Statoil USA Onshore Properties v. Pine Resources, LLC
Filing
UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 2:14-cv-21169 Copies to all parties and the district court/agency. [1000005228].. [15-2099]
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-2099
STATOIL USA ONSHORE PROPERTIES INC.,
Plaintiff - Appellee,
v.
PINE RESOURCES, LLC,
Defendant - Appellant.
Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston.
Irene C. Berger,
District Judge. (2:14-cv-21169)
Argued:
October 26, 2016
Decided:
January 18, 2017
Before MOTZ, TRAXLER, and FLOYD, Circuit Judges.
Vacated and remanded by unpublished per curiam opinion.
ARGUED: David Allen Barnette, JACKSON KELLY, PLLC, Charleston,
West Virginia, for Appellant.
Constance Hankins Pfeiffer, BECK
REDDEN LLP, Houston, Texas, for Appellee.
ON BRIEF: Vivian H.
Basdekis, JACKSON KELLY, PLLC, Charleston, West Virginia, for
Appellant.
Fields Alexander, Joel T. Towner, BECK REDDEN LLP,
Houston, Texas; Bridget Furbee, Bridgeport, West Virginia, John
J. Meadows, STEPTOE & JOHNSON PLLC, Charleston, West Virginia,
for Appellee.
Unpublished opinions are not binding precedent in this circuit.
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PER CURIAM:
In
2008,
certain
Appellant
mineral
(“PetroEdge”),
rights
pursuant
Pine
to
to
agreement (the “Pine PSA”).
rights
to
Appellee
Resources,
non-party
the
terms
LLC
(“Pine”),
PetroEdge
of
a
Energy,
purchase
and
sold
LLC
sale
In 2012, PetroEdge sold its mineral
Statoil
USA
Onshore
Properties,
Inc.
(“Statoil”), pursuant to the terms of a second purchase and sale
agreement (the “Statoil PSA”).
In 2014, Statoil sought a declaratory judgment that it was
not in breach of the Pine PSA, and had no obligations under that
agreement to Pine other than to pay certain royalty interests.
Pine filed a breach of contract counterclaim, seeking damages
for
Statoil’s
alleged
nonperformance
of
spudding
outlined in Section 5.7(b) of the Pine PSA.
obligations
The parties filed
cross-motions for summary judgment.
The district court granted summary judgment to Statoil, and
denied Pine’s motion for summary judgment on its counterclaim.
The court held that, under the unambiguous language of the Pine
PSA, the agreement’s spudding obligations extended only to the
“Purchaser,” which the court read to mean PetroEdge alone.
This
holding,
however,
renders
effectively
meaningless
successors and assigns provision in the Pine PSA.
a
It is our
duty to read a contract as a whole, giving meaning to every
provision whenever possible.
Because the district court failed
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to properly do so, we vacate its judgment and remand for further
proceedings.
I.
A.
In
2001,
Pine
acquired
mineral
interests
in
a
565-acre
tract of land in Barbour County, West Virginia (the “Property”).
In 2008, at a price of $479,876, and pursuant to the terms of
the
Pine
PSA,
non-party
PetroEdge
purchased
from
Pine
the
Marcellus Mineral Rights on the Property. 1
The Pine PSA--drafted by PetroEdge--contains the following
relevant provisions:
•
Introduction: The Pine PSA states in its introductory
paragraph that it is an agreement “by and between Pine
Resources Inc., a West Virginia corporation (‘Seller’),
and PetroEdge Energy LLC, a Delaware limited liability
company (‘Purchaser’).”
J.A. 49.
provides
that
and
referred
to
“Seller
herein
Purchaser
together
individually as a ‘Party’.”
1
The Pine PSA further
as
the
are
sometimes
‘Parties’
and
Id.
The Marcellus Mineral Rights include, inter alia,
hydrocarbon mineral interests of “those subsurface depths from
the base of the Elk formation to the base of (and including) the
Onondaga formation.” J.A. 50.
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•
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Article
5:
Article
5
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outlines
the
covenants
of
the
parties, and centers on their mineral production plans.
Section 5.5 calls for quarterly meetings by the “Parties”
to
discuss
drilling
plans
and
operations.
J.A.
56.
Section 5.6 enjoins cooperation between the “Parties” in
the
event
of
parallel
drilling
or
operations.
Id.
Section 5.7(a) requires “Purchaser [to] apply for a meter
tap
on
a
gas
transmission
executing the Pine PSA.
line”
within
J.A. 56–57.
60
days
of
Section 5.7(b)
provides that the “Purchaser shall spud not less than one
(1) well on the Contract Area” within a year of the
installation of the meter tap; it further provides that
the “Purchaser” shall have spudded at least three wells
within five years of the meter tap’s installation.
57. 2
J.A.
