Sherwood v. Panhandle Eastern ( 1998 )

F I L E D
United States Court of Appeals
Tenth Circuit
MAY 14 1998
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT PATRICK FISHER
Clerk
BOYD A. SHERWOOD, CURTIS T.
SHERWOOD, JERALD L.
SHERWOOD, No. 97-3024
Plaintiffs - Appellants, (D. Kansas)
v. (D.C. No. 96-CV-1331)
PANHANDLE EASTERN PIPE LINE
COMPANY,
Defendant - Appellee.
----------------------------------------
ANADARKO GATHERING
COMPANY,
Intervenor - Appellee.
ORDER AND JUDGMENT *
Before ANDERSON, BALDOCK, and MURPHY, Circuit Judges.
*
This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. The court generally disfavors the
citation of orders and judgments; nevertheless, an order and judgment may be cited under
the terms and conditions of 10th Cir. R. 36.3.
Boyd A. Sherwood, Curtis T. Sherwood, and Jerald L. Sherwood brought
this diversity action against Panhandle Eastern Pipe Line Company seeking a
declaratory judgment that a lease between the Sherwoods and Panhandle was
canceled, terminated, or abandoned when Panhandle executed an assignment of
the lease to Anadarko Gathering Company. In a separate action against
Anadarko, later joined with the Panhandle suit, the Sherwoods alleged forcible
entry and unlawful detainer, and sought possession of the leasehold.
These actions were based on the following provision of the lease: “This
lease may not be assigned by Lessee without written permission from Lessor and
terms of lease shall be renegotiated.” App. Vol. II, Tab L at 93. It is undisputed
that the Sherwoods did not consent to any assignment of the lease, and terms of
the lease were not renegotiated. It is also undisputed that approximately five
months after the “assignment” from Panhandle to Anadarko, and after the
Sherwoods had filed suit, Panhandle and Anadarko executed a document voiding
the assignment ab initio, 1 and a further document licensing Anadarko to go onto
the premises and operate the gas pipeline compressor station located there.
Finally, it is also undisputed that Panhandle never did execute and record a
release of the lease.
1
Both the original assignment agreement and the agreement of voidance expressly
stated that they were governed by a “Facilities Sale Agreement,” which had been entered
into by Panhandle and Anadarko in September 1994. See App. Vol. II, Tab L at 99, 101.
-2-
The district court fully set out the procedural history, facts, and a detailed
analysis of the law in a twenty-two page “Memorandum and Order” filed
January 8, 1997, treating the motions by all parties as motions for summary
judgment, and granting the motions of Panhandle and Anadarko. It denied the
Sherwoods’ motion. See App. Vol. III, Tab V. It would be redundant for us to
restate here what the district court has so ably done. Accordingly, we adopt and
incorporate the district court’s opinion.
Significantly, the Sherwoods’ appeal does not mount any serious direct
attack on the facts or analysis as such of the district court. Rather, the appeal
asserts that the district court erred in not permitting additional discovery, in not
drawing all inferences in favor of the Sherwoods, and in having an insufficient
evidentiary basis to support a summary judgment. See Appellants’ Reply Br. at
7-8.
DISCUSSION
We review the grant of summary judgment de novo to determine whether,
based on the pleadings and other documents on file, any genuine issue of material
fact exists. Fed. R. Civ. P. 56(c); see Applied Genetics Int’l, Inc. v. First
Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir. 1990). We review rulings on
discovery matters for abuse of discretion. GWN Petroleum Corp. v. Ok-Tex Oil
& Gas, Inc., 998 F.2d 853, 858 (10th Cir. 1993).
-3-
The Sherwoods first argue that before determining whether Anadarko is
currently a licensee, the district court should have allowed discovery so that it
could review all the circumstances of Anadarko’s current status, including the
Facilities Sale Agreement and Panhandle’s and Anadarko’s accounting records. 2
Appellants’ Br. at 14-15, 21. Discovery in this case proceeded as follows. After
filing their petition against Panhandle in July 1996, the Sherwoods served on
Panhandle in August a Request for Admissions, Interrogatories, a Request for
Production of Documents, and a Notice to Take Deposition. App. Vol. I, Tab B.
