Breland et al v. Levada EF Five, LLC
ORDER DENYING Dft's 97 Motion for Partial Summary Judgment as set out. Signed by Judge Callie V. S. Granade on 11/24/2015. (tot)
IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
CHARLES K. BRELAND, JR. et al.,
LEVADA EF FIVE, LLC,
CIVIL ACTION NO. 14-00158-CG-C
This matter is before the Court on the Motion for Partial Summary Judgment
(Doc. 97), Brief in Support (Doc. 98), and Evidentiary Submissions in Support (Doc.
99), filed by Levada EF Five, LLC (“Defendant”), and the response (Doc. 103) filed
by Charles K. Breland, Jr. (“Breland”), Osprey Utah, LLC (“Osprey”), Water Canyon
Holdings, LLC (“Water Canyon”), Range Creek Holdings, LLC (“Range Creek”), and
Utah Reverse Exchange, LLC (“Utah Reverse”) (collectively, “Plaintiffs”). For the
reasons set forth herein, Defendant’s motion for partial summary judgment is due
to be DENIED.
The instant action is based on Plaintiffs’ allegations Defendant breached the
Amended and Restated Agreement (“the Agreement”) entered into between the
parties. (Doc. 50). Before discussing the relevant provisions of the Agreement and
facts surrounding the alleged breach, it is necessary to discuss how the Agreement
came to be.
Plaintiffs Osprey, Water Canyon, Range Creek, and Utah Reserve have one
thing in common; Breland is the sole member of each limited liability company. On
March 11, 2009, Breland filed for protection under Chapter 11 of the United States
Bankruptcy Code. Id. at ¶ 12. In order to reorganize under Chapter 11, a
reorganization plan was filed with the bankruptcy court (Doc. 1-1) and approved
(Doc. 1-2).1 In order to fund the plan, Breland negotiated with Adrian Zajac to
transfer his interest in Utah Reserve, Water Canyon, and Range Creek to
Defendant. (Doc. 50, ¶ 14; Doc. 98, pp. 2–3). Said interest included property located
in Carbon and Emery Counties, Utah and consisted of approximately 20,676 acres
of land. Id. In exchange for the transfer, Defendant agreed to payoff a collateral
agreement between Breland and Cypress Capital (hereinafter, “Cypress
Litigation”). Breland and Defendant memorialized the Agreement on May 2, 2011.
(Doc. 99-2; Doc. 103-1).
In the instant matter, three provisions of the Agreement are in dispute. First,
section eight of the Agreement requires Defendant to invest $10,000,000 in the
exploration or development of mineral production on the Subject Property, unless
performance is excused by the force majeure provision. Id. at 8. To date, Defendant
has not invested $10,000,000 in the property. (Doc. 103-18, p. 169:8–10). Second,
section twelve of the Agreement requires Defendant to pay up to $1,750,000 to
Ohana Cabo LLC (“Ohana”) filed the amended plan. Ohana was a party interested in
purchasing a portion of Breland’s assets but has no relative bearing on the instant matter and is
not discussed further.
settle the Cypress Litigation. (Doc. 99-2, pp. 12–13; Doc. 103-1, pp. 11–12). In the
event the Cypress Litigation settles for more than $1,750,000, Defendant can, but
has no obligation to, pay the additional sum. Id. But if the Cypress Litigation
“settlement or judgment amount equals less than $2,900,000, [Defendant] shall pay
Breland $90,000 to cover reasonable attorneys’ fees and expenses incurred by
Breland.” (Doc. 99-2, pp. 15–16; Doc. 103-1, pp. 14–15). Ultimately, the Cypress
Litigation settled for approximately $3.8 million. (Doc. 98, p. 9; Doc. 103, p. 6).
Third, section fifteen of the Agreement obligated Defendant to pay the outstanding
property taxes for 2008, 2009, 2010, and 2011 and any future property taxes for the
property. (Doc. 99-2, p. 15; Doc. 103-1, p. 14). Breland paid a portion of the property
taxes, due to Defendant’s failure to pay from the second half of 2011 on. (Doc. 98, p.
Presently, Defendant avers that it is due judgment as a matter of law
because (1) it owes no money to Breland due to the Cypress Litigation judgment
equaling an amount greater than $2,900,000; (2) Breland can prove no damages
caused by the property taxes he paid; and (3) it was excused from development of
the Subject Property by December 31, 2014 due to the force majeure clause. (Doc.
98, p. 2). The Court will address each argument in turn.
