Cline v. Southern Star Central Gas Pipeline, Inc.

F I L E D
United States Court of Appeals
Tenth Circuit
August 25, 2006
UNITED STATES CO URT O F APPEALS
Elisabeth A. Shumaker
TENTH CIRCUIT Clerk of Court
PHILLIP G. CLINE,
Plaintiff-A ppellant,
No. 05-3228
v.
(District of K ansas)
(D.C. No. 03-CV-2655-GTV)
SO U TH ER N STA R C EN TR AL GAS
PIPELINE, INC., formerly known as
W illiams G as Pipelines Southcentral,
Inc.,
Defendant-Appellee.
OR D ER AND JUDGM ENT *
Before M U RPH Y, EBEL, and M cCO NNELL, Circuit Judges.
I. Introduction
Phillip G. Cline and Southern Star Central Gas Pipeline, Inc. (“Southern
Star”) are parties to a set of contracts concerning oil, gas, and other minerals
underlying Cline’s land in northeast Kansas. Cline sued Southern Star in a
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
diversity action in the U nited States District Court for the District of Kansas. He
alleged Southern Star breached its contractual obligations and forfeited its rights
under the contracts. He also brought claims for fraud, intentional infliction of
emotional distress, and conversion. Southern Star counterclaimed, requesting a
judgment quieting title to certain natural gas and other property and seeking a
declaratory judgment stating its agreements with Cline remained valid. The
district court eventually granted summary judgment in favor of Southern Star on
all claims and counterclaims. Cline appeals the district court’s judgment. This
court exercises jurisdiction pursuant to 28 U.S.C. § 1291 and affirm s.
II. Background
Cline owns property within the boundaries of the M cLouth Storage Field, an
underground natural gas storage field in Jefferson County, Kansas. W hen Cline
acquired the property, it was subject to an oil and gas lease, a gas storage lease,
and an acknowledgment of payment (collectively “gas storage contract”). Cline’s
predecessors and Cities Service Gas Co. (“Cities Service”) executed these
agreements on June 16, 1951. Southern Star is the successor-in-interest to Cities
Service, and is the current owner of the M cLouth Storage Field and the gas storage
and oil and gas interests associated with Cline’s property.
In the 1951 gas storage contract, Cities Service agreed to provide a limited
amount of gas, free of charge, to Cline’s predecessors. The gas storage contract
provided that Cline’s predecessors “or their assigns, shall lay and maintain in good
-2-
condition the necessary service lines and appurtenances to receive and utilize the
gas so delivered, all at their sole cost, risk and expense.” App. at 110.
Cline first expressed interest in obtaining free natural gas in November
1978. At that time, Cline wrote to Cities Service and asked whether he could tap
his neighbor’s gas well and run a gas line to his farm. Cities Service approved
Cline’s request, but told him it would need to obtain federal regulatory approval
before providing service to his property. It also told Cline he would be required to
pay a $350.00 connection charge fee, along with $10.50 in state taxes and a $10.00
security deposit. Although Cities Service obtained federal approval, sent Cline the
necessary application, and notified Cline before the federal approval was set to
expire, Cline took no further action at that time.
In October 1988, Cline wrote a letter to Cities Service’s successor, W illiams
Natural G as Co. (“W illiams Natural”). The letter stated,
W hen I purchased this land I was given permission to connect
to a gas line, is this still permissible? I am living in a mobile home
and would like to drill a gas well or hook on to the line per our
agreement.
W hen I was told I could connect to a gas line I did not have the
money to do so, but now my finances are such that I can afford to
drill a gas w ell.
App. at 299. W illiams Natural approved Cline’s request in a letter dated
November 2, 1988. The letter informed Cline he was responsible for paying a
connection fee in the amount of $350.00 plus sales tax. It also advised Cline that
he was responsible for constructing a service line from his property to its pipeline
-3-
at his expense, and that he would need to obtain easements from his neighbors if
the service line crossed their land. Again, Cline took no immediate action.
