Clarkson & Co. v. Cont'l Res., Inc.

• Decision Date: 09 November 2011
• Docket Number: Nos. 25804,25821.,s. 25804
• Parties: CLARKSON AND COMPANY, Plaintiff and Appellee, v. CONTINENTAL RESOURCES, INC., Defendant and Appellant.
• Court: South Dakota Supreme Court

2011 S.D. 72

806 N.W.2d 615

CLARKSON AND COMPANY, Plaintiff and Appellee,

v.CONTINENTAL RESOURCES, INC., Defendant and Appellant.

Nos. 25804

25821.

Supreme Court of South Dakota.

Considered on Briefs Aug. 22, 2011.Decided Nov. 9, 2011.

Kenneth E. Barker, Timothy J. Vander Heide of Barker Wilson Law Firm, LLP, Belle Fourche, South Dakota, Attorneys for plaintiff and appellee.

Michael M. Hickey, Sarah E. Baron Houy of Bangs, McCullen, Butler, Foye & Simmons, LLP, Rapid City, South Dakota, and Lawrence Bender of Fredrikson & Byron, PA, Bismarck, North Dakota, Attorneys for defendant and appellant.

WILBUR, Justice.

[¶ 1.] Clarkson and Company (Clarkson) owned and leased land in Harding County, South Dakota, on which Continental Resources, Inc. (Continental) conducted oil and gas exploration activities. Continental agreed to pay Clarkson for use of and damage to Clarkson's property. Clarkson sued Continental, seeking declaratory relief to clarify the terms of the payment agreement Continental and Clarkson made. After cross-motions for summary judgment and a court trial, the trial court granted judgment to Clarkson for $164,102.

[¶ 2.] Continental raises the following issues on appeal:

1. Whether the agreement calls for annual escalation of road use payments;

2. Whether Clarkson's claims are barred by laches;

3. Whether roads on land that Clarkson leased in 1981 and subsequently purchased are subject to the road use payment provision of the agreement; and

4. If road use payments are subject to annual escalation under the agreement, whether the consumer price index formula in the escalation clause should begin, and continue to accrue during a time period otherwise barred by the statute of limitations.

[¶ 3.] By notice of review, Clarkson raises two issues on appeal:

1. Whether Clarkson is entitled to recover road use payments for leased roads which existed at the time of entering the agreement; and

2. Whether Clarkson is entitled to road use payments for 0.69 miles of existing road which Continental used to construct a new road.

[¶ 4.] We affirm.

FACTS AND PROCEDURAL HISTORY

[¶ 5.] Clarkson owns and leases property in Harding County. Continental conducts oil and gas exploration, discovery, and production in Harding County. In 1981, Continental's predecessor in interest, Koch Oil, entered into an agreement with Clarkson's predecessor in interest, Clarkson Land & Livestock Company, Inc., to conduct oil and gas exploration on Clarkson's property. The agreement provided that Continental would compensate Clarkson for the use of Clarkson property as well as damage caused by Continental's operations on Clarkson property. Over the years, the agreement has been the source of several disagreements. Neither party elected to bring the matter to court until 2006, when Clarkson brought this action.

[¶ 6.] Most of the disputes have centered on how many miles of roadway on Clarkson land are subject to road use payments under the agreement. To resolve one dispute, in 1996, the parties orally modified the agreement. The oral modification called for a “base” of 15 miles. At trial, Clarkson argued that the oral modification was provisional. However, the trial court found that the 1996 oral agreement constituted a modification of the 1981 agreement. Clarkson has not appealed this issue.

[¶ 7.] On appeal, the parties have two central disputes. First, the parties dispute the applicability of the Section XI “Escalation” clause to the road use payments specified under Section III(C), “Roads.” Section III(C) provides that if Continental “uses a roadway already in existence and owned by [Clarkson], then, and in that event, [Continental] shall pay to [Clarkson] the sum of Seven Hundred Fifty Dollars ($750.00) per mile per year for the use of said roadway.” The escalation clause provides that “damages payable” under the contract will be adjusted for inflation each year based on the CPI:

ESCALATION

These parties agree that the damages payable by and under the terms of this Agreement as the same pertains to roads, flow lines, locations and geophysical exploration are subject to an escalation in the amount so paid, the same being hereinafter set forth.

As to the damage payment for roads, flow lines, and locations and/or sites, [Continental] agrees to pay to [Clarkson] the unit amounts specified above and in addition thereto to increase said unit amounts by ten (10) percent effective July 1, 1981, and to increase the unit amounts on July 1st each year thereafter by a percentage equal to the percentage increase in the Consumer Price Index. It is the intention of these parties that any damages determined and to be paid subsequent to July 1st of any given year shall be subjected to the percentage increase in the Consumer Price Index.

