Dickson et al v. Petrohawk Properties L P et al
Filing
44
MEMORANDUM OPINION denying 32 Motion for Partial Summary Judgment; denying 34 Motion for Summary Judgment. Signed by Judge Elizabeth E Foote on 4/29/2013. (crt,Keifer, K)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION
C. BICKHAM DICKSON, III, ET AL
CIVIL ACTION NO. 5:11-cv-00352
VERSUS
JUDGE ELIZABETH ERNY FOOTE
SKLARCO L.L.C. And
PETROHAWK PROPERTIES, L.P.
MAGISTRATE JUDGE MARK HORNSBY
MEMORANDUM OPINION
Cross motions for summary judgment on the issue of the interpretation of
the terms of two oil, gas and mineral leases are pending before the Court. [Record
Documents 32 and 34]. Plaintiffs, C. Bickham Dickson, III, James Scott Dickson, Denise
Merrell Dickson, Michael Robert Dickson, Martha Ann Dickson Bigler, and Addie Smith
Dickson (collectively “Plaintiffs”), claim in the underlying case that Defendant Petrohawk
Properties, LP (“Petrohawk”) violated the terms of two Oil, Gas and Mineral Leases by
deducting post production costs, including transportation and gathering, from royalty
payments due to Plaintiffs. In the motions before the Court, both parties claim that the
contracts are unambiguous and this unambiguous language should be interpreted to
render judgment in their respective favors. For the reasons stated herein, the Court: 1)
DENIES Plaintiffs’ Motion for Partial Summary Judgment [Record Document 32]; and 2)
DENIES Petrohawk’s Motion for Summary Judgment [Record Document 34].
Page 1 of 19
I.
Factual and Procedural Background
The dispute between the parties centers around the terms of two Oil, Gas
and Mineral Leases. Plaintiffs are owners and/or usufructuaries of approximately
1,385.52 acres in Caddo Parish, Louisiana.1 The Plaintiffs, and their predecessors in
interest, granted a series of Oil, Gas and Mineral Leases to Sklarco L.L.C. (“Sklarco”), as
sole lessee, dated September 1, 2005 and recorded December 14, 2005 in the
Conveyance Records of Caddo Parish, Louisiana (the “Leases”).2 The Lessors on the
Lease bearing Registry Number 2011891 (the “Dickson Family Lease”) are Sunflower
Plantation, L.L.C., C. Bickham Dickson, Jr., C. Bickham Dickson, III, Michael Augustus
Dickson, and James Scott Dickson.3 The second Lease, bearing Registry Number
2011893, was granted by C. Bickham Dickson, III (the “Bickham Dickson Lease”).4 The
Leases are both on Bath forms, provide for three year primary terms, and contain
identical post-production cost clauses.5 The Exhibits “A” to the Leases provide the legal
description of the property covered by the Leases, and the Exhibits “B” to the Leases
provide additional provisions that are made a part of the Leases.6
1
Record Document 32-2, p.2
2
Id. , Record Document 34, p.1
3
Record Document 34, p.1
4
Id.
5
Record Document 1, Exhibit 1 in globo.
6
Id.
Page 2 of 19
Sklarco and Petrohawk executed a Partial Sublease of Oil, Gas and Mineral
Leases dated effective February 1, 2008, by which Petrohawk acquired the rights to the
Leases to the depths from and below the Hosston Zone, Reservoir A, Cedar Grove Field,
as defined by the Louisiana Office of Conservation Order No. 967, dated January 28,
1976.7 Plaintiffs granted an Extension of Oil, Gas and Mineral Leases, dated effective
July 1, 2008, recorded on August 8, 2008, under Registry Number 2176805 in the
Conveyance Records of Caddo Parish, Louisiana, to Sklarco and Petrohawk, which
extended the primary terms of the Leases until August 31, 2011.