Cline next contacted W illiams Natural in November 1991, when he asked
for a copy of the gas storage contract covering his land. In response, W illiams
Natural sent Cline a copy of the gas storage contract along with another letter
informing Cline that, to obtain free gas, he was required to construct a service line
at his own expense, secure easements from his neighbors, and pay the $350.00
connection fee.
In April 1992, Cline wrote to W illiams N atural and accused it of refusing to
honor the free gas provision of the gas storage contract. Cline informed W illiams
Natural he w as w illing to go to court to enforce his rights. He w arned, however,
that if the court ruled against W illiams Natural, it could be a “financially crippling
blow” to the company. App. at 307. Cline stated W illiams N atural could avoid
the risk of litigation by installing, at its expense, a service line to his property and
by forever providing free gas, for any use, to him and his family. In reply to
Cline’s letter, W illiams Natural told Cline he could construct a service line,
connect to the company’s pipeline, and use gas according to the terms and
conditions of the gas storage contract.
Cline filed suit against W illiams Natural in state court in December 1995.
He alleged Williams Natural breached the gas storage lease by failing to make
rental payments in 1992 and 1993 and by unlaw fully storing gas under his property
-4-
since October 1992. W illiams Natural removed the suit to federal court. The
parties eventually agreed to dismiss the case with prejudice, stipulating that
W illiams Natural timely made all annual payments and that the gas storage lease
continued with full force and effect.
In October 1998, Cline sent W illiams Natural a check for $368.38 and a
signed application to connect to the company’s pipeline. W illiams Gas Pipeline
Southcentral, Inc. (“W illiams Gas”), W illiams Natural’s successor, acknowledged
Cline’s check and application in a letter dated November 4, 1998. The letter
advised Cline he needed to make arrangements with his neighbors to run a service
line across their land. M oreover, it informed Cline that due to governmental
safety regulations, W illiams Gas was no longer allowing customers to construct
their own service lines; the company instead required third-party contractors to
perform the work. Also, because of changes in the costs of making service line
connections, W illiams Gas told Cline it now charged the actual cost of connecting
a service line and installing the metering facilities instead of charging a $350.00
flat fee. W illiams Gas informed Cline that, if he obtained the necessary right-of-
way to connect to its pipeline, he would also need to submit in advance a $5000
deposit to cover construction of the metering facility, service line, and connection
tap. If the actual cost of construction fell below $5000, W illiams Gas would issue
a refund to Cline. If the costs exceeded that amount, W illiams Gas would charge
Cline for the additional costs.
-5-
Cline responded to W illiams Gas in November 1998 and questioned the new
costs, but took no further action at that time. Cline submitted another request for a
gas tap connection several years later. In a letter dated April 4, 2001, W illiams
Gas approved the request, so long as Cline secured permission to set a meter on
his neighbor’s property, signed an Application for Transportation Contract, paid a
$5000 tap installation fee, and employed a contractor certified by the Department
of Transportation to install the service line. W illiams Gas also informed Cline that
under the terms of the gas storage contract, he was entitled to a limited amount of
free gas, and that the free gas could be used only for his residence, not for his
barns. In July 2002, W illiams Gas sent Cline a copy of its April 4, 2001 letter
after Cline made yet another request for information about installing a gas tap on
his property.
In September 2003, Cline sent a letter to W illiams Gas’ successor, Southern
Star. Cline asserted Southern Star’s requirement that he pay a $5000 tap
installation deposit constituted a violation of the free gas provision in the gas
storage contract. Cline informed Southern Star he would file suit against the
company unless it provided him with a connection to its pipeline without any
conditions or charges and compensated him for gas it had denied him in the past.
Cline filed suit in federal district court in December 2003, alleging breach
of contract, fraud, intentional infliction of emotional distress, and conversion.
Southern Star counterclaimed. It sought a judgment quieting title in oil, gas, and
-6-
mineral interests underlying Cline’s land and any wells, pipelines, or other
property it placed on Cline’s property. Southern Star also sought a declaratory
judgment stating that it had not breached its agreement to provide free gas to Cline
and that its gas storage lease remained valid. It also asked the district court to
declare the terms and conditions Cline must satisfy to receive free gas in the
future.
