Chesapeake Exploration LLC et al v. BP America Production Company

Filing 164

ORDER finding for plaintiff BP America Production Company and against defendants Chesapeake Exploration, L.L.C. and Chesapeake Investments, an Oklahoma Limited Partnership, jointly and severally (as more fully set out in order). Signed by Honorable Vicki Miles-LaGrange on 4/5/2013. (ks)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
BP AMERICA PRODUCTION COMPANY,

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Plaintiff,
vs.
CHESAPEAKE EXPLORATION, LLC, et al.,
Defendants.

Case No. CIV-10-519-M

ORDER
On February 20, 21 and 25, 2013, the non-jury trial in this matter was held before Chief
Judge Vicki Miles-LaGrange. During the trial of this matter, the Court heard testimony and received
a variety of evidentiary materials. Upon review of the testimony and evidence presented, the Court
makes its determination.
I.

Background
On or about July 14, 2008, plaintiff BP America Production Company (“BP”) and defendants

Chesapeake Exploration, L.L.C. and Chesapeake Investments, an Oklahoma Limited Partnership
(“Chesapeake”), entered into a purchase sale agreement (“PSA”) pursuant to which BP purchased
a large number of Oklahoma oil and gas properties from Chesapeake. The purchase price was
$1,750,000,000. The closing date was approximately three weeks after the agreement was signed,
August 8, 2008.
The PSA was structured so that BP paid the full purchase price of $1.75 billion dollars at
closing, but after closing, BP had a period to investigate and conduct due diligence on matters such
as whether Chesapeake actually had title to all the properties it purported to sell BP. Specifically,
Section 2 of the PSA provided for certain post-closing adjustment to the purchase price. Section 2.2
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provided for adjustments related to title to the properties, which were defined as title defects
(downward adjustment in favor of BP) and title benefits (upward adjustments in favor of
Chesapeake). In addition, there were other post-closing adjustments related to accounting issues.
Sections 2.6 and 2.7 provided certain upward or downward adjustments designed to segregate those
revenues and expenses attributable to the period before the PSA’s effective date, from those on or
after that date. Section 2.8 provided that Chesapeake would provide estimates of the adjustments
just prior to the closing date for purposes of adjusting the purchase price at closing, and Section 2.9
set forth the procedures for finalizing the adjustments after closing.
Section 2.2.14 of the PSA provides that if the parties could not resolve disputes over title
defects or title benefits, the disputes were to be submitted to title arbitration before three title
arbitrators selected by the parties. The parties were required to submit any dispute to title arbitration
if it involved title defects, title benefits or the adjustment to the purchase price with respect thereto.
Section 2.9 of the PSA included a separate provision for arbitration of other accounting issues by
a single accounting referee if the parties could not agree on a final statement that included all
accounting adjustments to be made to the purchase price.
Pursuant to Section 2.2 of the PSA, the parties worked together after closing to attempt to
identify and agree on the title to the properties that were sold, including specifically, whether
Chesapeake had more or fewer acres than set forth in the schedules to the PSA. By April 17, 2009,
Chesapeake and BP had agreed on title defects valued at $116,234,556 pursuant to the terms of the
PSA. After deducting the aggregate defect threshold of $35,000,000, the amount due to BP for these
agreed title defects was $81,234,556. The parties were not able to resolve all of the title issues and
submitted disputed title defects and title benefits to title arbitration pursuant to the PSA. April 27,

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2009 was the deadline for the parties to submit their notices of title arbitration. On April 27, 2009,
both parties submitted claims for post-closing title adjustment to the purchase price, which were set
forth in their respective notices of title arbitration.
In BP’s notice of title arbitration, BP sought in excess of $41,000,000 for disputed title
defects. In its notice and at the bottom of each page of the attachments to the notice, BP expressly
reserved its rights relating to the agreed title defects if they later became disputed by Chesapeake.
In Chesapeake’s notice of title arbitration, Chesapeake submitted title benefit claims totaling
$20,700,766. Chesapeake’s claims, when combined with the $20,572,576 in agreed title benefits,
exceeded the $35,000,000 aggregate threshold by $6,273,342. In addition, Chesapeake sought
$15,991,961 in title credits.

Accordingly, as of April 27, 2009, when the title arbitration

commenced, Chesapeake was seeking a total of $22,556,302 in the title arbitration. Pursuant to
Section 2.2.14 of the PSA, the parties selected a panel of three title arbitrators to determine their
respective claims in title arbitration.
At the same time the parties were working on title issues, they were also working on separate
issues relating to post-closing accounting adjustments. While one group of negotiators focused on
the title issues, another group of negotiators focused on the accounting issues. The procedures for
arriving at the accounting adjustments were set forth in Section 2.9 of the PSA, which required that
120 days after the closing date, Chesapeake would provide a post closing statement setting forth a
detailed calculation of all final adjustment to the purchase price. If BP disputed Chesapeake’s initial
final statement, it could deliver a written exception report containing changes that BP proposed to
the statement. The parties were then to meet and confer to try to resolve the differences. If they
could not be resolved, any party could submit the dispute to arbitration before an accounting referee.

