Court Opinion

ID: 3029946
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:43:37.744958+00
Date Added: 2024-06-11T11:48:04.846186
License: Public Domain

United States Court of Appeals
                         FOR THE EIGHTH CIRCUIT
                               ___________

                               No. 02-1403
                               ___________

Caballo Coal Company and             *
Peabody COALSALES Company,           *
                                     *
           Appellants,               * Appeal from the United States
                                     * District Court for the Eastern
     v.                              * District of Missouri
                                     *
Indiana Michigan Power Company,      *
AEP Energy Services, Inc., and       *
American Electric Power Services     *
Corporation,                         *
                                     *
           Appellees.                *

                               ___________

                          Submitted: June 11, 2002
                           Filed: October 2, 2002
                               ___________

Before RILEY, BEAM, and MELLOY, Circuit Judges.
                           ___________

MELLOY, Circuit Judge.

     Caballo Coal Company and Peabody COALSALES Company appeal the
district court's1 denial of a preliminary injunction in this action for breach of a long-
term coal supply contract. Because the appellants failed to demonstrate a threat of
irreparable harm, the district court is affirmed.

                                            I

      Plaintiff/Appellant Caballo Coal Company (Caballo) is a coal producer with
mines in Wyoming's Powder River Basin. Plaintiff/Appellant Peabody COALSALES
Company is a sales agent for Caballo. Caballo and Peabody COALSALES Company
are wholly owned subsidiaries of Peabody Holding Company, Inc., which in turn is
a wholly owned subsidiary of Peabody Energy Corporation. The dispute in the
present case involves less than 5% of the parent companies' annual Powder River
Basin coal production and an even smaller percentage of their total annual coal
production.

       Defendants/Appellees Indiana Michigan Power Company (IMPC), AEP Energy
Services, Inc. (AEP Energy), and American Electric Power Service Corporation (AEP
Service) are wholly owned subsidiaries of American Electric Power Company, Inc.
IMPC owns and operates a coal fired utility plant in Indiana that has used and uses
coal from Caballo. AEP Energy is a coal trader that manages coal procurement for
its parent companies' power plants, including the IMPC plant. AEP Energy is not a
coal producer and does not presently control any mining operations or coal reserves.

      Caballo, as the seller, and IMPC, as the buyer, are the current parties to a forty-
year coal supply agreement signed in 1974 by IMPC and a predecessor of Caballo
(Agreement). Peabody COALSALES Company and AEP Service, respectively, are
Caballo's and IMPC's agents for administration of the Agreement. Under the

      1
       The Honorable Charles A. Shaw, United States District Judge for the
Eastern District of Missouri.

                                           2
Agreement, the parties have the option to call for a price reopener every five years,
i.e., a renegotiation of the base price (Base) under the Agreement for a subsequent
five year period. The Agreement provides a structured system to conclude
negotiations if the parties fail to agree on a new five year Base. Under the system,
Caballo may submit a written offer containing a proposed Base. Following receipt
of the written offer, IMPC may procure a competitive offer from another supplier
who, under the contract, may be an affiliate of IMPC. If IMPC fails to procure a
competitive offer within the time allotted, Caballo's written offer serves as the Base
for the subsequent five year period. If IMPC procures a competitive offer, Caballo
may match the competitive offer or allow the contract to terminate.2

      2
          Section 8.03 of the Agreement states:

      . . . On or before August 1, preceding the end of the then current contract
      period BUYER will accept SELLER's last offer or obtain and present
      SELLER with a firm, written offer which it has received from another
      supplier (including any affiliate or subsidiary of BUYER) which it is
      willing to accept for the supply of coal called for under the next contract
      period or under the remaining term of this Agreement (herein referred
      to as a 'competitive offer'). BUYER shall also provide SELLER with
      documentary proof of such offer, and permit SELLER to examine all
      supporting data and information submitted with the offer. A competitive
      offer, as used in this Article VIII, shall mean an offer of western
      subbituminous coal which complies with the requirement that when the
      coal is burned it will not result in stack gas emissions containing more
      than 1.2 pounds of sulfur dioxide per million Btu heat input.

