Joshi Technologies International, Inc. v. Chi Operating, Inc.

Filing 141

MEMORANDUM OPINION AND ORDER by District Judge Kenneth J. Gonzales granting 131 Chi's Opposed Motion for Reconsideration of Summary Judgment Rulings. (tah)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW MEXICO
JOSHI TECHNOLOGIES
INTERNATIONAL, INC.,
Plaintiff/Counterdefendant,
vs.

Civ. No. 15-467 KG/CG

CHI ENERGY, INC.,
Defendant/Counterclaimant.
MEMORANDUM OPINION AND ORDER
This matter comes before the Court upon Chi Energy, Inc.’s (Chi) Opposed Motion for
Reconsideration of Summary-Judgment Rulings (Motion for Reconsideration), filed February
28, 2019. (Doc. 131). Joshi Technologies International, Inc. (Joshi) filed a response on March
14, 2019, and Chi filed a reply on March 27, 2019. (Docs. 134 and 135). Having reviewed the
Motion for Reconsideration and the accompanying briefing, the Court grants the Motion for
Reconsideration, but denies Chi’s request to vacate the Court’s decision (Doc. 44) denying Chi’s
motion for summary judgment (Doc. 32).
A. Background
The subject of this lawsuit is Joshi’s sale of oil and gas interests to Chi in September
2012 for $11,000.00. (Doc. 5-1). Joshi contends that it sold to Chi its interests in non-Zircon
wellbores-only (operated by Chi). On the other hand, Chi contends that Joshi sold all of its
interests in leases and wellbores, including non-Zircon wellbores and Zircon wellbores (operated
by Mewbourne Oil Company, Inc. (Mewbourne)).
On May 10, 2016, Chi filed a motion for summary judgment. (Doc. 32). After full
briefing on the motion for summary judgment, the Court held a hearing on the motion on August

10, 2017. (Doc. 43). At the hearing, the Court determined that the September 10, 2012,
Agreement Letter, and the September 17, 2012, Assignment and Bill of Sale, including Exhibit
A, (collectively, PSA documents) contain ambiguities as to what interests Joshi sold to Chi,
ambiguities a fact finder would have to resolve. See (Docs. 5-1 and 5-2). Having found genuine
issues of material fact, the Court denied the motion for summary judgment. (Doc. 44).
The Court subsequently appointed a Special Master to report on the pre-September 2012
values of Joshi’s interests in wellbores-only and leases. (Docs 95 and 97). On September 28,
2018, the Special Master filed his Report, which the Court adopted. (Docs. 105 and 140).
Relevant to this Motion for Reconsideration, the Special Master noted that “the PSA
documents do not specifically speak to the concept of a wellbore-only assignment” and so “there
is no contractual guidance on what a wellbore-only assignment means.” (Doc. 105) at 2. The
Special Master, therefore, decided to use Joshi’s definition of “wellbore-only” in valuing
wellbores-only.1 Id.
Also, relevant to this Motion for Reconsideration is the Special Master’s pre-September
2012 valuation of Joshi’s interests in the non-Zircon wellbores-only at $794, and the preSeptember 2012 valuation of all of Joshi’s interests in wellbores and leases at $85,454.00. Id. at
4-5.
In light of the Special Master’s Report, Chi moves the Court to (1) reconsider its denial
of Chi’s motion for summary judgment pursuant to Fed. R. Civ. 54(b); (2) grant Chi summary
judgment, including on “claims to which Joshi failed to respond” such as Joshi’s fraud in the