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The procedures in Section 2.9 for post-closing adjustments did not displace the procedures for
resolving title disputes, which were to be resolved separately under Section 2.2 of the PSA. Section
2.2.14 of the PSA provided that if the title arbitrators had not rendered their decision on title disputes
as of the date of Chesapeake’s delivery of the final statement pursuant to Section 2.9 of the PSA,
any amount owed as a result of the title arbitration is to be paid within five (5) days after the title
arbitrators’ determination.

The final statement was initially delivered by Chesapeake to BP on

December 5, 2008, which was more than a year before the title arbitrators made any determination.
In accordance with Section 2.2.14 of the PSA, any amounts due as a result of the decisions of the
title arbitrators were payable five (5) days after the final determination by the title arbitrators.
On December 5, 2008, Chesapeake’s initial proposed final statement setting forth
Chesapeake’s proposed adjustments to the purchase price was forwarded to BP, but it only dealt
with accounting issues and contained no entries relating to title issues. On April 9, 2009, BP
responded to Chesapeake’s proposed final statement with a transmittal letter and an exception report
which included an Exception No. 27 - Agreed Purchase Price Adjustments re Certain title Defects $80,799,079.60. BP also reserved its right to seek further adjustments to the purchase price as there
remained unresolved title defects. On Friday, April 24, 2009 at 2:52 p.m., Hank Scheel of
Chesapeake sent Bradley Bangle of BP a response to BP’s exception report, setting forth
Chesapeake’s proposed dollar amount for each of the exception items BP had included with its April
9, 2009 revised final statement. On Exception No. 27, Chesapeake inserted $58,969,253 in place
of BP’s $80,799,080. The following Monday, April 27, 2009, was the deadline for the parties to
give their notice of title arbitration. On Monday morning, April 27, 2009, Brian Kastman of BP
emailed and then called his counterpart at Chesapeake, Brian Exline to ask the basis for

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Chesapeake’s unexpected reduction of the agreed title defects from $80,799,080 to $58,969,253.
During his deposition, Brian Exline testified that the $58,969,253 was based on Chesapeake
applying a potential offset for what they thought was due Chesapeake in title arbitration. Whether
or not Chesapeake would prevail on its claims in title arbitration, and therefore, whether it would
have an offset would depend on the results of the title arbitration. BP did not submit any of the
agreed title defects to title arbitration because the parties remained in agreement that a total of
$81,234,556 remained due for agreed title defects, and these were not disputed by Chesapeake, but
only being withheld as a potential future offset if Chesapeake received an affirmative recovery on
its disputed claims in title arbitration at some later date.
The parties continued to negotiate over the disputed accounting adjustments, but no further
negotiations took place over Exception No. 27. BP contends it understood, based on Chesapeake’s
representations, that payment of the remaining $22,265,302 in agreed title defects had to wait until
the outcome of the title arbitration and the decision on the parties’ remaining disputed title claims
that had been submitted to title arbitration.
On May 8, 2009, BP submitted disputed accounting issues concerning the final statement to
accounting arbitration before the accounting referee, pursuant to Section 2.9 of the PSA. Exception
No. 27 was not submitted to accounting arbitration. BP again noted the reservation of its rights or
remedies related to the title arbitration. On May 13, 2009, BP submitted its written statement of
position and supporting documents in the accounting arbitration to Deloitte & Touche, the
designated accounting referee in the PSA. BP also submitted a proposed form for the accounting
referee award. The proposed accounting referee award form submitted by BP stated that the
Exception No. 27 related to title arbitration. The parties exchanged numerous letters regarding the

