Trinity Valley School et al v. Chesapeake Operating Inc et al

Filing 111

MEMORANDUM OPINION AND ORDER: The Court GRANTS Plaintiffs' Motion for Partial Summary Judgment (Doc. No. 50 ). Defendants' Motion for Partial Summary Judgment (Doc. No. 52 ) is GRANTED in part and DENIED in part. The Court GRANTS sum mary judgment as to Plaintiffs' accounting and pricing claims only because Plaintiffs agree these claims should be dismissed. The Court DENIES summary judgment as to all other claims in Defendants' Motion for Partial Summary Judgment. D efendants' Motion to Strike the Fourth Report of Plaintiffs' Expert Richard Lonquist, or Alternatively, for a Continuance of the Trial Date (Doc. No. 61 ), Defendants' Motion to Exclude the Testimony and Opinions of Plaintiffs' ; Expert Richard Lonquist Relating to Plaintiffs' Royalty Pricing Claim (Doc. No. 65 ), and Defendants' Motion to Exclude the Testimony and Opinions of Plaintiffs' Expert Jane Kidd Relating to Economic Benefit (Doc. No. 68 ) are DENIED. Defendants' Motion for Leave to File a Sur-Reply, or, Alternatively, Motion to Strike New Authority and Related Argument (Doc. No. 99 ) is DENIED as moot. (Ordered by Judge Ed Kinkeade on 8/19/2015) (tln)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF TEXAS
DALLAS DIVISION
TRINITY VALLEY SCHOOL, et al.
Plaintiffs,
v.
CHESAPEAKE OPERATING, INC.,
et al.
Defendants.

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Civil Action No. 3:13-cv-01082-K

JURY TRIAL DEMANDED

MEMORANDUM OPINION AND ORDER
Before the Court are (1) Plaintiffs’ Motion for Partial Summary Judgment
(Doc. No. 50); (2) Defendants’ Motion for Partial Summary Judgment (Doc. No.
52); (3) Defendants’ Motion to Strike the Fourth Report of Plaintiffs’ Expert Richard
Lonquist, or Alternatively, for a Continuance of the Trial Date (Doc. No. 61); (4)
Defendants’ Motion to Exclude the Testimony and Opinions of Plaintiffs’ Expert
Richard Lonquist Relating to Plaintiffs’ Royalty Pricing Claim (Doc. No. 65); (5)
Defendants’ Motion to Exclude the Testimony and Opinions of Plaintiffs’ Expert
Jane Kidd Relating to Economic Benefit (Doc. No. 68); and (6) Defendants’ Motion
for Leave to File a Sur-Reply, or, Alternatively, Motion to Strike New Authority and
Related Argument (Doc. No. 99).
The Court GRANTS Plaintiffs’ Motion for Partial Summary Judgment (Doc.
No. 50).

Defendants’ Motion for Partial Summary Judgment (Doc. No. 52) is

GRANTED in part and DENIED in part.

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The Court GRANTS summary

judgment as to Plaintiffs’ accounting and pricing claims only because Plaintiffs agree
these claims should be dismissed. The Court DENIES summary judgment as to all
other claims in Defendants’ Motion for Partial Summary Judgment.
Defendants’ Motion to Strike the Fourth Report of Plaintiffs’ Expert Richard
Lonquist, or Alternatively, for a Continuance of the Trial Date (Doc. No. 61),
Defendants’ Motion to Exclude the Testimony and Opinions of Plaintiffs’ Expert
Richard Lonquist Relating to Plaintiffs’ Royalty Pricing Claim (Doc. No. 65), and
Defendants’ Motion to Exclude the Testimony and Opinions of Plaintiffs’ Expert
Jane Kidd Relating to Economic Benefit (Doc. No. 68) are DENIED. Defendants’
Motion for Leave to File a Sur-Reply, or, Alternatively, Motion to Strike New
Authority and Related Argument (Doc. No. 99) is DENIED as moot.
I.

