Journey Acquisition-II, L.P. v. EQT Prod. Co.

• Decision Date: 21 July 2016
• Docket Number: No. 15-5966,15-5966
• Citation: 830 F.3d 444
• Parties: Journey Acquisition–II, L.P., Plaintiff-Appellee, v. EQT Production Company, Defendant-Appellant.
• Court: U.S. Court of Appeals — Sixth Circuit

830 F.3d 444

Journey Acquisition–II, L.P., Plaintiff-Appellee

v.EQT Production Company, Defendant-Appellant.

No. 15-5966

United States Court of Appeals, Sixth Circuit.

Argued: June 8, 2016

Decided and Filed: July 21, 2016

ARGUED: Pierre H. Bergeron, SQUIRE PATTON BOGGS (US) LLP, Cincinnati, Ohio, for Appellant. Elizabeth S. Kerr, FRIEDMAN, SUDER & COOKE, P.C., Fort Worth, Texas, for Appellee. ON BRIEF: Pierre H. Bergeron, Lauren S. Kuley, SQUIRE PATTON BOGGS (US) LLP, Cincinnati, Ohio, J. Kevin West, STEPTOE & JOHNSON PLLC, Columbus, Ohio, for Appellant. Elizabeth S. Kerr, Walker C. Friedman, FRIEDMAN, SUDER & COOKE, P.C., Fort Worth, Texas, Wayne C. Collier, KINKEAD & STILZ, PLLC, Lexington, Kentucky, Matthew C. Blickensderfer, FROST BROWN TODD, Cincinnati, Ohio, for Appellee.

Before: BOGGS, CLAY, and GILMAN, Circuit Judges.

OPINION

RONALD LEE GILMAN

, Circuit Judge.

In late 2001, EQT Production Company sold or leased to Journey Acquisition–II, L.P. an array of oil- and natural-gas-producing properties in Kentucky. Both parties thereafter continued to conduct oil and natural-gas operations in the state, but Journey later concluded that EQT was operating on some of the lands that—under the terms of the parties' 2001 contract—had actually been conveyed to Journey. This caused Journey to file suit against EQT in federal district court. Among other relief, Journey sought a declaration that it owned or controlled the properties in question and that EQT was liable to Journey for the oil and natural gas that EQT had removed from those properties.

The district court concluded on summary judgment that the parties' 2001 contract had unambiguously conveyed the disputed properties to Journey. It then presided over a one-week jury trial, with the jury finding that EQT's trespasses on Journey's lands were not in good faith. The court subsequently entered a final judgment that required EQT to pay $14,288,432 in damages and transfer certain oil and natural-gas wells to Journey.

EQT now appeals. It argues that the district court erred before trial (when construing the parties' contract), during trial (when excluding portions of EQT's proffered evidence), and after trial (when crafting the remedy for EQT's trespasses). Because we conclude that none of EQT's arguments has merit, we AFFIRM the judgment of the district court.

I. BACKGROUND

A. The parties and the initial transaction

Both EQT and Journey produce and sell oil and natural gas. As of 2001, EQT had property interests in several thousand acres of land located in Kentucky. These interests included properties owned outright, properties leased from third parties, and various pieces of machinery and equipment, such as wells and pipelines.

In 2001, EQT decided to sell many but not all of its property interests in Kentucky. To that end, EQT vice presidents Joseph Morris and Lester Zitkus prepared several maps that outlined in blue ink some or all of the properties that EQT intended to sell (the distinction between “some” or “all” being a key dispute between the parties). These maps were later included as exhibits to the final agreement between EQT and Journey.

Journey was ultimately the successful bidder for EQT's offering, and the two companies thereafter entered into a transaction in which Journey agreed to pay $64,090,000 for various property interests located throughout Kentucky. The contract memorializing this transaction (hereinafter referred to as the 2001 Agreement) consists of three separate documents: (1) an “Agreement of Sale and Purchase” (the PSA), (2) an “Oil and Gas Lease” (the 2001 Lease), and (3) an “Assignment, Bill of Sale and Conveyance” (the Master Assignment).

The PSA was executed on October 4, 2001. EQT agreed at that time that it would sell to Journey its interests in some of its Kentucky properties, as well as associated pipelines and oil or natural-gas wells. The PSA incorporates as “Exhibit A” a list of several hundred property interests that were to be included in the transaction. Each entry on the list states the name, acreage, and other information about the individual interest. Also attached to the PSA is “Exhibit N.” This exhibit includes “a map of each field” for the purposes of the PSA's “Further Assurances” clause. It consists of the maps that Morris and Zitkus drew during EQT's preparation of its offering. The exhibit thus identifies at least the bulk of the properties to be transferred to Journey by outlining them in blue ink.

