Opinion
No. 99-CA-0495.
December 1, 1999.
APPEAL FROM CIVIL DISTRICT COURT, PARISH OF ORLEANS, NO. 91-22592, STATE OF LOUISIANA, DIVISION "A", HONORABLE CAROLYN GILL-JEFFERSON, JUDGE.
ROY J. RODNEY, JR., RICHARD B. EHRET, KIM M. BOYLE, RODNEY, BORDENAVE, BOYKIN, BENNETTE BOYLE, 400 POYDRAS STREET, SUITE 2450, NEW ORLEANS, LOUISIANA 70130, COUNSEL FOR PLAINTIFF/APPELLANT.
NANCY SCOTT DEGAN, KENT A. LAMBERT, PHELPS DUNBAR, TEXACO CENTER, THIRTIETH FLOOR, 400 POYDRAS STREET, NEW ORLEANS, LA 70130-3245, COUNSEL FOR DEFENDANT/APPELLEE.
(Court composed of Judge William H. Byrnes, III, Judge Joan Bernard Armstrong, Judge Dennis R. Bagneris, Sr.).
This is an appeal from a summary judgment for the defendant in a breach of contract action. There was no privity of contract between the plaintiff and the defendant. In fact, it appears that, if there was any breach of a contract, it was by a party which was not sued in this action. Therefore, we affirm the judgement of the trial court.
Plaintiff, Mobil Eugene Island Pipeline Company ("Mobil") filed this suit against defendant Enron Oil Trading and Transportation Company ("Enron") alleging that Enron had failed to make certain payments in connection with Enron's use of an offshore crude oil pipeline. Enron denied that it had any obligation to make such payments and asserted that, if any party had an obligation to make such payments to Mobil, then that party was Conoco Pipeline Company ("Conoco"). The trial court agreed with Enron, granted Enron's motion for summary judgment, and dismissed Mobil's suit against Enron. Mobil then brought the present appeal.
Mobil and Conoco, in 1963, entered into a contract entitled "Operating Agreement For Eugene Island Flowline System" (the "Operating Agreement"). The Eugene Island Flowline System ("EIFS") is a crude oil pipeline system connecting certain offshore oil production platforms to shore. The EIFS is owned by a number of companies including Mobil and Conoco but not including Enron. The Operating Agreement, generally speaking, gives to Mobil the role of managing the operation of the EIFS for its various owners. The Operating Agreement also provides for various rights, obligations and procedures among its signatories. Although Mobil and Conoco are signatories to the Operating Agreement, Enron is not.
Among the provisions of the Operating Agreement is a "gravity bank" provision. This provision establishes an arrangement among the parties to the Operating Agreement to account for differences in the value of crude oil from the various parties which is commingled in the EIFS pipeline. One of the properties affecting the value of crude oil is its specific gravity. If two or more parties place crude oil into a pipeline, and the specific gravity of the crude oil from each party varies, then the specific gravity of the mixture of crude oil delivered through the pipeline will differ from the specific gravity of the crude oil placed into the pipeline by each party. This results in the value of the commingled oil being higher than the crude oil placed into the pipeline by some parties and lower than the value of the crude oil placed into the pipeline by other parties. To account for this discrepancy in values, the gravity bank provision of the Operating Agreement provides for parties who have placed lower-value crude oil in the EIFS pipeline, to make certain payments and for parties who have placed higher-value crude oil in the EIFS pipeline to receive certain payments.
Each party to the Operating Agreement has the right to make use of a certain percentage of the capacity of the EIFS pipeline. Also, each party has the right to allow others to make use of its right to use a certain percentage of the EIFS pipeline's capacity. In the present case, Conoco, by an oral contract with Enron, allowed Enron to use Conoco's right to use a certain percentage of the EIFS pipeline's capacity. This oral contract was between only Conoco and Enron. It simply provided for Enron to pay certain fees to Conoco based upon a Conoco "tariff" schedule and made no provision with respect to gravity bank payments. Enron purchased crude oil from certain offshore "working interest owners" and then transported it through the EIFS pipeline.
