Peabody sues over broken 27k-acre coal rights deal

Steve Gonzalez May 23, 2008, 1:43am

Peabody Energy and Illinois Land Holdings, LLC filed a five-count complaint against Jerome Rubenstein, Herbert Anthony Allen, Terry Allen Kramer, Dennis Blair and The Bank of New York Trust in Madison County Circuit Court alleging the defendants improperly leveraged and exploited a confidential and binding agreement over real estate and coal rights.

According to the complaint filed May 15, Rubenstein approached Peabody in November 2007 as an attorney and trustee of the Mt. Olive and Staunton Coal Company Trust regarding the sale of assets which included 27,000 acres of coal rights in Madison, Montgomery and Macoupin counties.

Peabody claims the assets include in excess of 100 million tons of recoverable coal.

The suit claims that during negotiations Peabody and Illinois Land Holdings proposed a defined flat fee amount for the properties in question causing the defendants to counter with a defined flat fee plus a defined overriding royalty amount with respect to the coal mined.

Peabody claims Rubenstein gained approval from the other trustees who authorized him to make the offer which it accepted.

According to the complaint, on Nov. 21, 2007, the parties entered into a binding agreement for the sale of the land per the offer made by the defendants.

Peabody claims that over the next few months and at considerable expense, it conducted due diligence and drafted and revised a purchase and sale document to memorialize the parties' agreement.

Peabody claims that near the completion of the agreement, Rubenstein indicated that all of the material terms were satisfactory for the parties to sign.

The suit claims that on April 7 Rubenstein informed Peabody that an unnamed third party made a higher offer for the assets.

"Not coincidentally, the offer was of the exact same structure, but had slightly higher monetary terms than the Agreement already reached between Plaintiffs and Defendants," the complaint states.

Peabody claims that despite the binding agreement in place, Rubenstein invited a higher bid for the assets.

According to Peabody, it refused to make another offer because there was already a binding agreement in place.

Peabody claims the defendants had no intention of performing under the agreement that was already reached and instead obtained an agreement through fraud and shopped it to induce a multi-party bidding war.

Peabody also claims that Rubenstein told its inside counsel that the defendants did not even have the power to sell the assets until the termination of a lease the trust had with Mobil.

Peabody and Illinois Land claim they are willing and able to pay the full purchase price for the assets under the agreement but the defendants have failed and refused to deliver the assets.

"Defendants refuse to cure their breach of the Agreement," the complaint states.

The Plaintiffs also allege unjust enrichment and violation of the Illinois Consumer Fraud Act by establishing a benchmark market value for the assets and then shopping the deal to other prospective buyers.

"Mr. Rubenstein attempted to extort additional money from the plaintiffs by leveraging the third party buyer's offer against Plaintiffs' confidential offer to attempt to improperly compel Plaintiffs into a multi-party bidding war," the complaint states.

Peabody is seeking an amount to be proven at trial in excess of $250,000, punitive damages in an amount to be proven and costs and expenses.

Plaintiffs are represented by Harry Wilson and Greg Gutzler of Husch Blackwell Sanders of St. Louis.

The case has been assigned to Circuit Judge Andy Matoesian.

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