Pioneer Resources v. DR Johnson Lumber

• Decision Date: 24 April 2003
• Citation: 187 Or. App. 341,68 P.3d 233
• Parties: PIONEER RESOURCES, LLC, an Oregon limited liability company; and Frontier Resources, LLC, an Oregon limited liability company, Respondents, v. D.R. JOHNSON LUMBER COMPANY, an Oregon corporation; Rudio Mtn. Limited Partnership, an Oregon limited partnership, Appellants, and United States National Bank of Oregon, Defendant.
• Court: Oregon Court of Appeals

68 P.3d 233

187 Or. App. 341

PIONEER RESOURCES, LLC, an Oregon limited liability company; and Frontier Resources, LLC, an Oregon limited liability company, Respondents, v. D.R. JOHNSON LUMBER COMPANY, an Oregon corporation; Rudio Mtn. Limited Partnership, an Oregon limited partnership, Appellants, and United States National Bank of Oregon, Defendant.

94-05-151CV; A110085.

Court of Appeals of Oregon.

Argued and Submitted August 8, 2002.

Decided April 24, 2003.

Ridgway K. Foley, Jr., Portland, argued the cause for appellants. With him on the briefs was Greene & Markley, P.C.

Gary M. Bullock, Portland, argued the cause for respondents. With him on the brief were Tonya Kowalski and Bullock and Regier, P.C.

Before HASELTON, Presiding Judge, and LINDER and WOLLHEIM, Judges.

HASELTON, P.J.

Defendant D.R. Johnson Lumber Company ("D. R. Johnson") appeals from a judgment in favor of plaintiff Pioneer Resources, LLC ("Pioneer"), that reformed the parties' timber sale contract, ordered defendant to reconvey certain property to plaintiff, and awarded plaintiff damages of approximately $2 million for timber trespass and other losses resulting from defendant's alleged wrongful acquisition of the property.¹ Defendant assigns error to the trial court's grant of reformation and award of damages, arguing, inter alia, that the parties' release agreement (Mutual Release) bars plaintiff's claims, and, in the alternative, that plaintiff failed to prove the elements of reformation. As discussed below, we conclude that the parties' mutual Mutual Release does not bar relief. We further conclude that the parties' antecedent agreement with respect to the property to be conveyed is the property description of the "Timberland Sale Term Sheet." Finally, we conclude that plaintiff proved all elements of reformation—and, particularly, that plaintiff's failure to review certain documents pertaining to the underlying transactions was not grossly negligent. Consequently, we affirm.

We review the allowance of reformation de novo. Nevertheless, because of "the trial judge's superior position from which to assess credibility * * * we give substantial weight to the trial court's findings where, as here, those findings hinge on the resolution of conflicting testimony and the credibility of the witnesses." Foster v. Gibbons, 177 Or.App. 45, 48 n. 1, 33 P.3d 329 (2001) (citation omitted). We find, and recount, the following material facts consistently with that standard.²

This litigation, at its core, concerns the ownership of timberland in Townships 7 and 8 South in Grant County. Although the parties dispute the legal significance of their actions and dealings, most of the material facts relating to the conveyance of those properties are undisputed.

In the early 1990s, a change in federal forest management policy led to a significant decrease in the amount of timber on public lands made available for commercial use, with a concomitant increase in the demand for other sources of timber. In response to that market dynamic, in November 1993, four men who ultimately formed Pioneer—Greg Demers, Ed King, and Melvin and Norman McDougal—negotiated an Asset Purchase Agreement with Kinzua Corporation to purchase all of Kinzua's timber-related assets for $130 million. Those assets included approximately 180,000 acres of land in eastern Oregon, which contained about 800 million board feet of timber. Thereafter, the four principals formed Pioneer to conclude the acquisition. Under the Pioneer-Kinzua agreement, Kinzua was to continue to operate in the normal course of business, including the acquisition of more land, until the sale closed.

Pioneer's lender in the Kinzua transaction advised Pioneer that if, at the time of closing, it simultaneously sold off at least $60 million worth of its Kinzua timberland, the lender would substantially reduce Pioneer's required cash contribution. Consequently, in early 1994, Demers began negotiating with Louisiana-Pacific, Boise Cascade, and defendant D.R. Johnson in an effort to sell some of the timberland Pioneer would acquire from Kinzua.

Demers first met Don Johnson (Johnson), defendant's majority owner, in January 1994. At that time, Demers gave Johnson a map highlighting Kinzua's holdings, which had been pieced together from several maps provided by Kinzua. On the map, Demers drew a red circle around an area in Townships 10, 11, and 12 South in Grant County, which the parties referred to as the "Rudio Mountain Tract." Demers wrote on the map his estimate that the tract contained about 60,000 acres and about 220 million board feet of merchantable timber. The circled area did not include the land in Townships 7 and 8 in Grant County that is the subject of the parties' present dispute.