After some time, Mobil requested that Enron make over $300,000 in gravity bank payments in connection with Enron's transportation of crude oil through the EIFS pipeline. Enron refused. Apparently, Mobil also attempted to collect the gravity bank charges from the offshore working interest owners from whom Enron had purchased the crude oil but, they also refused to pay those charges. Apparently, Mobil did not attempt to collect the gravity bank charges from Conoco.
Mobil filed suit against Enron for the gravity bank charges. The trial court dismissed Mobil's suit on summary judgment. The trial court reasoned that, while there was contractual privity between Mobil and Conoco (i.e. the Operating Agreement), and contractual privity between Conoco and Enron (i.e. the oral contract), there was no contractual privity between Mobil and Enron by which Enron could be held liable to Mobil. The trial court held that, instead, it was Conoco which, having a contract with Mobil, was responsible to Mobil for the gravity bank payment.
Summary Judgment should be granted if, but only if, there are no genuine issues of material fact and the mover is entitled to judgment as a matter of law. La. Code Civ.Proc. art. 966. We will not discuss here the effect of the 1996 and 1997 amendments to Article 966 as this Court has done so exhaustively in prior decisions. See, e.g., Hewitt v. Allstate Ins. Co., 98-0221 (La.App. 4 Cir. 1/27/99), 726 So.2d 1120, 1121-22 n. 1 (collecting cases). For purposes of this appeal it is sufficient to note that, as will be explained in detail below, the material facts have been established in the summary judgment record. Facts which cannot affect the outcome of the lawsuit are not "material",Hewitt supra, 726 So.2d at 1122-23, and, under Article 966, disputes as to them do not preclude summary judgment.
Before considering each of Mobil's specific arguments on appeal, we note that the trial court was correct to focus, in this breach of contract case, upon the issue of whether there was privity of contract between plaintiff Mobil and defendant Enron. Absent an applicable statute, contractual privity between the plaintiff and defendant is a prerequisite to an action for breach of contract. Randall v. Lloyd's Underwriters, 602 So.2d 790 (La.App. 4th Cir. 1992); Olympia Company, Inc. v. Gervais Favrot Company. Inc., 342 So.2d 1275, 1277 (La.App. 4th Cir. 1977); Lumber Products, Inc. v. Hiriart, 255 So.2d 122, 141 (La.App. 4th Cir. 1964), writ denied, 170 So.2d 865, 866 (La. 1965).
Mobil's first argument on appeal is that Section XXV of the operating Agreement provides that, in the event of any sale or transfer of an interest in any well connected to the EIFS or of any right to production therefrom, then the assignment or transfer should provide that the purchaser or assignee is bound by the terms of the Operating Agreement. Even if we assume (without deciding) that the oral contract by which Conoco allowed Enron to use Conoco's right to part of the EIFS pipeline's capacity is a transaction of a type as to which Section XXV is applicable, that section of the Operating Agreement is of no use to Mobil in the present situation because only Conoco, as a signatory to the Operating Agreement (and not Enron) is subject to the requirements of Section XXV. If, under Section XXV, Conoco should have included in its oral contract with Enron a provision that Enron was bound by the Operating Agreement, and Conoco had in fact done that, then Enron would have been subject to the terms of the Operating Agreement including the gravity bank provision (assuming Enron decided to proceed with the oral contract under those terms). But, even if we assume that Conocoshould have so incorporated the Operating Agreement into its oral contract with Enron, the fact is that Conoco did not do so. Perhaps Conoco breached the Operating Agreement by not making the Operating Agreement's terms binding on Enron, but that is a matter between Conoco and Mobil for which Enron is not responsible.
Mobil's second argument on appeal is that a contract between Mobil and Enron was created "by implication" as a result of Enron's use of the EIFS pipeline. Mobil cites cases for the propositions that when one avails himself of the services of another, then he is obligated to compensate that person and that, when, under normal conditions, a contract would cover a service allegedly conferred, then a contract might be implied if the particular facts and circumstances so warrant. However, this argument does not fit the facts of the present case. Enron did contract, explicitly, for the use of the EIFS pipeline. Specifically, Enron contracted with Conoco to use the EIFS pipeline and paid Conoco for that use. Enron had no reason to think that, when using the EIFS pipeline pursuant to its contract with, and payments to, Conoco, it was implicitly entering into a second contract, with Mobil, which would require a second set of payments. Also, because Enron was paying Conoco for the use the EIFS pipeline, Enron was not getting a "free ride." Thus, this is not a situation in which a contract should be implied because, in the absence of any contract at all, someone will get something for nothing.