Section 5.8 discusses the scenario where a party
abandons a well and the non-abandoning party gets the
right to take over its operation.
Id.
Section 5.9(a)
discusses Pine’s 18% retained overriding royalty interest
on
hydrocarbons
Rights.
J.A.
produced
57-58.
from
Section
the
Marcellus
5.9(b)
Mineral
establishes
an
arbitration procedure for disputes between the “Seller”
2
After multiple delays and a purchased extension, PetroEdge
drilled one well, the Bumgardner 5-2H, in December 2011.
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and the “Purchaser” over the occurrence of a “Production
Termination Event.”
•
J.A. 58.
Article 7: Article 7 is the Pine PSA’s “Indemnification;
Limitations” section.
J.A. 60-62.
As relevant here,
Section 7.2(a), provides as follows:
[1] The representations and warranties of the
Parties in Articles 3 (except Section 3.7) and 4
and the covenants and agreements of the Parties
in Article 6 [sic] (except Sections 5.4 through
5.9) shall survive the Execution Date for a
period
of
two
(2)
years.
[2]
The
representations,
warranties,
covenants
and
agreements of Seller in Sections 3.7 and 5.4
shall survive until the close of business 30 days
after the expiration of the applicable statutes
of limitation (including any extensions thereof)
provided that any proceeding or indemnification
claim pending on the date of any such termination
shall survive until the final resolution thereof.
[3] The remainder of this Agreement shall survive
the Execution Date so long as Purchaser holds any
interest in the Mineral Rights. Representations,
warranties, covenants and agreements shall be of
no further force and effect after the date of
their expiration, provided that there shall be no
termination of any bona fide claim asserted
pursuant to this Agreement with respect to such a
representation, warranty, covenant or agreement
prior to its expiration date.
J.A. 61.
•
Article 8: Article 8 contains the remaining miscellaneous
provisions.
Section 8.5 instructs that the Pine PSA is
to be construed in accordance with West Virginia law.
J.A. 63.
Section 8.8 contains a successors and assigns
provision, which in relevant part provides that “this
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Agreement shall be binding upon and inure to the benefit
of the Parties hereto and their respective successors and
assigns.”
•
Id.
Deed: Pine’s deed to PetroEdge (the “Deed”) granting the
latter
the
Marcellus
Mineral
attached to the Pine PSA.
were
expressly
Rights
of
the
incorporated
Deed
an
exhibit
(All exhibits to the Pina PSA
under
integration clause of the Pine PSA.
III
is
provides
Section
8.9,
J.A. 63.)
that,
the
Article
“[n]otwithstanding
anything to the contrary,” Pine reserves an 18% retained
overriding royalty interest on hydrocarbons produced from
the Marcellus Mineral Rights.
J.A. 68.
Article III adds
that if there is a dispute regarding the occurrence of
“Production Termination Events,” it shall be settled in
accordance with Section 5.9(b) of the Pine PSA.
Id.
B.
By written assignment in 2012, PetroEdge sold its interest
in the Marcellus Mineral Rights to Statoil.
That assignment
agreement
the
is
subject
to
and
incorporates
terms
and
conditions of a purchase and sale agreement--the Statoil PSA-dated October 12, 2012, between Statoil and PetroEdge.
Section 10.1(a) of the Statoil PSA provides that Statoil
shall assume responsibility for the “performance of all express
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and implied obligations” arising from “instruments in the chain
of title to the Assets, the Leases, the Contracts and all other
orders,
contracts
subject,
and
including
royalties[.]”
agreements
the
payment
J.A. 450.
of
to
which
the
royalties
Assets
and
are
overriding
The Statoil PSA lists the Pine PSA as
a “Contract[] included in the Assets” that were sold by the
Statoil
PSA.
J.A.
447,
453.
The
Statoil
PSA
further
acknowledges that the obligation to drill “at least two (2)”
wells
(in
addition
to
the
Bumgardner
5-2H
well)
is
unfulfilled drilling obligation dictated by the Pine PSA.
an
J.A.
449, 451.
By
letter
transaction
notified
dated
December
contemplated
Pine
of
its
by
19,
the
2012--one
Statoil
assignment
to
PSA
day
after
the
closed--PetroEdge
Statoil.
The
letter
specifically noted that “Statoil is now the Purchaser under the
[Pine] PSA.”
J.A.
459.
The letter made no reference to the
possibility that the duties of PetroEdge would not pass on to
its assign Statoil.
After the assignment, Pine sought performance by Statoil on
the Pine PSA.
It is undisputed that Pine reached out multiple
times to Statoil to schedule quarterly meetings with it, and
that at least one such meeting took place.
To date, however, no
well drilling beyond the Bumgardner 5-2H has occurred on the
Property.
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C.
