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

Filing 65

MINUTES for proceedings held before Judge Elizabeth E Foote: ORAL ARGUMENT held on 9/26/2011 re 48 MOTION for Partial Summary Judgment filed by Chesapeake Operating Inc, Chesapeake Louisiana L P, Louisiana Midstream Gas Services L L C. For reasons stated orally on the record and summarized herein, the Court denied 48 Motion for Partial Summary Judgment. (Court Reporter: Barbara Simpson) (crt,Keifer, K)

MINUTES [1:30]
September 29, 2011
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION

SGC LAND, LLC. and SMITHBURG, INC.

CIVIL ACTION NO. 10-1778

VERSUS

JUDGE ELIZABETH ERNY FOOTE

LOUISIANA MIDSTREAM GAS SERVICES,
LLC, ET AL

MAGISTRATE JUDGE HORNSBY

On September 26, 2011, the Court conducted oral argument on Defendants’ motion
for partial summary judgment as to the Plaintiffs’ claim of trespass. [Record Document
48]. For the reasons stated orally on the record and summarized below, the Court
DENIED Defendants’ motion.
The parties do not dispute that Defendant Louisiana Midstream violated the
Easement and Right of Way Agreement executed by the parties on July 22, 2009 [Record
Document 64] by building a pipeline outside of the area specified by the Easement. In
defense, Defendants point to language in the Oil, Gas & Mineral Lease of March 7, 2008
[hereinafter “Lease”, Record Document 14] that they contend granted them the right to
build a pipeline anywhere on Plaintiffs’ property. Defendants moved for partial summary
judgment, contending that the language of the Lease entitled them to judgment as a
matter of law. [Record Document 48-1, pp. 3 and 4].

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In giving its reasons for judgment, the Court outlined the following timeline which
provides the backdrop for this litigation:
March 7, 2008

Suncoast Land Services, Inc. (Suncoast) entered into the Lease
with Smithburg. [Record Document 14]. Sometime later,
Suncoast assigned its interest in the mineral lease to
Chesapeake Louisiana, L.P. (Chesapeake La.).

Feb./March 2009

The Smithburg well was spud. [Cf. Chesapeake Material
Undisputed Fact #5, Record Document 48-5, p.2, with SGC
disputed fact #5, Record Document 51, p.2].

March 12, 2009

Smithburg and Chesapeake Operating, Inc. entered into a
“Surface Damage Release and Grant of Surface Easement”,
regarding the location of the well. [Record Document 14-2].

March 26, 2009

Chesapeake Louisiana L.P. entered into a “Partial Assignment
and Assumption of Lease Agreement” with Louisiana
Midstream Gas Services, L.L.C. (La. Midstream) transferring to
it the right to construct a pipeline on the land. [Record
Document 48-3].

July 22, 2009

Smithburg and La. Midstream entered into an “Easement and
Right of Way Agreement” (pipeline agreement) providing for
the installation of a pipeline across a specific section of the
property defined by an attached plat. [Record Document 64].

August 2009

The pipeline at issue was constructed on the property, but it
deviated from the section of property specified in the
Easement and Right of Way.

August 20, 2009

Chesapeake La. transferred “an interest” in the lease to
Larchmont. [Record Document 26, pp.2-3].

August 28, 2009

The Smithburg well was completed.

September 2009

The well began producing.

October 9, 2009

Smithburg donated all of its interest in the property at issue to
SGC Land, L.L.C.. [Record Document 18, p.1].

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2010

The Allen Well was spud on adjacent property and began
producing. Defendants attempted to get into evidence on the
day of oral argument proof of the precise dates of the first
production by the Allen Well. The Court did not allow this
evidence. However, it is undisputed by the parties that there
is a well which was built on adjacent property and which has
produced in the past and may still be producing. Indeed,
Plaintiffs’ claims of both trespass and breach of contract center
on the allegation that their property has been improperly used
for the construction and production of the Allen Well.

Thus, there are three contracts before the Court that define the parties’ rights and
obligations toward each other: the 2008 “Oil, Gas, and Mineral Lease”; the 2009 “Surface
Damage Release and Grant of Surface Easement”; and the 2009 “Easement and Right of
Way Agreement”. Also before the Court is the 2009 “Partial Assignment and Assumption
of Lease Agreement” between Chesapeake La. and Louisiana Midstream which may also
be useful to the Court in understanding the legal and contractual rights among the parties.
In urging summary judgment, Defendants rely on the general and broad grant of
rights to them to lay pipeline contained in paragraphs 1 and 9 of the “Oil, Gas, and Mineral
Lease” for their argument that this contract grants to them the right to construct and
maintain pipelines anywhere and for any purpose on the Plaintiffs’ property:
1. Lessor... hereby grants and lets exclusively unto Lessee for the purposes of...
laying pipe lines... useful or convenient to or in connection with any such operations
conducted by Lessee thereon, or on any lands pooled therewith, the following
described land in DeSoto Parish, Louisiana...
9.... In exploring for, developing, producing and marketing oil, gas and other
substances covered hereby on the leased premises or lands pooled or unitized
therewith... Lessee shall have the right of ingress and egress along with the right
to conduct such operations on the leased premises, or on any adjoining lands, as
may be reasonably necessary for such purposes, including but not limited to the
drilling of wells, construction and use of roads, canals, pipelines....
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[Record Document 14, pp. 1 and 2]
Plaintiffs, on the other hand, point to the limiting language in paragraphs 23 and 26
which they contend restricted the Defendants’ ability to construct or maintain pipelines to
only those pipelines which exclusively service the well on Plaintiffs’ property:
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.
[Id., p.5].
It is clear that the general language in paragraphs 1 and 9 of the mineral lease does
indeed grant broad rights to the Defendants. What is then at issue in the motion for
summary judgment is the meaning of paragraphs 23 and 26 which contain the restrictive
language.

