Statoil USA Onshore Properties Inc. v. Pine Resources, LLC ( 2017 )

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 15-2099
STATOIL USA ONSHORE PROPERTIES INC.,
Plaintiff - Appellee,
v.
PINE RESOURCES, LLC,
Defendant - Appellant.
Appeal from the United States District Court for the Southern
District of West Virginia, at Charleston. Irene C. Berger,
District Judge. (2:14-cv-21169)
Argued: October 26, 2016 Decided: January 18, 2017
Before MOTZ, TRAXLER, and FLOYD, Circuit Judges.
Vacated and remanded by unpublished per curiam opinion.
ARGUED: David Allen Barnette, JACKSON KELLY, PLLC, Charleston,
West Virginia, for Appellant. Constance Hankins Pfeiffer, BECK
REDDEN LLP, Houston, Texas, for Appellee. ON BRIEF: Vivian H.
Basdekis, JACKSON KELLY, PLLC, Charleston, West Virginia, for
Appellant. Fields Alexander, Joel T. Towner, BECK REDDEN LLP,
Houston, Texas; Bridget Furbee, Bridgeport, West Virginia, John
J. Meadows, STEPTOE & JOHNSON PLLC, Charleston, West Virginia,
for Appellee.
Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:
In 2008, Appellant Pine Resources, LLC (“Pine”), sold
certain mineral rights to non-party PetroEdge Energy, LLC
(“PetroEdge”), pursuant to the terms of a purchase and sale
agreement (the “Pine PSA”). In 2012, PetroEdge sold its mineral
rights to Appellee Statoil USA Onshore Properties, Inc.
(“Statoil”), pursuant to the terms of a second purchase and sale
agreement (the “Statoil PSA”).
In 2014, Statoil sought a declaratory judgment that it was
not in breach of the Pine PSA, and had no obligations under that
agreement to Pine other than to pay certain royalty interests.
Pine filed a breach of contract counterclaim, seeking damages
for Statoil’s alleged nonperformance of spudding obligations
outlined in Section 5.7(b) of the Pine PSA. The parties filed
cross-motions for summary judgment.
The district court granted summary judgment to Statoil, and
denied Pine’s motion for summary judgment on its counterclaim.
The court held that, under the unambiguous language of the Pine
PSA, the agreement’s spudding obligations extended only to the
“Purchaser,” which the court read to mean PetroEdge alone.
This holding, however, renders effectively meaningless a
successors and assigns provision in the Pine PSA. It is our
duty to read a contract as a whole, giving meaning to every
provision whenever possible. Because the district court failed
2
to properly do so, we vacate its judgment and remand for further
proceedings.
I.
A.
In 2001, Pine acquired mineral interests in a 565-acre
tract of land in Barbour County, West Virginia (the “Property”).
In 2008, at a price of $479,876, and pursuant to the terms of
the Pine PSA, non-party PetroEdge purchased from Pine the
Marcellus Mineral Rights on the Property. 1
The Pine PSA--drafted by PetroEdge--contains the following
relevant provisions:
• Introduction: The Pine PSA states in its introductory
paragraph that it is an agreement “by and between Pine
Resources Inc., a West Virginia corporation (‘Seller’),
and PetroEdge Energy LLC, a Delaware limited liability
company (‘Purchaser’).” J.A. 49. The Pine PSA further
provides that “Seller and Purchaser are sometimes
referred to herein together as the ‘Parties’ and
individually as a ‘Party’.” Id.
1 The Marcellus Mineral Rights include, inter alia,
hydrocarbon mineral interests of “those subsurface depths from
the base of the Elk formation to the base of (and including) the
Onondaga formation.” J.A. 50.
3
• Article 5: Article 5 outlines the covenants of the
parties, and centers on their mineral production plans.
Section 5.5 calls for quarterly meetings by the “Parties”
to discuss drilling plans and operations. J.A. 56.
Section 5.6 enjoins cooperation between the “Parties” in
the event of parallel drilling or operations. Id.
Section 5.7(a) requires “Purchaser [to] apply for a meter
tap on a gas transmission line” within 60 days of
executing the Pine PSA. J.A. 56–57. Section 5.7(b)
provides that the “Purchaser shall spud not less than one
(1) well on the Contract Area” within a year of the
installation of the meter tap; it further provides that
the “Purchaser” shall have spudded at least three wells
within five years of the meter tap’s installation. J.A.
