Mills et al v. Chesapeake Operating Inc

Filing 24

MEMORANDUM RULING granting 14 Plaintiffs' Motion for Partial Summary Judgment, awarding to Plaintiffs the amount of payments due under the Grant up until the recordation of the release on 1/22/2013, as well as attorneys' fees and costs. IT IS FURTHER ORDERED that Chesapeake's Motion for Summary Judgment [Record Document 15] is hereby DENIED. Signed by Judge Elizabeth E Foote on 11/5/2013. (crt,Keifer, K)

UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF LOUISIANA
SHREVEPORT DIVISION
GEORGE RICHARD MILLS
MARGUERITE CARSON MILLS

CIVIL ACTION NO. 12-cv-3060

VERSUS

JUDGE ELIZABETH ERNY FOOTE

CHESAPEAKE OPERATING, INC.

MAGISTRATE JUDGE HORNSBY

MEMORANDUM RULING
Two motions are pending before this Court. George Richard Mills and Marguerite
Carson Mills (“Plaintiffs”) have filed a Motion for Partial Summary Judgment, seeking
recovery of unpaid rent, court costs, and attorneys’ fees. [Record Document 14].
Defendant, Chesapeake Operating, Inc. (“Chesapeake”), has filed a Motion for
Summary Judgment, seeking dismissal of all Plaintiffs’ claims against it with prejudice at
Plaintiffs’ cost. [Record Document 15]. This controversy arises out of a contract entitled
“Limited Access Road Grant” (the “Grant”) executed by the Plaintiffs and Chesapeake
that gave Chesapeake the right to use an access road for an initial term and
subsequent periods in exchange for monthly fees. The Grant specifically gave
Chesapeake the right to terminate the agreement and its obligations by properly
recording a release of the Grant in the public records. Chesapeake paid the monthly
fees until it ceased using the road, but never recorded the release until after suit was
filed. The Plaintiffs, who admit Chesapeake ceased using the roadway on April 16,
2012, contend that the Grant obligated Chesapeake to continue making payments after
it ceased using the roadway and up until it filed the release on January 22, 2013. For

the reasons given below, the Court holds that the unambiguous terms of the contract
require that Chesapeake pay the Plaintiff until it properly recorded the required release.
Therefore, the Court GRANTS the Plaintiffs’ Motion for Partial Summary Judgment
[Record Document 14] and DENIES Chesapeake’s Motion for Summary Judgment
[Record Document 15].
I.

FACTUAL AND PROCEDURAL BACKGROUND
On June 20, 2011, Plaintiffs executed the Grant that permitted Chesapeake to

utilize a single thirty foot (30') private well access road on their property in Bossier
Parish, Louisiana, subject to the terms, conditions, and obligations, except where
expressly modified, of a prior grant between the Plaintiffs and Petro-Chem Operating
Co., Inc. (“Petro-Chem Grant”) over the same road and route. [Record Document 14, p.
2, 14-3, p. 2, and 14-4, p. 1]. The Grant from Plaintiffs to Chesapeake was never
recorded in the public records of Bossier Parish, but the Petro-Chem Grant had been
recorded. [Record Document 15-8, p. 1 and 18-1, p. 1]. The first phase of the Grant
extended rights to Chesapeake for a six month period lasting from June 17, 2011 to
December 16, 2011 (“initial term”). [Record Document 14-4, p. 1]. Paragraph three of
the Grant provided that if Chesapeake exercised its rights under the Grant beyond the
initial term, it would be required to make “advance payments for each month or partial
month of additional use” in accordance with the following schedule:
A.

Month seven (7) December 17, 2011-January 16, 2012, <amount

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B.
C.
D.

redacted>1;
Month eight (8) January 17, 2012-February 15, 2012 <amount
redacted>;
Month nine (9) February 17, 2012-March 16, 2012 <amount
redacted>;
Month ten (10) March 17, 2012-April 16, 2012, and for each
month/partial month thereafter, <amount redacted>.

