Chevron U.S.A., Inc. v. Traillour Oil Co. ( 1993 )

United States Court of Appeals,
Fifth Circuit.
No. 91-3437.
CHEVRON U.S.A., INC., Plaintiff-Appellee, Cross-Appellant,
v.
TRAILLOUR OIL COMPANY, et al., Defendants,
v.
Earl Harvey ARCHER, III, et al., Defendants-Appellants, Cross-Appellees.
April 8, 1993.
Appeals from the United States District Court for the Eastern District of Louisiana.
Before VAN GRAAFEILAND,** KING, and EMILIO M. GARZA, Circuit Judges.
KING, Circuit Judge
Chevron U.S.A., Inc., filed this diversity suit in federal district court against various
defendants, all of whom are successors in interest to Chevron's lease of the Bayou Couba Field in
Louisiana. Chevron sought a declaratory judgment that each of the defendants must (i) provide it
with a $2 million letter of credit to secure Chevron's plug and abandon obligations with respect to the
Bayou Couba lease and (ii) indemnify it for any plug and abandon obligations it may be required to
fulfill. The district court granted the defendants' motion for summary judgment with respect to
Chevron's letter of credit claims, but granted Chevron's motion for summary judgment with respect
to the underlying plug and abandon indemnity claims. Chevron appeals from the portion of the
district court's order dismissing its letter of credit claims, and the defendants appeal from the portion
of the district court's order declaring that they must indemnify Chevron for any subsequently incurred
plug and abandon obligations. For the following reasons, we affirm the district court's decision in
part and reverse the district court's decision in part.
I. BACKGROUND
In January of 1984, Gulf Oil Corporation, now Chevron, was the lessee of an oil and gas lease
*
Senior Circuit Judge, of the Second Circuit, sitting by designation.
covering the Bayou Couba Field in Louisiana. Numerous wells had been drilled on the leased
premises, but the field continued to produce. Consequently, many of the wells had not yet been
plugged and abandoned. Gulf was concerned about this situation, because under its lease,1 as well
as under Louisiana law, it appeared that Gulf would eventually be obligated to plug and abandon
these wells. Weighing the benefits of continued production against the cost of future plug and
abandon obligations, Gulf decided to sell the lease. In selling the lease, Gulf sought to rid itself of
any future obligation to plug and abandon the wells on the Bayou Couba lease.
A. The Assignment from Gulf to Traillour, Marsh, and Rocky Mountain and the Initial Letter of
Credit
On January 13, 1984, Traillour Oil Company ("Traillour") and Marsh Engineering, Inc.
("Marsh") submitted a written offer to Gulf to acquire the Bayou Couba lease and plug and abandon
the wells on that lease. The offer provided, in pertinent part:
Traillour Oil Company and Marsh Engineering, Inc. propose to take over operations
in the Gulf, Bayou Couba Field with the expressed purpose of plug and abandonment or
re-establishing commercial production. Traillour/Marsh makes this proposal with the precise
knowledge that all of these wells will have to be plugged and abandoned if commercial
production is not established....
Traillour/Marsh makes its offer as follows:
1. For the sum of $1,101,101.00 and the implied costs of plug and abandonment and
clean-up, Gulf Oil Corporation assigns to Traillour/Marsh all of their rights, as defined in the
attached [lease] documents, to the Bayou Couba Field, the wellbores, and production
equipment on an as is basis.
2. ... As further consideration of its guarantee, that all the wells will be subsequently
plugged and abandoned in suitable form, Traillour/Marsh will present an irrevocable letter of
credit for the sum of two million dollars ($2,000,000.00) to Gulf on the date that a mutually
acceptable transfer of ownership agreement is signed.... This requirement for a letter of credit
will expire 30 days after Gulf Oil Corporation has been released by the state of Louisiana and
the surface owners of any present, past, or future occurrences or liabilities concerning the
Bayou Couba Property as assigned by Gulf to Traillour/Marsh.
3. Traillour/Marsh agrees to plug and abandon these wells according to the Louisiana
Conservation Agency Rules and Regulations, t o remove all production equipment and
associated hardware and to return the well sites and production area to a form suitable to the
present landowner.
1
The 1941 oil and gas lease between Delta Securities Company (lessor) and Gulf Oil
Corporation specifically provided: "Gulf shall ... plug and abandon all wells on the released and
surrendered acreage in accordance with the rules and regulations of any government, agency,
official or department having jurisdiction."
Gulf accepted the offer submitted by Traillour and Marsh, subject to (a) the execution of a mutually
acceptable assignment and (b) Traillour and Marsh's ability to acquire a $2 million performance bond
or irrevocable letter of credit to secure the plug and abandon obligations. Neither the offer by
Traillour and Marsh nor the acceptance by Gulf was recorded in the public records.
After Gulf had accepted the offer by Traillour and Marsh, Traillour entered into a side
agreement with Rocky Mountain Resources, Ltd. ("Rocky Mountain"), so that the acquisition of the
Bayou Couba lease could proceed. Apparently, Traillour did not have the money for the cash bid or
the capacity to acquire the letter of credit to secure the plugging and abandoning of the wells as
required by the bid specifications. To obtain the money and the letter of credit, Traillour agreed to
transfer 90% of the interest it was to acquire in the Bayou Couba lease before payout, as well as 83%
of the interest it was to acquire after payout, to Rocky Mountain. In return, Rocky Mountain agreed
to provide the $1,101,101.00 necessary for the cash bid and "[a] $2,000,000.00 standby letter of
credit to secure the plugging and abandoning of the wells in the Bayou Couba Field." The agreement
further noted that the letter of credit "shall be made available for the benefit of Traillour at the closing
of the purchase of the Bayou Couba field." This side agreement was recorded in the public records.
In April 1984, the parties closed the sale of the Bayou Couba lease. Gulf was presented with
$1,101,101.00 cash and a $2 million irrevocable letter of credit issued by a Texas bank and payable
to Gulf on order of Traillour. The letter of credit provided, among other things, that:
5. This letter of credit ... shall remain in full force and effect for eighteen (18) months,
with reduction provided in Paragraph 3, supra, unless [Gulf] has been released by the State
of Louisiana and the surface owners of any present, past, or future liability to properly plug
and abandon the wells identified on Exhibit "A" hereof and for failure to restore the acreage
... to as close to its original condition as is reasonably practicable; provided however, that
before termination of said Letter of Credit, [Traillour and Marsh] shall either furnish [Gulf]
another Letter of Credit as provided herein or pay the amount of said Letter of Credit,
reduced as provided herein, into an escrow account. Such evidence shall be in the form of
a letter in writing accompanied by such releases and acknowledged by Gulf.
Gulf, in return, transferred its entire interest in the Bayou Couba lease to Traillour, Marsh, and Rocky
Mountain.2 According to the assignment document, Traillour, Marsh, and Rocky Mountain agreed
2
On the same day that Gulf transferred its entire interest in the Bayou Couba lease to Traillour,
Marsh, and Rocky Mountain, Traillour and Marsh—in accordance with the side
agreement—transferred to Rocky Mountain a 90% interest in the lease before payout and an 83%
"to promptly plug and abandon all the wells described in Exhibit B [the pre-existing wells on the
lease] as well as any wells drilled by Traillour et al under the terms of the lease." Moreover, the
"entire costs, expense and risk of plugging and abandoning the ... wells" was to be borne by Traillour,
Marsh, and Rocky Mountain. This document, which clearly obligated the assignees to plug and
abandon the wells on the Bayou Couba lease, was promptly recorded.
B. Subsequent Transfers and Renewals of the Letter of Credit
Shortly after the original assignment from Gulf, Rocky Mountain decided to dispose of its
interest in the Bayou Couba lease. Rocky Mountain therefore agreed to transfer all of its substantial
interest in the lease back to Traillour. According to the assignment document, Traillour agreed to
assume all obligations and formal duties resulting from the ownership of the Bayou Couba lease. In
addition, Traillour agreed to promptly plug and abandon all of the wells on the lease and to bear the
entire cost, expense, and risk of plugging and abandoning the wells on the lease. Gulf did not sign
this assignment, nor did it ever sign a separate document agreeing to the terms of the assignment.
The transfer back to Traillour, however, was not to take effect unti l the letter of credit
previously obtained by Rocky Mountain for Traillour's benefit had been released or cancelled by Gulf.
To effect the transfer, Traillour solicited twenty-six new investors, who together with Traillour were
able to obtain another irrevocable $2 million letter of credit from Calcasieu Marine National Bank in
favor of Gulf ("LOC 465"). LOC 465 was substantially similar to the letter of credit previously
issued by the Texas bank: it was for a fixed term of eighteen months and it stated that Traillour and
the investors, before the letter terminated, were to furnish Gulf with a new letter of credit or pay the
amount of the letter of credit into an escrow account. When Gulf received LOC 465, it released the
letter of credit previously procured by Rocky Mountain. Thereafter, Rocky Mountain's conveyance
of its entire interest in the Bayou Couba lease to Traillour became effective.