Exhibit A and Exhibit N are not coextensive. In particular, Exhibit A includes numerous property interests that are located outside of Exhibit N's blue lines. Exhibit A thus indicates that EQT transferred a greater amount of property to Journey than does Exhibit N.

Journey and EQT signed the 2001 Lease on November 30, 2001. This portion of the 2001 Agreement provides that EQT would lease certain properties to Journey for at least five years. Attached to the Lease is another “Exhibit A,” which contains a list of the individual interests to be leased to Journey. In addition, the 2001 Lease includes “Exhibit A-1,” which contains several maps of the lands involved in the transaction. These maps are identical or nearly identical to the maps included as Exhibit N to the PSA. As with Exhibit A and Exhibit N to the PSA, Exhibit A and Exhibit A-1 to the 2001 Lease are not coextensive. Instead, Exhibit A includes numerous properties that lie outside of Exhibit A-1's blue lines. Exhibit A thus indicates that EQT transferred a greater amount of property to Journey than does Exhibit A-1.

EQT and Journey signed the Master Assignment at the same time as the 2001 Lease. The Master Assignment grants to Journey subleases in certain lands that EQT had already leased from third parties. Included with the Master Assignment is a third “Exhibit A,” which describes the various interests to be assigned to Journey.

B. The alleged trespasses

After executing the 2001 Agreement, both EQT and Journey conducted their respective oil and natural-gas operations in Kentucky. EQT interpreted the Agreement as transferring to Journey only those interests that had been depicted as lying inside the blue lines on the Exhibits N and A-1 maps. It thus refrained from operating in areas within the blue lines, but continued to operate in areas located outside of those lines. EQT contends that Journey also acted in conformity with this understanding of the Agreement, evidenced by the fact that Journey operated for eight years only in areas located inside the blue lines on Exhibits N and A-1. Journey acknowledges that it initially operated inside the blue lines, but states that it did so not out of any understanding that the blue lines limited the extent of the Agreement, but simply because of practical necessities related to the location of the existing drilling infrastructure.

In 2009, Journey began reexamining its property interests in Kentucky. This was a lengthy process that occurred over the course of several years. During this time, Journey concluded that the 2001 Agreement covered all the interests described on the three Exhibits A, regardless of whether those interests appeared within the blue lines on the Exhibits N and A-1 maps. Journey then realized that EQT had been drilling and operating certain wells (now known as the “Trespass Wells”) in some of the areas purportedly conveyed to Journey, with the necessary implication that EQT had been trespassing on Journey's properties.

In 2011, Journey contacted EQT about the alleged trespasses. The parties exchanged correspondence and attempted to amicably resolve the dispute, but these efforts were unsuccessful. As a result, Journey finally filed suit against EQT in 2012 in the United States District Court for the Eastern District of Kentucky.

C. The proceedings below

Journey's lawsuit sought a declaratory judgment establishing that the 2001 Agreement transferred to Journey all property interests described on the three Exhibits A. In addition, Journey alleged that EQT had trespassed on Journey's lands by drilling and operating the Trespass Wells. Journey added that EQT's trespasses were done “willfully” or in “bad-faith” because they had been done “with knowledge that it was wrong.” As recompense, Journey demanded an accounting of the profits that EQT had allegedly derived by extracting oil and natural gas from Journey's properties.

EQT responded with various defenses, including laches, waiver, and estoppel. It also argued that the 2001 Agreement should be reformed on the basis of mutual mistake because both parties had ostensibly intended that the Agreement would cover only the lands within the blue lines of Exhibits N and A-1.

Both EQT and Journey eventually moved for summary judgment or partial summary judgment on their various claims and defenses. The district court largely ruled in Journey's favor. In doing so, the court first concluded that the 2001 Agreement unambiguously conveyed to Journey those properties listed on the three Exhibits A, and that the 2001 Agreement is not limited to the properties depicted within the blue lines on EQT's maps. This interpretation led the court to conclude that EQT had in fact trespassed on Journey's lands by drilling and operating the Trespass Wells.

The district court then concluded that genuine disputes of material fact precluded summary judgment on two key issues. These two issues resulted in a jury trial to determine (1) whether EQT's equitable defenses of laches, waiver, and estoppel were valid; and (2) whether EQT's trespasses had been committed in good faith. The jury acted in an advisory capacity on the first issue, see Fed. R. Civ. P. 39(c)

(“In an action not triable of right by a jury, the court ... may try any issue with an advisory jury....”), and it rejected each of EQT's equitable defenses. On the second issue, the jury acted in a binding capacity and found that EQT's trespasses had not been committed in good faith. The district court later interpreted the jury's verdict as...