57. 2 Section 5.8 discusses the scenario where a party
abandons a well and the non-abandoning party gets the
right to take over its operation. Id. Section 5.9(a)
discusses Pine’s 18% retained overriding royalty interest
on hydrocarbons produced from the Marcellus Mineral
Rights. J.A. 57-58. Section 5.9(b) establishes an
arbitration procedure for disputes between the “Seller”
2 After multiple delays and a purchased extension, PetroEdge
drilled one well, the Bumgardner 5-2H, in December 2011.
4
and the “Purchaser” over the occurrence of a “Production
Termination Event.” J.A. 58.
• Article 7: Article 7 is the Pine PSA’s “Indemnification;
Limitations” section. J.A. 60-62. As relevant here,
Section 7.2(a), provides as follows:
[1] The representations and warranties of the
Parties in Articles 3 (except Section 3.7) and 4
and the covenants and agreements of the Parties
in Article 6 [sic] (except Sections 5.4 through
5.9) shall survive the Execution Date for a
period of two (2) years. [2] The
representations, warranties, covenants and
agreements of Seller in Sections 3.7 and 5.4
shall survive until the close of business 30 days
after the expiration of the applicable statutes
of limitation (including any extensions thereof)
provided that any proceeding or indemnification
claim pending on the date of any such termination
shall survive until the final resolution thereof.
[3] The remainder of this Agreement shall survive
the Execution Date so long as Purchaser holds any
interest in the Mineral Rights. Representations,
warranties, covenants and agreements shall be of
no further force and effect after the date of
their expiration, provided that there shall be no
termination of any bona fide claim asserted
pursuant to this Agreement with respect to such a
representation, warranty, covenant or agreement
prior to its expiration date.
J.A. 61.
• Article 8: Article 8 contains the remaining miscellaneous
provisions. Section 8.5 instructs that the Pine PSA is
to be construed in accordance with West Virginia law.
J.A. 63. Section 8.8 contains a successors and assigns
provision, which in relevant part provides that “this
5
Agreement shall be binding upon and inure to the benefit
of the Parties hereto and their respective successors and
assigns.” Id.
• Deed: Pine’s deed to PetroEdge (the “Deed”) granting the
latter the Marcellus Mineral Rights is an exhibit
attached to the Pine PSA. (All exhibits to the Pina PSA
were expressly incorporated under Section 8.9, the
integration clause of the Pine PSA. J.A. 63.) Article
III of the Deed provides that, “[n]otwithstanding
anything to the contrary,” Pine reserves an 18% retained
overriding royalty interest on hydrocarbons produced from
the Marcellus Mineral Rights. J.A. 68. Article III adds
that if there is a dispute regarding the occurrence of
“Production Termination Events,” it shall be settled in
accordance with Section 5.9(b) of the Pine PSA. Id.
B.
By written assignment in 2012, PetroEdge sold its interest
in the Marcellus Mineral Rights to Statoil. That assignment
agreement is subject to and incorporates the terms and
conditions of a purchase and sale agreement--the Statoil PSA--
dated October 12, 2012, between Statoil and PetroEdge.
Section 10.1(a) of the Statoil PSA provides that Statoil
shall assume responsibility for the “performance of all express
6
and implied obligations” arising from “instruments in the chain
of title to the Assets, the Leases, the Contracts and all other
orders, contracts and agreements to which the Assets are
subject, including the payment of royalties and overriding
royalties[.]” J.A. 450. The Statoil PSA lists the Pine PSA as
a “Contract[] included in the Assets” that were sold by the
Statoil PSA. J.A. 447, 453. The Statoil PSA further
acknowledges that the obligation to drill “at least two (2)”
wells (in addition to the Bumgardner 5-2H well) is an
unfulfilled drilling obligation dictated by the Pine PSA. J.A.
449, 451.
By letter dated December 19, 2012--one day after the
transaction contemplated by the Statoil PSA closed--PetroEdge
notified Pine of its assignment to Statoil. The letter
specifically noted that “Statoil is now the Purchaser under the
[Pine] PSA.” J.A. 459. The letter made no reference to the
possibility that the duties of PetroEdge would not pass on to
its assign Statoil.
After the assignment, Pine sought performance by Statoil on
the Pine PSA. It is undisputed that Pine reached out multiple
times to Statoil to schedule quarterly meetings with it, and
that at least one such meeting took place. To date, however, no
well drilling beyond the Bumgardner 5-2H has occurred on the
Property.
