Texaco Inc. v. Duhe

• Decision Date: 29 November 2001
• Docket Number: No. 00-30459,00-30459
• Citation: 274 F.3d 911
• Parties: (5th Cir. 2001) TEXACO INC., TEXACO EXPLORATION & PRODUCTION INC., Plaintiffs-Appellees v. JOHN M. DUHE, JR., GLADYS DUHE DEUTSCHLE, JOSEPH PRESTON Duhe, EDNA ACKAL BROWER, ELIAS ACKAL, also known as BO ACKAL, Defendants-Appellants
• Court: U.S. Court of Appeals — Fifth Circuit

Page 911

274 F.3d 911 (5th Cir. 2001)

TEXACO INC., TEXACO EXPLORATION & PRODUCTION INC., Plaintiffs-Appellees v. JOHN M. DUHE, JR., GLADYS DUHE DEUTSCHLE, JOSEPH PRESTON Duhe, EDNA ACKAL BROWER, ELIAS ACKAL, also known as BO ACKAL, Defendants-Appellants

No. 00-30459

UNITED STATES COURT OF APPEALS FIFTH CIRCUIT

November 29, 2001

[Copyrighted Material Omitted] Appeal from the United States District Court for the Western District of Louisiana

BEFORE: LAY^*, GREENBERG^** and MICHEL^***, Circuit Judges .

GREENBERG, Circuit Judge.

This matter comes on before this court on appeal from an order of the United States District Court for the Western District of Louisiana entered on March 21, 2000, making final an order granting partial summary judgment to the plaintiffs-appellees, Texaco Inc. and Texaco Exploration and Production Inc. ("Texaco") entered on February 22, 2000. The district court granted Texaco a summary judgment dismissing the claim of the defendants-appellants, John M. Duhe, Jr., Gladys Duhe Deutschle, and Joseph Preston Duhe ("Duhes") and Edna Ackal Bower and Elias Ackal ("Ackals"), seeking recovery of allegedly underpaid royalties on natural gas production between March 23, 1988, and December 31, 1992, in the Bateman Lake Field, St. Mary Parish, Louisiana. We will refer to this claim as the "gas flow claim." Appellants, however, do not appeal the judgment as to the Duhes, even though they have joined in this appeal, because the Duhes were lessors of mineral property located in Iberia Field, Iberia Parish, Louisiana, from which the gas was allocated in connection with contracts that do not form the basis of the gas flow claim. See Br. of Appellants at 2 n.2. For the reasons we set forth below, we affirm the judgment of the district court.

I. BACKGROUND

A. Factual History

The Ackals are owners of mineral producing property located in the Bateman Lake Field. Texaco produced gas from the Bateman Lake Field and, pursuant to contract, promised to pay royalties to the Ackals on the basis of the "reasonable value" of their natural gas. See Bateman Lake Field Unitization Agreement, ¶ XIII (Exhibit C-2, submitted in support of Texaco's Motion for Partial Summary Judgment on Gas Flow Claims) (unbound).

Texaco delivered gas to purchasers through the Louisiana Industrial System pipeline ("LIS"), which it constructed and operated to transport Texaco-produced gas to end-users within Louisiana. See R.E. of Appellees #2 (Affidavit of Gary Taylor at ¶¶ 2-7). Louisiana Power and Light ("LP&L"), one of the purchasers, entered into a number of contracts with Texaco for gas distribution prior to November 8, 1978. See id. at ¶ 5.¹ This dispute concerns the royalties generated from the sale of Bateman Lake Field gas to LP&L.

By a document dated June 4, 1982, Texaco and LP&L entered into a Compromise and Settlement Agreement, amending and restating their obligations under the several individual LP&L gas purchase contracts. See id. at ¶¶ 9-12. Owing in part to its increasing inability to meet LP&L's natural gas demands, Texaco agreed to pay LP&L over $1 billion in exchange for LP&L's agreement to curtail its short term volume requirements. See Compromise and Settlement Agreement, pp. 3-5 (Exhibit 1 to Affidavit of Gary Taylor, submitted in support of Texaco's Motion for Partial Summary Judgment on Gas Flow Claims) (unbound). The Agreement also contractually committed gas from the Bateman Lake field as a supply source of the LP&L contracts. See R.E. of Appellees #2 (Affidavit of Gary Taylor at ¶ 11). However, the 1982 Agreement maintained the prices and expiration dates of the original contracts. See Compromise and Settlement Agreement, p. 12 (Exhibit 1 to Affidavit of Gary Taylor, submitted in support of Texaco's Motion for Partial Summary Judgment on Gas Flow Claims) (unbound).

On April 12, 1987, Texaco filed for protection under Chapter 11 of the Bankruptcy Code. On March 23, 1998, the bankruptcy court issued its Confirmation Order adopting Texaco's Second Amended Joint Plan of Reorganization and discharging all claims against Texaco which arose prior to the date of entry of that order. As of the date of Texaco's emergence from bankruptcy, only two contracts with LP&L remained in effect out of the original 39 with various purchasers that involved gas routed through the LIS. These two contracts expired by January 1, 1993.

