Quest Exploration and Development Co. v. Transco Energy Co. ( 1994 )

United States Court of Appeals, Fifth Circuit.
No. 93-2536.
QUEST EXPLORATION AND DEVELOPMENT COMPANY, Plaintiff-Appellant,
v.
TRANSCO ENERGY COMPANY and Transcontinental Gas Pipe Line
Corporation, Defendants-Appellees.
July 1, 1994.
Appeal from the United States District Court For the Southern
District of Texas.
Before POLITZ, Chief Judge, DAVIS and WIENER, Circuit Judges.
WIENER, Circuit Judge:
In this suit to void a settlement agreement on grounds of,
inter alia, fraudulent inducement and economic duress, Plaintiff-
Appellant Quest Exploration and Development Company (Quest) appeals
the district court's grant of summary judgment in favor of
Defendants-Appellees Transco Energy Company and Transcontinental
Gas Pipe Line Corporation (collectively, Transco1). Finding no
reversible error, we affirm.
I
FACTS AND PROCEEDINGS
Quest owned an interest in mineral production in the South
Lake Arthur Field, principally a natural gas field situated in
portions of Jefferson Davis, Vermilion, and Cameron Parishes in
southwest Louisiana. The wells in which Quest owned interests
1
On appeal, both parties treat Transcontinental Gas Pipe
Line Corp. and Transco Energy Corp. (Transcontinental's parent
company) as one entity. For ease of reference, this opinion does
likewise.
1
produced gas from that field for resale to purchasers. In 1980
Quest and several other producers in the field entered into a Gas
Purchase Agreement (the GPA) with Transco, which purchased gas and
transported it by pipeline to sell in interstate markets. Under a
take-or-pay clause in the GPA, Transco agreed either to take a
specified minimum quantity from each producer's gas on a monthly
basis and pay a set contract price for such quantities, or to pay
the contract price for such quantities if it took a lesser quantity
of gas (or no gas) into its pipeline. Specifically, Transco was
required to take or pay for 857 of Quest's delivery capacity of the
covered well or wells.
Responding in September 1984 to "current serious marketing
conditions,"2 Transco requested that certain portions of the GPA be
temporarily suspended, and that a Transco-proposed "Market
Maintenance Plan" (MMP) be implemented that would modify other
terms of the GPA during the period of suspension. Quest acceded to
a modification of the GPA and agreed to participate in the MMP as
an accommodation to Transco. This temporary modification of the
GPA was specified to be effective from November 1, 1984 to October
31, 1985: Once the MMP expired at the end of October 1985, the
GPA's original take-or-pay provisions would again dictate Transco's
obligations until the GPA's original expiration date in 1995.
2
The market for natural gas changed, and, contemporaneously,
regulatory orders freed purchasers of gas at the delivery end of
Transco's pipeline from paying minimum contractual prices to
Transco. Thus the purchase prices that Transco was committed to
pay to producers under take-or-pay provisions were considerably
higher than the sales prices that Transco could expect to receive
for gas purchased from its customers.
2
Upon expiration of the MMP on 10-31-85, the parties again
renegotiated the terms of the GPA—this time apparently at Quest's
instance.3 Quest expressed a desire to maintain a specified level
of monthly income, hoping that Transco would agree to purchase a
greater volume of gas at a lower unit price, which would generate
the stream of income Quest needed to meet its financial
obligations. Transco favored modification because of "falling
natural gas prices," and apparently believed that the force majeure
clause, as it related to general market conditions, applied.4
Transco and Quest conducted protracted settlement negotiations
from November 1985 until a settlement was reached in March 1986.
