Skyco Res., LLP v. Family Tree Corp., S-21-0161

• Court: United States State Supreme Court of Wyoming
• Writing for the Court: GRAY, Justice.
• Citation: 512 P.3d 11
• Parties: SKYCO RESOURCES, LLP, a Texas limited liability partnership, Appellant (Plaintiff), v. FAMILY TREE CORPORATION, a Wyoming corporation and JD4, LLC, a Delaware limited liability company, Appellees (Defendants).
• Docket Number: S-21-0161
• Decision Date: 16 June 2022

512 P.3d 11

SKYCO RESOURCES, LLP, a Texas limited liability partnership, Appellant (Plaintiff),
v.
FAMILY TREE CORPORATION, a Wyoming corporation and JD4, LLC, a Delaware limited liability company, Appellees (Defendants).

S-21-0161

Supreme Court of Wyoming.

June 16, 2022

Representing Appellant: Brandon L. Jensen, Budd-Falen Law Offices, LLC, Cheyenne, Wyoming. Argument by Mr. Jensen.

Representing Appellees: Lucas Buckley and Sean Larson, Hathaway & Kunz LLP, Cheyenne, Wyoming. Argument by Mr. Larson.

Before FOX, C.J., and DAVIS^* , KAUTZ, BOOMGAARDEN, and GRAY, JJ.

GRAY, Justice.

512 P.3d 15

[¶1] Skyco Resources, LLP, entered into an agreement with Family Tree Corporation and JD4, LLC, (collectively Family Tree) for the purchase of mineral interests owned by Family Tree. Before closing, Skyco notified Family Tree that it was terminating the agreement based on title encumbrances and demanded a return of its earnest money. Family Tree refused because Skyco failed to comply with the agreement's termination provision. Skyco sued Family Tree for return of the earnest money, asserting claims of breach of contract, breach of the covenant of good faith and fair dealing, conversion, and fraud/intentional misrepresentation. The district court granted summary judgment to Family Tree. We affirm in part and reverse in part.

ISSUES

¶2] The dispositive issues are:

1. Whether the district court properly granted Family Tree summary judgment on Skyco's breach of contract and conversion claims.

2. Whether the district court properly granted Family Tree summary judgment on Skyco's claim for breach of the covenant of good faith and fair dealing.

3. Whether the economic loss rule barred Skyco's fraud/intentional misrepresentation claim.

FACTS

[¶3] In 2019, Family Tree enlisted a broker, Rob Arrowood, to assist in finding a buyer for mineral interests it held in Laramie County, Wyoming. On October 16, 2019, Mr. Arrowood provided information concerning those interests to Skyco's vice president, R. Brian Coker. Skyco wanted to purchase Family Tree's mineral interests and develop the minerals. The parties negotiated a purchase and sale agreement (PSA). Prior to its signing of the PSA, Mr. Arrowood assured Skyco that Family Tree "held permits to drill for all of the acreage to be included in the leasehold interest that was the subject of the transaction." Family Tree provided Skyco a spreadsheet which indicated less than 10% of the mineral interests being purchased were subject to a drilling permit issued to third parties. Thereafter, representatives of Family Tree signed the PSA on December 19, 2019, and Skyco representatives signed on December 20.

[¶4] Pursuant to the PSA, Family Tree agreed to sell and Skyco agreed to purchase 13,056.68 leasehold acres for $13,709,514. The PSA provided that time was of the essence in the agreement's performance, and it required that closing be held on or before forty-five days from the PSA's full execution, which was February 3, 2020. It also required that Skyco remit earnest money as follows:

(III) Earnest Money: Within ten (10) days from the execution of this agreement Buyer agrees to pay Seller earnest money in the amount of two percent (2%) of Total Purchase Price or $274,190.28 as a deposit which is non-refundable in the event the Buyer does not complete the transaction, unless terminated pursuant to Section (I)(b)(iii) herein. Upon Closing said earnest money shall be applied to the total purchase price.

[¶5] Pursuant to the PSA, Skyco could terminate the purchase based on title concerns:

(I) Title:

[512 P.3d 16

(a) Title Examination. Upon execution of this Agreement, Buyer may, at Buyer's option and expense, undertake to obtain an examination of title to the Mineral Interest.