Factual and Procedural Background

Trinity Valley School, Rall Properties, L.P., Olive Rall Family, L.P., Rall Oil &
Gas, L.P., Fine Line Diversified Ventures, L.P., Edward P. Bass, Paul B. McKinney,
Mary Barnes McKinney Swift, William W. McKinney, Jr., Darcy Lee Knapp Fricks,
Shelley Lynn Knapp, Sandra Gail Knapp, James Christopher Knapp, Richard
Crenshaw Rall, Olive Greenwald, Jessica Simus Barr, Jason Boaz Simus, Kathleen
Rall, Thomas Malcolm Rall, Raymond E. Lindamood, Raymond Ladd Lindamood,
Fort Worth Academy for the Education of Children and Youth, Texas Health Harris
Methodist Hospital Southwest Fort Worth, f/k/a Harris Methodist Southwest, and
Texas Health Presbyterian Hospital Dallas, f/k/a Presbyterian Hospital of Dallas

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(collectively “Plaintiffs”) hold royalty interests and overrides under oil and gas leases
and assignments for wells in Johnson County and Tarrant County, Texas.
Chesapeake Exploration, L.L.C (“Chesapeake Exploration”) is the lessee, and
Chesapeake Operating, L.L.C. (formerly Chesapeake Operating, Inc.) (“Chesapeake
Operating”) is the operator of the various oil and gas properties at issue.
Plaintiffs sued Chesapeake Operating and Chesapeake Exploration (collectively
“Defendants”) in this Court for damages, equitable relief, declaratory relief, and
attorney’s fees regarding royalty and override payments.

Plaintiffs now move for

partial summary judgment with respect to charges deducted from royalty payments
for post-production expenses in violation of the relevant leases.
II.

Summary Judgment Standard

Summary judgment is appropriate when the pleadings, affidavits and other
summary judgment evidence show that no genuine issue of material fact exists and
the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c);
Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2551 (1986).

The

moving party bears the burden of identifying those portions of the record it believes
demonstrate the absence of a genuine issue of material fact. Celotex, 477 U.S. at 32225, 106 S.Ct. at 2551-54. Once a movant makes a properly supported motion, the
burden shifts to the nonmovant to show that summary judgment should not be
granted; the nonmovant may not rest upon allegations in the pleadings, but must
support the response to the motion with summary judgment evidence showing the

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existence of a genuine fact issue for trial. Id. at 321-25; Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 255-57 (1986). An issue is genuine if the evidence is such that a
reasonable jury could return a verdict in the opposing party’s favor. Anderson, 477
U.S. at 248. All evidence and reasonable inferences must be viewed in the light most
favorable to the nonmovant. United States v. Diebold, Inc., 369 U.S. 654, 655 (1962).

III.

Plaintiffs’ Motion for Partial Summary Judgment on Deductions

Plaintiffs hold royalty and override interests under oil and gas leases, and they
allege that the lessee, Chesapeake Exploration, underpaid royalty payments to
Plaintiffs in violation of the relevant leases.

Plaintiffs move for partial summary

judgment with respect to the alleged underpayments due to deductions.
Plaintiffs argue that the Court should apply the plain language of the leases at
issue and that the leases provide an alternative method of determining market value
in the event of an affiliate sale. Plaintiffs assert that the key language in the leases
sets an irreducible minimum starting point, known as the weighted average sales price
(“WASP”), for the value and does not permit deductions from that price under the
language of the leases.
Defendants argue that because information about the average of the two highest
prices in Tarrant County was not readily available, they used a net-back calculation to
value royalty, which is not a deduction from royalty. They state that they took the
downstream WASP and subtracted downstream post-production costs to derive at a

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Tarrant County royalty price and that this method of calculations does not reduce the
value of the royalty.
A. Applicable Law
The leases at issue indicate that they are to be governed by Texas law. Under
Texas law, “an oil and gas lease is a contract, and its terms are interpreted as such.”
Tittizer v. Union Gas Corp., 171 S.W.3d 857, 860 (Tex. 2005). “The question of
whether a contract is ambiguous is one of law for the court to answer.” Heritage Res.,
Inc. v. NationsBank, 939 S.W.2d 118, 121 (Tex. 1996). “A contract is ambiguous
when its meaning is uncertain and doubtful or is reasonably susceptible to more than
one interpretation.” Id. “In construing an ambiguous oil and gas lease our task is to
ascertain the parties’ intentions as expressed in the lease.” Id. “To achieve this goal,
[the court] examines the entire document and considers each part with every other
part so that the effect and meaning of one part on any other part may be
determined.” Id.

The court “gives the terms their plain, ordinary, and generally

accepted meaning unless the instrument shows that the parties used them in a
technical or different sense.”

Id.