Traillour, in turn, transferred various undivided interests in the Bayou Couba lease to the
twenty-six investors who had helped Traillour obtain LOC 465. One of the twenty-six investors
transferred its interest back to Traillour, and Traillour then transferred that interest to el even new
interest in the lease after payout.
investors. In each of these transfers, the investors agreed to "assume all obligations and perform all
duties resulting from the ownership of the Subject Interest conveyed hereby or imposed by any
governmental authority asserting jurisdiction over the lands covered by the Lease." Each investor
also agreed to "comply with all of the express and implied covenants and conditions of the [Bayou
Couba] lease." Finally, each investor agreed to bear his "proportionate cost, expense and risk of
plugging and abandoning the above described wells, cleanup operations and any other operations
provided for under the [Bayou Couba] lease ... in proportion to [his] working interest." Neither Gulf
nor Rocky Mountain signed any of these agreements.
C. Letter of Credit No. 554
In May 1986, shortly before LOC 465 expired, Chevron, which had merged with Gulf in July
1985, wrote Calcasieu Marine National Bank and requested that the letter of credit be renewed for
a period of two years. The investors and Traillour apparently opposed a two-year extension,
however, so Chevron agreed to a one-year extension of the letter of credit. On order of the investors
and Traillour, then, Calcasieu Marine issued a new irrevocable letter of credit ("LOC 554"), naming
Chevron as obligee, to replace LOC 465. Paragraph 5 of LOC 554, which was substantially similar
to provisions in the previous letters of credit, provided as follows:
This letter of credit or any assignment thereof shall remain in full force and effect until, and
shall expire and terminate on June 11, 1987, with reduction as provided in Paragraph 3 supra,
unless [Chevron], prior to the expiration of this Letter of Credit on June 11, 1987, has been
released by the State of Louisiana and the surface owners of any present, past or future
liability to properly plug and abandon the wells identified on Exhibit "A" hereof and for failure
to restore acreage ... to as close to its original condition as is reasonably practicable;
provided however, that before termination of said Letter of Credit, Principals [Traillour and
investors] shall either furnish [Chevron] another Letter of Credit as provided herein or pay
the amount of said Letter of Credit, reduced as provided herein into an escrow account. Such
evidence shall be in the form of a letter in writing accompanied by such releases and
acknowledged by Chevron.
Meanwhile, each of the investors signed similar continuing guaranties in favor of Calcasieu
Marine. The guaranties permitted the bank to grant extensions of its letter of credit in favor of
Chevron. Moreover, each investor agreed to be responsible in solido, or jointly and severally, to the
bank for full payment of any funds the bank might be required to pay.
Chevron did not request an extension of LOC 554 until June 22, 1987, apparently because
of an internal company error. By that time, however, the letter of credit had expired by its own terms.
And, neither Traillour nor the investors would comply with Chevron's request to furnish a
replacement letter of credit or pay the amount required by LOC 554 into escrow.
D. Chevron's Lawsuit to Obtain a Replacement Letter of Credit and Define the Scope of Plug and
Abandon Obligations
In February 1989, Chevron filed suit against Rocky Mountain, Traillour, Marsh, and the
investors who were principals to LOC 465 and LOC 554. 3 In an amended complaint, Chevron
dropped its claims against Marsh and one investor and added a claim against Calcasieu Marine.
Chevron sought alternatively (i) a declaratory judgment against Calcasieu Marine that LOC 554 was
still in effect or (ii) an order directing Rocky Mountain, Traillour, or the investors to furnish it with
an irrevocable letter of credit.
Chevron and Calcasieu Marine filed cross-motions for summary judgment with respect to
Chevron's claim that LOC 554 was still in effect. The district court granted summary judgment in
favor of Calcasieu Marine, holding that LOC 554 expired on its stated expiration date of June 11,
1987. On appeal, this court affirmed. Chevron U.S.A., Inc. v. Traillour Oil Co., 934 F.2d 1260 (5th
Cir.1991) (unpublished opinion) ("Chevron I "). We reasoned that paragraph 5 of LOC 554, which
appeared to require Traillour and the investors to either replace the letter of credit or pay the
specified amount of money into escrow, did not function to extend the expiration date. Thus, we
agreed with the district court that LOC 554 expired by its own terms on June 11, 1987.
While the appeal in Chevron I was pending, however, the parties filed cross-motions for
summary judgment with respect to Chevron's other letter of credit claims—i.e., the claims that Rocky
Mountain and the investors are required to provide Chevron with a new letter of credit to secure the
plug and abandon obligations that ran with the Bayou Couba lease.4 Chevron also raised a new claim
in its motion for summary judgment. In particular, Chevron sought a declaratory judgment that
3
Chevron had filed an earlier action, but it was dismissed because complete diversity of
citizenship was lacking.
4
Chevron did not file a motion for summary judgment with respect to Traillour, apparently
because Traillour was bankrupt.
Rocky Mountain and the investors are responsible in solido, or jointly and severally, to Chevron for
all plug and abandon obligations running with the Bayou Couba lease. Thereafter, Chevron amended
its complaint to request such relief.
The district court ruled on the remaining motions for summary judgment on January 31, 1991.
The district court first granted summary judgment in favor of Rocky Mountain and the investors on
Chevron's letter of credit claims. It determined that Chevron is estopped from enforcing defendant
Rocky Mountain's promise to continue providing letters of credit, and it concluded that the other
defendant investors have no obligation to Chevron to continue to provide such letters of credit. The
district court granted summary judgment in favor of Chevron, however, with respect to Chevron's
plug and abandon claims. It specifically held that Rocky Mountain, because it assumed Chevron's
plug and abandon obligations in the assignment from Gulf, is liable in solido to indemnify Chevron
for the plug and abandon obligations. The district court further held that the investors are required
to indemnify Chevron in solido for any future plug and abandon obligations.
The district court therefore dismissed Chevron's letter of credit claim against Rocky Mountain
and the investors, but issued a declaratory judgment that Rocky Mount ain and the investors owe
Chevron indemnity in solido for any plug and abandon obligations running with the Bayou Couba
lease. These appeals followed.
II. SCOPE AND STANDARD OF REVIEW
In reviewing a summary judgment, we apply the same standard as the district court. Waltman
v. International Paper Co., 875 F.2d 468, 474 (5th Cir.1989). We ask specifically whether "the
pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits,
if any, show that there is no genuine issue as to any material fact and that the moving party is entitled
to a judgment as a matter of law." FED.R.CIV.P. 56(c). In answering the first part of this question,
we view all evidence and the inferences to be drawn from the evidence in the light most favorable to
the party opposing the motion. Marshall v. Victoria Transp. Co., 603 F.2d 1122, 1123 (5th
Cir.1979) (citing United States v. Diebold, Inc., 369 U.S. 654, 82 S. Ct. 993, 8 L. Ed. 2d 176 (1962)).
Questions of law, on the other hand, are subject to de novo review. Netto v. Amtrak, 863 F.2d 1210,
1212 (5th Cir.1989).
In our review of a district court's decision to grant a motion for summary judgment, we will
affirm that decision if, after examining the entire record, we are convinced that the standard set forth
in Federal Rule of Civil Procedure 56(c) has been met. See id. Where, as here, the movants for
summary judgment advanced several independent arguments in district court in support of their
motions for summary judgment, we will affirm if any of those grounds support the district court's
decision. Thus, in our review of the district court's partial grants of summary judgment in this case,
we are not bound by the grounds articulated by the district court; instead, we may affirm the district
court's judgment on other appropriate grounds. See Coral Petroleum, Inc. v. Banque Paribas-
London, 797 F.2d 1351, 1355 n. 3 (5th Cir.1986) (citing Davis v. Liberty Mut. Ins. Co., 525 F.2d
1204, 1207 (5th Cir.1976)).
III. ANALYSIS
Our review of the district court's judgment proceeds in two parts. We first review the portion
of the district court's decision awarding summary judgment in favor of Rocky Mountain and the
investors on Chevron's letter of credit claims. We then review the portion of the district court's
decision granting summary judgment in favor of Chevron on the underlying plug and abandon
indemnity claims.
A. The Letter of Credit Claims
On appeal, Chevron argues that the district court erred in awarding summary judgment to
Rocky Mountain and the investors on its letter of credit claims. Chevron argues that Rocky Mountain
is obligated to keep in force a letter of credit in favor of Chevron until all wells on the Bayou Couba
lease have been plugged and abandoned and that the district court erred in holding that Chevron is
estopped from enforcing this obligation. Chevron further cont ends that the investors, either as
successors in interest to Rocky Mountain or under the terms of LOC 554, are obligated to furnish
Chevron with a replacement letter of credit. We address each of these contentions in turn.
