Petrohawk Properties, L.P. v. Chesapeake Louisiana, L.P. , 689 F.3d 380 ( 2012 )

Case: 11-30576 Document: 00511932058 Page: 1 Date Filed: 07/24/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
July 24, 2012
No. 11-30576 Lyle W. Cayce
Clerk
PETROHAWK PROPERTIES, L.P.,
Plaintiff - Appellant Cross-Appellee
v.
CHESAPEAKE LOUISIANA, L.P.,
Defendant - Appellee Cross-Appellant
LEE WELDON STOCKMAN; PATSY BISON STOCKMAN,
Defendants - Appellees
Appeals from the United States District Court
for the Western District of Louisiana
Before KING, HIGGINBOTHAM, and HIGGINSON, Circuit Judges.
KING, Circuit Judge:
What follows is the tale of competing mineral leases on the Louisiana
property of Lee and Patsy Stockman during the Haynesville Shale leasing
frenzy. In April 2008, the Stockmans entered into an extension of their mineral
lease with Chesapeake Louisiana, L.P. and received a $240,000 bonus. In May
2008, the Stockmans entered into a mineral lease with Petrohawk Properties,
L.P. for a $1.45 million bonus. In July 2008, Petrohawk dishonored the $1.45
million draft and executed a second mineral lease with the Stockmans, paying
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them a $1.7 million bonus. Chesapeake sued the Stockmans for breach of
contract, and the parties settled at trial. The Stockmans then sued Petrohawk
for fraud in obtaining the first mineral lease, and Chesapeake sued Petrohawk
for intentional interference with its contract with the Stockmans. Petrohawk
prayed for a judgment that its mineral lease was valid or, in the alternative, for
a return of its bonus money. After a bench trial, the district court found that
Petrohawk procured the first mineral lease by fraud and rescinded the lease.
The district court dismissed Chesapeake’s tort claim and dismissed Petrohawk’s
claim for a return of its bonus money. Petrohawk appealed, and Chesapeake
cross-appealed. For the following reasons, we AFFIRM the judgment of the
district court.
I. BACKGROUND
A. Statement of Facts
Lee and Patsy Stockman (the “Stockmans”) own real property in Caddo
Parish, Louisiana (the “Stockman property”). On July 14, 2005, the Stockmans
entered into a mineral lease with Stellios Exploration Company (the “Stellios
Lease”), which was later assigned to Chesapeake Louisiana, L.P. (“Chesapeake”).
The primary term of the Stellios Lease expired on July 14, 2008, and the Stellios
Lease did not contain an option to extend the primary term. However, the
Stellios Lease provided that the lease could be maintained beyond the primary
term by conducting drilling operations on the leased premises. On April 9, 2008,
Chesapeake and the Stockmans executed an extension of the Stellios Lease (the
“Chesapeake Extension”). Chesapeake tendered to the Stockmans a draft for the
lease bonus of $500 per acre, which amounted to $241,430. Chesapeake did not
immediately record the Chesapeake Extension.
On May 8, 2008, Lisa Broomfield (“Broomfield”) approached the
Stockmans about leasing their property to Petrohawk Properties, L.P.
(“Petrohawk”). Broomfield was a landman working for Pangaea Land Services
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(“Pangaea”) on behalf of its client, Petrohawk. Lee Stockman (“Mr. Stockman”)
informed Broomfield that he had already signed the Chesapeake Extension.
Broomfield responded that the Chesapeake Extension was not “legal or valid”
because Chesapeake had not yet recorded it. Broomfield explained that
Louisiana was a race state and that if Petrohawk recorded its lease first, the
Chesapeake Extension would be invalid. Broomfield did not tell Mr. Stockman
that the Chesapeake Extension would still be valid as to the Stockmans
regardless of recordation and that the Stockmans could be liable to Chesapeake
for breaching the obligation of good faith if they signed a competing lease with
Petrohawk. She offered the Stockmans a lease bonus of $3,000 per acre for a
mineral lease with Petrohawk, which amounted to $1.45 million.
After speaking with Broomfield, Mr. Stockman called his neighbor, who
was a retired geologist and had experience with mineral leases. The neighbor
gave Mr. Stockman the following language to include in the lease: “This lease is
executed [without] warranty of title, either expressed or implied, not even as to
the return of bonus money or any other payments.” That evening, Broomfield
sent an email to her supervisor stating that the Stockmans had already signed
the Chesapeake Extension. She explained that Mr. Stockman “realizes that if
[Petrohawk does not] win the race to the courthouse he is stuck with $500 per
acre.” Furthermore, she stated that Mr. Stockman requested a lease bonus of
$3,500 per acre and the inclusion of both vertical and horizontal Pugh clauses
in the lease. Broomfield also testified that Mr. Stockman had requested a three-
year primary term with a two-year option to extend.
On May 9, 2008, Broomfield returned to the Stockmans’ residence with a
lease for them to sign. The lease contained different terms than those that
Broomfield and Mr. Stockman had negotiated the day before: a $3,000 per acre
bonus payment, no Pugh clauses, and a primary term of five years. Broomfield
testified that the lease was intended as a “placeholder” in order for Petrohawk
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to win the race to the courthouse. Mr. Stockman asked Broomfield to include his
neighbor’s language expressly excluding any warranty of title. Broomfield called
her supervisors, who allowed the Stockmans to strike through the warranty of
title in the lease. Broomfield assured Mr. Stockman that striking the warranty
would have the same effect as including his neighbor’s language. The
Stockmans then signed and executed the mineral lease with Petrohawk (the
“May 9 Lease”). Petrohawk tendered to the Stockmans a draft for the lease
bonus (the “Petrohawk draft”) in the amount of $1.45 million and payable in
thirty days. That same day, Petrohawk recorded the May 9 Lease. Chesapeake
did not record the Chesapeake Extension until May 19, 2008.
