Opinion
CIVIL ACTION No. E83-0143(L).
October 23, 1987, Decided
October 26, 1987
MEMORANDUM OPINION AND ORDER
This cause is before the court on motion of plaintiff J. E. Stack, Jr. to amend or alter judgment to correct the jury's calculation of the interest awarded to Stack, and the motion of defendants Tenneco, Inc. and Tennessee Gas Pipe Line Company (Tenneco) for specific performance or declaratory judgment and for judgment notwithstanding the verdict and remittitur or, in the alternative, for new trial. The court has considered the memoranda and exhibits submitted by the parties in connection with these motions.
SPECIFIC PERFORMANCE OR DECLARATORY JUDGMENT
Tenneco urges the court to grant specific performance of the contract by ordering Stack to turn on the Stack-Fernwood No. 1 well within a reasonable period of time. Specific performance is a remedy for breach of contract. The jury found that Stack had not breached his contract with Tenneco by refusing to turn on the Stack-Fernwood No. 1 well. Where, as here, there has been no breach of contract, the remedy of specific performance is unwarranted. Tenneco alternatively seeks a declaratory judgment that Stack is now required by the contract to turn on the Stack-Fernwood No. 1 well [*2] within a reasonable period of time. Again, the jury found that Stack was within his rights in refusing to turn on the well. It is possible that, since Stack has obtained a judgment against Tenneco, the reasonable grounds for insecurity which were found by the jury to justify Stack's refusal to turn on the well no longer exist. However, a declaratory judgment to that effect would not be appropriate pursuant to a post-trial motion such as is before the court.
TENNECO'S COUNTERCLAIM
Tenneco moves for judgment notwithstanding the verdict (JNOV) on its counterclaim against Stack on the basis that there was no evidence to support Stack's claim that he had reasonable grounds for insecurity which justified his refusal to turn on the Stack-Fernwood No. 1 well, and the court thus erred in failing to grant Tenneco's peremptory instruction on its counterclaim. The court, however, remains of the opinion that there was sufficient evidence from which the jury could have found that Stack had a reasonable basis for being insecure as to Tenneco's performance under the contract. Tenneco further argues that the court's instruction on this issue incorrectly stated the law. Having considered [*3] the parties' arguments on this point, the court is of the opinion that the jury instruction complained of was not erroneous. Therefore, the court concludes that Tenneco's motion for JNOV on its counterclaim against Stack should be overruled.
PUNITIVE DAMAGES
Tenneco also moves for JNOV on the jury's punitive damages verdict, contending that the evidence was insufficient to support the verdict and that the court committed error by granting Stack's punitive damages instruction and by refusing to instruct the jury, as Tenneco requested, that punitive damages could not be awarded. However, it continues to be the court's opinion that the court's instructions were proper and that there was sufficient evidence to support the verdict of the jury. Therefore, plaintiff's motion should be denied.
SPECIAL VERDICT ISSUES
Tenneco moves the court for JNOV on special verdict 4(a), the jury's award of $592,835.83 as the balance of the contract price on gas delivered to Tenneco. Tenneco contends that the jury's verdict is not supported by the evidence. The court finds that this special verdict amount was supported by the evidence and therefore concludes that Tenneco's motion for JNOV [*4] or remittitur with respect to special verdict 4(a) should be denied.
Tenneco moves for JNOV on special verdict 4(e), an award of $76,276.12 for payments for gas not allocated to Stack. Stack contends that this award is proper because the jury was instructed that it could make an award for gas not allocated to Stack's account if the jury found that the operators did not allocate the gas because Tenneco instructed them not to do so. Stack argues that there is ample evidence in the record from which the jury could have found that Tenneco had given such instructions to certain operators. The court, however, is of the opinion that there is no competent evidence in the record from which a jury could reasonably find that Tenneco instructed operators not to allocate gas to Stack's account. Therefore, Tenneco's motion with respect to this special verdict should be granted.
The only evidence referred to by Stack is Exhibit P-214, a letter from an operator to Tenneco stating that Tenneco had previously instructed the operator not to allocate gas to Stack. This statement is hearsay; the letter was admitted for a purpose other than to prove the truth of what was asserted therein. Moreover, the letter concerned instructions relative to a well in which Stack had only an overriding royalty interest. Given the jury's finding that overriding royalty wells were not covered by the contract, special verdict 4(e) was limited to unallocated gas from working interest wells. The relevance of the letter to that issue is therefore highly questionable.
[*5] Tenneco requests a JNOV on special verdict 4(f), an award of $700,000 for interest on unpaid pre-ID and annual take-or-pay payments. Tenneco's position is that this award is improper because the jury was instructed that it could award contract interest only on actual production. It is correct that the jury was instructed only on contract interest payable on actual production. However, the jury was presented with a special verdict question of interest on unpaid pre-ID and take-or-pay payments and was thus implicitly authorized to award such interest. Tenneco further argues that prejudgment interest is not proper because the damages were not liquidated. However, even where damages are not liquidated, an award of prejudgment interest is proper when the actions of the defendant which give rise to the damages justify an award of punitive damages. The jury found that Tenneco's breach of its contract with Stack was willful, intentional, malicious or recklessly indifferent to Stack's rights, and awarded punitive damages. Accordingly, prejudgment interest is appropriate in this case.
