Arkla Energy Resources, a Div. of Arkla, Inc. v. Roye Realty and Developing, Inc., s. 91-7131

• Decision Date: 03 November 1993
• Docket Number: 7132,Nos. 91-7131,s. 91-7131
• Citation: 9 F.3d 855
• Parties: 22 UCC Rep.Serv.2d 155 ARKLA ENERGY RESOURCES, A DIVISION OF ARKLA, INC., successor to Arkansas Louisiana Gas Company, Appellant and Cross-Appellee, v. ROYE REALTY AND DEVELOPING, INC., an Oklahoma corporation, Appellee and Cross-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 855

9 F.3d 855

22 UCC Rep.Serv.2d 155

ARKLA ENERGY RESOURCES, A DIVISION OF ARKLA, INC., successor to Arkansas Louisiana Gas Company, Appellant and Cross-Appellee, v. ROYE REALTY AND DEVELOPING, INC., an Oklahoma corporation,

Appellee and Cross-Appellant.

Nos. 91-7131, 7132.

United States Court of Appeals, Tenth Circuit.

Nov. 3, 1993.

Richard T. McGonigle (Michael E. Riddick, Blanchard, Walker, O'Quin & Roberts, Shreveport, LA, and Mark S. Thetford, Stipe, Gossett, Stipe, Harper, Estes, McCune & Parks, Tulsa, OK, with him on the briefs), Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., Tulsa, OK, for appellant and cross-appellee.

Eric S. Gray (Thomas P. Goresen and Gregory F. Pilcher, Gray, Goresen, Moriarty & Wright, Oklahoma City, OK, with him on Before LOGAN, MOORE, and ANDERSON, Circuit Judges.

the briefs), Gray, Goresen, Moriarty & Wright, Oklahoma City, OK, for appellee and cross-appellant.

STEPHEN H. ANDERSON, Circuit Judge.

In this diversity action, Arkla Energy Resources ("AER"), a division of Arkla, Inc., appeals the portion of the district court's judgment adverse to it and the district court's denial of its motion for a new trial on its breach of contract claim. Roye Realty and Developing Corporation ("Roye") cross-appeals the district court's adverse judgment on its counterclaim for breach of contract and the court's denial of its request for attorney fees.

AER is a Delaware corporation with its principal place of business in Louisiana. Roye is an Oklahoma corporation with its principal place of business in Oklahoma. AER owns and operates natural gas pipelines; Roye produces and provides natural gas from various natural gas fields for delivery to pipelines.

In June, 1986, AER sued Roye in Haskell County, Oklahoma, on various grounds. The parties eventually signed a settlement agreement on February 6, 1989. The agreement required AER to pay Roye $2,935,000 for the right to purchase gas and $.96 per Mcf (thousand cubic feet) for 1.05 Bcf (billion cubic feet) of gas that AER could request during the contract period. In turn, Roye would deliver gas to AER when AER requested it, up to 3,000 Mcf a day and up to the 1.05 Bcf total over a period of two years. At the end of the contract period AER had to pay for the entire 1.05 Bcf regardless of how much gas it had requested. The agreement also prohibited disclosure of its terms.

The agreement's two-year term began in February, 1989, but AER did not request any gas through September, 1989. Effective October 1, 1989, AER assigned its rights under the agreement to Blue Jay Gas Company ("Blue Jay"), a wholly-owned subsidiary of Arkla, Inc. Blue Jay requested daily deliveries of gas from Roye for the month of October. In response, Roye suspended performance of the agreement on September 29, 1989, and demanded adequate assurances of performance from AER and Blue Jay. On October 10, Blue Jay notified Roye that the assignment was terminated effective November 1, 1989, and on October 26, AER sent letters assuring Roye that both AER and Blue Jay would perform. Roye never delivered any gas to Blue Jay.

AER itself first requested gas on December 15, 1989, when it sent Roye a letter requesting 3,000 Mcf a day during January, 1990. AER sent a similar letter on January 19, 1990, requesting 3,000 Mcf a day for February, 1990. Although the gas purchase contracts covered by the settlement agreement required Roye to deliver gas against a prevailing pipeline pressure up to 500-800 psi, Roye was unable to deliver against AER's prevailing pressure of 450 psi. Consequently, Roye delivered no gas in January, and in February delivered approximately twenty-seven percent of the gas AER nominated for February.

Roye then offered to deliver to AER, effective March 1, 1990, daily allotments of gas up to five times as high as those it was obligated to deliver, in order to deliver the entire 1.05 Bcf of gas available to AER under the agreement. AER rejected this offer. During the remainder of the two-year term, AER requested nearly all the rest of the 1.05 Bcf of gas to which it was entitled, but did not request again the amounts that Roye had not delivered in October, 1989, and January and February, 1990. At the end of the two years, AER had received 848,590 Mcf of gas, approximately eighty-one percent of the total gas AER and Blue Jay had nominated.