On May 12, 2008, before depositing the Petrohawk draft, Mr. Stockman
went to the clerk of court’s office to ensure that Broomfield was correct that the
Chesapeake Extension was unrecorded. The clerk of court showed Mr.
Stockman that the Chesapeake Extension was unrecorded and confirmed that
Louisiana is a race state. After this investigation, Mr. Stockman deposited the
Petrohawk draft. Mr. Stockman wanted to return Chesapeake’s bonus money,
and in late May or early June, he paid an attorney to write a letter to
Chesapeake. The attorney drafted the June 2, 2008 letter, which revoked and
withdrew the Stockmans’ consent to the Chesapeake Extension and contained
a cashier’s check in the amount of Chesapeake’s bonus payment.
The Petrohawk draft was due to be paid to the Stockmans on July 2, 2008,
but the Stellios Lease was not set to expire until July 14, 2008. If Petrohawk
honored the $1.45 million draft on July 2, and Chesapeake commenced
operations on the Stockman property before the expiration of the Stellios Lease,
then Chesapeake would maintain the Stellios Lease and Petrohawk would lose
its bonus payment. Thus, Petrohawk intentionally dishonored the Petrohawk
draft, which was returned to Mr. Stockman unpaid on July 7, 2008.
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Mr. Stockman called Petrohawk to find out why the draft was dishonored.
He spoke with Todd Bergeron (“Bergeron”), who explained that Petrohawk’s
lawyers had advised Petrohawk not to pay the bonus until July 15, when it could
be confirmed that Chesapeake had not extended the Stellios Lease. Bergeron led
Mr. Stockman to believe that either party could walk away from the May 9
Lease, but that if Mr. Stockman did so, he would not receive the $1.45 million
bonus. Bergeron did not tell Mr. Stockman that he was legally entitled to
payment of the Petrohawk draft. Bergeron told Mr. Stockman that if he allowed
a delay in payment until July 15, Petrohawk would increase the bonus.
Thereafter, the Stockmans and Petrohawk executed a new lease on July
15, 2008 (the “July 15 Lease”). Petrohawk agreed to pay the Stockmans a lease
bonus of $3,500 per acre, or $1.7 million. The July 15 Lease, which was entitled
“Amendment of Oil, Gas and Mineral Lease,” contained a new description of the
Stockman property, a primary term of three years, a two-year option to extend,
and horizontal and vertical Pugh clauses. Apart from these provisions, the July
15 Lease incorporated by reference the other provisions of the May 9 Lease.
That same day, Petrohawk made a $1.7 million wire transfer to the Stockmans.
Petrohawk recorded the July 15 Lease on August 26, 2008.
B. Statement of Proceedings
On September 3, 2008, Chesapeake filed a complaint against the
Stockmans in federal district court, asserting, inter alia, a breach of contract
claim. The Stockmans denied liability, maintaining that they had revoked their
consent to the Chesapeake Extension through the June 2, 2008 letter and the
return of the bonus payment. On July 1, 2009, the district court permitted
Petrohawk to intervene in the action. However, on August 5, 2009, the district
court severed Petrohawk’s intervenor complaint, creating the instant action. In
the fall of 2009, the district court held a two-day bench trial in the action
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between Chesapeake and the Stockmans. Before the court ruled on the merits
of the action, Chesapeake settled with the Stockmans.
In its intervenor complaint, Petrohawk sought a declaratory judgment that
the May 9 Lease is valid and takes precedence over the Chesapeake Extension.
Chesapeake filed an answer and counterclaim seeking a declaratory judgment
that the Chesapeake Extension primes the May 9 Lease. Chesapeake also
asserted that Petrohawk deliberately induced the Stockmans to breach the
Chesapeake Extension. The Stockmans filed an answer and counterclaim
against Petrohawk, alleging that the May 9 Lease is null and void because
Petrohawk procured their consent by fraud. The Stockmans also presented two
alternative arguments: (1) that the May 9 Lease is null and void for failure of
consideration; and (2) that the May 9 Lease was novated by the July 15 Lease.
Petrohawk filed an answer and alternative counterclaim against the Stockmans,
seeking the return of its lease bonus if the May 9 Lease is rescinded or novated.
Petrohawk filed a motion to dismiss, which was converted into a motion
for summary judgment, seeking the dismissal of Chesapeake’s claims.
Chesapeake and the Stockmans each filed motions for summary judgment. On
August 4, 2010, the district court denied the Stockmans’ and Chesapeake’s
motions for summary judgment. The court granted in part Petrohawk’s motion
for summary judgment, holding that the May 9 Lease primes the Chesapeake
Extension because the May 9 Lease was recorded first. The court denied the
remainder of Petrohawk’s summary judgment motion.1
Beginning on November 30, 2010, the district court held a three-day bench
trial. At the start of the trial, the court clarified the issues to be tried: (1) the
1
The district court granted Chesapeake’s motion to realign the parties, such that
“Chesapeake and the Stockmans [are] considered the plaintiffs and . . . Petrohawk [is] deemed
the defendant.” The court stated, however, that “[f]or the benefit of the clerk of court and the
parties, . . . the caption of the case will not change.”
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Stockmans’ claims for fraud, failure of consideration, and novation;
(2) Chesapeake’s claim for intentional interference with a contract;
(3) Petrohawk’s prayer for judgment declaring the May 9 Lease to be in full force
and effect; and (4) Petrohawk’s alternative counterclaim for a return of the lease
bonus if the May 9 Lease is rescinded or novated. The court heard testimony
from Mr. Stockman, Broomfield, and Bergeron, among others. On December 2,
after hearing all of the testimony, the district court made preliminary oral
findings on the record, including that the May 9 Lease was procured by fraud.