1

Joshi’s definition of ‘“wellbore-only’ means current producing zone only….” (Doc. 105) at 2.
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inducement and breach of contract claims,2 and Chi’s breach of contract and “money had and
received” claims; and (3) sustain Chi’s objections (Doc. 37) to Joshi’s summary judgment
evidence. (Doc. 131) at 7. Joshi opposes the Motion for Reconsideration in its entirety.
B. Rule 54(b) Standard of Review
Rule 54(b) governs the Court’s review of interlocutory orders and provides that such
orders “may be revised at any time before the entry of a judgment adjudicating all the claims and
all the parties' rights and liabilities.” The Tenth Circuit looks to Fed. R. Civ. P. 59(e) for
guidance in addressing motions to reconsider interlocutory orders. Ankeney v. Zavaras, 524 Fed.
Appx. 454, 458 (10th Cir. 2013) (stating that in considering Rule 54(b) motion to reconsider,
“court may look to the standard used to review a motion made pursuant to Federal Rule of Civil
Procedure 59(e)”). Courts grant Rule 59(e) relief if there is new intervening and controlling law,
new evidence not available previously, or if there is a “need to correct clear error or prevent
manifest injustice.” Id. (quoting Servants of the Paraclete v. Does, 204 F.3d 1005, 1012 (10th
Cir. 2000)). Rule 59(e) does not allow a losing party to “revisit issues already addressed or
advance arguments that could have been raised in prior briefing.” Servants of the Paraclete, 204
F.3d at 1012.

At the August 10, 2017, motion hearing, Joshi’s counsel explained why Joshi did not
specifically address its fraud in the inducement and breach of contract claims in the response to
the motion for summary judgment. (Doc. 51) at 43-44. Joshi’s counsel maintained that Joshi is
still pursing those claims. Id.
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C. Discussion
1. The Issue of Ambiguity
The Court finds that the Special Master’s Report constitutes new evidence not previously
available to the parties. Consequently, the Court will consider those portions of the Report cited
in the Motion for Reconsideration to revisit the ambiguity issue.
In addition to the argument and evidence Chi already propounded in its motion for
summary judgment, Chi argues first that the Special Master’s statement that “the PSA documents
do not specifically speak to the concept of a wellbore-only assignment” provides evidence “that
the Assignment is not ambiguous and cannot be construed as a wellbore-only assignment.” See
(Doc. 105) at 2; (Doc. 131) at 5. Second, Chi argues that the Special Master’s pre-September
2012 valuation of $794 for Joshi’s interests in the non-Zircon wellbores-only also provides
evidence that the Assignment is not ambiguous and not a wellbore-only assignment.
“[W]hether an agreement contains an ambiguity is a matter of law to be decided by the
trial court.” Mark V, Inc. v. Mellekas, 1993-NMSC-001, ¶ 12, 114 N.M. 778. “The standard to
be applied in determining whether a contract [term is ambiguous and] is subject to equally
logical but conflicting interpretations is the same standard applied in a motion for summary
judgment.” ConocoPhillips Co. v. Lyons, 2013-NMSC-009, ¶ 9, 299 P.3d 844 (quoting Randles
v. Hanson, 2011–NMCA–059, ¶ 26, 150 N.M. 362 (internal citation omitted)). “If … a court
determines that the contract is ‘reasonably and fairly’ open to multiple constructions, then ‘an
ambiguity exists,’ summary judgment should be denied, and the jury should resolve all ‘factual
issues presented by the ambiguity.’” Id. (quoting Randles, 2011–NMCA–059 at ¶ 26).
To decide if an ambiguity exists, “courts may consider ‘evidence of the circumstances
surrounding the making of the contract and of any relevant usage of trade, course of dealing, and