1. The Claim Against Rocky Mountain
The district court held that, under the undisputed facts of the case, Rocky Mountain is not
required to furnish Chevron with a replacement letter of credit. In so holding, the district court first
reasoned that Rocky Mountain made a stipulation pour autrui, or a promise for the benefit of a third
party, in favor of Chevron to keep in force a letter of credit until thirty days after Chevron was finally
released of all plug and abandon obligations. The district court further reasoned, however, that
Chevron, because of its conduct, is estopped from enforcing the stipulation pour autrui.
On appeal, the parties complain about different parts of the district court's reasoning.
Chevron challenges only the latter part of the district court's reasoning—namely, that it is estopped
from enforcing Rocky Mountain's stipulation pour autrui. Chevron agrees with the district court's
conclusion that Rocky Mountain made a stipulation pour autrui to continue providing it with letters
of credit.
Rocky Mountain, on the other hand, agrees with the latter part of the district court's
reasoning—that it is entitled to summary judgment on grounds of estoppel. In the alternative,
however, Rocky Mountain contends that the district court erred in concluding that it made a
stipulation pour autrui in favor of Chevron to keep in force a letter of credit securing plug and
abandon obligations. Rocky Mountain's argument in the latter regard is two-fold: First, Rocky
Mountain contends that the side agreement it made with Traillour does not constitute a stipulation
pour autrui, or a promise in favor of a third party, under Louisiana law. Second, Rocky Mountain
contends that, even if the side agreement can be construed as a stipulation pour autrui, it cannot be
construed as a promise to continue providing Chevron with replacement letters of credit until thirty
days after Chevron has been released from its plug and abandon obligations.
We agree with Rocky Mountain that the district court correctly granted summary judgment
in its favor; however, we affirm the district court's judgment on other grounds. Contrary to the
district court's conclusion, we hold that Rocky Mountain never made a stipulation pour autrui in
favor of Chevron to keep a letter of credit in force. Therefore, we do not reach Rocky Mountain's
estoppel argument.5
5
We note, however, that there is a serious question as to whether equitable estoppel was
appropriately applied in this case. As discussed infra Part III.B.1(b), equitable estoppel requires a
representation by the party to be estopped, as well as justifiable and detrimental reliance by the
(a) Did Rocky Mountain, in its side agreement with Traillour, make a stipulation pour autrui in favor
of Chevron?
The Louisiana Civil Code provides that "[a] contracting party may stipulate a benefit for a
third person called a third party beneficiary." LA.CIV.CODE ANN. art. 1978 (West 1987). However,
such a promise, or a stipulation pour autrui, "is never presumed. Rather, the intent of the contracting
parties to stipulate a benefit in favor of a third party must be made manifestly clear." Homer Nat'l
Bank v. Tri-District Dev. Corp., 534 So. 2d 154, 156 (La.App. 3d Cir.1988), writ denied, 536 So. 2d
1236 (La.1989). As we stated in New Orleans Public Service, Inc. v. United Gas Pipe Line Co., 732
F.2d 452 (5th Cir.) (en banc), cert. denied sub nom. Morial v. United States Gas Pipe Line Co., 469
U.S. 1019, 105 S. Ct. 434, 83 L. Ed. 2d 360 (1984):
Louisiana law is settled that for there to be a stipulation pour autrui there must be not only
a third-party advantage, but the benefit derived from the contract by the third party may not
merely be incidental to the contract. Rather, the third-party benefit must form the condition
or consideration of the contract in order for it to be a stipulation pour autrui. Moreover, a
stipulation pour autrui will be found only when the contract clearly contemplates the benefit
to the third person as its condition or consideration.
732 F.2d at 467 (internal quotations and citations omitted).
In this case the district court concluded that Rocky Mountain, in its side agreement with
Traillour, unambiguously made a stipulation pour autrui in favor of Chevron to keep in force a letter
of credit to secure the plug and abandon obligations. In reaching this conclusion, the district court
relied on the undisputed facts that: (1) at the time the side agreement was executed between Rocky
Mountain and Traillour, Traillour had offered to furnish Chevron with a letter of credit until thirty
days after Chevron had been released from any plug and abandon obligations; (2) in the prefatory
recitals of the side agreement, Rocky Mountain expressly acknowledged that it had agreed "to
provide the cash bid and required letter of credit to secure the plugging and abandoning of the wells
in the Bayou Couba Field"; and (3) in the side agreement itself, Rocky Mountain agreed to provide
"[a] $2,000,000.00 standby letter of credit to secure the plugging and abandoning of the wells in the
party asserting the estoppel defense. The only conduct by Chevron that arguably could have
constituted a "representation" is its release of the letter of credit obtained by Rocky Mountain.
Moreover, there may be a fact question as to whether Rocky Mountain justifiably relied on the
release to its detriment.
Bayou Couba Field." From these undisputed facts, the district court held that "Rocky Mountain was
agreeing to assume the same letter-of-credit obligations that Traillour had undertaken in its January
13th offer to Chevron."
We think that the district court, by finding an unambiguous intent to confer a benefit on
Chevron, misread the purpose of the side agreement between Rocky Mountain and Traillour. From
the face of the agreement, there is no clear manifestation of an intent by Rocky Mountain to confer
a benefit on Chevron. Instead, the side agreement indicates that the letter of credit Rocky Mountain
agreed to obtain was to be "made available for the benefit of Traillour at the closing of the purchase
of the Bayou of Couba Field."6 It is undisputed that Traillour, at the time it entered the side
agreement with Rocky Mountain, had agreed to keep in force a letter of credit in favor of Chevron;
however, it is also undisputed that Chevron, in the letter accepting Traillour's offer to purchase the
Bayou Couba lease, expressly conditioned the sale on Traillour and Marsh's "acquisition of a
$2,000,000.00 performance bond or irrevocable letter of credit." Therefore, Rocky Mountain's
agreement to obtain the initial letter of credit helped Traillour fulfill a condition precedent to
Chevron's obligation to assign the Bayou Couba lease. Finally, the recital in the side agreement, on
which the district court placed heavy reliance in finding an intent to benefit Chevron, simply does not
reveal a clear intent to benefit Chevron. The recital, like the provisions of the side agreement itself,
reveals Rocky Mountain's intent to help Traillour close the deal with Chevron. Any benefit derived
by Chevron from this side agreement was, in our view, merely incidental.
(b) Did Rocky Mountain, in its side agreement with Traillour, make a stipulation pour autrui to keep
in force a letter of credit in favor of Chevron?
Even if the agreement were read as clearly intending to confer a benefit to Chevron, the
agreement does not reveal a clear intent to confer continuing benefits to Chevron. That is, under the
unambiguous language of the side agreement, Rocky Mountain agreed only to provide a
$2,000,000.00 standby letter of credit "at the closing of the purchase of the Bayou Couba Field."
6
This intent to confer a benefit on Traillour is reinforced by the letter of credit that Rocky
Mountain actually obtained for Traillour—a letter of credit issued "[b]y order of Traillour Oil
Company, ... and Marsh Engineering" in favor of Chevron.
Even the recital relied upon by the district court indicates that Rocky Mountain only "agreed to
provide the cash bid and required letter of credit...." At no point in the side agreement does Rocky
Mountain agree to provide "letters of credit" or to "keep in force" a letter of credit in favor of
Chevron.
Accordingly, we hold that the district court erred in concluding that Rocky Mountain agreed
"to assume the same letter-of-credit obligations that Traillour had undertaken in its January 13th offer
to Chevron." The obligation that Rocky Mountain assumed in the side agreement with Traillour was
to provide a single letter of credit for the benefit of Traillour. In short, Rocky Mountain agreed to
help Traillour close its deal with Chevron by obtaining the cash bid and a letter of credit for Traillour
to present to Chevron at the closing. Any benefit to Chevron was incidental and was of a
one-time—not a continuing—nature.
2. The Claim Against the Investors
The district court also granted summary judgment in favor of the investors on Chevron's claim
that they were obligated to furnish replacement letters of credit. In doing so, the district court
rejected Chevron's arguments that (a) the investors are obligated to provide replacement letters of
credit as successors in interest to the Bayou Couba lease and (b) the investors otherwise made a
stipulation pour autrui to provide replacement letters of credit in favor of Chevron. We address each
of these arguments in turn.
(a) Are the investors obligated to provide replacement letters of credit as successors in interest?