Johnson indicated that he also wished to acquire scattered parcels close to the Rudio Mountain Tract. The parties referred to those areas, some of which were in Wheeler County, as the "satellite" parcels. All of the land within the circled area and all of the satellite parcels were located in Townships 10, 11, and 12 in Grant and Wheeler Counties.

Later in January 1994, Demers and Melvin McDougal met with Don Bryan, the owner of a timber brokerage firm, who had been hired by Johnson to help negotiate the transaction with plaintiff. Demers gave Bryan a copy of the same map that he had given to Johnson and circled the same area identifying the Rudio Mountain Tract. In later meetings, but before defendant made its written offer to buy the Rudio Mountain Tract, the land and timber estimates were revised from 60,000 acres and 220 million board feet to approximately 40,000 acres and 200 million board feet of merchantable timber.

On February 14, 1994, Bryan sent Demers a written offer on behalf of defendant to purchase "Rudio Mountain, including all former Kinzua lands in following [T]ownships 10, 11 and 12 South, W.M.," for $60 million. Pioneer did not accept that offer, and it expired according to its terms the next day.

Over the course of the next week, and after further negotiations between the parties regarding price, Bryan and Mark Eves, defendant's attorney, prepared a "Timberland Sale Term Sheet" (Term Sheet), expressing the basic terms of a verbal agreement between Bryan and Demers. The final Term Sheet was faxed to Larry Gildea, plaintiff's attorney. That document specified a purchase price of $60 million and described the property to be conveyed as

"the current Kinzua holdings in [T]ownships 10, 11 and 12 South located in Grant County and Wheeler County, Oregon, consisting of approximately 40,000 acres, commonly referred to as the Rudio Mountain tract (the Timberland) * * *."

Because the Term Sheet included a clause requiring the parties to enter into a binding sales agreement to replace the Term Sheet within five days of signing, the parties decided to forgo executing the Term Sheet in favor of creating a formal agreement.

Gildea then prepared a draft sales agreement and sent it to Bryan's office. On February 21, Bryan's office forwarded the draft to Eves who had, by then, replaced Bryan as defendant's chief negotiator on the transaction. The draft identified the property to be conveyed as a "40,000 acre, more or less, tract of land" known as "the Rudio Mt. Tract * * * located in Townships 10, 11, and 12 in Grant and Wheeler Counties, Oregon." On February 28, Eves sent a fax to Gildea in which he stated:

"Initially we had a one page agreement to be signed first, with a more comprehensive agreement to follow. At your request, we have gotten directly into the comprehensive agreement. * * * It is now time to either sign an agreement or terminate discussions."³

Eves also sent a revised draft, which included the reference to "40,000 acre[s]" but changed the description of the Rudio Mountain Tract to state:

"For purposes of this Agreement, the Rudio Mt. Tract shall include all properties of the Kinzua Corporation * * * located in Wheeler County south of the John Day River, together with all properties of the Kinzua Corporation * * * located in Grant County, Oregon. Such property shall include, without limitation, property located in Townships 10, 11, and 12 South in Grant County and in Wheeler County, Oregon."

(Emphasis added.)⁴

Because the change in the draft would require plaintiff to sell to defendant "all" the land in Grant County that it purchased from Kinzua, Gildea consulted with Demers to make sure that the only land Kinzua owned in Grant County was the land in Townships 10, 11, and 12. Demers believed that plaintiff was not acquiring any Kinzua land in Grant County north of the John Day River⁵ and, consequently, agreed to the change in the description of the property. Gildea also consulted with Melvin McDougal about the proposed change. Based on a misreading of the map, McDougal mistakenly agreed with Demers's assessment that the only land in Grant County that plaintiff was to acquire from Kinzua was that in Townships 10, 11, and 12.

On March 3, 1994, plaintiff and defendant signed a Sales Agreement, which provided, in part:

"Pioneer, as a part of a larger purchase from Kinzua Corporation and Kinzua Owners, is acquiring a 40,000 acre, more or less, tract of land which includes approximately 200 MMBF of merchantable timber 8" DBH or greater. It is sometimes known as the Rudio Mt. Tract. Johnson and Pioneer have agreed that Johnson shall purchase from Pioneer and Pioneer shall sell to Johnson the Rudio Mt. Tract upon the terms and conditions set forth in this Agreement.

"THE PARTIES AGREE:

"1. Sale. Pioneer agrees to sell and Johnson agrees to purchase the Rudio Mt. Tract referred to in the foregoing recital. For purposes of this Agreement, the Rudio Mt. Tract shall include all properties of the Kinzua Corporation and Kinzua Owners which are located in Wheeler County south of the John Day River, together with all properties of the Kinzua Corporation and the Kinzua Owners which are located in Grant County,

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