Perlman v. Pioneer Ltd. Partnership, 89-2978

• Decision Date: 13 December 1990
• Docket Number: No. 89-2978,89-2978
• Parties: Irene PERLMAN, as substitute for William Perlman, Plaintiff-Appellant, v. PIONEER LIMITED PARTNERSHIP and Kendrick Cattle Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1244

918 F.2d 1244

Irene PERLMAN, as substitute for William Perlman, Plaintiff-Appellant, v. PIONEER LIMITED PARTNERSHIP and Kendrick Cattle Company,

Defendants-Appellees.

No. 89-2978.

United States Court of Appeals, Fifth Circuit.

Dec. 13, 1990.

Rehearing Denied Jan. 23, 1991.

William H. White, Ruth L. Richard, Susman & Godfrey, Houston, Tex., for plaintiff-appellant.

David S. Steefel, David B. Wilson, Holme, Roberts & Owen, Denver, Colo., Barry G. Flynn, Houston, Tex., for defendants-appellees.

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

Before JONES, DUHE, and WIENER, Circuit Judges.

PER CURIAM:

William Perlman (Perlman) filed this diversity suit for a declaratory judgment against Pioneer Limited Partnership (Pioneer) and Kendrick Cattle Company (Kendrick) seeking to have an oil and gas lease and a surface lease declared unenforceable due to an alleged occurrence of a force majeure. He claimed that his performance of the contract had been hindered by state regulations in Wyoming and Montana. Pioneer and Kendrick counter-claimed for breach of contract seeking the amounts promised under the agreements, statutory penalties and attorney's fees. The district court found for Pioneer and Kendrick on all claims and ordered judgment against Perlman for $1,772,676.65. We affirm the district court's finding that Perlman breached his contract with Pioneer and Kendrick, but reverse the district court's award of attorney fees except for those awarded pursuant to Mont.Code Ann. Sec. 82-1-202 in the amount of $2,500.

I.

Pioneer entered into an Oil and Gas Lease (the Lease) with Perlman to "explore, drill, prospect and operate" for oil and gas on acreage located in Montana and Wyoming. In return for these rights, Perlman agreed to (1) pay Pioneer $137,676.65 in initial rent, and (2) spend $1,500,000 in exploring and developing the acreage or, alternatively, to pay Pioneer the difference between $1,500,000 and the amount he spent. Perlman also obtained from Kendrick the right of access to and use of land in Wyoming and Montana overlying and adjoining Pioneer's acreage (the Surface Agreement) and in exchange, agreed to pay Kendrick $60,000. Incorporated into the Lease was a "force majeure" clause which states in pertinent part:

14. FORCE MAJEURE ... This lease shall not be terminated ... nor Lessee held liable in damages ... if compliance [with covenants in lease] ... is prevented or hindered by an act of God, of the public enemy, adverse field, weather or market conditions, labor disputes, inability to obtain materials in the open market or transportation thereof, inability to obtain governmental permits or approvals necessary or convenient to Lessor's operations ... such circumstances of events being hereafter referred to as "force majeure".... Lessee shall notify Lessor in writing ... within fifteen (15) days of any force majeure which prevents or hinders any compliance, activity or event hereunder.... Lessee shall use all reasonable efforts to remove such force majeure ...

Perlman obtained the right to produce oil and gas from all the depths and horizons subject to the lease. No one particular method to produce oil and gas was designated in the lease; however, Perlman anticipated using his patented "Perlman Process" to produce coal seam gas. ¹ This process involves: (1) the injection of water into the ground during the drilling process (the fracturing phase), and (2) the production of water and gas resulting from the fracturing phase. This process usually produces substantial amounts of water. Apparently, other methods used in Wyoming to produce coal seam gas do not yield as much water.

After the Lease was signed, the Taylor 24 well in Wyoming was completed using the Perlman process. ² Taylor 24 was not on the Pioneer/Kendrick tract and in fact was over 85 miles away from the subject acreage. Taylor 24 was drilled into a fault and, therefore, did not produce gas as expected, but produced only large volumes of water. Due to the substantial amounts of water produced by Taylor 24, the Wyoming Oil and Gas Conservation Commission (the Commission) ordered the owners either to permit the well as a water well or plug it. ³ Pursuant to this order, the Wyoming officials requested a meeting (the October 26 meeting) with the parties having an interest in Taylor 24 to discuss the operations of that well.

