AMERICAN LAND HOLDINGS v. JOBE (May 6, 2010)

Peabody Energy Corporation is engaged in the strip mining of coal in Sullivan County in southwestern Indiana. Unfortunately for them, the owners of 62 acres of farmland right in the middle of the mining area are getting in the way. Peabody owns the coal beneath those 62 acres pursuant to a 1903 deed. Under that deed, the owners of the property transferred ownership of the coal and the right to mine it to Peabody. The deed also granted the use of the surface "as may be necessary" for certain mining operations and granted an option to purchase such surface area "as may be necessary" for the location of railroad tracks and buildings and other operations necessary for carrying on the mining business. Other parts of the deed limit Peabody's use of the surface to mining operations. Peabody brought an action for a declaration that it has a right to strip mine the land and for specific performance of its option to purchase. After a bench trial, the court entered judgment for the defendants. Peabody appeals.

In their opinion, Judges Posner, Rovner, and Tinder affirmed. The Court agreed with the district court that the deed was ambiguous in that it both granted the right to mine all the coal but put significant limits on Peabody's use of the surface. Because the deed is ambiguous, a court is allowed to look to extrinsic evidence to determine its intended meaning. Here, the district court heard evidence that, at the time of the deed, strip mining did not exist in Sullivan County and probably not in the United States. The Court concluded that the district court did not err in relying on that testimony in holding that the deed did not grant a right to strip mine – it only granted the right to mine the coal by underground mining and the right to use the surface for structures and activities related to the underground mining.