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accounting arbitration process.
On July 7, 2009, BP’s Chief Financial Officer Timothy Harrington sent a letter to
Chesapeake offering to settle the final statement and the ongoing disputes over accounting
arbitration. Harrington’s letter stated, in part, as follows:
BP and Chesapeake have reached consensus regarding the minimum
price adjustments owed to BP which is $59,857,470 as evidenced by
Mr. Hank Scheel’s notice of April 24, 2009 to BP’s Mr. Brad Bangle
(Attachment “A”).
Joint Trial Exhibit 5.
Chesapeake did not question or alter the terms of BP’s July 7, 2009 offer. Chesapeake accepted
BP’s July 7, 2009 offer on July 10, 2009 by letter from Chesapeake’s Executive Vice President
Douglas Jacobson. Jacobson’s letter stated in part:
Based on this Agreement, we assume that both parties will take the
appropriate actions to withdraw from the Final Statement arbitration.
Notwithstanding the resolution of the Final Statement issues as
agreed to herein, Chesapeake reserves all of its rights with regard to
any other outstanding issues between the parties.
Joint Trial Exhibit 8.
Chesapeake then paid BP $59,857,470, of which $58,969,253 was attributed to the agreed title
defects and the remaining $888,217, was attributed to the final statement items that had been
submitted to accounting arbitration. BP’s July 7, 2009 offer letter and Chesapeake’s July 10, 2009
acceptance letter, resulted in a settlement that ended the accounting arbitration.
Although the accounting arbitration had been ended pursuant to the terms of the July 7, 2009
letter agreement, the title arbitration continued on its own path. Both parties continued to pursue
its disputed title claims. On July 7, 2009, the parties both submitted their written statements of
position and supporting documents to the title arbitrators. “BP sought a downward adjustment to
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the Purchase Price in the amount of $313,028,163 attributable to a total of 244 alleged Title
Defects.” Chesapeake “acknowledged full or partial Title Defects in 135 properties and agreed to
a downward adjustment to the Purchase Price in the amount of $116,234,556 attributed to 163 Title
Defects. BP agreed to retract 58 Title Defects. See Joint Exhibit 7, page 9.
The title arbitration panel issued an award on December 30, 2009. The panel awarded
$11,526,434 in title defects (subject to BP’s acceptance of three conditional awards), and $3,727,031
in title benefits. The panel denied all of Chesapeake’s claims for title credits (assuming BP elected
to accept a certain condition). Because the sum of the agreed title benefits and the disputed title
benefits awarded to Chesapeake by the arbitration panel was less than the $35,000,000 aggregate
defect threshold amount, there was no upward adjustment to the purchase price for Chesapeake.
Chesapeake received no award in title arbitration to off set the $22,265,302 balance of agreed title
defects that it had withheld pending title arbitration.
Although the title arbitration panel’s December 30, 2009 award resolved the parties’ title
disputes, the arbitration panel did not address the impact of its ruling on the amounts ultimately
owed by or to the parties under the PSA. The arbitration panel stated, in a section of the December
30, 2009 award labeled “Explanatory Comments,”:
The Panel has made no effort to determine, and the Panel makes no
ruling herein, whether the threshold levels under the Purchase and
Sale Agreement have been satisfied in order for any actual increases
or decreases in amounts paid and/or received to result from the
individual determinations below. The Panel assumes that, with the
determinations made below, the parties can arrive at the impact of the
Panel’s rulings on the additional amounts to be paid and/or received
by each of the parties. If that assumption is in error and if the parties
need for the Panel to make those determinations, the parties should
submit arbitration position statements on those issues for the
consideration of the Panel, describing the additional issues to be
determined and the argument of each party on those issues.
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Joint Exhibit 10, page 2.
On January 5, 2010, BP sent an email to Chesapeake, and Chesapeake responded the same
day. BP sent a schedule with the email, which itemized the title defects due and total payment to
BP of $33,791,736 ($11,526,434 awarded by the Arbitration Panel for disputed title defects, plus
$22,265,302 for previously withheld agreed title defects). BP requested an initial payment of
$21,345,550, because $12,446,186 was still subject to BP’s acceptance of certain conditions
imposed by the arbitration panel on three specific properties. Chesapeake responded by stating:
We are in receipt of and acknowledge your request for a payment.
However, at this time we have only received a partial determination
by the Panel. Accordingly, payment will not be made until such time
as the Panel’s complete order is final, at which time we will tender
the settlement required in accordance with the terms of the PSA.
Joint Exhibit 11, page 1.
On February 2, 2010, after certain elections were made by BP under the arbitration panel’s
award, Chesapeake paid BP $11,526,434. BP also sent an email to the arbitration panel and
Chesapeake advising that it had accepted all conditions imposed in the December 30, 2009 award
and had tendered certain assignments to Chesapeake that were the subject of the conditional portions
of the December 30, 2009 award. BP also sought clarification that the award was intended to
address Chesapeake’s title benefit and title credit claims, and requested the arbitration panel to order
Chesapeake to “make payment of the full $33,791,736 in accordance with the PSA and the Panel’s
award.” See Joint Exhibit 14, page 2.
On February 4, 2010, Chesapeake responded arguing that the arbitration panel had no further
authority and could not consider the request for clarification. BP replied on February 5, 2010 and
again made its claim for the remaining $22,265,302 in agreed title defects explaining why