The court then engaged in a colloquy with the parties’ lawyers regarding various
issues, such as whether the Stockmans confirmed the fraud. The court found
that Mr. Stockman did not confirm the fraud by signing the July 15 Lease. The
court ordered post-trial briefing on the issue of the return of the lease bonus and
stated that a written ruling would be forthcoming.
On May 27, 2011, the district court issued its written Ruling on the Merits.
The court first noted that it was bound by Erie R. Co. v. Tompkins, 304 U.S. 64(1938), to apply Louisiana law. Turning to the Stockmans’ claim for fraud, the
court found that “Petrohawk (through its agents Pang[a]ea and Lisa Broomfield)
was in a frenzy to get the [May 9 Lease] . . . [and was] willing to say or do
anything to obtain it.” The court found that Broomfield made affirmative
misrepresentations to Mr. Stockman: she “kept using the terms ‘valid’ and
‘invalid’, which led Mr. Stockman to reasonably . . . believe that, upon the filing
of the [May 9 Lease], the Chesapeake [E]xtension would be invalid.” The court
found that “Mr. Stockman’s reliance on Ms. Broomfield’s statements, in light of
all the circumstances, was reasonable.” The court stated that Mr. Stockman’s
“action in going to the clerk’s office to make sure that the Chesapeake
[E]xtension had not been filed makes it more credible that Mr. Stockman
believed what he had been told [by Broomfield].” The court concluded that “the
[May 9 Lease] would [not] have been signed by Mr. and Mrs. Stockman had they
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not been led to believe that the unrecorded Chesapeake [E]xtension would be
invalid upon the recording of the [May 9 Lease].”
The court concluded that Petrohawk obtained the May 9 Lease by fraud
and rescinded the May 9 Lease. The court stated that it did not need to reach
the issues of consideration or novation. The court declined to award damages to
the Stockmans, but it did order Petrohawk to pay the Stockmans reasonable
attorney’s fees and to “pay the costs associated in correcting the public records
to strike the [May 9 Lease].” Next, the court dismissed with prejudice
Chesapeake’s claim for intentional interference with a contract. The court
explained that, under the elements of the claim from the Restatement of Torts,
“Petrohawk would be liable to Chesapeake,” but noted that Louisiana law does
not follow the Restatement.
The court then dismissed with prejudice Petrohawk’s counterclaim for the
return of its bonus money. The court reiterated that it had rescinded the May
9 Lease and noted that, under Article 2033 of the Louisiana Civil Code, the
“parties must be restored to the situation that existed before the contract was
made.” However, the court explained that the bonus money was not paid for the
May 9 Lease, but “was a higher amount negotiated between the Stockmans and
Petrohawk in exchange for the delay in payment [until July 15].” The court
determined that the July 15 Lease is “sufficient to stand on its own while
incorporating the contents of the [May 9 Lease].” The court determined that the
July 15 Lease incorporated the May 9 Lease’s exclusion of the warranty of title.
The district court issued its judgment on June 27, 2011. Petrohawk
appealed the court’s judgment, and Chesapeake cross-appealed. On September
26, 2011, the district court granted the Stockmans’ motion for attorney’s fees in
the amount of $34,013. Petrohawk filed an amended notice of appeal.2
2
Petrohawk does not address on appeal the issue of the district court’s award of
attorney’s fees, and thus we will not address this issue. See United States v. Whitfield, 590
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II. DISCUSSION
A. Applicable Law and Standard of Review
When jurisdiction is based on diversity, we apply the substantive law of
the forum state. Erie R. Co. v. Tompkins, 304 U.S. 64 (1938); see also Holt v.
State Farm Fire & Cas. Co., 627 F.3d 188, 191 (5th Cir. 2010). Thus, in the
instant case, we apply Louisiana law. “To determine Louisiana law, we look to
the final decisions of Louisiana’s highest court.” Holt, 627 F.3d at 191 (citation
omitted). “In the absence of a final decision by that court addressing the issue
at hand, a federal court must determine, in its best judgment, how the state’s
highest court would resolve the issue if presented with it.” Id. (citation omitted).
On appeal from a bench trial, we review a district court’s conclusions of
law and mixed questions of law and fact de novo. Dickerson v. Lexington Ins.
Co., 556 F.3d 290, 294 (5th Cir. 2009). We review a district court’s findings of
fact for clear error. Id. “A finding is clearly erroneous if it is without substantial
evidence to support it, the court misinterpreted the effect of the evidence, or this
court is convinced that the findings are against the preponderance of credible
testimony.” French v. Allstate Indem. Co., 637 F.3d 571, 577 (5th Cir. 2011)
(citation and internal quotation marks omitted). The clearly erroneous standard
is met “only if we have a definite and firm conviction that a mistake has been
committed.” Id. (citation and internal quotation marks omitted).
B. The Stockmans’ Fraud Claim
1. Louisiana Law on Contractual Fraud
Pursuant to the Louisiana Civil Code, a “contract is formed by the consent
of the parties established through offer and acceptance.” LA. CIV. CODE ANN. art.
1927. However, “[c]onsent may be vitiated by error, fraud, or duress.” LA. CIV.
CODE ANN. art. 1948. “Fraud is a misrepresentation or a suppression of the
F.3d 325, 346 (5th Cir. 2009) (“[A] party waives any argument that it fails to brief on appeal.”)
(citations omitted).
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truth made with the intention either to obtain an unjust advantage for one party
or to cause a loss or inconvenience to the other. Fraud may also result from
silence or inaction.” LA. CIV. CODE ANN. art. 1953. “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.” LA. CIV.
CODE ANN. art. 1954. “Error induced by fraud need not concern the cause of the
obligation to vitiate consent, but it must concern a circumstance that has
substantially influenced that consent.” LA. CIV. CODE ANN. art. 1955.