[Record Document 14-4, pp. 1-2].
Beyond the initial term, Chesapeake used the road for months seven, eight,
nine, and ten. [Record Document 15-1, p. 2]. In each instance, it mailed letters to the
Plaintiffs that informed them it would continue using the road and tendered the
appropriate payment. Id. Chesapeake stopped using the road sometime around April
16, 2012. [Record Document 18-1, p. 2]. Thereafter, no Chesapeake personnel or
contractors, who were told by Chesapeake to use a new access road, entered the
Plaintiffs’ road or even possessed the access code to open the gate, which was marked
(presumably by Defendant) with a “NO CHK Oilfield Traffic” sign. [Record Document
15-1, p. 3].
The Plaintiffs, by a letter dated August 20, 2012, demanded payment for the
period after April 16, 2012. [Record Document 1-1, p. 3]. The letter claimed
Chesapeake had continued using the Grant and demanded that Chesapeake make the
Chesapeake alleged in its motion for removal that the amount in controversy
exceeds the jurisdictional requirement of $75,000. [Record Document 1, p. 2]. The
Court presumes that the amount in controversy is sufficient for purposes of diversity
jurisdiction but cannot verify same in that the monthly payment amounts were redacted
from the copy of the Grant provided to the Court. The Plaintiffs have made no
contradictory statements in the record, nor have they sought remand. The Court notes
that paragraph seven of the Grant states that payments made pursuant to the Grant
would be confidential.
1

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payments due after the March 17, 2012 - April 16, 2012 period. [Record Document 144, p. 12]. The letter did not mention Chesapeake’s failure to file the required release
but warned that the Plaintiffs would sue Chesapeake if they were not paid. Id.
Chesapeake, by a letter dated September 19, 2012, responded without making
payment. [Record Document 1-1, p. 3]. In a supplemental letter, dated September 20,
2012, the Plaintiffs replied to Chesapeake’s response with details regarding the Grant’s
termination and payment requirements. Id. Once again, Chesapeake responded,
refusing to make payments. Id.
On November 20, 2012, the Plaintiffs filed a complaint claiming that Chesapeake
owed them payment under the terms of the Grant from April 16, 2012 until such time
that Chesapeake recorded its release in the Bossier Parish, Louisiana Conveyance
Records and delivered a certified copy to the Plaintiffs. [Record Document 1-1, p. 4]. At
the time suit was filed, no such release had been recorded.2 The Plaintiffs pointed
specifically to paragraph six, which states:
Upon termination of this Limited Access Road Grant, Grantee shall cause a
written release of this Grant to be duly recorded in the Bossier Parish,
Louisiana, Conveyance Records and a certified copy thereof shall be
delivered to Grantor. The monthly payments, as provided in Paragraph 3
above, shall continue until proper recordation of the required release.
[Record Document 14-4, p. 2]. The Plaintiffs also argued that, under the terms of the
original grant to Petro-Chem, Chesapeake’s failure to make payment after the notice of
default obligates it to pay “reasonable costs and attorney’s fees incurred by Plaintiffs to
Chesapeake did eventually file the release in the Conveyance Records of
Bossier Parish on January 22, 2013.
2

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enforce the Grant.” [Record Document 14, p. 1].

II.

MOTIONS BEFORE THE COURT
Because the two motions before the Court are cross motions which address the

same legal issues, the Court will address the motions together. The Court will outline
first the parties’ positions in their motions and will then address the applicable law and
arguments of counsel.
A.

PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT

Plaintiffs, who assert there are no disputed material facts and that they are
entitled to judgment as a matter of law, have filed a Motion for Partial Summary
Judgment, seeking an award for nine months of rent that accrued from April 17, 2012
until Chesapeake’s recordation of the release on January 22, 2013. They also claim they
are entitled to costs and attorneys’ fees. [Record Document 14, p. 4]. Plaintiffs point to
the specific language of paragraph six of the Grant and contend that Chesapeake was
obligated to continue to make the payments “until proper recordation of the required
release.” [Record Document 14, p. 3].
After Plaintiffs’ counsel served a notice of demand on Chesapeake, Chesapeake
refused either to file a notice of release or to pay rent. [Record Document 14-2, p. 3].
Plaintiffs argue this constitutes a failure to comply with the Grant’s payment conditions
after notice of default, obligating Chesapeake to pay reasonable costs and attorneys’
fees incurred to obtain payment. [Record Document 14, p. 1]. The basis for the claim

