Statoil USA Onshore Properties v. Pine Resources, LLC


UNPUBLISHED PER CURIAM OPINION filed. Originating case number: 2:14-cv-21169 Copies to all parties and the district court/agency. [1000005228].. [15-2099]

Download PDF
Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 1 of 27 UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 15-2099 STATOIL USA ONSHORE PROPERTIES INC., Plaintiff - Appellee, v. PINE RESOURCES, LLC, Defendant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 Vacated and remanded by unpublished per curiam opinion.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 Unpublished opinions are not binding precedent in this circuit. Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 2 of 27 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 2 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 3 of 27 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. 3 Appeal: 15-2099 • Doc: 35 Filed: 01/18/2017 Article 5: Article 5 Pg: 4 of 27 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. 4 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 5 of 27 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 5 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 6 of 27 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 6 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 7 of 27 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. 7 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 8 of 27 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. 8 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 9 of 27 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 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 10 of 27 “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 10 Appeal: 15-2099 law. Doc: 35 Filed: 01/18/2017 Pg: 11 of 27 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). 11 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 12 of 27 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 12 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 13 of 27 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”). 13 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 14 of 27 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. Appeal: 15-2099 Doc: 35 Section Filed: 01/18/2017 5.9(b), however, Pg: 15 of 27 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 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 16 of 27 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 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 17 of 27 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 17 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 18 of 27 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 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 19 of 27 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 19 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 20 of 27 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). 20 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 21 of 27 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 Appeal: 15-2099 Doc: 35 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. 22 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 23 of 27 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”). 23 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 24 of 27 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 24 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 Pg: 25 of 27 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. 25 Appeal: 15-2099 Doc: 35 Filed: 01/18/2017 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. 26 Appeal: 15-2099 Doc: 35 We Filed: 01/18/2017 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

Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.

Why Is My Information Online?