Southern Star moved for summary judgment. The district court determined
Cline’s contract and tort claims were barred by the applicable Kansas statutes of
limitations. In the alternative, the court concluded Cline’s contract and tort claims
failed on their merits. The district court granted Southern Star’s counterclaim for
declaratory judgment, but denied its quiet title claim because neither of the parties
had furnished the court with a legible copy of the oil and gas lease, and because
neither party explained the significance of a provision in the gas storage lease that
concerned Cline’s royalty interests in oil and gas developed under his property.
Both parties filed motions to alter or amend the judgment pursuant to Rule
59(e) of the Federal Rules of Civil Procedure. The district court denied C line’s
motion. After examining a legible copy of the oil and gas lease, the district court
reconsidered its ruling on Southern Star’s quiet title counterclaim; it held Southern
Star was entitled to an order quieting title to the gas, oil, and other minerals under
Cline’s property.
-7-
III. Analysis
Cline appeals the summary judgment. He asserts the district court erred
when it determined his contract and tort claims w ere barred by the applicable
statutes of limitations and when it concluded his contract and tort claims failed on
the merits. He also contends the district court erred when it determined Southern
Star did not forfeit its gas storage lease. Lastly, he claims the district court erred
when it quieted title in favor of Southern Star.
“This court reviews de novo a district court’s grant of summary judgment.”
Holt v. Grand Lake M ental Health Ctr., Inc., 443 F.3d 762, 765 (10th Cir. 2006).
Summary judgment is appropriate when there is no genuine issue of material fact
and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P.
56(c). “If there is no genuine issue of material fact in dispute, we determine
whether the district court correctly applied the substantive law.” Holt, 443 F.3d at
765 (quotation omitted).
A. Statute of Limitations: Breach of Contract, Fraud, and Intentional
Infliction of Em otional D istress Claims
In his Reply M emorandum Opposing Summary Judgment, Cline asserted
Southern Star and its predecessors breached their gas storage contract by creating
obstacles, such as the $5000 connection deposit, which prevented him from
receiving free gas. The district court determined Cline’s breach of contract claim
accrued more than five years before he filed his complaint in district court and
-8-
therefore was barred by Kan. Stat. Ann. § 60-511(1), a five-year statute of
limitations applicable to actions on contracts in writing. On appeal, Cline asserts
the district court’s conclusion was in error.
Cline attempts to circumvent the statute of limitations by arguing that each
of his requests for free gas made in the five years before he filed suit gave rise to
new and independent causes of action. He contends these new causes of action
accrued less than five years before he filed suit and therefore are not barred by §
60-511(1). Although Cline’s argument is not a model of clarity, 1 he appears to
advance two theories in support of his contention: a “temporary injury” theory and
a “continuing contract” theory.
First, Cline argues the gas company’s responses to his requests for free
gas— namely its assertions he was required to pay a connection fee or deposit in
order to receive the gas— constituted a series of temporary injuries, each of which
gave rise to a new and independent cause of action. Kansas courts have
recognized a temporary injury theory in nuisance actions, where a plaintiff suffers
temporary, occasional, or recurrent physical damage to his real property. See, e.g.,
Dougan v. Rossville Drainage Dist., 15 P.3d 338, 346 (Kan. 2000) (allowing
1
Cline fails to articulate a cogent argument in support of his position. The
argument section of Cline’s brief-in-chief contains a number of lengthy
quotations, but provides us with little guidance as to how the quoted material
applies to his contentions. Our understanding of Cline’s arguments is further
hindered by his failure to include in his brief a summary of his argument. See
Fed. R. App. P. 28(a)(8).
-9-
independent causes of action for periodic episodes of flooding); Henderson v.