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course of performance.’” Id. at ¶ 10 (quoting C.R. Anthony Co. v. Loretto Mall Partners, 1991NMSC-070, ¶ 15, 112 N.M. 504). “[I]f the proffered evidence of surrounding facts and
circumstances is in dispute, turns on witness credibility, or is susceptible of conflicting
inferences, the meaning must be resolved by the appropriate fact-finder....” Id. (quoting Mark V,
Inc., 1993-NMSC-001 at ¶ 12).
a. The Special Master’s Statement that “the PSA documents do not specifically
speak to the concept of a wellbore-only assignment”
The Special Master stated that “the PSA documents do not specifically speak to the
concept of a wellbore-only assignment” in the context of deciding how to define “wellbore-only”
for valuation purposes. Although this statement suggests that Joshi assigned to Chi interests in
all of Joshi’s wellbores and leases, the Court does not interpret that statement as an opinion by
the Special Master regarding what interests Joshi assigned to Chi. The Court recognizes, as the
Special Master did, that the PSA documents, in fact, do not specifically state that Joshi assigned
to Chi its interests in wellbores-only. The Agreement Letter lists only Joshi’s working interests
in non-Zircon wellbores and their locations. The Assignment and Bill of Sale, however, refer
generally to both wells and leases, stating that Exhibit A describes leases and how they are
“limited as to the lands and depths indicated on Exhibit ‘A’ (collectively the ‘Leases’)….” (Doc.
5-2) at 1. Indeed, Exhibit A describes leases but also lists non-Zircon wellbores associated with
the leases. This lack of specificity in the PSA documents is the central issue in this case. The
Special Master’s statement that “the PSA documents do not specifically speak to the concept of a
wellbore-only assignment” simply acknowledges that lack of specificity. Hence, contrary to
Chi’s argument, the Special Master’s statement about the PSA documents does not show that the
PSA documents unambiguously provide that Joshi assigned to Chi its interests in all of its
wellbores and leases.
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b. The Special Master’s Pre-September 2012 Valuation of Joshi’s Interests in the
Non-Zircon Wellbores-Only
Chi notes that the pre-September 2012 valuation of $794 for Joshi’s interests in nonZircon wellbores-only “falls short of $11,000 by nearly twice the factor that [the Special
Master’s] $85,454 valuation of the leases included in the Assignment would exceed $11,000.”
(Doc. 131) at 6. Although the $794 valuation for interests in non-Zircon wellbores-only may
suggest that the higher purchase price of $11,000 was for interests in all of Joshi’s wellbores and
leases, the $794 valuation does not, as Joshi correctly asserts, provide per se evidence that Joshi
intended to sell both wellbore and leasehold interests. Joshi reasonably contends that a “factfinder could conclude that Chi was motivated to overpay for the wellbore interests given its
position as operator of the Non-Zircon wells” or Chi simply “incorrectly valued the ‘market
value’ of the wellbore interests as of September 1, 2012.” (Doc. 134) at 3-4.
Nonetheless, the Court can conclude from the Special Master’s Report that either (1) Chi
paid about twice the value of the interests in the non-Zircon wellbores-only to purchase interests
in those wellbores-only, or (2) Chi paid $11,000 to purchase leasehold and wellbore interests
valued at $85,454, or almost eight times the purchase price. Under either scenario, the parties
did not appreciate the true value of the interests at stake on September 1, 2012. These valuation
scenarios are susceptible of two conflicting inferences: (1) Joshi made a substantial profit selling
its interests in non-Zircon wellbores-only for the possible reasons Joshi describes above, or (2)
Chi purchased interests in both wellbores and leases for a bargain price, as Chi advocates.
Aside from the Special Master’s Report, other extrinsic evidence demonstrates the
ambiguities involved in this case. For example, the Final Settlement Statement directly
contradicts Chi’s position by specifically stating that the interests sold were “All WI in Chioperated [or non-Zircon] wells in Eddy and Lea Counties, NM.” (Doc. 5-3). Also, as described
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above, the Agreement Letter lists only the working interests in non-Zircon wells and their
locations without mentioning leases, but the Assignment and Bill of Sale explicitly refers to both
leases and wells. Meanwhile, Exhibit A, “Leases,” describes leases plus corresponding nonZircon wellbores. (Docs. 5-1 and 5-2). Additionally, email exchanges written prior to the
Assignment refer to Joshi’s “wells” and “Chi Energy wells,” but not to leases. (Doc. 32-2) at 1
and 3. Moreover, Sharon Hurst, who negotiated the Assignment on behalf of Joshi, and John
Qualls, who negotiated the Assignment on behalf of Chi, have provided contradictory evidence
as to what they each communicated to each other about what the Assignment involved. See
(Doc. 32-11) at 6, depo. at 54 (Hurst testifying that she “had said [to Qualls] that we were getting
out of all of the Chi-operated wells in New Mexico.”); (Doc. 32-1) at ¶ 12 (Qualls attesting that
“Hurst called me and said that Joshi wanted to ‘get out of New Mexico.’”).
Furthermore, for two years after the parties signed the PSA documents and the Final
Settlement Statement, Joshi and Chi continued to act as if Joshi still owned its share of the
Zircon wellbores. See (Doc. 35-5) at 5, depo. at 37 (Qualls testifying that he did not inform
Mewbourne of Joshi’s assignment of Zircon wellbore interests to Chi because interests were
“small.”); (Doc. 35-6) (October 15, 2014, email from Mewbourne to Qualls stating that parties
continued to pay respective costs for pre-Assignment interests in Zircon “1” wellbore). Not until
Chi received a December 4, 2014, Title Opinion from Mewbourne did Chi actively claim an
interest in the Zircon wellbores. (Doc. 32-1) at ¶ 21; (Doc. 35-5) at 4, depo. at 36; (Doc. 35) at 5.
This “course of performance” conflicts with Chi’s claim to all of Joshi’s interests, including
Zircon wellbores. Chi’s two-year lack of interest in Zircon wellbores is especially puzzling