The Court discussed with Counsel three possible interpretations of these

paragraphs:
1) The interpretation advanced by Plaintiffs in their briefs is that only pipelines that
exclusively benefit a well on Plaintiffs’ land are permitted on their property under the
mineral lease. (Plaintiffs concede that the pipeline agreement expands Defendants’ rights
but contends that those rights are limited by the pipeline plat and subject to other
conditions in that agreement, such as abandonment for non-use.) As the only questions
before the Court at the hearing were whether the language of the Lease was clear and
explicit and whether Defendant’s interpretation of the Lease was correct as a matter of law,
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the Court did not determine whether Plaintiffs’ interpretation was correct as a matter of
law.

Furthermore, the Court noted in its reasons that even assuming that this

interpretation of the language is correct, the Court lacked factual evidence necessary to
grant judgment. Counsel for Defendants and Plaintiffs disputed whether the Smithburg
well - the well located on Plaintiffs’ property - has stopped producing. Furthermore, the
status of the Allen Well - a well outside of Plaintiffs’ property that allegedly produced gas
that was transported through pipelines on Plaintiffs’ property - is disputed by the parties.
Therefore, the Court noted that even if this interpretation of the Lease is correct, there
exist material issues of fact which preclude summary judgment at this time.
2) The Court and Counsel discussed whether the Lease allows Defendants to build
and use a pipeline on Plaintiffs’ land that serves a well outside of Plaintiffs’ property so long
as the pipeline also serves a well located on Plaintiffs’ property. As noted above, Counsel
for Defendants and Counsel for Plaintiffs disputed whether the Smithburg well - the well
located on Plaintiffs’ property - has stopped producing. Furthermore, the status of the
Allen Well - a well outside of Plaintiffs’ property that allegedly produces gas that is
transported through pipelines on Plaintiffs’ property - has not been proven by either party.
Given these questions of material fact, the Court ruled that Defendants would not be
entitled to summary judgment even if this interpretation of the Lease were correct as a
matter of law.
3) Finally, the Court and Counsel discussed Defendants’ argument that the Lease
established the building of a well on Plaintiffs’ land as a condition precedent to Defendants’

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ability to build pipelines on Plaintiffs’ land that serve any well. That is, Defendants argued
that once a well was built on Plaintiffs’ land, Defendants had the right to build pipelines
anywhere and everywhere on the property and for any purpose. Defendants appear to
be arguing for this interpretation of the contract in their argument that if a landowner
allows construction of telephone wires across his property, it does not matter whether the
calls which are “traveling” across those wires are the landowners or his neighbors. The
Court asked Counsel why La. Midstream (as assignee of Chesapeake) thought it necessary
to execute the pipeline agreement if the Lease already granted it the right to build the
pipeline in question. Counsel stated that such easements were the custom and usage of
the industry.

It was the Court’s opinion that unless Defendant could make a more

convincing argument that the Lease clearly allows the Defendants to build the pipeline in
question, the Court would need evidence of the custom and usage of the industry in order
to determine the common intent of the parties in the various contracts. LA . CIV. CODE ANN.
art. 2045, 2053. The Court was not persuaded that Defendants had succeeding in carrying
their burden of proving that they are entitled to judgment as a matter of law, since
Defendants failed to convincingly show that the Lease must be interpreted in either of the
two ways for which Defendants argue.
Defendants also argued that even if the cause of action for the misplaced pipeline
does survive summary judgment, that cause of action sounds in contract and not in tort.
The underlying difference is that the measure of damages would be different for a breach
of contract versus a tortious act. Neither counsel provided the Court with adequate briefing

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on this issue and accordingly the Court did not decide this issue.
Because Defendants did not persuade the Court that the language of the Lease was
clear and explicit, the Court found that Defendants had not shown that no further
interpretation beyond the four corners of the Lease was required to determine the party’s
intent. LA. CIV. CODE ANN. art. 2046 (2009). Furthermore, even if the Court did accept one
of the first two interpretations of the contractual language, the Court would require facts
that the Defendant has not proven in order to render summary judgment. Since
Defendants failed to carry their burden of showing that they are entitled to judgment as
a matter of law the Court DENIED their motion for partial summary judgment.

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