as a price. 57 It is true that no base figure and no defined schedule is provided for applying cost increases under paragraph 9.06. This does not render it an abstraction, however. Any direct cost or required investment was to be factored into the price of the coal. Of course the price could not be adjusted until mining and delivery of coal began--until then there would be no price--but it was to be based on events which occurred after March 31, 1974. 28 58 In short, adjustment is provided for all other interim cost increases; interim increases required by governmental action are not treated any differently under the terms of the contract itself. If we are to give effect to every part of the contract, 29 we must conclude that qualified, interim government-mandated cost increases were to be treated like all other cost increases and added to the price of the coal. 59 This brings us to the next step in our analysis: Whether the actions by MDSL were new ... regulations within the meaning of paragraph 9.06. 60 We start with the premise that under Montana's guidelines for contract interpretation we are to view the words new regulation in their ordinary and popular sense rather than according to their strict legal meaning unless used by the parties in a technical sense.... 30 61 The City of Austin argues in this regard that the word regulation was indeed used in a technical sense in that the four types of activity listed in paragraph 9.06--legislation, regulation, judicial action (other than codification of the common law), or labor agreement--were deliberately matched with the four verbs which follow--enacted, promulgated, or taken or made effective. The City of Austin argues that read thus it is patent that only regulations ... promulgated after March 31, 1974, qualify as new regulations. 62 We are not persuaded that there is such a careful pairing of noun and verb as to allow a technical reading of this contract clause. Legislation can be enacted or promulgated on one date and made effective on another date. The same is true for regulations. A labor agreement can be promulgated on one date and made effective on another date. So, in rare instances, a judicial decision may be taken and made effective on different dates. 31 63 Read in consonance with the entirety of article IX, which provides that all components in the price will be adjusted to reflect costs, we read this contract language as an informal recitation covering the three branches of government. We interpret this language as the parties essentially saying, Here are the elements which make up the cost of mining coal. If, subsequent to March 31, 1974, the government takes new judicial, legislative or administrative actions which increase those costs, those increases will be treated the same as any other increases covered by the contract. 64 We cannot say that the parties intended that new regulation would require formal regulatory action under Montana's administrative procedure act. Rather, we believe the parties meant to use the term in its ordinary and popular sense. 32 65 The parties' manifest intent in providing for cost increases only for new regulation was that the City of Austin should not bear the costs for Decker's failure to comply with existing law whether that failure was knowing, negligent, or innocent. Decker negotiated a base price and was not allowed to turn around and escalate that price because of legal requirements of which it should or could have known. 66 As the facts indicate, however, MDSL's action was not mere ministerial enforcement of a clear prohibition of the use of the land in question. 33 Decker's good faith belief in the truth of the statements made in its initial application, previously referred to, is not in question. As we have noted, Decker stated: The Company assures the Department of State lands for the area covered by the application for prospecting permit includes no land having special, exceptional, critical, or unique characteristics as defined in Section 9(2) (a, b, c, d) Chapter 325, Laws of Montana 1973. The factual determination as to whether any part of the land affected by the mining operation was Section 9 land took over two years to reach. When that determination was made only the Upper Deer Creek floodplain was so classified. Numerous conferences and on-site visits were required. Innumerable telephone calls and correspondence centered on this question. 67 Significant discretion was involved in MDSL's action. Their determination could not have been known beforehand by Decker, could not have been factored by the parties into the contract, and, consistent with the language and intent of the contract, therefore constitutes new regulation. 68 The City of Austin states in its Post-Submission Brief that the action by MDSL not only was not regulation as intended by paragraph 9.06 but also was not new because the statute prohibiting mining operations on Section 9 land was in effect prior to the critical date and this statute constituted the regulation which resulted in the increased cost. That statute had never been deemed applicable to the Deer Creek Valley area, however. MDSL's action thus constituted new regulation. The fact that the statute upon which the regulatory action was based pre-dated March 31, 1974, no more disqualifies MDSL's actions as new than would a judicial decision based on an existing statute or on existing precedent. Indeed, all regulations are based on existing statutes. Austin's reading would thus render the regulation in paragraph 9.06 a nullity. The key element in new is unknowable or uncertain and beyond the parties' control. These elements are present here. 69 Consistent with this opinion, we therefore reverse and remand this case to the district court for a determination of costs properly allocable to the City of Austin. We expressly do not here conclude what those costs, if any, are to be. 70 REVERSED AND REMANDED.