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Chesapeake still owed that amount. On February 9, 2010, the arbitration panel invited the parties
to respond to four specific questions relating to its authority to consider BP’s request for clarification
and modification of the December 30, 2009 award. The parties responded to the arbitration panel
on February 19, 2010, and submitted replies on February 26, 2010.
On March 11, 2010, the arbitration panel made the following statement in clarification as to
the intention of the panel in its December 30, 2009 award:
The Panel understands that, during the course of the arbitration, one
or both of the parties understandably withheld, either in part or in
whole, payments that might be due to the other party if the
withholding party did not prevail with regard to the disputed Title
Defects, Title Benefits and Credit Claims that were submitted to
arbitration. The Panel advises the parties that as to all of its rulings
concerning asserted Title Defects, Title Benefits and/or Credit
Claims, it was the intention and assumption of the Panel that, to the
extent that the only grounds a party had for withholding payment to
the other party for the dollar amount associated with any such matters
was that there had been no ruling by the Panel with regard to those
issues, the amounts due for such matters would then become due in
light of the Panel’s decision. If the parties contend that the absence
of “order to pay” wording or similar wording in the Award was
intended to indicate that the Panel ruled on certain issues but did not
intend for its Award to have any impact on the dollar amounts a party
owed to the other party, that is an incorrect interpretation of the
Award.
Joint Exhibit 23, page 2.
Chesapeake sent an email to the arbitration panel on March 17, 2010 contesting the
arbitration panel’s continued assertion of jurisdiction. BP sent an email to the arbitration panel on
March 18, 2010 explaining that Chesapeake still refused to pay the $22,265,302, despite the
arbitration panel’s clarification. On March 19, 2010 Chesapeake responded asserting the arbitration
panel had fully satisfied its obligations relative to the rendering of the “final award” on December
30, 2009. Chesapeake also notes if the arbitration panel persists in entertaining additional issues,
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Chesapeake “has no alternative but to seek appropriate intervention from the district court to right
this ship.” See Joint Exhibit 26, page 1.
On March 24, 2010, BP sent an email to the arbitration panel noting that Chesapeake still
had not paid the full amount due as a result of the panel’s arbitration award and requesting further
clarification. On April 2, 2010, the arbitration panel asked BP to provide a detailed explanation of
the $22,265,302 of agreed title defects owed and permitted Chesapeake to respond on or before
April 23, 2010. On April 12, 2010, BP provided the detailed reconciliation requested by the
arbitration panel demonstrating how it arrived at the $22,265,302 in agreed title defects withheld by
Chesapeake. Rather than responding to BP’s April 12, 2010 submission to the arbitration panel,
Chesapeake commenced this litigation in the state court on April 21, 2010, seeking an order
prohibiting the arbitration panel from considering the matter further. Specifically, Chesapeake
sought to modify and confirm the arbitration panel’s December 30, 2009 award, excluding the
“Explanatory Comments”, to vacate all post award rulings or orders by the arbitration panel and
declaring the panel’s task complete and its jurisdiction exhausted.
BP removed the case to this Court, and Chesapeake’s motion to remand was denied on July
21, 2010. On May 24, 2010, BP filed its Counterclaims. The arbitration panel reconvened and
requested further briefing from the parties. On January 26, 2011, the arbitration panel issued its last
award. On February 7, 2011, BP filed a Motion to Confirm Arbitration Award and Chesapeake filed
its own Motion to Confirm Arbitration Award on March 2, 2011.
On August 26, 2011, Judge Heaton issued his Order in this case on the competing motions
to confirm and concluded:
The court concludes that insofar as the Panel addressed BP’s
entitlement to $22,265,302 or credit in that amount, it went beyond
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the scope of what had been submitted to it. While it had the authority
to, and did, address the impact of its specific title determinations on
the overall purchase price (i.e. “title defects” credit to BP of
$11,626,434; “title benefits” credit to Chesapeake of $3,727,031),
that authority did not, based on the scope of the parties’ submission
letters, also extend to resolving other title-related disputes impacting
the price such as the basis for BP’s $22 million claim. Similarly, the
Panel’s conclusions as to the interest owing on those amounts was
premature for the same reasons. The court does not suggest that the
Panel’s conclusions in this regard were wrong. Indeed, the Panel’s
conclusions as to the $22 million seem wholly defensible based on
the present submissions. However, as the court’s present focus is the
confirmation of the Panel’s award and the indicated portion thereof
exceeded the scope of the arbitration, the court simply concludes the
award to be confirmed does not include the indicated additional
issues.

The broader issues sought to be raised by BP as to the $22 million are
within the scope of its counterclaim and may be appropriate for
resolution by this court at some point. However, the parties’ present
submissions, though extensive, are not summary judgment motions
and have not been presented in that way. The court concludes it
would be in appropriate, in the present posture of the case, to reach
or resolve the broader issues involving BP’s claim to the additional
$22,265,302.
Judge Joe Heaton’s August 26, 2011 Order, pages 6-7 [docket no. 48].
On September 20, 2011, the parties joint proposal for proceeding in this Court by filing
cross-motions for summary judgment, rather than returning to arbitration was filed. On February
20, 2013, the trial of this action commenced.
II.

Discussion
In this case, BP is seeking a declaratory judgment as to the rights and the responsibilities of

the parties with particular respect to $22,265,302 in unpaid agreed title defects. Chesapeake has
asserted a number of affirmative defenses, including arbitration and award, res judicata, accord and
satisfaction, consent, account stated and settled, parole evidence exclusion, statue of frauds and
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waiver. Chesapeake also argues that BP’s claim for declaratory judgment is not properly before the
Court, pursuant to the Federal Arbitration Act.
A.

Jurisdiction and Venue

BP contends its claim for declaratory judgment regarding Chesapeake’s failure to pay
$22,265,302 in agreed title defects, and corresponding request for a finding that payment is now due,
are issues properly before the Court. BP argues even if as Chesapeake argues, BP’s claim is subject
to one of the arbitration provision in the PSA, Chesapeake voluntarily and knowingly waived the
right to arbitrate and is judicially estopped from now claiming that the Federal Arbitration Act, 9
U.S.C. § 1, et seq. (“FAA”), the Oklahoma Uniform Arbitration Act, Okla. Stat. tit. 12, § 1851, et
seq. (“OUAA”), and case law interpreting those acts bar BP’s Claim in the present case.
Chesapeake contends whether the parties to the July 2009 letter agreement had a meeting of the
minds is beyond the purview of this Court.
“The right to arbitration, like any other contract right, can be waived.” Mertz v. Merrill
Lynch, Pierce, Fenner & Smith, Inc., 39 F.3d 1482, 1489 (10th Cir. 1994). In Mertz, the Tenth
Circuit has established six criteria to consider in determining whether a party has waived it rights
to arbitration:
(1)

whether the party’s actions are inconsistent with the right to
arbitrate;

(2)

whether the litigation machinery has been substantially
invoked and the parties were well into preparation of a
lawsuit before the party notified the opposing party of an
intent to arbitrate;

(3)

whether a party either requested arbitration enforcement close
to the trial date or delayed for a long period before seeking a
stay;

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(4)

whether a defendant seeking arbitration filed a counterclaim
without asking for a stay of the proceedings;

(5)

whether important intervening steps [e.g. taking advantage of
judicial discovery procedures not available in arbitration] had
taken place; and

(6)

whether the delay affected, misled, or prejudiced the
opposing party.

