Exxon Corp. v. Crosby-Mississippi Resources, Ltd.

Citation40 F.3d 1474
Decision Date03 January 1995
Docket NumberCROSBY-MISSISSIPPI,93-7525,CROSBY-MISSISSIPP,Nos. 93-7519,P,s. 93-7519
Parties25 UCC Rep.Serv.2d 1103 EXXON CORPORATION, Plaintiff-Appellee, Cross-Appellant, v.RESOURCES, LTD., A Mississippi Limited Partnership, et al., Defendants-Appellants Cross-Appellees.laintiff-Appellant, v. FLORIDA GAS TRANSMISSION COMPANY and Citrus Marketing, Inc., Defendants-Appellees.
CourtUnited States Courts of Appeals. United States Court of Appeals (5th Circuit)

Harold D. Miller, Jr., A. Camille Henick, Butler, Snow, O'Mara, Stevens & Cannada, Jackson, MS, for appellants in No. 93-7519.

Sam S. Thomas, E. Otis Johnson, Jr., Heidelberg & Woodliff, Jackson, MS, Thomas M. Keiffer, William R. Hurt, Exxon Corp., New Orleans, LA, for appellee in No. 93-7519.

Glenn Gates Taylor, C. Dale Shearer, Copeland, Cook, Taylor & Bush, Jackson, MS, James J. White, Professor, University of Mich., Ann Arbor, MI, for appellant in No. 93-7525.

Berry D. Bowen, Christopher W. Barnes, Houston, TX, William D. Hawkland, LSU Law Center, Baton Rouge, LA, for appellees in No. 93-7525.

Appeals from the United States District Court for the Southern District of Mississippi.

Before POLITZ, Chief Judge, KING and DAVIS, Circuit Judges.

PER CURIAM:

I. FACTS AND PROCEDURAL HISTORY

Appeal No. 93-7519, involving a dispute between the parties to an operating agreement, and appeal No. 93-7525, involving a dispute between the parties to a gas-purchase contract, were consolidated on appeal because they both involve similar contractual provisions and the question of whether those provisions violate MISS.CODE ANN. Sec. 15-1-5.

A. APPEAL NO. 93-7519

On April 3, 1985, Exxon, as operator, and Crosby Mississippi Resources Limited (CMR), as non-operator, entered into a joint operating agreement for the drilling, completion, and operation of the Oliver Poole 4-1 Oil Well in Amite County, Mississippi. Pursuant to the operating agreement, Exxon was in charge of "all operations necessary or proper for the development, operation, protection and maintenance" of the joint property. CMR was to share in the costs of drilling the well as well as any royalties derived from the drilling operation.

The parties utilized two standard form contracts to create their joint operating agreement: Form 610 of the American Association of Petroleum Landmen 1982 Model Form Operating Agreement (form 610), and the Council of Petroleum Accountant Societies (COPAS) Accounting Procedure Joint Operations. The COPAS accounting procedure was developed for use in conjunction with form 610. The COPAS accounting procedure "allocates the liabilities and expenditures for which all parties to the Joint Operating Agreement will be responsible and defines the ways in which an Operator will account for the costs incurred in operating an oil well." Exxon Corp. v. Crosby-Mississippi Resources, Ltd., 775 F.Supp. 969, 972 (S.D.Miss.1991).

To recoup CMR's proportionate share of the costs associated with drilling the well, Exxon sent CMR monthly billings, beginning in February 1985, entitled "Joint Operations Statements." Apparently, CMR received a monthly billing statement every month from February 1985 through September 1988, except for February and May of 1985. Exxon also sent CMR a monthly "Status of Account" statement. The Status of Account statements showed the unpaid balance due from the previous month and added current monthly charges reflected on the Joint Operations Statements.

CMR never paid Exxon for its share of the expenses associated with the oil well. Finally, on November 6, 1989, Exxon brought suit against CMR and two general partners of CMR, Stewart Gammill, III, and Lynn Crosby Gammill (collectively referred to as CMR), seeking to recover the monies which CMR owed it under the joint operating agreement. CMR answered, denying liability, and asserted several defenses to Exxon's collection efforts. CMR asserted that it was not liable for costs which were the result of Exxon's gross negligence or willful misconduct. CMR further asserted that it was not liable for charges made by Exxon in violation of the operating agreement.

