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Northern Indiana Public Service Co. v. Carbon County Coal Co.

United States Court of Appeals for the Seventh Circuit
799 F.2d 265 (1986)



Northern Indiana Public Service Co. (NIPSCO) (plaintiff) agreed to buy a certain amount of coal from Carbon County Coal Co. (Carbon County) every year for 20 years. This coal was used to generate electricity. The price was set at the time that the parties entered the contract, but it was subject to escalation. The contract included a force majeure clause providing that NIPSCO could stop buying coal under the contract “for any cause beyond [its] reasonable control . . . including but not limited to . . . orders or acts of civil . . . authority . . . which wholly or partly prevent . . . the utilizing . . . of the coal.” In 1983, the price of the coal under the contract escalated to the point that NIPSCO requested permission from the Indiana Public Service Commission (the commission) to increase its fuel charges to its customers. The commission granted the request but required NIPSCO to make a good-faith effort to decrease its prices by finding alternative electricity sources. NIPSCO found cheaper sources of electricity and therefore stopped buying coal under its agreement with Carbon County. NIPSCO filed a declaratory-judgment action, seeking to excuse its performance of the contract with Carbon County under its force majeure clause or under the doctrines of frustration of purpose or impossibility. NIPSCO also argued that the contract was unenforceable because it violated the Mineral Lands Leasing Act of 1920. That statute provided, among other things, that a company "operating a common-carrier railroad" could not hold a mineral lease or permit on federal lands, except for its own use for railroad purposes. NIPSCO claimed the statute applied because Carbon County would obtain approximately 15 percent of the coal for its contract with NIPSCO from federal lands that Carbon County was permitted to mine, and Carbon County was a partnership between two entities, one of which was a wholly owned subsidiary of an entity whose principal subsidiary was a railroad company. Carbon County counterclaimed for damages. After a trial, the trial court entered judgment in favor of Carbon County and awarded it $181,000,000 in damages. Although Carbon County sought specific performance of the contract in lieu of the damage award, the trial court denied that request. NIPSCO appealed the judgment, and Carbon County appealed the denial of specific performance, to the United States Court of Appeals for the Seventh Circuit.

Rule of Law


Holding and Reasoning (Posner, J)

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