The parties filed cross-motions for summary judgment concerning the escalation payments. The trial court found that the agreement unambiguously provided that the road use payments contained in Section III(C) are “damages payable” and subject to the escalation clause and granted Clarkson's motion.

[¶ 8.] Second, the parties dispute whether roads located on property leased by Clarkson are subject to the road use fee provided for in Section III(C) of the agreement. The relevant portion of the agreement provides: “In the event that [Continental] uses a roadway already in existence and owned by [Clarkson], then, and in that event, [Continental] shall pay to [Clarkson] the sum of Seven Hundred Fifty Dollars ($750.00) per mile per year for the use of said roadway.” The trial court found the plain language of the provision clear. Since the agreement provides for use payments for “roadway already in existence and owned by” Clarkson, roads on leased land were not subject to the fee. (Emphasis added.) Therefore, the trial court granted summary judgment in favor of Continental. However, the trial court held that when Clarkson purchased land previously leased from the State, the road became subject to the annual road use payments.

[¶ 9.] In January 2010, the trial court held a two-day bench trial to resolve the dispute about the effect of the 1996 oral modification and determine damages. The court entered judgment against Continental for $164,102.

STANDARD OF REVIEW

[¶ 10.] Contract interpretation is a question of law. Ziegler Furniture & Funeral Home, Inc. v. Cicmanec, 2006 S.D. 6, ¶ 14, 709 N.W.2d 350, 354. “Thus we must determine whether the trial court's interpretation of the contract was correct, and we make this determination de novo.” Vollmer v. Akerson, 2004 S.D. 111, ¶ 4, 688 N.W.2d 225, 227. In addition to the contract interpretation questions, Continental also appeals the trial court's determination on the doctrine of laches. Whether or not the trial court used the correct legal standard in determining laches is a question of law, which we review de novo. However, if the trial court applied the correct legal standard in determining laches, its findings are reviewed under the clearly erroneous standard and its application of the doctrine is reviewed for abuse of discretion. Tovsland v. Reub, 2004 S.D. 93, ¶ 26, 686 N.W.2d 392, 402.

ANALYSIS

[¶ 11.] We must first determine whether Clarkson's claims are barred by laches (Continental appeal issue two). Both parties agree that Clarkson's recovery of damages is limited to those sustained on or after June 13, 2000, because of the applicable statute of limitations. See SDCL 15–2–13(1) (Civil actions upon a contract can be commenced only within six years after the cause of action shall have accrued). However, Continental argues that Clarkson's delay in bringing action should bar any recovery whatsoever under the doctrine of laches. We agree with the trial court that Clarkson's claim is not barred by laches.

[¶ 12.] Laches is an equitable remedy which will apply when the defendant can show that the plaintiff “(1) had full knowledge of the facts upon which the action was based, (2) regardless of this knowledge, he engaged in an unreasonable delay before seeking relief in court, and (3) that it would be prejudicial” to allow the plaintiff to maintain the action. In re Admin. of C.H. Young Revocable Living Trust, 2008 S.D. 43, ¶ 10, 751 N.W.2d 715, 717 (citations omitted). Because laches is an affirmative defense, Continental “has the burden of proof” for each of the three elements. Zephier v. Catholic Diocese of Sioux Falls, 2008 S.D. 56, ¶ 9, 752 N.W.2d 658, 663. Although there is no dispute that there was considerable delay in bringing this action, “[l]aches does not depend upon passage of time alone; plaintiff must be chargeable with lack of diligence in failing to proceed more promptly.” Conway v. Conway, 487 N.W.2d 21, 25 (S.D.1992).

[¶ 13.] The trial court found that Continental had not shown any significant prejudice. Continental disagrees. Specifically, Continental argues that allowing this action subjected it to evidentiary and economic prejudice. Despite such arguments, as the trial court found, “there is scant evidence of the same in the record.” To the contrary, the record shows that Continental was well aware of continuing disagreements between the parties. Thus, Continental should have been well aware of the possibility of litigation and therefore cannot be prejudiced by this action.

[¶ 14.] Moreover, Continental provides no legal authority to support its contention that economic prejudice is a type of prejudice that the equitable remedy of laches seeks to address. Even if it is presumed that “economic prejudice” can sustain a laches defense, it is questionable, at best, whether Continental has been subject to such prejudice. Continental argues that Clarkson's dilatory claim has caused it to be subject to excessive prejudgment interest on overdue escalated payments. Even assuming this to be true, Continental has received the corresponding economic benefit of retaining the money owed under the agreement well past its actual due date. We agree with the...