A. The Summary Judgment Standard
Federal Rule of Civil Procedure 56(a) instructs that “[t]he court shall grant
summary judgment if the movant shows that there is no genuine dispute as to any
material fact and the movant is entitled to judgment as a matter of law.” The trial
court’s mission is to “determine whether there is a genuine issue for trial” and not
to “weigh the evidence.” See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249
The burden is on the moving party to show that there is no genuine dispute
as to any material fact. Id. at 256. In conducting its summary judgment analysis,
the Court must construe all evidence “in the light most favorable to the party
opposing the motion.” United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).
After the movant meets its burden, the burden shifts to the nonmoving party
“to make a showing sufficient to establish the existence of an element essential to
that party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). If the
nonmoving party fails to do so, the “complete failure of proof concerning an essential
element of the nonmoving party’s case necessarily renders all other facts
immaterial.” Id. at 323. Further, Rule 56 “requires the nonmoving party to go
beyond the pleadings and by her own affidavits, or by the depositions, answers to
interrogatories, and admissions on file, designate specific facts showing that there is
a genuine issue for trial.” Id. at 324 (internal quotation marks omitted). There is no
genuine issue for trial “[w]here the record taken as a whole could not lead a rational
trier of fact to find for the non-moving party.” Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986).
B. Settlement of the Cypress Litigation
It is undisputed that the collateral litigation was settled for approximately
$3.8 million. The parties disagree on whether Defendant was obligated to settle the
litigation for a much lower amount and whether Defendant owes attorney’s fees to
Breland. The pertinent portion of the Agreement states:
12. Cypress Litigation. In consideration of the conveyance to
Levada of the Subject Property, the Leases and the Questar
Agreements, Levada shall pay the sum that is acceptable to Levada
and Cypress Capital II (“Cypress”), to Cypress in order to settle the
Litigation so the Subject Property will be free and clear of any liens
and/or encumbrances created in connection with the Litigation and the
subject matter thereof at the time the Subject Property, the Leases and
the Questar Agreements are conveyed to Levada. Levada shall pay up
to $1,750,000, but shall have no obligation to pay Cypress any sum in
excess of $1,750,000 to settle the Litigation, but may pay in excess of
that amount if it deems it necessary to settle the Litigation. . . .
17. Legal Fees. If, on the Closing Date, the Cypress settlement
or judgment amount equals less than $2,900,000, Levada shall pay to
Breland $90,000 to cover reasonable attorneys’ fees and expenses
incurred by Breland and his affiliates in connection with the
Litigation. Breland and Osprey warrant that the LLCs shall not have
any obligation to pay attorneys’ fees and expenses in connection with
the Litigation. Breland shall provide copies of its invoices for attorneys’
fees and expenses to Levada. If the Cypress Settlement or Judgment
amount exceeds $2,900,000, Levada has no obligation to reimburse
Breland’s attorneys’ fees and expenses incurred in connection with the
(Doc. 99-2, pp. 12–13, 15–16; Doc. 103-1, pp. 11–12, 14–15). Defendant argues that
“no payment is due Breland for attorney’s fees under the Agreement, and there was
no breach of the Agreement,” because “the collateral action was settled for
$3,855,556.55 and in excess of the $2,900,000 threshold in the Agreement.” (Doc. 98,
p. 9). Plaintiffs counter that “Defendant failed to settle the litigation for an
appropriate amount when it had the opportunity to do so.” (Doc. 103, p. 5).
Specifically, Plaintiffs claim that Defendant had the opportunity to settle the
litigation for less than the $2.9 million threshold, was required by the language of
the Agreement and the duty of good faith to do so, and thus owes attorney’s fees to
Breland pursuant to section seventeen of the Agreement. Id. at 5–8.
The Agreement provides that Utah law governs the contractual relationship.
(Doc. 99-2, p. 16; Doc. 103-1, p. 15). When interpreting a contract, a court must
“first look to the four corners of the agreement to determine the intentions of the
parties.” Ron Case Roofing & Asphalt Paving, Inc. v. Blomquist, 773 P.2d 1382,
1385 (Utah 1989). Barring ambiguity, “the parties’ intentions are determined from
the plain meaning of the contractual language, and the contract may be interpreted
as a matter of law.” Cent. Fla. Invs., Inc. v. Parkwest Assocs., 40 P.3d 599, 605
(Utah 2002). If ambiguous language is present, “extrinsic evidence must be looked
to in order to determine the intentions of the parties.” Id. In that case, the
interpretation of the contract is no longer a matter of law but a question of fact,
precluding the court from granting a motion for summary judgment. See Faulkner
v. Farnsworth, 665 P.2d 1292, 1293 (Utah 1983). A contract term is ambiguous
“when it is reasonably capable of being understood in more than one sense.” R&R
Energies v. Mother Earth Indus., Inc., 936 P.2d 1068, 1074 (Utah 1997) (quoting
Black’s Law Dictionary 73 (5th ed. 1979)). Further, “[t]o demonstrate ambiguity, the
contrary positions of the parties must each be tenable.” Plateau Mining Co. v. Utah
Div. of State Lands & Forestry, 802 P.2d 720, 725 (Utah 1990).
