Geysers Development Partnership v. Geysers Power Company, LLC

Filing 47

ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT. Signed by Judge William H. Orrick on 08/06/2018. (jmdS, COURT STAFF) (Filed on 8/6/2018)

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UNITED STATES DISTRICT COURT

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NORTHERN DISTRICT OF CALIFORNIA

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GEYSERS DEVELOPMENT
PARTNERSHIP,

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Plaintiff,

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United States District Court
Northern District of California

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ORDER ON CROSS-MOTIONS FOR
SUMMARY JUDGMENT

v.
GEYSERS POWER COMPANY, LLC,

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Case No. 17-cv-06834-WHO

Re: Dkt. Nos. 18, 22

Defendant.
Plaintiff Geysers Development Partnership (“GDP”) brings this declaratory action against
defendant Geysers Power Company, LLC (“Geysers Power”) to clarify its right to grant an
easement or other access on real property at The Geysers, the world’s largest geothermal energy
field, located in the Mayacamas Mountains in Sonoma County, California and Lake County,
California (“the Property”). The Property is owned by GDP, but Geysers Power holds a 99-year
lease allowing it to exclusively develop the infrastructure necessary to extract steam from the
Property and use said steam to generate electricity. GDP and Geysers Powers dispute which entity
has the unfettered right to grant an easement or access to the Property for the purpose of installing
and using power transmission lines and facilities to transmit electric power generated from steam
extracted from land outside the Property. The parties have filed cross-motions for summary
judgment to resolve this question. As discussed below, the plain language of the lease reserves the
right to grant the easement at issue for GDP. Accordingly, I GRANT summary judgment in
GDP’s favor.
BACKGROUND
In 1955, the owner of the Property (and GDP’s predecessor-in-interest) Geysers
Development Company (“GDC”) entered into a 99-year Lease and Agreement (“Lease”) with
Geysers Power’s predecessor-in-interest Magma Power Company (“Magma”). Declaration of
Diego Sanchez-Elia ISO Plaintiff’s Motion for Summary Judgment (“Sanchez-Elia Decl.”) ¶¶ 2, 4
(Dkt. No. 20); see Ex. B to Compl. (“Lease,” Dkt. No. 1-2). The Lease has been amended on five

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occasions in 1956, 1969, 1975, 1980 and 2000. See Ex. C-G to Compl. (Dkt. Nos. 1-3 to 1-7).

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Only the original 1955 Lease and the 1956 amendment contain lease terms relevant to this action.
The 1955 Lease provides that:

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Lessor has granted, leased, let and demised and by these presents
does grant, lease, let and demise to Lessee, its grantees, successors
and assigns, upon and subject to the terms and conditions hereinafter
set forth, the land and promises hereinafter described, with the sole
and exclusive right to Lessee to drill for, produce, extract, take,
remove and sell steam and steam power (and water without cost for
Lessee’s operations) from, and to store, utilize, process, convert, and
otherwise treat with such steam and steam power upon, said land,
during the term hereof. . .

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Lease at 1-2. It goes on to describe the parameters of Geysers Power’s access to and use of the
Property:

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Northern District of California

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. . .with the right of entry thereon at all times for said purposes, and
to construct, use, maintain, erect, repair and replace thereon and to
remove therefrom all roads, pipe lines, telephone and telegraph
lines, utility installations, power lines, poles, tanks, machinery,
equipment, buildings, electric power plants and equipment for
generation and transmission of steam power and electric power and
all structures and facilities relating thereto, which Lessee may desire
to erect, construct or install in carrying on its business and
operations on or from said land or with respect to the steam power
or electric power developed thereon, and Lessee shall have the
further right for itself, its subsidiaries or permittees, to erect,
maintain, operate and remove a plant or plants, structures and
facilities with all necessary appurtenances for the conversion of
steam to electric power and for extraction of by-products from steam
produced from said land and/or premises in the vicinity of said land,
including all rights necessary or convenient thereto, together with
rights-of-way for passage over, upon and across and ingress and
egress to and from said land for any or all of the above mentioned
purposes.

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Id. at 2. The Lease then describes the scope of GDP’s remaining rights concerning the Property:

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The possession by Lessee of said land shall be sole and exclusive for
the purposes hereof and for purposes incident or related thereto,
excepting only that Lessor reserves the right to use and occupy said
land, or to lease or otherwise deal with the same, for residential,
agricultural, commercial, horticultural or grazing uses, or for mining
of minera1s lying on the surface of or in vein deposits on or in said
land, which uses shall be carried on subject to and with as little
interference as is reasonably possible with the rights and operations
of Lessee hereunder.

