Dickson et al v. Petrohawk Properties L P et al
Filing
65
MEMORANDUM ORDER granting in part and denying in part 58 Motion in Limine To Exclude Testimony of Kris L. Terry. Signed by Judge Elizabeth E Foote on 9/9/2014. (crt,Dauterive, C)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION
C. BICKHAM DICKSON, III, ET AL
CIVIL ACTION NO. 5:11-cv-0352
VERSUS
JUDGE ELIZABETH ERNY FOOTE
SKLARCO L.L.C. and
PETROHAWK PROPERTIES, L.P.
MAGISTRATE JUDGE MARK HORNSBY
MEMORANDUM ORDER
The Plaintiffs, C. Bickham Dickson, III, James S. Dickson, Denise M. Dickson,
Michael R. Dickson, Addie S. Dickson, and Martha A. Dickson Bigler (collectively
“Plaintiffs”), come before this Court with their Motion in Limine to Exclude Testimony of
Kris L. Terry (“Terry”). [Record Document 58]. The Defendant, Petrohawk Properties,
L.P., seeks to introduce the testimony of Terry as an expert in the oil and gas industry
for the purpose of assisting in the interpretation of the contractual terms of the parties’
leases. [Record Document 60]. Given the ambiguous contractual provisions contained
within the leases, expert testimony can provide context to the purpose of midstream
pipeline systems in the industry, as well as elucidate for the Court the custom and
usages of contractual and lease terms in this industry as they relate to midstream
operations and post-production services that have an effect on the value of gas and
royalties. As a result, after considering the parties’ filings, this Court finds that Terry’s
testimony is admissible to a limited extent in both phases of the bifurcated trial. While
Terry’s testimony will be permitted to provide context to technical terms of art in the oil
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and gas industry, she can neither offer legal conclusions concerning the contractual
duties of the parties nor offer any conclusion that could threaten the agreed upon trial
structure based on the specific exclusions outlined below.
Thus, for the reasons stated below, IT IS ORDERED that the Plaintiffs’ Motion
in Limine to Exclude Testimony of Kris L. Terry [Record Document 58] is GRANTED in
part and DENIED in part.
I.
Factual and Procedural Background
In the present case, the dispute between the Plaintiffs and Defendant arose from
the terms contained within two oil, gas, and mineral leases (“Leases”) on property that
the Plaintiffs owned in Caddo Parish, Louisiana. Record Document 32-2, p.2. The land
was leased by the Plaintiffs in two agreements with Sklarco L.L.C., which was the sole
lessee, beginning in September 2005 and recorded in the Conveyance Records of
Caddo Parish in December 2005. Id., Record Document 34, p.1. The Leases contained
both typical “Bath” forms and amended post-production cost clauses that were identical
in each lease. Record Document 1-2, Exhibit 1 In Globo. While Exhibit “A” provided a
description of the property that was covered by the Leases, Exhibit “B” attached
provisions that were included in addition to the other previous provisions contained
within the Leases’ Bath provisions. Id. In February 2008, a partial sublease of oil, gas,
and mineral leases between Sklarco L.L.C. and Petrohawk became effective. Record
Document 34-1, p.3.1 The Plaintiffs then granted an extension of this sublease in July
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With that sublease, the Defendant acquired rights in the Leases “to the depths
from and below the Hosston Zone, Reservoir A, Cedar Grove Field, as defined by the
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2008, extending the primary terms of the Leases until August 2011. Id.
The principal dispute in this case centers on the interpretation of these
provisions and the intent of the parties to deduct post-production costs from the
Plaintiffs’ royalties. As this Court previously found, despite arguments by both the
Plaintiffs and Defendant to the contrary, there exists a genuine issue of intent regarding
what post-production costs were deductible from the Plaintiffs’ royalties. Record
Document 44, p.19. In denying the motions for summary judgment by each party, this
Court found that two provisions contained within the Leases addressed the deduction of
post-production costs, making the intention of the parties with regard to these costs
ambiguous. Id., pp.15-18.
In its analysis of the four corners of the contract, the Court reasoned the
inclusion of the standard “market value lease” provision in Paragraph 4, by itself, would
likely permit the finding that post-production transportation and gathering costs were
deductible. Record Document 44, p.12.2 However, by including a second provision in
Louisiana Office of Conservation Order No. 967, dated January 28, 1976.” Record
Document 44, p.3.
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The Leases stated in Paragraph 4:
The 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 . . . .
