Opinion
Civil Action No. 3:01-CV-0407-P
April 5, 2002
MEMORANDUM OPINION AND ORDER
Now before the Court are the following:
1. Original Brief of Appellants L.E. Hester, Jr. et al., filed April 3, 2001;
2. Brief of Appellee Coho Energy, Inc., filed April 23, 2001;
3. Brief of Appellee/Intervenor, BASF Corporation, filed April 30, 2001;
4. Reply of Appellants, L.E. Hester, Jr. et al, to Brief of Appellee, Coho Energy, Inc., filed May 8, 2001;
5. Reply of Appellants, L.E. Hester, Jr. et al, to Brief of Appellee, BASF Corporation, filed May 11, 2001;
6. Sur-Reply Brief of Appellee Coho Energy, Inc., filed May 15, 2001; and
7. Sur-Reply Brief of Appellee/Intervenor, BASF Corporation, filed May 24, 2001.
In an Order dated March 29, 2002, the Court (1) DENIED Appellants' Motion to Strike Appellee's Sur-Reply Briefs; (2) DENIED Appellee's Cross-Motion to Strike portions of Appellants' Brief; and (3) DENIED as MOOT Appellants' Motion for Leave to File Out-of-Time Response to Appellee's Cross-Motion to Strike. See Order dated 3/29/2001.
Appellants seek reversal of a December 6, 2000 Bankruptcy Court Order granting Appellee's motion for summary judgment and dismissing Appellants claim for revenue attributable to an overriding royalty interest in gas leases in Louisiana. For the reasons set forth below, this Court AFFIRMS the opinion of the Bankruptcy Court.
PROCEDURAL HISTORY
This is an appeal from a bankruptcy proceeding before the Honorable Judge Harold C. Abramson. On August 23, 1999, Coho Energy, Inc. and Coho Louisiana Production Company (collectively "Coho," or "Appellees"), filed for Chapter 11 bankruptcy reorganization in the United Status Bankruptcy Court for the Northern District of Texas. R. at 16. At the time, L.E. Hester, Jr. and several companies/limited partnerships he controlled (collectively "Hester," "the Hester Claimants," or "Appellants"), had pending since July 1996 a suit in Louisiana state court against Coho and others for amounts allegedly due from an overriding royalty interest ("ORI") arising out of certain leases in lands located in Union and Ouachita Parishes, Louisiana. See R. at 129-160 (Hester's Sec. Am. Pet.). Hester timely filed a proof of claim ("Claim") in the Bankruptcy Court on December 10, 1999, based upon the claims it bad asserted in the state court proceeding. R. at 43.
A plan of reorganization was confirmed in the bankruptcy case on March 20, 2000. R. at 86. On May 1, 2000, Coho filed an objection to Hester's claim contending that the ORI carved out of the particular sublease in question had expired and Hester's rights of recovery, as such, had been extinguished R. at 94. Thereafter, Hester filed an amended proof of claim on May 9, 2000, and responded to the renewed objections by Coho on May 30, 2000. R. at 101.
On July 19, 2000, the Hester Claimants filed a motion requesting that the Bankruptcy Court abstain from hearing the claims objection as a contested matter under Rule 9014, in favor of the ongoing proceedings in Louisiana state court. R. at 106. On August 4, 2000, Judge Abramson denied Hester's motion for abstention. R. at 109. Subsequently, both Coho and Hester filed separate motions for summary judgment as to Hester's remaining claims. See R. at 112, 115. The Bankruptcy Court heard oral arguments from the parties on November 21, 2000, see R. at 116, and entered an Order granting Coho's motion for summary judgment on December 6, 2000. R. at 118; see also R. at 4-7 (Order on Mot. for Summ. J.).
It is from this December 6, 2000 Order (the "December 6 Order") that the Hester Claimants now appeal, asserting that the Bankruptcy Court erred, among other ways, by abusing its discretion in refusing to abstain from hearing Appellants' state law claims arising from a pending lawsuit in Louisiana state court, and by holding that there were no genuine issues of material fact precluding summary judgment for Coho. See generally Orig. Br. Appellants at 1-2.