AER brought this action against Roye in March, 1990, in the Eastern District of Oklahoma. AER alleged that Roye had breached the settlement agreement by not delivering the nominations for October, 1989, and January and February, 1990. AER requested damages equal to the contract price of the undelivered gas. Roye counterclaimed, alleging that AER had breached the agreement's confidentiality provision when it assigned its rights to Blue Jay and requesting The district court held that Roye had breached the agreement by failing to deliver gas in January and February, but that Roye had offered to effectively cure its breach and AER wrongfully rejected that offer. AER was thus entitled to no damages for Roye's breach. The court also held that Roye justifiably suspended performance and demanded adequate assurances from AER and Blue Jay in October, 1989. As to Roye's counterclaim, the court ruled that AER did not breach the confidentiality provision of the agreement.

$100,000 in liquidated damages as provided by the contract.

The district court subsequently denied AER's motion for a new trial or to alter or amend the judgment. The district court also denied Roye's post-judgment motion for attorney fees under Oklahoma law and the Federal Rules of Civil Procedure.

AER now appeals the district court's judgment and its denial of AER's post-judgment motion for a new trial or to alter or amend the judgment. It argues that the district court clearly erred by not awarding it damages for Roye's breach of the settlement agreement, and by finding that Roye was entitled to suspend performance pending adequate assurances in October, 1989. On cross-appeal, Roye contends that the district court clearly erred in finding that AER did not breach the confidentiality provision, and abused its discretion in refusing to award Roye attorney fees. Although we follow different reasoning on some of the issues, we affirm.

I. AER's Appeal

A. Roye's Failure to Deliver in January and February

The district court held that Roye had breached the agreement by failing to deliver the requested gas in January and February, 1990. The court also held, however, that Roye's offer in late February to deliver up to 15,000 Mcf a day was an effective cure, and thus AER was not entitled to damages. We affirm on different grounds. We conclude that AER may not recover the value of the undelivered gas not because Roye effectively cured its breach, but because its breach was only a non-conformity that did not substantially impair the value of the requested gas. AER was therefore obligated to accept Roye's late and perhaps larger than expected installments. We also conclude that AER has not shown it would have been damaged by the delayed delivery of these installments.

i. Installment Contract

An installment contract "requires or authorizes the delivery of goods in separate lots to be separately accepted." Okla.Stat.Ann. tit. 12A, Sec. 2-612(1) (1963). The district court concluded that the agreement was an installment contract because it "provide[d] of [sic] the delivery of gas in installments over a two-year period." Arkla Energy Resources v. Roye Realty & Developing, Inc., No. CIV-90-110-C, slip op. at 9, 1991 WL 538815 (E.D.Okla. Sept. 30, 1991). Whether the agreement is an installment contract is primarily a question of fact. See Stinnes Interoil, Inc. v. Apex Oil Co., 604 F.Supp. 978, 981 (S.D.N.Y.1985) (noting that whether a contract is an installment contract under section 2-612 is a question of fact). We therefore must accept the district court's finding unless it is clearly erroneous. Fed.R.Civ.P. 52(a).

The settlement agreement provided that AER would pay $2,935,000 in several installments for "the right to purchase" 1.05 Bcf of gas. Over a two-year period beginning February 1, 1989, AER could request up to 3,000 Mcf of gas a day. Roye was obligated to maintain "daily deliverability" above 3,000 Mcf a day and to deliver any volumes requested up to that level. AER in turn would pay Roye $.96 per Mcf out of an escrow account containing $1,008,000, the amount required to pay $.96 per Mcf for the maximum 1.05 Bcf that AER could buy. However, at the end of the two-year period the entire amount in escrow was to go to Roye, even if AER didn't request or, if tendered by Roye, take the entire 1.05 Bcf.

AER argues that the agreement was not an installment contract because (1) it did not authorize delivery in lots because it did not authorize any deliveries unless AER requested them, and (2) the delivery of the gas in separate daily amounts actually indicates a First, the uncertainty of when and if AER would request delivery of gas does not change the essential character of the contract. The contract "authorized" delivery in separate daily lots at AER's request. An installment contract need not authorize deliveries at times chosen by the seller or specified in the contract; it may instead authorize deliveries at times chosen by the buyer. See Bevel-Fold, Inc. v. Bose Corp., 9 Mass.App. 576, 402 N.E.2d 1104, 1106 (1980) (holding that contract providing for delivery according to buyer's schedule, instructing seller not to anticipate that schedule, and giving buyer acceptance rights as to each delivery, was installment contract under section 2-612). Furthermore, the agreement is still an installment contract despite the unrealized possibility that AER might never have authorized any deliveries. See Task Force of the A.B.A. Subcomm. on General Provisions, Sales, Bulk Transfers, & Documents of Title, Comm. on the Uniform Commercial Code, An Appraisal of the March...