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considering Chi drafted the PSA documents to allegedly acquire Zircon wellbores.3 (Doc. 32-1)
at ¶¶ 13 and 18; (Doc. 35-4) at ¶ 24.
The Court concludes that the above extrinsic evidence is either in dispute, turns on
witness credibility, or is susceptible of conflicting inferences. Considering that evidence in
addition to the Special Master’s statement about the PSA documents and his pre-September 2012
valuations, the Court still concludes, as a matter of law, that the PSA documents are “’reasonably
and fairly’ open to multiple constructions” and thus, are ambiguous. Hence, a fact finder must
resolve the ambiguity. Summary judgment, therefore, is inappropriate.
2. Joshi’s Failure to Respond to Claims and Chi’s Objections to Joshi’s Exhibits
Chi generally asserts that the Court should reconsider its failure to (1) grant summary
judgment on the claims to which Joshi did not respond, and (2) sustain Chi’s objections to
Joshi’s summary judgment exhibits. Chi does not argue specifically that new intervening and
controlling law, new evidence previously unavailable, or a “need to correct clear error or prevent

3

Chi previously argued that the Court cannot consider post-contract or assignment conduct to
determine ambiguity, citing Rummel v. Lexington Ins. Co., an insurance contract case. 1997NMSC-041, ¶ 19, 123 N.M. 752. In Rummel, the New Mexico Supreme Court quoted from an
insurance contract treatise that “in determining the existence of an ambiguity, the language at
issue should be considered not from the viewpoint of a lawyer, or a person with training in the
insurance field, but from the standpoint of a reasonably intelligent layman, viewing the matter
fairly and reasonably, in accordance with the usual and natural meaning of the words, and in the
light of existing circumstances, prior to and contemporaneous with the making of the policy.”
Id. (quoting 2 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3D § 21:14 (1996)
(emphasis added)). This language contradicts the holding in ConocoPhillips Co. that a court
consider “course of performance,” presumably occurring post-contract, in determining if an
ambiguity exists. 2013-NMSC-009 at ¶ 10. Because courts have applied Rummel only in the
insurance contract context, the Court is compelled to follow ConocoPhillips Co. in this noninsurance case. Accordingly, the Court considers the parties’ post-Assignment “course of
performance.”

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manifest injustice” justifies the Court’s reconsideration of those matters. With respect to the
claims Joshi did not respond to, Chi merely argues that “Chi’s initial Motion for Summary
Judgment established that there is no genuine issue of material fact precluding judgment in Chi’s
favor on these claims….” (Doc. 135) at 6. Chi has not convinced the Court that it should
reconsider its decisions regarding the claims Joshi did not respond to and Chi’s objections to
Joshi’s summary judgment exhibits.
IT IS ORDERED that
1. Chi’s Opposed Motion for Reconsideration of Summary-Judgment Rulings (Doc. 131)
is granted; and
2. Chi’s request to vacate the Court’s decision (Doc. 44) denying Chi’s motion for
summary judgment (Doc. 32) is denied.

UNITED STATES DISTRICT JUDGE

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