Record Document 1-2, Exhibit 1 In Globo. The Court reasoned: “If this were the
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the Leases in Paragraph 8 of Exhibit “B” that related to post-production costs,3 the
Court determined there was an issue of fact as to the intent of the parties regarding
what costs were deductible. Record Document 44, p.15. The purpose of Exhibit “B” in
general was to alter and amend the form contract and the Bath provisions, including
Paragraph 4's provision relating to post-production costs. As the Court explained: “Why,
then, was [Paragraph 8] 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.” Id. Thus, this Court found that the Leases were not
unambiguous and there remained a genuine factual issue of intent to be determined at
trial. Id., p.19.
In response to the Defendant’s identification of Terry, an oil and gas consultant,
as an expert witness, the Plaintiffs filed a motion in limine to exclude her testimony.
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.” Record Document 44, p.12.
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Paragraph 8 of Exhibit “B” of the Leases stated:
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.
Record Document 1-2, Exhibit 1 In Globo.
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Record Document 58. The Plaintiffs claim that Terry’s opinions and expert report will
not assist this Court and are not relevant to determining any factual issue concerning
the contractual intent of the parties. Record Document 58-1. As a result, the Plaintiffs
assert that her testimony is inadmissible during the liability phase of the trial. Id. In
opposition to this motion, the Defendant has asserted a variety of justifications that
permit admission of the expert testimony, which the Plaintiffs responded to with a
Reply Memorandum in Support. Record Documents 60 and 63. This Court will now
consider whether Terry’s testimony will be admissible at trial.
II.
Motion in Limine Standard
As the United States Court of Appeals for the Fifth Circuit explained, motions in
limine are made prior to a trial to prohibit the opposing party from offering, mentioning,
or even alluding to evidence on an issue that is prejudicial enough to the moving party
that a timely motion striking the evidence or an instruction to the jury to disregard the
evidence cannot overcome its prejudicial impact. See O’Rear v. Fruehauf Corp., 554
F.2d 1304, 1306 n.1 (5th Cir. 1977). In making this determination, a district court has
broad discretion concerning the admissibility and exclusion of relevant evidence when
the probative value substantially outweighs the risk of unfair prejudice, confusion,
delay, wasting time, or needless presentation of cumulative evidence. Fed. R. Evid.
403; Int’l Ins. Co. v. RSR Corp., 426 F.3d 281, 299-300 (5th Cir. 2005); see French v.
Allstate Indem. Co. 637 F.3d 571, 578 (5th Cir. 2011) (finding that in a bench trial the
district court has broad discretion to weigh the probative and prejudicial value of
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evidence under Rule 403). Such deference is given to a district judge “because of his or
her first-hand exposure to evidence and familiarity with the course of the trial
proceedings.” Int’l Ins. Co., 426 F.3d at 300.
More specifically, Federal Rule of Evidence 702 provides for the admissibility of
testimony by a qualified expert if that “expert’s scientific, technical, or other specialized
knowledge will help the trier of fact to understand the evidence or to determine a fact
in issue.” Fed. R. Evid. 702; French, 637 F.3d at 578 (explaining a district court has
wide discretion to determine whether an expert’s testimony will assist the factfinder,
particularly when that court is the trier of fact). The admission of expert testimony to
provide context on an industry practice and interpret contractual provisions specific to
such an industry falls within a district court’s discretion, so long as the explanation
provided by the expert is needed to more accurately comprehend the meaning of
technical terms used within that industry or trade. Compare Phillips Oil Co. v. OKC
Corp., 812 F.2d 265, 281 (5th Cir. 1987) (finding the district court’s admission of expert
testimony by individuals experienced in the oil and gas accounting field for the purpose
of “obtaining explanation of the technical meaning of terms used in the net profits
accounting provisions of the Farmout seems prudent”), with Fid. Nat’l Title Ins. Co. v.
Doubletree Partners, L.P., 866 F. Supp. 2d 604, 615 (E.D. Tex. 2011) (finding
inadmissible expert testimony construing and interpreting contract provisions in the
absence of specialized trade usage or the assertion of specialized meaning).
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III.
Law and Discussion
A. Expert Testimony on the Customary Meaning of Oil and Gas Terminology
As stated above, the issue at dispute in this case involves the interpretation and
ambiguity created by separate provisions in the Leases and their addendums, specifically
Paragraph 8 of Exhibit “B.” As the Louisiana Supreme Court explained in Frey v. Amoco
Production Co., “Mineral leases are construed as leases generally and, wherever
pertinent, codal provisions applicable to ordinary leases are applied to mineral leases.”