Id. citing Mertz, 39 F.3d at 1489 (internal quotation marks omitted).
The Court has carefully reviewed the parties submissions and finds that the very reasons that
this matter is now before this Court is because Chesapeake sought relief in the Oklahoma County
district court from the arbitration Panel’s consideration of BP’s Claim. Chesapeake commenced this
litigation on April 21, 2010, seeking an order prohibiting the arbitration panel from considering any
further matters beyond those specifically addressed in the December 2009 award, and striking the
arbitration panel’s retention of jurisdiction to clarify or modify its ruling to address the impact of
its award on purchase price adjustments.
Further, when BP requested this Court stay the litigation filed by Chesapeake until the
arbitration panel completed its work, Chesapeake objected, contesting the arbitration panel’s
authority to decide BP’s claim. After the granting of BP’s motion to stay, the arbitration panel
issued its last award on January 26, 2011, concluding that Chesapeake owed BP the additional
$22,265,302, unless Chesapeake prevailed on certain defenses that the arbitration panel found were
outside its preview. As opposed to accepting the judgment rendered by the arbitration panel, or
challenging the panel’s conclusion that its defenses were outside of the arbitration panel’s authority,
Chesapeake again acquiesced to the jurisdiction of this Court and sought affirmative relief.
Chesapeake specifically moved the Court to determine that the arbitration panel lacked authority to

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render any decision after its December 2009 award. After Judge Heaton’s August 26 2011 order in
favor of Chesapeake’s arguments against the arbitration panel’s authority, the parties jointly
submitted a proposed schedule for proceeding in this Court by filing cross-motions for summary
judgment, rather than returning to arbitration.
Thereafter, Chesapeake engaged in extensive discovery, including written discovery requests
and depositions of key BP witnesses, the parties filed final exhibit and witness lists, and each filed
its own motion for summary judgment on the merits. Having voluntarily and extensively engaged
in the litigation process, the Court finds Chesapeake cannot now, change its mind.
Additionally, the Court finds Chesapeake’s argument that the FAA, the OUAA and
corresponding case law bar BP’s claim in the present case is misplaced. Chesapeake relies on the
case Hall Street Associated, L.L.C. v. Mattel, Inc., 552 U.S. 576, (2008) as authority for arguing that
the Court lacks jurisdiction to hear BP’s claim. In Hall Street the Court refused to expand the
categories of FAA §§ 9-11 for judicial review of arbitration award to permit a federal district court
to conduct de novo review, even where the parties’ had so agreed. The Court held that vacating,
modifying or correcting a final arbitration award as the exclusive grounds for vacatur and
modification of a final arbitration award pursuant to provisions of the FAA. Chesapeake also seems
to rely on the recent case of Nitro-Lift Technologies, L.L.C. v. Howard, __ U.S. __, 133 S.Ct. 500
(2012) where the Supreme Court found the Oklahoma Supreme Court had exceeded its judicial
authority in contravention of the FAA when it found that the parties’ contract, which embodied an
arbitration clause, was void. Because the Oklahoma Supreme Court had invaded the province of the
arbitrator in finding the entire contract, as opposed to only the anti-competition clause, void it had
violated the FAA and controlling federal law. The Court finds that the holdings in Hall Street and

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Nitro-Lift has no bearing in this case where a final review of both BP’s claim to $22,265,302 and
Chesapeake’s defenses never occurred. Because both the arbitrator panel and this Court specifically
left any ruling on BP’s claim and Chesapeake’s defenses to either further arbitration or litigation in
this Court and Chesapeake objecting to the authority of the title arbitration panel filed this action
where substantial judicial procedures have occurred, the Court finds it has jurisdiction to hear BP’s
claim.
B.

Chesapeake’s Defenses
1.

Res Judicata or Claim Preclusion

Chesapeake asserts that BP’s claim is barred by the doctrine of res judicata.
This court must apply the res judicata (claim preclusion) rules of Oklahoma. Brady v. UBS
Fin. Serv., 538 F.3d 1319 (10th Cir. 2008). Under Oklahoma law, “[a]n arbitration award has the
same force and effect as a judgment of a court of competent jurisdiction for claim preclusion
purposes. To prevail on this defense a Chesapeake must prove:
(1)

an identity of subject matter, of the parties or their privies, of
the capacity of the parties and of the cause of action

(2)

the court which heard the original action must have been one
of competent jurisdiction, and

(3)

the judgment rendered must have been a judgment on the
merits of the case and not upon purely technical grounds.

