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PPW Royalty Trust v. Barton

United States Court of Appeals, Eighth Circuit

August 11, 2016

The PPW Royalty Trust, by and through Donald G. Petrie, its Trustee; The Estate of Patricia P. Willits, by and through Donald G. Petrie, its Personal Representative; The Estate of William G. Parrott, Jr., by and through Peggy Parrott, its Personal Representative; The Patricia P. Willits Trust, by and through Donald G. Petrie, its Trustee; The Parrott Revocable Trust, by and through Peggy Parrott, its Trustee; The David E.C. Parrott Irrevocable Trust, by and through Donald G. Petrie, its Trustee; The Delyn P. Drake Irrevocable Trust, by and through Donald G. Petrie, its Trustee; The Dianne P. Spook Irrevocable Trust, by and through Donald G. Petrie, its Trustee; The Pamela P. Waugh Irrevocable Trust, by and through Donald G. Petrie, its Trustee; The William G. Parrott III Irrevocable Trust Dated, by and through Donald G. Petrie, its Trustee, Plaintiffs - Appellants,
v.
George A. Barton; The Law Offices of George A. Barton, P.C.; Gerard T. Carmody; David H. Luce; Carmody MacDonald, P.C.; John C. Holstein; Polsinelli, P.C., Defendants-Appellees.

          Submitted: November 19, 2015

         Appeal from United States District Court for the Western District of Missouri - Kansas City

          Before COLLOTON, GRUENDER, and SHEPHERD, Circuit Judges.

          COLLOTON, Circuit Judge.

         The PPW Royalty Trust and nine additional trusts and estates (collectively, "the Trusts") claim rights as the beneficiaries, successors, or assigns of the owners of coal mining royalty interests in Kentucky. Over the course of two-and-a-half decades, the Trusts and their predecessors have sued in both federal and state court over the scope of their rights to receive royalty payments. In this case, the Trusts sued their former attorneys, alleging legal malpractice based on the adverse outcome of one of these cases. The Trusts assert that the attorneys committed malpractice by failing to raise preclusion arguments based on the outcome of a prior case. The Trusts also assert that the attorneys committed malpractice by failing to raise certain constitutional arguments at an earlier phase. The district court[1] dismissed the Trusts' complaint, concluding that assertion of these arguments would not have changed the outcome of the case. We affirm.

         I.

         This case arises out of a lengthy and complex series of events involving coal mining rights in Kentucky. In 1946, W.G. Parrott conveyed certain land in Ohio County, Kentucky, to Beaver Dam Coal Company, and Beaver Dam leased the coal mining rights on that land back to Parrott. Willits v. Peabody Coal Co. (Willits I), Nos. 98-5458, 98-5527, 1999 WL 701916, at *1 (6th Cir. Sept. 1, 1999). This lease is described by the parties as the Beaver Dam lease. At the time, Parrott controlled two companies known as Rough River Coal Company and Alston Coal Company. Parrott assigned his mining rights under the Beaver Dam lease to Rough River in exchange for a royalty interest on coal mined by Rough River within certain defined boundary areas. In 1947, Rough River assigned the coal leases to Alston. Id.

         In 1954, Alston and Parrott substituted two new royalty agreements for those that arose from Parrott's transaction with Rough River. Id. One agreement granted royalties to Parrott and his wife, Pauline, and the other granted royalties to Pauline and the couple's children, Patricia Willits and William G. Parrott, Jr. Under the new agreements, Alston agreed to pay the Parrotts a portion of the average gross realization on coal mined within certain defined boundary areas. The 1954 royalty agreements granted the Parrotts a smaller royalty percentage than the original 1946 agreement and expanded the boundary areas covered by the agreement. Peabody Coal Company later assumed Alston's obligations and liabilities under the royalty agreements. The Parrotts assigned their royalty interests in equal shares to their children in 1959, and the Parrott children later distributed their interests to a collection of trusts.

         A.