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Id.
In 1956, the Lease was amended; this amendment included language relevant to the
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parties’ use of the Property:
Notwithstanding anything to the contrary contained in the granting
clauses of the Lease [], it is now specifically agreed that Lessee’s
uses of the land covered by the Lease permitted by its terms shall
prevail over any of the uses reserved by Lessor, and that said uses
permitted to Lessee may interrupt any time and from time to time
any of said reserved uses. Should any such uses by Lessee require
or result in the destruction of or damage to productive trees, growing
crops, or residential or other improvements owned by Lessor or
others, Lessee shall pay to the owner or owners thereof the
reasonable value of the property so destroyed or damaged.”

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Ex. C to Compl. at 2-3 (Dkt. No. 1-3).

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Over the course of the Lease, Magma, Thermal Power Company, and Unocal have each
been lessees, but Geysers Power has acquired all rights under the Lease as sole lessee. Sanchez-

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Elia Decl. ¶ 7. Geysers Power has drilled 60 steam extraction wells and 12 injection wells on the

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Property. Declaration of Kevin Talkington ISO Geysers Power’s Motion for Summary Judgment

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or in the Alternative Summary Adjudication of Issues (“Talkington Oppo. Decl.”) ¶ 11 (Dkt. No.

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30). It also operates three power plants on the Property, where all the steam from the Property is

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“fed” once extracted. Id. ¶ 12. In addition to the lease that it has for the Property, Geysers Power

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also has 105 leases with neighboring landowners and 76 surface and sub-surface agreements for

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mineral rights and related rights-of-way. Id. ¶ 9. Geysers Power has drilled and maintained over

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400 wells to extract steam from the subterranean geothermal field on land outside of the Property.

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Id.

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During the term of the Lease, several easements for construction of power lines and

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electrical facilities on the Property have been granted to Pacific Gas & Electric (“PG&E”).1 GDP

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has placed nine easements granted to PG&E by GDP for access to the Property in the record.

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Sanchez-Elía Decl. ¶9, Exs. A-F (Dkt. No. 20); GDP RJN (Dkt. No. 28), Exs. A-F. One easement

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was issued to “construct electrical transmission facilities and power lines for the benefit of

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Occidental Geothermal, Inc., a competitor of [Geysers Power], who was extracting stream and

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converting it to power on land not owned by GDP.” Sanchez-Elía Decl. ¶9; Ex. A. GDP states

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PG&E does not presently generate electricity in The Geysers; it instead purchases electricity
from power generators in The Geysers and operates the transmission lines and infrastructure that
carries the power it purchases. Talkington Oppo. Decl. ¶ 19.
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that it did not seek agreement to or approval from Geysers Power before entering into these

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easements. GDP Oppo. at 12-13 (Dkt. No. 26).
For its part, Geysers Power offers six different consent agreements between it (or its

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predecessors-in-interest) and PG&E, allowing PG&E access to the Property. Geysers Power

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Request for Judicial Notice (RJN, Dkt. No. 23), Attachments 2-7. GDP responds that it was not a

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party to these “consents” and that there is no evidence from its files that GDP was made aware of

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them. Declaration of Sanchez-Elía ISO Plaintiff's Reply To Opposition to Motion for Summary

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Judgment (“Sanchez-Elía Reply Decl.”) ¶ 3 (Dkt. No. 34).2
In 2017, Western GeoPower, Inc. (“WGP”), a subsidiary of U.S. Geothermal, Inc.,

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approached GDP with a request for an easement to install power lines over a portion of the

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Property. Sanchez-Elía Decl. ¶10. WGP intends to extract steam and produce geothermal energy

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from a neighboring property on a site where there was a previously existing power plant, and

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transmit the electricity through power lines to an existing PG&E facility on the Property. Id.;

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Sanchez-Elía Reply Decl. ¶ 4. WGP does not need the proposed easement, but has identified the

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easement as the most cost-effective way to conduct business. See Declaration of Daniel W.

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Ballesteros ISO Geysers Power’s Opposition to Motion for Summary Judgment (“Ballesteros

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Oppo. Decl.”), Ex. B, at 2 (Dkt. No. 31); Sanchez-Elía Reply Decl. ¶ 4. GDP has not entered into

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an agreement with WGP. Sanchez-Elía Reply Decl. ¶ 4.
Geysers Power contends that WGP’s extraction plans would adversely affect Geysers

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Power’s revenue from the Property because the volume of the steam extracted on the Property

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would likely decrease as a result. See Talkington Decl. ¶ 15. The WGP proposal anticipates that

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the easement would result in potential steam decline at the Property because WGP, though

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drawing steam from a different property, would be drawing steam from the same geothermal field

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as Geysers Power. Ballesteros Decl., Ex. B, at 2 (recognizing that the contemplated easement fee

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paid by WGP to GDP would be intended in part to “offset the potential steam decline that could

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GDP also points out that at least two of the consents do not appear to concern access for
electrical transmission, but for abatement of hydrogen sulfide, a toxic by-product of harvesting
geothermal steam. Id. ¶ 3.
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result from redevelopment of WGP’s thermal resource”). The WGP proposal also recognizes that

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generating additional power from its site may decrease the sale price for electricity and, therefore,

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reduce GDP’s profits for electricity generated on the Property. Id. (proposing to offset GDP’s

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potential, future royalty reduction if more steam power production results in a decline in prices).