RELEVANT FACTS
This case involves leases for lands drilled for natural gas located in the Monroe Gas Field of Union and Ouachita Parishes, Louisiana. In the 1970's, the drilling of these fields was spawned by a high demand for natural gas and tax allowances to Limited Partnerships under the U.S. Tax Code. Commercial Solvents Corporation ("CSC"-renamed IMC in 1978), who at the time owned large leases and other interests in this field, decided to sublease portions of its lands to local independent operators in exchange for them entering into gas sale and purchase contracts (whereby the operators agreed to sell all the gas produced from the drilled wells back to CSC at a set price). One of the areas CSC agreed to sublease was covered by a large Mineral Lease granted by the Ball Family in 1948 (the "Ball Wells").
On January 26, 1976, Luffey Gas Corporation ("Luffey"), which served as an independent local operator for gas wells drilled by the Hester Claimants, entered into a sublease with CSC to drill a portion of the Ball Wells (hereinafter "1976 Sublease" or "Base Lease"). Under the terms of the 1976 Sublease, Luffey was granted gas rights on 50 "tracts" of land for a primary term of one (1) year, and thereafter, "for a production term, as to each tract of the leased lands on which a gas well had been completed by Lessee during the primary term for so long as each completed gas well on a tract is capable of producing gas or operations are being conducted on the tract as provided in Article 3.3 [of the lease]." R. at 210. In turn, Article 3.3 stated that after the primary term and, in the production term as to a tract of the land that is developed by a gas well that has been completed by Lessee during the primary term, if for any cause, other than a force majeure, production should cease from a well, such a well will be reworked within ninety (90) days after cessation of production or Lessee will commence the drilling of a replacement well . . . [s]hould Lessee fail to commence the reworking of the well or the drilling of a replacement well within ninety (90) days after cessation or production in any such gas well the rights of Lessee earned and being maintained by such gas well in the production term shall terminate." R. at 211. The 1976 Sublease also provided for its termination at paragraph 4.2 when:
"During the production term of this lease as a completed gas well may cease to produce and in the event Lessee elects not to rework such well or to drill an additional well on such tract within the ninety (90) day period as hereinabove provided, or in the event the reworking or drilling operations are not successful, Lessee will release to Lessor the tract of land that was retained for the production term for the well that has ceased to produce."
R. at 212.
In conjunction with the 1976 Sublease, CSC and Luffey also entered into a Gas Sale and Purchase Contract dated January 26, 1976 (the "1976 Gas Contract"), for the sale back to CSC of any gas produced by the wells drilled under the Base Lease. See R. at 231-244. At paragraph 2.3 of the 1976 Gas Contract the parties further agreed that:
"In is understood by Buyer [CSC] and Seller [Luffey] that this agreement shall not be construed as obligating Seller to continue to operate and produce gas from Seller's properties, or any well that is completed thereon, beyond the time the Seller deems it profitable, in the judgment of the Seller, to continue such production. It is agreed, however, that before abandoning Seller's properties or any well thereon, Seller shall give Buyer thirty (30) days written notice of Seller's intention to do so and Buyer shall have the right, by giving Seller written notice within fifteen (15) days after receipt of such written notice from Seller, to acquire Seller's lease rights for such well and to purchase the well or wells thereon that is proposed for abandonment and all producing facilities related to such well or wells."
R. at 232.
Shortly after the Base Lease was granted in 1976, Congress passed a law known as the Natural Gas Policy Act ("NGPA"), which allowed companies to obtain higher prices ("maximum lawful price") for the "first" sale of gas produced from specified categories, including "stripper" (i.e. low volume) wells. See Br. Appellee Coho at 9. Producers, however, could not get the higher "maximum lawful price" if an existing gas contract required payment of a lower price for the "first" sale. Id. Thus, in June 1978, CSC (now IMC) approached Luffey and its assignees to make an offer to take over the obligations of lessee under the gas leases and of seller under the gas purchase contracts for Ball Wells (plus other wells not subject to this litigation). R. at 299-300. In exchange for these new subleases, Luffey and its assigns (including Hester) would receive, among other things, an ORI of 68 cents per MCF of gas on a quantity of gas that is 7/8th of the gas produced and saved from the assigned gas leasehold interests. R. 301. After the ensuing negotiations, an agreement was reached between the parties on November 7, 1978 (the "1978 Sublease"), wherein the Hester Claimants turned over control of the Ball Wells to IMC, reserving and retaining a fixed ORI of 74.375 cents per MCF of all the gas that was produced or saved by IMC. See R. at 246-247. Therefore, with the 1978 Sublease, IMC took back the Ball Wells from Luffey (and Hester) in order to make the "first" sale of gas to a third party at the higher maximum lawful price, in exchange for the ORI at issue here. See Br. Appellee Coho at 9-10. The 1978 Sublease and the reserved ORI were also made specifically subject to the terms of the 1976 Sublease. See R. at 247.