In 2014, Statoil sought a declaratory judgment confirming
that--except
for
a
duty
to
pay
royalty
interests
upon
production--its duties under the Pine PSA were expired, and it
was thus not in breach of the Pine PSA and owed no duties to
Pine
beyond
making
royalty
interest
payments.
Pine
filed
a
breach of contract counterclaim, seeking damages for Statoil’s
alleged nonperformance under Section 5.7(b) of the Pine PSA.
The parties filed cross-motions for summary judgment.
The district court granted summary judgment to Statoil, and
denied Pine’s motion for summary judgment on its counterclaim.
Statoil USA Onshore Prop. Inc. v. Pine Res., LLC, No. 2:14-cv021169, 2015 WL 5304295 (S.D. W.Va. Sept. 9, 2015).
reasoned
that
because
the
introductory
The court
paragraph
designated
PetroEdge as the “Purchaser,” and Section 5.7(b) only applied to
the
“Purchaser,”
Section
5.7(b)
unambiguously
PetroEdge alone and not to its assign Statoil.
applied
Id. at *5.
to
The
court further held that by force of Section 7.2(a)’s residual
clause,
Section
“Purchaser,”
no
Mineral Rights.
5.7(b)
longer
Id.
terminated
held
any
when
interest
PetroEdge,
in
the
as
Marcellus
The court rejected the notion that the
successors and assigns provision in Section 8.8 modified the
definition of the term “Purchaser” anywhere in the Pine PSA.
Id.
This appeal followed.
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II.
We review a district court’s disposition of cross-motions
for summary judgment de novo.
Libertarian Party of Va. v. Judd,
718 F.3d 308, 312 (4th Cir. 2013).
“We view the facts and
inferences arising therefrom in the light most favorable to the
non-moving party to determine whether there exists any genuine
dispute of material fact or whether the movant is entitled to
judgment as a matter of law.”
Pender v. Bank of Am. Corp., 788
F.3d 354, 361 (4th Cir. 2015).
We also review de novo a district court’s decision on an
issue of contract interpretation.
FindWhere Holdings, Inc. v.
Sys. Env’t Optimization, LLC, 626 F.3d 752, 755 (4th Cir. 2010).
“The interpretation of a written contract is a question of law
that turns upon a reading of the document itself, and a district
court is in no better position than an appellate court to decide
such an issue.”
Seabulk Offshore v. Am. Home Assurance, 377
F.3d 408, 418 (4th Cir. 2004).
III.
In our view, the district court read the successors and
assigns provision in Section 8.8 too narrowly.
That provision
extends the contractual rights and duties of Pine and PetroEdge
to their respective successors and assigns, in a contract whose
provisions
only
speak
about
the
9
rights
and
duties
of
the
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“Seller,” the “Purchaser,” and the “Parties.”
Thus, if Section
8.8 is to have any meaning, it must have the effect of extending
the application of the rights and duties provisions of the Pine
PSA
from
beyond
Pine
and
PetroEdge,
and
to
the
parties’
respective successors and assigns in their stead (unless context
dictates otherwise).
We read Section 8.8 to have such an effect, and therefore
hold that the spudding obligations that Section 5.7(b) places on
the
“Purchaser”
extend
PetroEdge’s stead.
in
Section
to
PetroEdge’s
assign
Statoil
in
However, the meaning of the term “Purchaser”
7.2(a)’s
residual
clause
is
a
more
difficult
question, because its context prevents us from concluding that
the term unambiguously encompasses PetroEdge, and in its place
its
successors
7.2(a)’s
and
residual
assigns.
clause
is
We
instead
ambiguous,
hold
but
that
that
Section
extrinsic
evidence clarifies that “Purchaser” in Section 7.2(a)’s residual
clause is intended to encompass PetroEdge’s assign Statoil.
As
such, the district court’s conclusions that Section 5.7(b) is
inapplicable to Statoil and also terminated by Section 7.2(a)
are both erroneous.
A.
The
Pine
PSA
provides--and
no
party
disputes--that
the
agreement is to be construed in accordance with West Virginia
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Under West Virginia law, “the function of a court is to
ascertain the intent of the parties as expressed in the language
used by them” in their contract.
Zimmerer v. Romano, 679 S.E.2d
601, 610 (W. Va. 2009) (per curiam) (internal quotation marks
omitted).
In performing this task, courts must read contracts
“as a whole, taking and considering all the parts together[.]”
Id. (internal quotation marks omitted).
Moreover, “specific words or clauses of an agreement are
not to be treated as meaningless, or to be discarded, if any
reasonable meaning can be given them consistent with the whole
contract.”
Dunbar Fraternal Order of Police, Lodge No. 119 v.
City of Dunbar, 624 S.E.2d 586, 591 (W. Va. 2005) (per curiam)
(internal quotation marks omitted).