7
C.
In 2014, Statoil sought a declaratory judgment confirming
that--except for a duty to pay royalty interests upon
production--its duties under the Pine PSA were expired, and it
was thus not in breach of the Pine PSA and owed no duties to
Pine beyond making royalty interest payments. Pine filed a
breach of contract counterclaim, seeking damages for Statoil’s
alleged nonperformance under Section 5.7(b) of the Pine PSA.
The parties filed cross-motions for summary judgment.
The district court granted summary judgment to Statoil, and
denied Pine’s motion for summary judgment on its counterclaim.
Statoil USA Onshore Prop. Inc. v. Pine Res., LLC, No. 2:14-cv-
021169, 2015 WL 5304295 (S.D. W.Va. Sept. 9, 2015). The court
reasoned that because the introductory paragraph designated
PetroEdge as the “Purchaser,” and Section 5.7(b) only applied to
the “Purchaser,” Section 5.7(b) unambiguously applied to
PetroEdge alone and not to its assign Statoil. Id. at *5. The
court further held that by force of Section 7.2(a)’s residual
clause, Section 5.7(b) terminated when PetroEdge, as
“Purchaser,” no longer held any interest in the Marcellus
Mineral Rights. Id. The court rejected the notion that the
successors and assigns provision in Section 8.8 modified the
definition of the term “Purchaser” anywhere in the Pine PSA.
Id. This appeal followed.
8
II.
We review a district court’s disposition of cross-motions
for summary judgment de novo. Libertarian Party of Va. v. Judd,
718 F.3d 308, 312 (4th Cir. 2013). “We view the facts and
inferences arising therefrom in the light most favorable to the
non-moving party to determine whether there exists any genuine
dispute of material fact or whether the movant is entitled to
judgment as a matter of law.” Pender v. Bank of Am. Corp., 788
F.3d 354, 361 (4th Cir. 2015).
We also review de novo a district court’s decision on an
issue of contract interpretation. FindWhere Holdings, Inc. v.
Sys. Env’t Optimization, LLC, 626 F.3d 752, 755 (4th Cir. 2010).
“The interpretation of a written contract is a question of law
that turns upon a reading of the document itself, and a district
court is in no better position than an appellate court to decide
such an issue.” Seabulk Offshore v. Am. Home Assurance, 377
F.3d 408, 418 (4th Cir. 2004).
III.
In our view, the district court read the successors and
assigns provision in Section 8.8 too narrowly. That provision
extends the contractual rights and duties of Pine and PetroEdge
to their respective successors and assigns, in a contract whose
provisions only speak about the rights and duties of the
9
“Seller,” the “Purchaser,” and the “Parties.” Thus, if Section
8.8 is to have any meaning, it must have the effect of extending
the application of the rights and duties provisions of the Pine
PSA from beyond Pine and PetroEdge, and to the parties’
respective successors and assigns in their stead (unless context
dictates otherwise).
We read Section 8.8 to have such an effect, and therefore
hold that the spudding obligations that Section 5.7(b) places on
the “Purchaser” extend to PetroEdge’s assign Statoil in
PetroEdge’s stead. However, the meaning of the term “Purchaser”
in Section 7.2(a)’s residual clause is a more difficult
question, because its context prevents us from concluding that
the term unambiguously encompasses PetroEdge, and in its place
its successors and assigns. We instead hold that Section
7.2(a)’s residual clause is ambiguous, but that extrinsic
evidence clarifies that “Purchaser” in Section 7.2(a)’s residual
clause is intended to encompass PetroEdge’s assign Statoil. As
such, the district court’s conclusions that Section 5.7(b) is
inapplicable to Statoil and also terminated by Section 7.2(a)
are both erroneous.
A.
The Pine PSA provides--and no party disputes--that the
agreement is to be construed in accordance with West Virginia
10
law. Under West Virginia law, “the function of a court is to
ascertain the intent of the parties as expressed in the language
used by them” in their contract. Zimmerer v. Romano, 679 S.E.2d
601, 610 (W. Va. 2009) (per curiam) (internal quotation marks
omitted). In performing this task, courts must read contracts
“as a whole, taking and considering all the parts together[.]”
Id. (internal quotation marks omitted).
Moreover, “specific words or clauses of an agreement are
not to be treated as meaningless, or to be discarded, if any
reasonable meaning can be given them consistent with the whole
contract.” Dunbar Fraternal Order of Police, Lodge No. 119 v.
