Trans-Western Petroleum, Inc. v. U.S. Gypsum Co.

• Decision Date: 26 July 2016
• Docket Number: No. 13–4012,13–4021,13–4012
• Citation: 830 F.3d 1171
• Parties: Trans–Western Petroleum, Inc., a Colorado corporation, Plaintiff–Appellant/Cross–Appellee, v. United States Gypsum Company, an Illinois corporation, Defendant–Appellee/Cross–Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

830 F.3d 1171

Trans–Western Petroleum, Inc., a Colorado corporation, Plaintiff–Appellant/Cross–Appellee

v.United States Gypsum Company, an Illinois corporation, Defendant–Appellee/Cross–Appellant.

No. 13–4012

13–4021

United States Court of Appeals, Tenth Circuit.

July 26, 2016

Stephen K. Christiansen, (Sam Meziani and Kelley M. Marsden of Van Cott, Bagley, Cornwall & McCarthy, on the briefs), Salt Lake City, Utah, for Plaintiff–Appellant/Cross–Appellee.

Matthew J. Ball (and Patricia W. Christensen of Parr, Brown, Gee & Loveless, P.C., on the briefs), Salt Lake City, Utah, for Defendant–Appellee/Cross–Appellant.

Before KELLY , L UCERO, and HOLMES, Circuit Judges.

KELLY, Circuit Judge.

This diversity case involves a 2004 oil and gas lease with a five-year term between Trans–Western Petroleum, Inc. (“Trans–Western”) and United States Gypsum Co. (“USG”). In a prior appeal, we determined Trans–Western held a valid oil and gas lease. Trans–Western Petroleum, Inc. v. United States Gypsum Co. , 584 F.3d 988 (10th Cir. 2009). Thereafter, the district court granted partial summary judgment in favor of Trans–Western, held a bench trial on damages and awarded Trans–Western nominal damages. Both parties appealed. Trans–Western appealed the district court's nominal damage award. USG cross-appealed the district court's denial of its Fed. R. Civ. P. 56(d) motion, grant of partial summary judgment in favor of Trans–Western, and nominal damages award.

After oral argument, we certified one question to the Utah Supreme Court: How should expectation damages be measured for the breach of an oil and gas lease? In light of the Utah Supreme Court's resolution of this question, we now affirm the district court's grant of partial summary judgment, and remand the case for a proper determination of the amount of damages. Our jurisdiction arises under 28 U.S.C. § 1291.

Background

USG owns the oil and gas underlying 1,700 acres of land in Sevier County, Utah. In 1995, USG entered into an oil and gas lease with Dale E. Armstrong (“Armstrong”), who subsequently assigned the lease to Wolverine Oil & Gas Corp. (“Wolverine”). Aplt. App. 592. The Wolverine lease was extended to nine years, through August 17, 2004. Aplt. App. 592.

In 2004, Douglas Isern (“Isern”), the owner and sole officer of Trans–Western, heard rumors that Wolverine had discovered oil in the area. Aplt. App. 591, 593. After researching county records, Isern found the Armstrong lease and called USG, expressing interest in leasing the land upon expiration of the Wolverine assignment. Aplt. App. 593. Isern followed up by sending USG a proposed lease, with a term of five years beginning August 17, 2004 at $19/acre (or $32,680) along with the right of assignment. Aplt. App. 593-94. The proposed lease was accompanied by a draft in the amount of $32,680. Aplt. App. 594. On September 15, 2004, USG executed the lease. Aplt. App. 594.

Soon after, on October 1, 2004, both Trans–Western and USG received a letter from Wolverine protesting the recording of the lease. Wolverine claimed that its lease with Armstrong remained valid under pooling and unitization provisions contained in that lease. Aplt. App. 594. USG responded by rescinding the lease with Trans–Western both orally, through a phone conversation with Isern, and in writing, via a letter to Isern dated October 7, 2004. Aplt. App. 595. The value of Trans–Western's lease did not change during the three weeks from the date of its execution to the date of its rescission. Aplt. App. 595.

Two years later, in 2006, Trans–Western brought suit against Wolverine, seeking a declaratory judgment that Wolverine's lease with USG had expired on August 17, 2004. Aplt. App. 595. The district court determined that the Wolverine lease had expired. Aplt. App. 595. It then granted the parties' stipulated joint motion for Rule 54(b) certification and stay. Aplt. App. 117. The district court was subsequently affirmed on appeal. Trans–Western Petroleum, Inc. , 584 F.3d at 994. Thereafter, as part of their agreement, USG and Trans–Western executed a Ratification and Lease Extension of the August 17, 2004 lease for an extended primary term of five years beginning December 11, 2009. Aplt. App. 1301–1302.