Additionally, West Virginia
courts “will not interpret a contract in a manner that creates
an absurd result.”
Generally,
the
intent
of
Id.
“[a]
the
valid
parties
written
in
instrument
plain
and
which
expresses
unambiguous
language
. . . will be applied and enforced according to such intent.”
Arnold v. Palmer, 686 S.E.2d 725, 733 (W. Va. 2009) (internal
quotation
marks
omitted).
“Extrinsic
evidence
will
not
be
admitted to explain or alter the terms of a written contract
which is clear and unambiguous.”
Faith United Methodist Church
& Cemetery of Terra Alta v. Morgan, 745 S.E.2d 461, 481 (W. Va.
2013) (internal quotation marks omitted).
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By contrast, language is ambiguous when it is “reasonably
susceptible of two different meanings,” or is of “such doubtful
meaning that reasonable minds might be uncertain or disagree as
to its meaning.”
633
S.E.2d
22,
omitted).
Estate of Tawney v. Columbia Nat. Res., LLC,
28
“The
(W.
Va.
question
2006)
as
(internal
to
quotation
whether
a
marks
contract
is
ambiguous is a question of law to be determined by the court.”
Fraternal Order of Police v. City of Fairmont, 468 S.E.2d 712,
717–18 (W. Va. 1996) (internal quotation marks omitted).
contract
language
consulted
to
aid
is
in
ambiguous,
its
extrinsic
construction.
evidence
Yoho
v.
Where
may
be
Borg-Warner
Chems., 406 S.E.2d 696, 697 (W. Va. 1991) (per curiam).
B.
The
introductory
paragraph
identifies
PetroEdge
as
the
“Purchaser” under the Pine PSA, and Section 5.7(b) of the Pine
PSA imposes a spudding obligation on the “Purchaser.”
Based on
these points, the district court concluded that the spudding
obligation of Section 5.7(b) extends to PetroEdge alone, and not
to its assign Statoil.
We disagree with this conclusion, in light of Section 8.8
of the Pine PSA, which contains the agreement’s successors and
assigns
provision.
Section
8.8
provides
that
the
Pine
PSA
“shall be binding upon and inure to the benefit of the Parties
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hereto and their respective successors and assigns.”
J.A. 63.
We read Section 8.8 to extend the application of the rights and
duties
provisions
otherwise--from
of
the
beyond
Pine
Pine
PSA--unless
and
context
PetroEdge,
and
respective successors and assigns in their stead. 3
dictates
to
their
Thus, reading
the Pine PSA “as a whole,” Zimmerer, 679 S.E.2d at 610, we hold
that
the
spudding
obligation
of
Section
5.7(b)
extends
to
Statoil, in its capacity as PetroEdge’s assign.
The district court rejected this reading of Section 8.8,
concluding that “Section 8.8 does not modify the remainder of
the contract; it simply provides that successors and assigns are
to be bound by the contract terms.”
at *5.
Those two conclusions, however, are inconsistent with
one another.
for
Statoil, 2015 WL 5304295,
and
The Pine PSA is structured in terms of benefits
burdens
to
the
“Purchaser,”
the
“Seller,”
and
the
“Parties;” thus, if those terms are not broadened to include
those
parties’
sense
to
say
successors
that
such
and
a
assigns,
contract
3
then
binds
it
and
makes
little
benefits
those
In contrast, provisions of the Pine PSA that discuss the
parties as parties, rather than as promisors and promisees under
the agreement, are sensibly read to exclude the parties’
successors and assigns.
See J.A. 49 (the introductory
paragraph); see also J.A. 51 (Section 3.1-describing the
“Seller” as a West Virginia corporation) J.A. 54 (Section 4.1describing the “Buyer” as a Delaware limited liability company);
J.A. 62 (Section 8.2-listing the addresses of “Seller” Pine and
“Purchaser” PetroEdge); J.A. 65-66 (signature page for the
“Seller” and the “Purchaser”).
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parties’ successors and assigns.
See J.A. 57 (Section 5.7(b)-
imposing a spudding obligation on the “Purchaser”); see also
J.A. 56 (Section 5.4-allocating tax responsibilities between the
“Seller”
and
quarterly
the
meetings
“Purchaser”);
for
the
id.
(Section
“Parties”).
5.5-outlining
Indeed,
by
reading
Section 8.8 to bind successors and assigns to a contract that
does not speak to them, the district court in effect “treated
[Section 8.8] as meaningless.”
Dunbar, 624 S.E.2d at 591.
As
such, the more natural reading of “Purchaser” in the rights and
duties provisions of the Pine PSA--in light of Section 8.8--is a
reading that generally encompasses PetroEdge, and in its place
its successors and assigns.