Under paragraph 7.E, the 1978 Sublease provided that:
"In the event that Sublessee [IMC] desires to plug and abandon any of the wells covered by this sublease, Sublessee shall give Freedom and Luffey, through their respective agents [Freedom Drilling Fund, Ltd. and Luffey Gas Corporation], written notice of said intention, and Sublessor [the Hester Claimants] shall have a period of fifteen (15) days in which to request Sublessee to reassign said well, and the interest relating thereto, to the Sublessor. If Sublessee fails to receive a request for reassignment within the stipulated time, Sublessee shall be free to plug and abandon said well, and to release the portion of the Subject Sublease relating thereto. Any reassignment to the Sublessor shall be made on an `as is' basis, and the full responsibility for the interest and well will be transferred to the Sublessor."
R. at 250-251, Paragraph 7.D of that agreement further provided that:
"Insofar only as the Subject Interests and the wells located thereon are concerned, Sublessee [IMC] agrees to assume the obligations of lessee under [the 1976 Sublease] . . . and all leases subleased therein and all obligations of seller under [the 1976 Gas Contract between Luffey and CSC]."
R. at 250 (emphasis added). There is no dispute that IMC paid all overriding royalties due to Hester under the 1978 Sublease from the Ball Wells.
On July 1, 1986, BASF Corporation ("BASF") acquired IMC's interest in the Monroe Field and continued to pay Hester the ORI while the Ball Wells remained in production. Then in late 1991 or early 1992, BASF decided to sell its interest in the entire field, encompassing approximately 3,300 wells, gathering lines and the related pipeline system. The sale of the Ball Wells was completed on June 5, 1992 to Mid Louisiana Production Company (which later changed its name to Coho Louisiana Production Company on November 30, 1994).
Prior to the sale to Mid Louisiana, sometime in April of 1992, BASF had shut-in the Ball Wells. The Hester Claimants dispute whether the shut-in occurred because the Ball Wells had become uneconomic to produce as a result of low gas prices and high operating costs, or whether BASF was simply motivated to shut-in the Ball Wells because of the added fixed overriding royalty it was obligated to pay Hester under the 1978 Sublease. Compare Br. Appellee Coho at 11, with Appellants Reply to Coho at 5-6. Regardless, the evidence is undisputed that the Ball Wells were taken off production in March and April 1992, and two abandonment notices were given to the registered agents under the 1978 Sublease in accordance with the provisions of paragraph 7.E. In fact, the first abandonment notice was sent by BASF (through its subsidiary Wintershall Energy) in a letter dated March 16, 1992. R. at 1237. The second abandonment notice was given in a letter dated April 14, 1992. R. at 1273.
According to Robert Anderson, Senior Landman employed by BASF in the Monroe Field from 1988 through mid 1992, no requests for reassignment of any of the Ball Wells listed in the first abandonment notice were received within the first 15 days following the notice. See R. at 1204. The only response received as to these abandonment notices came in a letter from Transamerica Energy Corporation ("TEC") dated on April 26, 1992 and signed by L.E. Hester, Jr. See R. at 1204-1205.
In his April 26 letter, Mr. Hester conveyed to BASF that "subject to" the 1976 Gas Contract between Luffey and CSC as provided in the 1978 Sublease, "it is our desire that the wells, and the interests related thereto, be reassigned pursuant to Section E. of the Sublease." R. at 275. Mr. Hester signed this letter to Wintershall Energy in his purported capacities as President of TEC, Agent of Luffey Gas Corporation, and as General Partner of Freedom Drilling Fund. R. at 276. BASF, however, understood this request for reassignment to be defective for two reasons: (I) the request for reassignment of the leases did not come from "Freedom" or "Luffey," as required under the sublease, and (2) Hester only wanted the wells if BASF would guarantee a return to the 1976 Gas Contract, which BASF believed was cancelled in 1978.
