Davis Oil Co. v. TS, Inc.
| Decision Date | 26 June 1998 |
| Docket Number | No. 97-30408,97-30408 |
| Citation | 145 F.3d 305 |
| Parties | , 138 Oil & Gas Rep. 539, 28 Envtl. L. Rep. 21,379 DAVIS OIL COMPANY, Plaintiff-Appellant, v. TS, INC., Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Etienne C. Lapeyre, F. Henri Lapeyre, Jr., Lapeyre & Lapeyre, New Orleans, LA, for Plaintiff-Appellant.
Blake G. Arata, Marcy V. Massengale, Gordon, Arata, McCollam & Duplantis, New Orleans, LA, for Defendant-Appellee.
Appeal from the United States District Court for the Eastern District of Louisiana.
Before JONES and SMITH, Circuit Judges, and SHAW, * District Judge.
Davis Oil Company ("Davis Oil") brought this Louisiana diversity suit seeking recovery of cleanup costs for an abandoned oil lease. Finding error, we reverse and render judgment for the plaintiff.
The State of Louisiana granted Davis Oil an oil and gas lease for a certain portion of state land in 1976. State Lease 7027 contains a covenant by Davis Oil to clean and cap the area at the expiration of the lease term. By its terms, the lease would terminate automatically three months after production from the wells on the tract ceased.
In 1981, Davis Oil assigned 92.5% of the lease to HPC, Inc. ("HPC"), a subsidiary of Hiram-Walker-Gooderham-Worts, Ltd. ("HW-GW"). Davis Oil assigned the other 7.5% to ENI Oil & Gas Drilling Program 1976-A ("ENI"). The state mineral board approved the change in operator from Davis Oil to HPC. 1
Davis Oil and HPC entered into a Purchase Agreement regarding State Lease 7027. This contract contains a clause in which HPC consents to be responsible for Davis Oil's obligations under the lease. 2 It is this clause that forms the basis for Davis Oil's suit against the successor to HPC's oil and gas assets--TS, Inc.
HPC subsequently assigned its portion of the lease to its subsidiary, Home Petroleum Company. The change in operator was again approved by the state mineral board. In 1982, Home Petroleum Company and ENI assigned their respective interests to Davis Fuel, Inc. (an entity not affiliated with Davis Oil). Again, the state mineral board approved the change in operator. Davis Fuel, Inc., subsequently assigned its interest in the lease to Spartan Minerals, Inc. ("Spartan"), and the state mineral board approved the operator change. Spartan thereafter apportioned out its ownership of the lease while retaining its operator rights. In June 1985, production from the wells on the tract ceased, thereby triggering an expiration of the lease in September 1985.
Spartan failed to cap the wells or clean up the site when the lease expired. In 1992, the State of Louisiana summoned all listed operators 3 to a hearing to determine which should pay for cleanup. Only Davis Oil appeared. 4 Thereafter, the state assessed Davis Oil with the entire cleanup cost. Davis Oil now seeks to enforce its Purchase Agreement with HPC by means of this suit against the successor to HPC's oil and gas assets, TS, Inc. 5
In 1988, TS, Inc., assumed HPC's assets and certain of its obligations as a result of a larger arrangement between both companies' parents (thereby becoming, for our purposes, "TS/Home"--see note 7 below). HPC was a subsidiary of HW-GW, which, in turn, was a subsidiary of Hiram Walker Resources ("HR"), a Canadian liquor company.
TS, Inc., is a subsidiary of Gulf Canada Corporation ("Gulf Canada"), which bought HR and made it one of its subsidiaries. As part of its restructuring following the acquisition of HR, Gulf Canada wished to divest HR of HW-GW. Gulf Canada, therefore, sold HW-GW to Allied-Lyons, PLC ("Allied-Lyons"), which, however, was interested only in the liquor businesses--and not the oil and gas businesses--of HW-GW and its subsidiary, HPC, and HPC's subsidiary, Home Petroleum Company.