City of Dunbar, 624 S.E.2d 586, 591 (W. Va. 2005) (per curiam)
(internal quotation marks omitted). Additionally, West Virginia
courts “will not interpret a contract in a manner that creates
an absurd result.” Id.
Generally, “[a] valid written instrument which expresses
the intent of the parties in plain and unambiguous language
. . . will be applied and enforced according to such intent.”
Arnold v. Palmer, 686 S.E.2d 725, 733 (W. Va. 2009) (internal
quotation marks omitted). “Extrinsic evidence will not be
admitted to explain or alter the terms of a written contract
which is clear and unambiguous.” Faith United Methodist Church
& Cemetery of Terra Alta v. Morgan, 745 S.E.2d 461, 481 (W. Va.
2013) (internal quotation marks omitted).
11
By contrast, language is ambiguous when it is “reasonably
susceptible of two different meanings,” or is of “such doubtful
meaning that reasonable minds might be uncertain or disagree as
to its meaning.” Estate of Tawney v. Columbia Nat. Res., LLC,
633 S.E.2d 22, 28 (W. Va. 2006) (internal quotation marks
omitted). “The question as to whether a contract is
ambiguous is a question of law to be determined by the court.”
Fraternal Order of Police v. City of Fairmont, 468 S.E.2d 712,
717–18 (W. Va. 1996) (internal quotation marks omitted). Where
contract language is ambiguous, extrinsic evidence may be
consulted to aid in its construction. Yoho v. Borg-Warner
Chems., 406 S.E.2d 696, 697 (W. Va. 1991) (per curiam).
B.
The introductory paragraph identifies PetroEdge as the
“Purchaser” under the Pine PSA, and Section 5.7(b) of the Pine
PSA imposes a spudding obligation on the “Purchaser.” Based on
these points, the district court concluded that the spudding
obligation of Section 5.7(b) extends to PetroEdge alone, and not
to its assign Statoil.
We disagree with this conclusion, in light of Section 8.8
of the Pine PSA, which contains the agreement’s successors and
assigns provision. Section 8.8 provides that the Pine PSA
“shall be binding upon and inure to the benefit of the Parties
12
hereto and their respective successors and assigns.” J.A. 63.
We read Section 8.8 to extend the application of the rights and
duties provisions of the Pine PSA--unless context dictates
otherwise--from beyond Pine and PetroEdge, and to their
respective successors and assigns in their stead. 3 Thus, reading
the Pine PSA “as a whole,” Zimmerer, 679 S.E.2d at 610, we hold
that the spudding obligation of Section 5.7(b) extends to
Statoil, in its capacity as PetroEdge’s assign.
The district court rejected this reading of Section 8.8,
concluding that “Section 8.8 does not modify the remainder of
the contract; it simply provides that successors and assigns are
to be bound by the contract terms.” Statoil, 2015 WL 5304295,
at *5. Those two conclusions, however, are inconsistent with
one another. The Pine PSA is structured in terms of benefits
for and burdens to the “Purchaser,” the “Seller,” and the
“Parties;” thus, if those terms are not broadened to include
those parties’ successors and assigns, then it makes little
sense to say that such a contract binds and benefits those
3
In contrast, provisions of the Pine PSA that discuss the
parties as parties, rather than as promisors and promisees under
the agreement, are sensibly read to exclude the parties’
successors and assigns. See J.A. 49 (the introductory
paragraph); see also J.A. 51 (Section 3.1-describing the
“Seller” as a West Virginia corporation) J.A. 54 (Section 4.1-
describing the “Buyer” as a Delaware limited liability company);
J.A. 62 (Section 8.2-listing the addresses of “Seller” Pine and
“Purchaser” PetroEdge); J.A. 65-66 (signature page for the
“Seller” and the “Purchaser”).
13
parties’ successors and assigns. See J.A. 57 (Section 5.7(b)-
imposing a spudding obligation on the “Purchaser”); see also
J.A. 56 (Section 5.4-allocating tax responsibilities between the
“Seller” and the “Purchaser”); id. (Section 5.5-outlining
quarterly meetings for the “Parties”). Indeed, by reading
Section 8.8 to bind successors and assigns to a contract that
does not speak to them, the district court in effect “treated
[Section 8.8] as meaningless.” Dunbar, 624 S.E.2d at 591. As
such, the more natural reading of “Purchaser” in the rights and
duties provisions of the Pine PSA--in light of Section 8.8--is a
reading that generally encompasses PetroEdge, and in its place
its successors and assigns.