      The competitive offer shall be converted to a delivered cost per million
      Btu's to BUYER's Cook Terminal located near Metropolis, Illinois.
      Such 'delivered cost' to BUYER shall consist of the F.O.B. mine price
      plus all applicable adjustments to a common date plus the least
      expensive rail transportation rate that BUYER is able to obtain, using its
      best efforts, for shipping coal from the proposed supplying mine to
      BUYER's Cook Terminal and plus reasonable railcar costs for such rail

                                           3
       In 2001, IMPC requested a price reopener. Prior to renegotiation the Base was
$3.262 per ton for 17.5 million tons over five years. Caballo's 2001 written offer was
$8.35 per ton. IMPC's affiliate, AEP Energy, received bids from coal producers
ranging in price from $7.11 to $8.42 per ton. AEP Energy received bids from other
coal traders for smaller quantities ranging in price from $5.26 to $6.21 per ton. All
of the coal trader bids were based on prices from the over-the-counter energy market.3

      shipment. For purposes of calculating the cost per million Btu, the
      assumed Btu's per pound shall be equal to the Btu's per pound that the
      proposed supplying mine is capable of supplying. SELLER shall have
      the option to meet the competitive offer. . . .

      If, by September 30, preceding the end of the then current contract
      period the parties have not reached agreement upon a new Base and
      SELLER declines to meet a competitive offer submitted by BUYER
      pursuant to the preceding provisions, this Agreement shall terminate at
      the end of the then current calendar year, or at BUYER's election, at the
      end of the temporary continuance of deliveries as provided for in revised
      Section 8.04.

      3
        Plaintiffs assert that the over-the-counter coal market is a relatively new
phenomenon that did not exist (at least in its current form) at the time IMPC and
Caballo's predecessor entered the Agreement. In general, the over-the-counter coal
market is a source for short-term or immediate delivery coal supplies at current prices
without pricing premiums to account for long-term risk. Plaintiffs argue that because
the price quoted to IMPC by AEP Energy does not include a premium to account for
this long-term risk and AEP Energy does not own rights to coal reserves, the AEP
Energy offer does not qualify as a competitive offer. Defendants counter that AEP
Energy is financially secure and capable of weathering the financial risk attendant to
locking itself in as a coal seller subject to the fluctuations of the over-the-counter
market. AEP Energy further argues that Caballo unreasonably based its bid on a
temporary spike in coal prices that happened to coincide with the price reopener and
that AEP Energy's bid–based on forecasts of future over-the-counter market
prices–was subsequently shown to be a reasonable forecast. Of course, the price of
coal subsequent to the period of price negotiations is irrelevant to the parties' actions

                                           4
Ultimately, AEP Energy offered to sell IMPC 17.5 million tons at $5.60 per ton.
IMPC tendered its competitive offer to Caballo based on this $5.60 per ton bid from
its affiliate. Caballo did not meet the competitive offer. Instead, Caballo notified
IMPC that the competitive offer failed to meet the requirements of the Agreement.
Plaintiffs now seek a preliminary injunction and, ultimately, enforcement of the
Agreement at the $8.35 per ton Base contained in the written offer.

       It is undisputed that AEP Energy's bid was based on a forecast of future over-
the-counter coal prices rather than any one underlying bid from a single, guaranteed
source. Plaintiffs assert that AEP Energy's bid is a "sham" because without
ownership of coal reserves, production capacity or commitments, AEP Energy cannot
guarantee delivery of the 17.5 million tons of coal to IMPC. Plaintiffs argue
specifically that the IMPC offer based on the AEP Energy bid is not a qualifying
competitive offer because: (1) the IMPC offer fails to specify a single "proposed
supplying mine" and instead specifies the Powder River Basin as a source; (2) AEP
Energy is not a coal producer and, therefore, not "another supplier" as required under
the Agreement; (3) AEP Energy based its price on forecast models that utilized short-
term, small quantity, over-the-counter market prices rather than long-term,
guaranteed-supply prices; and (4) AEP Energy is not independent of IMPC.

