Pioneer Expl Ltd v. Rutherford ( 2009 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 30, 2009
No. 08-30422 Charles R. Fulbruge III
Clerk
Pioneer Exploration, Ltd.
Plaintiff-Appellee
v.
Cleveland J. Rutherford and Terry A. Rutherford
Defendants-Appellants
Appeal from the United States United States District Court for the Western
District of Louisiana
USDC No. 2:07-CV-566
Before GARWOOD, OWEN, and HAYNES, Circuit Judges.
PER CURIAM:*
This appeal arises from the execution of a surface land Lease Agreement
(the lease) between plaintiff-appellee, Pioneer Exploration Ltd. (Pioneer), and
defendants-appellants, Cleveland J. Rutherford and Terry A. Rutherford
(collectively, the Rutherfords). After entering into the lease, the Rutherfords
contested the “Premises Leased” provision of the contract. On March 26, 2007,
Pioneer filed a Complaint for a Declaratory Judgment in federal district court.
On October 2, 2007, the Rutherfords filed a counterclaim requesting reformation
*
Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR . R. 47.5.4.
of the Lease Agreement. On April 11, 2008, the district court granted summary
judgment in Pioneer’s favor. The Rutherfords timely appealed to this court. For
the following reasons, we AFFIRM.
I. FACTS AND PROCEEDINGS BELOW
In the summer of 2005, a Pioneer representative, John Gilbert,
approached the Rutherfords to discuss the possibility of leasing their property
for the construction and operation of an oil and gas facility. The Rutherfords
owned approximately twenty acres of land in Cameron Parish, Louisiana. The
tract was divided approximately in half by a shell road, and though the portion
north of the road was unused, the Rutherfords maintained their homesteads
south of the road.1
During lease negotiations, the Rutherfords were represented by their
attorney, Jennifer Jones (Ms. Jones), and Pioneer was represented by its vice
president and general counsel, George Ruff (Mr. Ruff). Five drafts of the lease
agreement were circulated prior to the final agreement. Each draft recited the
following property description: “7 acres of land out of the SE/4 of the NE/4 of
Section 34.” But this property description was incorrect—the Rutherfords did
not own any land in the northeast quarter of Section 34. 2 Thus, every draft prior
to the final agreement contained a totally incorrect legal description of the
property to be leased. Also, none of the prior drafts described which seven acres
of the approximately twenty-acre tract were to be leased, and both parties admit
that seven acres was an approximation and the exact amount of acreage to be
1
While lease negotiations were ongoing, the Rutherfords’ homesteads were
destroyed by hurricane Rita; there is evidence that at all times, the Rutherfords have
intended to rebuild their homes on the same site.
2
The Rutherfords own land in the western half of the northeast quarter of the
southeast quarter of Section 34 (abbreviated as W/2 NE/4 SE/4 of Section 34); they do not
own any land in the northeast quarter of Section 34.
2
included in the lease was uncertain.
Pioneer rejected each draft containing the incorrect legal description and
repeatedly requested “a better property description.” In January 2006, Mr. Ruff
sent Ms. Jones a letter requesting a “good description of the 7 acres.” In
response, Ms. Jones faxed Mr. Ruff two documents: (1) a copy of the Cameron
Parish Assessor’s Office’s record containing the legal description of the
Rutherfords’ property and (2) an approximately letter size copy of a “Tobin” map
covering more than 20 sections in the area, including section 34, on which she
had highlighted a some seven acre area.3 The fax cover sheet read: “See
attached property description from the Cameron Parish Assessor’s Office.” This
record reflected that the Rutherfords owned 21.95 acres in the “W/2 NE/4 SE/4
SEC 34.”
After receiving these documents, Mr. Ruff inserted the property
description into the lease as follows: “All of the land owned by Lessor in the W/2
NE/4 SE/4 of Section 34.” This property description encompassed approximately
twenty acres, though the parties repeatedly referred to the lease as seven acres
in previous drafts and correspondence. The lease agreement, like all previous
drafts, also states that the acreage is only an estimate, that Pioneer would
arrange to have the property surveyed, and the survey description will replace
the lease language property description.
Pioneer then sent the lease agreement to the Rutherfords and attached a
cover sheet stating that Ms. Jones had supplied the lease’s final property
description. Pioneer also enclosed two checks for $5,000, each with the following
notation: “SURF. LS. ACQUISITION COVERING, 7 ACRES IN THE
3
The highlighted portion of the map was extremely small and the map was sent via
facsimile, rendering it difficult, if not impossible, to ascertain what portion of land was
highlighted.
3
W/2NE/4SE/4 OF, SEC. 34, 14S, 7W CAMERON PARI[SH].” Though Mr. Ruff
copied Ms. Jones on an email containing the cover sheet and final lease
agreement, Ms. Jones alleges that she did not receive a copy of the lease
agreement, either by email or mail. Three weeks later, the Rutherfords signed
the lease agreement in Ms. Jones’s office and Ms. Jones signed as a witness.
