Jacobs Ranch Coal v. Thunder Basin Coal Co.

• Citation: 2008 WY 101,191 P.3d 125
• Decision Date: 28 August 2008
• Docket Number: No. S-07-0280.,S-07-0280.
• Parties: JACOBS RANCH COAL COMPANY, a Delaware corporation, Appellant (Plaintiff), v. THUNDER BASIN COAL COMPANY, LLC, a Delaware Limited Liability Company, and Consolenergy, Inc., f/k/a Consolidation Coal Company, a Delaware corporation, Appellees (Defendants).
• Court: United States State Supreme Court of Wyoming

191 P.3d 125

2008 WY 101

JACOBS RANCH COAL COMPANY, a Delaware corporation, Appellant (Plaintiff), v. THUNDER BASIN COAL COMPANY, LLC, a Delaware Limited Liability Company, and Consolenergy, Inc., f/k/a Consolidation Coal Company, a Delaware corporation, Appellees (Defendants).

No. S-07-0280.

Supreme Court of Wyoming.

August 28, 2008.

Representing Appellant: Thomas P. Johnson and Andrea Wang, Davis Graham & Stubbs, LLP, Denver, Colorado; Amy Jo Stefonick, Rio Tinto Energy America, Gillette, Wyoming. Argument by Mr. Johnson.

Representing Appellee, Thunder Basin Coal Company, LLC: Stephen D. Bell, Dorsey & Whitney, LLP, Denver, Colorado; Randall T. Cox, Randall T. Cox, PC, Gillette, Wyoming. Argument by Mr. Bell.

Representing Appellee, Consolenergy, Inc.: No appearance.

Before VOIGT, C.J., and GOLDEN, HILL, KITE, and BURKE, JJ.

BURKE, Justice.

[¶ 1] Jacobs Ranch Coal Company ("Jacobs Ranch") appeals the district court's summary judgment decision that Thunder Basin Coal Company ("Thunder Basin") is not liable for surface royalty payments in this case because the surface royalty at issue is not a covenant running with the land. The district court also denied Jacobs Ranch's claims that it was entitled to indemnity from Thunder Basin. We will affirm the district court's decision.

ISSUES

[¶ 2] Jacobs Ranch presents these issues:

1. Whether a surface royalty created when a coal company purchases the surface estate overlying federal coal is a covenant that runs with the land and binds successor coal companies.

2. Whether a surface royalty that runs with the land obligates the lessee of that land to pay the royalty when the lessee can more reasonably perform the obligation.

3. Whether, for purposes of a lessee's indemnity obligation, a lawsuit seeking unpaid royalties on the mining of coal "arises" from the lessee's mining of that coal.

Thunder Basin rewords the issues in this fashion:

A. Whether the district court correctly determined that Consol's promise to pay additional consideration for the purchase of property was personal to Consol and did not run with the land.

B. Whether the district court correctly determined that a landlord's promise to pay purchase money for real property does not bind a subsequent lessee.

C. Whether the district court correctly determined that [Thunder Basin] was not required to indemnify Jacobs Ranch for its contractual obligation to pay Consol's purchase money consideration for the property.

FACTS

[¶ 3] In 1974, by a contract for deed, Stuart Brothers agreed to convey the surface estate of certain property in Campbell County, Wyoming, to Consolidation Coal Company ("Consol"¹). In 1977, Stuart Brothers completed the conveyance to Consol by two separate warranty deeds, one for the parcel referred to as Section 17, and one for the parcel referred to as Section 18.² The two deeds contain identical provisions by which Consol agreed to pay a "surface royalty" to Stuart Brothers:

As further consideration for the sale and conveyance of said lands by Grantor to Grantee, Grantee shall pay to Grantor a surface royalty for all coal mined, removed and sold by Grantee, its heirs, successors in interest and assigns from said lands of two cents (2) per ton of 2,000 pounds, or one-half of one percent (½ %) F.O.B. the mine, whichever is the greater.

Soon thereafter, Consol conveyed the Section 17 surface estate to Atlantic Richfield Company, which later conveyed it to a subsidiary, Thunder Basin. Consol conveyed the Section 18 surface estate to Kerr-McGee Corporation. The surface estate of Section 18 was eventually conveyed to Jacobs Ranch. At present, Thunder Basin owns the Section 17 surface estate, and Jacobs Ranch owns the Section 18 surface estate.

[¶ 4] The coal underlying Sections 17 and 18 was, and is, owned by the federal government. In 1992, the federal government leased the coal to Thunder Basin. To help define its rights to access the surface of Section 18, Thunder Basin in 1993 entered into a "Consent to Mine Agreement" with the predecessor to Jacobs Ranch. In 1999, Thunder Basin also entered into a "Surface Use and Lease Agreement" with Jacobs Ranch, which applies to approximately half of the surface of the Section 18 property. Thunder Basin began coal mining operations on the property in 2001.