Under Louisiana law, an action for fraud against a party to a contract
requires: (1) “a misrepresentation, suppression, or omission of true information”;
(2) “the intent to obtain an unjust advantage or to cause damage or
inconvenience to another”; and (3) that the error induced by the fraudulent act
relates to a circumstance that substantially influenced the victim’s consent to
the contract. Shelton v. Standard/700 Assocs., 798 So. 2d 60, 64 (La. 2001).
“Fraud need only be proved by a preponderance of the evidence and may be
established by circumstantial evidence.” LA. CIV. CODE ANN. art. 1957.
2. Analysis
In the instant case, the district court concluded that Petrohawk procured
the May 9 Lease by fraud. The court found that Broomfield misrepresented to
Mr. Stockman that, upon the recordation of the May 9 Lease, the Chesapeake
Extension would be invalid. The court found that the Stockmans reasonably
relied on Broomfield’s misrepresentations and that they would not have signed
the May 9 Lease had they known that her statements were false. On appeal,
Petrohawk argues that the elements of fraud were not met in this case.
Petrohawk asserts that: “(1) there was no misrepresentation of fact, only a
statement of law or opinion; (2) there was no intent to defraud or deceive the
Stockmans; (3) Mr. Stockman conducted his own investigation and did not rely
on what Mrs. Broomfield said; and (4) the truth about the legal opinion on
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recordation in Louisiana was easily ascertainable and Mr. Stockman is
presumed to know the law.” We address each of Petrohawk’s arguments in turn.
First, Petrohawk maintains that there was no misrepresentation of fact
to support the district court’s finding of fraud. Petrohawk contends that,
pursuant to Louisiana law, fraud cannot be based on an opinion statement or a
misrepresentation of law. Petrohawk asserts that Broomfield’s statements
regarding the validity of the Chesapeake Extension were simply her own
opinions or statements of law and therefore “cannot be fraudulent.” We reject
Petrohawk’s argument that Broomfield’s statements were simply her opinions.
In American Guaranty Co. v. Sunset Realty & Planting Co., 23 So. 2d 409 (La.
1945) (on rehearing), the Louisiana Supreme Court stated that “[w]henever a
person states a matter which might otherwise be only an opinion, not as a mere
expression of his own opinion, but as an existing fact, material to the
transaction, the statement clearly becomes a statement of fact and not an
expression of opinion.” Id. at 449 (citations omitted). Here, Broomfield’s
misrepresentations to Mr. Stockman were made as statements of fact in order
to assure Mr. Stockman that he could legally sign the May 9 Lease with
Petrohawk. Thus, her statements could form the basis of a fraud claim.3
Furthermore, we reject Petrohawk’s argument that a misrepresentation
of law cannot give rise to a fraud claim. Under Louisiana law, the relevant
inquiry is whether there was “a misrepresentation, suppression, or omission of
true information.” Shelton, 798 So. 2d at 64 (emphasis added). Indeed,
Louisiana courts have found fraud where the underlying false statement was a
3
Petrohawk additionally asserts that no fraud was committed because Broomfield’s
statements were not wholly false, as she was correct that the first lease to be recorded is the
valid lease from a third party’s perspective. We reject this argument. The Louisiana Supreme
Court has stated that “[o]ne conveying a false impression by the disclosure of some facts and
the concealment of others is guilty of fraud, even though his statement is true as far as it goes,
since such concealment is in effect a false representation that what is disclosed is the whole
truth.” Am. Guar. Co., 23 So. 2d at 456 (citation and internal quotation marks omitted).
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misrepresentation of law. For example, in Lupo v. Lupo, 475 So. 2d 402 (La. Ct.
App. 1985), a lawyer had his client sign an appeal bond and assured him that,
by signing the bond, he would not “have any [legal] problems.” Id. at 404-05.
The lawyer did not tell his client that the bond “would act as a mortgage on his
property.” Id. at 404. The court concluded that the lawyer “perpetrated fraud
upon [the client]. [The lawyer] needed an appeal bond, of a substantial sum, and
by making misrepresentations, and by failing to disclose pertinent information,
he obtained one.” Id. at 405; see also Mack v. Evans, 804 So. 2d 730, 733 (La. Ct.
App. 2001) (affirming the trial court’s finding of fraud based on a
misrepresentation of law, where the defendant “had misled [the plaintiff] to
believe it was necessary for her to donate her interest in the real estate in order
to qualify for supplemental security income benefits”).
Second, Petrohawk argues that there is no factual basis to support a
finding that Petrohawk intended to defraud the Stockmans. Petrohawk asserts
that the record is “completely devoid of any evidence that Mrs. Broomfield knew
that what she told Mr. Stockman about the legal effect of recordation was false.”
We reject Petrohawk’s argument, as there is evidence in the record that supports
Petrohawk’s intent to defraud the Stockmans. Broomfield testified that she was
an experienced landman and former paralegal who was very knowledgeable
about Louisiana real estate and contract law. She testified that she even had to
advise Pangaea’s attorney on Louisiana law. This testimony indicates that
Broomfield knew that she was lying to Mr. Stockman about the validity of the
Chesapeake Extension. Additionally, the district court found that Petrohawk
was in a frenzy to get the May 9 Lease and was “willing to say or do anything to
obtain it.” Documentary evidence and testimony support this finding. For
example, emails sent between Broomfield and her supervisor in early May
indicate that Petrohawk was frantic to get the lease signed. Also, Broomfield
testified that the May 9 Lease was signed in a hurry “[t]o tie the acreage up.”
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She conceded that Petrohawk wanted the lease as “a placeholder” and that she
“was told to get it signed, get it to the courthouse, and that’s what [she] did.”