Both the Rutherfords and Ms. Jones assert they did not read the final lease
agreement prior to signing it.
Nearly ten months later, Ms. Jones contacted Mr. Ruff asserting that the
property description contained in the final lease agreement was erroneous. She
requested that the property description be changed to the following:
“[a]pproximately seven (7) acres, more or less, located North of shell road in the
West one-half (1/2) of the NE/4 of the SE/4 of Section 34." Pioneer responded
that it did not wish to amend the lease, and Ms. Jones demanded renegotiation
and threatened to sue Pioneer.
Pioneer responded by filing suit in federal district court for a declaratory
judgment against the Rutherfords. The Rutherfords counterclaimed, alleging
the contract was void due to (1) fraud, (2) unilateral error, and/or (3) mutual
error, and requested rescission or reformation. The district court granted
summary judgment in Pioneer’s favor. The Rutherfords now appeal to this
court. The parties agree that in this diversity case the applicable substantive
law is that of Louisiana.
II. DISCUSSION
The Rutherfords argue that the district court erred in granting Pioneer’s
summary judgment motion because the record evidence creates a genuine issue
of fact as to the lease’s validity. Under Louisiana law, consent is required to
form a valid contract. L A. C IV. C ODE A NN. art. 1927. “Consent may be vitiated
by error, fraud, or duress,” which consequently would invalidate the contract.
4
Id. art. 1948.4 The Rutherfords argue that, based upon the evidence presented,
a reasonable trier of fact could determine that their consent to the lease was
vitiated by (1) fraud, (2) unilateral error, or (3) mutual error; thus, Pioneer was
not entitled to judgment as a matter of law.
This court reviews a district court’s order granting summary judgment de
novo, applying the same standard as the district court. Aryain v. Wal-Mart
Stores Texas LP, 534 F.3d 473, 478 (5th Cir. 2008). Summary judgment is
appropriate when “there is no genuine issue as to any material fact and . . . the
movant is entitled to judgment as a matter of law.” F ED. R. C IV. P. 56(c). With
respect to issues on which the nonmovant would bear the burden of proof at
trial, “[a] genuine issue of material fact exists if the summary judgment evidence
is such that a reasonable jury could return a verdict for the non-movant.”
Aryain, 534 F.3d at 478. “[A]ll facts and evidence must be taken in the light
most favorable to the non-movant.” LeMaire v. La. Dept. of Transp. and Dev.,
480 F.3d 383, 387 (5th Cir. 2007). In reviewing the evidence at summary
judgment, we must “refrain from making credibility determinations or weighing
the evidence.” Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th
Cir. 2007).
We first address the Rutherfords’ fraud and unilateral error claims before
addressing the more difficult issue of mutual error.
A. Fraud and Unilateral Error
Under Louisiana law, “[i]t is well settled that a party who signs a written
instrument is presumed to know its contents and cannot avoid its obligations by
contending that he did not read it, that he did not understand it, or that the
4
Parol evidence is admissible where a party argues “vice of consent,” either through
mistake or fraud. Condrey v. Suntrust Bank of Georgia, 429 F.3d 556, 563 (5th Cir. 2005);
see also LA . CIV . CODE ANN . art. 1848.
5
other party failed to explain it to him.” Aguillard v. Auction Mngt Corp., 908
So. 2d 1, 17 (La. 2005). Bearing this principle in mind, Louisiana courts have
consistently held that a unilateral error cannot invalidate an agreement if it was
caused by a complaining party’s “inexcusable ignorance, neglect, or want of care”
or where that party “through education or experience, had the knowledge or
expertise to easily rectify or discover the error complained of.” Scott v. Bank of
Coushatta, 512 So. 2d 356, 362, 363 (La. 1987). This has become known as the
contractual negligence defense and is most commonly used to bar rescission for
errors “resulting from a party’s failure to read the document in issue.” Ill. Cent.
Gulf R. Co. v. R.R. Land, Inc., 988 F.2d 1397, 1405 (5th Cir. 1993). The defense
also applies to fraud claims:
“Fraud does not vitiate consent when the party against whom the
fraud was directed could have ascertained the truth without
difficulty, inconvenience, or special skill. This exception does not
apply when a relation of confidence has reasonably induced a party
to rely on the other’s assertions or representations.”
L A. C IV. C ODE A NN. art. 1954. And again, this defense is consistently applied to
bar a party’s fraud claim where the complaining party failed to read a document
before signing it. E.g., Martin v. JKD Investments, LLC, 961 So. 2d 575, 578 (La.
App. 2d Cir. 2007); Sonnier v. Boudreaux, 673 So. 2d 713, 717–18 (La. App. 1st
Cir. 1996).
