Estess et al v. Placid Oil Co

Filing 110

MEMORANDUM RULING denying 65 Motion for Partial Summary Judgment; denying 67 Motion for Partial Summary Judgment; denying 77 Motion to Strike ; denying 78 Motion to Strike; and denying 79 Motion to Strike. Counsel are directed to contact Magistrate Judge Hornsby's office to set up a scheduling conference. Signed by Judge Elizabeth E Foote on 3/28/2014. (crt,Keifer, K)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION
DELBERT LAFITTE ESTESS, ET AL

CIVIL ACTION NO. 5:12-cv-00052

VERSUS

JUDGE ELIZABETH ERNY FOOTE

PLACID OIL COMPANY

MAGISTRATE JUDGE MARK HORNSBY
MEMORANDUM RULING

Before the Court are cross-motions for partial summary judgment between the
third-party Plaintiff and a third-party Defendant on the issue of the interpretation of the
terms of an assignment of oil, gas and mineral leases. [Record Documents 65 and 67].
Also pending before the Court are three Motions To Strike [Record Documents 77, 78, and
79] relating to evidence submitted in support of the main motions. Third-party Plaintiff,
Placid Oil Company (“Placid”), believes that it owns a working interest in the “deep rights”
in an oil, gas and mineral lease granted by Delbert Lafitte Estess and Barbara Ellen DeBose
Estess (collectively “Plaintiffs”), while third-party Defendant E&P Company, L.P. (“EP”)
argues that it owns 100% of the working interest in the deep rights. Another third-party
Defendant, Encana Oil & Gas (USA) Inc. (“Encana”), also claims that Placid owns no
working or other interest in the lease. For the reasons stated herein, the Court: 1)
DENIES Placid’s Motion for Partial Summary Judgment [Record Document 65]; 2)
DENIES EP’s Motion for Partial Summary Judgment [Record Document 67]; and 3)
DENIES Placid’s Motions To Strike [Record Documents 77, 78 and 79].

Page 1 of 16

I.

Factual and Procedural Background
The Plaintiffs granted an oil, gas and mineral lease (the “Estess Lease”) to Placid

on August 4, 1972, covering four tracts of land totaling 152.26 acres in Sections 5 and 6,
Township 13 North, Range 14 West, and Sections 31 and 32, Township 14 North, Range
14 West.1 The Estess Lease is on a Bath Form Louisiana Spec. 14-BRI-2A-PX 12-63,
provides for a one-eighth royalty, includes a five year primary term, and was recorded
under Registry Number 356828 in the Conveyance Records of DeSoto Parish, Louisiana.2
The parties agree that the sections covered by the Estess Lease that are in dispute are
Section 5, Township 13 North, Range 14 West (“Section 5") and Section 32, Township 14
North, Range 14 West (“Section 32").3 Placid does not make a claim about the deep rights
in Section 31, Township 14 North, Range 14 West, and EP makes no claim as to depths
below 9,310 feet below the surface in Section 6, Township 13 North, Range 14 West.4
By Assignment, Conveyance and Bill of Sale, dated effective June 13, 1983, Placid
conveyed 35.71428% of its working interest in the Estess Lease to Placid International Oil,
Ltd., which then assigned that interest to Louisiana-Hunt Petroleum Corporation (a
18.90756% working interest) and Rosewood Resources, Inc. (a 16.80672% working

1
2

Record Document 65, Exhibit A.
Id.; Record Document 65-1, p. 8.

3

Record Document 65-1, p. 8; Record Document 67-1, p. 8.