Consequently, as part of its deal to sell HW-GW, Gulf Canada gave Allied Signal an irrevocable put option in the form of the Option Agreement. Within a certain amount of time after Allied-Lyons acquired HW-GW, it could sell the oil and gas businesses of HPC and of HPC's subsidiaries back to Gulf Canada or to Gulf Canada's designated subsidiary.
Before the time to exercise the option had expired, Allied-Lyons and Gulf Canada entered into a "Memorandum of Understanding" that served to notify Gulf Canada that Allied-Lyons was exercising its option. The Memorandum of Understanding designates TS, Inc., as the Gulf Canada subsidiary to assume HPC's oil and gas businesses.
TS, Inc., and HPC thereafter, entered into a Sale Agreement. 6 When it assumed HPC's oil and gas businesses, TS, Inc., changed its name to Home Petroleum Company. A few years later, it returned to the name TS, Inc. 7
The parties submitted to the district court a stipulated record with their trial briefs. The district court granted judgment for the defendant and issued an opinion containing findings of fact and conclusions of law. See Davis Oil Co. v. TS, Inc., 962 F.Supp. 872 (E.D.La.1997).
"[C]onstruction of a written instrument is normally a question of law and findings and conclusions of the trial court are not binding on the appellate court." Rutgers, State Univ. v. Martin Woodlands Gas Co., 974 F.2d 659, 661 (5th Cir.1992) (citation omitted). We review the district court's factual findings for clear error. See id.
"Whether there is a 'plain meaning' to a contract or whether an ambiguity exists is a legal question also subject to de novo interpretation." See Lloyds of London v. Transcontinental Gas Pipe Line Corp., 101 F.3d 425, 429 (5th Cir.1996) (citation omitted). "Under Louisiana law, a contract is ambiguous when it is uncertain as to the parties' intentions and susceptible to more than one reasonable meaning under the circumstances and after applying established rules of construction." Id. (citation omitted). Once the district court considers parol evidence, we review its factual findings based thereon for clear error. See American Druggists Ins. Co. v. Henry Contracting, Inc., 505 So.2d 734, 737 (La.App. 3d Cir.), writ denied, 511 So.2d 1156 (La.1987).
Davis Oil seeks to enforce HPC's lease cleanup obligations against HPC's successor, TS/Home. To do so, Davis Oil must show that the relevant assumption agreements between HPC and TS/Home made TS/Home liable to Davis Oil for the State Lease 7027 obligations for which HPC was responsible under the Purchase Agreement.
As a threshold matter, TS/Home argues that even if it is responsible for HPC's Purchase Agreement obligations, the choice of law clause in the Option Agreement 8 between the parent companies of HPC and TS/Home prevents Davis Oil from suing TS/Home directly, rather than suing HPC and then making HPC seek recovery from TS/Home. TS/Home represents that Ontario law, the law adopted in the Option Agreement, requires strict privity for suits to enforce contracts. Intended third-party beneficiaries are unable to sue to enforce a contract if they are not parties to the original agreement.
Davis Oil was not a party to the assumption agreements between HPC and TS/Home and is thus only a third-party beneficiary of HPC's delegation 9 of its State Lease 7027 obligations to TS/Home. Arguing that a party's contractual choice of law binds an intended beneficiary as well as the parties, see Barzda v. Quality Courts Motel, Inc., 386 F.2d 417, 418 (5th Cir.1967) (per curiam) ( Florida law), TS/Home maintains that we should dismiss this action.
Our research reveals that TS/Home's representations about Ontario's privity requirement may not be entirely representative of the modern view that the Ontario courts are taking of the issue. Although Ontario courts continue to adhere strictly to the common law privity of contract requirement, we have found that some have recently begun to carve more exceptions to that rule--including one for third-party beneficiaries of contract.
