SGC Land, L.L.C. v. Louisiana Midstream Gas Services, L.L.C. et al

Filing 127

MEMORANDUM RULING re 112 MOTION for Summary Judgment filed by Chesapeake Operating Inc, Chesapeake Louisiana L P, Louisiana Midstream Gas Services L L C, 113 MOTION for Partial Summary Judgment filed by S G C Land L L C, Smithburg Inc. Signed by Judge S Maurice Hicks on 03/28/2013. (crt,McDonnell, D)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION

SGC LAND, LLC

CIVIL ACTION NO. 10-1778

VERSUS

JUDGE S. MAURICE HICKS, JR.

LOUSIANA MIDSTREAM GAS
SERVICES, CHESAPEAKE OPERATING,
INC., AND CHESAPEAKE LOUISIANA, LP

MAGISTRATE JUDGE HORNSBY

MEMORANDUM RULING
Before the Court is a Motion for Summary Judgment (Record Document 112) filed
on behalf of Defendants, Louisiana Midstream Gas Services, L.L.C., Chesapeake
Operating, Inc., and Chesapeake Louisiana, L.P. (collectively,“Chesapeake”).1 Plaintiffs,
SGC Land, L.L.C. and Smithburg, Inc., filed a Cross-Motion for Partial Summary Judgment
(Record Document 113) with respect to the alleged improper location and operation of a
pipeline on the property at issue. Additionally, the Plaintiffs oppose Chesapeake’s Motion
for Summary Judgment on all other issues. (Record Document 116). For the reasons that
follow, Chesapeake’s Motion for Partial Summary Judgment (Record Document 112) is
hereby GRANTED in part and DENIED in part. It is further ordered that Plaintiffs’ Motion
for Partial Summary Judgment (Record Document 113) is hereby DENIED.
BACKGROUND
On March 7, 2008, Smithburg, predecessor-in-title to SGC, entered into an Oil, Gas

1

See Record Document 112-114 at 1. Chesapeake Operating, Inc., Chesapeake Louisiana,
L.P. and Louisiana Midstream Gas Services refer to themselves collectively as
“Chesapeake.” Accordingly, the Court will address the claims against, and the liability of,
the three named parties as a single unit for purposes of the these motions.

and Mineral Lease (the “Lease”) with Suncoast Land Services, Inc. covering approximately
567 acres located in Section 12, Township 13 North, Range 13 West, DeSoto Parish,
Louisiana and Section 7, Township 13 North, Range 12 West, DeSoto Parish, Louisiana
(the “Smithburg Property”). Record Document 112-14 ¶ 1,2; 113-12 ¶ 1. In addition to the
general provisions found in the form lease, the lease contains Exhibit A which was
proposed and drafted by Urban E. Smith, Smithburg’s president. Record Document 112-14
¶ 4; 113-12 ¶ 4. This exhibit contains a surface damage payment provision requiring the
lessee to pay $2,000/acre for “well locations, access roads and pipeline rights of way as
damages for all surface areas physically contacted by Lessee’s operation on the lease
premises.” Record Document 112-2 ¶ 22. The exhibit also contained the following two
paragraphs:
23.

In the event the land is placed in a pooled unit or units, the leased
567.08 acres cannot be used for roads, canals, pipelines, tanks, water
wells, disposal wells, injection wells, pits, electric and telephone lines,
power lines or power stations, unless the well is drilled on the 567.08
acres.

26.

Lessee may not use any portion of the Lessor’s land leased herein for
the herein leased operations or related activities unless the actual well
site is located on Lessor’s 567.08 acres.

Record Document 112-2 ¶ 23, 26; 112-14 ¶ 5. Suncoast subsequently assigned all of its
right, title and interest in and to the lease to Chesapeake Louisiana, L.P.

