Opinion
No. 2010/1627CV.
2011-04-18
Jason BURLEW and Sheila Burlew, Merwin Crowe and Nancy Crowe, Matthew Crowe, Richard Katchuk, Robert Moore and Jeanne Moore, Michael Rosno and Theresa Rosno, and Jeff Sweeney, Plaintiff, v. TALISMAN ENERGY USA INC., Defendant.
Gabriel V. Rossetti, Esq., for plaintiffs. Harris Beach PLLC, Albany (John T. Mcmanus of Counsel), for Defendant–Appellant.
Gabriel V. Rossetti, Esq., for plaintiffs. Harris Beach PLLC, Albany (John T. Mcmanus of Counsel), for Defendant–Appellant.
KENNETH R. FISHER, J.
Defendant, Talisman Energy, moves pursuant to CPLR 2221 for an order granting leave to reargue, and upon reargument an order denying plaintiffs' motion for partial summary judgment on the cause of action concerning the Moore plaintiffs. The February 15 Decision and Order granted plaintiffs' motion for partial summary judgment as to liability. The court denied summary judgment on the issue of damages because of an ambiguity between the Order of Payment and the Addendum to the Lease. The Moores thereafter waived trial of the ambiguity by conceding judgment in the lesser amount. As outlined more fully by the court's February 15 Decision and Order (2011 N.Y. Slip Op 21479, –––Misc.3d –––– [2011] ), this action arises out of the renewal of a natural gas lease between defendant and plaintiffs, Robert and Jeanne Moore.
In moving to reargue, defendant alleges that the court's February 15 Order misapprehended certain critical matters of fact and law. Defendant contends that the court's clear error led it “to overlook or misapprehend certain other significant matters of fact and law concerning” defendant's argument that plaintiffs failed to prove damages. Upon reargument of the facts and law, defendant believes that plaintiffs' motion for summary judgment should be denied for failure to show damages.
Motion to Reargue
CPLR § 2221 describes a motion to reargue:
(d) A motion for leave to reargue:
1. shall be identified specifically as such;
2. shall be based upon matters of fact or law allegedly overlooked or misapprehended by the court in determining the prior motion, but shall not include any matters of fact not offered on the prior motion; and
3. shall be made within thirty days after service of a copy of the order determining the prior motion and written notice of its entry. This rule shall not apply to motions to reargue a decision made by the appellate division or the court of appeals.
See also, Andrea v. E.I. DuPont de Nemours & Co., 289 A.D.2d 1039 (4th Dept.2001). A motion to reargue will be denied where a party “wholly failed to demonstrate that Supreme Court overlooked any significant facts or misapplied the law.' “ In re Ida Q., 11 AD3d 785 (3d Dept.2004), citing Spa Realty Assoc. v. Springs Assoc., 213 A.D.2d 781 (3d Dept.1995). The purpose of a motion to reargue is to provide a party with an opportunity to demonstrate that the court overlooked or misapprehended the law or facts on the original motion. See Andrea, 289 A.D.2d at 1040–41. “Its purpose is not to serve as a vehicle to permit the unsuccessful party to reargue once again the very questions previously decided.” Foley v. Roche, 68 A.D.2d 558, 567 (1st Dept.1979). Thus, the record on reargument is restricted to the record on the prior motion. CPLR 2221(d)(3).
The court has reviewed the papers submitted on this motion to reargue, the papers submitted on the previous motions, and after due consideration of defendant's claims, it is the court's determination that the motion to reargue is denied.
Defendant contends that the court mistakenly stated that the Lease, Addendum and Order of Payment were all drafted by Talisman and, thus, any ambiguity should be construed against defendant. Defendant argues that this doctrine was misapplied because the court overlooked the fact that certain provisions in the Lease and the Addendum to the Lease were the results of arm's-length negotiations between the parties. Plaintiffs, however, aver that the terms of the Lease and Addendum were never negotiated and that any application of the doctrine of contra proferentem would be proper because Talisman drafted all Lease documents. Plaintiffs allege that, after voicing various concerns to Talisman, the company included its standard addendum form in the lease to resolve the concerns. Moore Affidavit at ¶¶ 5–6. Furthermore, plaintiffs aver that the handwriting found on the lease was, in fact, that of Talisman's agent, was neither a negotiated nor requested change, and that plaintiffs merely signed and initialed where indicated. Moore Affidavit at ¶ 8.