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for attorneys’ fees and costs is the following provision of the Petro-Chem Grant,
incorporated by reference into the Chesapeake Grant:
Should Grantee, or anyone acting under Grantee, fail to comply with the
conditions and obligations established hereunder in favor of Grantor and
its assigns, within 30 days after receipt of notice by Grantee from Grantor
of the default, Grantor shall have the right to enforce immediate
performance by Grantee by judicial action, or at Grantor’s option, to
recover damages from Grantee for the failure of Grantee to so perform,
plus all costs and reasonable attorney’s fees incurred by Grantor.
[Record Document 14-4, p. 8].
B.

DEFENDANT’S MOTION FOR SUMMARY JUDGMENT

Chesapeake likewise asserts that there are no disputed material facts and has
filed a Motion for Summary Judgment, seeking the dismissal of all Plaintiffs’ claims with
prejudice at their cost. [Record Document 15]. Chesapeake asserts two arguments for
why the Court should grant its motion. First, Chesapeake contends that the monthly
payments in the Grant are not rent, but stipulated damages to which the Plaintiffs are
not entitled because they have not suffered any damages and therefore cannot satisfy
the threshold requirement for an award of stipulated damages. Secondly, Chesapeake
argues that because the Grant itself was not recorded, there was no legal necessity to
record the release.
C.

STANDARD FOR SUMMARY JUDGMENT

A party is entitled to summary judgment when “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.” Fed. R. Civ. P. 56(a). Under Rule 56(c) of the Federal Rules of Civil

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Procedure, summary judgment will be granted “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, 322-23, 106 S.
Ct. 2548, 2552-53 (1986). Additionally, the issue of whether the contract is ambiguous
is a question of law, which this Court may evaluate at the summary judgment phase.
See Gebreyesus v. F.C. Schaffer & Assoc., Inc., 204 F.3d 639, 642 (5th Cir. 2000)
(applying Louisiana law).
D.

THE GRANT AS A VIABLE CONTRACT AND LEASE

No party disputes the validity of the Grant as a binding contract on the parties.
Nor, as previously mentioned, does any party dispute any material facts. What is in
dispute is the interpretation of the contract. In federal diversity cases, the Court applies
the law of the state to substantive claims not governed by the Federal Constitution or
acts of Congress. See Erie R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S. Ct. 817, 822
(1938).
The Grant is a contract between the Plaintiffs and Chesapeake. See La. Civ. Code
art. 1927 (“A contract is formed by the consent of the parties established through offer
and acceptance.”). Furthermore, Louisiana Civil Code art. 1983 provides that the
agreements made by the parties are contracts that are binding on those parties, in the
same way that law is binding on the parties: “Contracts have the effect of law for the
parties and may be dissolved only through the consent of the parties or on grounds

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provided by law.”
Under the terms of the Grant, the Plaintiffs provided Chesapeake with exclusive
access to a private road for the purpose of ingress and egress to its oil and gas well
operations in exchange for Chesapeake’s payment of a specified fee for a six month
initial term followed by a graduated monthly fee. [Record Document 14-4, p. 1]. The
Grant is a lease, which “is a synallagmatic contract by which one party, the lessor,
binds himself to give to the other party, the lessee, the use and enjoyment of a thing
for a term in exchange for a rent that the lessee binds himself to pay.” La. Civ. Code
art. 2668. “The essential elements of a lease are the thing, the price (rent), and
consent of the parties.” S. Treats, Inc. v. Titan Props, L.L.C., 40,873 (La. App. 2 Cir.
4/19/06), 927 So. 2d 677, 683. Here, this particular contract satisfies the Louisiana
Civil Code definition of a lease, and the payments due under this contract bear all of
the indicia of rent. The parties formed a contract of lease when they consented to
private access to the road (the thing) for a monthly sum (the price) for an initial term
and a series of subsequent terms. Notably, the monthly payments are due in advance
of the use of the access road, as is the common practice with rent. There is no
requirement that a breach occur before these payments are due. On the other hand
and as discussed below, stipulated or liquidated damages by their very nature are not
payable until after a breach has occurred.
E.