Record

Document 113-12 ¶ 6. In February, 2009, Chesapeake spudded the Smithburg 7H No. 1
well (the “Smithburg Well”) on the 567.08 acres (the “Smithburg property”). Smithburg and
Chesapeake then entered into a Surface Damage Release and Grant of Surface Easement
(“SDR”) on March 12, 2009, which discharged and acquitted the operator of all liability for
damage to a specified area within the leased property, approximately 4.11 acres in size.
Page 2 of 19

Record Document 112-5. This SDR also granted an easement for the construction,
operation, and maintenance of a pipeline to service the Smithburg Well referenced in the
release. Id. In conjunction with the operations of the Smithburg Well, Chesapeake
constructed and utilized a “frac pond,” road, and a well site for parking vehicles and
equipment.
Chesapeake subsequently assigned to Louisiana Midstream Gas Services, Inc.
(“Midstream”) its right “to construct, operate, and maintain a pipeline, rights of ingress and
egress to the leased premises and all other necessary rights and purposes incident to
construction, operation and maintenance of the pipeline.” Record Document 112-6 at 3.
However, rather than simply construct a pipeline in accordance with the rights granted to
Chesapeake under the lease and subsequently assigned to Midstream, Midstream entered
into an additional and separate contract with Smithburg on July 22, 2009.

Record

Document 112-7. This contract, labeled “Easement and Right of Way Agreement,” allowed
for the installation of a pipeline across a specified portion of the property with no restrictions
preventing or limiting the pipeline from being used to transport third-party gas. Id.
Furthermore, based upon the email correspondence between Midstream and Smithburg,
it is clear that this easement was executed to ensure that the Midstream was permitted to
flow third-party gas through the pipeline. Record Document 113-11 at 3. Accordingly,
Midstream built the pipeline and subsequently transmitted gas from both the Smithburg
Well and the “Allen Well” (HA RC SUAA; Allen 18-13-12-H No. 1 Well, Serial No. 241015)
through the pipeline. Record Document 113-12 ¶ 15-17. The Allen Well is not located on
the leased property and/or properties unitized with the Smithburg property governed by the
lease. Id. By its own admission, Midstream constructed a portion of the pipeline outside
Page 3 of 19

of the agreed upon Right of Way (less than 30 feet of the pipeline was constructed no more
than 4.4 feet outside of the designated area.) Id. Additionally, Chesapeake has continued
to use the “frac pond,” road, and well site, which were built on the Smithburg property in
connection with the drilling and operations of the Smithburg Well, to service the Allen Well
located on the adjacent property.

The Plaintiffs have filed suit alleging that

despite specific limitations to the contrary, Chesapeake has, and continues to permit use
of a frac pond, pipelines, and a parking area for use in servicing other wells not located on
the property. Record Document 1-3 ¶ 12-16. Additionally, Plaintiffs allege Chesapeake
has, without permission or right, located its pipeline outside of the agreed to right of way
and trespassed upon the Plaintiffs’ property. Id., ¶ 23. Chesapeake subsequently filed the
instant Motion for Summary Judgment (Record Document 112) urging the Court to dismiss
all claims. Plaintiffs responded by filing a Motion for Partial Summary Judgment with
respect to the claims involving the improper location and operation of the pipeline at issue.
Record Document 113-1 at 1.
SUMMARY JUDGMENT
Summary judgment is proper pursuant to Rule 56 of the Federal Rules of Civil
Procedure when “there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.”2 Quality Infusion Care, Inc. v. Health Care Serv.
Corp., 628 F.3d 725, 728 (5th Cir. 2010). “A genuine issue of material fact exists when the
evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Id

2

The Court notes that the amended Rule 56 requires that there be “no genuine dispute as
to any material fact,” but this change does not alter the Court’s analysis. F.R.C.P. 56(a) and
advisory committee’s note (emphasis added). This Court considers this change to be a
distinction without a difference.