Regardless, on May 21, 1992, Wintershall Energy (BASF) tendered an assignment to all the ORI owners subject to the terms of paragraph 7.E of the 1978 Sublease, which would have corrected any deficiencies in the Hester Claimants purported acceptance letter of April 26, 1992. R. at 263-264. None of the Sublessors (including Hester) signed the tendered assignment. This fact was confirmed by Ed Stinson, a representative of Luffey, in a letter to Wintershall Energy dated August 5, 1992:
Hester argues that the reasons he did not sign the tendered assignment by BASF were because:
(a) on page 3 of the Assignment, only three (3) of the nine (9) Wells that Freedom requested to be reassigned were included in the Assignment;
(b) on page 3 of the Assignment, Wintershall required Freedom to acknowledge and agree to waive or forfeit Freedom's rights to the other six (6) Wells;
(c) on page 3 of the Assignment, Wintershall required Freedom to acknowledge and agree to accept full responsibility for the Wells and operations thereon that had occurred for the prior fourteen (14) year period during which Wintershall and its predecessor IMC were operators of the Wells; and
(d) on pages 3 and 4 of the Assignment, Wintershall required the signatures of L.E. Hester, Jr., and Gerrard E. Costello (General Partners of Freedom when the 1978 Sublease was executed), when in fact Wintershall had been notified that Costello was no longer a General Partner of Freedom since 1986.See Appellants Reply to Coho, Exh. 4 (Hester Aff. at ¶ 26-27).
"As agent on behalf of the assignees of . . . `Luffey' in that certain [1978 Sublease] with IMC Exploration, you are hereby advised that `Luffey' has no intention to solicit, request, nor ask for reassignment of any of the wells (nor leases) referred to in your notice of abandonments dated March 16, 1992 and April 14, 1992.
It has come to `Luffey's' attention that Mr. L.E. Hester, Jr., with `Freedom' has requested a reassignment of some (24) wells pursuant to Section E of the Sublease agreement dated November 1, 1978. The purpose of this correspondence is to advise Wintershall that Mr. L.E. Hester, Jr., has no authority to make such a request on behalf of Luffey Gas Corporation."
R. at 1306.
Thereafter, BASE transferred all its interests in the Ball Wells to Coho on June 5, 1992. Meanwhile, the Ball Wells remained shut in at this time and had not been plugged and abandoned by the time they came under the control of Coho. The parties vigorously dispute whether the Ball Wells were shut-in by BASE because they were uneconomic to produce as a result of low gas prices and high operating costs, and whether BASF and Mid Louisiana (later Coho) actually intended to ever plug the Ball Wells. Compare Br. Appellee Coho at 11-14, with Appellants Reply to Coho at 5-10. However, it also undisputed that the Ball Wells remained shut-in with no production or operations for two years, until May of 1994, when Coho placed them back into production.
The Hester Claimants filed suit on July 1, 1996, in the 4th Judicial District Court of the State of Louisiana against Coho and others (the "State action"), in part to recover the ORI's allegedly due to them under the 1978 Sublease. It is Coho's position that, as a result of Hester not accepting the reassignment of the Ball Wells following Wintershall/BASF's tendering, the Hester Claimants thereby waived any request for a reassignment and are now estopped from claiming any interests in the Ball Wells subleases. See Br. Appellee Coho at 13. BASF Corporation, which filed a cross-claim in the state action seeking indemnity from Coho with respect to Hester's claim for ORI's, intervened in the Coho bankruptcy and adopted the arguments made by Coho in support of its motion for summary judgment. See Br. Appellee/Intervenor BASF at 1.