WHAT EVENT TERMINATES THE LESSEE’S OBLIGATION TO PAY
RENT?

The major dispute between the Plaintiffs and Chesapeake concerns the duration
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of the contract, or more specifically, what event terminated the lessee’s obligation to
pay rent. In this case, the contract itself provided a specific manner by which the
lessee’s obligation would cease, that is, the public recordation of a release. If an
obligation is immediately enforceable but ends when an uncertain event occurs, the
condition is resolutory. See La. Civ. Code Ann. art. 1767. The Louisiana Civil Code
specifies that these conditions could either be stipulated or implied. See La. Civ. Code
art. 1768. (“Conditions may be either expressed in a stipulation or implied by the law,
the nature of the contract, or the intent of the parties.”). Paragraph six of the Grant
explicitly stipulates that the lease will end when Chesapeake files the notice of release
in the public record and that Chesapeake must pay rent under the lease until it files the
release. Since the Grant was immediately enforceable upon execution but subject to
termination when Chesapeake filed a notice of release in the public record, the filing of
the release is a resolutory condition. Chesapeake’s decision regarding when to record
the notice of release determines the duration of the lease.
Chesapeake argues Louisiana law considers an obligation not to do an action,
rather than an obligation to do an action, as the only means to fulfill a resolutory
condition, which would mean in this case that an affirmative act such as recording a
release cannot constitute a resolutory condition. This is not a correct interpretation of
Louisiana law. The occurrence of an uncertain event fulfills the resolutory condition.
Nothing in the Louisiana Civil Code restricts the uncertain event to a party’s nonperformance. On the contrary, a resolutory condition can depend entirely on the will of

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the obligor, provided he, she, or it operates in good faith. See La. Civ. Code art. 1770
(“A resolutory condition that depends solely on the will of the obligor must be fulfilled in
good faith.”). Such a resolutory condition could even include a decision. E.g, Seals v.
Calcasieu Parish Voluntary Council on Aging, Inc., 1999-1269 (La. App. 3 Cir. 3/1/00),
758 So. 2d 286, 294 (explaining that if the execution of the contract makes the
obligation to work immediately enforceable, the decision to terminate employment was
an uncertain event that constituted a resolutory condition). Thus, in this Grant,
Chesapeake’s decision to file a notice of release in the public record is the condition
that “resolves” or terminates this lease.
Regardless of whether this Court labels the requirement of recordation as a
resolutory condition or not, the fact remains that the contract states that payments will
continue until the release is recorded. The fact that the Plaintiffs knew Chesapeake was
no longer using the land or that Chesapeake gave notice to the Plaintiffs through its
response letters does not satisfy the contract language. Chesapeake asserts that its
other affirmative acts (such as providing letters) or non-actions (such as no longer
using the access road) fulfill this contract requirement. But this interpretation of the
contract requires extrinsic evidence to negate or vary the Grant’s unambiguous terms,
which Louisiana law generally precludes. See Gebreyesus, 204 F.3d at 643. A court may
only rely on extrinsic evidence if the contract is ambiguous, which means “its terms are
unclear or susceptible to more than one interpretation, or the intent of the parties
cannot be ascertained from the language employed.” Id. Notably, Chesapeake does not