      Defendants assert that IMPC's competitive offer satisfied all of the express
terms of the Agreement and that Caballo's failure to match the competitive offer
caused the contract to terminate. Specifically, Defendants note that the competitive
offer was (1) firm; (2) written; (3) made by a supplier; (4) from an affiliate; (5) for
western subbituminous coal which, when burned, will not result in stack gas
emissions containing more than 1.2 pounds of sulfur dioxide per million Btu head
input; and (6) converted to a delivered cost per million Btus to IMPC's Cook

at the time of price renegotiation, but it does help to explain the disparity between the
AEP Energy and Caballo bids.

                                           5
Terminal. See Agreement Section 8.03, infra at fn. 2. Finally, Defendants argue that
the additional requirements urged by Caballo are not a part of the Agreement.

                                           III

       The district courts have broad discretion in ruling on requests for preliminary
injunctions. Dataphase Sys., Inc. v. C L Sys., Inc., 640 F.2d 109, 114 n.8 (8th Cir.
1981) (en banc) (collecting cases). Accordingly, we review a district court's refusal
to grant a preliminary injunction for abuse of that discretion. United Indus. Corp. v.
Clorox Co., 140 F.3d 1175, 1179 (8th Cir. 1998) ("A district court has broad
discretion when ruling on requests for preliminary injunctions, and we will reverse
only for clearly erroneous factual determinations, an error of law, or an abuse of that
discretion.").

        In Dataphase, the Eighth Circuit identified four factors to guide the analysis of
preliminary injunction requests: "(1) the threat of irreparable harm to the movant; (2)
the state of the balance between this harm and the injury that granting the injunction
will inflict on other parties litigant; (3) the probability that movant will succeed on
the merits; and (4) the public interest." Dataphase, 640 F.2d at 114. The Dataphase
court noted that a failure to demonstrate irreparable harm, standing alone, may be a
sufficient basis to deny preliminary injunctive relief. Id. at 114 n.9 (vacating a
preliminary injunction where a district court had not found irreparable harm and
stating that "the absence of a finding of irreparable injury is alone sufficient ground
for vacating the preliminary injunction."). Following Dataphase, this court has
repeatedly emphasized the importance of a showing of irreparable harm. See Adam-
Mellang v. Apartment Search, Inc., 96 F.3d 297, 299 (8th Cir. 1996) (quoting Beacon
Theatres, Inc., v. Westover, 359 U.S. 500, 506-07 (1959) ("The basis of injunctive
relief in the federal courts has always been irreparable harm and inadequacy of legal
remedies.")); Bandag, Inc. v. Jack's Tire & Oil, Inc., 190 F.3d 924, 926 (8th Cir.
1999) (same).

                                           6
       The district court denied Plaintiffs' request for a preliminary injunction relying
primarily on Plaintiffs' failure to demonstrate a threat of irreparable harm. In doing
so, the district court stated:

      According to the record, Caballo and Peabody can and have calculated
      monetary damages for the next five-year contract period, should they
      prevail on the merits. In addition, according to the testimony of Paul
      Vining, Peabody will be able to sell the Caballo coal covered by the
      Agreement during that period. The Court agrees with defendants, if
      plaintiffs decide to pursue this litigation, the case will definitely be
      decided, finally and conclusively, well within the next five years. If
      plaintiffs should prevail, then the Court will render plaintiffs appropriate
      relief. This case does not involve plaintiffs' inability to sell its product
      to other companies. Plaintiffs testified that the market for this particular
      type of coal is strong and growing, and that it can sell the coal in that
      growing market. Moreover, the testimony of Paul Vining and Richard
      Whiting, plaintiffs' witnesses, revealed that neither Caballo nor any of
      the Peabody entities are threatened as viable businesses if the Court does
      not enter the requested preliminary injunction. The amount of the
      contract is only 3.5% of Peabody's [Powder River Basin] coal output
      and less than 2% of Peabody's overall coal production.