Finally, during their initial meeting Broomfield encouraged Mr. Stockman to
consult with an attorney, but when Mr. Stockman subsequently raised legal
concerns relating to his signing of the Chesapeake Extension, Broomfield told
him, “don’t worry about it, Petrohawk ha[s] an office full of lawyers.”
Third, Petrohawk argues that the Stockmans’ fraud claim fails because
Mr. Stockman relied on the results of his own investigation and not on
Broomfield’s misrepresentations. Petrohawk points to the following facts to
demonstrate Mr. Stockman’s investigation: (1) his consultation of his neighbor;
(2) his investigation at the clerk of court’s office; and (3) his procurement of legal
counsel. We reject Petrohawk’s argument. The district court’s finding that Mr.
Stockman relied on Broomfield’s misrepresentations is not clearly erroneous.
With regard to the consultation of his neighbor, the evidence indicates that the
neighbor did not provide any legal advice to the Stockmans regarding the legal
effect of recordation on the validity of leases. With respect to his investigation
at the clerk’s office, the evidence indicates that Mr. Stockman only confirmed
what Broomfield had told him—that the Chesapeake Extension was unrecorded.
This fact indeed highlights Mr. Stockman’s reliance on her statements. With
regard to the hiring of a lawyer, the evidence indicates that Mr. Stockman hired
a lawyer to write the revocation letter to Chesapeake, which occurred only after
the signing of the May 9 Lease. Thus, the record evidence supports the district
court’s finding that Mr. Stockman relied on Broomfield’s statements.
Fourth, Petrohawk asserts that the fraud claim fails because the truth was
readily and reasonably ascertainable by the Stockmans. Petrohawk stresses
that Mr. Stockman had access to legal advice, “but failed to exercise that
minimum amount of diligence.” Under Article 1954 of the Louisiana Civil Code,
fraud does not vitiate consent when the complaining party “could have
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ascertained the truth without difficulty, inconvenience, or special skill.” When
“a fraudulent misrepresentation can be easily uncovered,” the complaining party
will be expected to exercise this minimum amount of diligence. Saul Litvinoff,
Vices of Consent, Error, Fraud, Duress and an Epilogue on Lesion, 50 LA. L. REV.
1, 69 (1989). However, when uncovering the truth requires “familiarity with
peculiar technicalities, which calls for a special skill,” the complaining party
“cannot be blamed for lack of diligence.” Id. Furthermore, in determining the
diligence of the complaining party, “[s]ubjective aspects such as a party’s
business experience or professional capacity must be taken into account.” Id.In the instant case, the fraudulent misrepresentation at issue concerned
the legal effect of recordation on the validity of a mineral lease. Ascertaining the
truth of the statement required special legal skill, and Mr. Stockman was a mere
landowner who did not possess the requisite legal skills to uncover the truth.
Mr. Stockman’s only likely avenue to uncovering the truth was by consulting a
knowledgeable attorney—which would have entailed difficulty and
inconvenience. Thus, we reject Petrohawk’s argument that Mr. Stockman could
have easily ascertained the truth. In conclusion, we affirm the district court’s
judgment finding that Petrohawk obtained the May 9 Lease by fraud.
C. Confirmation of the Fraud
1. Louisiana Law on Confirmation
“A contract is relatively null . . . when a party . . . did not give free consent
at the time the contract was made,” such as when there was fraud in the
inducement of the contract. LA. CIV. CODE ANN. art. 2031. “A contract that is
only relatively null may be confirmed.” Id.; see Litvinoff, Vices of Consent, 50 LA.
L. REV. at 9-10 (“[S]ince vices or defects are susceptible of being cured, when a
vice involves the consent of a party it gives rise to a nullity that is only relative,
which means that it may be cured . . . through confirmation by the party of
interest . . . .”). “Confirmation is a declaration whereby a person cures the
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relative nullity of an obligation.” LA. CIV. CODE ANN. art. 1842. “An express act
of confirmation must contain or identify the substance of the obligation and
evidence the intention to cure its relative nullity.” Id. “Tacit confirmation may
result from voluntary performance of the obligation.” Id.
2. Analysis
On appeal, Petrohawk argues that district court erred in failing to find
that the Stockmans confirmed the fraud through their subsequent actions. As
evidence of the Stockmans’ confirmation, Petrohawk points to (1) their June 2,
2008 revocation letter and (2) their acceptance of payment for the July 15 Lease.
Petrohawk contends that their confirmation renders the May 9 Lease valid. The
Stockmans respond that they did not confirm the fraud because they were not
aware of the fraud until the trial with Chesapeake in the fall of 2009.
In its Ruling on the Merits, the district court did not address the issue of
confirmation. However, because the court found that Petrohawk procured the
May 9 Lease by fraud and then rescinded the May 9 Lease, the court impliedly
determined that the Stockmans did not confirm the fraud.4 This implied finding
is supported not only by the court’s general disposition of the case, but also by
the court’s statements during the colloquy at trial. See Mitchell v. Mitchell
Truck Line, Inc., 286 F.2d 721, 724 & n.2 (5th Cir. 1961) (relying on a district
court’s comments in colloquy because they were consistent with the court’s
judgment and shed light on a finding of fact not explicitly made in the court’s
written findings). Regarding the issue of confirmation, the court stated, “I do not
believe that the Stockmans confirmed the May 9 [Lease].” The court stated that
4
“If a trial judge fails to make a specific finding on a particular fact, the reviewing court
may assume that the court impliedly made a finding consistent with its general holding so
long as the implied finding is supported by the evidence.” Century Marine Inc. v. United States,
153 F.3d 225, 231 (5th Cir. 1998) (citations omitted); see 9C CHARLES ALAN WRIGHT & ARTHUR
R. MILLER, FEDERAL PRACTICE AND PROCEDURE § 2579 (3d ed.) (“In some cases if the court fails
to make a finding on a particular fact it has been assumed that . . . it impliedly made a finding
consistent with its general disposition of the case.”) (footnotes omitted).