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As of two years ago, Geysers Power was not drilling for steam on the parcel that would

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encompass the proposed WGP easement, nor were there any Geysers Power facilities that would

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be affected by the issuance of the easement sought by WGP. Declaration of Diego Sanchez-Elia

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ISO Plaintiff’s Opposition to Defendant’s Motion for Summary Judgment/ Adjudication

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(“Sanchez-Elia Oppo. Decl.”) ¶ 8 (Dkt. No. 27). Geysers Power also has not communicated any
intention to start operations on the relevant parcel. Id. When GDP informed Geysers Power about

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the WGP request, Geysers Power contended the terms of the Lease did not allow GDP to grant

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such easement without Geysers Power’s consent. Id.

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Given the parties’ divergent view of the Lease, GDP brought this declaratory action. Dkt.
No. 1. Specifically, GDP seeks a declaration of the GDP’s rights under the Lease:

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(a) that under the Lease, [GDP] has the right to grant an easement or
other permission on the Property, and in particular on Parcel APN
117-150-021, to a third-party for the installation, maintenance,
and/or use of power transmission lines and facilities for the purpose
of transmitting electric power derived from steam that was not
extracted from the Property; and

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(b) that [Geysers Power] Defendants do not have a right under the
Lease to grant an easement or other permission on the Property to a
third-party for the installation, maintenance, and/or use of power
transmission lines and facilities to transmit electric power derived
from steam that was not extracted from the Property.

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Compl. ¶ 14.
Each party now moves for summary judgment on the single cause of action, seeking a
declaration regarding the proper scope of each party’s access to and use of the Property pursuant
to the terms of the Lease and the 1956 amendment.
LEGAL STANDARD
Summary judgment on a claim or defense is appropriate “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
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law.” Fed. R. Civ. P. 56(a). In order to prevail, a party moving for summary judgment must show

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the absence of a genuine issue of material fact with respect to an essential element of the non-

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moving party’s claim, or to a defense on which the non-moving party will bear the burden of

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persuasion at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the movant has

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made this showing, the burden then shifts to the party opposing summary judgment to identify

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“specific facts showing there is a genuine issue for trial.” Id. The party opposing summary

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judgment must then present affirmative evidence from which a jury could return a verdict in that

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party’s favor. Anderson v. Liberty Lobby, 477 U.S. 242, 257 (1986).
On summary judgment, the Court draws all reasonable factual inferences in favor of the

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non-movant. Id. at 255. In deciding a motion for summary judgment, “[c]redibility

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determinations, the weighing of the evidence, and the drawing of legitimate inferences from the

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facts are jury functions, not those of a judge.” Id. However, conclusory and speculative testimony

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does not raise genuine issues of fact and is insufficient to defeat summary judgment. See

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Thornhill Publ’g Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir. 1979).

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DISCUSSION
I.

THE EXPRESS LANGUAGE OF LEASE
The parties disagree about the scope of their respective rights under the Lease and the 1956

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amendment. GDP contends that it “retains all of its rights as a property owner except for those

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things which relate to geothermal extraction from the Property or would unreasonably interfere

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with [Geysers Power’s] operations regarding geothermal extraction.” GDP Mot. at 11-12 (Dkt.

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No. 18) (emphasis in original). In GDP’s view, it is allowed to grant easements to third parties so

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long as it does not interfere with Geysers Power’s ability to extract steam from the Property and

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generate power therefrom.

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Geysers Power does not agree. In its view, the “plain and ordinary meaning of the

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language of in the lease do not reserve to [GDP] the right to grant an easement to a third-party to

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construct, maintain, and/or use power transmission lines and facilities for the purpose of

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transmitting electric power produced from steam not extracted from the [Property].” Geysers

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Power Mot. at 9 (Dkt. No. 22). Instead, Geysers Power believes that the language of the Lease
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and Agreement and the 1955 Amendment grants it “‘sole and exclusive right’ to install and

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maintain electricity transmission lines on the [Property],” meaning that GDP must receive that

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consent of Geysers Power before granting the easement at issue in this action. Id.

