COLUMBIA GAS TRANSMISSION v. Allied Chemical Corp., Civ. A. No. 74-2951.

• Decision Date: 26 April 1979
• Docket Number: Civ. A. No. 74-2951.
• Citation: 470 F. Supp. 532
• Parties: COLUMBIA GAS TRANSMISSION CORPORATION v. ALLIED CHEMICAL CORPORATION, et al.
• Court: U.S. District Court — Eastern District of Louisiana

470 F. Supp. 532

COLUMBIA GAS TRANSMISSION CORPORATION v. ALLIED CHEMICAL CORPORATION, et al.

Civ. A. No. 74-2951.

United States District Court, E. D. Louisiana.

April 26, 1979.

Frank J. Peragine, Deutsch, Kerrigan & Stiles, New Orleans, La., H. L. Snyder, Charleston, W. Va., for plaintiff.

Gene W. Lafitte, William R. Pitts, Liskow & Lewis, New Orleans, La., Ray A. Barlow, Hargrove, Guyton, Ramey & Barlow, Shreveport, La., Richard B. Wilkins, Jr., Houston, Tex., John M. McCollam, Gordon, Arata & McCollam, John V. Baus, Jones, Walker, Waechter, Poitevent, Carrere & Denegre, Dan A. Smetherman, Landwehr & Foley, New Orleans, La., for defendants.

MEMORANDUM AND ORDER

JACK M. GORDON, District Judge.

Columbia Gas Transmission Corporation seeks injunctive relief, and damages for alleged wrongful diversion of natural gas from reserves claimed to have been "dedicated" to Columbia's interstate pipeline system by virtue of (i) two gas purchase contracts between the plaintiff and predecessor producer-lessees and (ii) certificates of public convenience and necessity issued by the Federal Power Commission ("FPC") now entitled Federal Energy Regulatory Commission to the predecessor producer-lessees. The plaintiff originally alleged six separate causes of action in its complaint which were as follows:

(1) That all defendants violated the provisions of the Natural Gas Act, 15 U.S.C. 717, et seq., by diverting gas originally dedicated to interstate commerce without first obtaining the permission and approval of the FPC to allow it to abandon services and facilities previously dedicated;

(2) That certain defendants have breached the Section 84 gas purchase contract by failing to give the plaintiff notice of their intentions to surrender any part of their leaseholds dedicated under the Section 84 gas purchase contract (3) That certain defendants breached the Section 85 gas purchase contract by failing to give the plaintiff notice of their intentions to surrender any part of their leaseholds dedicated under the Section 85 gas purchase contract;

(4) That defendants participated in an over-all scheme for the purpose of wrongfully and unlawfully depriving the plaintiff of its rights under the Section 84 gas purchase contract and the Section 85 gas purchase contract;

(5) That Allied Chemical Corporation committed constructive fraud on plaintiff by participating substantially in the scheme to deprive plaintiff of its rights under the Section 84 and Section 85 gas purchase contracts, and by failing to reveal to plaintiff this defendant's role in that scheme; and

(6) That defendants Moffett, the McWilliams Group, the Rankin Group, and Production Management Corporation committed constructive fraud on plaintiff by failing to reveal to plaintiff defendants' respective parts in the over-all scheme of defendants to violate plaintiff's rights under the Section 84 and Section 85 gas purchase contracts.

In this action, Columbia Gas Transmission Corporation (hereafter referred to as "Columbia Gas") has sued the following three groups of defendants:

(1) The producer-defendants who maintain or have maintained a working interest in the leaseholds under Section 84 and Section 85 and who are more specifically described as Allied Chemical Corporation ("Allied Chemical"), Petrofunds, Inc., Osias Biller, and Sunny South Oil & Gas, Inc., (all aforementioned defendants referred to as "Allied Chemical Group"); James R. Moffett, the McWilliams Group, the Rankin Group (the last three defendants referred to as the "Moffett Group"); and Mid-Continent Supply Company ("Mid-Continent");

(2) Defendants having only a royalty interest to some extent in the leaseholds under Section 84 and/or Section 85 who are specifically described as Pennzoil Producing Company ("Pennzoil") and W. L. Toce; and

(3) The intervenor-defendants who are the surface and mineral owners of Section 84 and Section 85 and who are more specifically described as the "Wylie Heirs."

Defendant Pennzoil has cross-claimed against defendants Toce and the Wylie Heirs, seeking indemnity for any damages it may be cast in judgment to pay relating to the alleged scheme or constructive fraud practiced on Columbia Gas.