         In 1990, Willits, Parrott, Jr., and the PPW Royalty Trust (collectively, "the Parrott plaintiffs") sued Peabody Coal Company in federal court in the Western District of Kentucky, alleging breach of contract and fraud based on underpayment of royalties. See Willits I, 1999 WL 701916, at *2. Attorney George Barton represented the Parrott plaintiffs in Willits I. Peabody filed a counterclaim, contending that the royalty agreements violated the rule against perpetuities. Id. Peabody argued that the agreements purported to grant the Parrott plaintiffs the right to receive royalties based on coal mined from land within the boundary areas but acquired by Alston-and later Peabody-after the date of the agreement. For this reason, Peabody asserted, the agreements violated the rule against perpetuities.

         On July 3, 1991, the district court issued an order dismissing Peabody's counterclaim. The court observed that "the agreements in question create no interest whatsoever in land or in the coal leases themselves" but rather created "obligations personal to the parties to those agreements." The court concluded that "[t]he Royalty Agreements therefore are not subject to and do not violate the Rule Against Perpetuities, whether they cover 'after-acquired' property or not." The case proceeded on other claims.

         Several years later in 1997, the district court revisited its 1991 order. The Parrott plaintiffs argued that the court's 1991 order dismissing Peabody's counterclaim necessarily held that the royalty agreements required Peabody to pay royalties for coal mined from "after-acquired" property. The district court observed that the 1991 order did not determine whether the agreements covered "after-acquired" property and that a 1995 order found a genuine issue of material fact on that question. Yet the court noted that "the defendant has conceded that, barring its statute of limitations and relation back objections, summary judgment for the plaintiff is appropriate." Relying on that concession and rejecting Peabody's statute of limitations argument, the court granted summary judgment for the Parrott plaintiffs on royalty claims based on coal mined from three "after-acquired" properties (Count VIII of the Third Amended Complaint).

         The case went to trial on the remaining claims, and the jury returned a verdict in favor of the Parrott plaintiffs on one breach of contract claim and in favor of Peabody on all remaining claims. Id. at *4. Both parties appealed to the Sixth Circuit. Peabody challenged, among other things, the district court's 1991 order dismissing its counterclaim. Id. at *5. The Sixth Circuit affirmed the district court's determination that the royalty agreements did not violate the rule against perpetuities, but declined to accept "the district court's reasoning that the perpetual nonparticipating royalty interests at issue are contractual rights, as opposed to interests in property." Id. at *19. The court of appeals concluded instead that "the royalty interest vested when it was created, even though it was uncertain in the enjoyment." Id. at *20. The court thus determined that "[t]he royalty holder owns a fee simple interest in Peabody's contingency" and that none of the plaintiffs' claims were precluded by operation of the rule against perpetuities. Id.

         The Sixth Circuit also reversed the district court's determination on the statute of limitations that governed the Parrott plaintiffs' claim concerning after-acquired property. Id. at *19. On remand, therefore, the district court entered an amended judgment in favor of Peabody on the Parrott plaintiffs' claim for royalties from the three after-acquired properties. Add. 42.

         B.

         After Willits I, Peabody engaged in several land transactions. Peabody acquired the Beaver Dam Coal Company and its interests within the defined boundaries. In 2007, the Beaver Dam lease, which predated and was subject to the 1954 royalty agreements, was terminated by agreement. The mining rights under that lease merged with the fee simple property interest, then owned by Peabody through its Beaver Dam subsidiary. Additional tenancies in common that predated and were subject to the 1954 agreements were also joined into a single owner in one of Peabody's subsidiaries, terminating the tenancies in common. Peabody sold the land that formerly made up the tenancies in common to the Armstrong Coal Company, which then began mining coal from the property without paying royalties to the Parrott plaintiffs.

         In 2008, the Parrott plaintiffs sued Peabody and Armstrong in Missouri state court, alleging that the companies had failed to pay royalties under the 1954 agreements. The Parrott plaintiffs also sought a declaratory judgment that the agreements required the companies to pay royalties on coal mined by Armstrong as its "successor or assignee." Willits v. Peabody Coal Co. (Willits II), 332 S.W.3d 260, 262-63 (Mo.Ct.App. 2010). Peabody and Armstrong moved for summary judgment, arguing that the termination of the Beaver Dam lease and the tenancies in common ended the royalty agreements and that Armstrong was not an ...


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