8
At dispute between the parties is the interpretation of one of the
provisions contained in the Exhibits “B” to the Leases. Paragraph 7 of Exhibit “B” in the
Dickson Family Lease and Paragraph 8 of Exhibit “B” in the Bickham Dickson Lease
provide in full9:
The parties agree that post production costs may be deducted from
Lessor’s share of the proceeds from the sale of crude oil, natural gas
or other minerals payable as royalty under this Lease insofar and only
insofar as such costs either enhance the value of the product being
sold and the price obtained for such product or are required to make
the product marketable. Without limitation upon the foregoing, the
treating, processing or dehydrating of natural gas to meet pipeline
quality specifications shall be deemed to enhance the value of the
product being sold.
7
Record Document 34, p.3
8
Id.
9
The addendum in Paragraph 7 and Paragraph 8 is identical, and shall be
referenced herein as “Paragraph 8" for simplicity.
Page 3 of 19
Plaintiffs and Petrohawk agree that after drilling several wells on the
leased property, Sklarco paid royalties to Plaintiffs without any deductions.10 The parties
agree that Petrohawk paid royalties to the Plaintiffs without any deductions until
approximately May 2010, at which time it began deducting gathering and transportation
costs.11
Both Plaintiffs and Petrohawk argue that Paragraph 8 is unambiguous.12
However, Plaintiffs believe that Paragraph 8 prohibits the deduction of gathering and
transportation costs from their royalty payments under the Leases, and Petrohawk
believes that it is allowed to reduce those costs from the royalty payment under the
terms of the Leases.
II. Summary Judgment Standard
Summary judgment is proper pursuant to Rule 56 of the Federal Rules of
Civil Procedure “if the pleadings, depositions, answers to interrogatories, and
admissions on file, together with the affidavits, if any, show that there is no genuine
issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S. Ct. 2548, 2552, 91
L.Ed.2d 265 (1986). Rule 56(c) “mandates the entry of summary judgment, after
adequate time for discovery and upon motion, against a party who fails to make a
10
Document 32-2, p.4; Record Document 34-1, p. 2
11
Document 32-2, p.5; Record Document 34-1, p. 6
12
Record Document 32-2, p. 7; Record Document 34-1, p. 11.
Page 4 of 19
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.” Id., 477 U.S. at
322, 106 S. Ct. at 2552. If the party moving for summary judgment fails to satisfy its
initial burden of demonstrating the absence of a genuine issue of material fact, the
motion must be denied, regardless of the nonmovant's response. Little v. Liquid Air
Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc). If the motion is properly made,
however, Rule 56(c) requires the nonmovant to go “beyond the pleadings and
designate specific facts in the record showing that there is a genuine issue for trial.”13
Wallace v. Texas Tech. Univ., 80 F.3d 1042, 1047 (5th Cir. 1996) (citations omitted).
While 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, 37 F.3d at 1075, Wallace, 80 F.3d at 1047, all factual controversies
must be resolved in favor of the nonmovant. Cooper Tire & Rubber Co. v. Farese, 423
F.3d 446, 456 (5th Cir. 2005).
As this case is before the Court under diversity jurisdiction, the Court must
apply the substantive law of the forum state. Bradley v. Allstate Ins. Co., 620 F.3d 509,
517 n.2 (5th Cir. 2010) (citing Erie R.R. v. Tompkins, 304 U.S. 64 (1938)). The Fifth
13
Additionally, Local Rule 56.1 requires the moving party to file a statement of material facts
as to which it contends there is no genuine issue to be tried. Pursuant to Local Rule 56.2, the party
opposing the motion for summary judgment must set forth a “short and concise statement of the
material facts as to which there exists a genuine issue to be tried.” All material facts set forth in the
statement required to be served by the moving party “will be deemed admitted, for purposes of the
motion, unless controverted as required by this rule.” Local Rule 56.2.