The General Division of the Ontario Court recently cited a case of the Supreme Court of Canada for the following proposition:
The common law rule of privity of contract provides that a contract cannot confer rights or impose obligations on anyone except the parties to it. However, the rule is relaxed in appropriate circumstances, including that of third-party beneficiaries. London Drugs Ltd. v. Kuehne & Nagel Int'l Ltd. [1992] 3 SCR 299 [Can.Supr. Ct.].
Evanov v. Burlington Broad. Inc., 1997 Ont. C.J. LEXIS 964 (Ont.Gen.Div.). If the emerging Ontario law indeed would permit plaintiff's suit in this instance, then the choice of law issue becomes moot. Ontario law and Louisiana law would not be in conflict and thus we could proceed to employ the forum's law. See infra note 14.
Even assuming that Ontario law does require strict privity of contract for this third-party beneficiary, Gulf Canada and Allied Signal did not intend, by their stipulation of Ontario law in the Option Agreement, for that choice of law to apply to the transfer of HPC's assets and liabilities. TS/Home argues that Ontario law controls the Sale Agreement because, in its view, the Option Agreement adopts Ontario law as the governing law for the interpretation of all of the transfer agreements. In our view, however, the parties meant their choice of law solely to govern the manner in which the option was exercised and construed. 10
The Option Agreement is a contract that bound Gulf Canada, a Canadian corporation, headquartered in Toronto, Ontario, to buy the oil and gas businesses of HPC. That agreement required HPC to notify Gulf Canada by a written instrument delivered to Gulf Canada in Toronto.
Logically, Gulf Canada--the party granting the option--wanted to make sure that it knew how that option would be exercised by the option holder. Because of the great differences in laws among jurisdictions concerning the construction of option contracts, the parties likely intended to increase certainty by choosing the local law of the option maker--Gulf Canada.
The nexus with...
To continue reading
Request your trial
-
In re Liljeberg Enterprises, Inc.
...989 (citation omitted). 68. Am. Totalisator Co., Inc. v. Fair Grounds Corp., 3 F.3d 810, 813 (5th Cir.1993). 69. Davis Oil Co. v. TS, Inc., 145 F.3d 305, 308 (5th Cir.1998) (quoting Lloyds of London v. Transcon. Gas Pipe Line Corp., 101 F.3d 425, 429 (5th 70. Omnitech Int'l, Inc. v. Clorox ......
-
Wuellner Oil & Gas, Inc. v. EnCana Oil & Gas (USA) Inc.
...stipulation pour autrui exists in order to determine whether the obligation in question has been assumed. See Davis Oil Co. v. TS, Inc., 145 F.3d 305, 310–313 (5th Cir.1998).D. Application of the Parol Evidence Rule to Stipulations Pour Autrui and Assumption of Obligations Plaintiffs argue,......
-
Coushatta Bayou Land Co. v. Goodrich Petroleum Co. (In re Goodrich Petroleum Corp.)
...more than one reasonable meaning under the circumstances and after applying established rules of construction." Davis Oil Co. v. TS, Inc. , 145 F.3d 305, 308 (5th Cir. 1998). "This established rule of strict construction does not allow the parties to create an ambiguity where none exists an......
-
Hammer v. PHI Inc.
...but the benefit derived from the contract by the third party may not merely be incidental to the contract." Davis Oil Co. v. TS, Inc., 145 F.3d 305, 311 (5th Cir.1998) (citation omitted). Further, the stipulation "will be found only when the contract clearly contemplates the benefit to the ......
-
The Perils of Primacy: Successor Liability for Lenders Turned Declarants in Louisiana Common Interest Communities
...So. 2d 984 (La. Ct. App. 1983)); La. Power & Light Co. v. Mecom, 357 So. 2d 596 (La. Ct. App. 1978). 291. See Davis Oil Co. v. TS, Inc., 145 F.3d 305 (5th Cir. 1998); see also Pinnacle Operating Co. v. Ettco Enters., Inc., 914 So. 2d 1144 (La. Ct. App. 2005); Bradford v. Onshore Pipeline Co......