Carris v. John R. Thomas and Assoc., 896 P.2d 522, 527 (Okla. 1995).
Oklahoma follows the Restatement of Judgment (Second), § 13 (1982) which requires that
a judgment be “final” before it can be the subject of a defense of res judicata, or claim preclusion.
To be granted preclusive effect, the judgment must be final and not subject to reconsideration or
amendment. See Doyle v. Smith, 202 P.3d 856, 864 (Okla. Civ. App. 2009). The final judgment
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requirement applies equally when the basis of a claim of res judicata or claim preclusion is an earlier
arbitration award. See Stifel, Nicolaus & Co., Inc. V. Woolsey & Co., Inc., 81 F.3d 1540 (10th Cir.
1996).
Here, it is undisputed that neither the arbitration panel nor this Court has ruled on BP’s
claim. Both the arbitration panel and this Court found that Chesapeake’s defenses to BP’s claim for
the $22,265,302 were beyond the scope of the issues presented by Chesapeake and BP for
arbitration, and beyond the relief the Court could grant on the parties’ competing motions to confirm
the December 2009 award. The Court finds, because both the arbitration panel and the Court found
that BP’s claim and Chesapeake’s corresponding defenses related to that claim were not the proper
subject of either arbitration or court proceedings on the parties’ motion to confirm the Panel’s award,
neither the Panel nor this Court entered a final judgment on the merits of BP’s claim or
Chesapeake’s affirmative defenses to that claim. Accordingly, the doctrine of res judicata/claim
preclusion cannot apply to bar BP’s claim in this case.
2.

Title Arbitrators Award

Chesapeake also argues that the Court has no authority to consider BP’s claim because after
the Court confirmed certain parts of the arbitration panel’s award in its August 26, 2011 order, there
is nothing further for the Court to decide. Chesapeake appears to argue that BP’s claim is somehow
barred by the arbitration panel’s previous awards. However, as with Chesapeake’s res judicata
defense, this defense fails because Judge Heaton’s August 26 2011 order, found that BP’s claim was
still viable. As previously noted, the August 26, 2011 order made it clear neither the arbitration
panel nor this Court entered a final judgment, or award, on the merits of BP’s claim.
In the instant case, the arbitration panel has not conclusively resolved BP’s outstanding

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claim. Similarly, the Court found that while it could not resolve BP’s claim in the context of the
parties’ motions to confirm the award, it could resolve BP’s claim in this case at a future date. As
such, the Court finds that there has not been an arbitrators award as to BP’s claim. Accordingly, the
Court denies Chesapeake’s defense of title arbitrators award.
3.

Accord and Satisfaction

It remains undisputed that the parties reached an agreement in July 2009 as to the accounting
arbitration. However, to prove an accord and satisfaction as to Chesapeake’s obligation to pay
$22,265,302 of agreed title defects Chesapeake must establish there was a meeting of the minds:
Whether the parties have reached an accord and satisfaction depends
upon the circumstances in each case and must be ascertained from the
parties’ intentions. Evidence of an accord and satisfaction must show
that the parties reached a meeting of the minds and that the purpose
and intent of the parties was to discharge a prior obligation. . .
Cinco Enterprises, Inc. v. Benso, 890 P.2d 866, 874 (Okla. 1994). Such a showing “must be
satisfactorily proven” by Chesapeake as the party asserting the defense. Fast Motor Co. v. Morgan
52 P.2d 25, 27 (Okla. 1935).
However, the evidence does not show that the parties had a mutual intent to discharge
Chesapeake’s obligation to pay $22,265,302 of agreed title defects when they entered into the July
2009 letter agreement. The evidence supports BP’s position that the July 2009 agreement preserved
BP’s right to receive payment for the remaining agreed title defects if they were not later set off by
an award to Chesapeake in title arbitration. Neither BP’s Tim Harrington, who wrote the July 7,
2009 offer letter nor Mr. Kastmen, who assisted him in preparing the letter, intended to simply give
away $22,265,302. During the trial, Chesapeake’s Brian Exline testified to his understanding that
the July 2009 letter agreement did not reference waiving the $22, 265,302 in agreed title defects.

17

Even if Chesapeake had a different understanding of the July 2009 letter agreement, it cannot be the
basis of sustaining a defense of accord and satisfaction.
Under Oklahoma law, a binding contract requires a meeting of the minds. “Consent is not
mutual unless the parties all agree upon the same thing in the same sense. OKLA. STAT. tit 15, §
66. The Court finds that even if Chesapeake truly understood BP’s offer to include a release of the
remaining $22,265,302 in agreed title defects claims, that understanding clearly differed from BP’s
understanding, and there was no meeting of the minds. Accordingly, the Court denies Chesapeake’s
accord and satisfaction defense.1
4.

Account Stated and Settled

Just as with accord and satisfaction and consent, Chesapeake’s claim of account stated fails.
In other words, “[i]f either party did not understand the statement as a final adjustment of their
respective demands then under consideration the statement is not an account stated. See Moyer v.
Closs, 97 P.2d 901, 903 (Okla. 1939). As with any contract, an account stated cannot be formed
without the assent of the party against whom the the defense is asserted. Therefore, “an account
rendered will not become an account stated as long as some of the items thereof are in dispute,” See
Givens v. Parker,258 P.2d 936, 938 (Okla. 1953).
Chesapeake bears the burden of proving that the July 2009 letter agreement constituted an
account stated and settled that bars BP’s recovery of the remaining $22,265,302 in agreed title
defects. Chesapeake appears to rely on the facts that BP’s July 2009 offer letter quoted only
$59,857,470 rather than the previously stated $81,234,556 in agreed title defects, and that

1

Pursuant to OKLA. STAT. tit 15 §66 the Court finds BP did not consent or agree to
release the remaining $22,265,302.
18

Chesapeake assented to BP’s offer and wired $59,857,470 three days later. Although Chesapeake
can point to a $22,265,302 difference between the parties April 17, 2009 appraisal of agreed title
defects and the amount recited in the parties’ July 2009 letter agreement, Chesapeake has offered
no evidence that BP unequivocally made the July 2009 offer and entered into the resulting letter
agreement wit the understanding that doing so would extinguish all obligation for Chesapeake to pay
the remaining $22,265,302. The plain language of BP’s July 2009 letter simply cannot be reconciled
with the notion of a final and unconditional adjustment of all matters of account between BP and
Chesapeake when that letter described the $59,857,470 as the minimum price adjustment owed to
BP. Accordingly, the Court denies Chesapeake’s account stated and settled defense.
5.

