Greenwood 950, L.L.C. v. Chesapeake Louisiana, L.P. , 683 F.3d 666 ( 2012 )

Case: 11-30436 Document: 00511883997 Page: 1 Date Filed: 06/12/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
June 12, 2012
No. 11-30436
Lyle W. Cayce
Clerk
GREENWOOD 950, L.L.C.,
Plaintiff-Appellant
v.
CHESAPEAKE LOUISIANA, L.P.,
Defendant-Appellee
Appeal from the United States District Court
for the Western District of Louisiana
Before HIGGINBOTHAM, GARZA, and CLEMENT, Circuit Judges.
PATRICK E. HIGGINBOTHAM, Circuit Judge:
Greenwood 950, L.L.C. (“Greenwood”), seeks consequential damages from
Chesapeake Louisiana, L.P. (“Chesapeake”), under a mineral lease. Sitting in
diversity and applying Louisiana law, the district court granted summary
judgment for Chesapeake, finding that the lease did not give Greenwood the
right to recover consequential damages. We find that the relevant provision of
the lease is ambiguous, so we vacate the summary judgment ruling and remand
for further proceedings.
I.
On January 31, 2008, Greenwood and Chesapeake executed a mineral
lease. The lease abutted land that Greenwood was developing into a subdivision.
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On February 25, 2010, Greenwood filed a petition for damages in Louisiana state
court, alleging that Chesapeake had damaged Greenwood’s property, thereby
preventing Greenwood from using it as planned. Specifically, Greenwood alleged
that Chesapeake had “greatly impacted the property to the extent of preventing
further efforts for a subdivision, including taking control of the main road,
placing their drill sites directly on the road, preventing the subdivision as
designed, and preventing further sales of the property.” Greenwood further
claimed that Chesapeake had agreed to pay for “all damages caused by its
operations,” which it contended should include the damages arising from its
alleged inability to “properly use, market, or manage its property.”
Chesapeake removed the action to the Western District of Louisiana. It
moved for summary judgment, arguing that the lease limits its liability to
liquidated damages plus actual damages to the surface of the tract it leased, the
latter to be capped at the fair market value of that tract when the lease was
executed. Chesapeake argued that its liability under the lease does not include
consequential damages for loss of value to surrounding lots. The district court
granted Chesapeake’s motion, concluding that
Upon examination of [the] phrase at issue, the
paragraph in which it is contained, and the contract as
a whole, the Court finds that the contested language
does not contemplate damages for Greenwood’s
inability to develop the subdivision outside of the areas
designated for surface operations. Further, no
ambiguity exists that would necessitate the
consideration of extrinsic evidence outside the four
corners of the contract.1
Greenwood timely appealed.
1
Greenwood 950, L.L.C. v. Chesapeake Louisiana, L.P., No. 5:10-CV-419, 2011 WL
1627992, at *3 (W.D. La. Apr. 28, 2011).
2
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II.
We review de novo the district court’s grant of summary judgment.2
Summary judgment is appropriate when there is no genuine dispute as to any
material fact and the moving party is entitled to judgment as a matter of law.3
As part of that analysis, we review de novo the district court’s interpretation of
the contract, including the question of whether the contract is ambiguous.4
III.
A. Louisiana Contract Law
Under Louisiana law,5 a mineral lease is a contract by which a lessee is
granted the right to explore for and produce minerals.6 A mineral lease is most
commonly interpreted using the general rules of contract interpretation in the
Louisiana Civil Code.7
The Code defines the judiciary’s responsibility in interpreting contracts as
“the determination of the common intent of the parties.”8 Courts may not look
outside the contract’s four corners “in search of the parties’ intent” when “the
words of a contract are clear and explicit and lead to no absurd consequences.”9
2
Am. Electric Power Co. v. Affiliated FM Ins. Co., 556 F.3d 282, 285 (5th Cir. 2009).
3
FED. R. CIV. P. 56(a).
4
Am. Electric Power, 556 F.3d at 285.
5
This case was removed to the Western District of Louisiana pursuant to federal
diversity jurisdiction. See 28 U.S.C. § 1332. We apply the substantive law of Louisiana, the
forum state. See Holt v. State Farm Fire & Cas. Co., 627 F.3d 188, 191 (5th Cir. 2010) (citing
Erie R.R. v. Tompkins, 304 U.S. 64 (1938)).