Furthermore, the Deed granted by Pine to PetroEdge, which
was attached to and expressly made part of the Pine PSA, makes
sense only if the term “Purchaser” in the Pine PSA is generally
not
limited
to
PetroEdge
alone.
To
elaborate,
the
Deed’s
Article III outlines an overriding royalty interest due to Pine
--an interest that even Statoil concedes it will be responsible
for paying Pine whenever mineral production takes place.
See
Appellee’s Br. 17; see also J.A. 386 (establishing a royalty
interest scheme “[n]otwithstanding anything to the contrary”).
Article
III,
in
royalty
dispute
turn,
instructs
arises,
that
that
dispute
if
a
will
certain
be
accordance with Section 5.9(b) of the [Pine PSA].”
14
type
of
“settled
in
J.A. 386.
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5.9(b),
however,
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speaks
in
terms
of
“Seller”
and
“Purchaser”--meaning that if Section 5.9(b) is to be of any use
in
resolving
a
Statoil-Pine
dispute,
the
term
“Purchaser”
therein will have to be read to include PetroEdge’s assigns.
This reading avoids the “absurd result” of a senseless Article
III in the Deed.
Moreover,
Dunbar, 624 S.E.2d at 591.
a
broad
reading
of
the
term
“Purchaser”
is
consistent with the Pine PSA’s apparent objective of promoting
mineral production.
In addition to spudding obligations, the
Pine PSA’s Article 5 sets forth meetings to discuss drilling
plans, cooperation details in the event of parallel drilling or
well
maintenance
operations,
abandonment
and
restoration
procedures in the event that a well ceases to produce, and a
mineral
royalty
compensation
structure.
This
elaborate
production scheme would be frustrated if PetroEdge could simply
assign its interest to a party that would in no way be subject
to
the
scheme.
Admittedly,
a
contract
need
not
pursue
its
objectives at all costs, and so the Pine PSA’s use of the term
“Purchaser”
could
be
conceived
as
a
limitation
agreement’s effort to promote mineral production.
on
the
Nonetheless,
in light of Section 8.8’s directive, we are satisfied reading
the
term
“Purchaser”
to
be
consistent
limitation on, the Pine PSA’s objectives.
15
with,
rather
than
a
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Our approach is also consistent with relevant federal and
state
authorities
within
this
Circuit.
Those
authorities
confirm the general rule that a successors and assigns provision
places a successor or assign in the shoes of its predecessor or
assignor with respect to the rights and duties given to the
latter under the relevant contract.
See, e.g., Horvath v. Bank
of N.Y., N.A., 641 F.3d 617 (4th Cir. 2011) (applying Virginia
law); Cotiga Dev. Co. v. United Fuel Gas Co., 128 S.E.2d 626 (W.
Va. 1962); see also Cook v. E. Gas & Fuel Assocs., 39 S.E.2d
321, 326-27 (W. Va. 1946) (“Ordinarily the assignee acquires no
greater right than that possessed by his assignor, and he stands
in his shoes.”).
Cotiga, a decision from the Supreme Court of Appeals of
West
Virginia,
is
instructive.
There,
“Cotiga,
as
lessor,
entered into an oil and gas lease with [Woods Oil], as lessee.”
Cotiga, 128 S.E.2d at 630.
The court in Cotiga quoted three
obligations that the lease agreement imposed on lessee Woods
Oil, and all three did so using only the term “Lessee” (i.e.,
not “Lessee, its successors and assigns”).
Id. at 630-31.
The
lease agreement, however, contained the following successors and
assigns
provision:
“All
the
terms,
grants,
conditions
and
provisions of this lease shall extend to and be binding upon the
successors
and
assigns
of
the
parties
(emphasis added in Cotiga).
16
hereto.”
Id.
at
633
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One day after the lease was signed, Woods Oil assigned the
lease to United Fuel.
Id. at 630.
Relying on the successors
and assigns provision, the court in Cotiga had no difficulty
holding assign United Fuel responsible for the above-described
obligations
imposed
that
only
the
on
the
lease
agreement
“Lessee.”
“As
by
a
its
literal
of
result
terms
lease
the
assignment,” the court observed, “United Fuel succeeded to only
such rights as accrued to Woods Oil by the terms of the lease
and thereby became burdened by all restrictions and obligations
thereby
imposed
upon
Woods
Oil.
.
.
.
To
all
intents
and
purposes, United Fuel became the lessee in the place and stead
of Woods Oil[.]”
the
Supreme
practical
Id. at 633–34.
Court
of
approach
Appeals
with
In reaching this conclusion,
of
respect
West
to
Virginia
adhered
successors
and
to
a
assigns
provisions, which we adhere to in this case as well.
Notably,
approach
in
this
Horvath.