Mobil's third argument on appeal is that, because Enron's contract with Conoco was oral, summary judgment was inappropriate. Apparently, Mobil is asserting that there could be an issue of fact as to whether the oral contract between Enron and Conoco required Enron to pay gravity bank charges. We agree that, as a practical matter, when there is a dispute between the two parties to an oral contract, summary judgment will often be inappropriate because, in the absence of a writing, the parties to the oral contract will, in affidavits and discovery, give differing versions of the terms of the oral contract. But, that is not the situation in the present case. The parties to the oral contract in the present case were Enron and Conoco and not Mobil. Enron and Conoco personnel would be the persons with knowledge of the terms of the oral contract. Enron, in its discovery responses, described the terms of the oral contract as calling for Enron to make only the payments called for in Conoco's tariff schedule and that the tariff schedule did not include any gravity bank charges. No Conoco personnel affidavits or depositions, or Conoco documents have been submitted to contradict Enron's sworn statements as to the terms of the oral contract. As Enron's sworn statements as to the terms of the oral contract are clear and uncontradicted, the mere fact that the contract was oral does not preclude summary judgment.
Mobil's fourth argument on appeal is that the contracts whereby Enron purchased, from the offshore working interest owners, the crude oil that Enron shipped through the EIFS pipeline, were ambiguous as to whether or not "title and risk of loss" of the crude oil passed to Enron prior to that crude oil entering the EIFS system and being commingled with other crude oil there. Mobil's position is that, if title passed prior to commingling, then Enron is liable for the gravity bank charges but, if title did not pass until after the commingling, then the working interest owners who sold the crude oil to Enron (but who are not parties to this action) are liable for the gravity bank charges. We will assume that the crude oil purchase contracts are ambiguous in the manner suggested by Mobil. Indeed, we will assume that title did pass prior to commingling so that Enron owned the crude oil as it entered the EIFS pipeline. However, assuming that Enron owned the crude oil that it had placed into the EIFS pipeline, there was nevertheless no contract obligating Enron to pay gravity bank charges with respect to that crude oil. We have held above that the Operating Agreement, having been signed by Conoco but not Enron, is binding only upon Conoco and not Enron. We also have held above that Enron, which contracted with and paid Conoco for the right to use the EIFS pipeline, did not thereby impliedly enter into any contract with Mobil. Additionally, we have held above that there is no genuine issue that Enron's oral contract with Conoco did not include any obligation of Enron to pay gravity bank charges. In sum, Enron had no contractual obligation to pay the gravity bank charges on the crude oil that it owned and moved through the EIFS pipeline.
Mobil's fifth argument on appeal is that gravity bank agreements are a custom and usage and common practice in the industry and that such custom, etc., can take on the force of law. Actually, the summary judgment evidence in the record establishes only an industry practice of sometimes using gravity bank arrangements rather than a firm custom of invariably using such arrangements. In any case, Mobil asserts only that "while customer and usage and common practice in an industry generally do not create contractual obligations, existing contractual relationships are clearly governed by such common practice and custom." Mobil's Original Brief at 22 (emphasis in original). However, as we have discussed above, there is no existing contract at all between Mobil and Enron. Thus, the use of custom, etc. to interpret an existing contract is not relevant to this case.
Mobil also points out that Enron continued to use the EIFS pipeline for eight months after Mobil first contacted Enron and made Enron aware that there was a gravity bank provision in the Operating Agreement. The fact that Enron became aware of the gravity bank provision in the Operating Agreement did not obligate Enron to pay gravity bank charges because, as we have discussed above, Enron did not sign the Operating Agreement, the facts do not support the implication of a contract between Enron and Mobil and Conoco's oral contract with Enron did not impose the gravity bank arrangement on Enron. It was Conoco, who signed the Operating Agreement, that was bound by the gravity bank arrangement.
For the foregoing reasons, we affirm the judgment of the trial court.
AFFIRMED .