6
LA. REV. STAT. ANN. § 31:114.
7
See Cascio v. Twin Cities Dev., LLC, 48 So. 3d 341, 342-43 (La. Ct. App. 2010).
8
LA. CIV. CODE ANN. art. 2045; see Corbello v. Iowa Prod., 850 So. 2d 686, 693 (La.
2003).
9
LA. CIV. CODE ANN. art. 2046; see Corbello, 850 So. 2d at 693.
3
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When a contract can be construed within its four corners, interpretation of the
contract presents a question of law that can be decided on summary judgment.10
But a contract is ambiguous when, inter alia, its “written terms are
susceptible to more than one interpretation,” when “there is uncertainty as to its
provisions,” or when “the parties’ intent cannot be ascertained from the language
used.”11 Extrinsic evidence is admissible to interpret the intent behind an
ambiguous provision.12 A doubtful provision must be interpreted “in light of the
nature of the contract, equity, usages, the conduct of the parties before and after
the formation of the contract, and of other contracts of a like nature between the
same parties.”13 If the contract remains ambiguous, and if there are two or more
reasonable interpretations, the contract is construed against its drafter.14
10
See Sims v. Mulhearn Funeral Home, Inc., 956 So. 2d 583, 590 (La. 2007); see also id.(“The determination of whether a contract is clear or ambiguous is a question of law.”).
11
Sequoia Venture No. 2, Ltd. v. Cassidy, 968 So. 2d 806, 809 (La. Ct. App. 2007);
accord Campbell v. Melton, 817 So. 2d 69, 75 (La. 2002). The Fifth Circuit, describing
Louisiana law, has suggested that multiple interpretations must each be “reasonable” to
establish ambiguity. See, e.g., Am. Electric Power Co., 556 F.3d at 286; Lifemark Hosps., Inc.
v. Liljeberg Enters., Inc. (In re Liljeberg Enters., Inc.), 304 F.3d 410, 439-40 (5th Cir. 2002).
If there is any daylight between that suggestion and Louisiana’s case law, the distinction is
of no moment in this case. In any event, we must look first and foremost “to the final decisions
of Louisiana’s highest court” rather than this Court’s prior applications of Louisiana law.
Holt, 627 F.3d at 191.
12
See Am. Electric Power Co., 556 F.3d at 286; McDuffie v. Riverwood Int’l Corp., 660
So. 2d 158, 160 (La. Ct. App. 1995).
13
LA. CIV. CODE ANN. art. 2053; McDuffie, 660 So. 2d at 161. According to the Civil
Code, equity “is based on the principles that no one is allowed to take unfair advantage of
another and that no one is allowed to enrich himself unjustly at the expense of another,” and
usage is “a practice regularly observed in affairs of a nature identical or similar to the object
of a contract subject to interpretation.” LA. CIV. CODE ANN. art. 2055.
14
LA. CIV. CODE ANN. art. 2056; Sims, 956 So. 2d at 590 (stating that the strict
construction principle of LA. CIV. CODE ANN. art. 2056 applies “only if the ambiguous [contract]
provision is susceptible to two or more reasonable interpretations”). Article 2056 is captioned
“Standard-form contracts,” but neither the Fifth Circuit nor the Supreme Court of Louisiana
has confined it to standard-form or adhesionary contracts. See In re Liljeberg Enters., Inc., 304
F.3d at 440 & n.74 (citing Huggs, Inc. v. LPC Energy, Inc., 889 F.2d 649, 653 (5th Cir. 1989)
(applying Article 2056 in a case involving a mineral lease)).
4
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Finally, nontechnical words in a contract must be given their generally
prevailing meaning,15 and each contract provision must be interpreted in light
of the other provisions so that each is given the meaning suggested by the
contract as a whole.16
B. The Language of the Lease
This case turns on the interpretation of paragraph 1 of Exhibit C of the
mineral lease. In that paragraph, Chesapeake agreed
to repair all surface damages done by its operations or
shall pay [Greenwood] for all damages caused by any
operations hereunder to any property, both real and
personal, of [Greenwood] and [Greenwood]’s tenant, if
any, including but not limited to, water wells, growing
crops (including grass), trees, all animals and livestock,
fences, gates, locks, cattle guards, roads, terraces,
culverts, bridges, potable water, tanks, reservoirs,
drainage, dwellings, buildings, barns and all other
structures and improvements on the leased premises.