Scant evidence was submitted by either party relevant to this claim.
Defendant’s representative, Adrian Zajac, states in his deposition that Defendant
settled the litigation for approximately $3.8 million after a judgment was entered
against Plaintiffs. (Doc. 99-8, p. 9; Doc. 103-20, p. 3). However, Breland asserts in
his affidavit that Defendant refused to take the opportunity to settle the litigation
for $1.29 million, an amount much lower than both the Agreement threshold and
the resulting litigation settlement. (Doc. 103-2, p. 1).
As shown above, the Agreement states, “Levada shall pay the sum that is
acceptable to Levada and Cypress . . . to Cypress in order to settle the Litigation,”
and “Levada shall pay up to $1,750,000, but shall have no obligation to pay Cypress
any sum in excess of $1,750,000 to settle the Litigation, but may pay in excess of
that amount if it deems it necessary to settle the Litigation.” When read together, it
is reasonable to interpret the Agreement as providing Defendant with significant
leeway in determining the amount of the settlement. However, it is also reasonable
to read “Levada shall pay up to $1,750,000” as requiring Defendant to settle the
litigation for an amount of $1.75 million or less should the opportunity arise. If the
former is the correct interpretation, then by the plain language of the Agreement
Defendant is relieved of paying Breland the attorney’s fees. On the other hand, if
the latter is the true intent of the parties, then Defendant potentially breached the
Agreement. Either interpretation is tenable, and thus by law the provision is
ambiguous. Extrinsic evidence is needed to determine the intent of the parties,
preventing this Court from granting summary judgment to Defendant. Therefore,
Defendant’s motion must be denied on this issue.
C. The Failure of Defendant to Pay Property Taxes
It is undisputed that Breland paid some of the property taxes after the first
half of 2011 upon Defendant’s failure to do so. The parties disagree as to whether
Defendant’s failure to pay constitutes a breach of the agreement. The Agreement
states in relevant part:
15. Property Taxes. Levada will be responsible for and pay all
taxes (existing outstanding property taxes for 2008, 2009, 2010, and
2011), and future property taxes against the Subject Property. Levada
and Osprey will be responsible for filing state and federal income tax
returns and payment of each of their respective income taxes.
(Doc. 99-2, p. 15; Doc. 103-1, p. 14). Breland asserts in an affidavit that he has paid
property taxes totaling “approximately $80,000” beginning with the second half of
2011 (Doc. 103-2, p. 4), and a representative of Defendant admitted as much in his
deposition (Doc. 99-8, p. 7; Doc. 103-20, p. 1).
The elements of a breach of contract claim in Utah are: “(1) a contract, (2)
performance by the party seeking recovery, (3) breach of the contract by the other
party, and (4) damages.” Bair v. Axiom Design, LLC, 20 P.3d 388, 392 (Utah 2001).
The thrust of Defendant’s main argument is that Plaintiffs were not harmed by
Defendant’s failure to pay the property taxes. (Doc. 98, pp. 9–10). Defendant’s brief
contains only one citation to a single authority to support this contention. Id.
Defendant cites to Eleopulos v. McFarland & Hullinger, LLC, 145 P.3d 1157, 1160
(Utah Ct. App. 2006), for the argument that, “although there exists a possibility,
even a probability, of future harm, it is not enough to sustain a claim, and a
plaintiff must wait until some harm manifests itself to establish a breach of
contract action.” (Doc. 98, pp. 9–10) (internal quotation marks omitted). Defendant’s
reliance on this case is not well-taken.
In Eleopulos, the plaintiffs sued the defendant for “expert and site-study
fees,” expenditures made due to suspected pollution of the plaintiffs’ land by the
defendant. Eleopulos, 145 P.3d at 1158. The court of appeals found that the fees
were “expenses incurred in preparation for trial and . . . not recoverable as
damages” for the plaintiffs’ breach of contract claim. Id. at 1160.