The Bankruptcy Court, in its December 6 Order granting summary judgment to Coho, made the following findings of fact: (1) the 1978 Sublease was executed continuing the ORI of what Hester acquired and was made subject to the Base Lease; (2) the Sublessee (BASF) sent two sets of Abandonment Notices to the Hester entities, and Hester did not accept a reassignment of the leases as provided in paragraph 7E of the 1978 Sublease; (3) although Hester indicated a willingness to accept the reassignment of the Ball Wells if be could sell the gas at the 1976 price, under paragraph 7.E of the 1978 Sublease reassignment was required on an "as is" basis; and (4) the wells were shut-in for at least 2 years. See R. at 5-6 Based on these findings, the Bankruptcy Court concluded that: (a) the contracts were unambiguous; (b) Hester's ORI had terminated under the provisions of the Base Lease and 1978 Sublease; (c) there was no reacquisition within one year; and (b) under Louisiana law, even if the Lessee had schemed to wipe out the royalty, the royalty would still have ceased when the lease it was appended to expired. See R. at 7. The Court shall now address Appellants' specific points of error.
DISCUSSION
I. Standard of Review
Thus Court's review of a bankruptcy court's findings of fact is subject to the clearly erroneous standard. Matter of Young, 995 F.2d 547, 548 (5th Cir. 1993); Matter of Allison, 960 F.2d 481, 483 (5th Cir. 1992). These findings are reversed only if, based on the entire evidence, this Court is left "with the definite and firm conviction that a mistake has been made." Id. While conducting this review, this Court is particularly mindful of the opportunity for the bankruptcy judge to determine the credibility of the witnesses. Matter of Young, 995 F.2d at 548 (citing Bankruptcy Rule 8013). Conclusions of law are reviewed de novo. Id.
II. Review of Non-Abstention Decision by Bankruptcy Court
In their 1st point of error, the Hester Claimants argue that the Bankruptcy Court abused its discretion in refusing to abstain from hearing Appellants' state law claim based upon the lawsuit in Louisiana state court involving other parties not present before the Bankruptcy Court and which involved interrelated claims and complex issues of law and fact. Under 28 U.S.C. § 1334(c), related to the jurisdiction over bankruptcy cases and related proceedings, it is stated that:
(1) Nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.28 U.S.C. § 1334(c)(1) (1993 Supp. 2001). Since the parties are in agreement that Coho's claims objection relative to the Hester Claimants' state action was a matter within the bankruptcy court's "core" jurisdiction, the decision whether to abstain from hearing it was within that court's discretion. See In re Southmark Corp., 163 F.3d 925, 932 (5th Cir. 1999).
In deciding whether to exercise its discretionary power under § 1334(c)(1), the Bankruptcy Court applied a twelve (12) factor checklist employed by courts in deciding whether to abstain in favor of state court adjudication of an issue. These twelve factors are as follows:
(1) the effect or lack thereof on the efficient administration of the estate if a Court recommends abstention;
(2) the extent to which state law issues predominate over bankruptcy issues;
(3) the difficulty or unsettled nature of the applicable law;
(4) the presence of a related proceeding commenced in state court or other non-bankruptcy court;
(5) the jurisdictional basis, if any, other than 28 U.S.C. § 1334;
(6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case;
(7) the substance rather than form of an asserted "core" proceeding;
(8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court with enforcement left to the bankruptcy court;
(9) The burden of [the bankruptcy court's] docket;
(10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties;
(11) the existence of a right to a jury trial; and
(12) the presence in the proceeding of non-debtor parties.
See In re Republic Reader's Serv., Inc., 81 B.R. 422, 429 (Bankr. S.D. Tex. 1987); see also In re Tucson Estates, Inc. v. Tucson Estates, Inc., 912 F.2d 1162, 1167 (9th Cir. 1990) (citing In re Republic Reader's); Matter of Chicago, Milwaukee, St. Paul Pacific R. Co., 6 F.3d 1184, 1189 (7th Cir. 1993). The Bankruptcy Court, after considering these factors, decided not to abstain for the following reasons: (1) this was a "core" proceeding that had a direct relationship on the administration of the estate and the claims resolution process; (2) the issues of law were neither difficult nor unsettled; (3) there was no right to a trial by jury; (4) this matter would not be a burden on the Court's docket; (5) any non-debtor claims could easily be severed; and (6) the other creditor involved in the bankruptcy case filed an indemnity claim against the Debtor requesting that the court not exercise its discretion to abstain. See R. at 193-194 (Order Denying Mot. for Abstention dated August 4, 2000).