Page 4 of 19

(citations omitted). “Rule 56[(a)] mandates the entry of summary judgment, after adequate
time for discovery and upon motion, against a party who fails to make a showing sufficient
to establish the existence of an element essential to that party's case, and on which that
party will bear the burden of proof at trial.” Patrick v. Ridge, 394 F.3d 311, 315 (5th Cir.
2004). If the movant demonstrates the absence of a genuine dispute of material fact, “the
nonmovant must go beyond the pleadings and designate specific facts showing that there
is a genuine issue for trial.” Gen. Universal Sys., Inc. v. Lee, 379 F.3d 131, 141 (5th Cir.
2004).
The nonmovant's burden may not be satisfied by conclusory allegations,
unsubstantiated assertions, metaphysical doubt as to the facts, or a scintilla of evidence.
Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994); Wallace v. Texas Tech Univ.,
80 F.3d 1042, 1047 (5th Cir. 1996). Where critical evidence is so weak or tenuous on an
essential fact that it could not support a judgment in favor of the nonmovant, then summary
judgment should be granted. See Boudreaux v. Swift Transp. Co., 402 F.3d 536, 540 (5th
Cir. 2005). Factual controversies are to be resolved in favor of the nonmovant, "but only
when there is an actual controversy, that is, when both parties have submitted evidence
of contradictory facts." Wallace, 80 F.3d at 1048 (quoting Little, 37 F.3d at 1075); see also,
S.W.S. Erectors, Inc. v. Infax, Inc., 72 F.3d 489, 494 (5th Cir. 1996). Unless there is
sufficient evidence for a jury to return a verdict in the nonmovant's favor, there is no
genuine issue for trial. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-51, 106 S. Ct.
2505, 2511, 91 L. Ed. 2d 202 (1986). When the nonmovant has the burden of proof at trial,
he “must come forward with evidence which would be sufficient to enable it to survive a
motion for directed verdict at trial." Stults v. Conoco, Inc., 76 F.3d 651, 656 (5th Cir. 1996).
Page 5 of 19

If the nonmovant can not meet this burden, then “the motion for summary judgment must
be granted." Id; Little, 37 F.3d at 1076.
LAW AND ANALYSIS
“The Lease contract is the law between the parties, defining their respective legal
rights and obligations...as well as the rules for interpretation of contracts as laid down in the
Civil Code.” Frey v. Amoco Prod. Co., 603 So. 2d 166, 172 (La. 1992)(citations omitted).
The purpose of interpretation is to determine the common
intent of the parties. See La.Civ.Code art. 2045. Words of art
and technical terms must be given their technical meaning
when the contract involves a technical matter, see La.Civ.Code
art. 2047, and words susceptible of different meanings are to
be interpreted as having the meaning that best conforms to the
object of the contract. See La.Civ.Code art. 2048. A doubtful
provision must be interpreted in light of the nature of the
contract, equity, usages, the conduct of the parties before and
after the formation of the contract, and other contracts of a like
nature between the same parties. La.Civ.Code art. 2053. When
the parties made no provision for a particular situation, it must
be assumed that they intended to bind themselves not only to
the express provisions of the contract, but also to whatever the
law, equity, or usage regards as implied in a contract of that
kind or necessary for the contract to achieve its purpose.
La.Civ.Code art. 2054.
Id. “Where the language of a contract is clear and unambiguous, it must be interpreted
solely by reference to the four corners of that document.” Tammariello Properties, Inc. v.
Med. Realty Co., Inc., 549 So. 2d 1259, 1263 (La. App. 3d Cir. 1989). Additionally, “[a]
provision susceptible of different meanings must be interpreted with a meaning that renders
it effective and not with one that renders it ineffective.” La. Civ. Code art. 2049.
See Glassell v. Richardson Oil Co., 91 So. 431, 434 (La. 1922)(“A construction which
entirely neutralizes one provision of a written instrument should not be adopted if the

Page 6 of 19

contract is susceptible of another, which gives effect to all of the provisions.”)3
A. Trespass
There is no dispute that the pipeline located on the Smithburg property was
constructed outside the agreed upon right of way found in the Easement and Right of Way
Agreement (“Easement”) between Smithburg and Midstream. However to immediately
assess whether Midstream and/or Chesapeake has trespassed onto Plaintiffs’ property and
whether Chesapeake is required to pay a disgorgement of profits based on this breach of
the Easement is premature. Given the relief sought by Plaintiffs, this Court must first
resolve whether Chesapeake acted in bad faith in order to determine the appropriate
remedies.
It is important to note at the outset that there are numerous complex contracts
between the parties, each granting certain rights which potentially overlap with prior
agreements. While the Plaintiffs’ Motion for Partial Summary Judgment urges this Court
to exclusively analyze the Easement and Right of Way Agreement when ruling on damages
related to the pipelines improper location, it is possible that the pipeline’s current location
and/or operations are permitted under either the SDR or the original Lease. Even if the
SDR and Lease do not authorize the pipelines current location and use, these documents
are nevertheless important as evidence of whether there was honest doubt as to the rights
of the parties and whether Chesapeake acted in good faith.
It is clear that the SDR grants an “easement for the construction, operation and