(b) Objections to Title. In the event Buyer determines title to the Leasehold is subject to any encumbrance, defect or issue which renders title to the Leasehold unacceptable to Buyer in its sole discretion , then Buyer shall promptly advise Seller of such encumbrance, defect or issue and request that Seller remove or correct the same. Buyer shall have final approval of all legal, geological, environmental and regulatory issues affecting the property, which approval shall not be unreasonably withheld . In the event Seller fails to remove or correct such issue, defect or encumbrance within thirty (30) days after notice thereof, Buyer shall have the right and option to:

(i) Grant a reasonable additional time for Seller to remove or correct such issue, defect or encumbrance;

(ii) Waive in writing such issue, encumbrance or defect or any portion thereof; or,

(iii) Refuse to accept title to such portions of the Leasehold as are affected by such encumbrance, defect, or issue. In the event title to more than 50% is refused by Buyer as provided herein, Buyer or Seller shall have the right to cancel this Agreement in its entirety.

(Emphasis added.)

¶6] On January 15, 2020, Skyco remitted $300,000 to Family Tree as earnest money.¹ On January 22, Mr. Coker informed J. Christopher Dykes, a vice president of Family Tree, that Skyco needed an extension of the closing date to secure financing for the purchase. On January 23, Mr. Dykes emailed Mr. Coker and Blake Bergstrom, also of Skyco, that an extension of the closing date would require "additional non-refundable earnest money." During its examination of the title to the mineral interests, Skyco had discovered that 67% of the 13,056.18 net mineral acres being purchased were permitted with companies or individuals other than Family Tree. Skyco could at most develop 33% of the property. On January 23, the same day that Mr. Dykes sent his email, Mr. Bergstrom emailed the following message to Mr. Dykes:

While discussing the substance of your and Brian's call, it drew my attention to a schedule of permits we had produced by staff reflecting material impediments to the value of the leasehold. Due to the complications associated with Wyoming APDs [application for permit to drill] and the lack of any legal test of the proposed/accepted changes associated with overturning existing APDs, it is not reasonably possible to determine DSUs [drilling spacing unit] for the subject acreage. This serious impediment renders the acreage defective for all material purposes under Section I b iii of the PSA between the Parties ....

Skyco rescinds and revokes the PSA and requests return of the earnest money deposit, which exceeded the amount called for in the agreement and totaled $300,000.00. We appreciate the opportunity to have worked with you in an effort to purchase this acreage.

[¶7] On January 24, 2020, Mr. Bergstrom sent a second email message to Mr. Dykes, which read:

I also wanted to apologize it took so long for us to review this. There was the holidays and we actually didn't even notice the contract was changed by y'all ... so we thought we had a lot more time. Please confirm this email was received and wire monies as soon as possible. Thank you.

[¶8] On January 28, Mr. Coker followed up with another email message to Mr. Dykes. This one read:

Did you receive Blake's email from last week? I wanted to make sure that you all got "both" emails, the initial email that requests return of the earnest money as

[512 P.3d 17

well as the more conciliatory email that apologizes for being a bit hot-headed. Without holding any permits in the name of [Family Tree] or a subsidiary of the same, taken as a whole: the absence of permits, the uncertainty surrounding what will happen with the Anadarko acreage and how that will impact the leasehold, together with the geological uncertainty surrounding the eastern acreage, I agree with Blake's email below. Please call if you would like to discuss.

No one from Family Tree, including Mr. Dykes, responded to the email correspondence from Mr. Bergstrom or Mr. Coker.

¶9] On February 3, 2020, Mr. Coker emailed a letter to Mr. Dykes, which informed Family Tree, that because over 50% of the mineral leasehold was unacceptably encumbered, "I write to give notice of Skyco's termination of the PSA pursuant to Section (I)(b)(iii) of the PSA and demand refund of $274,190.28, plus any overpayment, in earnest money as specified pursuant to Section III of the PSA." Family Tree again did not respond to Skyco's demand, and on March 16, 2020, counsel for Skyco sent a demand letter to Family Tree's counsel.

[¶10] On April 14, 2020, Skyco filed a complaint against Family Tree asserting several claims, including claims for breach of contract, breach of the implied covenant of good faith and fair dealing, conversion, and fraud/intentional misrepresentation. Following discovery, the parties filed cross-motions for summary judgment. Both parties asserted there were no genuine issues of material fact, and each claimed it was entitled to judgment as a matter of law on Skyco's claims.² Family Tree argued that because Skyco did not provide the required thirty-day notice and opportunity for Family Tree to cure any alleged concern with its title, it was not obligated to refund the earnest money. Skyco argued that it did not have to follow the PSA's notice and cure termination provision because the defects it identified were incurable. It further argued that if its failure to provide the thirty-day notice was a breach, it was not material...