Greenwood, in turn, specifically agreed
that the obligations and liabilities of [Chesapeake] for
reclamation, restoration, repair or maintenance of the
surface or subsurface of the leased premises shall never
exceed fair market value (determined as of the effective
date hereof) of the lands covered by this lease, or the
portion thereof, for which such reclamation, restoration,
repair or maintenance is required.
C. Analysis
In the first sentence of paragraph 1, Chesapeake agreed to “repair all
surface damages done by its operations or . . . pay [Greenwood] for all damages
caused by any operations hereunder to any property, both real and personal, of
[Greenwood] and [Greenwood]’s tenant, if any, including but not limited to,
15
LA. CIV. CODE ANN. art. 2047.
16
Id. art. 2050.
5
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water wells, [etc.]”17 Under the district court’s reading, the “repair all surface
damages” language at the beginning of the sentence limits the scope of
Chesapeake’s obligation to “pay . . . all damages,” which comes later in the
sentence, to actual surface damages. The court supported that conclusion by
adverting to the sentence’s list of examples of protected features (e.g., water
wells, dwellings, fences, trees), which includes only surface features. The district
court further supported its interpretation by pointing to the damages cap on
surface repairs, set at the fair market value on the lease’s effective date. The
court reasoned that because the effective date of the lease preceded any further
development of the subdivision, the lease does not contemplate as damages “the
potential value of any undeveloped expansion of the subdivision.”18 To the
district court, “[t]he contract is not ambiguous, and therefore, no examination of
extrinsic evidence is allowed.”19
The district court’s interpretation is reasonable, but Greenwood offers a
credible alternative. Under the first sentence of paragraph 1, Chesapeake has
a disjunctive obligation to “repair all surface damages” or to “pay . . . all damages
caused by any operations hereunder to any property.” Giving the words their
natural meanings, “pay . . . all damages caused by any operations hereunder to
any property” is expansive.20 Indeed, attributing meaning to language variation
supports an inference that the “pay . . . all damages” clause is not limited to
surface damages. That is, we can infer some significance from the variation in
17
When there is emphasis in a quotation from the lease in this opinion, it has been
added.
18
Greenwood, 2011 WL 1627992, at *3.
19
Id.20
The “all damages” clause is limited to damages to property, both real and personal.
Chesapeake does not argue that the consequential damages Greenwood seeks—namely,
“preventing the subdivision as designed, . . . preventing further sales of the property, [and
Greenwood’s inability to] properly use, market, or manage its property”—are not damages to
property.
6
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wording between “all surface damages” and “all damages” in the provision.
There is another wording variation between “all surface damages done by its
operations” and “all damages caused by any operations hereunder,” with the
latter clause encompassing a broader range of causation and operations.
Furthermore, separate provisions of the lease demonstrate that Chesapeake
knew how to draft damages provisions limited to actual damages when it
intended to.21
Greenwood counters the district court’s reliance on the enumerated list of
potential surface damages by pointing to the preceding “including but not
limited to” language. Also, it is not obvious that the liability cap for
“reclamation, restoration, repair or maintenance of the surface or subsurface of
the leased premises” should apply to consequential damages arising from
Chesapeake’s alleged property damage. Such damages would not necessarily fall
under the categories of “reclamation, restoration, repair or maintenance.”
Indeed, Greenwood’s interpretation of the lease distinguishes “repair all surface
damages” from “pay . . . all damages” in a way that distinguishes consequential
damages under the latter clause from the type of damages subject to the liability
cap.
Faced with Greenwood’s internally consistent and reasonable alternative
reading of the relevant contract language, we are persuaded that the lease is
ambiguous with respect to consequential damages. Accordingly, we vacate the
district court’s summary judgment ruling and remand so that the district court
may consider extrinsic evidence and, if necessary, construe the provision against
its drafter.
21
The mineral lease includes the following provisions: “Lessee shall pay for actual
damages caused by its operations to growing crops and timber on said land leased herein”; and
“In addition, LESSEE shall pay actual damages.”
7
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IV.
The district court’s grant of summary judgment is VACATED, and the case
is REMANDED for further proceedings consistent with this opinion.
8