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argue that the contract language is ambiguous. Paragraph six clearly and explicitly
requires Chesapeake to record a release of the Grant to stop its obligation to pay rent
and the terms are not susceptible to more than one interpretation, making them
unambiguous. As a result, Chesapeake’s failure to make payment is a breach of its
obligation to pay rent. Chesapeake’s signature on the Grant, far from being a “mere
ornament,” gives rise to the presumption that Chesapeake, as the signatory to the
Grant, knew its contents. See S. Treats, Inc., 927 So. 2d at 684-85. This presumption
cannot be defeated with claims the contents were unread, misunderstood, or
unexplained. See id.
Additionally, Chesapeake argues that requiring it to make monthly payments
until recordation of the release is an absurd consequence when, as here, it never
recorded the Grant in the public record. This argument ignores the importance of
recordation of the release and the language of paragraph six of the Grant. First,
recordation in the public records in the parish in which the property is located is an
unambiguous expression to the parties and to the world that the road is either available
or unavailable for use. Such an unambiguous expression has independent value to both
parties. Furthermore, the Grant identified recordation of the release as the only means
of terminating the lease. Since the lease terminates upon the occurrence of a
designated event, the lease was for a fixed term. See La. Civ. Code art. 2678 (“It is
fixed when the parties agree that the lease will terminate at a designated date or upon
the occurrence of a designated event.”). Just as a contract existed between the parties

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when Chesapeake used the access road without recording the Grant, it continued
existing when Chesapeake ceased using the access road without recording the release
of the Grant. The Grant’s fixed term would continue until the designated event,
recordation of the release. As the Plaintiffs point out, while Chesapeake did not use the
road after April 16, 2012, the Plaintiffs were obligated to make the road available and
Chesapeake was obligated to make payment until it recorded a release of the grant.
[Record Document 18-1, p. 2]. Requiring Chesapeake to perform its principal obligation
for the duration of a contract when it is the only party with the power to satisfy the
terminating condition is a reasonable expectation of contract law.
F.

STIPULATED DAMAGES AND THE ABSENCE OF DAMAGES

Chesapeake’s Motion for Summary Judgment construes the Plaintiffs’ claims for
unpaid rent as a claim for stipulated damages and argues that because the Plaintiffs
have failed to describe how they were damaged, such damages are not recoverable.
[Record Document 15-1, pp. 4-6]. However, the payments outlined in paragraph three
of the Grant do not meet the legal definition of stipulated damages. A stipulated
damages provision: (1) is made in advance, that is, the amount of the damages is
agreed upon before any breach of the contract; (2) specifies a sum to be recovered in
the event of the other party’s non-performance or breach; and (3) gives rise to a
secondary obligation for purposes of enforcing the principal obligation. See Lombardo
v. Deshotel, 94-1172 (La. 11/30/94), 647 So. 2d 1086, 1090.
As discussed above, the payments described in paragraph three bear all of the

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indicia of rental payments due under a lease and none of the indicia of stipulated
damages. Also as discussed above, the Grant meets the Louisiana Civil Code definition
of a lease: the party who owns the property agrees to allow the Defendant to use the
property for an initial term that is followed by optional subsequent terms with payments
for each term. These payments are due in advance of the use of the property, which is
the most common method for payment of rent. On the other hand, stipulated damages
are not due until after a breach or non-performance has occurred. Stated another way,
the Grant’s requirement that Chesapeake make the payments in accordance with the
agreed terms was a principal obligation, not a sum to be recovered for nonperformance or a secondary obligation to enforce the principal one. See La. Civ. Code
art. 2683. Since Chesapeake’s obligation to pay rent was not a secondary obligation to
secure some other performance obligation or to compensate for nonperformance of
Chesapeake’s principal obligation, the rent due is not a stipulated damages provision
but rather the amount Chesapeake agreed to pay for use of the land in the Grant.
Thus, in order to recover the rent payments due to them, Plaintiffs have no threshold
obligation to demonstrate damages.
G.

LAWFUL EXCUSE

Chesapeake argues that it had a lawful excuse for not recording a release of the
Grant, specifically, that nothing existed in the Bossier Parish records to release. [Record
Document 15-1, pp. 6-7]. In short, Chesapeake’s legal excuse is that Louisiana law
does not require recording the release of a Grant when no grant exists in the public