Furthermore, the Deed granted by Pine to PetroEdge, which
was attached to and expressly made part of the Pine PSA, makes
sense only if the term “Purchaser” in the Pine PSA is generally
not limited to PetroEdge alone. To elaborate, the Deed’s
Article III outlines an overriding royalty interest due to Pine
--an interest that even Statoil concedes it will be responsible
for paying Pine whenever mineral production takes place. See
Appellee’s Br. 17; see also J.A. 386 (establishing a royalty
interest scheme “[n]otwithstanding anything to the contrary”).
Article III, in turn, instructs that if a certain type of
royalty dispute arises, that dispute will be “settled in
accordance with Section 5.9(b) of the [Pine PSA].” J.A. 386.
14
Section 5.9(b), however, speaks in terms of “Seller” and
“Purchaser”--meaning that if Section 5.9(b) is to be of any use
in resolving a Statoil-Pine dispute, the term “Purchaser”
therein will have to be read to include PetroEdge’s assigns.
This reading avoids the “absurd result” of a senseless Article
III in the Deed. Dunbar, 624 S.E.2d at 591.
Moreover, a broad reading of the term “Purchaser” is
consistent with the Pine PSA’s apparent objective of promoting
mineral production. In addition to spudding obligations, the
Pine PSA’s Article 5 sets forth meetings to discuss drilling
plans, cooperation details in the event of parallel drilling or
well maintenance operations, abandonment and restoration
procedures in the event that a well ceases to produce, and a
mineral royalty compensation structure. This elaborate
production scheme would be frustrated if PetroEdge could simply
assign its interest to a party that would in no way be subject
to the scheme. Admittedly, a contract need not pursue its
objectives at all costs, and so the Pine PSA’s use of the term
“Purchaser” could be conceived as a limitation on the
agreement’s effort to promote mineral production. Nonetheless,
in light of Section 8.8’s directive, we are satisfied reading
the term “Purchaser” to be consistent with, rather than a
limitation on, the Pine PSA’s objectives.
15
Our approach is also consistent with relevant federal and
state authorities within this Circuit. Those authorities
confirm the general rule that a successors and assigns provision
places a successor or assign in the shoes of its predecessor or
assignor with respect to the rights and duties given to the
latter under the relevant contract. See, e.g., Horvath v. Bank
of N.Y., N.A., 641 F.3d 617 (4th Cir. 2011) (applying Virginia
law); Cotiga Dev. Co. v. United Fuel Gas Co., 128 S.E.2d 626 (W.
Va. 1962); see also Cook v. E. Gas & Fuel Assocs., 39 S.E.2d
321, 326-27 (W. Va. 1946) (“Ordinarily the assignee acquires no
greater right than that possessed by his assignor, and he stands
in his shoes.”).
Cotiga, a decision from the Supreme Court of Appeals of
West Virginia, is instructive. There, “Cotiga, as lessor,
entered into an oil and gas lease with [Woods Oil], as lessee.”
Cotiga, 128 S.E.2d at 630. The court in Cotiga quoted three
obligations that the lease agreement imposed on lessee Woods
Oil, and all three did so using only the term “Lessee” (i.e.,
not “Lessee, its successors and assigns”). Id. at 630-31. The
lease agreement, however, contained the following successors and
assigns provision: “All the terms, grants, conditions and
provisions of this lease shall extend to and be binding upon the
successors and assigns of the parties hereto.” Id. at 633
(emphasis added in Cotiga).
16
One day after the lease was signed, Woods Oil assigned the
lease to United Fuel. Id. at 630. Relying on the successors
and assigns provision, the court in Cotiga had no difficulty
holding assign United Fuel responsible for the above-described
obligations that the lease agreement by its literal terms
imposed only on the “Lessee.” “As a result of the lease
assignment,” the court observed, “United Fuel succeeded to only
such rights as accrued to Woods Oil by the terms of the lease
and thereby became burdened by all restrictions and obligations
thereby imposed upon Woods Oil. . . . To all intents and
purposes, United Fuel became the lessee in the place and stead
of Woods Oil[.]” Id. at 633–34. In reaching this conclusion,
the Supreme Court of Appeals of West Virginia adhered to a
practical approach with respect to successors and assigns
provisions, which we adhere to in this case as well.