4

Record Document 65-1, p. 8.
Page 2 of 16

interest) by act dated effective June 13, 1983.5 This Assignment covered Placid’s interest
in both Sections 5 and 32.6
Placid granted a sublease to Hunt Petroleum Corporation (“Hunt”), dated effective
February 1, 1991, covering all right, title and interest in the Estess Lease insofar as the
lease covered land within the unit established for the HOSS RA SU 33; Haynes Estate #1
Well, and limited to depths between the surface and 10,400 feet below the surface, save
and except the borehole and production from the Burford #1 Well (the “Hunt Sublease”).7
Placid reserved an overriding royalty interest equal to 6.25% of 8/8ths of production from
the surface to the base of the Hosston Formation, being 9,130 feet measured depth, and
an overriding royalty interest equal to the difference between existing lease burdens and
25% with respect to production from the base of the Hosston Formation down to and
including a depth of 10,400 feet.8 The Hunt Sublease conveyed Placid’s interest in Section
5 but did not include a conveyance of any interest in Section 32.9
By Assignment and Bill of Sale, dated November 10, 1992, effective June 1, 1992,
Placid Oil Company entered into a contract with Smith Operating and Management Co.
(“Smith Operating”), in which it conveyed interest in various oil, gas and mineral leases,
including some portion of interest in Sections 5 and 32 of the Estess Lease (the “Placid5

Record Document 65-1, p. 10.

6

Id.

7

Id.

8

Id. at 11.

9

Record Document 65-1, p. 10.
Page 3 of 16

Smith Assignment”).10 Through various conveyances and assignments, EP became the
successor in interest to Smith Operating.11 The interpretation of the Placid-Smith
Assignment and the amount of interest in the Estess Lease that Placid conveyed to Smith
Operating is in dispute between the parties.
Plaintiffs, and their successors in interest, filed suit against Placid in state court for
failure to pay royalties, and Placid removed the suit to this Court under diversity
jurisdiction.12 Placid issued a Third Party Complaint against EP and Encana, asserting that
it owns a 64.28572% working interest in Section 5, covering all depths below 10,400 feet
from the surface, excepting the Hosston Formation, and a 64.28572% working interest in
Section 32, covering all depths and formations except the Hosston and Cotton Valley
Formations.13 EP, as successor in interest to El Paso E&P Company, L.P., counterclaimed
against Placid. EP stated that Placid conveyed all interest in the Estess Lease to Smith
Operating in the Placid-Smith Assignment, and as such, EP owns all working and overriding
royalty interest in the Estess Lease.14 Encana also filed an Answer in which it stated that
Placid owns no interest in the Estess Lease and that it adopts by reference and in extenso
the defense asserted by any other party.15
10

Record Document 65-1, p. 11.

11

Record Document 27, p. 16; Record Document 67-1, p. 5

12

Record Document 1.

13

Record Document 27, pp. 22-23.

14

Record Document 43, p. 12.

15

Record Document 44, pp 10.
Page 4 of 16

Placid and EP filed cross Motions for Partial Summary Judgment, in which each
argues that the Placid-Smith Assignment is unambiguous.16 Placid argues that the PlacidSmith Assignment is limited to certain depths and strata and that it has retained the deep
rights in Sections 5 and 32.17 EP argues that the Placid-Smith Agreement conveyed all of
Placid’s interest in the Estess Lease to Smith Operating, and therefore EP now owns all
interest in Sections 5 and 32.18
II.

Summary Judgment Standard
Federal Rule of Civil Procedure 56(a) directs that a court “shall grant summary

judgment if the movant shows that there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.”19 Summary judgment is appropriate
when the pleadings, answers to interrogatories, admissions, depositions and affidavits on
file indicate that there is no genuine issue of material fact and that the moving party is
entitled to judgment as a matter of law. See Celotex Corp. v. Catrett, 477 U.S. 317, 322,
106 S. Ct. 2548 (1986). When the burden at trial will rest on the non-moving party, the
moving party need not produce evidence to negate the elements of the non-moving party’s

16
17
18

Record Documents 65-1 and 67-1.
Record Document 65-1, p. 2.
Record Document 67-1, p. 2.