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Under California law, contract interpretation is a question of law for the court’s
determination. Parsons v. Bristol Dev. Co., 62 Cal. 2d 861, 865 (1965). “The fundamental rules

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of contract interpretation are based on the premise that the interpretation of a contract must give

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effect to the mutual intention of the parties.” MacKinnon v. Truck Ins. Exch., 31 Cal. 4th 635, 647

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(2003). Such intent should be inferred, if possible, from the written provisions of the contract.

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AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 822 (1990). In interpreting a particular provision,

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a court must give terms their “ordinary and popular sense.” Id. A contract provision is considered

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ambiguous when the provision is susceptible to more than one reasonable interpretation.

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MacKinnon, 31 Cal. 4th at 648. However, the “mere fact that a word or phrase in a [contract] may

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have multiple meanings does not create an ambiguity.” Palmer v. Truck Ins. Exch., 21 Cal. 4th

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1109, 1118 (1999).

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The conflict between the parties’ positions centers on what rights were granted to Geysers
Power and what rights remain with GDP. The relevant portion of the Lease reads as follows:

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Lessor has granted, leased, let and demised and by these presents
does grant, lease, let and demise to Lessee, its grantees, successors
and assigns, upon and subject to the terms and conditions hereinafter
set forth, the land and promises hereinafter described, with the sole
and exclusive right to Lessee to drill for, produce, extract, take,
remove and sell steam and steam power (and water without cost for
Lessee’s operations) from, and to store, utilize, process, convert, and
otherwise treat with such steam and steam power upon, said land,
during the term hereof with the right of entry thereon at all times for
said purposes, and to construct, use, maintain, erect, repair and
replace thereon and to remove therefrom all roads, pipe lines,
telephone and telegraph lines, utility installations, power lines,
poles, tanks, machinery, equipment, buildings, electric power plants
and equipment for generation and transmission of steam power and
electric power and all structures and facilities relating thereto, which
Lessee may desire to erect, construct or install in carrying on its
business and operations on or from said land or with respect to the
steam power or electric power developed thereon.

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Lease at 1-2.
Geysers Power argues against GDP’s interpretation (giving GDP the unfettered right to
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grant an easement allowing for construction of electrical transmissions lines across the Property to

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third parties) on four grounds: (1) the stated purpose of the Lease would be undercut by allowing

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that type of easement; (2) the Lease grants it “sole and exclusive” rights for transmission lines; (3)

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the 1956 amendment affirms that its rights are superior to those of GDP; and (4) the Lease does

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not reserve to GDP a right to grant easements to third parties to install and/or maintain electrical

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transmission lines on the Property. I address each ground in turn.

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A.

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Geysers Power argues that the stated purpose of the lease is to “enable the development of

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Stated Purpose of the Lease

‘natural steam’ from the geothermal field and for ‘mutual profit of the parties.’” Geysers Power
Mot. at 9. In Geysers Power’s view, allowing GDP to issue an easement to a third-party

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competitor would contradict the purpose and intent of the Lease because that competition could

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reduce the profits under the Lease. But Geysers Power does not accurately quote the purpose of

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the Lease. It is not to “enable the development of ‘natural steam’ from the geothermal field and

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for ‘mutual profit of the parties.’” Geysers Power Mot. at 9. Instead, the stated purpose is to

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develop the Property which was suited “for development of natural steam and steam power” to

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“enable the development of said natural steam . . . for the mutual profit of the parties.” Lease at 1.

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Despite Geysers Power’s assertion, mutual profit is not an independent purpose of the lease but

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rather a consequence of the primary purpose, which is to “enable the development of ‘natural

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steam’” on the Property. See id. Nothing in the record suggests that allowing GDP to sell an

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easement of access for power lines to a competitor hinders the ability of Geysers Power to develop

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the steam and steam power from the Property for the mutual profit of the parties. The

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contemplated WGP easement would merely allow transmission of electricity generated from

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steam extracted from other properties across the Property.

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Geysers Power also contends that the issuance of the type of easement at issue in this

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action would result in a decrease in the amount of steam that could be extracted from the Property

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and a reduced price for electricity generated on the Property, decreasing the profit for both parties

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under the Lease. In Geysers Power’s view, facilitating such decreases contradicts the purpose and

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intent of the lease. Geysers Power Mot. at 10. But this argument ignores the context of the
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primary purpose of the Lease: the development of natural steam, a geothermal resource. Under

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California law, geothermal resources are considered mineral resources, meaning that the Lease is

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effectively a mineral lease. Phillips Petroleum Co. v. County of Lake, 15 Cal. App. 4th 180, 185

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(1993). “It is said that the lessee [in a mineral lease] does not have the exclusive right to

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possession and enjoyment of the property. Rather, it has the right to extract minerals from the

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property and to reduce them to personal property. All other rights in the land, including surface

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uses, are retained by the landowner.” Id. The language the Lease must be considered in this

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context.
Although the Lease was entered into as a means of mutual profit, no language in the

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agreement indicates that the parties intended that Geysers Power would be granted rights outside

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of those found in a typical mineral lease. This means that under the Lease Geysers Power could

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extract and benefit from the steam extracted from the Property, and under the express terms of the

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Lease have surface rights necessary to extract and convert that steam. But GDP retained the

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remaining surface uses of the Property. Those remaining rights include the granting of access

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rights such as easements to allow others to transmit electricity generated on other property across

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the Property. To find otherwise would be contrary to the fundamental understanding of a mineral

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lease.