During the negotiations, Quest sought to make a "most favored
nations" clause part of the settlement. Such status would have
entitled Quest to a favorable change in the terms and conditions of
its settlement agreement with Transco if Transco were later to
enter into a more favorable settlement with any other producer in
3
When deposed, Mark Gardner, Quest's president, testified
that before the middle of November, he and the lawyer-secretary
for Quest, Jack Manning, initiated a meeting with Jim Sirois of
Transco, and asked Sirois if, in view of Quest's small interest
[a 27 working interest] in the field, Transco would be willing to
discuss a settlement with Quest. Sirois was "kind enough to call
Trisha Pollard to the meeting," and both Sirois and Pollard
indicated that they would like to discuss some type of a
settlement with Quest. A meeting was set up for late November to
start these conversations, which meeting was only the "tip of the
iceberg" in terms of the negotiations in which the parties
engaged in efforts to reach the settlement agreement finally
attained in March of 1986.
4
Transco relied on "unforeseen regulatory changes in binding
FERC orders" that relieved purchasers of gas from Transco from
paying minimum prices for gas under contracts with Transco as
constituting a force majeure event.
3
the field. According to Quest, "Transco personnel repeatedly
assured Quest that, "although they cannot put such a provision in
a contract, no better deal would be made with other parties to the
[GPA].' "
Consistent with Transco's insistence, the settlement agreement
did not contain a "most favored nations" clause. Quite to the
contrary, after stating that Transco was released from, and
relieved of liability for, any and all claims related to the GPA,
the agreement provided that:
This Agreement and the [GPA] amended hereby constitute the
entire agreement between the parties hereto with respect to
the transactions contemplated herein, supersedes and is in
full substitution for any and all prior agreements and
understandings between them related to such transactions, and
no party shall be liable or bound to any other party hereto in
any manner with respect to such transactions by any
warranties, representations, indemnities, covenants or
agreements except as specifically set forth herein.
The settlement agreement was signed in March 1986 by, among others,
Quest's president, Mark Gardner, and its lawyer-secretary, Jack
Manning. Among the terms of the settlement, one provided for Quest
to receive a cash payment of $2 million, and another reduced
Transco's take-or-pay obligations by half.
Quest asserts that, during the period of negotiation, Transco
unilaterally reduced the volume of its monthly "take" from Quest
from the eighty-five percent of Quest's delivery capacity as
required under the GPA to no more than five percent, and refused to
"pay" for the untaken difference. Transco, Quest contends, had no
legal right to withhold the minimum payments to which Quest was
entitled under the GPA. Quest asserts that by October 1985—before
4
negotiation of the settlement agreement and before Transco reduced
the amount of gas it would take—Quest had lost $4 million in part
as a result of Transco's refusal to fulfill its obligations under
the GPA and MMP. Quest also asserts that one of the reasons which
forced it to settle the dispute was the precipitous drop in its gas
sales revenue, which resulted from its participation in the MMP—the
GPA's temporary modification in which Quest voluntarily
participated.5 Quest thus insists that, as it was facing imminent
bankruptcy because of Transco's unlawful conduct, Quest's forced
settlement was the result of acts constituting economic duress by
Transco.
Quest filed the instant suit in February 1988, almost two
years after the March 1986 settlement of which it complains. In
its complaint, Quest fired a broad side of charges ranging from
antitrust and fraud to breach of contract. Unfortunately for
Quest, though, all of these charges arose from conduct that related
to the GPA and that occurred before the settlement agreement.
Consequently, concluded the district court, all claims were barred
by the plain terms of that agreement. Apparently conceding this
point,6 Quest nonetheless asserted that the settlement was
5
We speculate that Quest's alleged $4 million loss may have
resulted primarily from its voluntary participation in the MMP
rather than from Transco's conduct after October 1985, of which
conduct Quest now complains. Quest offers no evidence to
demonstrate that its alleged losses resulted from Transco's
breach of the GPA or MMP rather than from Quest's participation
in the MMP.
6
At trial and on appeal, Quest does not appear to contest
that the settlement agreement would bar all of its claims if the
agreement were enforceable.
5
unenforceable because it was fraudulently induced: Although
Transco had "represented" that it would make no better deals with
other producers, Transco made settlements with two other producers
in the field on terms more favorable than those received by
Quest—albeit at a time when Transco was under the added pressure of
a lawsuit filed by one of those two producers, which lawsuit Quest
elected not to join, and of a lawsuit threatened by the other. In
the alternative, Quest insists that it was forced to enter the
agreement because of economic duress, and that such duress rendered
the settlement unenforceable.7 Quest appears to have asserted the
fraudulent inducement and economic duress claims both as means to
avoid the settlement agreement, and also as its sole remaining
substantive grounds for recovery. The district court rejected both
of these contentions and granted summary judgment for Transco, from
which Quest timely appealed.