Court
recently
In
that
followed
case,
a
this
borrower
practical
argued
that
because a deed of trust defined the term “Lender” as company
“AWL,” a deed provision that vested foreclosure powers in the
“Lender”
empowered
AWL
alone
to
foreclose--and
subsequent purchasers of the deed of trust.
at 624–25.
reasons:
not
any
Horvath, 641 F.3d
This Court rejected that narrow reading for several
it
would
bring
about
the
“absurd
result”
of
a
subsequent purchaser “paying for a worthless document” that the
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purchaser would have “no power to administer or enforce;” it
would contradict a provision stating that “[t]he covenants and
agreements
of
this
Security
Instrument
shall
bind . . . and
benefit the successors and assigns of Lender;” and it would go
against
“good
interest
in
sense,”
the
because
deed
of
“[i]f
trust,
‘Lender’ in any meaningful sense.”
were
to
would
it
AWL
sell
no
longer
be
its
the
Id. at 625 (emphasis added
in Horvath); see also id. (citing with approval the maxim that
contracts must be construed “as a whole”).
Instead, this Court
broadly construed the term “‘Lender’ as applying not only to AWL
but to any subsequent purchaser of the deed of trust.”
For
similar
reasons,
a
broad
construction
Id.
of
the
term
“Purchaser”--one encompassing PetroEdge, and in its place its
successors
5.7(b)
Section
of
and
the
8.8’s
assigns--is
Pine
PSA.
successors
likewise
Such
and
a
appropriate
construction
assigns
for
Section
complies
provision,
avoids
with
the
absurd result of a senseless Pine PSA and Deed, and respects the
reality
that
PetroEdge
is
no
longer
the
“Purchaser”
in
any
meaningful sense for purposes of the Pine PSA or the achievement
of
the
agreement’s
objectives.
conclusion, the district court erred.
18
In
reaching
a
contrary
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C.
Having decided that Section 5.7(b) applies to PetroEdge’s
assign
retains
Statoil,
any
we
force
must
or
next
decide
effect.
whether
Section
that
7.2(a)
provision
contains
two
clauses that set deadlines for certain provisions of the Pine
PSA, with the first one expressly excepting Sections 5.4 through
5.9 from its scope.
Additionally, Section 7.2(a) contains a
residual clause, which provides, “The remainder of [the Pine
PSA] shall survive the Execution Date so long as Purchaser holds
any interest in the [Marcellus] Mineral Rights.”
J.A. 61.
We
hold that the residual clause applies to Section 5.7(b).
We
also hold that the residual clause is ambiguous as to whether
Section 5.7(b) survives so long as PetroEdge alone holds any
interest in the Marcellus Mineral Rights, or so long as any such
interest is held by PetroEdge, its successors or assigns.
The
subsequent conduct of Pine and PetroEdge nonetheless clarifies
that the latter reading is the correct one.
1.
Before exploring the meaning of Section 7.2(a)’s residual
clause, we must address whether that clause even governs Section
5.7(b).
Section
5.7(b)
is
not
governed
by
Section
7.2(a)’s
second clause, and it is specifically excepted from the scope of
Section 7.2(a)’s first clause.
Because Section 5.7(b) is not
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governed by either clause, it is sensible to place it within the
scope of Section 7.2(a)’s residual clause (which governs the
“remainder” of the Pine PSA).
Pine resists this conclusion.
Section
cannot
7.2(a)’s
govern
residual
Section
clause
5.7(b),
According to Pine, because
is
which
a
is
general
catch-all,
specifically
from the scope of Section 7.2(a)’s first clause.
it
excepted
Pine supports
this argument with a reference to the interpretive principle
that
general
language
must
usually
yield
to
more
specific
language when the two conflict.
Unfortunately for Pine, its reliance on this principle is
misplaced.
specific
In
this
exception
in
case,
there
Section
is
no
7.2(a)’s
conflict
first
between
clause
general language in Section 7.2(a)’s residual clause.
and
the
the
Rather,
the latter clause simply picks up, inter alia, the provisions
specifically dropped out of the former clause. 4
Thus, we have no
difficulty reading Section 7.2(a)’s residual clause to govern
Section 5.7(b).
4
Cf. Shannondale, Inc. v. Jefferson Cty. Planning & Zoning
Comm’n, 485 S.E.2d 438, 498 (W. Va. 1997) (per curiam)
(rejecting the argument that a general ordinance provision was
superseded by a specific ordinance provision, because the two
could be reconciled).
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2.
Having arrived at this determination, we now turn to the
issue of how Section 7.2(a)’s residual clause impacts Section
5.7(b)
following
PetroEdge’s
assignment
to
Statoil.
If
the
residual clause carries a terminating effect when PetroEdge, as
“Purchaser,”
ceases
to
have
any
interest
in
the
Marcellus
Mineral Rights, then PetroEdge’s assignment would give rise to a
termination of Section 5.7(b); if the residual clause carries a
preservation effect so long as PetroEdge, or its successors and
assigns,
has
interest
in
the
Marcellus
Mineral
Rights,
then
Section 5.7(b) is preserved even after PetroEdge’s assignment.