The Rutherfords admit that neither they nor their attorney read the final
lease agreement before signing it.5 Had they read the document, they could have
easily discovered the allegedly erroneous property description. The property
description is contained in the “Premises Leased” provision, which is the first
provision in the lease and is prominently located on the first page of the
5
The Rutherfords also do not claim, nor is there any evidence to suggest, that a
relationship of confidence existed between themselves and Pioneer.
6
agreement. It is set off by double indents, contains no more than twenty-five
words, and begins with “[a]ll of the land owned by Lessor.” Further, the
Rutherfords were experienced in leasing their property, had qualified counsel at
their disposal, and were in possession of the lease for three weeks before signing
it. The lease was signed by them, and signed as a witness by their counsel (and
acknowledged by them before a notary who was their counsel’s secretary) all in
their counsel’s office. It was then sent to Pioneer for execution by Pioneer.
Clearly the Rutherfords could have easily discovered the alleged error simply by
reading the document; thus, the contractual negligence defense bars the
Rutherfords’ claims that their consent is void due to fraud or unilateral error.
Contractual negligence, however, “does not bar reformation where mutual
mistake has been pleaded and proved.” Ill. Cent., 988 F.2d at 1398. Thus, we
now turn to whether a fact question regarding mutual mistake exists.
B. Mutual Error
The Rutherfords contend that there clearly existed an antecedent
agreement between the parties that the leased premises pertained to a seven-
acre tract of land located north of the shell road. Further, they argue that this
agreement was incorrectly reduced to writing, that the error was mutual, that
their consent was vitiated, and reformation is warranted.6
Again, Louisiana law requires consent to have an enforceable contract, and
consent can be rendered void by error. L A. C IV. C ODE A NN. art. 1927, 1948. In
the event that an error causes a contract to recite terms to which neither party
agreed, Louisiana law provides contract reformation as an equitable remedy.
6
Pioneer argues that the Rutherfords are barred from raising this claim on appeal
because they did not press the issue to the district court. This argument is without merit
because the Rutherfords alleged mutual error in their Counterclaim and in their
Memorandum in Opposition to Summary Judgment, and the district court definitively
ruled on the issue.
7
Phillips Oil Co. v. OKC Corp., 812 F.2d 265, 274 (5th Cir. 1987). “Before an
instrument will be reformed, ‘there must be clear proof of the antecedent
agreement as well as an error in committing it to writing.’” Ill. Cent., 988 F.2d
at1402 (quoting Pat S. Todd Oil Co., Inc. v. Wall, 581 So. 2d 333, 336 (La. App.
3rd Cir. 1991)). Reformation is only available to “‘correct mistakes or errors in
the written instrument when such instrument, as written, does not express the
true contract or agreement of the parties.’” Phillips Oil , 812 F.2d at 274 (quoting
Fontenot v. Lewis, 215 So. 2d 161, 163 (La. App. 3d Cir. 1968)). Most
importantly, “[t]he error or mistake must be mutual,” 7 and the party seeking
reformation must establish the mutual error by clear and convincing evidence.
Id. (emphasis added).
In light of the summary judgment standard and the Rutherfords’ burden
of proof at trial, this Court must ascertain whether, viewing all of the evidence
in the light most favorable to the Rutherfords, enough evidence exists for a
reasonable factfinder to determine that the Rutherfords have shown mutual
error by clear and convincing evidence. In making this determination, “the court
should focus on who reduced the proposed agreement to writing, who the parties
to the agreement were, whether the provision at issue was central to the
agreement, and what pains the parties took in reviewing the written
instrument.” Id. at 275.
The evidence in the present case demonstrates that Pioneer intended to
modify the final lease to include all of the Rutherfords’ land. First, the
“Premises Leased” provision is central to the lease agreement and was written
7
The Rutherfords characterize the issue as whether the parties mutually intended
to change the agreement at the last minute. This is a mischaracterization of the
issue—there is no requirement of mutual intent, but rather a requirement of mutual error.
It is quite possible the Rutherfords did not intend to lease all of their property, but that
does not evidence that Pioneer did not intend to lease all of the Rutherfords’ property.
8
in clear and unambiguous terms, beginning with “[a]ll of the land owned by
Lessor.” Second, Pioneer reduced the agreement to writing, and it is undisputed
that Pioneer inserted the final property description. Mr. Ruff’s affidavit explains
that he inserted this property description after Ms. Jones faxed him the
Cameron Parish Assessor’s records showing that the Rutherfords owned nearly
twenty-two acres in Section 34. The lease’s final property description is not
limited by any reference to seven acres or a shell road. The significance of the
provision and Pioneer’s affirmative act to include “all land owned,” rather than
a limiting provision, demonstrates that this language was not included by
accident. Additionally, both parties were experienced in leasing—Pioneer is an
oil and gas producer with experience in surface leases, and the Rutherfords had
leased their own land before and were also represented by qualified counsel. All
of these factors evidence that Pioneer was not mistaken when it agreed to lease
all of the Rutherfords’ land.