3

The Court is aware of the recent Louisiana Supreme Court holding in Clovelly Oil Co., LLC
v. Midstates Petroleum Co., LLC 2013 WL 1115296, 2012-2055 (La. 3/19/13). This
decision is in accord with the principles of contract interpretation cited today.

Page 7 of 19

maintenance of a pipeline to service the Well.”4 This contract does not specify the exact
location in which the servicing pipeline must be constructed; rather, it specifies the location
of the well and leaves open the location of any servicing pipeline. Because the pipeline at
issue did, in fact, service the Smithburg Well, Chesapeake was permitted to construct the
servicing pipeline at its present location. However, the rights granted by the SDR are
limited in that the SDR specifically grants an easement for a pipeline servicing the
Smithburg well, but does not grant a blanket right to transport third-party gas through the
pipeline. The SDR can only be used as justification for the present location of the pipeline,
but cannot be used to justify its transportation of third-party gas. Accordingly, the Court
shifts its analysis to the Lease, specifically paragraph 23 and 26, the clauses most relied
upon by both parties in support of their motions.
Paragraphs 23 and 26 state the following:
23.

In the event the land is placed in a pooled unit or units, the
leased 567.08 acres cannot be used for roads, canals,
pipelines, tanks, water wells, disposal wells, injection wells,
pits, electric and telephone lines, power lines or power
stations, unless the well is drilled on the 567.08 acres.

26.

Lessee may not use any portion of the Lessor’s land leased
herein for the herein leased operations or related activities
unless the actual well site is located on Lessor’s 567.08
acres.

While the mineral lease grants a broad set of rights with respect to land use by
Chesapeake, paragraph 23 and 26 were added as an addendum by Mr. Smith in an effort
to limit those rights. Although inartfully worded, this clause at least attempts to set

4

It is clear from the context of the sentence that “the Well” is a reference to the Smithburg
Well located on the 4.11 acres of Smithburg’s property referred to in the contract.

Page 8 of 19

parameters regarding use of the Smithburg property. Chesapeake interprets these clauses
as only establishing a condition precedent, i.e., once “the well” on the Smithburg property
is drilled, Chesapeake can use the Plaintiffs’ property for all roads, canals, pipelines, tanks,
water wells, disposal wells, injection wells, pits, etc. regardless of which well they service.
This Court is not inclined to take such an expansive reading of the Lease. To do so would
not only nullify paragraph 26, but expand its intended scope. While paragraphs 23 and 26
do create a condition precedent, a detailed reading of those clauses reveals qualifiers and
limitations relevant to this dispute.
Paragraph 26 acts as a “catch all” phase, prohibiting the use of any portion of
Lessor’s land for the leased operations or related activities unless the actual well site is
located on Lessor’s 567.08 acres. Worded another way, paragraph 26 requires that use
of the Smithburg property be for leased operations or related activities. While it appears
that paragraph 23 permits use of the leased property to service wells located on land
pooled or unitized with the leased property once the Smithburg Well had been drilled,
paragraph 26 limits this right to only include those wells contemplated by the Lease. There
is no dispute that the Allen Well is not located on the property and/or properties unitized
with the 567.08 acres covered by the lease and therefore does not fall under the umbrella
of “herein leased operations” or “related activities.”
Accordingly, the pipeline’s location is permitted by the Lease and SDR, but the
current operations of transmitting third-party gas through the pipeline is not. Such activity
is beyond the scope of the both the form mineral lease and the addendum. However,
Chesapeake’s misinterpretation of the condition precedent is reasonable, leading to honest
doubt as to the exact meaning of paragraphs 23 and 26 in relation to the rest of the lease.
Page 9 of 19