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Geysers Power’s arguments concerning the purpose of the Lease are without merit.

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B.

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Geysers Power argues that pursuant to language in the Lease, its rights regarding the

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activities listed are “sole and exclusive,” meaning that it may exclude all other entities from

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carrying out these same activities on the Property. It contends that one such exclusive activity is

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the right to install and maintain electricity transmission lines over the Property. But the Lease

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language does not support this reading; Geysers Power’s rights are not as broad as it contends.

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Geysers Power’s “Sole and Exclusive” Rights

Two limitations narrow the scope of Geysers Power’s “sole and exclusive” rights. First,

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the “sole and exclusive” rights identified are consistently limited to the steam and steam power

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activities (production, transmission, utilization, etc.) arising from “the land” and upon “said land.”

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Lease at 1-2. The sole and exclusive rights, therefore, are inexorably tied to activities that Geysers
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Power conducts upon the Property.
Second, while the lessee is given the right to construct and maintain equipment for the

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transmission of power, that right is limited to the purpose of “carrying on its business and

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operations on or from said land or with respect to the steam power or electric power developed

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thereon.” Id. at 2. So while the lessee has sole and exclusive rights to install and maintain

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electricity transmission lines for steam and steam power generated from the Property, the lessee

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does not have sole and exclusive rights to install and maintain transmission lines for steam and

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steam power generated outside of the Property. See also id. at 2 (“The possession by Lessee of

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said land shall be sole and exclusive for the purposes hereof and for purposes incident or related

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thereto, excepting” the rights reserved to the lessor.).
Geysers Power puts much emphasis on the following language from the Lease: “Lessee

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shall have the further right for itself, its subsidiaries or permittees, to erect, maintain, operate and

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remove a plant or plants, structures and facilities with all necessary appurtenances for the

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conversion of steam to electric power and for extraction of by-products from steam produced

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from said laid and/or premises in the vicinity of said land. . . .” Lease at 2 (emphasis added).

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Geysers Power argues that given the fact that the geothermal field extended beyond the borders of

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the Property, this provision shows that the parties contemplated that Geysers Power’s exclusive

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rights extended to all steam and steam power flowing through the Property, not just those

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extracted from the Property.

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I disagree. The language that Geysers Power relies on specifically references by-products

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of steam. Geysers Power’s interpretation seeks to apply the phrase “produced from said land

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and/or premises in the vicinity of said land” to both by-product extraction and steam conversion.

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But the most natural reading of the Lease demonstrates that GDP granted Geysers Power the

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exclusive right to extract steam by-products that originated on the Property as well as that which

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flowed into the Property—not exclusive rights with respect to steam converted to electric power

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elsewhere in the geothermal field. As discussed more below, nothing in the language of the Lease

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gives Geysers Power the right to preclude GDP or a third party from building transmission lines

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across the Property to transport electricity generated outside of the Property, as long as those
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activities do not interfere with Geysers Power’s own activities.
GDP seeks a declaration that it has the sole right to issue easements that allow third parties

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to transmit steam-generated electricity from land not within the Property to an existing PG&E

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facility on Plaintiff’s property. Geysers Power’s “sole and exclusive” rights are not violated by

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that type of easement because its rights must be related to the steam power or electricity developed

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on the Property. Given this, Geysers Power’s “sole and exclusive” rights do not prevent GDP

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from granting a third party an easement for transmission lines.

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C.

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Geysers Power contends that the 1956 amendment establishes that its rights are superior to

The 1956 Amendment

the rights of GDP, bolstering its argument that GDP needs Geysers Power’s consent before

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granting a third party a transmissions line easement. Specifically, Geysers Power points to

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language that its “uses of the land covered by the Lease permitted by its terms shall prevail over

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any of the uses reserved by [GDP], and that said uses permitted to [Geysers Power] may interrupt

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any time and from time to time any of said reserved uses.” Ex. C to Compl. at 2. However, the

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1956 amendment grants Geysers Power “superior” rights only for the rights enumerated in the

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Lease. And Geysers Power’s rights are limited to those enumerated to the extent they aid in

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Geysers Power “carrying on its business and operations on or from [the Property] or with respect

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to the steam power or electric power developed thereon.” Lease at 2.