Still, the Rutherfords maintain that clear and convincing evidence exists
that a mutual mistake was made. They argue that during the lease negotiations
both parties consistently referred to the lease as seven acres, as evidenced by the
prior lease drafts and Pioneer’s own correspondences with Ms. Jones.
Additionally, in their affidavits, the Rutherfords explain that they were only
willing to lease the land north of the shell road because they maintained their
homesteads in the southern portion of the tract.8 These arguments do not
convince us that the record contains clear and convincing evidence of mutual
mistake.
8
Again, the Rutherfords homesteads were destroyed by hurricane Rita during the
negotiations. The Rutherfords maintain that they intended to rebuild their homesteads in
the same location and never discussed the possibility of leasing the entire twenty-acre
tract.
9
Though the parties consistently referred to seven acres, none of the
previous drafts described land that the Rutherfords actually owned, nor did they
mention a shell road or provide any means of identifying which seven acres of
the twenty-acre tract were to be leased. It is also undisputed that seven acres
was an approximation and neither party was certain as to the exact number of
acres to be covered by the lease. When prompted to provide a more detailed
property description, the Rutherfords’ attorney instructed Pioneer to “see [the]
attached property description from the Cameron Parish Assessor’s Office,” which
showed that the Rutherfords owned 21.95 acres in the “W/2 NE/4 SE/4 SEC 34.”
Ms. Jones also faxed Pioneer a map highlighting an area within section 34, but
the fax cover sheet did not direct Pioneer’s attention to this map, and the
highlighted portion is largely unidentifiable because it was sent via fax and
comprises only a very small portion of the map.
The Rutherfords’ strongest evidence of mutual mistake is Pioneer’s
enclosure of two $5,000 checks with a notation referencing a surface lease of “7
acres.” However, these still do not provide clear and convincing proof that
Pioneer included the language “all land owned” in error. It may be that the
individual writing the checks believed the lease was for seven acres, but the
lease itself clearly describes all of the land owned by the Rutherfords in a
twenty-acre tract. And there is no indication that the individual writing these
checks had any involvement with the lease negotiations, the drafting of the final
property description, or was aware of what the parties ultimately agreed upon.
Last, the Rutherfords’ reliance on this court’s opinion in Illinois Central,
which upheld a district court’s reformation of a contract after finding that a
party’s inadvertent omission of a term constituted a mutual error and warranted
reformation, is unpersuasive in the present context. See 988 F.2d at 1404–05.
In Illinois Central, there existed strong evidence that the parties had previously
10
agreed to include a specific rider in the final sale. Id. at 1404. In fact, this very
same rider had been included in a previous and related transaction between the
parties. Id. at 1400, 1404. Yet, the drafting party inadvertently omitted the
physical act of attaching the rider to the final agreement. Id. at 1404. And there
was evidence that the other party was unaware of the rider’s omission prior to
signing because its actions were in accordance with the rider’s terms. Id. at
1403 n. 17. Thus, the court determined that the physical omission of the rider
was a mutual mistake, and reformed the agreement. Id. at 1404–05.
Unlike Illinois Central, the present case involves an intentional,
affirmative act to include language in the most prominent provision of the
contract. Pioneer did not inadvertently omit a term, it specifically altered a
limiting phrase to extend the lease to “all of the land owned” in a twenty-acre
tract. It is implausible that this could be done by accident or mistake. And,
Pioneer, through Ruff, denied any such mistake. Every prior draft contained the
language “7 acres,” yet Pioneer consistently rejected this description, made
repeated requests for a better property description, and ultimately revised the
lease language to include “all of the land owned by Lessor.”9 This action reflects
an affirmative, conscious choice by Pioneer rather than an inadvertent
omission—a stark contrast to Illinois Central, where a specific rider, used by the
parties in a related past transaction, was inadvertently failed to be physically
attached to the final sale document.
Viewing the above evidence in the light most favorable to the Rutherfords,
a reasonable factfinder could not find mutual mistake by clear and convincing
9
As appellants assert in their brief to this court (p. 32) “it is hard to imagine how,
inter alia, deleting ‘seven acres’ and inserting ‘all of the land owned by Lessor’ into the
sixth draft of the lease was accidental.” Similarly, appellants also assert in their brief that
“a close review of the record exposes the real motive behind Pioneer’s last minute deception
of the Rutherfords.” (Id. at 39).
11
evidence.
CONCLUSION
For the aforementioned reasons, the district court did not err in granting
summary judgment.
AFFIRMED.
12