Additionally, when considering the scope of all the contracts, including the Easement
and Right of Way Agreement, this violation is not nearly as serious as opined by the
Plaintiffs. Midstream was both permitted to construct a pipeline anywhere on the property
and permitted to transmit third party gas through the pipeline if located on a specified
portion of the land. Midstream’s transportation of third-party gas through the pipeline that
was inadvertently constructed four (4) feet outside the right of way and did not harm
Plaintiffs. This violation is more accurately classified as a breach of contract, not a
trespass.
Under Louisiana law, a civil trespass is defined as the “unlawful invasion of the
property or possession of another.” Boudreaux v. Plaquemines Parish Gov’t, 22 So. 3d
1117, 1118 (La. App. 4th Cir. 2009). As established above, Chesapeake was authorized
to construct the pipeline virtually anywhere on the property in order to service any well
located therein, and therefore did not unlawfully invade Plaintiffs’ property with respect to
the placement of the pipeline.

While the Easement and Right of Way Agreement did

establish a set location to place the pipeline in order for it to transport third-party gas, the
Court does not believe that Chesapeake trespassed onto Plaintiffs’ land when it transported
third-party gas through the minor deviation in the pipeline’s agreed upon path. However
it is not necessary to determine whether that act of transporting third-party gas in the
misplaced pipeline is a breach of contract, encroachment, or a technical trespass.
Regardless of how the violation is classified, Plaintiffs are not entitled to a disgorgement
of profits.
Under Louisiana law, the remedy of “disgorgement of profit” is available upon the
showing of bad faith possession.

See generally, Corbello v. Iowa Production Co.,
Page 10 of 19

2002-0826 (La. 2/25/03), 850 So. 2d 686, (superseded by statute on other grounds as
stated in State v. Louisiana Land and Exploration Co., 2012-0884 (La. 1/30/13), 6 ); La.
Civ. Code art. 486. See also Rosenthal-Brown Fur Co. v. Jones-Frere Fur Co., 162 La.
403, 411, 110 So. 630, 633 (1926) ("The question whether a possessor be in good faith or
in bad faith (legal or actual) is the sole factor in determining whether such possessor should
or should not account for the fruits of his possession."). This doctrine stems from La. C.C.
art. 486 which provides in part that a possessor in bad faith is bound to restore to the owner
the fruits5 he has gathered, or their value. See also Wagoner v. Chevron USA Inc., 45,507
(La. App. 2 Cir. 8/18/10), 55 So. 3d 12, 19 writ denied, 2010-2773 (La. 3/2/12), 83 So. 3d
1032.
The Plaintiffs seek damages for trespass, including disgorgement of profits for
transmitting third-party gas through the pipeline. Record Document 113-1 at 12. This
Court must stress that, despite repeated arguments to the contrary, Plaintiffs have failed
to satisfy the sole determining factor in a disgorgement of profits claim. The Plaintiffs have
not presented any evidence showing legal bad faith on the part of Midstream/Chesapeake
in the construction or operation of the pipeline. Midstream specifically negotiated an
agreement with the Plaintiffs for the sole purpose of transporting third-party gas and
attempted to construct the pipeline in accordance with such. While Plaintiffs place great
weight on the fact that Mr. Smith informed Midstream that the “pipeline route was being
surveyed outside of the agreed upon right of way,” the minor variation in the pipeline’s

5

La. C.C. art. 551 defines fruits as things that are produced by or derived from another thing
without diminution of its substance; Article 551 further specifies that civil fruits are revenues
derived from another thing, such as rentals, interest, and certain corporate distributions.

