Southern Natural Gas Co. v. Pursue Energy

Decision Date31 January 1986
Docket NumberNo. 84-4741,84-4741
Citation781 F.2d 1079
PartiesSOUTHERN NATURAL GAS COMPANY, Plaintiff-Appellant Cross-Appellee, v. PURSUE ENERGY, Defendant-Appellee Cross-Appellant.
CourtU.S. Court of Appeals — Fifth Circuit

Brunini, Grantham, Grower & Hewes, Walter S. Weems and John M. Grower, Jackson, Miss., for Southern Natural Gas Co.

Thomas, Price, Alston, Jones & Davis, Alex A. Alston, Jr. and Kenneth A. Rutherford, Jackson, Miss., for Pursue Energy.

Appeals from the United States District Court for the Southern District of Mississippi.

Before THORNBERRY, RUBIN and JOLLY, Circuit Judges.

THORNBERRY, Circuit Judge:

This is a diversity case involving interpretation of a contract between Southern Natural Gas Co. (Southern) and Pursue Energy Corp. (Pursue). The United States District Court for the Southern District of Mississippi granted Pursue's motion for partial summary judgment on three issues and Southern's motion for partial summary judgment on two issues. Each party appeals the ruling against it. We reverse and remand for further proceedings.

I. FACTS

Southern is an interstate pipeline company that purchases natural gas from producers, transports it, and sells it for resale to natural gas distribution companies. Pursue explores for and produces natural gas. In January 1980 Pursue and Southern entered into a contract under which Pursue would sell to Southern deep, high cost natural gas produced from the Thomasville Field in Rankin County, Mississippi. The contract was the result of extensive negotiations involving attorneys from both sides. Pursue began delivering gas to Southern in November 1980 and continues to do so today.

In the middle of 1981 a dispute arose over the price that Southern was to pay Pursue for the gas. Additional pricing disputes occurred in the following year. In June 1982 Southern filed suit in the Chancery Court of Hinds County, Mississippi, seeking a declaration that its interpretation of the contract was correct. Defendants in the suit were Pursue and 3300 Corp., which held an undivided interest with Pursue in the Thomasville Field gas and was selling to Southern under a contract virtually identical to the contract between Southern and Pursue. 1 3300 Corp. removed the suit to federal district court.

Pursue and 3300 Corp. counterclaimed against Southern for breach of contract, seeking damages and interest. In 1983 Pursue and 3300 Corp. filed motions for partial summary judgment on the pricing issues. The district court granted these motions in October 1984. Southern appeals the judgment in favor of Pursue. 2 The parties filed cross-motions for partial summary judgment on two additional issues: the pressure at which the quantity of gas sold under the contract was to be measured, and the allocation between principal and interest of partial payments by Southern to Pursue and 3300 Corp. The district court granted Southern's motion, and Pursue cross-appeals from that judgment.

II. THE MERITS

The interpretation of an unambiguous contract is a matter of law; the interpretation of an ambiguous contract through extrinsic evidence of the parties' intent is a matter of fact. See Carpenters Amended & Restated Health Benefit Fund v. Holleman Construction Co., 751 F.2d 763, 766-67 (5th Cir.1985); Paragon Resources, Inc. v. National Fuel Gas Distribution Corp., 695 F.2d 991, 995-96 (5th Cir.1983). Thus, a district court may properly grant summary judgment when a contract is unambiguous, but may not grant summary judgment when a contract is ambiguous and the parties' intent presents a genuine issue of material fact. See Union Planters National Leasing, Inc. v. Woods, 687 F.2d 117, 120 (5th Cir.1982); Freeman v. Continental Gin Co., 381 F.2d 459, 465 (5th Cir.1967). Under Mississippi law, the ambiguity of a contract is determined by examining the language of the instrument. See Pfisterer v. Noble, 320 So.2d 383, 384 (Miss.1975). 3

In this case the district court determined that the contract between Southern and Pursue unambiguously resolved all of the issues presented by the respective motions for partial summary judgment. The district court's determination of non-ambiguity is a conclusion of law that we review de novo. See Paragon, 695 F.2d at 995; Freeman, 381 F.2d at 465; Fed.R.Civ.P. 52(a).

