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American Land Holdings of Indiana, LLC v Jobe, 604 F3d 451 (7th Cir 2010).

Facts:Stanley Jobe owned 62 acres of farmland in Sullivan County, Indiana. In 1903, Jobe's predecessors granted a deed to the predecessors of Peabody Energy Corporation (Peabody) giving Peabody "all the coals" under these 62 acres and the right to mine it. The deed also absolved Peabody of any damages in mining up to five acres of land. The mining was permitted without any payments by Peabody and Peabody had the right to purchase the land at $30 per acre upon demand. Peabody was given free access to the surface to conduct mining operations, but no coal could be mined from under the then-current structures, and five surface acres were reserved where buildings stood at the time of the deed.

Affiliates of Peabody brought suit against Jobe, seeking a declaratory judgment that the 1903 deed gave Peabody the right to strip-mine the land, and seeking to enforce the right to purchase the surface rights to the land at $30 per acre. The trial court determined that underground mining would deprive Peabody of significant portions of the coal, but nevertheless, the deed did not permit strip mining which would infringe on surface rights reserved by Jobe. Peabody appealed.

Holding:Affirmed. First, the court determined that the deed was ambiguous because it both granted Peabody "all the coals" but then forbade mining under previously existing structures. Thus, extrinsic evidence in the trial was admissible. The key evidence presented by Jobe, and not refuted by Peabody, was that no strip mining was conducted in Indiana, or significantly in the rest of the United States, in 1903. Therefore, the terms of the deed pertained to underground mining and the surface reservations impliedly disallowed strip mining.

Peabody asserted that Indiana case law interpreted the right to "all coal" as a right to strip mine unless the deed "imposes a 'severe limitation' on the mining company's use of the surface." The court disagreed, interpreting the cited cases as merely allowing extrinsic evidence in cases where deeds are ambiguous by both granting unrestricted rights to subsurface minerals and also restricting access to the corresponding surface. In other cases, that ambiguity was resolved in favor of the mining companies because the deeds in question were written when strip mining was common. That was not the case here. In fact, because of the destructiveness of strip mining, some courts presume that deeds which are silent on strip mining impliedly disallow it. However, the court did not need to go this far to conclude that the trial judge did not commit a clear error in disallowing strip mining.

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