Chevron contends on appeal that the investors, as successors in interest to Rocky Mountain
or Traillour, are obligated to provide it with replacement letters of credit. The argument is as follows:
Because Rocky Mountain and Traillour had promised to keep in force a letter of credit to secure the
plug and abandon obligations running with the Bayou Couba lease, the investors, when they acquired
their interest in the lease, became similarly obligated. For the following reasons, we reject this
argument.
Initially, we note that Rocky Mountain was never obligated to keep in force a letter of credit
to secure the plug and abandon obligations running with the lease. As previously discussed, see supra
Part III.A.1(a), Rocky Mountain did not make a stipulation pour autrui in favor of Chevron to keep
in force a letter of credit. Rather, Rocky Mountain agreed to provide a single letter of credit for the
benefit of Traillour, so that Traillour could close the deal it had made with Chevron.
Moreover, even as successors in interest to Traillour, the investors are not obligated to furnish
Chevron with replacement letters of credit. Although Traillour clearly obligated itself to keep in force
a letter of credit to secure the plug and abandon obligations running with the Bayou Couba lease, this
obligation is simply not binding on the investors as successors in interest to Traillour. First, neither
Traillour's original offer, which contains the promise to furnish letters of credit, nor Chevron's
acceptance of the offer, was recorded. Under Louisiana law, therefore, Traillour's promise would
not be binding as a real obligation on successors in interest to the Bayou Couba lease. See
LA.CIV.CODE ANN. art. 1839 (West 1987); LA.REV.STAT.ANN. § 9:2721 (West 1991). Second, and
more importantly, Traillour's obligation to keep in force a letter of credit is a personal obligation, not
a real obligation that permanently attached to the Bayou Couba lease. See LA.CIV.CODE ANN. art.
1766. Thus, Traillour's obligation to keep in force a letter of credit in favor of Chevron, unlike a real
obligation under Louisiana law, did not run with the land and automatically pass to the investors upon
the transfer from Traillour. See LA.CIV.CODE ANN. art. 1764 (West 1989) ("A real obligation is
transferred to the universal or particular successor who acquires the movable or immovable thing to
which the obligation is attached, without a special provision to that effect[,] ... [b]ut a particular
successor is not personally bound, unless he assumes the personal obligations of his transferor with
respect to the thing."); see also Tall Timbers Owners' Ass'n v. Merritt, 376 So. 2d 586, 588 (La.App.
4th Cir.1979) ("The jurisprudence is well settled that personal obligations must be expressly
assumed.").
(b) Did the investors otherwise make a stipulation pour autrui to provide Chevron with replacement
letters of credit?
The district court also rejected Chevron's argument that the investors independently made a
stipulation pour autrui to provide Chevron with replacement letters of credit. The district court first
noted that, because Calcasieu Marine, the issuing bank, never agreed to continue providing Chevron
with letters of credit, the investors could not have assumed any such obligation of the bank to provide
such letters of credit. The district court further reasoned that paragraph 5 of LOC 554 does not itself
require any of the investors to provide a letter of credit. Finally, the district court held that the
continuing guaranties executed by the investors, which authorized Calcasieu Marine to extend the
deadline for its letters of credit, did not (i) require Calcasieu Marine to extend the deadline or (ii)
require the investors to have any subsequent letters of credit issued. Accordingly, the district court
concluded that "neither the letters of credit nor the [c]ontinuing [g]uaranties display in their written
terms a "manifestly clear' intent to grant a third party benefit to Chevron."
On appeal, Chevron essentially argues that the district court erred in refusing to find that the
investors made a stipulation pour autrui to provide it with replacement letters of credit. Chevron
contends that, under the law of the case doctrine, our decision in Chevron I requires a holding that
LOC 554 obligated the investors to provide Chevron with replacement letters of credit. Chevron
further maintains that, when LOC 554 is construed along with the offering memorandum prepared
by Traillour and the continuing guarant ies executed by the investors, it becomes clear that the
investors stipulated a benefit in favor of Chevron to keep in force a letter of credit. For the following
reasons, we disagree.
The "law of the case" doctrine generally precludes the reexamination of issues decided on
appeal, either by the district court on remand or by the appellate court itself on a subsequent appeal.
Conway v. Chemical Leaman Tank Lines, Inc., 644 F.2d 1059, 1061 (5th Cir. Unit A May 1981).
If an issue was decided on appeal—either expressly or by necessary implication—the determination
will be binding on remand and on any subsequent appeal. Id. (quoting Lehrman v. Gulf Oil Corp.,
500 F.2d 659, 663 (5th Cir.1974), cert. denied, 420 U.S. 929, 95 S. Ct. 1128, 43 L. Ed. 2d 400
(1975)). By contrast, if an issue was not expressly or implicitly decided on the prior appeal, then the
law of the case doctrine is inapplicable. See United States v. 8.41 Acres of Land, 783 F.2d 1256,
1259 (5th Cir.), cert. denied, 479 U.S. 820, 107 S. Ct. 85, 93 L. Ed. 2d 38 (1986).
In this appeal, the law of the case doctrine is inapplicable. In Chevron I, we did not expressly
or implicitly decide whether the investors were obligated to furnish Chevron with replacement letters
of credit. The only question we decided in Chevron I was whether LOC 554 was still in effect. And,
although we stated in Chevron I that paragraph 5 of LOC 554 "was intended to state the time frame
in which the [investors] were to fulfill their underlying obligation to Chevron to either obtain a
replacement LOC or pay into escrow," we made this statement only in the context of holding that
paragraph 5 "was not intended to modify the expiration date" of LOC 554. Moreover, our opinion
in Chevron I makes clear that we were not deciding whether the investors actually had an underlying
obligation to furnish Chevron with a replacement letter of credit, but only observing that LOC 554
made "references" to an underlying contract between the investors and Chevron. Accordingly, we
hold that our decision in Chevron I does not control the issue of whether the investors have an
underlying obligation to furnish Chevron with replacement letters of credit.
The question we must decide, then, is whether Chevron has raised a genuine issue of material
fact with regard to the existence of an underlying obligation, or a stipulation pour autrui, by the
investors to furnish Chevron with replacement letters of credit. Pointing to (i) paragraph 5 of LOC
554 and (ii) other documents received or executed by the investors, Chevron argues that it has raised
a fact issue. We do not agree.
Paragraph 5 of LOC 554, which is quoted in full supra Part I.C., at first glance appears to
require the investors to provide Chevron with replacement letters of credit. It states that, "before
termination of said Letter of Credit, [the investors] shall either furnish [Chevron] another Letter of
Credit as provided herein or pay the amount of said Letter of Credit, reduced as provided herein into
an escrow account." Upon closer scrutiny, however, it becomes clear that paragraph 5 of LOC 554
imposes no such obligation on the investors.
Under Louisiana law, as elsewhere, "[a] letter of credit is merely a written engagement by
the issuer, usually a bank, to honor demands for payment which comply with the terms of the credit."
Cromwell v. Commerce & Energy Bank of Lafayette, 464 So. 2d 721, 728 (La.1985) (quoting
Hawkland & Holland, UCC Series § 5-101:02 (Art. 5)). And, although letter of credit transactions
usually involve three contracts,7 "[t]he letter of credit [contract] is separate and distinct from the
7
Letter of credit transactions usually involve distinct contracts: (1) the contract between the
bank issuing the letter of credit (the issuing bank) and the person requesting that the letter of
credit be issued (the customer), (2) the contract between the issuing bank and the party receiving
underlying transaction" between the party requesting issuance of the letter of credit (the customer)
and the beneficiary of the letter of credit. Cromwell, 464 So. 2d at 729. The letter of credit contract
between the issuing bank and the beneficiary is not affected by the underlying contract between the
beneficiary and the customer. See LA.REV.STAT.ANN. § 10:5-114(1) (West Supp.1993) ("An issuer
[of a letter of credit] must honor a draft or demand for payment which complies with the terms of the
relevant credit regardless of whether the goods or documents conform to the underlying contract
between the customer and the beneficiary."). Nor, it follows, should the underlying obligation
between the beneficiary and the customer be governed by the terms of letter of credit itself.
Regardless of what paragraph 5 appears to say about the investors' duty to provide a
replacement letter of credit, the so-called "independence principle" applicable to letter of credit
transactions argues against such an interpretation. Under settled Louisiana law, the investors'
obligation to Chevron to provide replacement letters of credit is independent of the issuing bank's
obligation to honor the terms of the letter of credit itself. It follows that the letter of credit obligating
the issuing bank, Calcasieu Marine, to Chevron should not be read by itself to impose any obligations
on the investors.
