Stinnett v. Colorado Interstate Gas
| Decision Date | 01 November 1941 |
| Docket Number | N,T,BANK-AUSTI,No. 1,1 |
| Citation | 227 F.3d 247 |
| Parties | (5th Cir. 2000) PEGGY MASTERSON STINNETT; PEGGY MASTERSON STINNETT, Trustee of the R.B. Masterson Trusts; The Bennett Masterson Trust #1 and the Ben Masterson Stinnett Trust; LAUREL S. EMMETT; SIDNEY S. BOYCE; MARY KRITSER MILLER; GEORGE SHELBY MILLER; JOHN SIEBERT MILLER; MARTHA MILLER JARNAGIN; ELIZABETH K. MASTERSON, Co-Trustee of the R. B. Masterson III Trust; WILLIAM A. MASTERSON, Co-Trustee of the R. B. Masterson III Trust; MARY LEWIS KLEBERG, Trustee of the Mary Lewis Kleberg Trust; NATIONSBANK CORPORATION, Trustee of the T. B. Masterson Jr. Trust; FIRST NATIONAL BANK OF AMARILLO, Trustee of the Anna Belle Kritser Testamentary Trust; Trustee of the David Sloan Kritser Trust; Trustee of the Shelby Masterson Kritser Trust; Trustee of the Tom Moylan Kritser Trust; and Trustee of the Mary Kritser Miller Trust; AMARILLO NATIONAL BANK, Joint-Trustee of the Michael Weymouth Campbell Life Income Trust; MARY ANN MUSICK, Joint-Trustee of the Michael Weymouth Campbell Life Income Trust; ANN CAMPBELL MUSICK, Custodian for Sarah Elizabeth Campbell; MICHAEL CAMPBELL, Custodian for Sarah Elizabeth Campbell; TEXAS COMMERCErustee of the Zachary T. Scott, Jr. TrustU/A dated |
| Court | U.S. Court of Appeals — Fifth Circuit |
[Copyrighted Material Omitted] Appeal from the United States District Court for the Northern District of Texas, Amarillo
BEFORE DAVIS, SMITH, and WIENER, Circuit Judges
Grounded in mineral exploration, development, and production in the panhandle of Texas with a history almost as long as that State's oil and gas industry itself, the case that engenders the instant appeal requires interpretation of contractual provisions contained in several agreements and application of such interpretation to facts that are either undisputed or have been determined by a jury. The plaintiffs (collectively, "the Mastersons"), as lessors and successors in interest to lessors of minerals in the West Panhandle Field (the "Field"), instigated this litigation in district court on the jurisdictional basis of diversity citizenship, asserting damage claims for and related to underpayment of lease royalties. The action was brought in 1992 against Colorado Interstate Gas Company ("CIG") which in turn impleaded Mesa Operating Limited Partnership ("Mesa"), the operator of the Field.1
The long ---- and frequently rancorous and litigious ---- contractual history of the oil and gas interests that lie at the center of this controversy was consolidated and restated in 1955 in a new and comprehensive mineral lease (the "1955 Lease") from the Mastersons as lessors to CIG as lessee. Over the ensuing decades the parties entered into various supplemental and related agreements and engaged in litigation of which the instant action is but the latest chapter. After the district court dismissed some of the Mastersons' claims and a lengthy trial resulted in the jury's determination that the Texas theory of quasi-estoppel barred recovery of all but a modicum of the multi-million dollar amount sued for, the court entered a take-nothing judgment in favor of CIG. This appeal ensued.