We acknowledge that there are persuasive arguments on both sides
of this issue.
According to Statoil, when the residual clause instructs
that it preserves the provisions within its scope “so long as
Purchaser holds any interest in the [Marcellus] Mineral Rights,”
J.A. 61, the clause sets as a deadline the date that PetroEdge
ceases
to
hold
references
any
the
mineral
introductory
interests.
For
paragraph’s
support,
Statoil
identification
of
PetroEdge as the Pine PSA “Purchaser.”
Statoil rejects the notion that the term “Purchaser” in
Section
7.2(a)’s
successors
deadline
and
that
residual
assigns,
the
clause
because
residual
can
under
clause
21
include
such
purports
a
to
PetroEdge’s
reading
set
the
becomes
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illusory.
Filed: 01/18/2017
They
argue
that
if
Pg: 22 of 27
“Purchaser”
in
Section
7.2(a)
includes successors and assigns, then none of the provisions to
which the residual clause is applicable will ever expire and
will last into perpetuity.
Meanwhile,
reading
of
there
the
are
also
residual
arguments
clause--one
favoring
that
a
broader
preserves
the
provisions within its scope so long as PetroEdge, or in its
place
its
successors
or
assigns,
Marcellus Mineral Rights.
only
to
“Purchaser,”
to
holds
any
interest
in
the
Although the residual clause refers
the
extent
that
the
residual
clause
shapes the rights and duties of the parties, Section 8.8 seems
to
broaden
“Purchaser”
to
include
PetroEdge’s
successors
and
assigns.
This broad construction may impair the residual clause’s
utility as a deadline clause, but, one may argue, there is no
need for the residual clause to serve such a function.
Whereas
Section 7.2(a)’s first two clauses set specific deadlines for
the provisions they govern, its residual clause could be read as
a clause intended to attach a longer effect to the provisions it
governs.
Although
this
reading
would
allow
PetroEdge’s
successor or assign to participate in the Pine PSA’s mineral
production scheme in PetroEdge’s place, there is no indication
in the Pine PSA that PetroEdge was irreplaceable in this scheme.
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In our view, both sides present reasonable constructions of
Section 7.2(a)’s residual clause.
“The meaning of a word is to
be considered in the context in which it is employed.”
Johnson,
Simmerman
&
Broughton,
L.C.,
576
S.E.2d
Legg v.
532,
537
(W. Va. 2002) (per curiam) (internal quotation marks omitted);
see
also
Torres
v.
Lynch,
136
S.
Ct.
1619,
1625
(2016)
(explaining that “many words” can “take[] on different meanings
in
different
conjunction
contexts”).
with
Although
Section
the
term
“Purchaser”--in
8.8--unambiguously
encompasses
PetroEdge’s successors and assigns in the context of rights and
duties provisions, it is difficult to conclude that such a broad
construction
is
unambiguously
proper
in
the
residual clause of a limitations provision.
context
of
a
On the other hand,
in light of the traditional rule that an assign stands in the
shoes
of
the
assignor,
the
residual
clause
is
inadequate
to
indicate a clear intent by the parties to in large part depart
from this rule. 5
Because the term “Purchaser” is “reasonably
susceptible of two different meanings,” we hold that the term is
ambiguous in Section 7.2(a).
Tawney, 633 S.E.2d at 28.
5
Cf. Tawney, 633 S.E.2d at 28 (finding an ambiguity where,
“in light of [West Virginia’s] traditional rule that lessors are
to receive a royalty of the sale price of gas, the general
language at issue simply [was] inadequate to indicate an intent
by the parties to agree to a contrary rule”).
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Having identified an ambiguity in Section 7.2(a)’s residual
clause, we now resort to extrinsic evidence for clarification.
Yoho, 406 S.E.2d at 697.
In this case, we are guided by the
“practical construction given to the contract by the parties
themselves . . . subsequent[]”
to
its
execution.
Kelley,
Gidley, Blair & Wolfe, Inc. v. City of Parkersburg, 438 S.E.2d
586, 589 (W. Va. 1993) (per curiam) (internal quotation marks
omitted).
As “Lord Sugden once said: ‘Tell me what the parties
have done under a contract and I will tell you what the contract
means.’”
Watson v. Buckhannon River Coal Co., 120 S.E. 390, 394
(W. Va. 1923).
PetroEdge’s
carrying
no
assignment.
conduct
provision
shows
that
that
it
read
terminates
the
Section
Pine
PSA
5.7(b)
as
upon
In its post-assignment letter to Pine, PetroEdge
noted that Statoil was now the “Purchaser” under the Pine PSA,
but made no suggestion that Section 7.2(a)’s residual clause
freed Statoil of any of PetroEdge’s duties under the agreement.