Page 11 of 19

actual location was in an entirely different area than that complained of by Mr. Smith during
the surveying. See Record Document 118-2. Furthermore, the Plaintiffs have not provided
any evidence demonstrating any advantages, financial incentives, or profits which would
motivate the deviation of four feet from the agreed upon right of way. Chesapeake did not
receive any additional profits attributable to placing the pipeline slightly outside the planned
path. Ultimately, a review of the entire record reveals an inadvertent surveying mistake,
not bad faith. Additionally, any mistaken interpretation stemming from paragraphs 23 or
26 was not unreasonable. This Court finds that no reasonable juror could find that
Chesapeake, specifically Midstream, acted in bad faith when constructing the pipeline and
award Plaintiffs a disgorgement of profits.
The Court finds the more appropriate analysis regarding damages stems from the
doctrine of encroachment found in La. C.C. art. 670:
When a landowner constructs in good faith a building that encroaches
on an adjacent estate and the owner of that estate does not complain
within a reasonable time after he knew or should have known of the
encroachment, or in any event complains only after the construction
is substantially completed the court may allow the building to remain.
The owner of the building acquires a predial servitude on the land
occupied by the building upon payment of compensation for the value
of the servitude taken and for any other damage that the neighbor has
suffered.
Here, Chesapeake, considered landowners based on their rights acquired from both the
Lease and the easement, built a structure6 in good faith on adjacent land, without complaint
by the Plaintiffs about the actual encroachment at issue prior to the pipeline being

6

See Winingder v. Balmer, 632 So. 2d 408, 411 (La. Ct. App. 1994); Lakeside Nat. Bank of
Lake Charles v. Moreaux, 576 So. 2d 1094, 1098 (La. Ct. App. 1991).

Page 12 of 19

substantially completed. The Court finds that as a matter of law, Chesapeake is entitled to
a predial servitude of the reasonable area surrounding the pipeline located outside the
agreed upon right of way in which the pipeline has been constructed.

However,

Chesapeake is obligated to pay fair compensation for the value of this servitude.
As an added and alternative justification for today’s ruling, this Court proceeds in
equity under La. C.C. art. 4. Even if Midstream’s construction of the pipeline did not satisfy
each of the technical requirements of Article 670, no reasonable juror could find that
Chesapeake, through Midstream, acted in bad faith in constructing the pipeline. There is
no competent evidence in the record proving or indicating that the ultimate location of the
pipeline involved bad faith. Furthermore, the Plaintiff has been unable to identify any
damage suffered from the slight deviation of the pipeline outside the designated right of
way. Accordingly, this Court is not inclined to resort to the harsh remedy of requiring either
the destruction of the encroaching pipeline or the disgorgement of profits under the
circumstances presented. Plaintiffs’ Motion for Partial Summary Judgment with respect to
the improper location and operation of the pipeline is denied.
B. Abandonment
Plaintiffs also now seek a release of the Easement and Right of Way Agreement
between Smithburg and Midstream based upon an alleged non-use of the pipeline between
February, 2010 and mid-July, 2010, a period longer than two months. The Easement and
Right of Way Agreement between Midstream and Smithburg contained the following clause
entitled “Special Provisions:”
[Midstream] agrees, that in the event of the complete non-use of said
pipeline by [Midstream], its successors and assigns, for a period of
Page 13 of 19

two (18) consecutive months this Easement and right of way shall
be considered abandoned and [Midstream] shall furnish at its
expense, upon receipt of written request from Grantor, a release of
the Easement and right of way, in which event [Midstream] shall have
the right to abandon the pipeline in place or remove said pipeline.
Record Document 112-7 ¶ 12, emphasis added. Under Louisiana law, when the printed
contract provisions irreconcilably conflict with the provisions added by the parties, the
added provisions will control. Clovelly Oil Co., LLC v. Midstates Petroleum Co., LLC 2013
WL 1115296, 2012-2055 (La. 3/19/13) (citing Kuhn v. Plauche Real Estate Co., 249 La. 85,
185 So.2d 210 (1966). This rule necessarily follows from the fundamental principle that the
primary goal of contract interpretation is to ascertain the intent of the parties. Id.
Chesapeake has presented evidence that while the industry standard for abandonment
clauses for this type of contract clause is two years, Midstream specifically shortened the
non-period use to eighteen months by adding “18." See Record Document 112-1 at 15.
See also Record Document 113-11. However, when changing its form contract, Midstream
inadvertently left in the word “two.” Id. Accordingly, the added provision, number “18,”
controls over the form number “2,” and the Court hereby finds the non-use period is
eighteen (18) months.
Additionally, courts should refrain from construing the contract in such a manner as
to lead to absurd consequences. Amend v. McCabe, 95–0316 (La.12/1/95), 664 So.2d
1183, 1187; La. C.C. art. 2046. Interpreting the abandonment clause as only allowing two
months of non-use before termination the agreement would lead to the absurd results. Not
only would this short time period be significantly shorter than industry custom, but it would
allow the Plaintiff to terminate the right of way prior to the expiration of the 90-day period
provided for in the lease in which Chesapeake was entitled to restore production after a
Page 14 of 19