Talbott, 266 P.2d 273, 281 (Kan. 1954) (recognizing separate causes of action for
injuries to plaintiff’s land caused by occasional flooding). Cline has cited no case,
however, in which a Kansas court has applied the concept of temporary damages
to a claim for breach of contract. W e therefore conclude Cline’s temporary injury
argument is without merit.
Second, Cline advances a continuing contract theory. He characterizes
Southern Star’s contractual obligation to deliver free gas as a form of rent; he
contends Southern Star and its predecessors failed to pay this rent because they
asserted Cline was required to pay a connection fee or deposit before becoming
eligible to receive free gas. Under this continuing contract theory, Cline alleges a
new breach of contract claim accrued each time Southern Star or its predecessors
did not pay rent in the form of delivering free gas.
Kansas recognizes that “an obligation to make periodic payments is a
severable obligation, so that for limitations purposes each period for which a
payment is due is considered separately.” Goff v. Aetna Life & Cas. Co., 563 P.2d
1073, 1078 (Kan. Ct. App. 1977). The issue in Cline’s breach of contract claim,
however, is not whether Southern Star and its predecessors refused to make a
series of separate periodic payments in the form of free gas. The gas storage
contract does not provide for periodic payments of gas. Instead, the issue is
whether the gas company dishonored its agreement at the outset, when it insisted
-10-
Cline pay a connection fee before providing him with free gas. The company’s
adherence to this position in the face of Cline’s later requests does not give rise to
a series of separate causes of action. See Ariadne Fin. Servs. Pty. Ltd. v. United
States, 133 F.3d 874, 879 (Fed. Cir. 1998) (“[T]he continuing claims doctrine does
not apply to a claim based on a single distinct event which has ill effects that
continue to accumulate over time.”). In short, this court is unpersuaded by Cline’s
arguments that a new cause of action accrued each time Southern Star or its
predecessors rejected his requests for free gas.
Under Kansas law, the statute of limitations begins to run when “the
plaintiff could first have filed and prosecuted his action to a successful
conclusion.” Pancake House, Inc. v. Redmond ex rel. Redmond, 716 P.2d 575, 579
(Kan. 1986). In contract disputes, the cause of action accrues “once a plaintiff
realizes that a defendant has no intention of honoring an agreement.” Johnson v.
Kan. Pub. Employees Ret. Sys., 935 P.2d 1049, 1054 (Kan. 1997). Accordingly,
we conclude Cline’s cause of action accrued at the time he realized the gas
company was going to demand a connection fee or deposit before providing him
with free gas.
Beginning in 1978, Southern Star’s predecessors told Cline he would need
to pay a connection fee before they would supply him with free gas. In its letter
dated November 4, 1998, W illiams G as told Cline in unmistakable terms it would
not provide him with free gas until Cline paid a $5000 connection deposit charge.
-11-
Cline should have realized the gas company’s intentions, at the very latest, when
he received the November 4 letter. Thus, a single cause of action accrued, and the
statute of limitations began to run, no later than that time. Because Cline filed his
breach of contract claim more than five years after his receipt of the N ovember 4
letter, and because no independent causes of action arose after his receipt of the
November 4 letter, Cline’s breach of contract claim is barred by Kan. Stat. Ann. §
60-511(1).
In addition to his breach of contract claim, Cline claims the gas company’s
insistence that he pay a connection fee or deposit gave rise to claims for fraud and
intentional infliction of emotional distress. Under K ansas law , these claims are
governed by a two-year statute of limitations. Kan. Stat. Ann. § 60-513(a)(3)–(4).
A claim for fraud does not accrue “until the fraud is discovered.” Id. § 60-
513(a)(3). “Under Kansas law, a fraud is discovered at the time of actual
discovery or when, with reasonable diligence, the fraud could have been
discovered.” Waite v. Adler, 716 P.2d 524, 527 (Kan. 1986). A claim for
intentional infliction of emotional distress accrues “on the date w hen the injury
was incurred and the emotional impact was felt.” M oore v. Luther ex rel. Luther,
291 F. Supp. 2d 1194, 1199 (D. Kan. 2003). The district court determined Cline’s
fraud and intentional infliction of emotional distress claims accrued more than tw o
years before he filed suit against Southern Star. It therefore concluded the statute
of limitations barred these claims and granted summary judgment to Southern Star.