Within a few years after execution of the 1955 Lease new controversies arose, culminating in a settlement agreement (the "1967 Settlement"). A key provision of that contract, and one that is central to this case, is a "favored nation clause" ("FNC") which was engrafted on the basic market value pricing scheme of the 1955 Lease. The FNC is contained in the third of four subsections of Section A(2) of the 1967 Settlement: Subsection (a) fixes the royalty rate of the 1955 Lease at 1/8th of 14¢ per mcf2 of gas produced between July 1, 1967 and December 31, 1969; subsection (b) fixes the royalty rate at 1/8th of the higher of 14¢ per mcf or market value of the gas at the wellhead produced from January 1, 1970 through the remainder of the 1955 Lease term; subsection (c) spells out the FNC; and subsection (d), which addresses maximum royalty rates in the event of Federal Power Commission ("FPC") gas price regulation, is acknowledged by the parties to be irrelevant to this litigation. In its entirety, subsection A(2)(c), the FNC, states:
In the event that [CIG] should, at any time after July 1, 1967, voluntarily pay to any of its lessors in the West Panhandle Field royalty for gas produced from the West Panhandle and Red Cave Formations at a rate based on a price per Mcf higher than that price upon which royalties are then being computed and paid to Masterson hereunder, [CIG] agrees to pay to Masterson royalties at the rate of one-eighth (1/8) of such higher price from and after such time through the remainder of the lease.
None appear to dispute that the 1967 Settlement in general and the FNC in particular constituted the agreed disposition of the Mastersons' complaints about past disparities in payment of royalties, particularly in comparison to royalties paid to other significant lessors in the Field (collectively the "Bivenses"). Likewise undisputed is the overarching premise that, to function as intended, the FNC had to operate in a single-price universe, in which the Mastersons' royalties would be calculated on the basis of the highest gas price used for calculation of the Bivenses' royalty.
The FNC worked as intended until the Federal Power Commission ("FPC") introduced price controls that established a multi-level price scheme, keyed to the age of the well from which the gas in question was produced. This change led the Mastersons and CIG to modify their arrangement by executing another contract (the "1974 Agreement") which created a tiered royalty calculation procedure. Pertinent to this case is the provision in the 1974 Agreement that payments made to the Mastersons under the 1955 Lease as modified by the 1967 Settlement would be "in lieu of any and all other royalties or payments to which [the Mastersons] might otherwise be entitled." The 1974 Agreement also specified that payment of royalties to the Bivenses based on the same terms as those contained in the 1974 Agreement would not trigger the FNC. The thrust of this provision was to allow CIG to make the same pricing "deal" with other lessors in the Field as made with the Mastersons in the 1974 Agreement.
Matters became even more complex when, in 1978, the Federal Energy Regulatory Commission ("FERC") was created and empowered to set maximum rates or "caps" on multiple categories of natural gas. In response to this development, CIG entered into pricing modifications with the Bivenses, then offered the same "deal" to the Mastersons. Because this arrangement specified, among other things, that eventually royalties would be calculated on the last regulated rate preceding any eventual deregulation, the Mastersons rejected it, preferring an arrangement following deregulation that would require royalties to be calculated on the basis of the market value of the gas.
Despite rejecting the same deal that CIG had consummated with the Bivenses, the Mastersons nevertheless asserted claims under the FNC based on one provision ---- the so-called City Rate for gas sold to Amarillo ---- that was being used to calculate royalties paid to other lessors under the very arrangement that the Mastersons had rejected. In 1988, these claims led to yet another pair of modifying contracts, the Lease Amendment Agreement (the "1988 Amendment") and the 1988 Royalty Agreement (collectively, the "1988 Agreements"), effective October 1, 1988. By virtue of these revisions, the Mastersons both achieved the increased royalties and the City Rate and retained their right to claim royalties calculated on the basis of market value rather than the last FERC rate following deregulation.
The incentive for CIG to (1) increase the Mastersons' royalty on so-called old gas, (2) pay the City Rate, and (3) permit the Mastersons to retain the right to be paid royalties calculated on the basis of market value pricing following deregulation, was the release provision set forth in paragraph 9 of the 1988 Amendment, in which the Mastersons agreed to release CIG and Mesa from all claims, whether known or unknown, disclosed or undisclosed, related directly or indirectly to gas produced under the 1955 Lease prior to 1989. Regarding royalty payments related to gas produced under the 1955 Lease after 1988, the parties agreed, in paragraph 7 of the 1988 Amendment and paragraph 1(b) of the 1988 Royalty Agreement, that all such payments would be "in lieu of any other rate" and would "fully satisfy and comply with the provisions of" the 1955 Lease and all intervening...
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