Reviewing the Bankruptcy Court's findings of fact under the clearly erroneous standard, and its conclusions of law de novo, this Court finds no abuse of discretion occurred in the decision not to abstain in favor of the Louisiana state court proceedings. First, Hester's state law claim had been on file with the Louisiana state court for more than four years and the Debtor (Coho), now reorganized and conducting business, was entitled to have the claim adjudicated as expeditiously as possible. Cf. In re Republic Reader's, 81 B.R. at 426 ("Where a cause of action for monetary damages based primarily on state law can be litigated in state court without substantial delay and disruption to the orderly administration of the estate, the best forum for resolution of that action is state court, irrespective of whether the legal issues present unsettled questions of state law") (emphasis added only to first). Second, to the extent that state law issues predominated, if a state law issue is not unsettled, or if there is no state authority directly on point, then the bankruptcy court is equally qualified to resolve the issue, and there was no need to refer it to the Louisiana state court. See Matter of Chicago, Milwaukee, St. Paul Pacific R. Co., 6 F.3d at 1189 n. 8. (holding the same). Third, most of the state law issues presented in this case concerned the interpretation of certain contracts and agreements under Louisiana law, issues considered by the Bankruptcy Court neither too difficult nor unsettled to warrant abstention. Fourth, as previously stated, although a related proceeding was commenced in state court, it had not been expeditiously resolved in more than four years. Fifth, although there may have been no alternate jurisdictional basis for hearing the state court proceedings other than through the court's bankruptcy jurisdiction, the degree of relatedness to the main bankruptcy was undeniable since the Hester Claimants protected their interests in the bankruptcy proceeding by timely filing a proof of claim therein with relation to their Louisiana state action.
As to factors seven and eight, the Court also finds that this was a "core" proceeding under the bankruptcy court's jurisdiction, and there was simply no need to sever these state law claims to allow judgments to be entered in the Louisiana state court and enforcement to be left to the bankruptcy court. As shown by the record, the Bankruptcy Court provided for a more expeditious forum in resolving the issues pending in state court. As to factor nine, the Bankruptcy Court determined, as it was within its discretion, that this matter would not be a great burden upon its docket. Further, Hester also acknowledged that Cobo did not commence this claim allowance proceeding in the Bankruptcy Court and could not be accused of forum shopping, satisfying factor ten of the balancing test. See Orig. Br. Appellants at 14. As to factor eleven, the Bankruptcy Court held that no trial by jury existed, a finding which is supported by 28 U.S.C. § 157(b)(1), which states that "Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11." Finally, as the Bankruptcy Court itself acknowledged, the other creditor involved in this bankruptcy case (BASF) agreed with Coho's request that the court not exercise its discretion to abstain from hearing the state action in deference to the state court proceeding.
Therefore, as to this threshold issue raised by Appellants' 1st point of error, this Court finds no error by the Bankruptcy Court in refusing to abstain under 28 U.S.C. § 1334(c)(1). As such, the Court shall proceed to determine the remaining points of error raised by Appellants.
III. Review of Summary Judgment Decision by Bankruptcy Court
In their 2nd point of error, the Hester Claimants argue that the Bankruptcy Judge erred in holding that there were no genuine issues of material fact presented by Appellee's Motion for Summary Judgment and Appellants response thereto. Under Fed.R.Civ.P. 56, summary judgment is appropriate in any case where the critical evidence is so weak or tenuous on an essential fact that it could not support a judgment in favor of the nonmovant. Little v. Liquid Air Corp., 37 F.3d 1069, 1076 (5th Cir. 1994).
Although all evidence and the reasonable inferences to be drawn therefrom must be viewed in the light most favorable to the party opposing the motion for summary judgment, see United States v. Diebold, Inc., 369 U.S. 654, 655 (1962), once the moving party has made an initial showing, the party opposing the motion must come forward with competent summary judgment evidence of the existence of a genuine fact issue. Matsushita Elec. indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986). The mere existence of some factual dispute will not defeat a motion for summary judgment. Willis v. Roche Biomedical Lab., Inc., 61 F.3d 313, 315 (5th Cir. 1995). Only disputes over facts that might affect the outcome of the suit under the governing law will preclude summary judgment. Id. Moreover, a dispute about a material fact is genuine only if the evidence is such that a reasonable jury could return a verdict for the nonmoving party. Id.
