Geosouthern Energy Corp. v. Chesapeake Operating, 01-20249

• Decision Date: 13 December 2001
• Docket Number: No. 01-20249,01-20249
• Citation: 274 F.3d 1017
• Parties: (5th Cir. 2001) GEOSOUTHERN ENERGY CORP., Plaintiff-Counter Defendant-Appellant, and AMERICAN FLOURITE INC., Counter Defendant-Appellant, v. CHESAPEAKE OPERATING INC., Defendant-Counter Claimant-Appellee. Summary Calendar
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1017

274 F.3d 1017 (5th Cir. 2001)

GEOSOUTHERN ENERGY CORP., Plaintiff-Counter Defendant-Appellant and AMERICAN FLOURITE INC., Counter Defendant-Appellant, v. CHESAPEAKE OPERATING INC., Defendant-Counter Claimant-Appellee.

No. 01-20249

Summary Calendar

UNITED STATES COURT OF APPEALS FIFTH CIRCUIT

December 13, 2001

Appeal from the United States District Court for the Southern District of Texas

Before POLITZ, SMITH and BARKSDALE, Circuit Judges:

POLITZ, Circuit Judge:

GeoSouthern Energy Corporation appeals an adverse summary judgment denying its claim for reformation of a joint development agreement related to certain oil and gas leases, and granting declaratory and other relief to Chesapeake Operating, Inc. We affirm.

BACKGROUND

In 1991, Chesapeake, GeoSouthern, and American Fluorite, Inc.,¹ entered into a Joint Development Agreement under which Chesapeake was to drill oil and gas wells on mineral leases owned by GeoSouthern. The parties engaged in extensive negotiations and revisions of this 1991 Agreement. Chesapeake was represented by an attorney throughout the negotiations; GeoSouthern was represented by its president, acting without the assistance of counsel.

Under the 1991 Agreement, certain oil and gas Properties listed in the agreement were to be made available for development. Land selected from the Properties for proposed wells was referred to in the 1991 Agreement as a Horizontal Prospect. If one of the parties to the agreement proposed developing all or part of an included Property, the other party could then elect to participate. Under the terms of the 1991 Agreement, GeoSouthern, as owner of the Properties, would assign a working interest in the Horizontal Prospect to Chesapeake. Thereafter, if the well on the Horizontal Prospect became noncommercial for sixty days or more, GeoSouthern had a right under the 1991 Agreement and assignments to compel reassignment of Chesapeake's rights.

Most of the Horizontal Prospects encompassed approximately 160 acres, however, two units were significantly larger. The parties agreed that these two units, Abbie 1-H (Abbie Well) and Neidra 1-H (Neidra Well), would be assigned to Chesapeake with GeoSouthern retaining the right to reassignment of the excess acreage.

In 1993 the parties amended the 1991 Agreement and entered into a separate Joint Development Agreement with Union Pacific Resources Corporation. The 1993 Agreement covered several, but not all, of the properties included in the 1991 Agreement. While the 1991 Agreement applied only to listed Properties, the 1993 Agreement applied to a "Joint Development Area" defined geographically on a map. Upon execution of the 1993 Agreement, the 1991 Agreement was suspended as to Properties located within the Joint Development Area during the term of the 1993 Agreement,² and was terminated as to Properties outside the Joint Development Area unless they were listed in Schedule F of the 1993 Agreement.

Three separate disputes later arose. The first dispute concerns the Victoria OL No. 1 Well. GeoSouthern proposed the Victoria Well as a Horizontal Prospect. Nineteen days after GeoSouthern notified Chesapeake of its designation of the Victoria Well as a Horizontal Prospect, Chesapeake elected to participate. GeoSouthern denied participation, claiming that Chesapeake's election was untimely. The 1991 Agreement provides that after receiving notice of designation by GeoSouthern Chesapeake must notify GeoSouthern of its election to participate "in writing . . . not less than fifteen (15) days after receipt of such notice." GeoSouthern claims that the parties intended that the election was to be made within fifteen days after receipt of notice, despite the literal language of the contract, and sought reformation of the contract. Chesapeake asserts that the literal language of the 1991 Agreement expressed the mutual intent of the parties. The district court granted Chesapeake's motion for summary judgment, holding that Chesapeake's response was timely and entitled Chesapeake to an interest in the Victoria Well, and entered a further declaratory judgment that GeoSouthern was not entitled to reformation.