603 So. 2d 166, 171 (La. 1992); see La. Rev. Stat. § 31:2 (2014); Musser Davis Land
Co. v. Union Pac. Res., 201 F.3d 561, 565 (5th Cir. 2000); Alyce Gaines Johnson Special
Trust v. El Paso E. & P. Co., 773 F. Supp. 2d 640, 644 (W.D. La. 2011).
The Louisiana Civil Code makes clear that “[i]nterpretation of a contract is the
determination of the common intent of the parties.” La. Civ. Code art. 2045 (2014).
When the language and words contained in a contract are clear and explicit, leading to
no absurd consequences, no further interpretation may be made to determine the
parties’ intent, and the contract should be interpreted by reference only to the four
corners of the agreement. La. Civ. Code art 2046 (2014); Tammariello Props., Inc. v.
Med. Realty Co., 549 So. 2d 1259, 1263 (La. App. 3d Cir. 1989). When in dispute, a
court’s role is to determine the intent of the parties to a contract and the obligations
created by it, as well as to interpret a contract’s provisions in light of each other to give
the provisions the meaning suggested by the contract as a whole. See La. Civ. Code
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arts. 2045, 2050 (2014).
This Court previously determined that two provisions of the Leases called into
doubt the intent of the parties with regard to what post-production costs were to be
deducted from the Plaintiffs’ royalties. Record Document 44, pp.17-19. After this
decision by the Court, the Defendant provided Terry’s report to the Plaintiffs, and they
assert Terry “expresses numerous opinions about the leases at issue.” Record Document
58, p.2. In their motion in limine to exclude this testimony, the Plaintiffs argue that
there is no need for expert assistance in interpretation of these provisions for the Court
and that it is only an issue of the contractual intent of the parties–not an issue of the
terminology of the oil and gas industry. Record Document 58-1, pp.5-7. Without
personal knowledge of the parties’ intent, the Plaintiffs argue that Terry’s testimony is
merely a “thinly veiled attempt to offer legal opinions and conclusions” for this Court to
consider. Id., p.4.
Under the Louisiana Civil Code, however, contracts containing technical words
and terms of art must be given technical meaning when “the contract involves a
technical matter.” La. Civ. Code art. 2047 (2014). If susceptible to different meanings,
the words in a contract must be interpreted as having “the meaning that best conforms
to the object of the contract.” La. Civ. Code art. 2048 (2014). When there is a doubtful
provision, a court should interpret it in light of the “nature of the contract, equity,
usages, the conduct of the parties before and after the formation of the contract, and of
other contracts of a like nature between the same parties.” La. Civ. Code art. 2053
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(2014); see Red River Parish Port Comm’n v. Headwaters Res. Inc., 698 F. Supp. 2d
684, 689 (W.D. La. 2010). The question of whether ambiguity exists in a contract’s
language is a question of law for a court when it is unclear, susceptible to more than
one reasonable interpretation, or the parties’ intent cannot be ascertained. Red River
Parish Port Comm’n, 698 F. Supp. 2d at 689 (citing Gebreyesus v. F.C. Schaffer &
Assocs., Inc., 204 F.3d 639, 643 (5th Cir. 2000); Exploration, Inc. v. Chevron, U.S.A.,
Inc., 933 F.2d 314, 320 (5th Cir. 1991)).
Given that this Court determined that the Leases’ provisions were ambiguous and
the intent of the parties could not be ascertained, under Louisiana law, the Court may
consider the custom of the oil and gas industry to determine the true intent of the
parties, as well as extrinsic evidence, including expert testimony, to determine such
industry customs. See Henry v. Ballard & Cordell Corp., 418 So. 2d 1334, 1340 (La.
1982). When applying Louisiana contract law, the Fifth Circuit has found it “prudent” for
a district court to admit expert testimony from an individual experienced in a particular
field for the purpose of receiving an explanation of the technical and customary meaning
of terms used in particular provisions. Phillips Oil Co. v. OKC Corp., 812 F.2d 265, 281
(5th Cir. 1987) (finding it was consistent with Louisiana Civil Code Article 2047 and
Federal Rule of Evidence 702 to permit expert testimony by an oil and gas accountant).