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“I find as a matter of fact [Mr. Stockman] did not . . . give a declaration that he
was trying to cure a relative nullity when he signed on July 15.”
As a preliminary matter, we must decide whether actual or constructive
knowledge is required for confirmation of a relative nullity under Louisiana law.
Petrohawk contends that the standard should be constructive knowledge, while
the Stockmans assert that actual knowledge of the vice is required. Under
Louisiana law, when a party confirms a relative nullity, the party gives up the
right to bring an action for that nullity. 5 SAUL LITVINOFF, LOUISIANA CIVIL LAW
TREATISE: THE LAW OF OBLIGATIONS § 12.54 (2d ed.). Therefore, the Louisiana
courts have held that an act of confirmation “must evince [the] intention [to
confirm] clearly and unequivocally.” Rahier v. Rester, 11 So. 2d 87, 92 (La. Ct.
App. 1942) (citation and internal quotation marks omitted). In his treatise on
Louisiana civil law, Professor Saul Litvinoff stated that, with respect to express
confirmation, “it is necessary that the act [of confirmation] evidence that the
confirming party acted with knowledge of the vice or defect that invalidates the
act to be confirmed, and with a deliberate will of curing that vice or defect.” THE
LAW OF OBLIGATIONS § 12.54 (emphases added). With respect to tacit
confirmation, he stated that “the act of performance must be voluntary . . . which
means . . . that it must be rendered with knowledge of the vice or defect that
made the obligation null.” Id. § 12.56 (emphasis in original). Given that the
confirming party relinquishes a cause of action and must intend to cure the vice,
we conclude that confirmation under Louisiana law requires actual knowledge
of the vice.
Petrohawk argues that, even if actual knowledge is required, the
Stockmans knew of and confirmed the fraud by the time they signed the July 15
Lease. We reject Petrohawk’s argument. The record evidence indicates that the
district court found that Mr. Stockman did not know of the fraud until the
Chesapeake trial in 2009. At trial, the district court stated that “[Mr. Stockman]
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testified that until he sat in this courtroom [for the Chesapeake trial], he did not
know that he had been lied to.” The court concluded that Mr. Stockman “never
really had all the evidence until he sat in this courtroom [in 2009].”
Furthermore, during the colloquy, the court found that, at the time of the
signing of the July 15 Lease, Mr. Stockman was “still operating under the belief
and hope that the information he had been given [by Broomfield]
was . . . correct.” This finding of fact is based on a credibility determination,
which is for the district court to make. See French, 637 F.3d at 577 (“[This court]
must give due regard to the district court’s credibility evaluations.”). There is
no reason to disturb the court’s finding, as Petrohawk has not demonstrated it
to be clearly erroneous.
Given the district court’s finding that Mr. Stockman did not have actual
knowledge of the fraud until 2009, neither the Stockmans’ June 2, 2008 letter
nor their acceptance of payment for the July 15 Lease constitutes an act of
confirmation. Thus, the district court did not err in finding that the Stockmans
did not confirm the fraud. We affirm the district court’s judgment rescinding the
May 9 Lease, awarding attorney’s fees and costs to the Stockmans, and ordering
Petrohawk to pay the costs of striking the May 9 Lease from the public records.
D. Petrohawk’s Counterclaim for a Return of the Lease Bonus
In its Ruling on the Merits, the district court concluded that Petrohawk
was not entitled to a return of its lease bonus. The court determined that the
July 15 Lease was a stand-alone lease and that it incorporated by reference the
exclusion of the warranty of title from the May 9 Lease. The court thus
concluded that the July 15 Lease did not contain an implied warranty of title.
On appeal, Petrohawk maintains that the July 15 Lease is either an
amendment to or a novation of the May 9 Lease, and under either scenario, it is
entitled to a return of the bonus. If the July 15 Lease is an amendment,
Petrohawk asserts that the rescission of the May 9 Lease requires the rescission
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of the July 15 Lease and therefore a return of the bonus under Article 2033 of
the Louisiana Civil Code.5 If the July 15 Lease is a novation (or a new lease that
extinguishes the obligations of the May 9 Lease), Petrohawk contends that it is
entitled to a return of the bonus pursuant to an implied warranty of title, as the
July 15 Lease does not contain an exclusion of the express warranty clause.
In order to assess Petrohawk’s arguments on appeal, we must first review
the district court’s determination that the July 15 Lease is a stand-alone lease,
and not merely an amendment to the May 9 Lease. If the interpretation of a
contract is “determined solely from the language of the contract,” we review the
district court’s interpretation de novo. Nat’l Union Fire Ins. Co. v. Circle, Inc.,
915 F.2d 986, 989 (5th Cir. 1990) (citation omitted). If the interpretation of a
contract turns on extrinsic evidence, we review a district court’s determination
under the clearly erroneous standard. Id. (citation omitted).
Under Louisiana law, the “[i]nterpretation of a contract is the
determination of the common intent of the parties.” LA. CIV. CODE ANN. art.
2045. “When the words of a contract are clear and explicit and lead to no absurd
consequences, no further interpretation may be made in search of the parties’
intent.” LA. CIV. CODE ANN. art. 2046. Thus, when the contract is not
ambiguous, the court “lacks the authority to look beyond the four corners of the
document.” Taita Chem. Co. v. Westlake Styrene Corp., 246 F.3d 377, 386 (5th
Cir. 2001) (citation omitted). However, if the contract is ambiguous, then the
court may look to extrinsic evidence to determine the parties’ intent. See Am.