More importantly, the undisputed facts reveal that the investors never signed this letter of
credit. That is, they never agreed that, before LOC 554 terminated, they would "either furnish
[Chevron] another Letter of Credit ... or pay the amount of said Letter of Credit, reduced as provided
herein into an escrow account." Thus, even beyond the problems raised by the "independence
principle," Chevron is essentially arguing that the investors should be bound by a written agreement
to which they were not a party. We decline to so bind the investors.8
the letter of credit (the beneficiary), which is the letter of credit itself, and (3) the underlying
contract between the customer and the beneficiary. Federal Deposit Ins. Corp. v. Plato, 981 F.2d
852, 854 n. 3 (5th Cir.1993); Philadelphia Gear Corp. v. Central Bank, 717 F.2d 230, 235 (5th
Cir.1983) (applying Louisiana law).
8
Chevron attempts to avoid the "independence principle" and the fact that the investors did not
sign LOC 554, arguing that "[t]he obligation of the [investors] set forth in Paragraph 5 of the
letter of credit restates the obligation which the law imposed on them." Citing Makofsky v.
Cunningham, 576 F.2d 1223 (5th Cir.1978), Chevron suggests that, under Louisiana law, the
investors were required to replace LOC 554 because it expired before the underlying obligation to
plug and abandon the wells was performed or breached. We disagree.
Nor can Chevron point to any other document in which the investors agreed to provide
replacement letters of credit. In the offering memorandum provided the investors by Traillour, the
investors were informed (i) that Traillour was obligated to keep in force a letter of credit in favor of
Chevron and (ii) that they would each "be required to personally execute an agreement guaranteeing
the entire amount of the $2 million letter of credit issued by the Calcasieu Marine National Bank of
Lake Charles in favor of [Chevron]." The offering memorandum does not state that the investors
themselves would be obligated jointly and severally, or in solido, to provide Chevron with an
irrevocable letter of credit. Moreover, the continuing guaranties executed are not the source of any
letter of credit obligations running from the investors to Chevron. The continuing guaranties merely
gave Calcasieu Marine the power to extend the terms of the letters of credit issued in Chevron's favor
and to make changes in the terms of the guaranty contracts themselves. They simply do not reveal
any intent by the investors to provide Chevron with replacement letters of credit. Finally, Chevron
does not contend that the documents transferring to the investors an interest in the Bayou Couba
lease contain an obligation to provide it with a letter of credit.9
Accordingly, we hold that the district court correctly concluded that, on the undisputed facts
We recognize that, in Makofsky, the court held that the buyer of land, who had
provided the seller with a letter of credit with a specific termination date, had the duty to
extend the letter of credit. A careful reading of Judge Rubin's opinion in Makofsky,
however, reveals that the holding in that case was compelled by the parties' underlying
agreement. Judge Rubin specifically stated that, despite the termination date on the letter
of credit itself, "it is evident that the parties [i.e., the buyer and the seller] originally
intended that there would be a deposit as security for its performance." 576 F.2d at 1230.
Thus, Makofsky is entirely consistent with the "independence principle": the court looked
to the parties' underlying agreement—and not to the specific terms of the letter of credit
itself—to determine whether the buyer had the duty to extend the letter of credit.
In this case, by contrast, there is simply no evidence of an underlying agreement
between Chevron and the investors obligating the investors to provide Chevron with
replacement letters of credit. Chevron's reliance on Makofsky is misplaced.
9
We note that in the documents by which the investors received their interests in the Bayou
Couba lease, the investors agreed to "assume all obligations and perform all duties resulting from
the ownership of the Subject Interest conveyed hereby or imposed by any governmental authority
asserting jurisdiction over the lands covered by the Lease." The duties and the obligations
assumed by the investors, however, plainly do not include Traillour's personal obligation to keep
in force letters of credit, because such an obligation does not "result" from ownership of the
Bayou Couba leasehold. See supra Part III.A.2(a).
of this case, the investors have made no stipulation pour autrui in favor of Chevron to provide
replacement letters of credit. None of the documents that Chevron points to reveals any intent by the
investors, much less a manifestly clear intent, to confer a benefit on Chevron. All that Chevron can
point to is the fact that the investors guaranteed LOC 465 and later ordered that LOC 465 be
replaced with LOC 554. This evidence, standing alone, is insufficient to raise a genuine issue of
material fact with regard to the existence of an underlying agreement clearly manifesting an intent
by the investors to provide replacement letters of credit for the benefit of Chevron.10
B. The Underlying Plug and Abandon Indemnity Claims
On cross-appeal, Rocky Mountain and t he investors argue that the district court erred in
granting summary judgment in favor of Chevron with respect to Chevron's underlying plug and
abandon indemnity claims. They argue that Chevron is not entitled to a declaratory judgment that
Rocky Mountain and the investors "owe Chevron indemnity in solido for the entirety of any [plug
and abandon] obligations on the [Bayou Couba] lease." While we agree with the investors that they
do not owe Chevron indemnity for the entirety of any plug and abandon obligations, we disagree with
Rocky Mountain that it owes no such indemnity to Chevron.
1. Jurisdictional Issues
Initially, we address several jurisdictional arguments raised by the parties. In particular, we
address arguments that (a) Chevron's plug and abandon indemnity claims are moot, (b) Chevron's
plug and abandon indemnity claims are not ripe for judicial review, and (c) the district court should
10
Under Louisiana law, "[m]ost of the decisions on stipulations pour autrui indicate that to be
enforceable, the contract between the parties must not only make clear and manifest their intent to
confer a benefit on a third person, but also must be in writing." Homer Nat'l Bank v. Tri-District
Dev. Corp., 534 So. 2d 154, 156-57 (La.App. 3d Cir.1988), writ denied, 536 So. 2d 1236
(La.1989); see also Fontenot v. Marquette Cas. Co., 258 La. 671, 247 So. 2d 572, 579 (1971)
("In Louisiana contracts for the benefit of others ... must be in writing and clearly express that
intent."). And, although the "writing requirement" has been questioned by one Louisiana
intermediate appellate court, see Wall v. First Nat'l Bank of Shreveport, 482 So. 2d 865 (La.App.
2d Cir.1986), this court has indicated that either "an express declaration or an extremely strong
implication" is required to establish a stipulation pour autrui under Louisiana law. See New
Orleans Public Serv., Inc. v. United Gas Pipe Line Co., 732 F.2d 452, 467-68 (5th Cir.), cert.
denied sub nom. Morial v. United Gas Pipe Line Co., 469 U.S. 1019, 105 S. Ct. 434, 83 L. Ed. 2d
360 (1984). With respect to the investors' alleged stipulation to provide Chevron with
replacement letters of credit, Chevron has simply failed to raise a fact issue with regard to this
requirement.
have abstained from ruling on Chevron's plug and abandon indemnity claims. For the following
reasons, we reject each of the jurisdictional arguments and hold that the district court correctly
reached the merits of Chevron's claims.
(a) Are Chevron's plug and abandon indemnity claims moot?
Two of the investors, Tellurogenic, Inc. ("Tellurogenic") and Spencer Oil Company ("Spencer
Oil"), raise a mootness argument. They point to the 1990 amendment to section 30:4.C(1) of
Louisiana's Revised Statutes, which states that only an "owner"—i.e., "the person who has the right
to drill into and produce from a pool and to appropriate the production either for himself or for
others"—may be held liable by the Louisiana Conservation Commissioner for plugging and
abandoning wells on an oil and gas lease. They argue that this amendment has rendered moot any
case or controversy respecting the parties' liability for plugging and abandoning wells on the Bayou
Couba lease.
A controversy becomes moot where, as a result of intervening circumstances, there are no
longer adverse parties with sufficient legal interests to maintain the litigation. Mills v. Green, 159
U.S. 651, 653, 16 S. Ct. 132, 133, 40 L. Ed. 293 (1859). Mootness can arise in one of two ways:
First, a controversy can become moot "when the issues presented are no longer "live.' " Powell v.
McCormack, 395 U.S. 486, 496, 89 S. Ct. 1944, 1951, 23 L. Ed. 2d 491 (1969). A controversy can
also become moot when "the parties lack a legally cognizable interest in the outcome." Id.
There are two problems with the mootness argument advanced by Tellurogenic and Spencer
Oil. One is that it ignores the express promise made by Chevron's predecessor Gulf, in its original
lease with Delta Securities Company, to "plug and abandon all wells on the released and surrendered
acreage in accordance with the rules and regulations of any governmental agency, official or
department having jurisdiction." Under section 129 of the Louisiana Mineral Code, "[a]n assignor
... is not relieved of his obligations or liabilities under a mineral lease unless the lessor has discharged
him expressly and in writing." LA.REV.STAT.ANN. § 31:129 (West 1989); see also Kleas v.