One of the more puzzling aspects of this case is that
the district court claims to be the one that called the
parties' attention to the significance of the settlement
agreement. Given the obvious importance of this settlement
agreement, it is unclear from the briefs and the record
excerpts just why this case engendered almost five years of
discovery and a 4900 page record.
7
Interestingly, even though Quest maintains that it was
forced to settle because of "severe economic distress" that was
caused by Transco, Quest did not raise its economic duress
claim—or possibly was unaware that it had been subjected to
duress by Transco—until it learned that Transco had made better
deals with other producers. See Appellant's Reply Brief at 11.
In fact, Quest did not raise its economic duress claim until
almost two years after it entered the settlement agreement. Cf.
Palmer Barge Line, Inc. v. Southern Petroleum Trading Co., Ltd.,
776 F.2d 502, 506 (5th Cir.1985) (holding that several-month
"delay in raising a claim of duress in addition to the existence
of a negotiated agreement between parties represented by counsel
is compelling evidence that there was in fact no duress").
6
II
ANALYSIS
A. Standard of Review
The grant of a motion for summary judgment is reviewed de
novo, using the same criteria employed by the district court.8 In
determining whether the grant was proper, we view all fact
questions in the light most favorable to the nonmovant; questions
of law are reviewed de novo.9 Nonetheless, when a properly
supported motion for summary judgment is made, the adverse party
may not rest upon the mere allegations or denials of its pleadings,
but must set forth specific facts showing that there is a genuine
issue for trial to avoid the granting of the motion for summary
judgment.10 Unsubstantiated assertions are not competent summary
judgment evidence.11
B. Enforceable Settlement Agreement
1. Fraudulent Inducement
Quest claims that its assent to the settlement agreement was
induced by Transco's false representation that Quest would be given
most favored nations status and that no better deal would be made
with other parties to the GPA.
8
United States Fidelity & Guar. Co. v. Wigginton, 964 F.2d
487, 489 (5th Cir.1992); Walker v. Sears, Roebuck & Co., 853
F.2d 355, 358 (5th Cir.1988).
9
Walker, 853 F.2d at 358.
10
Fed.R.Civ.P. 56(e); Anderson v. Liberty Lobby, Inc., 477
U.S. 242, 250, 106 S. Ct. 2505, 2511, 91 L. Ed. 202 (1986).
11
Celotex Corp., 477 U.S. at 324, 106 S.Ct. at 2553, 91
L. Ed. 2d at 272.
7
Reliance is, of course, an element of Quest's common law fraud
claim.12 Under Texas law, to survive summary judgment on its fraud
claim, Quest had to offer competent summary judgment evidence that
it relied on Transco's "fraudulent" conduct, and that such reliance
was "justifiable."13 Determination of justifiable reliance turns
on whether—given the "fraud plaintiff's individual characteristics,
abilities, and appreciation of facts and circumstances at or before
the time of the alleged fraud—it is extremely unlikely that there
is actual reliance on the plaintiff's part."14
Both parties to this settlement were sophisticated and were
represented by attorneys.15 The settlement agreement itself is in
writing and is straightforward: It releases any and all claims
related to the GPA, contains a comprehensive merger clause, and
contains nothing remotely resembling a most favored nations clause.
Indeed, Manning, who signed for Quest, is not just a sophisticated
corporate officer but is also an attorney. He testified under oath
that when he signed the agreement, he was aware of the merger
provision and was also aware that Quest "didn't get " most favored
12
E.g., Boggan v. Data Systems Network Corp., 969 F.2d 149,
151-52 (5th Cir.1992); Trenholm v. Ratcliff, 646 S.W.2d 927, 930
(Tex.1983).