The primary focus of this meeting between the Perlman representatives and the Wyoming officials was the problems associated with the Taylor 24 well; however, the proposed wells on the Pioneer/Kendrick acreage apparently were discussed as well. While the reports of what was actually discussed at the meeting conflict, it is clear that at the very least the State Engineer and the Commission required, inter alia, that studies be done for all of Perlman's proposed operations before the state could determine the impact of Perlman's operations and decide how the wells should be permitted. Primarily, the Wyoming officials requested more information in order to determine the effect of the Perlman process on Wyoming's water resources in the areas that Perlman planned to drill. Apparently this is a standard request of anyone using or who has the potential of using substantial amounts of water in Wyoming. Hydrology studies were the most pertinent studies needed and had to be done for the entire region affected by the drilling. Costs of these studies were estimated to be $50,000 to $200,000 per well.

After hearing the results of the meeting, Perlman concluded unilaterally that the actions of the Wyoming regulators hindered his performance under the contract. He also unilaterally concluded that because Montana regulated its water similarly or more stringently than Wyoming, he would also be hindered there. On the basis of such unilateral decisions, Perlman invoked the force majeure clause taking the position that he was no longer bound to perform under the Lease or the Surface Agreement. He notified Pioneer and Kendrick in December 1987 of the purported occurrence of the force majeure and filed this suit for declaratory judgment in April 1988.

At trial the district court rejected Perlman's force majeure argument on findings that Perlman made no effort whatsoever to drill on the lease even though he may not have encountered the same quantity of water as he did on the Taylor 24, and that Perlman failed to give timely notice of the force majeure. The court also found that, as a matter of law, the doctrine of force majeure did not excuse Perlman's failure to perform under the Lease because the circumstances alleged did not constitute force majeure and the event complained of was foreseeable to Perlman and within his control. The district court also found as a matter of law that Section 8 of the Lease was not unenforceable as a penalty. ⁴ The district court therefore awarded Pioneer $137,676.65 plus interest pursuant to Section 2 of the Lease and $1,500,000 plus interest pursuant to Section 8 of the Lease. Pioneer was also awarded $100 for statutory penalties as a result of Perlman failing to file a required disclaimer. Kendrick was awarded $60,000 plus interest pursuant to the terms of the Surface Agreement. Finally, the district court awarded Pioneer and Kendrick a total of $75,000 for attorney's fees.

Perlman appeals claiming that the district court erred in finding that his performance was not excused by force majeure under the terms of the contract.

II. Standard of Review

We uphold the trial court's finding of fact unless clearly erroneous giving due regard to the district court's credibility determinations. Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 1511, 84 L.Ed.2d 518 (1985). Even though we might have weighed the evidence differently had we been sitting as trier of fact, we must accept the district court's findings as long as they are plausible in light of the record viewed in its entirety. Id. The trial court's conclusions of law we review de novo. United States, Small Business Admin. v. Bridges, 894 F.2d 108, 111 (5th Cir.1990); Halloran v. Veterans Admin., 874 F.2d 315, 320 (5th Cir.1989).

Except for Pioneer's claim for attorney's fees under Mont.Code Ann. Secs. 82-1-201 and 82-1-202, this action is governed by the law of the state of Wyoming as agreed upon in the contract. Unfortunately, there is a dearth of Wyoming caselaw dealing with the issues of this appeal. Therefore, we must look to the law of other common-law jurisdictions, as would the state courts in Wyoming, to supply the rules of law.

III. Force Majeure

At trial, the district court held that under the doctrine of force majeure Perlman's performance was not excused because the event complained of was within Perlman's control and was entirely foreseeable. The court also determined that Perlman could have performed because performance had not been rendered impossible or untenable. The district court rested its holding on the general principle that "a force majeure clause is to relieve [a] lessee from harsh termination due to circumstances beyond [his] control that would make performance untenable or impossible." Edington v. Creek Oil Co., 213 Mont. 112, 690 P.2d 970 (1984). As Perlman aptly argues, however, the district court erred in using the "doctrine of force majeure" ⁵ to interject terms into the contract that were not contemplated by the parties. Therefore, he urges, control and foreseeability are not at issue. The only issue in this instance, insists Perlman, is whether he was hindered by governmental regulations in his efforts to fulfill the contract.

Perlman is correct that this case is essentially one of contract interpretation. The language in the force majeure clause in the Lease is unambiguous and its terms were specifically bargained for by both parties. Therefore, the "doctrine" of force majeure should not supersede the specific terms bargained for in the contract. ⁶ When the terms...