Caballo Coal Co. and Peabody COALSALES v. Indiana Michigan Power Company,
AEP Energy Services, Inc., and American Electric Power Services Corporation, No.
01-1558 (E.D. Mo. filed Jan. 10, 2002) (order denying preliminary injunction). In
their effort to demonstrate a threat of irreparable harm, Plaintiffs emphasized the
uncertainty surrounding future coal prices, the availability of specific performance
as a final remedy, and the possible disruption of Caballo's mining operations. The
district court correctly determined that the record belies Plaintiffs' arguments. The
record reflects that the market for coal from the Powder River Basin is growing and
that Caballo will be able to sell the coal intended for IMPC (albeit at a price likely to
fall short of $8.35 per ton). As a result, if Plaintiffs do prevail at trial, it will be a
simple matter to calculate interim damages. Plaintiffs admit that an appropriate

                                            7
measure of interim damages in this contract action will be the difference between the
contract price and the actual sale price.4 In fact, the record reflects that Plaintiffs have
already calculated such damages. Accordingly, although the calculation of future
damages may be uncertain following resolution of the present litigation (due to the
uncertainty of future coal prices) and specific performance may be an appropriate
means to address future harm, the calculation of interim damages will not be
uncertain. As this court stated in Bandag, "any harm [the movant] sustains between
now and . . . trial will adequately be compensated by an award of damages and
permanent injunction." Bandag, 190 F.3d at 926.

       This conclusion is buttressed by the testimony of Plaintiffs' own witnesses who
stated the coal under the Agreement comprises only 3.5% of the parent companies'
Powder River Basin production and less than 2% of their overall production. These
witnesses also stated that Plaintiffs' financial viability will not be jeopardized in the
absence of a preliminary injunction. In light of this testimony, we are not convinced
that Caballo's mining enterprise will be irreparably disrupted without a preliminary
injunction. Accordingly, because any interim harm is compensable by a monetary
award, the district court's decision involved no clear error and was not an abuse of
discretion.

       Further, the balance of harm factor under Dataphase does not serve to
significantly favor either party. Both companies face financial risk by continuing the

       4
         In their brief, Plaintiffs state, ". . . if Defendants were ultimately to prevail
at trial, IMPC could easily be compensated for any damages caused by the
preliminary injunction by ordering Caballo to refund to IMPC the difference, if
any, between the $8.35 Base and the spot market prices that IMPC could have paid
for coal while the preliminary injunction was in effect." However, Plaintiffs
failed to demonstrate why a similar calculation would not result in adequate
compensation to Plaintiffs if no injunction issues, Caballo sells its coal for less
than $8.35 and IMPC is ultimately forced to honor the Agreement at $8.35 per ton.

                                             8
present litigation. However, the record reflects that both companies will weather this
potential harm without facing financial ruin. Where the potential harm to both parties
is purely monetary, albeit substantial, and where neither party's financial viability is
threatened, the court need not conduct a precise accounting to determine that the
balance of harm factor does not demand injunctive relief.

       Similarly, the public policy factor does not demand a grant of injunctive relief.
Although the present case touches upon public policy issues concerning the structure
of energy markets, the matter actually before the court is a contract dispute among
private litigants. Public interest does not weigh heavily in such a case, especially
where there has been no demonstration that a party's existence or financial viability
is threatened or that the supply of energy to end users is in jeopardy.

        Finally, the court need not indulge in a detailed discussion of Plaintiffs'
likelihood of success. Any likelihood of success by Plaintiffs is not so convincingly
strong as to outweigh the absence of irreparable harm or the other Dataphase factors.
It is important to note that in this instance, as in any preliminary injunction analysis,
the court does not predetermine the merits of the case. O'Connor v. Peru State
College, 728 F.2d 1001, 1002-03 (8th Cir. 1984) ("The proceedings are at an early
stage and to prejudge the evidence before it is fully collated and demonstrated is
basically unfair. Under these circumstances, the court should avoid deciding with any
degree of certainty who will succeed or not succeed.")

      The district court's denial of a preliminary injunction is affirmed.

      A true copy.

             Attest:

                     CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT

                                           9