Parol Evidence Rule

Chesapeake also argues that the parole evidence rule precludes consideration of any other
agreements between the parties or discussions held prior to the July 2009 letter agreement.
Specifically, Chesapeake contends the execution of the July 2009 letter agreement excludes all oral
negotiations or stipulations concerning this subject matter, which preceded or accompanied the
execution of that agreement. BP contends the PSA and the parties’ undisputed agreement that
Chesapeake owed BP a purchase price adjustment for $116,234,556 in agreed title defects must also
be read and interpreted in conjunction with the July 2009 letter agreement. BP contends taken
together, these three agreements are part of a single transaction intended to arrive at the proper
adjusted purchase price. BP argues the July 2009 letter agreement does not purport to modify or
change either of the other two agreements, which, taken together, are part of a single transaction to
arrive at the proper purchase price. BP notes the PSA specifically encompassed additional
documents and agreements related to the ongoing due diligence post-closing. PSA ¶15.8 states:

19

Entire Agreement. This Agreement, the Assignment, and the other
documents contemplated by this Agreement constitute the entire
agreement between the Parties with respect to the subject matter
hereof and there are no agreements, understandings, warranties or
representations except as set forth herein or therein.
Joint Exhibit 1 ¶15.8, page 57.
Oklahoma’s rules of contract construction permit the Court to look beyond the four corners
of the written instrument to circumstances surrounding its execution.
The Oklahoma statutory rules of construction establish that: the
language of a contract governs its interpretation, if the language is
clear and explicit and does not involve an absurdity. (Okla. Stat. Tit.
14, §§154, 155); a contract is to be taken as a whole, giving effect to
every part if reasonably practicable, each clause helping to interpret
the other (id. §157); a contract must receive such an interpretation as
will make it operative, definite, reasonable and capable of being
carried into effect (id. §159); words of a contract are to be given their
ordinary and popular meaning (id. §150); and a contract may be
explained by reference to the circumstances under which it was made,
and the matter to which it relates (id. §163).
Ackerman McQueen, Inc. v. B Equal Co., F.R.D. 484, 488 (W.D. Okla. 2009). “If there are several
contracts relating to the same matter, between the same parties, and made as parts of substantially
one transaction, we will interpret the contracts together.” Chesapeake Exploration Ltd. P’ship v.
Chesapeake Exploration Ltd. P’ship, 2004 OK CIV APP 94, 103 P.2d 621,625.
Oklahoma courts recognize that the parole evidence rule “only forbids parol evidence of
prior or contemporaneous oral agreements which contradict, vary, or are inconsistent with the
writing and does not preclude oral agreements on collateral matters.” Hemphill Crop. v. Guy H.
James Const. Co., 1980 OK CIV APP 26 ¶ 5, 620 P.2d 464, 465. Thus, it becomes necessary to
determine “whether the parties intended the writing to be a completely integrated statement of their
agreement or whether it was only intended as a partial integration.” Id. at ¶ 6, 620 P.2d at 465.
Under Oklahoma’s approach to determining integration, “[w]here the writing appears incomplete,

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consistent additional terms may be proved by parol.” Id. at ¶ 7, 620 P.2d at 466.
Upon the Court’s review of communications cited within the July 2009 letters, the $59,
857,470 payment did not represent the parties’ entire agreement as to agreed title defects. It is
equally evident that whatever meaning the parties mutually ascribed to the term “minimum price
adjustments owed to BP” had to have been established in the earlier communications between the
parties. Additionally, considering the $22,265,302 variation between April and July 2009, the term
“minimum price adjustments” plainly suggests that the parties had a collateral explanation
concerning the $22,265,302 not fully set forth in the July 2009 letter agreement. Therefore, the
Court finds that considering the evidence and testimony regarding that collateral explanation would
not contradict or be inconsistent with any aspect of the understanding set forth in the July 2009
agreement, the consideration of evidence and testimony regarding that collateral explanations does
not violate the parol evidence rule.
6.

Statute of Frauds.