-12-
On appeal, Cline argues his fraud and intentional infliction of emotional
distress claims are not barred by the statute of limitations because they concern
temporary, not permanent, injuries. He asserts the temporary nature of his injuries
creates a continuing claim that is not barred by the statute of limitations. Cline
contends the Kansas Supreme Court’s discussion of temporary injuries in Dougan
supports his argument, but fails to explain why this is the case. See Dougan, 15
P.3d at 343–46. As noted above, Dougan concerns a nuisance action brought
because of repeated incidents of flooding. Id. at 343. Dougan’s discussion of
temporary and permanent injuries is explicitly grounded in the context of “damage
actions from flooding caused by construction.” Id. at 344. Accordingly, it has no
application to Cline’s claims for fraud and intentional infliction of emotional
distress.
W e agree with the district court’s conclusion that Cline’s claims for fraud
and intentional infliction of emotional distress accrued more than two years before
Cline filed suit against Southern Star. Cline’s argument to the contrary is w holly
unpersuasive. This court therefore concludes these tort claims are barred by the
applicable statute of limitations.
Because both Cline’s breach of contract claim and his fraud and intentional
infliction of emotional distress claims are barred by the applicable statute of
limitations, it is unnecessary to address the merits of those claims. Similarly,
because Cline’s forfeiture argument concerns only the measure of damages owed
-13-
him for breach of contract, and because Cline’s breach of contract claim is barred
by the statute of limitations, it is unnecessary to address the merits of Cline’s
forfeiture argument.
B. Conversion Claim
In addition to his other tort claims, Cline argues Southern Star and its
predecessors committed the tort of conversion. Southern Star conceded at oral
argument that Cline’s conversion claim was not barred by the statute of
limitations. W e therefore address the merits of Cline’s conversion claim to
determine whether the district court properly granted summary judgment to
Southern Star.
Under Kansas law, “[c]onversion is the unauthorized assumption or exercise
of the right of ownership over goods or personal chattels belonging to another to
the exclusion of the other’s rights.” Bomhoff v. Nelnet Loan Servs., Inc., 109 P.3d
1241, 1246 (Kan. 2005). In his complaint and in the pretrial order, Cline claimed
his property had produced natural gas in the past, and continued to produce natural
gas. He asserted Southern Star comingled its injected natural gas with the native
natural gas produced on his property and converted his native gas to its own use.
In its M otion for Summary Judgment, Southern Star alleged there was no evidence
to support Cline’s conversion claim. After reviewing Cline’s conversion claim,
the district court concluded Cline’s allegations w ere not supported by evidence in
the record, and granted summary judgment to Southern Star. On appeal, Cline
-14-
reasserts his argument that Southern Star committed the tort of conversion because
it exerted control over his land and mineral rights outside the boundaries of its
leasehold.
“To withstand summary judgment, the nonmoving party must come forward
with specific facts showing that there is a genuine issue for trial.” L&M Enters. v.
BEI Sensors & Sys. Co., 231 F.3d 1284, 1287 (10th Cir. 2000) (quotations
omitted). “Unsupported conclusory allegations . . . do not create a genuine issue
of fact” sufficient to survive summary judgment. Id. In the instant case, there is
no evidence in the record to suggest Cline’s land has produced native gas or that
such gas— if it has been produced— has comingled with Southern Star’s injected
gas. Instead, the record reveals that, in signing the gas storage contract, Cline’s
predecessors stipulated there was no gas underlying the property at the time the
contract was signed. M oreover, Cline’s own expert witness indicated he was not
aware of any gas production on Cline’s property, and that if native gas exists on
Cline’s property, it is not comingled with the gas Southern Star has stored there.
In short, the record is wholly devoid of support for Cline’s conversion claim.