The gas sales contract provided for the payment of interest on late payments for gas produced and delivered to Tenneco. The contract did not provide for interest on unpaid pre-ID or take-or-pay payments. Therefore, interest on these amounts may be recovered by Stack only if permitted under the rules relating to awarding prejudgment interest. [*6]
Because prejudgment interest is justified by the award of punitive damages, the court reaches no conclusion as to whether the unpaid payments would constitute liquidated damages.
Alternatively, Tenneco seeks a remittitur of a portion of the $700,000 verdict, arguing that there is no basis for an award of any interest on wells other than Stack-Fernwood No. 1 and that, excluding interest claimed by Stack for unpaid pre-ID payments, interest for Stack-Fernwood No. 1 is less than $700,000. Excluding this pre-ID interest results in interest of $563,040.46 for the Stack-Fernwood No. 1 well. With respect to interest for take-or-pay payments on the other wells, the court is of the opinion that there is a basis for calculating such interest in an amount which, when added to the $563,040.46 for Stack-Fernwood No. 1, exceeds the $700,000 total interest awarded. Because the amount awarded on special verdict 4(f) is less than the maximum amount which the evidence could support, remittitur is not warranted. See Dixon v. International Harvester Co., 754 F.2d 573, 590 (5th Cir. 1985). [*7] Consequently, Tenneco's motion for JNOV or remittitur on special verdict 4(f) should be denied.
The court agrees with Tenneco that it is not proper to award interest on unpaid pre-ID payments, since the jury awarded no damages for unpaid pre-ID payments.
Stack moves the court to amend or alter special verdict 4(f) on the ground that the jury's calculation of prejudgment interest is incorrect. Stack's argument is based on the view that the jury's award of prejudgment interest should include interest on unpaid pre-ID payments. As noted above, the jury awarded no damages for unpaid pre-ID payments. Consequently, Stack's motion to alter judgment with respect to special verdict 4(f) is without merit and should be denied.
Tenneco also moves for JNOV or remittitur on special verdict 4(g), contract interest of $647,498 for gas produced and delivered. Tenneco asserts that the jury, contrary to the court's instructions, awarded contract interest for time periods prior to submission of invoices for the gas by Stack [*8] and that the jury's calculation includes interest on amounts claimed by Stack for actual production from the override wells as well as the Fernwood 1A and Moses Smith wells. Stack concedes that the amount awarded by the jury impermissibly includes interest on amounts claimed from the override, Fernwood 1A and Moses Smith wells. Stack also concedes that the jury's award of interest includes interest for noninvoiced periods, but argues that there was evidence from which the jury could have concluded that Stack's submission of invoices was delayed by wrongful conduct of Tenneco. However, Stack did request an instruction and the jury was not instructed on Stack's theory that Tenneco's conduct permitted Stack to get interest on noninvoiced periods. Even assuming that such an instruction would have been proper, it is not appropriate to allow Stack to keep the interest for those periods, because a factual determination as to Tenneco's actual conduct would be a prerequisite to allowing interest for those periods. Such a determination is a matter for the jury, not for the court. Excluding amounts awarded on the override, Fernwood 1A and Moses Smith wells and amounts awarded for noninvoiced [*9] periods, the court finds that the maximum amount which the jury could properly have awarded on special verdict 4(g) is $408,501.75. Accordingly, the court concludes that a remittitur to $408,501.75 should be granted.
Tenneco also contests the jury's award on special verdict 4(h) of $12,490,707.33 for annual take-or-pay payments for Stack Fernwood No. 1. Tenneco asserts that this amount is based on a one hundred percent interest in the well, whereas Stack's interest is only 96.95303%. Stack contends that the remaining percentage of the well was covered by the contract, even though it was not owned by Stack. Tenneco's position is that since its contract was with Stack and not with the owners of the remaining interests, its take-or-pay obligations extended only to Stack's interest. Even if Stack is correct that the other owners were covered by the contract, it does not follow that Stack may recover the payments in this action. Amounts which Tenneco may have owed to the other owners of the well cannot be considered part of Stack's damages in this action. Accordingly, the court concludes that the jury's award for special verdict 4(h) should be reduced to $12,065,152.67.
In ruling that Stack is not entitled to recover payments that may have been owed to the other owners of the well, the court makes no ruling as to whether the jury's verdict reflects a finding that the other owners were covered by Stack's contract with Tenneco, whether there was sufficient evidence from which the jury could have made such a finding, or whether such an interpretation of the contract is permissible as a matter of law. Those issues are not before the court.
[*10] Tenneco also claims that the amount is in excess of that permitted by law because it is based on potential production amounts in excess of the state allowable for the well. This issue was not raised in Tenneco's pleadings, no instructions on this theory were sought and the theory was not argued to the jury. In short, this argument comes too late; this post-trial motion is not the appropriate vehicle for the assertion of this defense.