Resolution of this issue, however, would be purely academic and inappropriate on a motion for reargument. The court did not apply the rule of contra proferentem against Talisman, as it ruled that the only ambiguity it found in the contract documents concerned damages and could not be resolved. Decision and Order, at 18–20. On the issue of liability, the court found “no ambiguity in any of the documents before the court for consideration.” Decision and Order, at 13. Moreover, the statement of this rule did not cause the court to misapply the law on any other issues in the February 15 Decision and Order.
Defendant contends that there is no ambiguity between the contract documents because the Order of Payment ceased to control once defendant exercised its renewal option and the Renewal Lease came into effect. Defendant contends that, upon a ruling that the Order of Payment is not operative, the provision in the Addendum will prevail over the conflicting provision in the Lease and the issue of damages can readily be resolved. For the reasons enumerated below, the court denies reargument on this issue.
On the original motion, defendant argued in its underlying response papers that the Order of Payment constituted an option contract. Defendant maintained that the Order of Payment “expressly provides that, following payment of the Consideration Payment and upon written notice to the Moore plaintiffs, Talisman has the right to surrender and cancel the Renewal Lease, with no damages arising therefrom and no further payments due and payable thereafter.” Reply Memo at p. 8. Defendant argued that the consideration payment was consideration for Talisman's option subsequently to renew the Lease upon termination of the original oil and gas Lease. In its motion to reargue, defendant again maintains that the Order of Payment is an option contract and that, once the Renewal Lease took effect, the Order of Payment ceased to be an operative document.
The main issue then lies on whether the Order of Payment can be classified as an option contract. “An option contract is an agreement to hold an offer open; it confers upon the optionee, for consideration paid, the right to purchase at a later date.” Kaplan v. Lippman, 75 N.Y.2d 320, 324 (1990). The optionee has no affirmative obligations until it gives its intent to exercise the option. Id. 75 N.Y.2d at 325. However, “[o]nce an optionee gives notice of intent to exercise the option in accordance with the agreement, the unilateral option agreement ripens into a fully enforceable bilateral contract.” Kaplan v. Lippman, 75 N.Y.2d at 325 (emphasis supplied).
The Order of Payment details the payments owed by defendant upon approval of the Renewal Lease. It also provides that defendant “may surrender and cancel this Lease at any time, with no damages arising therefrom, after the payment of the Consideration Payment ...”
The Order of Payment is not an option contract in the manner contemplated by defendant on these motions. In the vernacular of the trade, it is a “top lease.” While defendant did have the “option” to surrender the Lease at any time, it was already bound by the Lease to pay under the terms of the Order of Payment. The plaintiffs were not keeping an offer open for a specified amount of time, but rather conveyed leasehold rights in land upon execution of the top lease. Rather, both parties were bound by the Lease, and defendant had the option to cancel in accordance with the terms of the lease. The language of the preamble of the Order of Payment (“On approval of the renewal of the Oil and Gas Lease ... Fortuna Energy Inc. will make payment as indicated herein”) as well as the language of the surrender clause (“Fortuna Energy Inc. may surrender and cancel this Lease at any time ...”) establish that the Lease was already in effect, and that defendant had the right to surrender and cancel it at any time. As plaintiffs stated in the Reply Memorandum supporting their original motion: “a lease that has not been acquired cannot be surrendered; that is a contradiction in terms. If the Order of Payment language permitting Talisman's surrender has any meaning whatsoever, it can only be because Talisman actually acquired the lease, and that it does not merely hold an option to acquire one. It is nonsensical to reserve a right to surrender' something that one does not have.” Plaintiffs' Reply Memorandum at p. 7.
If the Order of Payment was truly an option contract, it would contain the option to enter into a new lease instead of the option to surrender an existing lease. Plaintiffs rightly characterize the option to cancel the Lease as defendant's “reser[vation] for itself [of] a limited escape hatch'; but the escape hatch closed forever on June 25, 2009,” with respect to the obligation to make the secondary bonus payment. Plaintiffs' Reply Memorandum at p. 6. If defendant did not choose to surrender the Lease in the manner specified and by the date specified, the escape hatch closed and the lease would remain fully enforceable with respect to that payment.