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Although the 1956 amendment means that Geysers Power’s operational and business uses

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can result in interruption or destruction of GDP’s uses of the Property, those “superior” rights only

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become relevant where an actual conflict exists between Geysers Power’s and GDP’s uses. Where

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GDP’s uses of the Property do not conflict with Geysers Power’s operational and business use, the

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1956 amendment does not come into play. Geysers Power has failed to identify any evidence in

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the record that suggests that the contemplated easement would result in a conflict implicating the

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1956 amendment. It cannot rely on the 1956 amendment to prevent GDP from issuing an

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easement to a third party.

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D.

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The Lease also specifically enumerates GDP’s reserved rights. GDP “reserves the right to

GDP’s Reserved Rights
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use and occupy said land, or to lease or otherwise deal with the same, for residential, agricultural,

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commercial, horticultural or grazing uses, or for mining of minerals lying on the surface of or in

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vein deposits on or in said land, which uses shall be carried on subject to and with as little

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interference as is reasonably possible with the rights and operations of [Geysers Power]

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hereunder.” Lease at 2. Geysers Power argues that the reservation of rights for “commercial”

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purposes does not encompass GDP granting a third party an easement that allows it to compete

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with Geysers Power. But nothing in the express language of the Lease or in its purpose prevents

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GDP from allowing commercial use of the Property so long as that use does not interfere with

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Geysers Power’s use, which as noted above there is no evidence of. Accordingly, so long as the

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easement does not interfere with the operations of Geysers Power on the Property, GDP can issue

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the easement.
The express language of the Lease demonstrates that GDP reserved its commercial rights--

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that includes granting an easement to a third party for transmission lines so long as the easement

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does not interfere with Geysers Power’s ability to conduct its operations on the Property.3

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II.

IMPLIED COVENANT OF GOOD FAITH AND FAIR DEALING
As a fall back argument, Geysers Power contends that even if the easement at issue would

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not violate the express terms of the Lease or the 1956 amendment, it nonetheless violates the

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covenant of good faith and fair dealing implied in the parties’ contracts. “The covenant of good

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faith and fair dealing, implied by law in every contract, exists to prevent one contracting party

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from unfairly frustrating the other party’s right to receive the benefits of the agreement.”

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SocialApps, LLC v. Zynga, Inc., No. 11-cv-4910-YGR, 2012 WL 381216, at *4 (N.D. Cal. Feb. 6,

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2012). “[A]n implied covenant of good faith and fair dealing cannot contradict the express terms

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of a contract.” Storek & Storek, Inc. v. Citicorp Real Estate, Inc., 100 Cal. App. 4th 44, 55 (2002).

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GDP also seeks a declaration that Geysers Power does not have rights to grant easements to third
parties for the installation, maintenance, and/or use of power transmission lines and facilities to
transmit electric power derived from steam that was not extracted from the Property. GDP Mot. at
13; Compl. ¶ 14. Geysers Power fails to address this request or GDP’s argument in favor of it in
its opposition to GDP’s motion. Given the interpretation of the Lease discussed above, GDP is
likewise entitled to a declaration that the Lease does not allow Geysers Power the right to grant
such easements.
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The implied covenant is violated, according to Geysers Power, because granting the

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easement could reduce Geysers Power’s profits from its “sole and exclusive” rights to develop,

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transmit, and sell steam-generated electricity on the Property, reducing Geysers Power’s benefit

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from the Lease. As noted above, Geysers Power identifies two ways this could happen. First, by

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giving WGP the contemplated easement, GDP would facilitate WGP’s redevelopment of its power

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plant and that could reduce the amount of steam that Geysers Power could extract from the

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Property. Talkington Decl.¶ 15. Second, by facilitating WGP’s extraction and conversion of

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steam and the transmission of power produced, the increase in power produced could result in

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decreased prices and profit from electricity generated on the Property. See Ballesteros Decl., Ex.

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Northern District of California

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B, at 2.
Geysers Power relies on In re Vylene Enterprises, Inc., 90 F.3d 1472, 1477 (9th Cir. 1996),

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where the Ninth Circuit affirmed the bankruptcy court’s finding that a franchiser breached the

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covenant of good faith and fair dealing where it constructed a competing restaurant within a mile

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and a half of its existing franchisee, even though the franchisee did not have any “exclusive

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territory” rights under the franchise agreement. The court held that the franchisee was entitled to

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expect that the franchisor would “not act to destroy the right of the franchisee to enjoy the fruits of

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the contract.” Id. Geysers Power contends that the instant case is similar and that it is entitled to

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an expectation that GDP will do nothing to decrease the fruits of the Lease, namely issue an

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easement that could result in the reduction of Geysers Power’s revenue.