As this Court does find below, based on the undisputed evidence in the record, the Bankruptcy Court correctly granted summary judgment for Coho. As such, any purported fact issues still deemed in dispute by Hester are considered non-material and shall not prevent the Court from granting summary judgment. See infra Section III(A)-(B). Moreover, as this case turns on the interpretation of the specific 1976 and 1978 Subleases, and their application to the facts in the record, the Court does not find that the specification of errors by Appellants necessitates a detailed discussion as to each of them as they relate to the numerous authorities treating of oil, gas, and mineral leases. Odom v. Union Producing Co., 141 So.2d 649, 656 (La. 1962). As such, the Court shall address only those points of error it considers necessary for its decision.
A. Appellants ORI Under the 1978 Sublease Was Lost
Under Louisiana contract law a mineral lease is merely a contract that permits the lessee to explore for minerals on the land of the lessor in consideration of the payment of a rental and/or bonuses. Odom, 141 So.2d at 656. All of the clauses of the agreement of a lease are to be interpreted "the one by the other," giving to each the sense that results from the entire act. Id. (citing LSA-C.C. Art. 1955). Moreover, contracts must be construed as a whole, and the court must give effect to all parts of the instrument. Id. The rules of interpretation also establish that, when a clause in a contract is clear and unambiguous, the letter of that clause should not be disregarded under the pretext of pursuing its spirit. Amoco Prod. Co. v. Fina Oil Chem. Co., 670 So.2d 502, 511 (La. 1st Cir. Ct. App.). aff'd 673 So.2d 1037 (La. 1996). Contracts subject to interpretation from the instrument's four corners without the necessity of extrinsic evidence, are to be interpreted as a matter of law. Id.
The evidence in this case is undisputed that the Ball Wells at issue were taken off production (shut-in) around March and April of 1992 by BASF, and that two abandonment notices were given to the registered agents for Freedom and Luffey in accordance with the provisions of paragraph 7.E of the 1978 Sublease. Paragraph 7.E specifically provided for a period of 15 days within which the Sublessor [including the Hester Claimants] could request the Sublessee to reassign the enumerated Ball Wells, and the interests relating thereto, back to the Sublessor "as is." See R. at 250-251. The Bankruptcy Court found that Hester made its reassignment request conditional ("subject to") the terms of the 1976 Gas Contract, which part of the original parties agreement in 1976.
The Hester Claimants dispute whether the 1976 Gas Contract was in fact "cancelled," as the Bankruptcy Court ultimately found, contending that the 1978 Sublease (executed on November 7, 1978) contained within it paragraph 7.D, which stated that Sublessee [IMC] agreed to assume all obligations under the Base Lease and the 1976 Gas Contract. See Appellants Reply to Coho at 3-4; see also R. at 603 (Hester Aff. at 12). However, paragraph 7.D of the 1976 Sublease cannot be read as expansively as Appellants would suggest. In fact, the only language relating to the 1976 Gas Contract in the 1978 Sublease stated that:
"Insofar only as the Subject Interests and the wells located thereon are concerned, Sublessee [IMC-later BASF] agrees to assume . . . all obligations of seller under [the 1976 Gas Contract between Luffey and CSC]."
R. at 250 (emphasis added). Nothing in the 1978 Sublease evidences the parties intent to forward any of the lancing provisions of the 1976 Gas Sale Contract, or the continued obligations of the lessor and buyer under the 1976 Gas Contract, since the 1978 Sublease did not contain similar specific language for these as compared to those obligations of the lessee and seller. Moreover, the circumstances surrounding the execution of the 1978 Sublease indicate that the parties did not intend for the pricing provisions of the 1976 Gas Contract to be brought forward. BASF (and now Coho) argues that it entered into the 1978 agreement in order to sell gas at a higher price as allowed by the newly enacted NGPA. This could not have been done if the pricing provisions of the 1976 Gas Contract had remained in place. See Br. Appellee Coho at 10 n. 8. Finally, there is no evidence in the record indicating that the 1976 Gas Contract pricing provisions were followed subsequent to the execution of the 1978 agreement. Hester itself recognized as much when in its April 26, 1992 letter to BASF, it "requested reassignment of the Ball Wells, provided they would be subject to the 1976 Gas Contract." Appellants Reply to Coho at 8. Having thus been a conditional reassignment request (and not a timely and proper request for reassignment), the Bankruptcy Court was correct to conclude that such request was not valid under the 1978 Sublease, giving BASF the right to plug and abandon, and the right to release said Ball Wells under paragraph 7.E.