Page 5 of 19
Circuit in In re Katrina Canal Breaches Litigation stated the appropriate methodology for
a Federal Court sitting in diversity in Louisiana to apply:
To determine Louisiana law, we look to the final decisions of the Louisiana Supreme
Court. In the absence of a final decision by the Louisiana Supreme Court, we must
make an Erie guess and determine, in our best judgment, how that court would resolve
the issue if presented with the same case. In making an Erie guess, we must employ
Louisiana's civilian methodology, whereby we first examine primary sources of law: the
constitution, codes, and statutes. Jurisprudence, even when it rises to the level of
jurisprudence constante, is a secondary law source in Louisiana. Thus, although we
will not disregard the decisions of Louisiana's intermediate courts unless we are
convinced that the Louisiana Supreme Court would decide otherwise, we are not
strictly bound by them.
495 F.3d 191, 206 (5th Cir. 2007) (citations and internal quotation marks omitted).
III. Law and Analysis
At dispute between the parties is the interpretation of a provision in an
addendum to the Leases. “A mineral lease is a contract by which the lessee is granted
the right to explore for and produce minerals.” La. Rev. Stat. Ann. §31:114 (2012).
Louisiana law provides that mineral leases are construed as leases generally and that
codal provisions that apply to ordinary leases are applied to mineral leases. Alyce
Gaines Johnson Special Trust v. El Paso E&P Co., L.P., 773 F.Supp.2d 640, 644 (W.D.
La. 2011); see also La. Rev. Stat. Ann. §31:2 (2012).
“Contracts have the effect of law for the parties” and the “[i]nterpretation
of a contract is the determination of the common intent of the parties.” La. Civ. Code
Ann. arts. 1983 and 2045 (2012). “When the words of a contract are clear and explicit
and lead to no absurd consequences, no further interpretation may be made in search
of the parties’ intent.” La. Civ. Code Ann. art. 2046 (2012). “When the language of a
Page 6
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. 3 Cir. 1989).
A. Mineral Code Article 128
Although the bulk of the parties’ arguments have to do with the
interpretation of the Leases, Petrohawk has presented an argument that the Court finds
is an issue of law. Petrohawk argues in its Motion for Summary Judgment and its
Opposition to Plaintiffs’ Motion for Partial Summary Judgment that it is a third party to
the Leases. Petrohawk argues that as a third party, it is able to avail itself of the Public
Records Doctrine and thus is not responsible for the “secret intent” between the original
lessors and Sklarco.14 The Plaintiffs argue that Petrohawk cannot be considered a third
party to the Leases and the subsequent Sublease and Lease Extension because of the
effect of Louisiana Mineral Code article 128 and Louisiana Civil Code article 3343.15 As
discussed in detail below, the Court finds that it cannot make a determination about the
parties’ intent based on the present record. However, the Court finds that the question
of whether Petrohawk can be considered a third person in relation to the Leases is a
question of law.
The Louisiana Civil Code defines a third person as “...a person who is not
a party to or personally bound by an instrument.” La. Civ. Code Ann. art. 3343 (2012).
14
Record Document 34-1, p. 9-10; Record Document 36, p. 9
15
Record Document 32-2, p.18; Record Document 37, p. 5
Page 7
“A person who by contract assumes an obligation or is bound by contract to recognize a
right is not a third person with respect to the obligation or right or to the instrument
creating or establishing it.” Id. The Louisiana Public Records Doctrine states that “[t]he
rights and obligations established or created by the following written instruments are
without effect as to a third person unless the instrument is registered by recording it in
the appropriate mortgage or conveyance records pursuant to the records of this Title...”
La. Civ. Code Ann. art. 3338 (2012). Petrohawk argues that it is a third party to the
Leases under the Public Records Doctrine, and that Mineral Code Article 128 has no
bearing on whether or not Petrohawk can be considered a third party to the Leases.16
The Court disagrees.