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In re Vylene Enterprises is inapposite. The contract in In re Vylene Enterprises was a

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franchiser-franchisee agreement, meaning that the context of the relationship and expectations

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between the relevant parties are substantially different and the nature of the rights conveyed are

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likewise substantially different, given that this case centers on a mineral rights lease. See id.

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Further, the circumstances are different. In In re Vylene Enterprises, the franchiser undertook the

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actions that led to the harm suffered by the franchisee itself (the construction of a competing

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restaurant). Id. Here, GDP is not the party that will cause the possible decrease in Geysers

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Power’s revenue: that decrease will only potentially result from WGP’s refurbishment of the

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power plant on the neighboring property. WGP does not need the easement from GDP in order to
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operate its refurbished plant; it could opt to use less efficient means to transmit the electricity it

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generates. See Ballesteros Decl., Ex. B, at 1-2 (noting that easement represents most cost efficient

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option but that WGP could proceed with alternative that would still result in decline in GDP’s

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revenue). GDP merely seeks to benefit from actions taken by a third party on other property that

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may cause the decline in Geysers Power’s revenues. As GDP points out, whether a third party

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drills for steam at The Geysers outside of the Property is not something that it can control. In re

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Vylene Enterprises, where the damage to plaintiff was caused by the franchisor, is simply not

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instructive.
In addition, Geysers Power by its own admission routinely extracts steam from other

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properties in The Geysers, meaning that it is guilty of the same actions that it contends constitute

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Northern District of California

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bad faith here—actions that result in a potential decrease of revenue from steam extraction on the

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Property. Talkington Oppo. Decl. ¶ 9. Given this admission, I find that the issuance of the type of

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easement described in GDP’s declaratory claim to a third-party would not be “bad faith” in the

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context of the Lease.

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Geysers Power also argues that even if its rights are not as exclusive and broad as it

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contends, it has “a reasonable expectation based on the lease, that [GDP] will not enter into

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contracts that destroy or diminish the fruits of the lease” as required by the covenant of good faith

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and fair dealing. Geysers Power Mot. at 17. Geysers Power’s rights in the Lease are discussed

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above, as are GDP’s reserved rights. One of GDP’s reserved rights is the ability to use the

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Property for commercial purposes so long as it does not interfere with the operations of Geysers

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Power on the Property. Geysers Power has failed to demonstrate that the issuance of the easement

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at issue would interfere with its uses of the Property; preventing GDP from issuing easements of

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the type at issue would contradict the express term of the Lease preserving GDP’s ability to use

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the Property for non-conflicting commercial purposes. The implied covenant of good faith and

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dealing cannot be used to do that. See Storek & Storek, 100 Cal. App. 4th at 55.

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III.

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COURSE OF DEALING
Geysers Power also argues that the course of dealing between the parties with respect to

prior third-party easements and agreements establishes that the parties understood the terms to
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require Geysers Power’s consent for the issuance of any rights for transmission wires on the

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Property. Geysers Power’s Mot. at 14. Under California law, the terms of a written contract “may

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be explained or supplemented by course of dealing or . . . by course of performance.” Cal. Code

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of Civ. Proc. § 1856(c). “Course of dealing” is defined as “a sequence of previous conduct

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between the parties to a particular transaction which is fairly to be regarded as establishing a

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common basis of understanding for interpreting their expressions and other conduct.” In re

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CFLC, Inc., 166 F.3d 1012, 1017 (9th Cir. 1999) (citation and quotation marks omitted). Course

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of dealing evidence “may supplement” a contract “by providing evidence of the parties’

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intentions.” Id. “An inference of the parties’ common knowledge or understanding that is based

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upon a prior course of dealing is a question of fact.” Id. (citation omitted).
GDP objects to consideration of this extrinsic evidence because, as noted above, the

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express terms of the parties’ agreements are clear and support its argument. I agree that

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consideration of this extrinsic evidence is unnecessary. See Georgia-Pac. v. Officemax Inc., No.

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12-CV-02797-WHO, 2013 WL 5273007, at *6 (N.D. Cal. Sept. 18, 2013) (“The mutual intention

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of the contracting parties at the time the contract was formed governs, and that intention must be

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ascertained solely from the written contract if possible. . . .” (internal quotations omitted)). Even

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if considered, this evidence further supports GDP’s position.