So the Order of Payment is not an option contract and it did not cease to be an operative bilateral contract document after the Renewal Lease went into effect. A reading of the Oil and Gas Lease will further clarify this issue and provide support for the court's reasoning regarding defendant's arguments on damages.
Section 3a of the Oil and Gas Lease details the Extension of Term Option available to defendant. It states in pertinent part:
“Lessee shall have the obligation to extend the Primary Term of this Lease for an additional 2 year period (the “Extended Primary Term”) by providing written notice of such intention to Lessor at any time during the last six (6) months of the Primary Term accompanied with a bonus consideration payment payable to Lessor in an amount equal to the sum paid to Lessor upon the initial signing of this Lease (the “Bonus Consideration Payment”). The Rental payment for the first year of the Extended Primary Term computed in accordance with Clause 4(a) of this Lease, shall be deemed to be included in the Bonus Consideration Payment.” p. 2, Oil and Gas Lease.
Details regarding the Bonus Consideration Payment were contained in the Order of Payment.
Once defendant gave its notice of intent to renew the Lease under Section 3a, as it did in mid 2008, the option to renew ripened into a fully enforceable bilateral contract. Kaplan, 75 N.Y.2d at 325. Thus, defendant was required by contract to pay the Bonus Consideration and enter into the Renewal Lease. As previously discussed, defendant did have an “out” through the surrender cancellation clauses in the lease and Order of Payment. But defendant was required to exercise that “out” in a particular manner, by a writing declaring such a surrender (the writing relied on only promised that the same would be forthcoming after defendant “initiate[d] surrender of the renewal lease”) and by “recording a surrender of lease in the relevant county office” (defendant's letter only promised after “initiat[ing] surrender” to “forward to you a copy of the surrender document allowing you to lease your land to another natural gas operator at any time thereafter ”)(emphasis supplied). See Hemingway on Oil and Gas Law and Taxation § 7.9 (4th ed.)(“lessee must comply with any formal requirements specified in the surrender clause for the surrender to be effective,” including that “recording of the surrender may be necessary”). In other words, the only “option” granted was one of surrender (not renewal), which was conditional upon the “occurrence of some specified event.” 1A Corbin on Contracts, § 265, at 533 (1963). In this case, that “event” did not occur until five months after the secondary bonus payment became due absolutely. Hemingway Oil and Gas Law and Taxation § 7.9 (surrender clause release “operates only as to future obligations and will not serve to discharge obligations that have already accrued”).
Defendant relies heavily on Jarecki v. Shung Moo Louie, 95 N.Y.2d 665 (2001), to support its position that the Order of Payment, as an option, ceased to be a controlling contract document after the Renewal Lease took effect. In Jarecki, plaintiff exercised an option to purchase an apartment under a sublease. After exercising the option and entering into a purchase agreement, the parties signed a written contract of sale. The contract of sale contained a merger clause which merged and integrated the terms of the purchase agreement into the written contract of sale. Id. 95 N.Y.2d at 669. The court ruled that, “[b]ecause the terms of the purchase agreement were merged and integrated into the written contract of sale, the bilateral contract to purchase the apartment was terminated when the contract of sale was cancelled.” Id. 95 N.Y.2d at 669.
Defendant's reliance on Jerecki is misplaced. Defendant mistakenly believes that, after it exercised its renewal option, the Order of Payment ceased to be an operative contract document because it was an option contract. Memo of Law at p. 6. First, the Order of Payment is not an option contract. Even if it was, defendant did not exercise its so-called option to surrender under the Order of Payment. The court's decision in Jarecki relies on the actual exercise of the option granted in that case. That simply did not occur in this case. If defendant had properly exercised its option to surrender under the Order of Payment, the entire Renewal Lease would have ceased to exist and there would be no controlling documents and surely no litigation on the underlying issues in this case.
Furthermore, the Order of Payment did not cease to be an operative contract document once the Renewal Lease became effective. In Jarecki, the terms of the purchase agreement were merged and integrated into the contract of sale; when the contract of sale was cancelled, so was the purchase agreement. The Order of Payment and the Lease thus remain separate documents comprising (with the addendum) the entire top lease.
The ambiguity between the Addendum and Order of Payment is still present (although now resolved by the Judicial Admission and Judgment) as both are operative contract documents. Therefore, the motion to reargue is denied.
SO ORDERED.