Notably, this Court recently followed this practical
approach in Horvath. In that case, a borrower argued that
because a deed of trust defined the term “Lender” as company
“AWL,” a deed provision that vested foreclosure powers in the
“Lender” empowered AWL alone to foreclose--and not any
subsequent purchasers of the deed of trust. Horvath, 641 F.3d
at 624–25. This Court rejected that narrow reading for several
reasons: it would bring about the “absurd result” of a
subsequent purchaser “paying for a worthless document” that the
17
purchaser would have “no power to administer or enforce;” it
would contradict a provision stating that “[t]he covenants and
agreements of this Security Instrument shall bind . . . and
benefit the successors and assigns of Lender;” and it would go
against “good sense,” because “[i]f AWL were to sell its
interest in the deed of trust, it would no longer be the
‘Lender’ in any meaningful sense.” Id. at 625 (emphasis added
in Horvath); see also id. (citing with approval the maxim that
contracts must be construed “as a whole”). Instead, this Court
broadly construed the term “‘Lender’ as applying not only to AWL
but to any subsequent purchaser of the deed of trust.” Id.
For similar reasons, a broad construction of the term
“Purchaser”--one encompassing PetroEdge, and in its place its
successors and assigns--is likewise appropriate for Section
5.7(b) of the Pine PSA. Such a construction complies with
Section 8.8’s successors and assigns provision, avoids the
absurd result of a senseless Pine PSA and Deed, and respects the
reality that PetroEdge is no longer the “Purchaser” in any
meaningful sense for purposes of the Pine PSA or the achievement
of the agreement’s objectives. In reaching a contrary
conclusion, the district court erred.
18
C.
Having decided that Section 5.7(b) applies to PetroEdge’s
assign Statoil, we must next decide whether that provision
retains any force or effect. Section 7.2(a) contains two
clauses that set deadlines for certain provisions of the Pine
PSA, with the first one expressly excepting Sections 5.4 through
5.9 from its scope. Additionally, Section 7.2(a) contains a
residual clause, which provides, “The remainder of [the Pine
PSA] shall survive the Execution Date so long as Purchaser holds
any interest in the [Marcellus] Mineral Rights.” J.A. 61. We
hold that the residual clause applies to Section 5.7(b). We
also hold that the residual clause is ambiguous as to whether
Section 5.7(b) survives so long as PetroEdge alone holds any
interest in the Marcellus Mineral Rights, or so long as any such
interest is held by PetroEdge, its successors or assigns. The
subsequent conduct of Pine and PetroEdge nonetheless clarifies
that the latter reading is the correct one.
1.
Before exploring the meaning of Section 7.2(a)’s residual
clause, we must address whether that clause even governs Section
5.7(b). Section 5.7(b) is not governed by Section 7.2(a)’s
second clause, and it is specifically excepted from the scope of
Section 7.2(a)’s first clause. Because Section 5.7(b) is not
19
governed by either clause, it is sensible to place it within the
scope of Section 7.2(a)’s residual clause (which governs the
“remainder” of the Pine PSA).
Pine resists this conclusion. According to Pine, because
Section 7.2(a)’s residual clause is a general catch-all, it
cannot govern Section 5.7(b), which is specifically excepted
from the scope of Section 7.2(a)’s first clause. Pine supports
this argument with a reference to the interpretive principle
that general language must usually yield to more specific
language when the two conflict.
Unfortunately for Pine, its reliance on this principle is
misplaced. In this case, there is no conflict between the
specific exception in Section 7.2(a)’s first clause and the
general language in Section 7.2(a)’s residual clause. Rather,
the latter clause simply picks up, inter alia, the provisions
specifically dropped out of the former clause. 4 Thus, we have no
difficulty reading Section 7.2(a)’s residual clause to govern
Section 5.7(b).
4
Cf. Shannondale, Inc. v. Jefferson Cty. Planning & Zoning
Comm’n, 485 S.E.2d 438, 498 (W. Va. 1997) (per curiam)
(rejecting the argument that a general ordinance provision was
superseded by a specific ordinance provision, because the two
could be reconciled).
20
2.
Having arrived at this determination, we now turn to the
issue of how Section 7.2(a)’s residual clause impacts Section
5.7(b) following PetroEdge’s assignment to Statoil. If the
residual clause carries a terminating effect when PetroEdge, as
“Purchaser,” ceases to have any interest in the Marcellus
Mineral Rights, then PetroEdge’s assignment would give rise to a
termination of Section 5.7(b); if the residual clause carries a
preservation effect so long as PetroEdge, or its successors and
assigns, has interest in the Marcellus Mineral Rights, then
Section 5.7(b) is preserved even after PetroEdge’s assignment.
