Opinion ID: 516961
Heading Depth: 2
Heading Rank: 3

Heading: Fraud Issues

Text: 31 The trial court allowed CRI to introduce evidence of a mining plan developed by G & W prior to the purchase of CRI, and evidence of a loan request by G & W to the National Bank of Detroit (NBD) based on the pre-purchase mining plan. CRI had used this evidence at the first trial to support its fraud and oral contract claims against G & W. This court held, in the first appeal, that CRI could not pursue its fraud and oral contract claims because of the integration clause in the Acquisition Agreement. CRI introduced the same evidence at the second trial, this time as relevant to the issue of diligent mining and as relevant to the intent of the parties that the Assumption of Obligations promise was to insure payments under the multiple. G & W argues that the introduction of the evidence allowed CRI to retry its fraud and oral contract claims, even though the district court did not submit the fraud theory to the jury. 32 Admission of relevant but potentially prejudicial evidence is also placed within the sound discretion of the trial court. Finch v. Monumental Life Ins. Co., 820 F.2d 1426, 1432 (6th Cir.1987). When ruling that the evidence of the pre-purchase mining plan and the loan request was admissible the trial court stated: 33 Unfortunately, evidence does not exist in watertight compartments. Evidence that bears upon evidence of the conduct of the parties may not only be evidence that would support a fraud claim; it may also be evidence that would support a lack of diligence claim. I'm simply unable to strain one out of the other. 34 I'm unwilling to deny the plaintiffs an opportunity to present that portion of the case that the Sixth Circuit said they could present. I'm willing to instruct the jury specifically that that is the only question and I will, if you wish, tell them that there is no fraud or misrepresentation involved. But I'm not going to grant a mistrial on the basis that it's possible to interpret some of the plaintiff's evidence as bearing upon fraud and misrepresentation. 35 It is my belief that it bears upon diligence in mining as well and that that is an issue which is before the court. 36 Although CRI was foreclosed from retrying its fraud and oral contract claims, it does not follow that evidence which related to those claims is not also relevant to issues remaining in the case. Evidence that G & W had a mining plan which it represented to CRI before the assumption agreement was signed is relevant to show that the parties intended the diligent mining terms of the underlying leases to be assumed by defendants and that the purpose of the clauses were to insure that G & W would diligently develop those properties so CRI would receive substantial payments under the multiple. However, evidence of what G & W later represented to National Bank of Detroit to secure a loan based on the sale of coal from these properties is not relevant to the parties' intent in agreeing to the assumption clause. If G & W denied that it had a plan, its representation to the bank might be relevant impeachment. However, that is not the case. The evidence regarding the bank loan was especially prejudicial, since after getting the loan on the basis of the leases in issue here together with other coal leases, G & W used the money for non-coal related business. 37 The District Court also admitted the evidence regarding G & W's proposed mining plan as evidence of what is required for diligent mining. Its admission for this purpose was error. In view of the integration clause and the disposition of the fraud claim on the prior appeal, defendant was not contractually bound to mine in accordance with its plan. It could only be required to mine diligently. 38 In view of the integration clause, what is required by the diligent mining terms of the leases will have to be determined based on an objective standard of what constitutes diligent mining in the coal mining industry. Plaintiff's expert witness testified that it does have a meaning and is measured by the amount of coal in the lease, the amount of capital needed to mine it, etc. The Virginia court in Home Creek Smokeless Coal Co. v. Combs, 204 Va. 561, 132 S.E.2d 399 (1963) provided suitable guidelines as to what a reasonable lessee would do to mine diligently. What G & W intended to do might be more than diligent mining required, might be what diligent mining required, or might be less than diligent mining. If G & W's intent has any probative value as to what diligent mining requires, that value is outweighed by the likelihood the jury would find that the parties agreed to that level of mining. This the jury may not do in view of the prior panel's holding regarding the integration clause. To the extent evidence is admissible regarding G & W's plan, the jury should be instructed that it may consider that evidence only to decide whether the purpose of the assumption agreement was to require diligent mining under the terms of the leases.