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Geysers Power relies on evidence that from 1960 through 1979, there were at least six

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recorded consents where Geysers Power’s predecessors expressly consented to PG&E’s

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acquisition of grants of easements and right of ways on the Property. See Request for Judicial

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Notice, Attachments 2-7 (Dkt. No. 23:2-7). Although GDP was not an express party to these

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consents, the language of the consents clearly pertain to the Property and generally suggest that

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GDP, or its predecessor, may have entered into separate agreements with PG&E. Id. At least one

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of the consents expressly refers to the execution by GDP of a modification to a prior easement,

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presumably entered into between GDP and PG&E. Id., Attachment 6. While GDP disputes the

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relevance and provenance of these consents, GDP does not submit evidence to refute Geyser

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Power’s claim that the consents apply to easements that were issued by GDP or its predecessors.

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See GDP Oppo. at 9. Geysers Power contends that “[b]ecause of the timing and reoccurrence of
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the consents, the pattern of [Geysers Power’s] granting permission should be given substantial

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weight for purposes of construing the meaning of the lease.” Geysers Power Mot. at 14. In

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Geysers Power’s view, these consents demonstrate that the Lease, along with the 1956

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amendment, intended that GDP receive its consent before issuing the type of easements at issue in

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this declaratory relief action to third parties.
I disagree. Geysers Power attempts to use only six consent agreements, the last of which

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was entered into 30 years ago, to establish a course of dealing. However, GDP points to nine

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easements that GDP granted to allow for construction and maintenance of power lines and

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transmission facilities on the Property. GDP contends that these were secured and entered into
without Geysers Power’s apparent consent, and points out that one of the easements was provided

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to PG&E to benefit Occidental, a competitor of Geysers Power. See Sanchez-Elía Decl. ¶9, Ex.

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A-F; see also GDP RJN (Dkt. No. 28), Exs. A-F (easements from 1965 through 1983).

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Geysers Power suggests that the nine easements cannot be considered relevant to this

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action because they do not identify the source of the power to be transmitted. Geysers Power

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Oppo. at 13-14. In Geysers Power’s view, these easements only demonstrate that GDP has

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granted PG&E the ability to construct and maintain electricity transmission lines over the

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Property, not granted transmission easements for electrical power generated from steam located

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outside the Property, which Geysers Power contends would be a broader right. Id. But GDP has

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shown, at a minimum, that one of the easements – the one to benefit Geysers Power’s former

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competitor Occidental – was to allow construction of power lines carrying power from the

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Occidental plant and connecting to power lines on the Property. Sanchez-Elía Reply Decl. ¶¶ 5-

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7.4 Further, Geysers Power fails to identify evidence that its consent was sought or secured for the

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GDP-relied on easements.

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In addition, Geysers Power’s assertion that the PG&E easements relied on by GDP may not
concern transmission of power generated outside the Property is undermined by its own evidence.
Geysers Power’s declarant explains that between the 1960s and 1990s, PG&E operated its own
power plants on other properties in The Geysers and would transmit the energy via its own
“infrastructure” including transmission lines it owned and operated. Talkington Decl. ¶¶ 16-17.
Geysers Power does not identify any power plant owned by PG&E operating on the Property. The
only reasonable inference is that the transmission line easements identified by GDP allowed
PG&E to transport power generated at power plants not on the Property across the Property.
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Taken together, the easements (some of which were consented to and others which were

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not) and consents do not establish that the terms of the Lease and the 1956 amendment

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contemplate that GDP would need to seek Geysers Power’s permission to grant easements to third

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parties for transmission lines or related facilities. The record shows, at most, an inconsistent

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course of dealing between the parties. As a result, course of dealing does not support Geysers

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Power’s position as to how the Lease should be interpreted.

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In sum, the plain language of the Lease and the 1956 amendment demonstrate that GDP’s

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reserved rights encompass an ability to grant the type of easement at issue. Geysers Power has not

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demonstrated that such an easement will interfere with its operations on the Property as
contemplated by the Lease. Geysers Power has likewise not shown that it retains any power to

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Northern District of California

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issue a right or easement on the Property to a third-party for the installation, maintenance, and/or

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use of power transmission lines and facilities to transmit electric power derived from steam that

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was not extracted from the Property.

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CONCLUSION
For the reasons discussed above, I GRANT GDP’s motion for summary judgment and
DENY Geysers Power’s motion. Under the Lease and further agreements between the parties:
(a) GDP has the right to grant an easement or other permission on the Property, and in

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particular on Parcel APN 117-150-021, to a third-party for the installation, maintenance, and/or

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use of power transmission lines and facilities for the purpose of transmitting electric power

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derived from steam that was not extracted from the Property; and

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(b) Geysers Power does not have a right under the Lease to grant an easement or other

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permission on the Property to a third party for the installation, maintenance, and/or use of power

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transmission lines and facilities to transmit electric power derived from steam that was not

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extracted from the Property.

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Judgment shall be entered in accordance with this Order.

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IT IS SO ORDERED.

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Dated: August 6, 2018

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William H. Orrick
United States District Judge

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United States District Court
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