Petro Harvester Operating Co. v. Keith

Decision Date25 March 2020
Docket NumberNo. 19-60151,19-60151
Citation954 F.3d 686
Parties PETRO HARVESTER OPERATING COMPANY, L.L.C.; Petro Harvester Laurel Holdings, L.L.C., Plaintiffs - Appellees v. David KEITH; Terry Keith, Defendants - Appellants
CourtU.S. Court of Appeals — Fifth Circuit

William Fredric Blair, Eric Lee Patterson, Esqs., Blair & Bondurant, P.A., Brandon, MS, for Plaintiffs-Appellees.

Terry L. Caves, Esq., Risher Grantham Caves, Caves & Caves, P.L.L.C., Laurel, MS, for Defendants-Appellants.

Before WIENER, HIGGINSON, and HO, Circuit Judges.

STEPHEN A. HIGGINSON, Circuit Judge:

Appellants David and Terry Keith (the "Keiths") own the surface of 4.3 acres of land sitting atop the property leased by Appellee Petro Harvester Operating Company ("Petro Harvester").1 Petro Harvester’s distant predecessors-in-interest began leasing the Keiths’ surface land in 1988 and Petro Harvester continued to do so until 2018. When the lease expired, Petro Harvester sought a declaratory judgment that it could continue to operate its oil and gas extraction activities on the Keiths’ surface land even without a surface lease, pointing to its explicit and implicit surface rights as a mineral lessee. The Keiths responded that the Surface Lease required Petro Harvester to return the surface land to its pre-lease condition upon expiration, meaning Petro Harvester was required to remove its machinery and vacate the property. The district court granted summary judgment in favor of Petro Harvester. The Keiths now appeal. For the reasons set forth below, we affirm the district court’s summary judgment order.

I.
A.

On June 7, 1985, the Keiths purchased the surface of approximately 4.3 acres of land in Mississippi for $1,850. Before the Keiths bought the property, the surface rights and mineral rights had been severed. Therefore, the Keiths do not own the mineral rights; they only own rights to the surface.

Under a 1959 mineral lease (the "Mineral Lease"), Petro Harvester’s predecessors-in-interest began leasing the mineral estate underlying the Keiths’ surface property. In 2010, Petro Harvester was assigned the rights under the Mineral Lease and became the mineral lessee and operator.

The Mineral Lease grants Petro Harvester the right to conduct oil and gas operations on the Keiths’ property. Specifically, the Mineral Lease gives Petro Harvester the following rights:

[T]he exclusive right of exploring, drilling, mining, and operating for, producing, and owning oil, gas Sulphur and all other minerals ... together with the right to make surveys on said land, lay pipe lines, establish and utilize facilities for surface or subsurface disposal of salt water, construct roads and bridges, dig canals, build tanks, power stations, power lines, telephone lines, employee houses and other structures on said land, necessary or useful in lessee’s operations in exploring, drilling for, producing, treating, storying and transporting minerals produced from the land covered hereby or any other lands adjacent thereto.

Petro Harvester also leased the Keiths’ surface land from 2010 to 2018 under a 1988 surface lease (the "Surface Lease") executed by Petro Harvester’s predecessors-in-interest. The Mineral Lease predates the Surface Lease by almost 30 years. The Surface Lease makes no reference to the preexisting Mineral Lease.

Petro Harvester operates the Laurel Oil Field, which is a large oil field that includes the Keiths’ surface land and hundreds of additional acres. The Keiths’ 4.3-acre plot is among over 1,000 acres of surface lands that Petro Harvester can access to produce oil and gas. Petro Harvester’s operations on the surface of the Keiths’ property include the operation of six wells, three pumps, buried flowlines and piping, and an electric power panel. When the Surface Lease was signed in 1988, the only structure on the property was a wooden building. The wooden structure was destroyed by another operator sometime between 1999 and 2002.2

B.

Section 8 of the Surface Lease contains the following key provision:

8. Tenant agrees at the end of the lease term that it shall return the premises to Landlord in the same or similar condition as the property was in at the commencement hereof except for normal wear.

The Surface Lease gives Petro Harvester the right to use the property for "any lawful purpose" and the right to restrict the amount of debt the Keiths owed on the property.

The Surface Lease expired on March 25, 2018. When the Surface Lease expired, Petro Harvester did not remove its equipment from the Keiths’ property. The parties agree that Petro Harvester has complied with all other terms of the Surface Lease.

C.