19

Rule 56 was amended effective December 1, 2010. Per the comments, the
2010 amendment was intended “to improve the procedures for presenting and deciding
summary judgment motions and to make the procedures more consistent with those
already used in many courts. The standard for granting summary judgment remains
unchanged.” Therefore, the case law applicable to Rule 56 prior to its amendment
remains authoritative, and this Court will rely on it accordingly.
Page 5 of 16

case; rather, it need only point out the absence of supporting evidence. See id. at 322323.
Once the movant carries its initial burden, it is incumbent upon the non-moving
party to demonstrate the existence of a genuine dispute as to a material fact. See
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S. Ct. 1348 (1986);
Wallace v. Texas Tech. Univ., 80 F.3d 1042, 1047 (5th Cir. 1996)(citations omitted). 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.” Wallace, 80 F.3d at 1047 (citations omitted). This burden is not satisfied with
some metaphysical doubt as to the material facts, by conclusory or unsubstantiated
allegations, or by a mere scintilla of evidence. See Little v. Liquid Air Corp., 37 F.3d 1069,
1075 (5th Cir. 1994)(citations omitted). However, “[t]he evidence of the non-movant is to
be believed, and all justifiable inferences are to be drawn in his favor.” Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 255, 106 S. Ct. 2505 (1985)(citations omitted); Reid v. State
Farm Mut. Auto Ins. Co., 784 F.2d 577, 578 (5th Cir. 1986)(the court must “review the
facts drawing all inferences most favorable to the party opposing the motion”).
As this case is before the Court under diversity jurisdiction, the Court must apply
the substantive law of the forum state. See 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 Circuit in
In re Katrina Canal Breaches Litigation stated the appropriate methodology for a Federal
Court sitting in diversity in Louisiana to apply:

Page 6

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 marks omitted).
III.

Law and Analysis
At dispute between the parties is the interpretation of the Placid-Smith Assignment.

“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 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 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 (2012).
A.

The Placid-Smith Assignment

Page 7

Both Placid and EP argue that the language of the Placid-Smith Agreement is
unambiguous on its face.20 Placid argues that the Placid-Smith Assignment was intended
to be limited to certain depths, and strata and as a result, it maintained ownership over
the deep rights under Sections 5 and 32, insofar as they are covered by the Estess Lease.21
EP argues that the parties to the Placid-Smith Assignment intended to convey all interest
in the Estess Lease in the Placid-Smith Assignment, including any interest in the deep
rights.22
The Placid-Smith Assignment was granted by Placid to Smith Operating, by act
dated November 10, 1992 and effective June 1, 1992, covering a large number of oil, gas
and mineral leases over various sections, townships and ranges.23 The Assignment includes
an initial granting clause, which states that Placid grants:
. . . all of Assignor’s right, title and interest in, to and under:
(1) the oil and gas lease(s) described in Exhibit “A” attached
hereto and made a part hereof, insofar and only insofar as said
lease(s) cover the lands, depths, formations, wellbore rights
and/or other rights specified on said Exhibit “A”...24
Exhibit “A” to the Placid-Smith Assignment is attached to it and includes conveyances of
interest in all of the sections of land covered by the Estess Lease.25

20

Record Document 65-1, p. 9;

21

Record Document 65-1, p. 9.

22

Record Document 67-1, p. 8.

23

Record Document 65-17, Exhibit O.

24

Id.

25

Record Document 65-17, Exhibit O.
Page 8

The portion of Exhibit “A” which conveys interest in Section 5 is located on Exhibit
“A” page 3, and begins as follows:
HOSS RA SU 33; Haynes Estate #1 and
HOSS RA SU33; Burford #1-Alt
Section 5, Township 13 North, Range 14 West
The following described oil, gas and mineral leases insofar and only insofar
as said leases cover lands situated in Section 5, Township 13 North, Range
14 West, DeSoto Parish, Louisiana to wit...26
The description then goes on to list various oil, gas and mineral leases, including the Estess
Lease. It then states that the leases are subject to a Farmout Agreement dated May 9,
1990 between Placid and Rosewood Resources, Inc. and the Hunt Sublease. Finally, the
description states that Placid’s interest in the Haynes Estate #1 is a .0401786 net revenue
interest and that its interest in the Burford #1-Alt. includes a .6428572 working interest
and a .5625001 net revenue interest.27
Similarly, the portion of Exhibit “A” that conveys interest in Section 32 is located on
Exhibit “A” page 8, and begins with the following description:
HOSS RA SU20; Cook #2 and
CV RA SU20; Cook #2-D
Section 32, Township 14 North, Range 14 West
The following described oil, gas and mineral leases insofar and only insofar
as said leases cover lands situated in Section 32, Township 14 North, Range
14 West, DeSoto Parish, Louisiana to wit...28

26

Id.

