First Tennessee Bank National, et al v. Pathfinder Exploration, et al
Filing
OPINION FILED - THE COURT: William Jay Riley, Duane Benton and Jane Kelly AUTHORING JUDGE:Duane Benton (PUBLISHED) [4153808] [13-2448]
United States Court of Appeals
For the Eighth Circuit
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No. 13-2448
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First Tennessee Bank National Association, in its capacity as Trustee under
agreement with Russell C. Gregg for Mary Loeb and Frances Petersmeyer; Trustee
under will of Irene C. Gregg for Mary Loeb and Fances Petersmeyer; Charles
Kelley Lewis; Rufie Hard Lewis; Ralph Emerson Lewis; Henry Lincoln Gregg
Lewis; Michael Pritchard; Irene Calhoun Pritchard; Thomas L. Brown; Vol
Walker Pritchard; Fereshteh Richard; Ross J. Pritchard; Rebecca Pritchard;
Mehran Gregg Pritchard
lllllllllllllllllllll Plaintiffs - Appellants
v.
Pathfinder Exploration, LLC; CEP Equity I, LLC; CEU Fayetteville, LLC; XTO
Energy, Inc., a subsidiary of Exxon Mobil Corporation
lllllllllllllllllllll Defendants - Appellees
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Appeal from United States District Court
for the Eastern District of Arkansas - Little Rock
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Submitted: April 17, 2014
Filed: May 14, 2014
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Before RILEY, Chief Judge, BENTON and KELLY, Circuit Judges.
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BENTON, Circuit Judge.
Appellate Case: 13-2448
Page: 1
Date Filed: 05/14/2014 Entry ID: 4153808
First Tennessee Bank National Association is a trustee of Gregg family trusts.
First Tennessee (and members of the Gregg family) sued Pathfinder Exploration, LLC
(and its assignees) for breaching an oil and gas lease. The district court1 granted
Pathfinder summary judgment. First Tennessee appeals. Having jurisdiction under
28 U.S.C. § 1291, this court affirms.
The trusts own mineral rights to land in White and Prairie counties, Arkansas.
The trusts leased the rights to Pathfinder.2 The lease has a form contract and an
addendum. The contract says that Pathfinder “may at any time and from time to time
surrender this lease as to any part or parts of the leased premises . . . .” The
addendum says:
2. The bonus consideration paid to Lessor for this lease includes
consideration of $350.00 per net mineral acre which is due and payable
on or before 45 days after Lessee’s execution of this lease. This lease
is a “Paid Up” lease with the initial bonus paid in lieu of any delay rental
provision. The obligation to pay the bonus consideration is absolute and
shall not be abrogated by the unilateral release of this lease by Lessee .
...
3. During the primary term hereof [five years] or any extensions as
provided for herein, Lessee shall have the obligation to drill or cause to
be drilled five (5) oil & gas wells on the leased premises . . . . In the
event that Lessee fails to drill the obligated wells during the primary
term hereof or any extension thereof, Lessee will pay to Lessor the sum
1
The Honorable James M. Moody, United States District Judge for the Eastern
District of Arkansas.
2
The parties dispute whether there was a single lease, or four separate and
identical leases by four branches of the family. Because this is irrelevant here, this
court refers to “the lease.”
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Date Filed: 05/14/2014 Entry ID: 4153808
of $100,000 per well not commenced, due immediately upon the
expiration of the primary term or any extension as provided for herein.
...
Pathfinder paid $2,300,433.49 as up-front bonus consideration under Section
2. It surrendered the lease before the primary term expired, and before drilling any
wells. It did not pay the amount in Section 3, arguing that it surrendered the lease
before the primary term expired. First Tennessee sued Pathfinder for the amount in
Section 3. The district court granted summary judgment to Pathfinder, finding the
case analogous to Frein v. Windsor Weeping Mary, LP, 366 S.W.3d 367 (Ark. App.
2009).
Summary judgment is appropriate when, construing the evidence favorably to
the nonmoving party, there is no genuine issue of material fact and the moving party
is entitled to judgment as a matter of law. Fed. R. Civ. P. 56; Hutson v. McDonnell
Douglas Corp., 63 F.3d 771, 775 (8th Cir. 1995). Summary judgment is subject to
de novo review, drawing all reasonable inferences in favor of the nonmoving party.
Wenzel v. Missouri-American Water Co., 404 F.3d 1038, 1039 (8th Cir. 2005).
“Although federal courts are not bound to follow the decisions of intermediate state
courts when interpreting state law, state appellate court decisions are highly
persuasive.” Baxter Int’l, Inc. v. Morris, 976 F.2d 1189, 1196 (8th Cir. 1992). This
court “follow[s] decisions from the intermediate state courts when they are best
evidence of [state] law.” Washington v. Countrywide Home Loans, Inc., No.
12-3428, 2014 WL 998185 (8th Cir. Mar. 17, 2014), quoting Eubank v. Kansas City
Power & Light Co., 626 F.3d 424, 427 (8th Cir. 2010). “Intermediate state court
decisions should not be disregarded ‘unless [this court is] convinced by other
persuasive data that the highest state court would decide . . . otherwise.’” United Fire
& Cas. Ins. Co. v. Harvey, 328 F.3d 411, 413 (8th Cir. 2003), quoting Commissioner
v. Estate of Bosch, 387 U.S. 456, 465 (1967).
