Williamson v. Elf Aquitaine, Inc.

• Decision Date: 01 April 1998
• Docket Number: No. 96-60837,96-60837
• Citation: 138 F.3d 546
• Parties: Util. L. Rep. P 14,196 Ralph E. WILLIAMSON, and his wife Daphine Williamson, Leslie Williamson, Judy Williamson Dunaway, Bonnie Williamson Morris, James Williamson, Ralph E. Thomas, Sammy L. Smith, S.E. Smith, Robert Sidney Dobbs, Jr., Flora R. Dobbs, Bobby G. Smith, Marion P. Smith, and Grace M. Smith, all residents of Lowndes County, Mississippi, Plaintiffs-Appellees, v. ELF AQUITAINE, INC., a Delaware Corporation, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 546

138 F.3d 546

Util. L. Rep. P 14,196

Ralph E. WILLIAMSON, and his wife Daphine Williamson, Leslie Williamson, Judy Williamson Dunaway, Bonnie Williamson Morris, James Williamson, Ralph E. Thomas, Sammy L. Smith S.E. Smith, Robert Sidney Dobbs, Jr., Flora R. Dobbs, Bobby G. Smith, Marion P. Smith, and Grace M. Smith, all residents of Lowndes County, Mississippi, Plaintiffs-Appellees, v. ELF AQUITAINE, INC., a Delaware Corporation, Defendants-Appellants.

No. 96-60837.

United States Court of Appeals Fifth Circuit.

April 1, 1998.

Daniel C. Hughes, Lafayette, LA, for Plaintiffs-Appellees.

Otis Johnson, Jr., Gene Dickerson Berry, Heidelberg & Woodliff, Jackson, MS, for Defendant-Appellant.

R. Wilson Montjoy, II, Brunini, Grantham, Grower & Hewes, Jackson, MS, for Freeport-McMoran, Inc., Southern Natural Gas Co. and Amerada Hess Corp., Amici Curiae.

Alex A. Alston, Jr., Alston, Rutherford & Van Slyke, Jackson, MS, for Forest Oil Co., Amicus Curiae.

David Martin Sweet, Independent & Petroleum, Oakton, VA, for Independent Petroleum Ass'n of America, Amicus Curiae.

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

Before POLITZ, Chief Judge, and GARWOOD and BARKSDALE, Circuit Judges.

RHESA HAWKINS BARKSDALE, Circuit Judge:

For this diversity action, the interlocutory appeal at hand concerns whether, under Mississippi law, lessors/royalty owners are entitled to royalties from the proceeds of the "nonrecoupable" settlement of a "take-or-pay" contract between a lessee/producer and a gas purchaser. On cross-motions for summary judgment, the district court held for the lessors/royalty owners. We REVERSE and RENDER.

I.

Appellees are lessors/royalty owners under six oil, gas, and mineral leases for the Caledonia Field in Lowndes County, Mississippi. Appellant, Elf Aquitaine, Inc., the lessee, drilled and sold gas from two Caledonia Field wells. Elf entered into two separate purchase and sales contracts with the Tennessee Gas Pipeline Company (TGP). Under these contracts, Elf was required to sell, and TGP was required to buy, 90 percent of Elf's delivery capacity. Among other things, these contracts contained "take-or-pay" provisions, which required TGP to take or, if failing to take, to in any event pay for a large minimum volume of gas that Elf made available for delivery, and to take (recoup) the undelivered, but paid for, gas in succeeding years.

The term "take-or-pay" is somewhat misleading; the purchaser always must make payment for a minimum amount of available gas, but may exercise an option to take (recoup) the gas at a later date. These provisions are mutually beneficial: the producer is assured a steady income; the pipeline company, a steady supply.

Due to various market forces in the early 1980s, the natural gas market experienced an increase in supply but a decrease in demand. Consequently, pipeline companies were in a financially unfavorable position of being locked into long-term, take-or-pay contracts with producers, requiring pipeline companies to purchase at high prices large volumes of gas, which they were unable to resell on the flooded market. See Koch Hydrocarbon Co. v. MDU Resources Group, Inc., 988 F.2d 1529 (8th Cir.1993); John S. Lowe, Defining the Royalty Obligation, 49 SMU L. REV. 223 (1996); Bruce M. Kramer, Liability to Royalty Owners For Proceeds from Take-or-Pay and Settlement Payments, 15 E. MIN. L. FOUND. § 14.01 (1994).

In 1983, due to these adverse market conditions, TGP followed a growing trend among similarly situated pipeline companies and unilaterally began refusing to take, much less to pay for, the full minimum available gas amount, in clear breach of its contracts with Elf, among others. As a result, Elf and TGP entered into a settlement agreement in 1985 (the 1985 settlement), kept confidential from the lessors, which resolved certain breach of contract claims that Elf had against TGP.

However, due to continuing market difficulties, TGP continued in breach of contract. (For example, in December 1985, TGP advised Elf that its gas sales at one point had been reduced to the lowest level since 1944.) TGP refused to meet its take-or-pay obligations, but also refused to release the gas Elf was contractually committed to sell to TGP. By 1987, TGP owed Elf over $27 million in take-or-pay obligations under various contracts, including the two involved in this case.