Here, Breland’s paying of the taxes was not in preparation for trial. Nor was
his payment based on speculation that he could be harmed by Defendant’s failure to
pay the taxes on the property. The consequences of tax delinquency are real and
certain. It appears from the plethora of documents submitted to the Court that
Breland retained some sort of interest in the property that would be in peril should
the government place a lien on the property or sell the land for payment of back
taxes. In fact, Breland might have violated Utah’s duty to mitigate damages had he
allowed the property to suffer from Defendant’s neglect. See Angelos v. First
Interstate Bank of Utah, 671 P.2d 772, 777 (Utah 1983) (“The doctrine of avoidable
consequences, also referred to as mitigation of damages, generally operates to
prevent one against whom a wrong has been committed from recovering any item of
damage arising from the wrongful conduct which could have been avoided or
minimized by reasonable means.”). Viewing the facts in the light most beneficial to
Plaintiffs as the non-moving party, it is apparent that Plaintiffs have likely suffered
damages at least in the amount of the tax payment. Thus, Defendant’s main
argument pertaining to the tax payment fails.
Perhaps Defendant’s failure to pay the property taxes was due to a lack of
notification by Breland, as Defendant alleges. (Doc. 98, p. 5; Doc. 103-20, pp. 9–10).
The Utah Supreme Court has previously held that the failure to pay property taxes
did not constitute a breach of contract when the seller never notified the buyer of
the taxes, but the contract in that case provided for a contingency in which the
seller elected to pay the property taxes. See Madsen v. Anderson, 667 P.2d 44, 47–
48 (Utah 1983). There is nothing in the agreement here that would indicate any
such arrangement, and the Court is unwilling to make the factual leap it would
take to find for Defendant. While Defendant’s representative asserts in a deposition
that the company attempted to reimburse Breland for his payment of the taxes
(Doc. 99-8, p. 7; Doc. 103-20, p. 1), Breland argues in his affidavit that there were
conditions to this reimbursement imposed by Defendant (Doc. 103-2, p. 4). Although
Breland appears to state in his deposition that he would not accept a no-stringsattached repayment of the taxes unless all of the issues in the case are resolved
(Doc. 99-1, p. 18), there is a factual dispute as to whether this offer and rejection
occurred. This disagreement is best left for decision by the fact finder.
The Court is unaware of any statute, precedent, or contract principle that
requires Plaintiffs to forego paying the taxes and forfeit the land in question before
gaining the ability to sue Defendant for breach. Nor has Defendant alerted the
Court to any such authority. Therefore, Defendant’s motion for summary judgment
on this issue must be denied.
D. The Force Majeure Clause
As a last point, the parties disagree as to whether Defendant breached its
development obligation in section eight of the Agreement. It is undisputed that
Defendant failed to invest $10,000,000 in the exploration or development of mineral
production of the Subject Property. Section eight of the Agreement states:
8. Development Obligation. No later than December 31, 2014,
subject to a force majeure event (inability to procure funds shall not
constitute a force majeure event) including, without limitation, as an
additional force majeure event, any period where the 6-month moving
average of natural gas is below $4.25/mmBtu, which event(s) will
temporarily excuse performance during the period of a force majeure
event, Levada or its affiliates or assignees shall expend or contribute
and expend at least $10,000,000 for exploration or development of
mineral production on the Subject Property, or commence a five well
drilling program. Payments to acquire additional leases shall not be
applied to the $10,000,000 exploration and development requirement.
Levada shall have the option to extend this period of the exploration
and development for two (2) consecutive, one-year periods following
December 31, 2014 (as extended pursuant to the force majeure
provisions set forth above), for two (2) one-time payments of $200,000
for each such one-year period which option shall be exercised by
written notice thereof given to Osprey prior to the expiration of the
initial extension period. Each such payment shall accompany such
(Doc. 99-2, p. 8; Doc. 103-1, p. 7).
Defendant argues it is due judgment as a matter of law because the force
majeure clause excused performance for “most of the time period between execution
of the Agreement on May 2, 2011, and December 31, 2014,” due to depressed
natural gas prices. (Doc. 98, p. 6). Further, due to the proclaimed excused
performance, Defendant maintains its development obligation is excused up to some
point in 2017 or 2018, depending on the natural gas pricing index used. Id. at 7. On
the other hand, Plaintiffs defend their claim by arguing that the development
obligation clause is ambiguous. Plaintiffs assert that the only way to clarify the
ambiguity is to ascertain the parties’ intentions through parol evidence, which is a
material and conflicting issue of fact between the parties. (Doc. 103, p. 14).
In evaluating whether the development obligation clause is ambiguous, the
legal standard applied in evaluating whether the Cypress Litigation clause (Section
B) is ambiguous controls. For efficiency sake, it is not restated.