“If, after applying the pertinent rules of

construction, the lease remains subject to two or more equally reasonable
interpretations, Texas cases counsel that [the court] adopt[s] the interpretation more
favorable to the lessor.” Yturria v. Kerr-Mcgee Oil & Gas Onshore, LLC, 291 F. App’x
626, 631 (5th Cir. 2008).

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In Potts v. Chesapeake Exploration, L.L.C., the Fifth Circuit looked to the Texas
Supreme Court’s opinion in Heritage Resources, Inc. v. NationsBank, 939 S.W.2d 118
(Tex. 1996), to determine how to interpret royalty provisions under Texas law. Potts
v. Chesapeake Exploration, L.L.C., 760 F.3d 470, 474-75 (5th Cir. 2014). In Heritage,
the lease language called for measurement of the market value at the point of sale, the
wellhead, and the Fifth Circuit concluded that Chesapeake Exploration “could arrive
at the market value at the wellhead by deducting reasonable post-production costs to
deliver the gas from the wellhead to the point at which the gas was sold to
unaffiliated purchasers.” Id. In other words, Chesapeake Exploration could take the
downstream sale price and deduct the post-production costs to establish the cost at
the wellhead. Id.
B. Application
While there are multiple leases covering different tracts at issue in this case,
Plaintiffs and Defendants agree the leases are similar. Most of the leases follow either
the Trinity Valley School (“TVS”) lease form or the Edward P. Bass (“EPB”) lease
form, with some variants to be addressed separately.
1. The Trinity Valley School Leases
The TVS leases permit deductions from Lessor’s royalty only if the point of first
sale is located more than two miles from the leased premises. Plaintiffs argue that the
record establishes that all gas sales from Chesapeake Operating, as agent for
Chesapeake Exploration, to Chesapeake Energy Marketing, Inc. (“Chesapeake

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Marketing”) occur on the leased premises – and more specifically at the wellhead.
Plaintiffs argue that Defendants admit this is the case in their responses to
interrogatories and in their answer. Defendants admit in their Response to Plaintiffs’
Motion for Partial Summary Judgment on Deductions that there is no dispute that
the point of first sales takes place at the wellhead. Accordingly, the Court finds the
point of first sale is not located more than two miles from the leased premises, and
therefore, deductions are not permitted on the TVS leases.
2. The Edward P. Bass Leases
The EPB leases allow for deductions of post-production costs, only if the postproduction costs are:
(i) charged at arms-length by an entity unaffiliated with Lessee;
(ii) actually incurred by Lessee for the purpose of making the oil
and gas produced hereunder ready for sale or use or to move such
production to market; and (iii) are incurred by Lessee at a
location off of the Leased Premises; provided, however, such postproduction costs charged to Lessor’s royalty shall never exceed
$0.75 per Mcf.
Doc. No. 55-1, Pls.’ App. 000003; Doc. No. 79-1, Defs.’ App. 003; EPB Lease
Section 4(d)(2).
Plaintiffs argue Defendants should not have deducted post-production costs
because none of the three prongs is satisfied. Plaintiffs argue the first prong fails
because the charge from Chesapeake Marketing to Chesapeake Operating to
Chesapeake Exploration is not part of an arms-length transaction with unaffiliated
entities; these Chesapeake companies involved in the transaction are all affiliated

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entities with the lessee, Chesapeake Exploration. Plaintiffs argue the second prong
fails because the lessee, Chesapeake Exploration, does not incur any post-production
costs for a sale at the wellhead. Plaintiffs argue the third prong fails because the
charge does not occur off the leased premises.
Defendants argue that they indirectly incur all post-production costs pursuant to
their gas sales contract with Chesapeake Marketing. They state this turns on the
meaning of “incur.” Defendants argue that although there is no dispute that
Chesapeake Exploration does not pay third parties for post-production costs, nor does
it deduct post-production costs from the prices at the well or in Tarrant County, postproduction costs, under the sales contract with Chesapeake Marketing, are netted
from the proceeds paid to Chesapeake Exploration by Chesapeake Marketing.
Defendants rely on the fact that in a previous case they have stipulated that they
incur post-production costs and that the Fifth Circuit restated such in its opinion.
They conclude, therefore, that they incur post-production costs.
Next, Defendants argue that post-production costs are incurred downstream, off
the leased premises, for services provided by unaffiliated third parties. Defendants
argue that Plaintiffs have not shown that third-party transportation and other postproduction costs are not charged by unaffiliated third parties in arm’s length
transactions and that the record shows that charges are made by third-party
downstream service providers. They assert that if Chesapeake Marketing pays the