Consequently, Elf and TGP entered into a second settlement agreement in 1987 (the 1987 settlement), again kept confidential from the lessors, under which TGP made a lump-sum payment of approximately $6.6 million to Elf in consideration for Elf waiving its claims under the take-or-pay contracts. No royalties were paid to Appellees from this settlement amount. (The 1987 settlement included the following language: "WHEREAS Elf has been requested by [TGP] to reduce prospectively the price, volumes and take-or-pay obligations of gas purchased under the Contracts...." Although the settlement amount was entered in Elf's books as a settlement of take-or-pay obligations, Appellees contend that this settlement was not solely to excuse take-or-pay obligations but to excuse all disputes arising out of the marketing of gas under the leases.)

In conjunction with the 1987 settlement, TGP and Elf also amended the contracts to allow Elf to sell gas from the wells on the open market. Such sales increased immediately, with Elf paying Appellees full royalties from them.

In mid-1993, after becoming aware of the 1985 and 1987 settlements, Appellees filed this action in Mississippi chancery court to recover as royalties a portion of the settlement proceeds. Elf removed the action to federal district court.

With respect to the 1987 settlement, the district court granted summary judgment to Appellees, denied Elf's similar cross-motion, and reserved ruling on damages. Williamson v. Elf Aquitaine, Inc., 925 F.Supp. 1163, 1173-74 (N.D.Miss.1996). (The court held that the claim based on the 1985 settlement was barred by limitations; Appellees do not cross-appeal. Id. at 1174.)

The district court certified the following issue for interlocutory appeal: "whether, pursuant to Mississippi law, lessors of a mineral interest in gas are entitled to royalties stemming from the nonrecoupable cash settlement of a take-or-pay contract dispute between a pipeline and a producer". Williamson v. Elf Aquitaine, Inc., No. 1:93CV255-S- D, 1996 WL 671660 (N.D.Miss. July 25, 1996) (unpublished). Our court initially denied but, upon re-certification granted, Elf's petition for interlocutory appeal. Williamson v. Elf Aquitaine, Inc., No. 96-00268 (5th Cir. Dec. 5, 1996) (unpublished).

II.

A.

Appellees/lessors seek certification to the Mississippi Supreme Court.

In determining whether to exercise our discretion in favor of certification, we consider many factors. The most important are the closeness of the question and the existence of sufficient sources of state law--statutes, judicial decisions, attorney general's opinions--to allow a principled rather than conjectural conclusion. But also to be considered is the degree to which considerations of comity are relevant in light of the particular issue and case to be decided. And we must also take into account practical limitations of the certification process: significant delay and possible inability to frame the issue so as to produce a helpful response on the part of the state court.

State of Fla. ex rel. Shevin v. Exxon Corp., 526 F.2d 266, 274-75 (5th Cir.1976).

Appellees contend that certification is proper because the issue at hand has not been addressed by the Mississippi Supreme Court and judicial economy would be served. But, as discussed infra, Mississippi case law, which looks to Texas decisions in oil and gas cases, is sufficiently clear to allow this court to decide the issue presented. Needless to say, "[c]ertification is not a panacea for resolution of those complex or difficult state law questions which have not been answered by the highest court of the state". Transcontinental Gas Pipeline Corp. v. Transportation Ins. Co., 958 F.2d 622, 623 (5th Cir.1992).

In short, this appeal does not fall within the class of "exceptional" cases requiring certification. See, e.g., Lavespere v. Niagara Mach. & Tool Works, Inc., 920 F.2d 259, 262 (5th Cir.1990). Accordingly, certification is DENIED.

B.

Of course, we review a summary judgment de novo. E.g., FDIC v. Myers, 955 F.2d 348, 349 (5th Cir.1992). In this regard, the parties stipulated in district court that no material fact issues exist. Therefore, at issue is whether, under Mississippi law, the Appellees are entitled to royalties from the proceeds of the nonrecoupable 1987 settlement of the take-or-pay contracts between Elf and TGP. (As discussed infra, under a "nonrecoupable settlement", there is a termination of the pipeline company's right to take gas not taken prior to settlement.) Again, for this summary judgment, as in all instances where we are presented with an issue of law, see Thompson v. City of Starkville, 901 F.2d 456, 459 (5th Cir.1990), we review de novo.

For this diversity action, and because the Mississippi Supreme Court has not addressed this issue, we are required to make an Erie-guess as to how the Mississippi courts would apply state substantive law. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); e.g., Southwestern Engineering v. Cajun Elec. Power Co-op., Inc. 915 F.2d 972, 978 (5th Cir.1990). In this regard, deference cannot be given to the rulings by the district court, even though it sits in the State whose law is being applied. Salve Regina College v. Russell, 499 U.S. 225, 238, 111 S.Ct. 1217, 1225, 113 L.Ed.2d 190 (1991) ("When de novo review is compelled, no form of appellate deference is acceptable.").

Prior to launching this de novo /non-deferential exploration, we note, in fairness to the able district court, that some of the key...