Petro Harvester filed this action seeking a declaratory judgment that, despite the expiration of the Surface Lease, it has the right to use the property’s surface to conduct its oil and gas operations, and that its current use is reasonable for this purpose. The Keiths responded by filing a counterclaim alleging that Petro Harvester breached the Surface Lease by failing to return the property to its pre-Surface Lease condition. The Keiths also asserted counterclaims for breach of contract, tortious breach of contract, and breach of the implied duty of good faith and fair dealing.

The Keiths sought specific performance of the Surface Lease, eviction of Petro Harvester, and damages. The Keiths also asserted various affirmative defenses, including waiver, ratification, estoppel, and the statute of limitations. The parties filed cross-motions for summary judgment. In their summary judgment briefing, neither party contended that there were material factual disputes. Instead, the parties’ disagreements were legal. The district court granted summary judgment in favor of Petro Harvester and denied the Keiths’ summary judgment motion. The district court held that Petro Harvester’s surface rights as the mineral lessee could not be superseded through the Surface Lease, relying on Reynolds v. Amerada Hess Corp. , 778 So. 2d 759 (Miss. 2000).

II.

This court has appellate jurisdiction under 28 U.S.C. § 1291 because the Keiths timely appealed a final judgment. This court has subject matter jurisdiction under 28 U.S.C. § 1332 because there is complete diversity of citizenship between the parties and the amount in controversy exceeds $75,000.

The parties and the district court agree that Mississippi law applies. See Kountouris v. Varvaris , 476 So. 2d 599, 606 (Miss. 1985) ; Tideway Oil Programs, Inc. v. Serio , 431 So. 2d 454, 458 (Miss. 1983) ; Spragins v. Louise Plantation, Inc. , 391 So. 2d 97, 100 (Miss. 1980) ; see also Restatement (Second) of Conflict of Laws §§ 223 – 24 (Am. Law Inst. 1971). When determining Mississippi law, this court first looks to "the final decisions of the [Mississippi] Supreme Court." In re Katrina Canal Breaches Litig. , 495 F.3d 191, 206 (5th Cir. 2007). If these decisions provide inadequate guidance, this court must make an Erie guess and determine "how [the Mississippi Supreme Court] would resolve the issue if presented with the same case." Id.

"This court reviews a district court’s grant of summary judgment de novo, applying the same legal standards as the district court." Tradewinds Envtl. Restoration, Inc. v. St. Tammany Park, LLC , 578 F.3d 255, 258 (5th Cir. 2009) (quoting Condrey v. SunTrust Bank of Ga. , 429 F.3d 556, 562 (5th Cir. 2005) ). "Summary judgment is appropriate when ‘the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’ " United States v. Nature’s Way Marine, L.L.C. , 904 F.3d 416, 419 (5th Cir. 2018) (quoting FED. R. CIV. P. 56(a) ).

III.

The Keiths contend that the district court erred by rejecting their breach of contract claim and each of their affirmative defenses. We find no error in the district court’s holding and therefore affirm. The district court correctly held that the Surface Lease here does not supersede the Mineral Lease. The district court also properly rejected the Keiths’ affirmative defenses of waiver, ratification, and estoppel. Mississippi’s statute of limitations does not bar Petro Harvester’s declaratory judgment action. Finally, the Keiths waived any argument that there are genuine issues of material fact that preclude summary judgment.

A.

Under the Mineral Lease, Petro Harvester is given authority to use the surface for its oil and gas operations. And Mississippi common law provides that mineral lessees have "the right to use the surface of the lands for all reasonable purposes to explore and drill for oil and gas and may use as much of the surface as is reasonably necessary to exercise [their] rights." Reynolds , 778 So. 2d at 762. Under the Surface Lease, Petro Harvester is required to return the property to its pre-Surface Lease condition, which could be interpreted to require Petro Harvester to remove the wells, pipelines, and pumps that have been installed on the surface to assist with extraction efforts since the Surface Lease was executed in 1988. The primary issue before us is whether the Surface Lease limits or restricts Petro Harvester’s rights under the Mineral Lease and under Mississippi mineral rights law.

The district court held in favor of Petro Harvester, concluding that the outcome of the case was largely controlled by the Mississippi Supreme Court’s holding in Reynolds . The Keiths attempt to distinguish Reynolds and criticize the district court opinion as overly broad because it impinges on the right to contract freely. Petro Harvester responds by relying on Reynolds for the proposition that the Surface Lease does not supersede the dominant mineral estate.

We affirm the district court and hold, consistent with Reynolds , that the Surface Lease here, as written, did not supersede Petro Harvester’s explicit and implicit surface rights as a mineral lessee after expiration of the Surface Lease.

i.

Reynolds controls the result here. In that case, the mineral owner leased the mineral rights of the Eucutta Oil Field to Humble Oil...

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