Louisiana Mineral Code article 128 states that “to the extent of the interest
acquired, an assignee or sublessee acquires the rights and powers of the lessee and
becomes responsible directly to the original lessor for performance of the lessee’s
obligations.” La. Rev. Stat. Ann. art 31:128. The Louisiana Second Circuit Court of
Appeals examined the effect of Article 128 of the Mineral Code on sublessees in Hoover
Tree Farm, L.L.C. v. Goodrich Petroleum Co., L.L.C. 63 So.3d 159 (La App 2 Cir. 2011).
There, the landowner, Hoover, and Goodrich Petroleum entered into a contract that
contained a “most favored nations clause”, which stated that if Goodrich, its successors
or assigns, leased land within a certain area for a greater royalty and/or bonus than that
which was paid to Hoover, the difference in the prices must be paid to Hoover. Id. at
16
Record Document 36, p.9
Page 8
161-162. Goodrich assigned 50% of its interest in the Hoover lease to Chesapeake
Louisiana, L.P., which later obtained oil, gas and mineral leases from landowners within
the specified zone at a higher royalty percentage. Id. at 162. Hoover filed suit under the
“most favored nations” clause, and Chesapeake argued that because the transfer
between itself and Goodrich was a sublease, its actions did not trigger the clause. Id. at
163.
The court first noted that under Louisiana law, the obligations of the
lessee created in a mineral lease are real, and not personal, obligations. Id. at 166. The
court found that when these real rights are transferred to subsequent owners of the
leasehold, Article 128 of the Mineral Code provides that the assignee or sublessee
acquires the real rights and powers of the lessee. The court found that in effect, parties
who were not in privity with the lessor nevertheless become obligated directly to the
lessor for the lease obligations. Id. The court determined that Article 128 of the Mineral
Code transferred real rights to a sublessee or assignee, effectively making that
sublessee or assignee a co-owner of the leasehold interest. Id. at 167.
The court found that Chesapeake and Goodrich were “co-owners” of the
mineral lease and any real obligation owed to the lessor by Goodrich were also owed to
the lessor by the Chesapeake. Id. It specifically rejected the notion that the “most
favored nations” clause imposed only a personal obligation on Goodrich, and that
Chesapeake would have had to assume Goodrich’s personal obligations in order to be
liable under the clause. Id.
Page 9
The Court finds this case instructive because Petrohawk seems to be
arguing that it potentially owes less of a duty to the Plaintiffs than Sklarco because as a
sublessee, it is a third party to the Leases. The court’s finding in Hoover Tree Farm
indicates that Petrohawk, as a sublessee, is a co-owner of the leasehold interest and to
the extent it owns an interest in the leasehold, it is as obligated as Sklarco to the
lessors. By definition, Petrohawk cannot be a third person to the Leases because it is a
sublessee of the Leases. Article 128 of the Mineral Code imposes on a sublessee both
real rights and direct obligations to a lessor. The Louisiana Civil Code states that a
person “who by contract assumes an obligation or is bound by contract to recognize a
right is not a third person with respect to...the instrument creating [the obligation].” La.
Civ. Code Ann. art. 3343 (2012). Petrohawk assumed a direct obligation to the lessors
of the Leases when it entered into the Sublease with Sklarco and cannot be considered
a third party to the Leases as to the issues raised in this litigation.
B. The Market Value Lease Provision
Both Plaintiffs and Petrohawk argue that the language of Paragraph 8 is
unambiguous, and as such, each argues that they are entitled to summary judgment
based on their interpretations of the language of the contracts. The Court now turns to
an examination of the four corners of the contract to determine whether it is
unambiguous.