Elec. Power Co. v. Affiliated FM Ins. Co., 556 F.3d 282, 286 (5th Cir. 2009) (citing
Campbell v. Melton, 817 So. 2d 69, 75 (La. 2002)). “A contract is considered
ambiguous on the issue of intent when it lacks a provision bearing on the issue,
its written terms are susceptible to more than one interpretation, there is
5
Article 2033 provides that, when a contract is rescinded for a relative nullity, “[t]he
parties must be restored to the situation that existed before the contract was made.”
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uncertainty as to its provisions, or the parties’ intent cannot be ascertained from
the language used.” Carmichael v. Bass P’ship, No. CA 12-10, 2012 WL 1525083,
at *3 (La. Ct. App. 2012) (citation and internal quotation marks omitted). “The
determination of whether a contract is clear or ambiguous is a question of law.”
Sims v. Mulhearn Funeral Home, Inc., 956 So. 2d 583, 590 (La. 2007).
We conclude that the district court did not err in determining that the July
15 Lease was a stand-alone lease. Looking at the face of the document, the July
15 Lease is a complete contract in and of itself, and not a mere modification of
an existing contract. The July 15 Lease contains “letting language,” which
states: “Lessor . . . grants, leases, and lets to Lessee and Lessee’s successors and
assigns the above-described lands for the primary term . . . .” This letting
language is used when granting a new lease and thus indicates that the July 15
Lease was meant to stand on its own. The July 15 Lease also contains the main
provisions of a mineral lease: a description of the leased property, a reference to
adequate consideration, and a primary term. Rather than simply amending the
May 9 Lease, the July 15 Lease incorporated by reference many provisions from
the May 9 Lease to form a complete contract. The four corners of the July 15
Lease indicate that it is a stand-alone lease.
We next address Petrohawk’s argument that there is an implied warranty
of title in the July 15 Lease that requires the return of the lease bonus.
Petrohawk concedes that the May 9 Lease contains an express exclusion of the
warranty of title, but contends that the July 15 Lease does not contain such an
exclusion. However, Petrohawk fails to note that the July 15 Lease contains a
valid incorporation by reference provision. See Action Fin. Corp. v. Nichols, 180
So. 2d 81, 83 (La. Ct. App. 1965) (“[T]he jurisprudence is clear that documents
may be incorporated in contracts by attachment or reference thereto. . . . [These
writings] become a part of the agreement between the parties with the same
force and effect as if the provisions had been contained in the basic
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contract . . . .”). According to the July 15 Lease’s incorporation provision, all of
the provisions contained in the May 9 Lease are incorporated into the July 15
Lease—apart from the provisions regarding the property description, the
primary term, the option to extend, and the Pugh clauses. Thus, based on the
incorporation provision, the exclusion of the warranty of title in the May 9 Lease
is incorporated into the July 15 Lease. Accordingly, there is no implied warranty
of title in the July 15 Lease, and Petrohawk is therefore not entitled to a return
of its lease bonus. See LA. REV. STAT. § 31:120 (“A mineral lessor impliedly
warrants title to the interest leased unless such warranty is expressly excluded
or limited.”). We affirm the district court’s judgment dismissing with prejudice
Petrohawk’s counterclaim for the return of the lease bonus.
E. Chesapeake’s Claim for Intentional Interference With a Contract
In its cross-appeal, Chesapeake argues that the district court incorrectly
dismissed its Louisiana state-law claim against Petrohawk for intentional
interference with a contract. Chesapeake asserts that Louisiana caselaw allows
an intentional interference with a contract claim where a defendant owes a duty
to the plaintiff, and that Petrohawk owed a duty to Chesapeake here.
Petrohawk argues that a Louisiana state-law claim for intentional interference
with a contract can only be asserted against an officer of a private corporation
and cannot be asserted against a corporate entity defendant. We review de novo
the district court’s legal conclusion that Chesapeake’s claim is not a viable cause
of action under Louisiana law. See Dickerson, 556 F.3d at 294.
In 1989, the Louisiana Supreme Court first recognized the cause of action
for intentional interference with a contract in 9 to 5 Fashions, Inc. v. Spurney,
538 So. 2d 228, 232-34 (La. 1989). However, the cause of action that the state’s
highest court recognized was extremely limited. The court expressly refused to
adopt the broad common law doctrine of interference with a contract, because it
is “a rather broad and undefined tort in which no specific conduct is proscribed
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and in which liability turns on the purpose for which the defendant acts, with
the indistinct notion that the purposes must be considered improper in some
undefined way.” Id. at 234 (quoting W. PROSSER & P. KEETON, THE LAW OF
TORTS § 129, p. 979 (5th ed. 1984)) (internal quotation marks omitted). The
court recognized “only a corporate officer’s duty to refrain from intentional and
unjustified interference with the contractual relation between his employer and
a third person.” Id. The court laid out the elements of this cause of action:
(1) the existence of a contract or a legally protected interest between
the plaintiff and the corporation; (2) the corporate officer’s
knowledge of the contract; (3) the officer’s intentional inducement
or causation of the corporation to breach the contract or his
intentional rendition of its performance impossible or more
burdensome; (4) absence of justification on the part of the officer; (5)
causation of damages to the plaintiff by the breach of contract or
difficulty of its performance brought about by the officer.
Id. The Louisiana Supreme Court has not addressed the scope of this cause of
action since its decision in 9 to 5.
We have acknowledged the limited nature of Louisiana’s claim for tortious
interference with a contract. In American Waste & Pollution Control Co. v.