The Fifth Circuit determined in Phillips Oil Co. that the technical terms in the contract
were relevant under Louisiana law, and as a result, it would be improper to ignore Civil
Code Article 2047's dictate by not applying the customary and technical meaning of the
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words in the given industry. Id. at 282. “What better way,” the Fifth Circuit reasoned, “is
there to discover the technical meaning [of a word or phrase] than through the use of
Federal Rule of Evidence 702.” Id.
In their opposition to the Plaintiffs’ motion in limine, the Defendant correctly
observed the ability of this Court to consider expert interpretation of ambiguous
contractual provisions, and both state and federal courts have continued to reaffirm this
power in a variety of circumstances when applying Louisiana law. Record Document 60,
pp.5-7; see, e.g., Temple v. McCall, 720 F.3d 301, 305 (5th Cir. 2013) (finding it is
appropriate to use expert testimony to determine the received usage of an ambiguous
phrase in the context of a trade); Mariner Energy, Inc. v. Devon Energy Prod. Co., 690
F. Supp. 2d 558, 571-73 (S.D. Tex. 2010) (applying Louisiana law to find that while it is
impermissible to allow expert testimony to insert or add a term into an agreement
between parties, such testimony is admissible for the purpose of understanding the
meaning of technical terms in an agreement); Transp. Ins. Co. v. Prof’l Eng’g
Consultants, Inc., No. 00-881-D-1, 2002 WL 34367717, at *1 & n.5 (M.D. La. Jan. 15,
2002) (“[C]ase law supports the use of expert evidence to assist the court in interpreting
words of art or technical terms in a contract.”); Jefferson Disposal Co. v. Jefferson
Parish, 459 So. 2d 639, 642 (La. App. 5th Cir. 1984) (finding no error in the use of
expert testimony in shedding light on the received usage of technical terms).
When read in concert, Paragraph 4 and Paragraph 8 of Exhibit “B” of the Leases
are ambiguous, and the parties’ intent cannot be clearly ascertained without reference
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to custom and usage in the oil and gas industry. See Red River Parish Port Comm’n, 698
F. Supp. 2d at 689. With the inclusion of Paragraph 8 and its terms and phrases, like
“post production costs,” it is uncertain what costs the parties intended to deduct from
the royalty payments that were previously expressed in Paragraph 4. It follows that
expert testimony can help explain any customary language and usage of technical terms
contained in both provisions, despite the arguments to the contrary by the Plaintiffs that
there are no words or terms of art that require clarification for the Court. Record
Document 63, p.9; see Phillips Oil Co., 812 F.2d at 281; Henry, 418 So. 2d at 1340. With
the expert testimony, this Court will be able to more accurately determine the intent of
the parties with regard to the provisions found in Paragraph 8 and the technical
meaning of its words in the context of the oil and gas industry. Phillips Oil Co., 812 F.2d
at 281. It is the role of this Court to determine the object of the Leases and what
deductions from the royalties were contemplated by the parties, and assistance by a
party’s expert when there are doubtful provisions is well within this Court’s discretion
under Louisiana law. See La. Civ. Code art. 2048 (2014); Henry, 418 So. 2d at 1340.4
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It is impermissible for Terry to use her testimony to insert or add a term to the
Leases or their provisions that is not already included; she is only allowed to interpret
the customary and technical usages or the provisions’ words and phrases, as well as
provide background information on midstream operations in the oil and gas industry.
See Mariner Energy, Inc., 690 F. Supp. 2d at 571-73. In Mariner Energy, Inc., the court
explained:
While Mariner may not use [the expert’s] testimony to add “storm
damage” as a term in the Agreement, [the expert’s] testimony is
admissible to explain the meanings of “Abandonment Expenses” and
“abandonment operations.” Those technical terms are in the Agreement
and are not fully defined. [The expert’s] affidavit suggests that the
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B. Expert Testimony Offering Legal Conclusions
The Plaintiffs also contend that federal district courts in Louisiana reject efforts by
experts to offer their opinions on contract interpretation, reasoning that offering such
opinions on the contractual duties of the different parties will amount to a legal
conclusion. Record Document 58-1, p.6. The Plaintiffs’ memorandum in support of their
motion in limine, nevertheless, continues on to express that the use of such expert
testimony to interpret a contract is admissible when a contract employs “specific,
technical or other specialized knowledge to clarify terms of art, science, trade or other
industry specific language.” Id., p.6-7.5 However, given the Federal Rules of Evidence
and the fact that Terry is not licensed to practice law in the State of Louisiana, she is not
permitted to offer any legal conclusions on the contractual responsibilities of the parties
under the Leases. See C.P. Interests, Inc. v. Cal. Pools, Inc., 238 F.3d 690, 697 (5th Cir.
