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Rock Island Improv. Co. v. Helmerich & Payne - 698 F.2d 1075

Rule:

The Open Cut Land Reclamation Act, Okla. Stat. Ann. tit 45, §§ 721-729 provides that it is hereby declared to be the policy of Oklahoma to provide, after mining operations are completed, for the reclamation and conservation of land subjected to surface disturbance by open cut mining and thereby to preserve natural resources, to aid in the protection of wildlife and aquatic resources, to establish recreational, home and industrial sites, to protect and perpetuate the taxable value of property, and to protect and promote the health, safety and general welfare of the people of the State.

Facts:

Helmerich & Payne leased two tracts of land in Oklahoma from Rock Island for coal mining purposes.  The lease contained a reclamation clause, to restore the surface as nearly as possible to its condition prior to said mining operation. Helmerich & Payne subleased the property to a strip-miner. When the lease period ended, the tracts were not reclaimed to Rock Island's satisfaction. Rock Island filed a lawsuit against Helmerich & Payne for breach of the lease's reclamation provision, seeking damages equal to the amount necessary to reclaim the land. Helmerich & Payne filed a third-party action against the strip-miner, who agreed to pay any judgment won by Rock Island. The jury awarded Rock Island damages.

On appeal, Helmerich & Payne sought to apply the doctrine in Peevyhouse, where the court ruled that the proper measure of damages would be diminution in market value, an amount the parties stipulated, and thus not a jury issue. Rock Island's response was that Peevyhouse no longer represented Oklahoma law on damages for breach of mining contracts because of subsequent developments in that state's policy toward reclamation.

Issue:

Did the jury apply a proper measure of damages in calculating Rock Island's damages?

Answer:

Yes.

Conclusion:

The United States Court of Appeals for the Tenth Circuit affirmed the judgment of the district court. At the time the parties in Peevyhouse entered into their lease, Oklahoma had no stated policy concerning land reclamation after mining operations. Thus, in Peevyhouse the court considered only the economic benefits to the parties of a situation the court termed "artificial," "unreasonable," and "unrealistic": that a property owner would agree to pay a great deal for "improvements" that would increase the property's value by only a small amount. The court was concerned that if the landowner did not spend the large amount to reclaim the land, he would receive a windfall by recovering the amount from the lessee. However, after the decision in Peevyhouse but before Rock Island leased the tracts to Helmerich & Payne, Oklahoma enacted the Open Cut Land Reclamation Act.

The Act stated in part:

It is hereby declared to be the policy of this State to provide, after mining operations are completed, for the reclamation and conservation of land subjected to surface disturbance by open cut mining and thereby to preserve natural resources, to aid in the protection of wildlife and aquatic resources, to establish recreational, home and industrial sites, to protect and perpetuate the taxable value of property, and to protect and promote the health, safety and general welfare of the people of this State.

The statute declares today that the operator of a strip mine has a duty to reclaim the land and that the state may contract for the work to be done if the operator defaults. The statute makes no exception for cases in which the expenditures for reclamation are disproportionate to the resulting increase in value of the land. To be sure the statute looks to the operator as the party responsible for reclamation, and limits the state's recovery to the amount of the bond it has required. Nevertheless, there are many reasons a landowner in Rock Island's position would want a reclamation provision in the lease -- to enhance its image in the community, to protect against possible tort liability for conditions on its premises, and to allay any fear that under the recently enacted law it might somehow be held responsible for defaults of the operator. There are reasons a lessee might readily accept such a provision -- it already has a duty to reclaim under the state statute.

The court held that the Oklahoma Supreme Court would no longer apply the rule it established in Peevyhouse in 1963 if it had the instant dispute before it. Although the court was bound by decisions of a state supreme court in diversity cases, it need not adhere to a decision if it thinks it no longer would be followed. When the parties negotiated the contract in question, they expressly included a reclamation clause and required the lessee to bear the cost of reclamation. Given the attention focused by Oklahoma on the importance of reclaiming strip-mined lands, it was more logical to assume that the parties meant what they said, calculated their costs and benefits under the contract accordingly, and intended the provision to insure proper reclamation of the land, than it was to assume that they expected the reclamation clause to have no force.

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