At first blush, the development obligation clause seems straightforward. But
as Plaintiffs assert, ambiguity emerges in three aspects: (1) the natural gas index to
be used, (2) computation of six-month moving average, and (3) how excused
performance affects the stated deadline. (Doc. 103, pp. 14–17).
As to the natural gas index to be used, the four corners of the agreement
show the force majeure clause excuses development for any period of time where the
six-month moving average of natural gas is below $4.25/mmBtu. This much is clear.
Who or what dictates when the price of natural gas is below $4.25/mmBtu is
unclear. Defendant even concedes this point. See (Doc. 98-18, p. 171:13) (Q: Now,
what standard is it of natural gas? Does it reflect what index or standard that it’s
tied to as the basis for the six-month moving average of natural gas? A: It does not
specify a market). Notwithstanding this absence, Defendant maintains that there
are “two commonly accepted indices for natural gas.” (Doc. 98, p. 6). But Defendant
does so in a conclusory manner without reference to binding authority. And the
Court has found no binding authority supporting Defendant’s position.
Conversely, Plaintiffs offer four additional natural gas indices and contend
that the United Kingdom Heren NBP Index (an index not cited by Defendant) “is
typically recognized as average for the industry standard.” (Doc. 103, p. 15).
Plaintiffs cite the Heren NBP Index in the same conclusory manner. Based on the
agreement giving no clear indication as to the index to be used and the parties’
differing positions, the Court finds the Agreement ambiguous as to the natural gas
index that dictates when the force majeure clause excuses development of the
Even though there is ambiguity, the Court must decide whether Plaintiffs’
interpretation is tenable. In other words, could the price of Utah natural gas be
based on an index unrelated to Utah. This question can be answered in the
affirmative. Viewing the evidence in the light most favorable to Plaintiffs, the nonmoving party, the fungible commodity in question could trade in numerous markets,
around the world, at widely varying prices. See (Doc. 103-2, p. 3) (Breland stating
he believed the natural gas would be sold internationally). This differs from, say, a
unique commodity that is priced by only one index or shares of stock that are only
listed on one exchange. And given the number of indexes available, to say that
Defendant’s cited indices are the only indices that could apply is not tenable.
Therefore, because the agreement fails to identify the controlling index, extrinsic
evidence is needed to determine the intent of the parties, preventing this Court
from granting summary judgment to Defendant. See Faulkner, 665 P.2d at 1293
(finding summary judgment improper if a factual issue of what the parties intended
The second point of potential ambiguity in the development obligation clause
concerns how the “6-month moving average of natural gas” is calculated. Such an
elementary calculation becomes ambiguous with the absence of key term
definitions. For instance, the contract uses the term “period” in computing the
average index price but gives no definition for what makes up a period. As
Defendant points out, even if mistakenly, a period may vary depending on index
used. See (Doc. 98, pp. 6–7) (stating that the Platts’ Questar Rocky Mountain
weighted average uses a daily period and the Henry Hub index uses a weekly
period). The type of period used in computing the average is material and
fundamental in evaluating whether the development obligation is excused by the
force majeure provision. As with the applicable natural gas index, extrinsic evidence
is needed to determine the intent of the parties.
The third point of potential ambiguity in the development obligation clause is
how an excused “period” of performance affects the December 31, 2014 development
obligation deadline. As stated above, Defendant contends that its development
obligation was “temporarily excuse[d]” and its deadline is extended to sometime in
2017 or 2018.
It is beyond dispute that the plain language of the agreement contemplates
some type of extension of the development obligation deadline. There is no clear
answer beyond this. As Plaintiffs point out, there is a question as to whether the
excused period(s) extend(s) the development deadline day for day, week for week,
etcetera or whether performance was merely excused and the December 31, 2014
deadline is in place. (Doc. 103, pp. 17–18). A good deal of this could turn on the
parties’ intentions regarding the index to be used and what was intended by the
terms within the development clause.
Therefore, the Court finds that the development clause is ambiguous and
cannot be interpreted as a matter of law. The parties’ intentions regarding the
ambiguities can only be resolved through extrinsic evidence. For the Court to
resolve the ambiguity would entail weighing the parties’ evidence. Such an action is
improper in deciding the present motion. Therefore, Defendant’s motion must be
denied on this issue.
Based on the foregoing, Defendant’s Motion for Partial Summary Judgment
(Doc. 97) is hereby DENIED.
DONE and ORDERED this 24th day of November, 2015.
/s/ Callie V. S. Granade
UNITED STATES DISTRICT JUDGE
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