We acknowledge that there are persuasive arguments on both sides
of this issue.
According to Statoil, when the residual clause instructs
that it preserves the provisions within its scope “so long as
Purchaser holds any interest in the [Marcellus] Mineral Rights,”
J.A. 61, the clause sets as a deadline the date that PetroEdge
ceases to hold any mineral interests. For support, Statoil
references the introductory paragraph’s identification of
PetroEdge as the Pine PSA “Purchaser.”
Statoil rejects the notion that the term “Purchaser” in
Section 7.2(a)’s residual clause can include PetroEdge’s
successors and assigns, because under such a reading the
deadline that the residual clause purports to set becomes
21
illusory. They argue that if “Purchaser” in Section 7.2(a)
includes successors and assigns, then none of the provisions to
which the residual clause is applicable will ever expire and
will last into perpetuity.
Meanwhile, there are also arguments favoring a broader
reading of the residual clause--one that preserves the
provisions within its scope so long as PetroEdge, or in its
place its successors or assigns, holds any interest in the
Marcellus Mineral Rights. Although the residual clause refers
only to “Purchaser,” to the extent that the residual clause
shapes the rights and duties of the parties, Section 8.8 seems
to broaden “Purchaser” to include PetroEdge’s successors and
assigns.
This broad construction may impair the residual clause’s
utility as a deadline clause, but, one may argue, there is no
need for the residual clause to serve such a function. Whereas
Section 7.2(a)’s first two clauses set specific deadlines for
the provisions they govern, its residual clause could be read as
a clause intended to attach a longer effect to the provisions it
governs. Although this reading would allow PetroEdge’s
successor or assign to participate in the Pine PSA’s mineral
production scheme in PetroEdge’s place, there is no indication
in the Pine PSA that PetroEdge was irreplaceable in this scheme.
22
In our view, both sides present reasonable constructions of
Section 7.2(a)’s residual clause. “The meaning of a word is to
be considered in the context in which it is employed.” Legg v.
Johnson, Simmerman & Broughton, L.C., 576 S.E.2d 532, 537
(W. Va. 2002) (per curiam) (internal quotation marks omitted);
see also Torres v. Lynch, 136 S. Ct. 1619, 1625 (2016)
(explaining that “many words” can “take[] on different meanings
in different contexts”). Although the term “Purchaser”--in
conjunction with Section 8.8--unambiguously encompasses
PetroEdge’s successors and assigns in the context of rights and
duties provisions, it is difficult to conclude that such a broad
construction is unambiguously proper in the context of a
residual clause of a limitations provision. On the other hand,
in light of the traditional rule that an assign stands in the
shoes of the assignor, the residual clause is inadequate to
indicate a clear intent by the parties to in large part depart
from this rule. 5 Because the term “Purchaser” is “reasonably
susceptible of two different meanings,” we hold that the term is
ambiguous in Section 7.2(a). Tawney, 633 S.E.2d at 28.
5
Cf. Tawney, 633 S.E.2d at 28 (finding an ambiguity where,
“in light of [West Virginia’s] traditional rule that lessors are
to receive a royalty of the sale price of gas, the general
language at issue simply [was] inadequate to indicate an intent
by the parties to agree to a contrary rule”).
23
Having identified an ambiguity in Section 7.2(a)’s residual
clause, we now resort to extrinsic evidence for clarification.
Yoho, 406 S.E.2d at 697. In this case, we are guided by the
“practical construction given to the contract by the parties
themselves . . . subsequent[]” to its execution. Kelley,
Gidley, Blair & Wolfe, Inc. v. City of Parkersburg, 438 S.E.2d
586, 589 (W. Va. 1993) (per curiam) (internal quotation marks
omitted). As “Lord Sugden once said: ‘Tell me what the parties
have done under a contract and I will tell you what the contract
means.’” Watson v. Buckhannon River Coal Co., 120 S.E. 390, 394
(W. Va. 1923).
PetroEdge’s conduct shows that it read the Pine PSA as
carrying no provision that terminates Section 5.7(b) upon
assignment. In its post-assignment letter to Pine, PetroEdge
noted that Statoil was now the “Purchaser” under the Pine PSA,
but made no suggestion that Section 7.2(a)’s residual clause
freed Statoil of any of PetroEdge’s duties under the agreement.