2001) (citing Fed. R. Evid. 702, 704; Owen v. Kerr-McGee Corp. 698 F.2d 236, 240 (5th
Cir. 1983)).
C. Specific Limitations on Expert Testimony in the Present Bifurcated Case
The Plaintiffs further argue that the issue of whether post-production services
increased the dollar value of the gas in this case has been reserved by the Court for any
technical definitions of the terms are not the same as the definitions
urged by Devon. . . . The court will consider [the expert’s] affidavit for the
purpose of defining those terms.
Id. at 573 (citation omitted).
Quoting Big Real Estate Servs. Inc. v. Monticello Ins. Co., No. Civ.A. 04-3408,
2006 WL 461706, at *3 (E.D. La. Feb. 27, 2006).
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second half of this bifurcated matter. The Plaintiffs correctly quote the Court’s minutes,
which state:
Counsel agreed that the questions of law relating to the
interpretation of the contract and questions of fact related to the
intent of the contracting parties falls into the liability category. . . .
Counsel also agreed that . . . whether a particular expense
enhanced the value of the product, and thus is deductible under the
contract, falls into the damages category.
Record Document 58-1, p.10. The question before the Court is whether the conclusions
in Terry’s report trespass on that reservation.
The Court notes that Terry’s report at the outset purports to contain an opinion
“about the impact on the value and price of gas of post-production services such as
gathering, treating and transportation, including the gathering and treating of gas on
the gathering system involved in this matter.” Record Document 58-2, p.2. Terry’s report
contains no such specific calculations as to what is the dollar value of post-production
services on the price of gas in this case. However, her report does contain several
general conclusions that certain actions by Petrohawk (such as the contract with Hawk
Field Services) did increase the value of the gas in this case to the Plaintiffs. While the
facts that lead Terry to her conclusions may be useful to the Court in understanding the
contract terms, her conclusions threaten to dismantle the agreed upon structure of this
bifurcated proceeding. Such conclusions, if made by the witness at trial, would require
the Plaintiffs to present testimony that such post-production services did NOT increase
the value of their gas and to counter with specific dollar calculations to rebut Terry’s
conclusions. Thus, the agreed upon structure crumbles.
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The concern of the Court is not whether Terry’s conclusions are relevant in
determining if the Defendant’s actions enhanced the value of the gas. Rather, it is the
Court’s concern that such conclusions are not appropriate during the liability phase of
this trial. As a result, to preserve the bifurcated nature of this matter, the Court will not
allow the following specific conclusions from Terry’s report: 1.) the statement in
paragraph 23, which explains, “This decision in my opinion benefitted both the royalty
owners and Petrohawk.”; 2.) the entire content of paragraph 24; 3.) the entire content
of paragraph 25; and 4.) the entire content of paragraph 32.
Therefore, despite the Plaintiffs’ argument that the Leases do not require
clarification, this Court’s prior ruling demonstrates that the intent of the parties is not
clearly ascertainable by examination of the four corners of the Leases alone. Expert
testimony assisting the Court on the operation of the oil and gas industry and on the
technical interpretation of the words, terms of art, and phrasing of the Leases’
provisions is permitted under the Louisiana Civil Code, the Federal Rules of Evidence,
and established case law. Nevertheless, given the agreed upon bifurcated structure of
the case, the scope of Terry’s testimony is subject to the restrictions outlined above, and
any other objections to her opinions will go to the weight and credibility of her
testimony, but not to its admissibility.
IV.
Conclusion
Thus, for the reasons set forth above, IT IS ORDERED that the Plaintiffs’ Motion
in Limine to Exclude Testimony of Kris L. Terry is GRANTED in part and DENIED in
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part. Record Document 58. She will not be permitted to offer any legal conclusions on
the contractual responsibilities of the parties under the Leases, but she is permitted to
testify on the interpretation of words, terms of art, and the custom and usages of such
terms within the oil and gas industry as they relate to the Leases’ provisions. She is also
permitted to testify as to the purpose and function of midstream systems in the oil and
gas industry. Finally, subject to the exclusion of the opinions and conclusions found in
paragraphs 23, 24, 25, and 32, Terry is permitted to testify as to the content of the
remaining paragraphs of her expert report.
THUS DONE AND SIGNED in Shreveport, Louisiana, on this 9th of September,
2014.
_________________________________
ELIZABETH ERNY FOOTE
UNITED STATES DISTRICT JUDGE
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