Browning-Ferris, Inc., 949 F.2d 1384 (5th Cir. 1991), we noted that the 9 to 5
court created a narrow cause of action, but “did not expressly preclude a cause
of action . . . based on other facts.” Id. at 1387-88. We noted that the “common
thread in [9 to 5] and its progeny is the requisite duty, or obligation, for such a
cause of action.” Id. at 1390. “[W]hether a duty exists is a question of law,” and
in 9 to 5, the requisite duty “arose out of a corporate officer’s narrowly defined
duty to those with whom his corporation contracts.” Id. (emphasis added). In
American Waste, the plaintiff alleged that the defendant had knowledge of the
plaintiff’s contract with another party, and the defendant improperly induced
the party to repudiate its contract with the plaintiff. Id. at 1385. However, we
concluded that because the defendant “had no relationship” with the plaintiff,
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the requisite duty was lacking. Id. at 1390. Given the absence of such a duty,
we made the Erie-guess that the Louisiana Supreme Court would dismiss the
plaintiff’s intentional interference with a contract claim. Id. at 1390-91.
In Egorov, Puchinsky, Afanasiev & Juring v. Terriberry, Carroll & Yancey,
183 F.3d 453 (5th Cir. 1999), we again “recognized the narrowness of Louisiana’s
tortious interference action,” and stated that “even the Louisiana appellate
courts purporting to ‘expand’ the cause of action have done so within the limited
confines of 9 to 5.” Id. at 457 (citations omitted). We concluded that the
plaintiffs “failed to identify an individualized duty existing between themselves
and their alleged tortfeasors that could give rise to the type of delictual liability
established by the Louisiana Supreme Court in 9 to 5.” Id. (emphasis added).
The Louisiana courts of appeal have conformed to the limited cause of
action expressed in 9 to 5. See, e.g., Brown v. Romero, 922 So. 2d 742, 747 (La.
Ct. App. 2006); Tallo v. Stroh Brewery Co., 544 So. 2d 452, 453-55 (La. Ct. App.
1989). In Technical Control Systems, Inc. v. Green, 809 So. 2d 1204 (La. Ct. App.
2002), the plaintiff urged the state appellate court to expand the holding of 9 to
5 “to allow a cause of action against a corporate entity defendant.” Id. at 1207.
The court concluded that, because “recent attempts by this court to expand upon
this [cause of action] have been reversed by our supreme court,” the court “must
assume that [its] expansive take on a tortious interference with contract claim
did not meet the approval of the supreme court.” Id. at 1208-09 (citing Cowen
v. Steiner, 689 So. 2d 516 (La. Ct. App. 1997), rev’d 701 So. 2d 140 (La. 1997)).
Thus, the state appellate court affirmed the dismissal of the claim. Id. at 1209.
Where the Louisiana appellate courts have found a viable cause of action
for tortious interference with a contract, the courts have identified a narrow,
individualized duty between the plaintiff and the alleged tortfeasor. See Neel v.
Citrus Lands of La., Inc., 629 So. 2d 1299, 1301 (La. Ct. App. 1993) (stating that,
“[i]f Mr. Neel can establish that Citrus Lands had a duty to allow him to go on
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the land leased to EuroAmerican,” then he could bring a viable tortious
interference with a contract claim); see also MD Care, Inc. v. Angelo, 672 So. 2d
969, 973 (La. Ct. App. 1996) (“[T]he determinative factor . . . was whether the
defendant owed the plaintiff a duty, the breach of which might constitute
intentional interference with a contract.”).
Based on this caselaw, 9 to 5 requires that the defendant owe a duty to the
plaintiff in order for the plaintiff to have a viable claim for tortious interference
with a contract. Thus, we must address whether Petrohawk owed a duty to
Chesapeake. Chesapeake argues that Petrohawk owed it three duties: (1) a duty
not to engage in unfair business practices pursuant to the Louisiana Unfair
Trade Practices Act (“LUPTA”);6 (2) a general duty under public policy not to
induce the Stockmans to break their contract; and (3) a duty not to commit fraud
on the public record by recording a fraudulently acquired document.
We conclude that Chesapeake’s arguments are without merit, as
Chesapeake has failed to identify a narrow, individualized duty that Petrohawk
owed Chesapeake. See Egorov, 183 F.3d at 457; Am. Waste, 949 F.2d at 1390.
All three of the duties proposed by Chesapeake are broad, ill-defined duties. See
Angelo, 672 So. 2d at 973 (noting that the “statutory definition of an unfair
practice [under LUPTA] is broad and subjectively stated and does not specify
particular violations”) (citation omitted). Such broad, amorphous duties are not
the kinds of duties encompassed by the court’s decision in 9 to 5. See Egorov, 183
F.3d at 457 n.2 (concluding that the general duties of Louisiana lawyers under
the Louisiana Rules of Professional Conduct are not duties encompassed by 9 to
5); see also Am. Waste, 949 F.2d at 1390. Indeed, the 9 to 5 court explicitly
refused to adopt “a rather broad and undefined tort in which no specific conduct
6
Under LUPTA, “[u]nfair methods of competition and unfair or deceptive acts or
practices in the conduct of any trade or commerce” are deemed unlawful. LA. REV. STAT. ANN.
§ 51:1405(A).
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is proscribed.” 538 So. 2d at 234 (citation and internal quotation marks
omitted). “[I]t is not for this diversity court to expand [the] cause of action in the
face of Louisiana’s expressed unwillingness to do so.” Am. Waste, 949 F.2d at
1391. In making our Erie-guess, we conclude that the Louisiana Supreme Court
would hold that Chesapeake does not have a viable claim against Petrohawk for
tortious interference with a contract.
Chesapeake alternatively asks us to certify this issue to the Louisiana
Supreme Court pursuant to Rule 12 of the Rules of the Louisiana Supreme
Court. Rule 12 provides that an issue may be certified when “there are no clear
controlling precedents” from the Louisiana Supreme Court. Here, the Louisiana
Supreme Court has issued 9 to 5, a controlling opinion on the scope of the action
for tortious interference with a contract. Thus, we decline to certify this issue.
See Am. Waste, 949 F.2d at 1392. For the reasons stated above, we affirm the
district court’s judgment dismissing with prejudice Chesapeake’s intentional
interference with a contract claim.
III. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the district court.
24