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bills and passes the charges through to Defendants, doing so does not transform the
costs into non-arm’s length charges.
Both the TVS and EPB leases establish an alternate market value calculation in
the event gas is sold by the lessee to an affiliate. The leases state that if Lessee’s share
of gas from the leased premises is being sold by Lessee to an affiliate, the market
value of the gas should be considered to be the arithmetical average of the two highest
prices being paid at that time by purchasers in Tarrant County for gas of substantially
equivalent quality and quantity as the gas being produced from the leased premises.
Plaintiffs argue that the record establishes that Lessee is selling its share of gas from
the leased premises to an affiliate and that Chesapeake Exploration, Chesapeake
Operating, and Chesapeake Marketing are all affiliates.
To support their position, Plaintiffs turn to the contract under which Chesapeake
Exploration, through Chesapeake Operating, sells gas to an affiliate, Chesapeake
Marketing, on the leased premises.

Under the contract, Chesapeake Marketing

deducts post-production expenses to calculate the price paid to Chesapeake
Operating. Plaintiffs state that the provisions of this contract between Chesapeake
Exploration and Chesapeake Marketing establish five facts that control the TVS and
EPB leases.
First, Plaintiffs argue that Defendants have confirmed through deposition and
request for admission that Chesapeake Marketing is an affiliated entity.

Second,

Plaintiffs assert that the Defendants have admitted in discovery responses,

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depositions, and their pleadings that the sale from Chesapeake Operating to
Chesapeake Marketing occurs at the wellhead – so neither off the leased premises nor
two miles from the leased premises. Third, Plaintiffs assert that Defendants have
conceded that all sales of gas by Chesapeake Operating to Chesapeake Marketing
from Tarrant County wells represent sales to buyers in Tarrant County.

Fourth,

Plaintiffs argue that Defendants have said that the gas produced from the premises at
issue in this case is of substantially equivalent quality or quantity. Fifth, Plaintiffs
assert Defendants confirmed that the price paid by Chesapeake Marketing to
Chesapeake Operating for Tarrant County wellhead sales includes a deduction for
post-production expenses.
Section 4(d)(2) of the EPB leases, which is a no-deduction provision, states the
Lessor’s royalty shall not bear post-production costs unless certain conditions are
satisfied. Plaintiffs state that Defendants explained in discovery that they calculated
royalties by applying the no-deduction language in Section 4(d)(2) in the relevant
leases. However, Plaintiffs disagree with Defendants’ application of the no-deduction
provisions and note that Defendants failed to mention the top two prices in Tarrant
County. Defendants admitted in depositions that they did not attempt to determine
the two highest prices in Tarrant County.
Defendants argue that even if their net-back method of calculation could be
viewed as a deduction, all of the challenged deductions would qualify as deductible
costs under the leases’ provisions.

Defendants state the disputed post-production

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costs stem from services provided by unaffiliated third parties in arm’s length
transaction for services downstream from the leased premises – such as pipeline
transportation in Louisiana. However, Defendants do not cite to evidence in the
record of post-production costs for pipeline transportation in Louisiana.
Defendants argue that point of valuation is Tarrant County, but that Plaintiffs
want far more – they want a price in Houston, or Louisiana, or Alabama. Defendants
do not cite to where Plaintiffs ask for this, and the Court does not find such evidence
in the record.

Defendants argue that Plaintiffs’ attention to the deductions

Defendants made in calculating royalties is misplaced because a net-back royalty
valuation method is not a deduction from a royalty at all. Defendants incorrectly
state Plaintiffs’ argument.

Plaintiffs argue that the conditions required for post-

production costs deductions under the EPB lease are not satisfied.
The Court disagrees with Defendants arguments, and the record before the Court
establishes post-production costs are not: (1) charges by an unaffiliated entity; (2)
incurred by the lessee; and (3) incurred by lessee at a location off of the leased
premises. The Court agrees with Plaintiffs argument and finds that the three-prong
test in the EPB leases is not satisfied. Deductions of post-production costs are not
permitted on the EPB leases.
3. The Texas Health and McKinney Leases
Plaintiffs note there are two leases that are different from the TVS and EPB leases,
which Plaintiffs call non-standard leases. The Court agrees and addresses these two

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leases separately. Post-production deductions are also at issue for these two nonstandard leases: (1) Texas Health lease and (2) McKinney lease. As to the Texas
Health lease, Plaintiffs point out that this lease contains an additional provision
prohibiting deduction of post-production costs in the event of a sale by the lessee to
an affiliate, making it a non-standard lease. They state that the additional provision
in an addendum entitles Texas Health to receive the higher of either (i) the market
value or (ii) the price received by the Lessee affiliate. They argue that under either
prong royalties should be paid on the WASP. In their Response to Plaintiffs’ Motion
for Partial Summary Judgment, Defendants state they have agreed to pay, under the
Texas Health lease, royalty based on the WASP.