The Court finds that there are two provisions in the Leases which address
the deduction of post-production costs from the lessors’ royalties. The first provision
Page 10
that addresses the deduction of post-production costs is located in Paragraph 4 of the
Bath form. It states:
[t]he royalties to be paid by Lessee are...on gas, including casinghead
gas, or other gaseous substance produced from said land and sold or used
off the premises or for the extraction of gasoline or other products
therefrom, the market value at the well of one-fifth (1/5) of the gas so
sold or used, provided that on gas sold at the wells the royalty shall be
one-fifth (1/5) of the amount realized from such sale...17
Louisiana jurisprudence is well settled with regards to the interpretation of
“market value” Leases, such as a Bath form lease. See Merritt v. Southwestern Electric
Power Co., 499 So.2d 210 (La. App. 2 Cir. 1986); Freeland v. Sun Oil Co., 277 F.2d 154
(5th Cir. 1960); Wall v. United Gas Public Service Co., 152 So. 561 (La. 1934). Louisiana
law applies a reconstruction approach to determine the market value of gas, beginning
with the gross proceeds of the sale of gas and then deducting any additional costs of
taking the gas from the wellhead (the point of production) to the point of sale. Merritt,
499 So.2d at 213. The court in Merritt found that compression costs could be deducted
from the lessors’ royalty because the gas was useless and had no market value at the
wellhead until it could be moved into the gathering line by compression, and thus
because it increased the value of the gas from the wellhead to the point of production,
compression was a marketable expense that could be deducted from the royalty. Id.
The United States Fifth Circuit Court of Appeal in Freeland, when
construing Louisiana law regarding a royalty provision under a market
value lease, stated: ....in the analytical process of reconstructing a market
value where none otherwise exists with sufficient definiteness, all
increases in the ultimate sale value attributable to expenses incurred in
17
Document 1, Exhibit 1 in globo.
Page 11
transporting and processing the commodity must be deducted. The royalty
owner shares in only what is left over... 277 F.2d 154, 159 (5th Cir. 1960).
The court in Merritt listed some of the various types of costs that
constitute additional marketing expenses, which the lessee can properly reduce from
the lessors’ royalty payments, including transportation costs, separation costs,
extraction costs, and processing costs. 499 So.2d at 214. In Culpepper v. EOG
Resources, Inc., the court reiterated its statement that production is futile without
distribution of the product, and accordingly, royalty is free of costs up to the point of
production, while subsequently incurred costs are shared between the lessor and the
lessee. 92 So.3d 1141, 1144 (La. App. 2 Cir. 2012). The court stated “the computation
of royalty ‘at the well’ has been long-held by our courts to include deductions for postproduction costs.” Id.
This Court follows well-established jurisprudence when it determines that
transportation and gathering costs are likely deductible from the lessors’ royalty under
the standard provision contained in the Bath form of the Leases. If this were the only
provision in the Leases that addressed the deduction of post-production costs, then the
Court’s inquiry would end here. However, the Leases include another provision which
addresses the same issue.
C. Interpretation of Paragraph 8
Page 12
The second provision within the Leases that addresses the deduction of
post production costs from the lessors’ royalty payments is Paragraph 8, which is
located in the Exhibits “B” to the Leases18:
The parties agree that post production costs may be deducted from
Lessor’s share of the proceeds from the sale of crude oil, natural gas or
other minerals payable as royalty under this Lease insofar and only
insofar as such costs either enhance the value of the product being sold
and the price obtained for such product or are required to make the
product marketable. Without limitation upon the foregoing, the
treating, processing or dehydrating of natural gas to meet pipeline quality
specifications shall be deemed to enhance the value of the product being
sold (emphasis added).
The Exhibits “B” contain other provisions, including requirements
regarding subleases, depth limitations and surface rights.19 Each provision included in
the Exhibits “B” is an amendment that alters and replaces a provision contained within
the standard Bath form. It logically follows that Paragraph 8, which involves the
deduction of post production costs, could likewise have been intended to alter the
“market value” provision in the Bath form.
Plaintiffs argue that Paragraph 8 is unambiguous in prohibiting the
deduction of gathering and transportation charges from the Plaintiffs’ royalty
payments.25 The Court finds this argument unpersuasive. An examination of the
language of Paragraph 8 begins with the statement that post production costs can be
18
Record Document 1, Exhibit 1 in globo.
19
Id.
25
Record Document 32-2, pp. 7.