Because Cline did not satisfy his burden to come forward with specific facts
showing there is a genuine issue for trial, we conclude the district court did not err
when it granted Southern Star’s motion for summary judgment on this issue.
C. Quiet Title
-15-
In its M emorandum and Order on the parties’ Rule 59(e) motions, the
district court held Southern Star was entitled to an order quieting title
to all natural gas injected into the Storage Zone by Southern Star, to
any other natural gas, oil or other minerals under the Subject Property
(other than a potential royalty interest in minerals that might be
produced in the future by Southern Star, if any, from greater than
twenty feet (20’) below the top of the M ississippi Lime) and to any
wells, pipelines or other property that Southern Star has placed on the
Subject Property.
App. at 720. On appeal, Cline contends the district court’s quiet title holding was
erroneous. Cline raises three arguments in support of this contention.
First, Cline argues the district court erred in issuing its quiet title order
because it incorrectly determined the gas storage contract allowed Southern Star
and its predecessors to charge Cline a connection fee or deposit before providing
him with free gas. The validity of Southern Star’s connection fee or deposit
requirement would be relevant if the question at issue was whether Cline had done
all that was necessary to receive free gas under the gas storage contract. The
validity of Southern Star’s connection fee or deposit requirement has no bearing,
however, on ownership interest in the oil, gas, and other minerals underlying
Cline’s property and therefore has no bearing on the district court’s quiet title
order.
Second, Cline claims the district court failed to comport with applicable
Kansas law when it concluded the gas storage contract granted Southern Star the
exclusive right to produce oil, gas, and other minerals from Cline’s property.
-16-
Cline asserts that under Kansas law, Southern Star’s rights to store gas do not
restrict his ability to produce oil and gas outside the boundaries of the storage
lease. The district court decision upon which C line bases his argument, however,
was reversed by this court on appeal. 2 Cline’s assertion is therefore entirely
unpersuasive.
Third, Cline argues the district court erred by using a lease term related to
royalties from gas production when interpreting the terms of the gas storage lease.
Cline fails to explain how the district court committed the purported error and fails
to explain the significance, if any, of the purported error. Because Cline failed to
explain the substance of his argument, w e will afford it no further consideration.
See Am. Airlines v. Christensen, 967 F.2d 410, 415 n.8 (10th Cir. 1992) (noting
that a party must advance a “reasoned argument as to the grounds for the appeal”).
After review ing the terms of the gas storage contract, this court agrees w ith
the district court’s characterization of the ownership interests at issue: Southern
2
Cline cites to the district court’s decision in Reese Exploration, Inc. v.
Williams Natural Gas Co., 768 F. Supp. 1416 (D . Kan. 1991). Reese is somewhat
analogous to the instant case; it concerned a defendant’s right to store gas and a
plaintiff’s right to produce oil from the same property. Id. at 1423. The district
court in Reese concluded the plaintiff and defendant had co-existing rights,
neither of which was superior to the other. Id. This court, however, reversed the
district court’s decision on appeal. See Reese Exploration, Inc. v. Williams
Natural Gas Co., 983 F.2d 1514, 1524 (10th Cir. 1993). W e held the parties’
rights w ere not coequal; instead, the plaintiff’s right to produce oil was subject to
the defendant’s right to store gas. Id. at 1522. Therefore, to the extent the
district court’s decision in Reese supported Cline’s quiet title claim, that support
was nullified by this court’s decision on appeal.
-17-
Star has “the exclusive right to produce oil, gas and other minerals underneath
[Cline’s] property,” and Cline retains “royalty interests in those formations outside
the formations leased to [Southern Star] for gas storage.” App. at 720. Cline’s
arguments to the contrary are unpersuasive or without merit. W e therefore
conclude the district court did not err when it ordered that title be quieted in
Southern Star’s favor.
IV. Conclusion
For the foregoing reasons, this court affirm s the decision of the United
States District Court for the D istrict of K ansas.
ENTERED FOR THE COURT
M ichael R. M urphy
Circuit Judge
-18-