Continental Oil Co. v. Crutcher, Civ. A. No. 76-2469.

• Decision Date: 29 June 1977
• Docket Number: Civ. A. No. 76-2469.
• Parties: CONTINENTAL OIL COMPANY v. Albert B. CRUTCHER, Jr., J. D. Tufts, II, Crutcher-Tufts Corporation, Clifton A. Cowan, Oran R. Carter, Edward E. Miller, Richard E. Heffner, Charles R. Ward, Robert F. Kennon and Hibernia National Bank.
• Court: U.S. District Court — Eastern District of Louisiana

434 F. Supp. 464

CONTINENTAL OIL COMPANY v. Albert B. CRUTCHER, Jr., J. D. Tufts, II, Crutcher-Tufts Corporation, Clifton A. Cowan, Oran R. Carter, Edward E. Miller, Richard E. Heffner, Charles R. Ward, Robert F. Kennon and Hibernia National Bank.

Civ. A. No. 76-2469.

United States District Court, E. D. Louisiana.

June 29, 1977.

Gene W. Lafitte, John M. Wilson, S. Gene Fendler, Liskow & Lewis, New Orleans, La., for plaintiff.

Joseph E. LeBlanc, Jr., Milling, Benson, Woodward, Hillyer & Pierson, New Orleans, La., for defendants.

MEMORANDUM OPINION

HEEBE, Chief Judge.

This matter is before the Court on the motion of Continental Oil Company, plaintiff herein ("Continental"), for a preliminary injunction to compel defendants to resume deliveries of natural gas to Continental under a certain gas purchase contract dated April 24, 1972. Defendants terminated performance under that contract on April 1, 1976 when Continental refused to amend or renegotiate the contract following a drastic and unforeseen rise in the price and value of natural gas, which defendants assert was a force majeure event under the contract, and which defendants say destroyed the basic and fundamental assumptions on which the parties contracted.

A hearing was held upon Continental's motion on February 3 and 4, 1977. Based upon the evidence presented, the Court makes the following Findings and Conclusions in support of its decision to deny Continental's request for a preliminary injunction.

FINDINGS OF FACT

The Parties

1. Plaintiff Continental Oil Company ("Continental") is a Delaware corporation having its principal place of business in the State of Texas.

2. Defendant Crutcher-Tufts Corporation ("Crutcher-Tufts") is a Louisiana corporation with its principal place of business in that State; defendant Hibernia National Bank is the testamentary executor of the last will and testament of Gordon I. Atwater, and is a federally chartered banking association located in Orleans Parish, Louisiana, and is a citizen of the State of Louisiana; all other defendants are citizens of the State of Louisiana.

3. Plaintiff, Continental, is an integrated oil and gas producer, refiner, and marketer engaged in oil and gas exploration, production and transportation on a worldwide basis. Continental employs approximately 45,000 employees. Within the State of Louisiana, Continental operates an intra-state gas pipeline known as Continental's "Louisiana Gas System", through which Continental delivers gas to seven industrial users in the Lake Charles area (Olin Corporation, PPG Industries, Inc., Firestone Tire and Rubber Company, Continental Carbon Company, Wanda Petroleum Company, Continental Oil Refinery, and Continental's Petrochemical Facility), and to the Town of Eunice, and to approximately 200 agricultural and individual end users.

4. Defendant, Crutcher-Tufts Corporation, is a small independent company engaged in investment and participation in oil and gas properties, and 90% of whose holdings are located in the Reddell Field, in Evangeline Parish, Louisiana. Crutcher-Tufts is not engaged in the purchase, marketing or transportation of oil and gas, nor in the operation of any natural gas pipeline, and Crutcher-Tufts makes no sales of oil or gas directly to industrial, agricultural, or individual end users. Crutcher-Tufts Corporation is owned and operated by two persons, Albert B. Crutcher, Jr. and J. D. Tufts, II, and employs one clerical employee. The other defendants involved in this proceeding are all individuals.

Contract Formation

5. This action involves, inter alia, a request by Continental for specific performance of a contract for the sale and purchase of substantial quantities of natural gas on a daily basis, and the amount in controversy greatly exceeds $10,000.00, exclusive of interest and costs.