Therefore, the Court grants

summary judgment as to no deductions for post-production costs on the Texas
Health lease.
The second non-standard lease that Plaintiffs point out is the McKinney lease.
Although the McKinney lease is the first of the EPB leases, it does not contain
Section 4(d)(1)(iii), by which post-production expenses get added back to the Tarrant
County prices, thereby making it a non-standard lease. Plaintiffs argue that Section
4(d)(1)(iii) was added to the later EPB leases to clarify the expected interpretation of
the McKinney lease. They assert that Section 4(d)(1)(iii), which states that Lessor’s
royalty shall not be charged with any deductions unless expressly provided for in the
lease, confirms what should be implied in Section 4(d)(1)(ii).

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Section 4(d)(ii) states that if Lessee’s share of gas from the leased premises is sold
by Lessee to a purchaser who is not an affiliate of Lessee, the price provided is
considered the market price. Section 4(d)(ii) also states that if Lessee’s share of gas
from the leased premises is sold to an affiliate, the market value of the gas is the
arithmetical average of the two highest prices then being paid by purchasers in
Tarrant County for gas of substantially equivalent quality and quantity. Plaintiffs
argue that even in the absence of Section 4(d)(1)(iii), the Court should interpret the
McKinney lease to operate in the same manner as the EPB leases because doing so
would maintain the protections of Section 4(d)(1)(ii) and such an interpretation is
more favorable to the lessor.
Defendants argue that Plaintiffs are wrong and assert that the two prices that
emerge from the high price inquiry would not be subject to further adjustment,
absent Section 4(d)(1)(iii). Defendants assert that it is possible, and even likely, that
the two highest prices to emerge from a Section 4(d)(1)(ii) inquiry would not reflect
deductions for post-production costs. They argue that as a matter of law the Market
Value Average Price in Tarrant County is not subject to any upward adjustment.
The Court finds Defendants argument unpersuasive because even without the
clarification provided by Section 4(d)(1)(iii), Section 4(d)(1)(ii) does not allow for
deductions of post-production costs so prices would be subject to adjustment. The
Court agrees with Plaintiffs and finds the McKinney lease should be interpreted in
the same way as the EPB leases. See Yturria, 291 Fed. Appx. at 631.

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4. Weighted Average Sales Price
Plaintiffs state that because deductions are not permitted under the TVS and EPB
leases, the issue is how to apply the no-deduction calculation. Plaintiffs argue Section
4(d)(1)(ii) of the TVS and EPB leases provides the answer. They assert that under
Section 4(d)(1)(ii) of the TVS and EPB leases, because Chesapeake Exploration, the
lessee, sells to Chesapeake Marketing, an affiliate, through Chesapeake Operating, the
market value is the average of the two highest prices paid by purchasers in Tarrant
County for gas of substantially equivalent quality and quantity, rather than the price
paid by an non-affiliate.
Plaintiffs contend that Defendants made three admissions that lead to the WASP,
the weighted average sales price, being the minimum market value. First, Plaintiffs
assert that Defendants conceded that sales of gas from Tarrant County wells by
Chesapeake Operating to Chesapeake Marketing represent sales to purchasers in
Tarrant County because Chesapeake Operating sells the gas at the wellhead. Second,
Plaintiffs argue that Defendants admitted that the gas in the purchases in Tarrant
County used to calculate the market value price in WASP is of substantially
equivalent quality and quantity as the gas produced from the Leased Premises. Third,
Plaintiffs also assert that Defendants admit the price paid by Chesapeake Marketing
results from contracts that deduct for post-production expenses.
Plaintiffs assert that as a necessary result of these concessions, Defendants
acknowledged that Section 4(d)(1)(iii) of the leases causes the WASP to serve as a

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minimum price for the market value inquiry under the applicable leases. Plaintiffs
argue they should have been paid, at a minimum, the WASP prices without any
deductions.