A. Southern's Appeal

Southern argues that the district court erred in granting Pursue's summary judgment motion on the issues of price redetermination, reimbursement of severance taxes, and inclusion of severance tax reimbursement in the contract's price cap. On each issue Southern asserts that the contract either unambiguously favors its interpretation or is sufficiently ambiguous to warrant remand. We agree with Southern that the contract is ambiguous as to all three issues. Accordingly, we reverse the district court's grant of summary judgment and remand for trial.

1. Price Redetermination

Article 7, section 3(A) of the contract between Southern and Pursue states:

If at any time the Commission, or any successor governmental authority, or the Congress of the United States, or any other regulatory or legislative body, does not have, or ceases to have jurisdiction or exercise control, over the prices charged for Residue Gas sold hereunder, the price to be charged for such gas shall be redetermined, at Seller's election, exercised by written notice given to Buyer during the first month of any calendar quarter starting January 1, April 1, July 1, and October 1 of each year (the first day of such quarter shall be the "quarterly price redetermination date"), effective as of the first day of such calendar quarter (or the cessation date if later) to be at Seller's election any one of the following.... (Emphasis added.)

The contract then lists three methods of setting the price for gas sold under the contract: section 3(A)(a) provides for a price per MMBTU equal to the higher of 10% above the last regulated price or 10% above the price for No. 2 fuel oil; section 3(A)(b) sets a base price of $3.60 per MMBTU escalating monthly; and section 3(A)(c) establishes a price equal to the average of the three highest prices paid or payable for gas in the same area, escalating monthly.

Pursue elected to redetermine the price at which it sold gas to Southern for the calendar quarters beginning October 1, 1980, January 1, 1981, and April 1, 1981. Each time it chose the pricing option set out in section 3(A)(c). In mid-1981 the market price of gas began to fall. Pursue did not redetermine its price on July 1, 1981; instead, it notified Southern that it was exercising its contractual right not to redetermine, thus keeping the June 1981 price in effect. Southern took the position and maintains on this appeal that the contract requires Pursue to redetermine its price each quarter. Since July 1, 1981, Southern has paid Pursue a price each quarter equal to the average of the three highest prices paid or payable in the same area during the first month of that quarter, with escalation as provided in the contract. 4

The district court found that the first sentence in Article 7, section 3(A) unambiguously gives Pursue the option to redetermine or not at the beginning of each quarter. Pursue offers two arguments to support this position. 5 First, it asserts that the phrase "at Seller's election" emphasized in the language quoted above modifies the word "redetermined," which immediately precedes it. Thus, Pursue contends, redetermination in any particular quarter is to be at the seller's--Pursue's--election. Second, Pursue notes that the contract provides for redetermination in "any calendar quarter ... of each year." According to Pursue, this language indicates that redetermination is optional with the seller; otherwise, the contract would provide for redetermination at the beginning of "every" or "each" calendar quarter.

Southern offers two textual arguments of its own to support its position that the contract requires Pursue to redetermine its price each quarter. First, it contends that the emphasized phrase "at Seller's election" refers to Pursue's initial choice, following deregulation, whether to continue the last regulated price or to switch to one of the pricing options specified in Article 7, section 3(A). According to Southern, the contract does not give Pursue the further choice whether to redetermine its price at the beginning of each quarter. Second, Southern notes that the price option provisions in section 3(A)(a) and 3(A)(c) refer to the "calendar quarter under consideration." This phrase suggests, according to Southern, that the parties intended redetermination to occur each calendar quarter.

After reading and re-reading the contractual provision at issue and carefully considering these arguments, we cannot say that the contract unambiguously favors either interpretation. Given the contract's murky language, both are plausible readings. Only extrinsic evidence of the parties' intent will reveal which is correct. Accordingly, we reverse the district court's partial summary judgment on this issue and remand for trial.

2. Severance Tax Reimbursement

Article 7, section 3(A)(c), the pricing option selected by Pursue, states that the seller shall receive a price equal to the three highest prices paid or payable in the same area, "plus reimbursement by Buyer to Seller of 100% of taxes to the extent that such reimbursement is not a part of such highest prices." Article 8, section 3 of the contract states:

As provided in Article 7 hereof, Buyer agrees to reimburse Seller for one hundred percent (100%) of any taxes now and hereafter lawfully imposed upon and paid by Seller with respect to the Residue Gas delivered hereunder subject to the further provisions of this Article 8; provided however, in the event the price being paid for Residue Gas delivered and sold pursuant to this agreement is the price provided for in Article 7, Section 3A(a)(ii), then Buyer shall reimburse Seller 100% of taxes as...

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