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records. However, a grant need not be recorded for the clerk of court to record its
release, a conclusion which is demonstrated by the fact that Chesapeake recorded its
release on January 22, 2013 when no grant existed in the public record. The Grant, as
a contract, has the effect of law between the Plaintiffs and Chesapeake. See La. Civ.
Code art. 1983 (“Contracts have the effect of law for the parties and may be dissolved
only through the consent of the parties or on grounds provided by law.”). “Parties are
free to contract for any object that is lawful, possible, and determined or determinable.”
La. Civ. Code art. 1971. Nothing indicates that a contract identifying recordation of the
release as a terminating condition is unlawful, impossible, or indeterminable. On the
contrary, Louisiana public policy precludes courts from interfering in a contract freely
and voluntarily executed, as articulated in the following paragraph:
The policy of the law is that all men of lawful age and competent
understanding shall have the utmost liberty of contracting and their
contracts, when freely and voluntarily made, are not lightly to be
interfered with by the courts. The court is not concerned with the wisdom
or folly of the contract. The contract in this respect may be a hard one for
the plaintiff, but it is one that the parties were competent to make and
had the right to make. It is the law between the parties and the courts
have no alternative except to enforce it as written.
Evangeline Parish Sch. Bd. v. Energy Contracting Servs., Inc., 617 So. 2d 1259, 1263
(La. App. 3 Cir. 1993).
Chesapeake cites Wahlder v. Osborne, 417 So. 2d 71 (La. App. 3 Cir. 1982) to
argue that it had a valid excuse not to record the release. In Wahlder, the Third Circuit
Court of Appeal of Louisiana held the defendant, a gas station lessee, had a legal
excuse under Louisiana Civil Code Article 2120 for refusing to pay a contract’s penalty
14

provision. Wahlder, 417 So. 2d at 73. There, the plaintiff, a gas station lessor, sought
to evict the defendant for not paying a $20 per day penalty for closing the service
station on certain Sundays, despite a Presidential proclamation requesting service
stations close on Sundays amid the 1979 energy crisis and the need to avoid
exhausting a limited gasoline supply. See id. at 72. Wahlder is inapplicable for two
reasons. First, Wahlder’s interpretation of a “legal excuse” is specific to the context of a
penalty provision or stipulated damages clause, which, for the reasons given above,
renders it inapplicable here. See id. at 73. Second, the legal excuse in Wahlder was the
lessee was faced with the choice of ignoring a presidential proclamation or complying
with the lease terms. Here, nothing precluded Chesapeake from filing a notice in the
record, and no Presidential proclamation, law, or national crisis provided an excuse.
Chesapeake does not argue that performance of the terminating condition was
impossible or even difficult, but simply argues that it should never have had to
terminate the contract in the agreed upon manner.
H.

ATTORNEYS’ FEES AND COURT COSTS

Chesapeake argues that Plaintiffs are not entitled to attorneys’ fees and court
costs, because they are not entitled to the specific performance sought. [Record
Document 19, pp. 3-4]. This is Chesapeake’s sole argument against awarding Plaintiffs
attorneys’ fees and court costs and it depends entirely on defeating the Plaintiffs’ other
claims, which are addressed above.
The contract between the Plaintiffs and Petro-Chem, which was adopted by

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these parties, provided for the payment of attorneys’ fees and costs in the event of
breach and demand. In this case, despite demand, Chesapeake did not record the
release until after suit was filed and has made no additional payments to date. Thus,
under the terms of the contract, Plaintiffs are entitled to an award of attorneys’ fees
and costs, in an amount to be determined.
III.

CONCLUSION
For the foregoing reasons,
IT IS ORDERED that the Plaintiffs’ Motion for Partial Summary Judgment

[Record Document 14] be and is hereby GRANTED, awarding to Plaintiffs the amount
of payments due under the Grant up until the recordation of the release on January 22,
2013, as well as attorneys’ fees and costs. Because the amount of lease payments has
been redacted from the contract in the record, this Court is without the means to fix
the dollar amount of an award. This task, as well as setting attorneys’ fees and costs, is
reserved for another day.
IT IS FURTHER ORDERED that Chesapeake’s Motion for Summary Judgment
[Record Document 15] be and is hereby DENIED.
THUS DONE AND SIGNED in Shreveport, Louisiana on this 5th day of
November, 2013.

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