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The facts in Frein are similar to this case. Defendant lessee entered oil and gas
leases with plaintiff lessors. The leases were paid up, at $285 per net mineral acre.
The leases had a surrender clause: “Lessee may at any time surrender or cancel this
lease in whole or in part by delivering or mailing such release to the Lessor.” The
leases required that the lessees drill two wells during the first 18 months of the lease
term. The lessees surrendered the leases before 18 months had passed, and before
drilling the wells. The lessors sued for “damages equal to the money saved by the
appellee by virtue of not drilling two wells.” Frein, 366 S.W.3d at 370. The court
found that although the leases did “contain a commitment by the appellee to drill two
wells within eighteen months . . . the appellee had the express option of cancelling
the leases and exercised that option before eighteen months elapsed.” Id. at 371.
Although the lessees had a unilateral ability to surrender the leases, “there was no
violation of the mutuality doctrine in this case because . . . the appellee was required
to pay the landowners a signing bonus at the rate of $285 per acre . . . which appellee
paid in the aggregate amount of well over a million dollars. Therefore, the contract
imposed a promise on the appellee, which it performed.” Id.
First Tennessee does not argue that Frein was wrongly decided or is not the
best evidence of Arkansas law. Instead, it argues that the terms of the leases in Frein
are “nothing like” the terms here. According to First Tennessee, the lease here is
distinguishable because (1) the nonabrogable “bonus consideration” includes the
drilling requirement and its liquidated damages, and (2) Pathfinder could not
surrender the entire lease.
According to First Tennessee, the drilling requirement is part of the
nonabrogable bonus consideration. The Frein leases stated: “PAID-UP: The
consideration paid to Lessor for this Lease includes consideration in lieu of delay
rental provisions.” A separate Letter Agreement, incorporated in the leases, gave the
drilling requirement. Here, the lease states: “The bonus consideration paid to Lessor
for this lease includes consideration of $350.00 per mineral acre . . . . This lease is
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a ‘Paid Up’ lease with the initial bonus paid in lieu of any delay rental provision.”
A later section of the lease gives the drilling requirement. In both cases, the drilling
requirement is separate from the no-rent clause. In both cases, the “paid up”
consideration is a payment at the beginning of the lease, not at the expiration of the
lease term. See Ark. Code § 15-56-405 (distinguishing bonus consideration from
delay rentals in mineral leases). Indeed, when Pathfinder paid the $2,300,433.49,
First Tennessee’s representative signed a form stating that the amount was “full
payment and consideration [of] all bonus obligations owed to the Lessors under the
Leases.” The relation between the drilling requirement and the bonus consideration
is the same here as in Frein. That damages here were liquidated, but required proof
in Frein, does not change the analysis. Cf. Foran v. Wisconsin & Ark. Lumber Co.,
246 S.W. 848, 850 (Ark. 1923) (finding significant a surety bond—not liquidated
damages—in upholding a drilling requirement over a surrender clause).
First Tennessee believes the surrender clauses are distinguishable. The lease
in Frein stated, “Lessee may at any time surrender or cancel this lease in whole or in
part.” Frein, 366 S.W.3d at 369. Here, the lease states, “Lessee may at any time . .
. surrender this lease as to any part or parts.” Absent limiting language, surrender as
to “any” part necessarily includes surrender or cancellation of the “whole.” See
generally Fuller v. Phillips Petroleum Co., 872 F.2d 655, 659 (5th Cir. 1989) (“In
the oil and gas industry, the term ‘surrender’ refers to the contractual right of a lessee
to voluntarily relinquish to the lessor all or part of the leased premises.”) (emphasis
added); Ford v. Miller, 232 S.W. 604, 605 (Ark. 1921) (equating “surrender” and
“cancellation” of a lease). Consistent with this, the lease noted that “the unilateral
release of this lease” by Pathfinder does not abrogate its obligation to pay the up-front
bonus consideration.
As in Frein, a large up-front payment with a surrender clause creates an option
to cancel the lease, which Pathfinder exercised. See Frein, 366 S.W.3d at 371
(“[T]he appellee had the express option of cancelling the leases and exercised that
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option before eighteen months elapsed.”); Hughes v. El Dorado Union Oil Co., 254
S.W. 663, 664 (Ark. 1923) (“A contract must be construed as a whole, and all of its
parts must be construed to determine the meaning of any particular part as well as of
the whole.”). Cf. Lawrence v. Mahoney, 225 S.W. 340, 343 (Ark. 1920) (affirming
a surrender provision in an oil and gas exploration lease given for nominal
consideration), citing Guffey v. Smith, 237 U.S. 101, 115-16 (1915).
Frein is the best evidence of Arkansas law. This case is not distinguishable.3
*******
The judgment is affirmed.
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3
On appeal, First Tennessee alludes to, but makes no separate argument about,
violation of the Arkansas Deceptive Trade Practices Act, Ark. Code § 4-88-101 et
seq.
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Date Filed: 05/14/2014 Entry ID: 4153808
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