Several developments occurred prior to and during the trial that have altered the complaint presented by Columbia Gas. First, Mid-Continent Supply Company moved for a summary judgment in its favor as to Counts I, II, III, IV, V and VI. Pennzoil also moved for summary judgment on Counts I, II, IV, V and VI. After consideration of these matters, the Court granted Mid-Continent Supply Company's motion for summary judgment as to Counts II, III, IV, V and VI, while reserving its ruling on Count I. The Court granted Pennzoil's motion for summary judgment as to Counts I, IV, V and VI, while reserving ruling on Count II. The Court later granted Pennzoil's motion as to Count II. The Court instructed the parties that it would issue written reasons supporting those orders granting the summary judgment motions as to certain counts.

Defendants in the Moffett Group also filed a motion for summary judgment as to Counts II and III. The Court took the matter under submission, and after hearing the evidence adduced at trial, orally granted the motion dismissing Counts II and III as to the Moffett Group. The Court stated that written reasons would follow.

In an oral motion at trial, plaintiff Columbia Gas moved to dismiss Counts IV and VI as to all party defendants. Also, in a trial stipulation entered into by all parties, Columbia conceded that if it did not recover against the Moffett Group or Mid-Continent under the second and third counts of its complaint, it could not recover against the Allied Chemical Group under the same counts. Since the Court has previously ruled that no recovery lies as to the Moffett Group or Mid-Continent, under Counts II and III, the Allied Chemical Group is thus exonerated from liability as to the two counts. Columbia also stated that Count V only pertained to Allied Chemical Corporation.

To summarize for organizational purposes, this Court has before it the following trial issues:

(1) Whether the producer-defendants, Pennzoil, Toce and the Wylie Heirs, violated the abandonment procedure under the Natural Gas Act and thereby are liable under Count I;

(2) Whether Allied Chemical Corporation committed constructive fraud on plaintiff and is liable under Count V.

This Court will consider the above two issues in its Findings of Fact and Conclusions of Law, and upon completion of those findings and conclusions, will enter written reasons for summary judgment on the motions of Mid-Continent Supply Company, Pennzoil, and the Moffett Group.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

The trial of those issues under Count I and Count V was held April 18, 1977. The Court had before it only the issue of liability as to the above two counts. Subsequent to the trial, the parties were afforded the opportunity to present additional briefs. Once they were provided, the matter was taken under submission.

FINDINGS OF FACT

1.

At all relevant times, Emily Wylie Keenan, Francis Wylie Condit and Evelyn Wylie Burton (the "Wylie Heirs") were the surface and mineral owners of Sections 84 and 85, Township 17 South, Range 16 East, Terrebonne Parish, Louisiana.

2.

On September 13, 1947, the Wylie Heirs and Lora C. Wylie granted to Union Producing Company an oil, gas and mineral lease covering all reserves under Section 84.

3.

On July 19, 1951, the Wylie Heirs granted to Shell Oil Company an oil, gas and mineral lease covering all reserves under Section 85.

4.

On December 16, 1952, Union Producing Company assigned its leasehold interest in Section 84 to the Weiner Group, reserving to itself and its successors an overriding royalty interest of 1/32 of 7/8 . Pennzoil, as a successor to Union Producing Company, acquired this overriding royalty interest.

5.

On August 28, 1953, the Weiner Group, as owners of the original Section 84 lease, entered into a written contract with United Fuel Gas Company.

6.

On September 1, 1954, Shell Oil Company, the owner of the original Section 85 lease, entered into a written contract with United Fuel Gas Company.

7.

The rights and obligations of United Fuel Gas Company as buyer under both the Section 84 gas purchase contract and the Section 85 gas purchase contract are now owned by Columbia Gas Transmission Corporation, as successor by merger to United Fuel Gas Company.

8.

Under the terms of the Section 84 gas purchase contract, the producer-sellers agreed to sell and deliver to Columbia Gas as buyer all gas produced and saved from the lease on Section 84 attributable to the sellers' interest therein, with certain nonrelevant exceptions.

9.

The Section 84 gas purchase contract was to remain in force and effect from the date of first delivery for twenty-one years and thereafter until the supplies of gas available to the pipeline would be so reduced that further operation of the pipeline in connection with the contract would become, in Columbia Gas' judgment, no longer profitable.

10.

Under the terms of the Section 85 gas purchase contract, the producer-sellers agreed to sell and deliver to Columbia Gas as buyer all gas produced and saved from the lease on Section 85 attributable to the sellers' interest therein, with certain nonrelevant exceptions.

11.

The Section 85 gas purchase contract was to remain in force and effect from the date of first delivery for twenty years and thereafter until cancelled. Either party could cancel the agreement at the end of twenty years or thereafter by giving to the other party at least six months' advance written notice.

12.

By orders issued December 15, 1954, at Docket Nos. G-4079 and G-4290, pursuant to § 7(c) of the Natural Gas Act, the FPC issued Certificates of Public Convenience and Necessity authorizing the respective lessee-producers under the Section 84 and the Section 85 gas purchase contracts to...