Bill Barrett Corp. v. YMC Royalty Co.

• Citation: 918 F.3d 760
• Decision Date: 07 March 2019
• Docket Number: No. 18-1067,18-1067
• Parties: BILL BARRETT CORPORATION, Plaintiff-Appellee, v. YMC ROYALTY COMPANY, LP ; YBC Managers, LLC; and Bayshore Royalty, LP, Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

918 F.3d 760

BILL BARRETT CORPORATION, Plaintiff-Appellee,

v.YMC ROYALTY COMPANY, LP ; YBC Managers, LLC; and Bayshore Royalty, LP, Defendants-Appellants.

No. 18-1067

United States Court of Appeals, Tenth Circuit.

FILED March 7, 2019

Jennifer Lynn Peters (Timothy Ryan Odil with her on the briefs), Otis Bedingfield & Peters, LLC, Greeley, Colorado, for Appellants.

Andrew K. Glenn (Karen L. Spaulding with him on the brief), Beatty & Wozniak, P.C., Denver, Colorado, for Appellee.

Before TYMKOVICH, Chief Judge, MURPHY, and HARTZ, Circuit Judges.

PER CURIAM.

The Bill Barrett Corporation and YMC Royalty Company are experienced oil and gas companies with mineral rights in northeastern Colorado. In 2013, they had the opportunity to jointly develop two oil wells. To facilitate the drilling operations, YMC executed documents authorizing joint expenditures, accepting responsibility for costs, and electing to participate and share in the revenues. But after depositing nearly $150,000 in revenues, YMC asserted it had never entered into an enforceable joint operating agreement with Barrett and declined to pay its share of the costs. Barrett sued for breach of contract. A jury ultimately found in favor of Barrett. The district court denied YMC's motions for judgment as a matter of law and for a new trial, and this appeal followed.

We conclude the parties formed an enforceable contract under Colorado law and a reasonable jury could conclude the parties should be held to their bargain. We also hold the district court properly exercised its gatekeeper functions for the admission of expert testimony and did not abuse its discretion in excluding YMC's expert witness. Finally, we hold the district court's comments during the exclusion of YMC's expert witness did not improperly influence the jury.

I. Background

To further the development of drilling operations in Colorado's Greasewood Flats oil field, Barrett sent a proposal to YMC in January 2013. Ijaz Rehman, controller of YMC, executed Barrett's proposal letter and the attached "Authorization for Expenditure" form (AFE) for the Greasewood 11-21H Well. The proposal letter provided that Barrett "is hereby offering [YMC] an opportunity to participate in the [11-21 Well] ... by paying your proportionate share of the costs." App. 3638. The letter further stated if YMC elected to participate, it must "indicate [its] approval by signing in the space provided below and as provided on the AFE." Id. Once participation was confirmed, Barrett would then furnish its "proposed form of Joint Operating Agreement for your review and approval." Id.

The space provided on the proposal letter listed three options. Mr. Rehman checked the box "I/we elect to participate in the drilling of the Greasewood 11-21H Well. Enclosed is my/our signed AFE." Id. at 3639. Mr. Rehman then signed the signature block, initialed the AFE on the first and last pages, and notarized the instrument. The AFE listed the total estimated cost of the 11-21 Well and YMC's proportionate share of those costs based on a proposed 12.5% working interest.

About two months later, Mr. Rehman executed a second proposal letter and AFE pertaining to the Greasewood 10-20 Well. This time, Barrett's proposal offered an 18.75% working interest in the Well. The documents contained substantially the same terms as previously, but additionally emphasized that, "[w]hile this is an estimate and actual costs may be higher or lower, execution of the AFE constitutes agreement to pay the actual costs. We understand that you will tender your share of the costs outlined in the AFE at the time the well is commenced."Id. at 3654. Once again, Mr. Rehman signed the signature block, initialed the AFEs, and notarized the instrument.

In August 2013, YMC executed two division orders that listed YMC as owning 12.5% of the working interest in the 11-21 Well and 18.75% in the 10-20 Well. Internal YMC communications introduced at trial also indicated that YMC believed it owned a working interest in both wells. Most tellingly, Barrett sent monthly revenue checks and statements to YMC from September 2013 to July 2014 for YMC's ownership interests in the wells. YMC ultimately deposited $148,165.26 in revenue. In July 2014, however, the relationship deteriorated. Barrett ceased paying YMC when it learned YMC refused to pay its share of the costs and denied the existence of a contract. Barrett sued YMC for breach of contract.

The jury found YMC breached its contracts and awarded Barrett damages. Following the trial, YMC renewed its motion for judgment as a matter of law and moved for a new trial, arguing there was insufficient evidence indicating contractual formation, AFEs are unenforceable as a matter of law, and no reasonable jury could find mutual assent to contract. YMC also argued the court committed reversible error in excluding its expert witness on industry custom and practice (while allowing Barrett's expert witness) and in making unfair comments about the expert's qualifications before he was excluded. The district court denied the motions and YMC appealed.