Under PSA ¶15.10, amendments to the PSA must be in a writing signed by the party to be
charged. According to Chesapeake, the PSA itself does not provide that unawarded title benefits
would result in a downward price adjustment. Chesapeake contends the oral agreement providing
for such an adjustment constitutes an amendment of the PSA. Chesapeake argues that the statute
of frauds bars BP’s claim to the extent BP alleges that oral agreements modified the express,
executed final statement settlement, or amended the PSA to provide for a downward price
adjustment resulting from unawarded title benefits.
BP contends its claims are based on three written agreements and the decision of the title
arbitrators, none of which are disputed: (1) the PSA, which expressly provides for adjustment to the
purchase price for title defects and title benefits and established the mechanisms for arriving at the

21

corrected amount for the adjustments; (2) the parties’ agreement as to the $116,234,556 in agreed
title defects, resulting in a purchase price adjustment of $81,234,556 (after deducting the aggregate
defect threshold); (3) the July 2009 letter agreement providing for payment of $59,857,470 not
subject to further offset or adjustment, and (4) the title arbitrators’ award denying Chesapeake’s
$22,265,302 in offsets, leaving payment of $22,265,302 in agreed title defects outstanding. BP
contends the PSA plainly provides for negotiation between the parties for adjustment of the contract
price resulting from mutually recognized title defects. BP contends Chesapeake’s actions in
conditionally withhold $22,265,302 of agreed title defects as a possible offset pending arbitration
of the remaining disputed title claims falls within these provisions for negotiation, and therefore does
not constitute a modification or amendment of the PSA.
Oklahoma courts have held that, where a contract to which the statute of frauds applies
expressly provides for later adjustment of its terms, the statute of frauds does not require such
adjustment to occur in writing. See Ketcham v. Oil Field Supply Co., 1923 OK 1120, ¶¶9-10, 226
P. 93,95-96.
The Tenth Circuit has applied similar principles to a contract for the sale of real property that
expressly permitted the purchaser to either waive title defects or to rescind the contract. See Jones
v. Dickens, 394 F.2d 233, 234 (10th Cir. 1968).
On the question of waiver of title defects, appellants contend that any
waiver must be in writing; otherwise it would be an oral modification
of the contract for the sale of land contrary to the statute of frauds.
We cannot agree as the contract expressly provides for an election on
the part of the purchasers either to waiver the defects or rescind the
contract. Thus the waiver here found was not a modification of the
written contract, but rather the selection of an alternative expressly
provided for. It is thus part of the performance of the agreement.
Id. at 235.
Additionally, “‘the provisions of the statute of frauds . . . have no application where the
22

agreement has been completely performed as to the part thereof which comes within the statute, and
the part remaining to be performed is merely a payment of money . . .”’ Merfeld v. Anderson, 1924
OK 179, ¶9, 2224 P. 161, 163 (quoting syllabus of Logan v. Brown, 1908 OK 29, 95 P. 441). “‘The
statute is no bar to an action for the price of land actually conveyed where the deed has been
accepted or title has otherwise passed. . . .”’ Id.
Upon review of the extensive record in this case, the Court finds that Chesapeake transferred
title to the properties in question to BP at the August 8, 2008 closing. This component of the
transaction was what brought the PSA within the statute of frauds, but once that component was
complete, the statute had no further application. Therefore, any subsequent agreement concerning
the method and amount to be refunded or paid could be made orally without violating the statute of
fraud. Based on the above, Chesapeake’s statute of frauds defense is denied.
7.

Waiver.

The PSA ¶2.2.13 states:
If the Sellers and the Buyers are not in agreement as to whether a
Title Defect of Title Benefit exist or the amounts thereof, either Party
shall have a period of thirty (30) days after the Defect Date for Title
Defects to submit the dispute to arbitration as provided in Section
2.2.14 or waive such dispute.
Pursuant to ¶2.2.13, Chesapeake also contends that BP waived any claim to the $22,265,302
in agreed title defects because BP failed to submit this matter in its April 27, 2009 Notice of
Arbitration. However, PSA ¶2.214 only requires Title Arbitration per the terms of the provision and
its corresponding deadlines “[i]f there is a dispute between the Sellers and Buyer involving title
defects. BP contends there was no dispute regarding the $22,265,302 in agreed title defects withheld
from the final statement. Because the parties had agreed that such amount was owed, there was no
dispute to submit to title arbitrators.

23

Under Oklahoma law, “the doctrine of waiver focuses on the intention of the party against
whom waiver is asserted; that is, the party must have the intent to waive its right.” See, Murphy Oil
USA, Inc. v. Wood, 438 F.3d 1008, 1013 (10th Cir. 2006). Here, the evidence shows that BP had no
intention of waiving its right to recover the balance of $22,265,302 in agreed title defects withheld
by Chesapeake pending title arbitration. Because BP did not intend to waive its right to the
$22,265,302 in agreed title defects, the Court finds Chesapeake’s waiver defense is denied.
IV.

Conclusion
Pursuant to the foregoing, the Court finds for plaintiff BP America Production Company and

against defendants Chesapeake Exploration, L.L.C. and Chesapeake Investments, an Oklahoma
Limited Partnership, jointly and severally. Accordingly, the Court enters judgment in favor of
plaintiff BP American Production Company for the sum of $22,265,302 for unpaid agreed title

24

defects with interest accrued and accruing thereon from and after February 2, 2010 at the rate of six
percent (6%) per annum until paid.2 Additionally, the Court finds the issue of attorneys’ fees and
costs premature to be submitted by separate motion and considered by the Court at a later date.
IT IS SO ORDERED this 5th day of April, 2013.

2

Pursuant to Section 2.2.14 of the PSA, the $22,265,302 in agreed title defects was due
five days after the award. The first award was issued by the arbitration panel on December 30,
2009, but certain aspects of the award were conditional and subject to BP’s acceptance. By
February 2, 2010, BP had accepted the conditions imposed by the award, and BP was vested
with the right to receive the $22,265,302 that Chesapeake had withheld pending outcome of the
title arbitration.
25