Page 13
deducted from the lessors’ royalties, limited only by the satisfaction of at least one part
of a two part test. The Court interprets the first sentence of Paragraph 8 to mean that
post production costs can be deducted from the lessors’ royalties, as long as those costs
either enhance the value of the product being sold and the price obtained for such
product or are required to make the product marketable.
The next sentence of Paragraph 8 provides an example that satisfies the
test. The court interprets this sentence to mean that the treatment, processing or
dehydration of natural gas to meet pipeline quality specifications is a specific example of
a post production cost that satisfies the test laid out in Paragraph 8. Plaintiffs argue that
the Court should apply the principle of ejusdem generis, which is defined as a canon of
construction holding that when a general word or phrase follows a list of specifics, the
general word or phrase will be interpreted to include only items of the same class as
those listed, to this sentence.26 The Plaintiffs urge the Court to find that the treatment
example provided in Paragraph 8 was meant to limit potential costs applicable under the
test set out in the first sentence to similar examples, which would not include gathering
or transportation.27
The Court finds the principle of ejusdem generis to be inapplicable to
Paragraph 8 because the sentence begins with the phrase “without limitation upon the
foregoing...”. The only persuasive interpretation of the second sentence is that the
26
Record Document 32-2, p. 9.
27
Id. at p. 11.
Page 14
treatment of the gas is an example of a post production cost which will satisfy the
Paragraph 8 test but that the example provided is not intended to limit any other
potential costs that could also satisfy the test.
Petrohawk argues that Paragraph 8 is unambiguous in that it allows for
the deduction of transportation and gathering costs from the Plaintiffs’ royalties. The
Court agrees that under its interpretation of Paragraph 8 alone, gathering and
transportation costs could be deducted from royalty payments as long as those costs
were shown to enhance the value of the product being sold and the price obtained for
such product or if they are required to make the product marketable. But to so interpret
this provision ignores that the purpose of the Exhibit “B”, as stated above, is to alter the
effect of the provisions of the form contract. Morever, the language of the provision is
unclear. It is difficult to imagine what costs expended post production would not
enhance the value of the product or make the product more marketable. Why, then,
was this language added to the contract? At the very least, the placement of the
provision Exhibit “B”, as well as the language contained within it, raises issues of fact as
to the parties’ intent.
It is the responsibility of this Court, when faced with a dispute about a
provision in a contract, to determine the intent of the parties. La Civ. Code Ann. art.
2045 (2012). Louisiana law requires that the Court examine the entirety of the
documents in question, not just the disputed provision, in search of the parties’ intent.
Page 15
La. Civ. Code Ann. art. 2050 (2012).28 The court in KPW Associates v. S.S. Kresge Co.
states that:
[a] cardinal rule in the construction of contracts is that the contract must
be viewed as a whole and, if possible, practical effect given to all of its
parts, according to each the sense that results from the entire agreement
so to avoid neutralizing or ignoring any of them or treating them as
surplusage.
535 So.2d 1173, 1182-1183 (La. App. 2 Cir. 1988)(quoting Lambert v.
Maryland Casualty Co., 418 So.2d 553, 559-560 (La. 1983)).
As such, the Court must determine not only if the language of Paragraph 8 is
unambiguous but also whether the provision’s placement in the Leases as a whole is
unambiguous.
The Louisiana Supreme Court recently stated that “...the primary goal of
contract interpretation is to ascertain the intent of the parties. Since the parties actually
chose to add or modify the printed contract, the written terms presumably better reflect
their intention than those contained in a printed contract intended for general use.”
Clovelly Oil Co., L.L.C. v. Midstates Petroleum Co., L.L.C., No. 2012-C-2055, 2013 WL
1115296, at *7-*8 (La. March 19, 2013). However, the court notes that “...even where
a contract contains both printed and handwritten or typewritten terms, the contract
must still be interpreted as a whole, and the printed terms should be interpreted, if
possible, so as to give them effect and to harmonize them with the provisions that are
handwritten or typewritten.” Id. at *8. Similarly, the court in Noel v. Discus Oil Corp.,
28
“Each provision in a contract must be interpreted in light of the other provisions
so that each is given the meaning suggested by the contract as a whole.” La. Civ. Code
Ann. art. 2050 (2013).