6. The individual Defendants, as Seller, and Plaintiff, Continental, as Buyer, entered into a gas purchase contract dated April 24, 1972, copy of which is attached to the complaint as Exhibit "A" (Plaintiff Exhibit A) for the sale and delivery of natural gas produced by or for the account of defendants from certain mineral leases and lands located in the Reddell Field, Evangeline Parish, Louisiana, namely, the gas to be produced from the new Wilcox Units "D" well proposed to be drilled by Inexco Oil Company (Inexco), the Operator within the field. In the contract Crutcher-Tufts Corporation was designated as the Sellers' Representative. The Gas Purchase Contract was Continental's standard form of "Gas Purchase Contract". The contract was amended by instrument dated December 29, 1972, copy of which is attached to the complaint as Exhibit B (Plaintiff Exhibit B). As so amended the contract is herein sometimes called "Gas Purchase Contract" or "the 1972 contract".

7. The Gas Purchase Contract was negotiated by defendant J. D. Tufts on behalf of all defendants. When the contract was made Mr. Tufts had been in the business of exploring for and producing oil and gas for a number of years, and had negotiated contracts for the sale of such gas production, including gas produced in the Reddell Field, in the period from 1963 through May, 1971. (Tufts Testimony, Tr. pp. 23-24; Tufts Affidavit, para. 8).

8. As a part of the contractual arrangements for the sale and purchase of the natural gas under the Gas Purchase Contract, the parties also entered into letter agreements dated April 24, 1972 and January 11, 1973, copies of these agreements being attached to the complaint as Exhibits "C" and "D" (Galbraith Affidavit, Paragraph 2; Plaintiff's Exhibits "C" and "D").

9. In order to understand that the letter agreements providing for "risk money" or "dry hole contributions" represent an effort by Continental to outbid the only other purchaser of gas in the Reddell Field, it is necessary to note that at the time of execution of the 1972 contract there were two purchasers of natural gas within the Reddell Field, Continental and Louisiana Intrastate Gas Corporation ("LIG"). Each offered to pay for defendants' gas the highest price then being paid in the Reddell Field, 28.5 cents per MCF. Continental, in addition, offered to advance to defendants a proportionate cost of drilling and completing the proposed Unit "D" well, and defendants accepted Continental's proposal. Pursuant to the aforesaid letter agreements executed on April 24, 1972 and January 11, 1973, Continental advanced to defendants the sums of $65,000.00 and $77,146.00, respectively. These advances have since been repaid in full by defendants.

10. The contract contains provisions governing those events which will excuse nonperformance under the rubric of force majeure. The force majeure provisions of the contract read as follows:

ARTICLE VI FORCE MAJEURE

1. In the event of either party's being rendered unable wholly or in part by force majeure to carry out its obligations under this contract, other than the obligation to make payments of amounts due hereunder, it is agreed that on such party's giving notice and reasonably full particulars of such force majeure, in writing or by telegraph, to the other party within a reasonable time after the occurrence of such cause relied on, then the obligations of the party giving such notice so far as they are affected by such force majeure, shall be suspended during the continuance of any inability so caused, but for no longer period, and such cause shall so far as possible be remedied with all reasonable dispatch.

2. The term "force majeure" as employed herein shall mean acts of God, strikes, lockouts, or other industrial disturbances, acts of the public enemy, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, fires, storms, floods, washouts, arrest and restraints of the government, either federal or state, civil and military, civil disturbances, explosions, breakage or accident to machinery or lines of pipe, freezing of wells or lines of pipe, inability of any party hereto to obtain necessary materials, supplies, or permits, inability of a gas customer of Buyer to receive gas because of force majeure conditions, and other causes whether of the kind herein enumerated or otherwise not reasonably within the control of the party claiming suspension. It is understood and agreed that the settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty and that the above requirements that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes or lockouts by acceding to the demands of the opposing party when such course is inadvisable in the discretion of the party having the difficulty. (Emphasis added)

Performance

11. First production dedicated to Continental under the Gas Purchase Contract commenced in September, 1972; and, commencing with such production Continental purchased under the contract from defendants, on a daily basis, natural gas attributable to the interest of defendants, and Continental paid defendants, at the price provided in the Gas Purchase Contract, for all such gas. (Galbraith Testimony and affidavit paragraph 5).

12. The Gas Purchase Contract was performed by defendants-sellers and plaintiff-purchaser until on or about March 31, 1976, when defendants ceased deliveries of their interest in gas produced from the designated leaseholds and lands. At the time of such cessation of deliveries, average daily volumes being delivered to Continental approximated 1,367 Mcf of gas. (Galbraith Testimony, Tr. p. 27.)

13. Upon termination of deliveries to Continental, defendants commenced delivering the gas to a third party, Louisiana Intrastate Gas Corporation, on a daily basis, at a price approximately five times the contract price under the Gas Purchase Contract. Compare the Gas Purchase Contract initial price of 31.9 cents per Mcf with the price received from Louisiana Intrastate Gas Corporation of $1.35 per...