Mayfield, 404 So. 2d 500, 506 (La.App. 3d Cir.1981). The 1990 amendment to section 30:4.C(1)
of the Louisiana Revised Statutes does not, therefore, affect Chevron's obligation under the original
lease with Delta Securities to plug and abandon the wells. The second problem with the argument
is that it ignores the possibility that Chevron might be held liable for plugging and abandoning the
wells as a prior owner of the Bayou Couba lease. That is, nothing in the language of 1990
amendment prohibits the Louisiana Conservation Commissioner from interpreting the word "owner"
broadly and proceeding against a prior owner of the Bayou Couba lease. See Memorandum from the
Louisiana Comm'r of Conservation re: Enforcement Policy—Abandoned Wells and Pits (July 24,
1990). Because there is still a substantial possibility that Chevron will be held liable for plugging and
abandoning the wells on the Bayou Couba lease, we hold that the 1990 amendment does not moot
Chevron's claim for a declarat ory judgment that Rocky Mountain and the investors are liable to
indemnify Chevron for any subsequently incurred plug and abandon obligations.
(b) Are Chevron's plug and abandon indemnity claims ripe?
At oral argument, Rocky Mountain also suggested that Chevron's plug and abandon indemnity
claims are not ripe for adjudication. Rocky Mountain's argument in this regard is related to the
mootness argument raised by Tellurogenic and Spencer Oil. Specifically, Rocky Mountain contends
that, because no one has yet threatened to require Chevron to plug and abandon the wells on the
Bayou Couba lease, their request for a declaratory judgment is not yet ripe for review.
In New Orleans Public Service, Inc. v. Council of New Orleans, 833 F.2d 583 (5th Cir.1987),
this court set forth the prevailing standards for determining whether a dispute is ripe. We stated:
A court should dismiss a case for lack of "ripeness" when the case is abstract or
hypothetical. The key considerations are "the fitness of the issues for judicial decision and
the hardship to the parties of withholding court consideration." A case is generally ripe if any
remaining questions are purely legal ones; co nversely, a case is not ripe if further factual
development is required.
Id. at 586-87 (citations omitted). Thus, the ripeness inquiry focuses on whether an injury that has not
yet occurred is sufficiently likely to happen to justify judicial intervention. See 13A C. WRIGHT, A.
MILLER & E. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3531.12, at 50 (1984).
We hold that Chevron's plug and abandon indemnity claims, which present an actual
controversy as to the obligations of successive holders of the Bayou Couba lease to Chevron, are ripe
for adjudication. As already discussed, there is a substantial possibility that Chevron will be required
to plug and abandon the wells on the Bayou Couba lease. Moreover, the only remaining question is
a legal one—namely, whether Rocky Mountain and the investors are liable, as transferees of interests
in the Bayo u Couba lease, to indemnify Chevron for any subsequently incurred plug and abandon
obligations. Finally, judicial resolution of Chevron's plug and abandon indemnity claims at this time
is consistent with the purpose of Declaratory Judgment Act itself. See Hardware Mut. Cas. Co. v.
Schantz, 178 F.2d 779, 780 (5t h Cir.1949) ("The purpose of the Declaratory Judgment Act is to
settle "actual controversies' before they ripen into violations of law or breach of some contractual
duty.").
(c) Should the district court have abstained from ruling on Chevron's plug and abandon indemnity
claims?
Tellurogenic and Spencer Oil also argue that, under Burford v. Sun Oil Co., 319 U.S. 315,
63 S. Ct. 1098, 87 L. Ed. 1424 (1943), the district court should have abstained from determining who
is liable to plug and abandon Louisiana oil wells.11 They argue specifically, citing Magnolia Coal
Terminal v. Phillips Oil Co., 561 So. 2d 732 (La.App. 4th Cir.1990), aff'd in part and rev'd in part,
576 So. 2d 475 (La.1991), that only the Louisiana Commissioner of Conservation can make and
enforce plug and abandon rules and regulations. They further reason that, because the district court
decided matters within the Louisiana Commissioner's jurisdiction, there is the possibility of conflicting
results and standards between the Louisiana Commissioner and the federal courts on the issue of who
is obligated to plug and abandon the wells on the Bayou Couba lease.
Tellurogenic and Spencer Oil misconstrue the nature of the district court's ruling. The district
court did not order Rocky Mountain and the investors to plug and abandon the wells on the Bayou
Couba lease, nor did it determine who is ultimately obligated to plug and abandon the wells under
Louisiana law. Rather, the district court held only that, if Chevron is required to expend money to
plug and abandon the wells on the Bayou Couba lease, Rocky Mountain and the investors must
11
It does not appear that Tellurogenic and Spencer Oil raised their Burford abstention
argument, which is not strictly jurisdictional, in district court. We have held, however, that
"[w]here Burford-type abstention is appropriate, ... it can be ordered on appeal even if not raised
in the trial court." Martin Ins. Agency, Inc. v. Prudential Reinsurance Co., 910 F.2d 249, 255
(5th Cir.1990).
indemnify Chevron. Contrary to the assertion by Tellurogenic and Spencer Oil, then, the district
court did not exercise jurisdiction or render a judgment in a manner that potentially conflicts with the
authority of the Commissioner of Conservation. Therefore, the district court was not required to
abstain under Burford.
2. The Claim Against Rocky Mountain
On cross-appeal, Rocky Mount ain does not dispute that, under the terms of the original
assignment of the Bayou Couba lease, it expressly agreed to be responsible for all costs associated
with plugging and abandoning the wells on the lease. Indeed, it is undisputed that, under the terms
of the original assignment, Rocky Mountain agreed
to promptly plug and abandon all the wells described in Exhibit B as well as any wells drilled
by Traillour et al under the terms of the lease identified in Exhibit A, including the saltwater
disposal wells, upon termination of operations on the lease acreage in a good, workmanlike
manner and in acco rdance with said lease and the rules and regulations of the Louisiana
Commissioner of Conservation.
The assignment further provides that "[t]he entire costs, expense and risk of plugging and abandoning
the above-described wells, cleanup operations and any other operations provided for under the
aforesaid lease, shall be borne by Traillour et al."
Rocky Mountain nonetheless contends that the district court erred in granting summary
judgment in favor of Chevron on Chevron's plug and abandon indemnity claim. Rocky Mountain first
argues that the district court abused its discretion in ruling on Chevron's plug and abandon indemnity
claim, given that Chevro n did not raise the claim until it filed its motion for summary judgment.
Alternatively, Rocky Mountain argues that it raised a genuine issue of material fact with regard to
whether Chevron is estopped from enforcing the expressly assumed plug and abandon obligations.
As discussed below, neither of these arguments has merit.
(a) Did the district court abuse its discretion in denying Rocky Mountain's motion for a continuance
and ruling on Chevron's plug and abandon indemnity claim against Rocky Mountain?
It is undisputed that Chevron raised its plug and abandon indemnity claims belatedly. When
Chevron filed its motion for summary judgment raising the plug and abandon indemnity claims, those
claims had not been raised in Chevron's complaint. Moreover, Rocky Mountain had not been
afforded the opportunity to assert any defenses to the claims. Nor had Rocky Mountain had any
opportunity to conduct any discovery with respect to the claims.
In response to Chevron's motion for summary judgment, Rocky Mountain filed a motion to
continue the hearing on the plug and abandon indemnity claims. At a status conference held prior to
the summary judgment hearing, the district court allegedly indicated12 that it would sever the plug and
abandon indemnity claims and refrain from deciding the issue until (i) Chevron had filed an amended
complaint formally raising the issue in the litigation, (ii) Rocky Mountain and the investors had been
given the opportunity to conduct discovery with respect to, and assert defenses to, the claims, and
(iii) after the court had ruled on the letter of credit issues. Notwithstanding its alleged representations
at the status conference, the district court ruled on Chevron's plug and abandon indemnity claims at
the same time it ruled on the letter of credit claims—despite the fact that Rocky Mountain had not
conducted any discovery on the claim.13
Rocky Mountain argues that the district court erred in denying Rocky Mountain's motion for
a continuance under Federal Rule of Civil Procedure 56(f) and ruling on Chevron's plug and abandon
indemnity claims. In its brief on cross-appeal, Rocky Mountain asserts that "[t]he effect of the
[d]istrict [c]ourt's action was to deny Rocky Mountain the ability to properly defend Chevron's
contentions as to the plugging and abandonment issue, and prevent Rocky Mountain from conducting
any discovery or investigation therein." The district court's action, according to Rocky Mountain,
was "fundamentally unfair."
Rule 56(f) of the Federal Rules of Civil Procedure gives district courts discretion to grant
motions to continue in the context of summary judgment proceedings. It provides that, under
appropriate circumstances, the district court may "refuse the application for [summary] judgment or
may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery
to be had or may make such other order as is just." FED.R.CIV.P. 56(f). In order to obtain a
12
We note that there is no transcript of this status hearing in the record on appeal.