On
the
contrary,
communicated
PetroEdge’s
Statoil
was
to
in
the
Statoil
duties.
taking
Statoil
that
PSA,
the
The
Statoil
the
assigned
PetroEdge
latter
PSA
was
expressly
assets
expressly
acquiring
noted
subject
to
that
the
obligations arising from the Pine PSA, and it specifically cited
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the “unfulfilled drilling obligations,” J.A. 449, of “two (2)
additional wells,” J.A. 451, as arising from the Pine PSA. 6
Pine’s conduct is likewise consistent with a broad reading
of
Section
7.2(a)’s
residual
clause.
Following
PetroEdge’s
assignment, Pine sought Statoil’s performance under the Pine PSA
(and under Section 5.7(b) in particular) through multiple reachout efforts and litigation with Statoil.
This conduct comports
with the notion that Section 7.2(a) did not, post-assignment,
terminate Section 5.7(b).
In light of this conduct by Pine and PetroEdge, we conclude
that Section 7.2(a)’s residual clause was intended to preserve
the provisions within its scope so long as PetroEdge--or its
successors or assigns--possessed any interest in the Marcellus
Mineral Rights.
assign,
Because Statoil, in its capacity as PetroEdge’s
possesses
obligations
of
such
Section
interest,
5.7(b)
we
retain
6
hold
that
force
and
the
spudding
continue
to
Statoil insists that, through this language, PetroEdge was
simply citing its own drilling obligations under the Pine PSA.
We disagree.
If PetroEdge truly believed that its drilling
obligations were not being passed down to Statoil, then
presumably PetroEdge would have either omitted reference to
those obligations altogether, or would have at least appended to
its citation of those obligations in the Statoil PSA the crucial
detail that those obligations were not being passed down to
Statoil.
PetroEdge did not do so, and so we reject Statoil’s
creative reasoning.
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govern Statoil.
Pg: 26 of 27
Again, we reject the district court’s contrary
conclusions. 7
IV.
Statoil presents an alternative ground for affirming the
district court’s decision to rule against Pine on its breach of
contract
counterclaim.
Statoil
asserts
that
even
if
it
was
obligated to spud, its failure to do so caused Pine no injury,
because
that
spudding
would
is
not
only
a
preliminary
necessarily
lead
to
development
the
hydrocarbons and resulting royalty payments.
procedure
production
of
Pine, meanwhile,
contends that Statoil understates both the requirements of the
spudding obligation, and the extent to which non-compliance with
those
requirements
impaired
Pine’s
prospects
of
ultimately
receiving royalty payments.
7
Although we rule in favor of Pine, we do so without
reliance on the contra proferentem rule that Pine urges upon us.
That rule dictates that residual ambiguity be construed against
drafter PetroEdge and in Pine’s favor, Evans v. Bayles, 787
S.E.2d 540, 541 n.1 (W. Va. 2016); however, in this case
PetroEdge and Pine do not disagree on the definition of
“Purchaser.” We acknowledge Pine’s citation to cases suggesting
that contra proferentem applies even to assigns, see Appellant’s
Br. at 56-57, but note that those cases do not deal with a
scenario where the assign’s construction conflicts with the
construction shared by both the drafter-assignor and the nondrafting party.
This case presents such a scenario, and so in
light of our ability to resolve this case otherwise, we do not
rely on contra proferentem.
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We
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acknowledge
our
Pg: 27 of 27
discretion
to
affirm
on
any
ground
supported by the record, even if it was never relied upon by the
district court.
See Drager v. PLIVA USA, Inc., 741 F.3d 470,
474 (4th Cir. 2014).
Nonetheless, we decline to engage in a
complex injury analysis here based on short passages from the
parties’ briefs.
Instead, we leave the issue of injury for the
district court to address on remand in the first instance.
See
Singleton v. Wulff, 428 U.S. 106, 120 (1976) (“It is the general
rule,
of
course,
that
a
federal
appellate
court
does
not
consider an issue not passed upon below.”); Goldfarb v. Mayor &
City Council of Baltimore, 791 F.3d 500, 515 (4th Cir. 2015)
(“The district court is in a better position to consider the
parties’ arguments in the first instance, which can be presented
at
length
rather
than
being
discussed
in
appellate
briefs
centered on the issues the district court did decide.”).
V.
For the foregoing reasons, we vacate the judgment of the
district court.
We remand this case with instructions to the
district court to grant summary judgment in favor of Pine on
Statoil’s declaratory judgment claims, and to consider in the
first
instance
Statoil’s
injury
argument
in
connection
with
Pine’s breach of contract counterclaim.
VACATED AND REMANDED
27
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