Rutgers, State University v. Martin Woodlands Gas Co.

• Decision Date: 13 October 1992
• Docket Number: No. 91-3615,91-3615
• Parties: 77 Ed. Law Rep. 93 RUTGERS, the STATE UNIVERSITY, Plaintiff-Appellee Cross-Appellant, v. MARTIN WOODLANDS GAS COMPANY and Martin Blue Ridge Gas Company, etc., Defendants-Appellants Cross-Appellees.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 659

974 F.2d 659

77 Ed. Law Rep. 93

RUTGERS, the STATE UNIVERSITY, Plaintiff-Appellee Cross-Appellant, v. MARTIN WOODLANDS GAS COMPANY and Martin Blue Ridge Gas Company, etc., Defendants-Appellants Cross-Appellees.

No. 91-3615.

United States Court of Appeals Fifth Circuit.

Oct. 13, 1992.

E.B. Dittmer, II, Talley, Anthony, Hughes & Knight, Bogalusa, La., for appellants.

Louis Robbert Davis and Dawn M. Fugua, Mangham, Hardy, Rolfs and Abadie, Lafayette, La., for appellee.

Appeals from the United States District Court for the Eastern District of Louisiana.

Before JOLLY, and DUHE, Circuit Judges, and PARKER ¹, District Judge.

ROBERT M. PARKER, District Judge:

Rutgers, the State University, (Rutgers) Appellee-Cross Appellant filed suit for declaratory judgment seeking a declaration that the November 14, 1985 contract between Rutgers and Martin Woodlands Gas Company (Martin Woodlands) was no longer in effect. Both parties sought damages, alleging that the opposing party had breached the contract. The Court below found that the contract had been modified from a five year contract to a month to month contract, and that Rutgers had breached the contract by failing to give thirty days advance notice of cancellation. The Court ordered Rutgers to pay damages calculated as the amount of profits defendants would have realized in a thirty day period. Both parties appealed. We reverse in part and affirm in part.

In 1985 changes in federal regulations allowed Rutgers to purchase natural gas from private sources at more competitive prices than they had been charged by public utilities in the past. Rutgers negotiated a contract with Martin Woodlands to supply natural gas to some of its heating plants. The Natural Gas Sales Agreement (hereinafter Contract) entered into by Rutgers and Martin Woodlands and later assigned by Martin Woodlands to co-defendant Martin Blue Ridge Gas Company (Martin Blue Ridge) provides that the laws of the state of Louisiana govern and control its construction. Under the heading Term, the contract provides, "this contract will continue in effect for five years ... and continue thereafter until canceled on thirty days prior written notice." We must reconcile this five year clause with price provisions set out later in the contract.

Because it is central to our analysis, the entire price provision is set out in full.

3. Price: For gas hereunder as measured on a dry basis at a pressure base of 14.65 psia, BUYER shall pay SELLER $2.305 per million British thermal units ("MMBtu") delivered into Texas Eastern Transmission Corporation in their transport Zone B, which shall be the price-location reference point hereunder. Should the Delivery Point be different from Zone B or should any of the transportation tariffs change between the point of delivery and BUYER's plant, the price shall be adjusted such that the actual net burner tip cost of $3.30 per MMBTU to Buyer shall remain the same. The Price will remain fixed for one year.

At the end of the initial year hereunder and annually thereafter the Price hereunder for the succeeding year shall have been agreed upon by BUYER and SELLER. It is agreed that said redetermined net burner-tip price shall not escalate more than ten percent for the second year hereunder. The price for the third year shall not increase more than fifteen percent of the second year Price; the fourth year Price not more than twenty percent over the third year Price; and the fifth year Price not more than twenty-five percent of the fourth year price. If less than the maximum allowed increase is hereafter agreed upon for a given year, the unused margin shall carry forward in computing the Price cap for future years.

At the end of the first contract year, the price of natural gas had decreased dramatically. The parties engaged in price negotiations, but were unable to reach an agreement for the second year price. In a September 28, 1987 letter from Rutgers to Martin Woodlands, Rutgers declined an offer made by Martin to continue the contract at $3.30 per MMBtu. Rutgers instead proposed, "To demonstrate our good faith we will make gas purchases at the $3.30 price on a month to month basis while we continue discussing future pricing, without prejudice to Rutgers' right to terminate our arrangement in the event we are unable to agree on price." Martin never answered Rutgers' offer, but continued to deliver gas and accept payment of $3.30 per MMBtu through the second year and into the third year of the contract. Negotiations continued throughout this time. On January 10, 1989 Martin Woodlands assigned the contract to a sister company, Martin Blue Ridge without seeking or obtaining the consent of Rutgers to the assignment. Martin Blue Ridge delivered gas to Rutgers from the date of assignment to June 12, 1989, when Rutgers gave written notification of its termination of and refusal to accept further deliveries of gas.

In the Findings of Fact and Conclusions of Law, the Court below faced Rutgers' contention that the contract terminated at the end of the first contract year for failure of the parties to reach an agreement as to price, and was replaced by a month to month contract. The question of termination is never explicitly decided in the Findings of Facts and Conclusions of Law. However, a careful reading leads us to the conclusion that the Court below did not find that the contract terminated for failure to reach an agreement on a price at the end of the initial year. The Court recites the fact the contract provided for an initial price of $3.305 per MMBtu, and quotes the contract language requiring the parties to agree on a price each year after the initial year. The language imposing a cap on the price increases is referred to as an "escalator clause ... which allowed for upward adjustment in price, with agreement of the parties." The Court then went into a discussion of the facts and the law surrounding the question of modification, which culminated in a finding that the five year term was modified in September of 1987 to a month to month contract. In the Judgment, entered by the Court on the same day, the Court ordered that judgment on the main demand be entered in favor of Defendants, the Martin Companies. The main demand referred to is presumably the Rutgers' pleading for declaratory judgment that the contract had terminated.

Findings of fact shall not be set aside unless clearly erroneous and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses. Rule 52, Federal Rules of Civil Procedure. However, construction of a written instrument is normally a question of law and findings and conclusions of the trial court are not binding on the appellate court. Rockwood and Co. v. Adams, 486 F.2d 110 (10th Cir.1973). Under Louisiana law, when a contract is subject to...