13
After the status conference, Chevron did formally amend its complaint to request a
declaratory judgment with respect to its plug and abandon indemnity claims. Moreover, in its
response to Chevron's motion for summary judgment, Rocky Mountain asserted the defenses of
waiver and estoppel with respect to the plug and abandon indemnity claim against it.
continuance for discovery, the non-movant must (i) request extended discovery prior to the district
court's ruling on summary judgment, (ii) put the district court on notice that further discovery
pertaining to the summary judgment motion is being sought , (iii) demonstrate to the district court
specifically how the requested discovery pertains to the pending motion, and (iv) diligently pursue
relevant discovery. Wichita Falls Office Assocs. v. Banc One Corp., 978 F.2d 915, 919 (5th
Cir.1992) (citing International Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1267-68 (5th
Cir.1991), cert. denied, --- U.S. ----, 112 S. Ct. 936, 117 L. Ed. 2d 107 (1992)). The grant or denial
of a continuance pursuant to Rule 56(f) will be disturbed on appeal only if the district court abused
its discretion. Cormier v. Pennzoil Exploration & Prod. Co., 969 F.2d 1559, 1561 (5th Cir.1992)
(citing Paul Kadair, Inc. v. Sony Corp. of Am., 694 F.2d 1017, 1029-30 (5th Cir.1983)).
We cannot say that the district court abused its discretion in denying Rocky Mountain's
motion for a continuance and ruling on Chevron's plug and abandon indemnity claim. As the district
court noted, Rocky Mountain never assert ed what additional discovery would be needed. See
Securities & Exchange Comm'n v. Spence & Green Chem. Co., 612 F.2d 896, 901 (5th Cir.1980)
(nonmovant requesting a continuance may not simply rely on vague assertions that additional
discovery will produce needed, but unspecified, facts), cert. denied, 449 U.S. 1082, 101 S. Ct. 866,
66 L. Ed. 2d 806 (1981). Nor did Rocky Mountain diligently pursue any relevant discovery. During
the one-and-a-half-month period between the time that Chevron filed its motion for summary
judgment and the time the district court took the motion under submission, Rocky Mountain never
sought leave to lift the discovery stay in any respect. Accordingly, we hold that the district court was
well within its discretion in denying Rocky Mountain's motion for a continuance.
(b) Has Rocky Mountain raised a genuine issue of material fact with regard to its estoppel defense?
Rocky Mountain further contends that it raised a genuine issue of material fact with regard
to whether Chevron is estopped from asserting its plug and abandon indemnity claim against Rocky
Mountain. Pointing to Chevron's release of the letter of credit originally obtained by Rocky Mountain
for the benefit of Traillour, as well as Chevron's subsequent failure to require the investors to keep
in force a letter of credit, Rocky Mountain argues that "Chevron should be equitably estopped from
seeking to enforce its plugging and abandonment rights against Rocky Mountain." We disagree and
hold that the district court correctly granted summary judgment in favor of Chevron on Chevron's
plug and abandon indemnity claim against Rocky Mountain.
The law of equitable estoppel in Louisiana is one of last resort, to be applied only when the
ends of justice so demand. See Howard Trucking Co. v. Stassi, 485 So. 2d 915, 918 (La.), cert.
denied, 479 U.S. 948, 107 S. Ct. 432, 93 L. Ed. 2d 382 (1986). "The doctrine is founded upon good
faith and is designed to prevent injustice by barring a party, from taking a position contrary to his
prior acts, admissions, representations, or silence." Dizell v. Durr, 519 So. 2d 863, 866 (La.App. 4th
Cir.1988). For equitable estoppel to apply, three elements must be present: (1) a representation by
conduct or word; (2) justifiable reliance thereon; and (3) a change of position to one's detriment
because of that reliance. Howard Trucking, 485 So. 2d at 918.
Thus, to successfully withstand Chevron's motion for summary judgment with respect to the
plug and abandon claim, Rocky Mountain was required to raise a genuine issue of material fact with
regard to each of the elements of equitable estoppel. That is, Rocky Mountain must have come
forward with summary judgment evidence sufficient to raise a fact issue concerning: (1) whether
Chevron made a representation by conduct or word concerning Rocky Mountain's plug and abandon
obligations; (2) whether Rocky Mountain justifiably relied on Chevron's representation; and (3)
whether Rocky Mountain detrimentally changed its position because of that reliance. See Howard
Trucking, 485 So. 2d at 918.
In our view, Rocky Mountain has failed to raise a genuine issue of material fact on the first
element of equitable estoppel under Louisiana law. Specifically, Rocky Mountain has not pointed to
any representation made by Chevron concerning the plug and abandon obligations expressly assumed
by Rocky Mountain. Although Rocky Mountain hints that Chevron made such a representation by
releasing the original letter of credit procured by Rocky Mountain, we fail to see how Chevron's
conduct in releasing the letter of credit, which is independent of the underlying obligation to plug and
abandon, see supra Part III.A.2(b), could constitute a representation that Chevron was also releasing
Rocky Mountain of its underlying plug and abandon obligations. Therefore, the district court
correctly awarded Chevron summary judgment on its plug and abandon indemnity claim against
Rocky Mountain.
3. The Claim Against the Investors
The investors also challenge the district court's award of summary judgment in favor of
Chevron on the plug and abandon indemnity claims. They argue that (a) as sublessees of Traillour,
they are not obligated to Chevron to plug and abandon the wells on the Bayou Couba lease or to
indemnify Chevron for any plugging and abandoning, (b) even if they are required to indemnify
Chevron for plug and abandon obligations, they are only required to pay their proportionate share of
plug and abandon costs, and (c) they raised a genuine issue of material fact with regard to their right
to rescind the subleases from Traillour on grounds of fraud or error. Because we find the investors'
first argument meritorious, we do not address the investors' other arguments.
In its memorandum ruling, the district court stated: "[The investors] concede that, if their
assignments [from Traillour] are valid, then each owes Chevron indemnity for any [plug and abandon]
obligations to the extent of that person's working interest in the lease." The district court apparently
relied on a statement made by the investors in their memorandum in opposition to Chevron's motion
for summary judgment. That memorandum stated: "[N]one of the investors have denied that they
have an obligation to pay their proportionate share of the costs of plugging and abandoning the wells
in proportion to their ownership interest in the lease."
On cross-appeal, the investors argue that they never conceded owing any plug and abandon
obligations to Chevron. Rather, they argue t hat, "[a]s sublessees of Traillour Oil Company, the
individual investors owe no obligation to Chevron[,] who assigned all of its right, title and interest
in the Bayou Couba lease to Traillour Oil." They do concede, however, that if the subleases from
Traillour are valid, they are obligated to Traillour to bear their share of the costs to plug and abandon
the wells.
(a) Have the investors waived the argument that they owe no plug and abandon obligations to
Chevron?
Initially, we address Chevron's contention that the investors have waived the argument that,
as sublessees of Traillour, they owe no plug and abandon obligations to Chevron, a once-removed
assignor of the Bayou Couba lease. Chevron maintains that the investors are essentially arguing that
Chevron is not the "real party in interest" to prosecute the suit. According to Chevron, because the
investors did not raise this defense below, they have waived it.
We conclude that the investors did not waive the argument that they owe no plug and
abandon obligations to Chevron. Throughout the litigation, the investors have maintained that they
have no contractual obligations to Chevron. Moreover, in their memorandum in opposition to
Chevron's motion for summary judgment, the investors argued that there was no code-imposed privity
of contract between Chevron and the investors. Chevron's waiver argument is without merit.
(b) Do the investors owe any plug and abandon obligations to Chevron?
Chevron nonetheless maintains that the investors' argument in this regard must fail. Pointing
to section 128 of the Louisiana Mineral Code, Chevron contends that it can enforce Traillour's plug
and abandon obligations—obligations that clearly run in favor of Chevron—against the investors as
sublessees once-remo ved. Chevron further argues that, even in the absence of section 128 of the
Louisiana Mineral Code, the investors are liable to indemnify Chevron for plugging and abandoning
the wells on the Bayou Couba lease.
Section 128 of the Louisiana Mineral Code provides that, "[t]o the extent of the interest
acquired, an assignee or sublessee acquires the rights and powers of the lessee and becomes
responsible directly to the original lessor for performance of the lessee's obligations."
LA.REV.STAT.ANN. § 31:128 (West 1989) (emphasis added). This provision, according to a
Louisiana oil and gas commentator, represented a dramatic departure from prior case law. John M.