In particular, these initial discovery requests sought the Facilities Sale
Agreement. 3 See App. Vol. III, Tab S at 343. There was no immediate motion to
compel any of this discovery.
In October, the Magistrate Judge held a scheduling conference. After being
informed that the parties intended to file Motions for Judgment on the Pleadings,
2
The Sherwoods sought discovery of Panhandle’s and Anadarko’s accounting
records because they believed that “[i]f there are no appropriate, contemporaneous
accounting entries in the books and records of each corporation reflecting the financial
reality of the August 15, 1996 reversal transactions, that fact would inescapably lead to
the conclusion the Agreement of Voidance and License Agreement were never intended
to be, or considered by [Panhandle] and Anadarko to be, bona fide transactions.” App.
Vol. III, Tab S at 339.
3
The Sherwoods also sought copies of records indicating the volume of gas
transported, compressed, or processed through the facilities, as well as copies of any
income tax returns showing any income tax deduction or benefit that Panhandle may have
realized as a result of the assignment to Anadarko. App. Vol. III, Tab S at 343. At this
point, the Sherwoods did not seek any accounting records.
-4-
the Magistrate entered an initial scheduling order, which, among other things,
created a stay on all discovery proceedings pending disposition of the motions. 4
App. Vol I, Tab J at 74-75. However, the Magistrate’s order provided that if any
party believed further discovery should be conducted, that party should file a
motion to request discovery. App. Vol. I, Tab J at 75. No such motion was filed
by the Sherwoods at the time.
The day after the hearing, the Sherwoods filed their Motion for Judgment
on the Pleadings, asking the court to declare that the lease had been terminated by
Panhandle’s breach of the covenant against assignment. About two weeks later,
Panhandle filed its Motion for Judgment on the Pleadings, seeking a declaration
that the lease remained in full force and effect, and Anadarko filed a Motion for
Summary Judgment on the forcible detainer action.
In November, the district court heard oral arguments on the motions, and by
this time, the Sherwoods’ arguments had evolved somewhat. In addition to
asserting that Panhandle’s breach had caused a termination of the lease, the
Sherwoods now argued that it was essential to review the Facilities Sale
Agreement because it would probably show that Panhandle had intentionally
breached the covenant against assignment by assigning the lease through a
4
At the time the stay was entered, the only discovery that had been conducted was
the September deposition of Jerald Sherwood. App. Vol. III, Tab T at 359.
-5-
quitclaim conveyance. 5 According to the Sherwoods, a quitclaim conveyance
would mean that Panhandle had effectively abandoned the lease and would
therefore allow the Sherwoods to rescind the lease. In response, Panhandle and
Anadarko offered to provide the Facilities Sale Agreement for the court to review
in camera. App. Vol. IV at 38-41, 46-48. The court declined the offer, finding
such review unnecessary.
In December, more than one month after the hearing on the motions, the
Sherwoods filed a Motion for Allowance of Discovery, seeking, in particular, the
Facilities Sale Agreement as well as accounting records, and requesting a stay on
all pending motions until discovery was complete. App. Vol. III, Tab R. At this
point, the Sherwoods’ arguments had evolved yet again. Now, the Sherwoods
argued that because the voidance agreement between Panhandle and Anadarko
was governed by the Facilities Sale Agreement, it was likely a “sham transaction
without legal effect.” App. Vol. III, Tab S at 337. In response, both Panhandle
and Anadarko again offered to provide the Facilities Sale Agreement, this time to
the Sherwoods under a protective order. App. Vol. III, Tab T at 360; id., Tab U
at 371. The Sherwoods did not accept this offer. 6
The Sherwoods raised this argument for the first time in their response to
5
Panhandle’s Motion for Judgment on the Pleadings. See App. Vol. II, Tab N at 231-32.