On the contrary, in the Statoil PSA, PetroEdge expressly
communicated to Statoil that the latter was acquiring
PetroEdge’s duties. The Statoil PSA expressly noted that
Statoil was taking the assigned assets subject to the
obligations arising from the Pine PSA, and it specifically cited
24
the “unfulfilled drilling obligations,” J.A. 449, of “two (2)
additional wells,” J.A. 451, as arising from the Pine PSA. 6
Pine’s conduct is likewise consistent with a broad reading
of Section 7.2(a)’s residual clause. Following PetroEdge’s
assignment, Pine sought Statoil’s performance under the Pine PSA
(and under Section 5.7(b) in particular) through multiple reach-
out efforts and litigation with Statoil. This conduct comports
with the notion that Section 7.2(a) did not, post-assignment,
terminate Section 5.7(b).
In light of this conduct by Pine and PetroEdge, we conclude
that Section 7.2(a)’s residual clause was intended to preserve
the provisions within its scope so long as PetroEdge--or its
successors or assigns--possessed any interest in the Marcellus
Mineral Rights. Because Statoil, in its capacity as PetroEdge’s
assign, possesses such interest, we hold that the spudding
obligations of Section 5.7(b) retain force and continue to
6Statoil insists that, through this language, PetroEdge was
simply citing its own drilling obligations under the Pine PSA.
We disagree. If PetroEdge truly believed that its drilling
obligations were not being passed down to Statoil, then
presumably PetroEdge would have either omitted reference to
those obligations altogether, or would have at least appended to
its citation of those obligations in the Statoil PSA the crucial
detail that those obligations were not being passed down to
Statoil. PetroEdge did not do so, and so we reject Statoil’s
creative reasoning.
25
govern Statoil. Again, we reject the district court’s contrary
conclusions. 7
IV.
Statoil presents an alternative ground for affirming the
district court’s decision to rule against Pine on its breach of
contract counterclaim. Statoil asserts that even if it was
obligated to spud, its failure to do so caused Pine no injury,
because spudding is only a preliminary development procedure
that would not necessarily lead to the production of
hydrocarbons and resulting royalty payments. Pine, meanwhile,
contends that Statoil understates both the requirements of the
spudding obligation, and the extent to which non-compliance with
those requirements impaired Pine’s prospects of ultimately
receiving royalty payments.
7
Although we rule in favor of Pine, we do so without
reliance on the contra proferentem rule that Pine urges upon us.
That rule dictates that residual ambiguity be construed against
drafter PetroEdge and in Pine’s favor, Evans v. Bayles, 787
S.E.2d 540, 541 n.1 (W. Va. 2016); however, in this case
PetroEdge and Pine do not disagree on the definition of
“Purchaser.” We acknowledge Pine’s citation to cases suggesting
that contra proferentem applies even to assigns, see Appellant’s
Br. at 56-57, but note that those cases do not deal with a
scenario where the assign’s construction conflicts with the
construction shared by both the drafter-assignor and the non-
drafting party. This case presents such a scenario, and so in
light of our ability to resolve this case otherwise, we do not
rely on contra proferentem.
26
We acknowledge our discretion to affirm on any ground
supported by the record, even if it was never relied upon by the
district court. See Drager v. PLIVA USA, Inc., 741 F.3d 470,
474 (4th Cir. 2014). Nonetheless, we decline to engage in a
complex injury analysis here based on short passages from the
parties’ briefs. Instead, we leave the issue of injury for the
district court to address on remand in the first instance. See
Singleton v. Wulff, 428 U.S. 106, 120 (1976) (“It is the general
rule, of course, that a federal appellate court does not
consider an issue not passed upon below.”); Goldfarb v. Mayor &
City Council of Baltimore, 791 F.3d 500, 515 (4th Cir. 2015)
(“The district court is in a better position to consider the
parties’ arguments in the first instance, which can be presented
at length rather than being discussed in appellate briefs
centered on the issues the district court did decide.”).
V.
For the foregoing reasons, we vacate the judgment of the
district court. We remand this case with instructions to the
district court to grant summary judgment in favor of Pine on
Statoil’s declaratory judgment claims, and to consider in the
first instance Statoil’s injury argument in connection with
Pine’s breach of contract counterclaim.
VACATED AND REMANDED
27