Shortly after the filing of the instant suit, serious discovery disputes arose between the parties. CMR requested information relating to the particulars of Exxon's expenditures in developing the well. Exxon resisted CMR's efforts because it believed that the COPAS accounting procedures foreclosed any argument by CMR that the bills were improper. Specifically, Exxon argued that Paragraph Four of the COPAS accounting procedures established a conclusive presumption concerning the amounts which CMR owed under the joint operating agreement. Paragraph Four states:

4. Adjustments

Payment of any such bills shall not prejudice the right of any Non-Operator to protest or question the correctness thereof: provided, however, all bills and statements rendered to Non-Operators by Operator during any calendar year shall conclusively be presumed to be true and correct after twenty-four (24) months following the end of any such calendar year, unless within the said twenty-four (24) month period a Non-Operator takes written exception thereto and makes claim on Operator for adjustment.

Likewise, CMR resisted Exxon's discovery requests. CMR R and Exxon both filed motions to compel, and a hearing was held before a magistrate judge. The magistrate judge ordered CMR to supplement portions of its discovery responses. However, the magistrate judge held the rest of Exxon's discovery requests "in abeyance" pending resolution of CMR's motion to compel. Because Exxon's refusal to comply with CMR's discovery requests was based on its assertion that the operating agreement created a conclusive presumption as to the correctness of the billing statements sent CMR, the magistrate judge suggested that the discovery issue raised by CMR's motion to compel could be disposed of by Exxon filing a motion for partial summary judgment. Therefore, the magistrate judge declined to rule on CMR's motion to compel until a summary judgment motion had been filed and ruled on.

Exxon then filed a motion for partial summary judgment based on the conclusive presumption established by paragraph four of the COPAS accounting procedures. In response to Exxon's motion for partial summary judgment, CMR contended, inter alia, that the conclusive presumption violated MISS.CODE ANN. Sec. 15-1-5. Section 15-1-5 provides:

The limitations prescribed in this chapter shall not be changed in any way whatsoever by contract between parties, and any change in such limitations made by any contracts [sic] stipulation whatsoever shall be absolutely null and void, the object of this section being to make the period of limitations for the various causes of action the same for all litigants.

Initially, the district court rejected CMR's contention that paragraph four did not apply to a situation when no payments had even been made. Exxon Corp. v. Crosby-Mississippi Resources, Ltd., 775 F.Supp. 969, 974-75 (S.D.Miss.1991). Next, the district court considered whether MISS.CODE ANN. Sec. 15-1-5 rendered paragraph four null and void. Id. at 975-76. The district court concluded that paragraph four did not violate Mississippi law because the contract provision created a "condition precedent to be met before challenging the validity of monthly billing statements.... [Paragraph Four] merely enumerates time-based conditions as predicates to a Non-Operator's right to challenge billing statements, and does not create a statute of limitations in violation of Miss.Code Ann. Sec. 15-1-5." Id. at 976.

Following its determination that paragraph four did not violate Sec. 15-1-5, the district court concluded that even though paragraph four created a conclusive presumption, the presumption was not irrebuttable. Specifically, the district court determined that the presumption could be rebutted upon a finding of fraud or bad faith breach of contract. Id. The district court, however, concluded that CMR had not propounded any evidence to demonstrate fraud or bad faith breach of contract. Id. at 976-77.

The district court then addressed CMR's contention that the conclusive presumption applies only if CMR actually received the bills or statements. According to CMR, it never received billing statements for the months of February and May of 1985; thus, the conclusive presumption could not apply to those bills. While the district court observed that the presumption should apply only if CMR actually received the bills in question, it noted that CMR had received "Status of Account" statements from Exxon which included the billing amounts for February and May and found that the presumption of correctness applied because paragraph four applies to both "bills and statements."

By this point, the district court had concluded "that [paragraph four] obligates a Non-Operator to satisfy bills not excepted to in writing, in the absence of fraud or breach of contract." The district court, however, declined to award Exxon the full amount it had requested pursuant to its motion for partial summary judgment based upon its conclusion that there was a fact issue as to whether CMR's answer and discovery requests had satisfied paragraph four's requirement of a written exception for bills and statements rendered after January 1, 1987. In other words, if CMR's answer constituted a written exception under paragraph four, the conclusive presumption would not apply to billings rendered after January 1, 1987, because CMR would have taken written exception within twenty-four months following the end of the calendar year that those bills were received by CMR. In light of its rulings, the district court entered a partial summary judgment for Exxon in the amount of $428,668.76.

After a bench trial concerning the meaning of the terms "written exception" and "claim for adjustment," the district court concluded that CMR's answer and discovery requests were not written exceptions under paragraph four. 1 Thus, ...

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