well ceases to produce. Plaintiffs have not presented evidence of an eighteen-month
period of non-use of the pipeline, and are, therefore, are not entitled to termination of the
Easement and Right of Way Agreement.
C. Use of Frac Pond, Road, and the Well site
While most of this Courts analysis has been focused on the location and operation
of the pipeline, the other aspects of the Plaintiffs’ complaint can be resolved under the
same rationale. Chesapeake’s use of frac pond, road, and well site on the Plaintiffs’
property to service the Allen Well also falls under paragraph 26. As established above,
Paragraphs 26 does not grant unlimited rights once the well has been drilled. However,
there was reasonable and honest doubt as to the exact parameters and appropriate
application and/or interpretation of paragraphs 23 and 26.
1. Dissolution of the Lease
Under Louisiana law, the "right to dissolve a lease is subject to judicial control
according to the circumstances." Walker v. Chesapeake Louisiana, L.P., 440 F. App'x 254,
256 (5th Cir. 2011) (citing Sieward v. Denechaud, 120 La. 720, 728, 45 So. 561, 564
(1908). "Judicial control is an equitable doctrine by which the courts will deny cancellation
of the lease when the lessee's breach is of minor importance, is caused by no fault of his
own, or is based on a good faith mistake of fact." Id. (citing W. Sizzlin Corp. v. Greenway,
821 So.2d 594, 601 (La.Ct.App.2002). Louisiana courts have interpreted the “good faith
mistake defense” to include “honest doubt” as to the rights of the parties under a lease or
when technically in default when there is a bona fide defense. Rudnick v. Union Producing
Co., 209 La. 943, 949, 25 So. 2d 906, 908 (1946). It is also is clear that Louisiana
jurisprudence does not favor lease cancellation. Id. (citing Carriere v. Bank of Louisiana,
Page 15 of 19

95-3058 (La. 12/13/96), 702 So. 2d 648, 653). In light of these factors, dissolution of the
present Lease is not warranted. While Chesapeake was in technical default when they
serviced the non-unitized Allen Well using the Smithburg property, this default was based
on a good faith mistake and honest doubt as to the rights of the parties.
As stated previously, Paragraphs 23 and 26 were inartfully worded.

These

paragraphs did, in fact, create a condition precedent in which it was permissible for
Chesapeake to use the Smithburg property to service other wells after the Smithburg Well
was drilled. Mr. Smith, the party who drafted Paragraphs 23 and 26, did not include a
clause limiting the Smithburg property to “exclusively service” only those wells located on
said property. Accordingly, the limitations of the condition precedent were unclear, and this
Court hereby finds that there was honest doubt as to the rights of the parties under the
Lease.

Furthermore, any breach described here by Plaintiffs was and is of minor

importance. Not only has Mr. Smith failed to testify as to any damage to his property, but
the frac pond, roadway, and well site parking area were already rightfully constructed in
connection with the servicing of the Smithburg Well. The Plaintiffs have not submitted
evidence demonstrating that the continued use of these property features significantly
harmed Plaintiffs or altered the nature of the property.
2. Disgorgement of Profits
Plaintiffs are also not entitled to a disgorgement of profits stemming from use of the
Smithburg property to service the Allen Well. As discussed ad nauseam, Plaintiffs’ have
clearly failed to establish that Chesapeake was a bad faith possessor of the property. It is
also doubtful as to whether Plaintiffs could establish that Chesapeake has gained an
economic benefit which qualifies as a civil fruit under La. C.C. art. 551. See Wagoner v.
Page 16 of 19