II. Analysis

We first consider whether the parties formed an enforceable contract under Colorado law and whether sufficient evidence supported the jury verdict for Barrett. We then consider whether the district court erred in excluding YMC's expert witness testimony from trial.

A. Contract Formation

As a federal court sitting in diversity, we apply Colorado contract law to this dispute. See Specialty Beverages, L.L.C. v. Pabst Brewing Co. , 537 F.3d 1165, 1175 (10th Cir. 2008). We "look to the rulings of the highest state court" to guide our interpretation of state law. Stickley v. State Farm Mut. Auto. Ins. Co. , 505 F.3d 1070, 1077 (10th Cir. 2007). When the highest state court has not addressed the question, we predict how it would rule after giving "proper regard to relevant rulings of other courts of the State." Id. (internal quotation marks omitted).

First, YMC argues that AFEs cannot be enforceable contracts as a matter of law and that the instrument contained language too indefinite to constitute a contract under Colorado law. Second, YMC says the evidence introduced at trial was insufficient to indicate mutual assent. We disagree on both points.

1. Motion for Judgment as a Matter of Law

"We review a district court's denial of a Rule 50 motion de novo, applying the same standards as the district court." Home Loan Inv. Co. v. St. Paul Mercury Ins. Co. , 827 F.3d 1256, 1261 (10th Cir. 2016). "A party is entitled to [judgment as a matter of law] only if the court concludes that all of the evidence in the record reveals no legally sufficient evidentiary basis for a claim under the controlling law." Wagner v. Live Nation Motor Sports, Inc. , 586 F.3d 1237, 1244 (10th Cir. 2009) (cleaned up). The court draws "all reasonable inferences in favor of the nonmoving party" and does not "weigh evidence, judge witness credibility, or challenge the factual conclusions of the jury." Id. (internal quotation marks omitted). Judgment as a matter of law is "cautiously and sparingly granted and then only when the court is certain the evidence conclusively favors one party such that reasonable men could not arrive at a contrary verdict." Weese v. Schukman , 98 F.3d 542, 547 (10th Cir. 1996) (internal quotation marks omitted).

The Colorado Supreme Court has held that "[a]lthough generally, the question of whether a contract exists is a matter of fact to be determined by the jury, this is only the case where the evidence is conflicting or admits of more than one inference." N.Y. Life Ins. Co. v. K N Energy, Inc. , 80 F.3d 405, 409 (10th Cir. 1996) (internal quotation marks omitted) (citing I.M.A., Inc. v. RockyMountain Airways, Inc. , 713 P.2d 882, 887 (Colo. 1986) ). The "parties do not dispute what happened," but rather disagree about "what legal significance, if any, can be attached to the relevant events." Id. at 410. For us to rule as a matter of law, YMC must demonstrate that the evidence of contractual formation does not conflict or admit of more than one inference.

Colorado law requires parties to agree on all essential terms to form a contract. See Fed. Lumber Co. v. Wheeler , 643 P.2d 31, 36 (Colo. 1981). Such terms "must be sufficiently definite to enable the court to determine whether the contract has been performed or not." Stice v. Peterson , 144 Colo. 219, 355 P.2d 948, 952 (1960). "[W]hen the language in a contract is too uncertain to gather from it what the parties intended, the courts cannot enforce it." Id. We construe the proposal letters and AFEs together "as though they comprise[ ] a single document." Chambliss/Jenkins Assocs. v. Forster , 650 P.2d 1315, 1318 (Colo. App. 1982) ; see also E. Ridge of Fort Collins, LLC v. Larimer & Weld Irr. Co. , 109 P.3d 969, 975 (Colo. 2005).

YMC argues the documents lack essential terms, such as when the obligation to pay arises, how payment is to be made, and the terms of payment, relying on Stice v. Peterson , 355 P.2d at 952 (identifying these terms as relevant for determining the existence of an alleged oral contract). But Stice does not require precise terms related to payment to prove the formation of a valid contract. Stice only requires a contract to be sufficiently definite for a court to determine whether the parties performed. The contract in Stice was too ambiguous, since even the plaintiff "was completely uncertain as to what was actually said by the defendant." 355 P.2d at 952.

Here, by contrast, sufficient evidence exists to support a finding by a reasonable jury that the proposal letters and AFEs were sufficiently definite to constitute binding contracts under Colorado law. First, the proposal letters and AFEs contain characteristic contractual language of offer and acceptance, consideration, and terms of performance. The second proposal letter even stated that "execution of the AFE constitutes agreement to pay the actual costs." App. 3654. It also identified when...