Page 16
when interpreting an amendment to a lease that references conservation orders, stated
that in that case “[t]he issue is not whether the contract on its face contains a reference
to one order but not the other, but rather whether the parties to the contract intended
to include one order and exclude the other, and for what purpose.” 714 So.2d 105, 110
(La. App. 2 Cir. 1998).
In support of its argument that Paragraph 8 is unambiguous, Petrohawk
states that “the analysis Louisiana courts use to determine whether a post-production
cost is deductible under a market value lease is virtually identical to the test for
deductibility set out in Paragraph 8 of the leases...(emphasis added)”.29 Petrohawk is
correct in that this Court’s interpretation of Paragraph 8, as discussed above, likely
would not bar any post production costs that would be allowed under the Bath form
provision.26 However, the Court finds that when Paragraph 8 is read in concert with the
rest of the language in the Leases, an ambiguity exists with regards to the parties’
intent related to post production costs.
“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 (2013). While parole evidence is generally inadmissible in the
determination of parties’ intent, when the terms of a contract are ambiguous, the court
29
Record Document 34-1, p.18.
Page 17
may look beyond the four corners of the document. Alyce Gaines Johnson Special Trust,
773 F.Supp.2d at 644. “Parol or extrinsic evidence is generally inadmissible to vary the
terms of a written contract unless there is ambiguity in the written expression of the
parties’ common intent.” Blanchard, 755 So.2d at 381.
The record reflects the following course of dealing between the parties
with regards to post production costs. The Plaintiffs claim that Bickham Dickson, on
behalf of the lessors, told their attorney that they did not want any deductions made
from their royalty costs.30 Plaintiffs claim the family attorney spoke to David Barlow,
who represented Sklarco, who stated that if Sklarco needed to treat the gas in order to
meet pipeline quality specifications, it ought to be able to deduct such costs from the
royalty payments.31 David Barlow drafted Paragraph 8, and the parties agreed to its
inclusion in the Leases.32 As noted above, the parties agree that Sklarco never deducted
any costs from the Plaintiffs royalty payments. Petrohawk did not deduct costs from the
Plaintiffs’ royalties until May 2010, at which time it began deducting gathering and
transportation costs. Petrohawk states that although it began paying royalties to the
Plaintiffs in the summer of 2008, it was not until 2010 that its Tulsa office interpreted
the Leases and began to make those deductions.33 The Court notes that the course of
30
Record Document 32-2, p.3.
31
Record Document 32-2, p.4
32
Id.
33
Record Document 34-1, p. 6.
Page 18
dealing between the parties as it exists in the record is unclear as to the parties’ intent
regarding post production costs, and as such, a genuine issue of material fact exists
regarding their intent.
Plaintiffs and Petrohawk both argued in their respective Motions for
Summary Judgment that the Leases are unambiguous.34 While both parties also made
abbreviated arguments in their Memorandums in Opposition to the Motions of Summary
Judgment that the Court should rule in their favor even if it found the contract to be
ambiguous, the Court finds that the evidence in the record is insufficient to establish
the parties’ intent and as such, there is a genuine issue as to a material fact.35 For this
reason, the Court DENIES Plaintiffs’ Motion for Partial Summary Judgment [Record
Document 32] and DENIES Petrohawk’s Motion for Summary Judgment [Record
Document 34].
IV.
Conclusion
For the reasons given above, the Court makes the following rulings:
1)
Plaintiffs’ Motion for Partial Summary Judgment [Record Document 32] is
DENIED;
2)
Petrohawks’ Motion for Summary Judgment [Record Document 34] is
DENIED.
Shreveport, April 29, 2013.
34
Record Documents 32 and 34.
35
Record Documents 36 and 37.
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