27

Id.

28

Id.
Page 9

The description notes that Placid’s interest in the Cook #2 and Cook#2-D include a
.6428572 working interest and a .5599890 net revenue interest.29
B.

The Parties’ Interpretations

Placid argues that the unit/well designations at the beginning of the conveyances
of Sections 5 and 32 act as limitations to the initial granting language.30 Placid states that
the “insofar and only insofar” language in the initial granting clause acts to limit the
conveyance of interest to what is described on Exhibit “A”, and that the unit/well
designations that begin the descriptions limit that conveyance to the depths of those wells
and unit formations.31 To support this interpretation of the Placid-Smith Assignment, Placid
notes that its conveyance of interest in the Estess Lease insofar as it covers Section 31,
Township 14 North, Range 14 East does not use a unit/well designation, and thus, Placid
argues that it conveyed all of its interest in that section to Smith Operating.32 Placid
reasons that if its intention was to convey all of its interest in the Estess Lease, including
the deep rights, it would have simply listed the lease, as it did in Section 31, Township 14
North, Range 14 West.33 EP’s response to this argument is that at the time of the PlacidSmith Assignment, there had been no wells drilled on Section 31, Township 14 North,

29

Id.

30

Record Document 65-1, p. 21

31

Id.

32

Record Document 65-1, p. 24.

33

Id.
Page 10

Range 14 West and that is the reason why there is no unit/well designation for Section
31.34
Additionally, Placid notes that some of the sections of land conveyed are listed twice
in the Assignment, followed by the same oil, gas and mineral leases, but under different
unit/well designations.35 Placid makes the argument that if its intention was to convey
interest in a lease limited only by section, why would some of the sections be separated
out by different unit/well designations but with the same oil, gas and mineral leases
conveyed?36
EP believes that Placid, through the Placid-Smith Assignment, conveyed all of its
interest in the Estess Lease and that EP is the owner of 100% of the working interest in
Sections 5 and 32.37 EP argues that the unit/well designations are merely headings
intended to provide organization and ease of reference to the assignment.38 EP points to
the language directly below the unit/well designations, which states “the following
described oil, gas and mineral leases insofar and only insofar as said leases cover lands
situated in . . . .”39 EP argues that this is the language that limits the initial granting clause

34

Record Document 80, p. 10.

35

Record Document 65-1, p. 23. For example, Section 8, found on Exhibit A, pp.
2-3 and Section 33, found on Exhibit A, pp. 11-13.
36

Id.

37

Record Document 67-1, p. 9.

38

Id.

39

Id. at p. 10.
Page 11

because it limits the conveyance to a specific section covered by the various leases.40 EP
argues that this language, and not that of the unit/well designation, was the language the
parties’ intended to use to limit the conveyance.
To support its interpretation of the Placid-Smith Assignment, EP focuses on the
description of Section 33, Township 14 North, Range 14 North, contained in the PlacidSmith Assignment, which states that:
the following described oil, gas and mineral leases insofar and only insofar
as said leases cover lands situated in Section 33, Township 14 North, Range
14 West, DeSoto Parish, Louisiana, and then only as to those depths above
9,200 feet below the surface of the earth...41
EP argues that if it was Placid’s intent to limit the depths of its assignment in Sections 5
and 32, it would have done so by specifically limiting the conveyance to a depth as it did
in Section 33.42
EP also argues that Placid’s interpretation of the assignment is flawed because
under that interpretation, Placid did not own the interest it purports to have conveyed to
Smith Operating because that interest was previously conveyed to Hunt in the Hunt
Sublease.43 Placid’s response to this argument is that as a result of the Hunt Sublease, it

40

Record Document 67-1, p. 10.

41

Id. at p. 11.

42

Id. at p. 12.

