Louisiana D. Brown 1992 Irrevocable Trust v. Peabody Coal Co.

On September 1, 1970, the Carroll County Coal Company (CCCC) obtained a lease from the federal government to mine certain coal reserves. Under the lease, the lessee was obligated to pay specified royalties to the government. The government reserved the right to readjust royalties at the end of every 20-year term, with timely notice of the proposed readjustment for the next 20-year term. On January 11, 1973, CCCC entered a sublease with Peabody Coal Co. (Peabody) (defendant) that conveyed all lease rights to Peabody (the sublease). Payments of royalties under the sublease were tied to the lease. Like the lease, the sublease allowed for readjustments of royalties at the end of each 20-year term, with timely notice of the proposed readjustment. At some point, the Louisiana D. Brown 1992 Irrevocable Trust (the trust) (plaintiff) succeeded CCCC as sublessor. CCCC or the trust was entitled to readjust the sublease 20 years from the date of the lease, or by September 1, 1990. In 1988, the government notified CCCC that the terms of the lease would be adjusted effective September 1, 1990. CCCC forwarded a copy of the notice to Peabody but did not indicate in any way that the sublease would be readjusted. In March 1990, the government sent CCCC the new lease terms that would go in effect on September 1, 1990, but again CCCC did not notify Peabody of any sublease readjustment. In March 1993, CCCC notified Peabody that it intended to readjust royalties. Peabody disputed the timeliness of CCCC’s notice. Later, when the trust sent Peabody a readjusted sublease, Peabody declined to sign it. The trust sued Peabody, and the matter was ordered to arbitration. After notice, full briefing, and oral argument, the three-member arbitration panel resolved the matter by refusing to permit discovery and granting summary judgment to Peabody. The panel implicitly found that the trust’s or CCCC’s notice had been untimely. The district court confirmed the arbitration award. The trust appealed, arguing that the arbitrators committed misconduct because the trust had an absolute right to discovery and an evidentiary hearing.