McCollam, A Primer for the Practice of Mineral Law Under the New Louisiana Mineral Code, 50
TUL.L.REV. 729, 831 (1976). It effectively overruled the major premise of the Louisiana Supreme
Court's decision in Broussard v. Hassie Hunt Trust, 231 La. 474, 91 So. 2d 762 (1956)—that an
initial lessor could not sue a sublessee to enforce obligations of the original lease because there was
no privity of contract or estate between the two parties.14 Under the plain language of section 128,
14
The rule was otherwise with respect to assignments. An original lessor could sue an assignee
of the original lessee, because the assignee was deemed to be in privity of estate with the original
lessor. See Broussard, 91 So. 2d at 765.
then, the original lessor can directly sue both a remote sublessee and a remote assignee to enforce the
obligations of the original lease. McCollam, supra, at 831.
In Robinson v. North American Royalties, Inc., 463 So. 2d 1384 (La.App. 3d Cir.), judgment
amended, 470 S.2d 112 (La.1985), the Louisiana court interpreted the term "original lessor" in
section 128 broadly. It held that section 128 allows a lessee-sublessor to enforce obligations created
in its sublease against a sublessee once-removed. The Robinson court reasoned:
We interpret [section] 128 as the Legislature's creation of a code imposed privity of contract
between a lessor and a sublessee in the mineral rights area.... Logic therefore dictates that if
there is privity of contract between a lessor and a sublessee, there exists privity of contract
between a lessee-sublessor and a sublessee once removed.
Id. at 1388.
Assuming that Robinson represents a correct statement of Louisiana law, it does not aid
Chevron. Chevron is not a lessee-sublessor, but a lessee-assignor.15 And, as Chevron conceded at
oral argument, section 128 does not run in favor of assignors. Thus, while section 128 may impose
privity between a lessor and a remote assignee or sublessee, we are not prepared to say—as a federal
court sitting in diversity—that it creates statutory privity between all successors in interest to an oil
and gas lease. Cf. McCollum, supra, at 829 (observing that, although distinction between an
assignment and a sublease is less significant under the Louisiana Mineral Code, it is still of continuing
importance).
Chevron nonetheless argues that, under the terms of their subleases with Traillour, the
investors must indemnify Chevron for plugging and abandoning the wells on the Bayou Couba lease.
Pointing to several provisions of those subleases, Chevron argues that the investors expressly
assumed Traillour's obligations under the original assignment from Gulf and made a stipulation pour
15
Although Chevron has contended for the first time on appeal that its transfer to Traillour,
Rocky Mountain, and Marsh constituted a sublease, the plain language of the transfer instrument
indicates that it was an assignment. In the transfer instrument, Chevron's predecessor Gulf
transferred "all of [its] right, title, and interest in and to" the Bayou Couba lease. Gulf did not
retain any interest in or control over the leased premises, for example, by (i) retaining the right to
restrict further transfer of the lease, see Bordelon v. Bordelon, 434 So. 2d 633 (La.App.3d
Cir.1983), or (ii) retaining an overriding royalty, see Bond v. Midstates Oil Corp., 219 La. 415,
53 So. 2d 149 (1951). Under well established Louisiana law, the transfer from Gulf to Traillour,
Rocky Mountain, and Marsh was an assignment and not a sublease. See Tomlinson v. Thurmon,
189 La. 959, 181 So. 458, 459 (1938).
autrui in favor of Chevron to be responsible for the costs of plugging and abandoning the wells.
Thus, Chevron contends that it need not rely on section 128 of the Louisiana Mineral Code in order
to be entitled to indemnity from the investors.
In support of its argument, Chevron primarily relies on two paragraphs in the investors'
subleases. First, Chevron points to the provision in which each of the investors agreed to "assume
all obligations and perform all duties resulting from the ownership of the Subject Interest conveyed
hereby or imposed by any governmental authority asserting jurisdiction over the lands covered by the
lease." Chevron also relies on the provision in which each investor (i) agreed to "comply with all of
the express and implied covenants and conditions of [the Bayou Couba lease]" and (ii) obligated
himself "to comply and conduct his operations hereunder in accordance with all rules and regulations
of the Commissioner of Conservation."
Article 1821 of the Louisiana Civil Code provides that "[a]n obligor and a third person may
agree to an assumption by the latter of an obligation of the former." LA.CIV.CODE ANN. art. 1821
(West 1987). The article further provides that such an assumption, "[t]o be enforceable by the
obligee against the third person, ... must be in writing." Because the subleases between Traillour and
the investors are in writing, we are only concerned with whether the third parties in this case—i.e.,
the investors—assumed the obligations running from Traillour to Chevron.
We reject Chevron's argument that, by the provisions quoted above, the investors "assumed
... the obligations which Traillour had undertaken in its contract with Gulf." Neither of the provisions
mentions "Traillour's obligations to Chevron," and neither of the provisions refers to the assignment
from Gulf to Traillour. By assuming "all obligations" resulting from their ownership of the conveyed
interests in the Bayou Couba lease, the investors were personally assuming only the real obligations
running with the Bayou Couba lease, obligations running in favor of the original lessor. The investors
similarly obligated themselves to the original lessor by agreeing to "comply with all of the express and
implied covenants and conditions of [the Bayou Couba lease]," as well as the rules and regulations
of the Louisiana Commissioner of Conservation. We decline to read into the investors' subleases an
express assumption of Traillour's personal obligations to Chevron, where no such assumption is
apparent from the face of the documents.16
We likewise reject Chevron's related contention that the above quoted provisions constitute
a stipulation pour autrui in favor of Chevron. As already noted, see supra Part III.A.1(a), a
stipulation pour autrui will be found only when the contract clearly contemplates a benefit to a third
person as its condition or consideration. The provisions in the subleases between Traillour and the
investors simply do not clearly contemplate a benefit to Chevron. Rather, any benefit to Chevron
would simply be incidental.
Chevron also points to the sublease provision in which each investor agreed "to bear his
proportionate cost, expense and risk of plugging and abandoning the [wells on the Bayou Couba
lease]...." Chevron suggests that this provision represents a partial assumption of Traillour's
obligations to Chevron, as well as a partial stipulation pour autrui in favor of Chevron. Again, we
must disagree. There is no indication that the investors, by agreeing with Traillour to be responsible
for their proportional share of the costs of plugging and abandoning the wells on the Bayou Couba
lease, intended to partially assume Traillour's obligations to Chevron. Nor is there any clear intent
that, by this promise, the investors meant to confer a benefit on Chevron. Rather, from the face of
this provision, it is clear that Traillour and the investors were agreeing, as among themselves, to share
the costs of plugging and abandoning the wells on the Bayou Couba lease.
Accordingly, we hold that the district court erred in concluding that the investors are
obligated to indemnify Chevron for any subsequently incurred plug and abandon obligations. While
undoubtedly the investors are obligated to plug and abandon the wells on the Bayou Couba lease,
their obligation runs only to (i) the original lessor, under section 128 of the Louisiana Mineral Code,
16
The provisions in the investors' subleases that Chevron points to as constituting an
assumption of Traillour's obligations may be contrasted with the assumption provision in the
original assignment from Chevron to Traillour, Rocky Mountain, and Marsh. The original
assignment provided as follows:
Traillour et al shall comply with all of the express and implied covenants and
conditions of the lease described in Exhibit "A" and shall assume all of Gulf's
obligations under said lease.
In the subleases from Traillour to the investors, by contrast, there is no such assumption
provision.
(ii) Traillour, under the terms of their subleases, and (iii) the Louisiana Commissioner of
Conservation, under section 30:4.C(1)(a)(iv) of the Louisiana Revised Statutes. The investors are
not obligated to Chevron to plug and abandon the wells. Therefore, they are not obligated to
indemnify Chevron for any subsequently incurred plug and abandon obligations.17
IV. CONCLUSION
The district court correctly granted summary judgment in favor of Rocky Mountain and the
investors on Chevron's letter of credit claims. The district court also correctly granted summary
judgment in favor of Chevron on Chevron's plug and abandon indemnity claim against Rocky
Mountain. We therefore AFFIRM the district court's decision as to these claims.
The district court erred, however, in granting summary judgment in favor of Chevron on
Chevron's plug and abandon indemnity claim against the investors, because the investors do not owe
any plug and abandon obligations to Chevron. We therefore REVERSE this part of the district
court's decision and instruct the district court to dismiss with prejudice Chevron's plug and abandon
indemnity claim against the investors. Each party shall bear its own costs.
17
We note that we have only been asked to decide whether the investors must indemnify
Chevron for any subsequently incurred plug and abandon obligations. No party has raised the
question of whether Chevron—in the event that it is held liable in solido with Traillour, Rocky
Mountain, and the investors for plugging and abandoning the wells on the Bayou Couba
lease—would have a right of contribution against the investors for a portion of the costs to plug
and abandon the wells. We therefore do not address whether Chevron would have a right of
contribution against the investors under such circumstances.