Chevron USA Inc., 45,507 (La. App. 2 Cir. 8/18/10), 55 So. 3d 12, 19. As in Wagoner,
nothing was produced by or derived from the property as a result of its use, and there were
no revenues, such as rentals, interest or a corporate distribution, derived from the property.
Any substance or revenue that was produced was not derived from the Smithburg property,
but was rather derived from the adjacent property.
In its opposition to Chesapeake’s Motion for Summary Judgment, Plaintiffs place
great weight on the fact that Mr. Smith is not an attorney and does not know what legal
damages he may be entitled to under Louisiana law. Record Document 116 at 20. This
statement is correct. However, this Court has rejected Plaintiffs’ claim for legal damages
under Louisiana trespass law, such as disgorgement of profits or a termination of the lease,
leaving available only those actual damages to Plaintiffs’ property. However, Mr. Smith has
failed to testify as to what those damages are. Any change to the surface of Plaintiffs
property was already rightfully made under the lease to drill and service the Smithburg
Well. Continued use of those features on the Smithburg property did not appear to result
in harm to the Plaintiffs. Accordingly, this Court finds that Chesapeake’s prior breach of
contract constitutes a “good faith mistake” as to their rights stemming from the Lease, and
Plaintiffs are not entitled to damages based on this past use of the Leased property.
CONCLUSION
The Court finds that the Chesapeake and/or Midstream did not trespass onto
Plaintiffs’ land when it constructed and operated the pipeline which serviced both the
Smithburg and Allen Wells. While the pipeline’s location deviated by approximately four
feet from the Easement and Right of Way Agreement, its location was permitted per the
Lease and SDR. The flow of third-party gas is more akin to encroachment, or breach of
Page 17 of 19

contract, rather than trespass. However, irrespective of the exact nature of the violation,
Plaintiffs have not demonstrated bad faith on the part of Chesapeake. Not only was the
deviation from the right of way inadvertent, but there was honest doubt as to the exact
parameters of paragraphs 23 and 26 with respect to servicing other wells.
Furthermore, there is no evidence that Chesapeake acted in bad faith when it used
the frac pond, road, and well site to service the adjacent well. There was honest doubt as
the parties’ right to use existing structures to service adjacent wells under the lease. The
frac pond, road, and well site where rightfully constructed in accordance with Chesapeake’s
right to service the Smithburg Well, and Plaintiffs have also failed to demonstrate any
damages to the Smithburg property stemming from Chesapeake’s continued use of the
property to service the Allen well. Plaintiffs are not entitled to a disgorgement of profits
related to the pipeline, frac pond, road, or well site. The Plaintiffs are also not entitled to
a termination of the Lease or the Easement and Right of Way Agreement. Finally,
Chesapeake is not required to pay damages for its past use of the Smithburg property in
connection with servicing the Allen Well, with the exception of the value of predial servitude
and other actual damages that Plaintiff has suffered stemming from the construction of the
pipeline outside the agreed upon right of way. However, Plaintiffs have not submitted any
evidence on the matter as to the extend of those actual damages.
Accordingly,
IT IS ORDERED that Chesapeake’s Motion for Summary Judgment (Record
Document 112) be and hereby is GRANTED and all claims against Louisiana Midstream
Gas Services, L.L.C., Chesapeake Operating, Inc., and Chesapeake Louisiana, L.P. are

Page 18 of 19

DISMISSED in all respects with the exception of actual damages to Plaintiffs’ property as
they relate to the predial servitude.
IT IS FURTHER ORDERED that Plaintiffs’ Motion for Partial Summary Judgment
(Record Document 113) be and hereby is DENIED. An Order consistent with the terms of
the instant Memorandum Ruling shall issue herewith.
THUS DONE AND SIGNED, in chambers, Shreveport, Louisiana on this 28th day
of March, 2013.

Page 19 of 19