B. Procedural History

On July 3, 1997, the Duhes, Ackals, and Betty Chauvin Roden issued a demand letter to Texaco on behalf of themselves and four classes of similarly situated royalty owners throughout Louisiana, seeking recovery of allegedly underpaid mineral royalties on four different claims. See R.E. of Appellees #1 (Demand Letter). One of these is the gas flow claim, in which the plaintiffs alleged that Texaco improperly paid royalties on the basis of below-market sales rates in connection with the LP&L contracts. In particular, plaintiffs claimed that the market price on November 8, 1978, was over $2.00 per thousand cubic feet ("mcf"), which equates to over $2.00 for one million BTUS,² even though Texaco sold the Ackals' gas for $0.26 and $0.34 in connection with the LP&L contracts. See Br. of Appellants at 4. The plaintiffs limited their demand to royalties underpaid after March 23, 1988, the date of the Texaco bankruptcy confirmation order, and simultaneously filed their own actions relating to their demand in federal and state courts.

In response to the letter, Texaco filed this action on August 1, 1997, in the district court asserting diversity and bankruptcy jurisdiction and seeking declaratory relief against the Duhes and Ackals. The Duhes and Ackals voluntarily dismissed their federal action on January 22, 1998, but Texaco removed the state court action to the United States District Court for the Western District of Louisiana on the ground that the gas flow claim implicated the propriety of Texaco's pre-bankruptcy conduct and thereby provided bankruptcy jurisdiction. The district court, however, remanded the case to the state court after the Duhes and Ackals indicated that they were not challenging Texaco's pre-bankruptcy conduct. See Duhe v. Texaco Inc., Civ. No. 97-1453, slip op. at 14-16 (W.D. La. Oct. 27, 1997).

The Duhes and Ackals next filed a motion to stay Texaco's federal action, pending resolution of the claims in state court. The district court, however, denied the motion and thus Texaco's federal action could proceed.

Texaco then filed and the district court granted the motion for partial summary judgment from which the appellants have appealed. In dismissing the Ackals' gas flow claim, the court determined that the price ceilings imposed by Section 105 of the Natural Gas Policy Act of 1978 ("NGPA"), 15 U.S.C. §§ 3301 et. seq. (repealed), defined the royalty price basis to which the Ackals were entitled. See Texaco, Inc. v. Duhe, Civ. No. 97-1523 (W.D. La. Feb. 16, 2000).

Upon motion of Texaco, the district court directed the entry of a final judgment pursuant to Fed. R. Civ. P. 54(b) by order entered on March 21, 2000.³ Appellants then filed a timely notice of appeal on April 5, 2000, to this court.

C. Jurisdiction

This court has jurisdiction over this appeal of a final judgment of the district court pursuant to 28 U.S.C. § 1291. The district court exercised subject-matter jurisdiction over this case involving citizens of different states and an amount in controversy exceeding $75,000 under 28 U.S.C. § 1332.

II. DISCUSSION

A. Standard of Review

This court reviews an order granting summary judgment de novo, applying the same test the district court employed. See Deas v. River West, L.P., 152 F.3d 471, 475 (5th Cir. 1998). Moreover, we review de novo the district court's interpretation of state law. See McGruder v. Will, 204 F.3d 220, 222 (5th Cir. 2000).

Fed. R. Civ. P. 56(c) provides, in pertinent part, that a court may grant summary judgment only if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law."

In determining whether summary judgment is warranted, this court views the record and draws inferences in a light most favorable to the non-moving party. SeeDutcher v. Ingalls Shipbuilding, 53 F.3d 723, 725 (5th Cir. 1995). If a party fails to make a showing sufficient to establish the existence of an element essential to that party's case and on which that party bears the burden of proof at trial, there ceases to be a genuine issue as to any material fact, such that the moving party is entitled to judgment as a matter of law.

B. Are the Ackals' Royalties Restricted by the NGPA?

1. Louisiana Royalty Jurisprudence

Louisiana law restricts the value of natural gas royalties to actual sale prices, even when federal price controls govern. See, e.g., Louisiana Land and Exploration Co. v. Texaco Inc., 491 So.2d 363, 367 (La. 1986) (royalty payments on gas flowing and sold under contract as of November 8, 1978, the day before the NGPA became effective, are controlled by Section 105 of the NGPA); Shell Oil Co. v. Williams, Inc., 428 So.2d 798, 802 (La. 1983) (market value must be determined by comparable sales in quality "which also involve the legal characteristics of the gas, that is, whether it is sold on a regulated or unregulated market" and not merely the price the gas would have obtained if sold at that time in the open unregulated market); see also Henry v. Ballard & Cordell Corp., 418 So.2d 1334, 1338-39 (La. 1982) (if the contract was not unreasonable when entered into, the lessee pays the lessor the fractional part of the value which he is to enjoy from the enterprise, namely the sales price). Therefore, the proper calculation of royalties hinges on the extent to which the NGPA regulated the gas sold under the LP&L contracts.⁴

2. The NGPA

Congress adopted...