Armed with the determination that the Wolverine lease was no longer in effect, in 2010, Trans–Western also filed its second amended complaint, seeking a declaratory judgment that its lease with USG was valid and damages for breach of contract and breach of the covenant of quiet enjoyment, among other claims. Aplt. App. 141, 147-49, 595. Trans–Western then moved for partial summary judgment, which USG opposed based on the theories of mutual or unilateral mistake of fact. Aplt. App. 231, 595. The district court granted partial summary judgment to Trans–Western, determining that USG had breached the lease but denied attorney's fees¹ due to disputed material facts on damages. Aplt. App. 237-38, 595; Trans–Western Petroleum, Inc. v. Wolverine Gas & Oil Corp. , No. 2:06–cv–801-TS, 2011 WL 223734 (D. Utah Jan. 24, 2011).

During a bench trial on damages, Trans–Western contended that it was entitled to expectation damages for both breach of contract and breach of the covenant of quiet enjoyment because USG deprived it of the opportunity to assign the lease during its five-year term.² Aplt. App. 330-35, 596. According to Trans–Western, it would have assigned the lease in late 2007 or early 2008 for a minimum of $2,500 per acre (at least $4.3 million total) during the market's peak—and before the price dropped precipitously in 2009 after a dry hole was drilled. Aplt. App. 314, 338, 596.

USG contended, inter alia, that damages for the breach of an oil and gas lease, like any real property, are measured at the date of breach—which occurred on October 7, 2004, when USG notified Trans–Western of its rescission—and not pegged to a hypothetical sale at the market's peak. Aplt. App. 317, 596-97.

The district court rejected Trans–Western's damages theories, finding that Trans–Western was entitled only to nominal damages based on the value of the contract on the date of breach, which had not increased since the date of execution. Aplt. App. 597-602, 608. However, the district court noted that Utah's courts had yet to specifically address the calculation of damages involving an oil and gas lease.

As noted, we certified the question of how expectation damages for the breach of an oil and gas lease should be measured to the Utah Supreme Court. Trans–Western Petroleum, Inc. v. United States Gypsum Co. , 559 Fed.Appx. 773 (10th Cir. 2014). The Utah Supreme Court determined that in the context of the present case

we measure general damages as the difference between the contract price of the lease and the market value of the lease at the time of the breach. Consequential damages, on the other hand, are those that are reasonably within the contemplation of, or reasonably foreseeable by, the parties at the time the contract was made. And we measure consequential damages not by the value of the promised performance alone but by the gains such performance could produce for collateral reasons, or the loss that is produced by the absence of such performance.

Trans–Western Petroleum, Inc. v. United States Gypsum Co. , –––P.3d ––––, ––––, 2016 WL 3369544 at *1 (Utah 2016) (internal citations and quotations omitted). The court also held that a trial court may exercise discretion and allow for the use of post-breach evidence to help establish and measure expectation damages. Id.

Discussion

We begin with USG's cross-appeal on liability. USG argues that the district court should have granted its Fed. R. Civ. P. 56(d) motion and deferred ruling on USG's motion for partial summary judgment so that USG could conduct discovery. It further challenges the underlying grant of partial summary judgment.

A. Denial of Rule 56(d) Motion

Rule 56(d) permits a court to defer considering a motion for summary judgment when “a nonmovant shows by affidavit or declaration that, for specified reasons, it cannot present facts essential to justify its opposition.” We review the district court's denial of a Rule 56(d) motion for an abuse of discretion. Trask v. Franco , 446 F.3d 1036, 1042 (10th Cir. 2006). Here, the district court determined that USG had a correct understanding of certain facts and constructive notice of others thereby allowing the case to be resolved as a matter of law on USG's defenses of mutual and unilateral mistake. Trans–Western Petroleum, Inc. , ––– P.3d at –––– – ––––, 2011 WL 223734 at *3–4.

Although discovery is the norm prior to granting summary judgment, a party's mere hope that discovery may yield further evidence is insufficient to defeat a summary judgment motion. Bryant v. O'Connor , 848 F.2d 1064, 1067 (10th Cir. 1988) ; Miller v. United States , 710 F.2d 656, 666 (10th Cir. 1983). That said, summary judgment should not be granted “where the nonmoving party has not had the opportunity to discover information that is essential to his opposition.” Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 250 n. 5, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

USG contests the district court's denial of its Rule 56(d) motion for two reasons: (1) the district court disregarded its reasons for additional discovery and (2) the district court disregarded a scheduling order.

1. District Court's Rejection of USG's Specified Reasons

In the district court, USG urged that extra time would allow it to discover evidence supporting its affirmative defense of unilateral mistake, specifically that Trans–Western was aware that USG was under a mistaken impression. See Aplee. App. 32, 40. On appeal, USG argues that discovery would have shown that there was no meeting of the minds due to a lack of consideration on Trans–Western's part. Aplee. Br. at 37-38. Without a meeting of the minds, USG argues the parties never created an enforceable contract. This meeting of the minds argument in favor of additional time for discovery was not raised...