The second dispute arises from the Brangus 1-H Well. Following the initial assignment, this well became noncommercial for at least sixty days and GeoSouthern compelled reassignment of Chesapeake's interest under the terms of the 1991 Agreement. GeoSouthern later developed a new well, Brangus No. 1-RE, which included the acreage from the earlier Brangus Well, plus additional acreage. Chesapeake claims it is entitled to participate in the second Brangus Well on a reduced percentage basis on the theory that the underlying leases it reassigned to GeoSouthern are still Properties under the 1991 Agreement. The district court granted Chesapeake's motion for summary judgment, awarding it a proportional interest in the second Brangus Well, as well as in "other wells which were the result of Horizontal Prospects under the 1991 [Agreement] and were reassigned to GeoSouthern in accordance with the provisions in the 1991 [Agreement] regarding wells which were noncommercial for at least sixty days."

The third dispute involves the Abbie Well and Neidra Well. The excess acreage from these wells was reassigned to GeoSouthern. Subsequently, GeoSouthern used acreage from these units to create a new well, the Helene No. 1-RE Well. Chesapeake claims it is entitled to participate in the Helene Well on a reduced percentage basis on the grounds that it is comprised of portions of the Abbie Well and Neidra Well. The district court granted Chesapeake's motion for summary judgment awarding it a prorated interest in the Helene Well.

ANALYSIS

I. Summary Judgment Standard:

We review the district court's grant of summary judgment de novo.³ Summary judgment is proper when there is no genuine issue as to any material fact.⁴ A factual issue is material if its resolution could affect the outcome of the action.⁵ In determining whether there is a genuine issue as to any material fact, all justifiable inferences will be made in the nonmoving party's favor, and we will "not weigh the evidence or evaluate the credibility of witnesses . . .."⁶ A "dispute about a material fact is 'genuine'. . . if the evidence is such that a reasonable jury could return a verdict for the nonmoving party."⁷ Therefore, summary judgment is appropriate if the nonmovant fails to establish facts supporting an essential element of his prima facie claim.⁸

GeoSouthern complains that the district court applied the incorrect standard for summary judgment herein. After discussing the traditional standard, the trial court noted our articulation of the summary judgment standard applicable to those issues which are to be decided by the court in a nonjury trial. We observed in Nunez v. Superior Oil Co.,⁹ that when "the evidentiary facts are not disputed, a court in a nonjury case may grant summary judgment if trial would not enhance its ability to draw inferences and conclusions."¹⁰ In a nonjury trial, the judge is the ultimate trier of fact, and properly exercises judicial discretion by drawing inferences from evidence without resort to trial in instances such as are herein presented.

II. GeoSouthern's Reformation Claim:

Paragraph 3.2 of the 1991 Agreement provides that GeoSouthern must advise Chesapeake in writing that it proposes to drill on a Horizontal Prospect, and Chesapeake must notify GeoSouthern of its intent to participate "in writing . . . not less than fifteen (15) days after receipt of such notice."

In October, 1997, GeoSouthern gave Chesapeake notice of a proposal to drill the Victoria Well. Nineteen days later, Chesapeake gave GeoSouthern written notice of its election to participate in the well. GeoSouthern concedes that Chesapeake's election was timely under the literal words of the 1991 agreement, but maintains that the language of the 1991 Agreement was the result of mutual mistake. GeoSouthern seeks reformation of the 1991 Agreement and a declaratory judgment that Chesapeake's response was untimely under the reformed time requirement. The district court refused to reform the 1991 Agreement and declared Chesapeake's response timely thereunder.

Generally, an unambiguous contract "must be enforced as written, looking at the objective intent as manifested by the language used, rather than interpreting it by attempting to divine the subjective intent of the parties."¹¹ To obtain reformation of a contract, a party must show that: (1) the parties reached an agreement on a material term, but (2) the written contract does not reflect the parties' agreement because of a mutual mistake.¹² The party seeking reformation has the burden of proving mutual mistake,¹³ and must prove the facts and circumstances warranting reformation by clear and convincing evidence.¹⁴

In the present action, there is no dispute that Chesapeake's attorney inserted the "no less than fifteen days" language into an early draft of the 1991 Agreement. The 1991 Agreement was thereafter subject to extensive revision and negotiations. There is no evidence whatsoever that the parties agreed, prior to executing the 1991 Agreement, that a response would be required within fifteen days, nor is there any evidence that Chesapeake understood the "no less than" language to require a response within fifteen days. Rather, GeoSouthern presented evidence that: (a) its president read and misunderstood the provision to require a response within fifteen days; (b) Chesapeake made subsequent requests that GeoSouthern respond within fifteen days; and (c) a 1997 letter from Chesapeake to GeoSouthern stating, "[i]n accordance with our Agreement, Chesapeake will make its election within fifteen days of receipt of such notice."

Examining the above evidence, the district court concluded that such evidence, if presented to the court in a bench trial "would not cause the Court to find the 'no less than fifteen days'...