[¶ 5] In the meantime, Stuart Brothers had been dissolved as a corporation, and its surface royalty interest was conveyed to the Stuart Family Mineral Limited Partnership ("Stuart Family").³ In 2003, the Stuart Family made demand on Thunder Basin and Jacobs Ranch to pay the surface royalties it claimed were due. Thunder Basin and Jacobs Ranch jointly made one substantial payment, but thereafter, were unable to agree on which company, if either, was liable for the surface royalty payments. The Stuart family subsequently filed suit against Thunder Basin, Jacobs Ranch, and Consol.

[¶ 6] In the course of the litigation, Jacobs Ranch entered into a settlement agreement with the Stuart Family. Their agreement included, among other provisions, a conveyance of the Stuart Family's surface royalty interest to Jacobs Ranch. Jacobs Ranch was then substituted as the plaintiff in this case. Jacobs Ranch dismissed all claims against itself, and all claims against Consol. It also dismissed its claims against Thunder Basin relating to Section 18, and those for past payments relating to Section 17. Jacobs Ranch maintained its claim against Thunder Basin for future surface royalty payments relating to Section 17. The district court ruled that Thunder Basin was not liable for the surface royalty payments, and granted summary judgment against Jacobs Ranch. Jacobs Ranch has appealed that decision.

[¶ 7] When the Stuart Family filed this suit, Jacobs Ranch claimed indemnity pursuant to the Surface Use and Lease Agreement, and tendered its defense to Thunder Basin. Thunder Basin rejected the tender, and refused to defend or indemnify Jacobs Ranch. In response, Jacobs Ranch filed claims against Thunder Basin based on theories of express, implied, and equitable indemnity. The district court denied Jacobs Ranch's indemnity claims, and Jacobs Ranch has appealed that ruling as well.

STANDARD OF REVIEW

[¶ 8] Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. W.R.C.P. 56(c); Metz Beverage Co. v. Wyoming Beverages, Inc., 2002 WY 21, ¶ 9, 39 P.3d 1051, 1055 (Wyo.2002). "A genuine issue of material fact exists when a disputed fact, if it were proven, would establish or refute an essential element of a cause of action or a defense that the parties have asserted." Id. Because summary judgment involves a purely legal determination, we undertake de novo review of a trial court's summary judgment decision. Glenn v. Union Pacific R.R. Co., 2008 WY 16, ¶ 6, 176 P.3d 640, 642 (Wyo.2008).

DISCUSSION

I. Is this surface royalty provision a covenant that runs with the land?

[¶ 9] Less than a year ago, we decided a similar case that raised the question of whether a surface royalty was a covenant running with the land. Mathisen v. Thunder Basin Coal Co., 2007 WY 161, 169 P.3d 61 (Wyo.2007). In that case, we repeated this familiar standard for interpreting a deed as a type of contract:

"According to our established standards for interpretation of contracts, the words used in the contract are afforded the plain meaning that a reasonable person would give to them. When the provisions in the contract are clear and unambiguous, the court looks only to the `four corners' of the document in arriving at the intent of the parties. In the absence of any ambiguity, the contract will be enforced according to its terms because no construction is appropriate." Amoco Production Company v. EM Nominee Partnership Company, 2 P.3d 534, 539-40 (Wyo.2000) (citations omitted).

Mathisen, ¶ 12, 169 P.3d at 64-65, quoting Hickman v. Groves, 2003 WY 76, ¶ 6, 71 P.3d 256, 258 (Wyo.2003). We then stated that the "party seeking to establish that a covenant runs with the land must demonstrate: 1) the original covenant is enforceable; 2) the parties to the original covenant intended that the covenant run with the land; 3) the covenant touches and concerns the land; and 4) there is privity of estate between the parties to the dispute." Mathisen, ¶ 14, 169 P.3d at 65-66, citing Jackson Hole Racquet Club Resort v. Teton Pines Ltd. Partnership, 839 P.2d 951, 956 (Wyo.1992).

[¶ 10] The surface royalty provision at issue in Mathisen reads as follows:

As further consideration for the sale and conveyance of said lands by Owner to Consol, Consol shall pay to Owner a surface royalty for all coal mined, removed and sold by Consol from said lands for two cents (2) per ton of 2,000 pounds or one half of one percent (½ of 1%) F.O.B. the mine, whichever is the greater[.]

¶ 11, 169 P.3d at 64. We first focused on the language obligating Consol to pay "a surface royalty for all coal mined, removed and sold by Consol." We concluded that the "obligation to pay the royalty is limited, by its plain language, to coal mined, removed and sold by Consol." Although Thunder Basin had mined, removed, and sold coal from the property, Consol had never done so. Thus, "because Consol did not mine any coal, it was not obligated to pay the Mathisens a surface royalty." Id., ¶ 13, 169 P.3d at 65.

[¶ 11] Next in Mathisen, we focused on the language specifying that "Consol shall pay" the surface royalty. We observed that this "obligation belonged to Consol specifically and did not refer to Consol's successors or assigns." Id., ¶ 15, 169 P.3d at 66. We concluded that this language failed to express the intent that the surface royalty provision was a covenant running with the land, and so did not satisfy the second requirement of a covenant running with the land. We therefore held that the surface royalty was a personal obligation between Consol and the Mathisens, and not a covenant...