In addition, on May 21, 1992, Wintershall Energy (BASF) tendered an assignment to all the ORI owners subject to the terms of paragraph 7.E of the 1978 Sublease, which would have corrected any deficiencies in the Hester Claimants purported acceptance letter of April 26, 1992. R. at 263-264. This assignment was made consistent with the terms and obligations of the 1978 Sublease. However, none of the Sublessors (including Hester) signed the tendered assignment.
Nevertheless, even aside from the fact that Appellants' ORI rights ceased as a result of this conditional reassignment request, the Hester Claimants' ORI rights also ceased to exist at the termination of the Base Lease (and by extension, that of the 1978 Sublease). More specifically, under paragraph 2.1 of the 1976 Sublease, this lease was said to continue "for a production term . . . so long as each completed gas well is capable of producing gas or operations are being conducted on the tract as provided in Article 3.3." R. at 210. In turn, Article 3.3 stated that " if for any cause, other than force majeure, production should cease from a well . . . [and for a period of more than 90 days] should Lessee fail to commence the reworking of the well or the drilling of a replacement well on the leases premises developed within 90 days after cessation . . . the rights of Lessee earned and being maintained by such gas well in the production term shall terminate." R. at 211. As the record clearly reflects, the Ball Wells went off production (were "shut in") for over a period of 90 days [from April 1992 until May 1994], with no attempts made of reworking or drilling a replacement well within that time.
Hester would have the Court believe that the disjunctive "or" in Article 2.1 of the Base Lease implies that the lease's production term would continue so long as "each completed gas well on the tract is capable of producing gas," regardless of whether or not operations were being conducted on the tract in accordance with Article 3.3. See generally Orig. Br. Appellants at 17-22. However, the language in Article 3.3 does not minor the disjunctive language of Article 2.1, when it states that the Lessee's right "shall terminate" if operations or production are not maintained or reworked within 90 days after cessation of production (thus, never stating whether the simple capability of production is enough to avoid termination). See R. at 210-211.
Under Louisiana law, a royalty interest created in a lease, by its very nature, is dependent for its existence upon the lease under which it was created. See Weir v. Glassell, 44 So.2d 882, 887 (La. 1950). As such, an ORI created by a lease cannot have a greater life than the lease itself, and consequently upon the termination of the lease it shall also become extinguished. See Id., 44 So.2d at 888. Accordingly, based on the terms of the Base Lease, and by extension the 1978 Sublease which specifically adopted those terms, the Hester Claimants' appended ORI rights on those leases were terminated on the tracts for the Ball Wells when the wells remained shut in for over the 90-day period and no attempt was made to commence reworking of the wells within that time period.
B. The Bankruptcy Court's Dicta
In its December 6 Order the Bankruptcy Court expressed its view that under Louisiana law even if the Lessee had schemed to wipe out Appellants' ORI, the royalty would still have ceased when the lease it was appended to expired. See R. at 7 (citing Weir v. Glassell). In addition, the Bankruptcy Court further stated that Hester's arguments of fairness and propriety as to the conduct of Coho, in order to have been more successful, perhaps should have been made before confirmation of Coho's reorganization Plan. See R. at 7. In their 5th, 6th and 7th points of error, the Hester Claimants quarrel with these conclusions, asserting instead that the Bankruptcy Judge erred in failing to consider the argument that Appellee could not take advantage of its own wrong in preventing fulfillment for the continuation of the 1976 and 1978 Subleases. See Orig. Br. Appellants at 36-42.
Regardless of whether or not the issue was properly raised or briefed below, it is clear that the Bankruptcy Court's statements were hypothetical and merely dicta, which in no way determined either the analysis or the outcome of its December 6 Order. Therefore, because this Court cannot find any abuse of discretion, there is no reversible error with relation to Appellants' 5th, 6th and 7th points of error.
CONCLUSION
Having thoroughly reviewed the appellate record, the arguments of the parties, and the relevant law, the Court is of the opinion that the December 6 Order of the Bankruptcy Court granting Coho's motion for summary judgment is without reversible error and is therefore AFFIRMED.
So Ordered.