43

Record Document 67-1, p. 17.
Page 12

owned an overriding royalty interest, and this overriding royalty interest is what was
conveyed to Smith Operating in the Placid-Smith Assignment.44
Finally, EP also notes that Smith Operating and EP developed their interests in
Sections 5 and 32 for nearly twenty years without paying Placid any proceeds attributable
to mineral interests and that during that time Placid never contributed to the costs of
exploration.45 Placid responds that it would not have had a reason to develop the deep
rights in Sections 5 and 32 until the discovery of the Haynesville Shale, which occurred in
2008.46 Placid also notes that its claims to the deep rights are not prescribed and as the
owner of those deep rights, it had the right to assert them at any time.47
C.

The Placid-Smith Assignment is Ambiguous

It is the responsibility of this Court, when faced with a dispute about a contract
interpretation, to determine the intent of the parties. See La Civ. Code Ann. art. 2045
(2012). “A contract is considered ambiguous on the issue of intent when it lacks a
provision bearing on that issue or when the language used in the contract is uncertain or
is fairly susceptible to more than one interpretation.” Blanchard, 755 So.2d at 381 (citing
Noel v. Discus Oil Corp., 714 So. 2d 105, 107 (La. App. 2 Cir. 1998)). Based on its analysis
of the Placid-Smith Assignment itself and the parties’ interpretations of the assignment, the

44

Record Document 75, p. 16.

45

Id. at 17.

46
47

Record Document 75, p. 14.
Id.
Page 13

Court finds that both Placid and EP have presented the Court with reasonable
interpretations of the Placid-Smith Assignment.
Both parties have successfully highlighted various clauses and phrases within the
Placid-Smith Assignment that support their respective interpretations of the contract.
Likewise, each party has plausibly rebutted the other party’s reasoning for their
interpretation of the contract. The parties disagree about the significance of their actions
regarding their rights and obligations under the contract subsequent to its execution.
Accordingly, the Court finds that the Placid-Smith Assignment is susceptible to more than
one interpretation and is ambiguous.
D.

Extrinsic Evidence

While parole evidence is generally inadmissible in the determination of parties’
intent, when the terms of a contract are ambiguous, the court may look beyond the four
corners of the document. See Alyce Gaines Johnson Special Trust v. El Paso E&P Co., L.P.,
773 F. Supp. 2d 640, 644 (W.D. La. 2011). “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.
Although it argues that the Placid-Smith Assignment is unambiguous, EP has
submitted extrinsic evidence in support of its interpretation of the Placid-Smith Assignment,
including various affidavits, letters, letter agreements and portions of an earlier concursus
proceeding involving the Placid-Smith Assignment. Placid has objected to almost all of this
extrinsic evidence and has filed three Motions To Strike [Record Documents 77, 78, and

Page 14

79]. After a careful review of the Motions To Strike and EP’s subsequent Memorandums
in Opposition,48 the Court finds that there is sufficient conflict regarding the substance and
interpretation of the evidence as to create genuine issues of material fact. Although the
Court is denying Placid’s Motions To Strike, it will take Placid’s objections into consideration
when weighing EP’s proffered evidence.
In sum, the Court finds that both Placid and EP have provided reasonable
interpretations of the language of the Placid-Smith Assignment and thus, the Court finds
Placid-Smith Assignment to be ambiguous. Placid and EP dispute the significance of various
facts and circumstances surrounding the negotiations and execution of the Placid-Smith
Assignment, including how the parties treated their rights and obligations subsequent to
the contract’s execution. The parties also dispute the importance and interpretation of
much of the extrinsic evidence in the record, including various affidavits, letters, and the
proceedings of an earlier concursus proceeding involving the Placid-Smith Assignment.
IV.

Conclusion
For the foregoing reasons,
IT IS ORDERED that Placid’s Motion for Partial Summary Judgment [Record

Document 65] be and is hereby DENIED;
IT IS FURTHER ORDERED that EP’s Motion for Summary Judgment [Record
Document 67] be and is hereby DENIED; and

48

Record Documents 88, 89, and 90.
Page 15

IT IS FURTHER ORDERED that Placid’s Motions To Strike [Record Documents 77,
78 & 79] be and are hereby DENIED.
Counsel are directed to contact Judge Hornsby’s office to set up a scheduling
conference in this matter.
THUS DONE AND SIGNED this 28th day of March, 2014.

Page 16