13
Haralson v. E.F. Hutton Group, Inc., 919 F.2d 1014, 1025
(5th Cir.1990); see Finger v. Morris, 468 S.W.2d 572, 577
(Tex.Civ.App.—Houston [14th Dist.] 1971, writ ref'd n.r.e.).
14
Haralson, 919 F.2d at 1026.
15
See Ingram Corp. v. J. Ray McDermott & Co., 698 F.2d 1295,
1312 (5th Cir.1983) (observing that validity of a settlement is
buttressed by fact that parties to the settlement are
sophisticated and are represented by counsel).
8
nations status in the settlement agreement despite repeated
requests for such status. When Manning was asked why he allowed
himself and Gardner to sign an agreement devoid of the much-desired
"most favored nations" clause, he succinctly testified that "[i]t
was the best deal we could get."16
Given these facts—and given the general rule that parties are
presumed to have notice of what they have signed17—Quest has failed,
as a matter of law, to carry its burden of presenting summary
judgment evidence sufficient to raise a genuine issue of fact
whether it was justified in relying on oral assurances that it
would have "most favored nations" status. This is so even if we
accept Quest's version of the facts and assume arguendo that Quest
relied on such assurances.
2. Economic Duress
To establish economic duress, Quest had to show that (1)
Transco threatened to do some act that it had no legal right to do;
(2) the threat was of such character as to destroy the free agency
16
When Manning was further asked why he did not stop the
transaction to add this clause, he testified that he declined to:
Because we had asked for that provision and they
wouldn't give it to us. In effect we did that several
times. If you ask did we ever say we wanted a favored
nations clause, we did ask for it. We didn't get it.
He continued, "And I believe I have testified repeatedly
that we asked for it, they refsued to give it to us."
17
E.g., Rosas v. United States Small Business Admin., 964
F.2d 351, 355-56 (5th Cir.1992) (applying rule to loan
agreement); Shindler v. Mid-Continent Life Ins. Co., 768 S.W.2d
331, 334 (Tex.App.—Houston [14th Dist.] 1989, no writ) (applying
same to insurance agreement); See Boggan v. Data Systems Network
Corp., 969 F.2d 149, 153 (5th Cir.1992) (noting general rule).
9
of Quest, and that it overcomes Quest's will and causes Quest to do
that which it would not otherwise do, and which it was not legally
bound to do; (3) the restraint caused by such threat was imminent;
and (4) the threat was such that Quest had no present means of
protection.18
Notwithstanding Quest's conclusionary allegations that it was
facing imminent bankruptcy and was thereby forced to enter the
settlement agreement, we find no competent summary judgment
evidence to support those assertions. The only summary judgment
evidence on this score is the unsupported statements in affidavits
of Quest's executives that payments by Transco were Quest's only
source of income, and that Quest could not meet its financial
obligations if it did not receive the income due under the GPA.
Although Quest offered documentary evidence that its monthly
revenue from Transco fell from $47,739.86 in October of 1985, the
last month of the MMP, to $2,974.97 in February of 1986 (the month
before Quest was "forced" to sign the Settlement Agreement), that
is not evidence that Quest was otherwise unable to meet its
financial obligations. The record contains no financial
statements, bank statements, income tax returns, collection
letters, or other evidence of Quest's imminent financial demise.19
Again, unsubstantiated assertions are simply not competent summary
18
Nance v. RTC, 803 S.W.2d 323, 333 (Tex.App.—San Antonio
1990), writ denied, 813 S.W.2d 154 (1991).
19
Cf. Palmer Barge Line Inc. v. Southern Petroleum Trading
Co., Ltd., 776 F.2d 502, 505-06 (5th Cir.1985).
10
judgment evidence.20
III
CONCLUSION
For the foregoing reasons, we conclude that the district court
properly granted summary judgment in favor of Transco on both the
fraudulent inducement and economic duress claims. Therefore, the
judgment of the district court is in all respects
AFFIRMED.
20
Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S. Ct.
2548, 2553, 91 L. Ed. 2d 265, 272 (1986).
11