In addition, Tenneco objects to the jury's award under special verdict 4(h) of $3,000,000.00 for annual take-or-pay payments for wells other than Stack-Fernwood No. 1. Tenneco asserts that the amount is in excess of the maximum amount justified under the evidence and the court's instructions. The court is of the opinion that the jury's award for annual take-or-pay on the other wells does not exceed the maximum amount supported by the evidence. Accordingly, Tenneco's request for remittitur on this element of damages should be rejected. See Dixon, 754 F.2d at 590.
Tenneco raises the same argument with respect to the state allowable for the wells in question as it raised in regard to deficiency payments for Stack-Fernwood No. 1. As stated above, this position is without merit.
[*11] NEW TRIAL
[*12] CONCLUSION
One argument warrants brief mention. Tenneco claims that the court erred by failing to instruct the jury that it should reduce any damages for unpaid take-or-pay payments for the Stack-Fernwood No. 1 well by the amount which Stack could have received by selling the gas that Tenneco did not take to another company and by instructing the jury that Stack had no obligation to sell gas to another company. While it is true as a general principle that an aggrieved party must mitigate his damages, Tenneco's interpretation of the duty to mitigate as applied to take-or-pay contracts cannot be correct, because it would deprive the seller of a substantial benefit of such contracts: the possibility that the seller could be paid twice for the same gas. See Universal Resources Corp. v. Panhandle Eastern Pipe Line Co., 813 F.2d 77, 80 (5th Cir. 1987).
(1) Tenneco's motion for specific performance or declaratory judgment is denied;
(2) Tenneco's motion for judgment notwithstanding the verdict on its counterclaim against Stack is denied;
(3) Tenneco's motion for judgment notwithstanding the verdict on the jury's punitive damages award is denied;
(4) Tenneco's motion for judgment notwithstanding the verdict on special verdict 4(e) is granted;
(5) Tenneco's motion for judgment notwithstanding the verdict or remittitur on special verdict issue 4(f) is denied;
(6) Stack's motion to amend or alter judgment to correct the calculation of prejudgment interest is denied;
(7) Tenneco's motion for remittitur on special verdict 4(g) is granted to the extent set forth herein;
(8) Tenneco's motion for remittitur on special verdict 4(h) with respect to the Stack-Fernwood No. 1 Well is granted to the extent set forth herein; with respect to all other wells, the motion is denied;
(9) Tenneco's motion for remittitur with respect to special verdict 4(a) is denied;
(10) Tenneco's motion for a new trial is denied.
ORDERED this 23rd day of October, 1987.
TOM S. LEE
UNITED STATES [*13] DISTRICT JUDGE
ORDER
This cause is before the Court on motion of Tenneco Inc. ("Tenneco"), for correction of a typographical error in this Court's Memorandum Opinion and Order, dated October 16, 1987, denying, in part, Tenneco's motion for specific performance or declaratory judgment and for judgment notwithstanding the verdict and remittitur or, in the alternative, for new trial. Upon review of Tenneco's motion, this Court concludes that there is a typographical error on page 8 of the Opinion and that the motion to correct the Opinion should be granted.
Accordingly, it is ordered that Tenneco's motion to correct the Court's Memorandum Opinion and Order is granted and the Court withdraws its original Memorandum Opinion and Order and substitutes the corrected Opinion that is being issued contemporaneous with this Order nunc pro tunc.
ORDERED this the 23rd day of October, 1987.
TOM S. LEE
UNITED STATES DISTRICT JUDGE
JUDGMENT
This action came on for trial before the Court and a jury, Honorable Tom S. Lee, District Judge, presiding, and the issues having been duly tried, and the jury of twelve duly qualified jurors having rendered its verdict, and the Court having reviewed [*14] the verdict and the special verdicts returned by the jury, and finding them to be in the proper form, It is Ordered and Adjudged:
1. That the Plaintiff, J. E. Stack, Jr., recover of and from the Defendants, Tenneco, Inc. and Tennessee Gas Pipeline Company, the sum of $17,507,317.28 actual damages and $150,000.00 punitive damages, with interest thereon at the rate as provided by law, and his costs of this action.
2. That the Defendants Tenneco, Inc. and Tennessee Gas Pipeline Company take nothing on their counterclaim against J. E. Stack, Jr. and that judgment is rendered for J. E. Stack, Jr. on the counterclaim.
For all of which, let execution lie.
Dated at Meridian, Mississippi this the 30th day of June, 1987.
TOM S. LEE
FINAL JUDGMENT ON DAMAGES
Pursuant to the Court's Memorandum Opinion and Order of October 16, 1987, as corrected by Order of October 23, 1987, this Court finds that J. E. Stack, Jr. is entitled to the following damages: OR
Special Verdict 4(a) $592,835.83 4(f) $700,000.00 4(g) $408,501.75 4(h) $12,065,152.67 $3,000,000.00 $16,766,490.25 Punitive Damages $150,000.00 $16,916,490.25 Actual Damages (Special Verdict 4(a), (f), (g) and (h) $16,766,490.25 Punitive Damages $150,000.00 $16,916,490.25 [*15] SO ORDERED AND ADJUDGED this the 23rd day of October, 1987.