6
The offer to provide the Facilities Sale Agreement was made on December 19,
1996, three weeks before the district court’s ruling, and the Sherwoods do not argue that
(continued...)
-6-
Based on this procedural history, we are unpersuaded that the district court
abused its discretion in refusing the requested discovery. The district court had
before it and carefully considered the pertinent documents—the original
Assignment and Conveyance, the Agreement of Voidance, and the License
Agreement. In the absence of a direct allegation of fraud, an allegation which the
Sherwoods do not make, there was no reason for the court to doubt the validity of
these documents. In addition, we note that many of the Sherwoods’ concerns
regarding Anadarko’s current status as either an assignee or a licensee may have
been resolved had they taken the opportunity to review the Facilities Sale
Agreement. We can hardly fault the court for declining to review a document that
the Sherwoods themselves chose not to review.
As for the accounting records, although the Sherwoods knew about the
agreement of voidance and the license agreement when Panhandle filed its
Answer in August, they did not seek discovery on the bookkeeping entries until
December, after the motions had been filed and the court had held a hearing. 7 See
App. Vol. III, Tab R at 328; see generally Worm v. American Cyanamid Co., 5
F.3d 744, 749 (4th Cir. 1993) (finding no abuse of discretion and upholding the
(...continued)
6
they had insufficient time to act upon it.
7
Although the Sherwoods did list the accounting records as relevant documents in
their initial Rule 26(a)(1) disclosures in October, they did not actually request these
records in discovery until December.
-7-
denial of motion for additional discovery because there had been adequate time
for discovery and the requesting party had not made a timely request); Turnage v.
General Electric Co., 953 F.2d 206, 208-09 (5th Cir. 1992) (finding no abuse of
discretion and upholding the denial of a discovery motion because requesting
party had failed to make the request until trial was imminent and the discovery
deadline was impending).
The Sherwoods’ second argument is that when all inferences from the
evidentiary record are drawn in the their favor, it is evident that the evidentiary
record was insufficient to support an entry of summary judgment against them.
Appellants’ Reply Br. at 8. However, the Sherwoods’ assertions regarding the
accounting records and the Facilities Sale Agreement do not require the court to
draw reasonable inferences, but instead require the court to inappropriately
engage in mere speculation. Contrary to the Sherwoods’ assertion, we do not
draw a negative inference from Panhandle’s failure to produce the Facilities Sale
Agreement, see Appellants’ Br. at 15-16, because, as described above, Panhandle
did in fact offer to produce the document.
The Sherwoods also challenge the district court’s interpretation of a letter
sent by Jana Hamilton, a Panhandle employee, to Jerald Sherwood stating that,
“As the existing Lease is not assignable from Panhandle to Anadarko, Anadarko
will be negotiating their own Lease covering this site. When that has been
-8-
accomplished, Panhandle will execute a Release of Lease and have it recorded in
Morton County, Kansas.” App. Vol. II, Tab P at 279. Based on this language, the
court inferred that Panhandle had not abandoned the lease, an inference which the
Sherwoods now assert was unreasonable. See Appellants’ Br. at 18. We
disagree. In fact, the district court’s conclusion did not require an inference at
all, but was supported by the explicit language of the letter. It is also significant
that the Sherwoods do not dispute the fact that Panhandle did not and has not
executed and recorded a release of the lease.
We conclude, therefore, that the district court did not abuse its discretion in
not allowing the requested discovery, did not fail to accord favorable, permissible
inferences to the Sherwoods, and did have an adequate evidentiary basis upon
which to grant summary judgment. We further conclude, as did the district court,
that no genuine issues of material fact remain, and summary judgment was
appropriately entered against the Sherwoods.
-9-
CONCLUSION
We have fully considered every argument adequately raised and developed
by the Sherwoods in the district court and in their brief-in-chief on appeal,
addressing those which warranted discussion. As stated above, we conclude that
the district court did not err. Accordingly, the judgment of the district court in
favor of Panhandle and Anadarko is AFFIRMED.
ENTERED FOR THE COURT
Stephen H. Anderson
Circuit Judge
-10-