Instead of using those prices, Plaintiffs allege Defendants made

deductions over time.
Defendants argue that the WASP is not the average of the two highest prices then
being paid by purchasers in Tarrant County and that Plaintiffs want their royalty
share based on non-Tarrant County downstream sales proceeds achieved by
Chesapeake Marketing. They assert that Plaintiffs rely on deposition testimony that
was mis-transcribed by the court reporter to establish support that Defendants’ agree
that Section 4(d)(1)(iii) of the leases causes the WASP to serve as the minimum
price. Further, Defendants argue that Plaintiffs could have drafted a lease to value
their royalty based on the greater of the (i) the Market Value Average Price, or (ii) the
gross proceeds achieved by Chesapeake Exploration marketing affiliate, similar to the
“greater of” approach in the Texas Health lease. Defendants assert that Plaintiffs are
trying to have the royalty share of their gas based on the non-Tarrant County
downstream sales proceeds, which, they argue, is impermissible.
In their reply, Plaintiffs argue that the leases at issue do not set a geographical
point for determining market value in the way the leases in the cases Defendants cite
do. They argue that rather than calculating market value at a geographical location,
the leases set the royalty based on a reference price, the top two prices being paid by
purchasers in Tarrant County. Plaintiffs assert that they have demonstrated that the

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WASP, which Defendants pay on all of their Tarrant County wells, qualifies as a
reference price and that they are entitled to summary judgment on the difference
between royalties Defendants paid and royalties due using the WASP as a reference
price.
Although the Court agrees with Defendants that the deposition transcript of Mr.
Joshua Deven Bowles was mis-transcribed and failed to include the word “if” in Mr.
Bowles’ response on page 91:8, the Court does not agree with Defendants’
substantive arguments and finds the record establishes that Plaintiffs are attempting
to enforce the contract as written, not to transform their royalty. Defendants do not
cite to any place in the record establishing that Plaintiffs asked for non-Tarrant
County prices.

Because Chesapeake Exploration, the lessee, sells to an affiliate,

Chesapeake Marketing, under Section 4(d)(1)(ii) of the TVS and EPB leases, market
value is determined by the average of the highest two prices paid by purchasers in
Tarrant County. Because market value is determined by a reference price, rather than
a value at a geographical point, and WASP qualifies as a reference price, the Court
finds that WASP establishes a minimum price for the market value inquiry.
5. Defendants’ Affirmative Defenses
Defendants raise three affirmative defenses – quasi-estoppel, waiver, and
ratification – none of which the Court finds to be persuasive. As to quasi-estoppel,
Defendants argue that when Plaintiffs accepted the benefits of increased royalty
payments resulting from discussions between the parties, Plaintiffs took one position

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as to whether royalties were properly calculated and now Plaintiffs take a contrary
position. Defendants fail to cite to any evidence in the record establishing Plaintiffs’
prior position or when Plaintiffs accepted the benefits of any increased royalty
payments. See Ragas v. Tennessee Gas Pipeline Co., 136 F.3d 455, 458 (5th Cir. 1998)
(a party opposing summary judgment must provide and support with evidence
specific facts showing a genuine issue of material fact); Forsyth v. Barr, 19 F.3d 1527,
1533 (5th Cir. 1994) (“unsubstantiated assertions” are not sufficient summary
judgment evidence”).

As to waiver and ratification, Defendants list the elements

required to establish each affirmative defense and assert a one-sentence argument that
there is a fact issue as to whether Plaintiffs knowingly or intentionally surrendered a
right or knowingly acquiesced to Defendants’ $0.75 per Mcf deduction methodology.
Again, Defendants provide no citation to the record to establish the elements of
either waiver or ratification. The Court finds Defendants’ affirmative defenses to be
unpersuasive. See Ragas, 136 F.3d at 458; see Forsyth, 19 F.3d at 1533.

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I.

Conclusion

Because the conditions required to permit deductions under the TVS and EPB
leases are not satisfied, deductions are not permitted. Similarly, the non-standard
leases do not permit deductions. Therefore, the Court GRANTS Plaintiffs’ Motion
for Partial Summary Judgment on Deductions.

The Court does not address the

amount of damages.
SO ORDERED.
Signed August 19th, 2015.

___________________________________
ED KINKEADE
UNITED STATES DISTRICT JUDGE

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