Judges: Rovner
Filed: Aug. 10, 2018
Latest Update: Mar. 03, 2020
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 17-2889 PRONSCHINSKE TRUST DATED MARCH 21, 1995, Plaintiff-Appellant, v. KAW VALLEY COMPANIES, INCORPORATED, and KC PROPPANTS, LLC, Defendants-Appellees. _ Appeal from the United States District Court for the Western District of Wisconsin. No. 3:16-cv-00640-slc — Stephen L. Crocker, Magistrate Judge. _ ARGUED FEBRUARY 22, 2018 — DECIDED AUGUST 10, 2018 _ Before BAUER, EASTERBROOK, and ROVNER, Circuit Judges. ROVNER, Circuit Judg
Summary: In the United States Court of Appeals For the Seventh Circuit _ No. 17-2889 PRONSCHINSKE TRUST DATED MARCH 21, 1995, Plaintiff-Appellant, v. KAW VALLEY COMPANIES, INCORPORATED, and KC PROPPANTS, LLC, Defendants-Appellees. _ Appeal from the United States District Court for the Western District of Wisconsin. No. 3:16-cv-00640-slc — Stephen L. Crocker, Magistrate Judge. _ ARGUED FEBRUARY 22, 2018 — DECIDED AUGUST 10, 2018 _ Before BAUER, EASTERBROOK, and ROVNER, Circuit Judges. ROVNER, Circuit Judge..
More
In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 17‐2889
PRONSCHINSKE TRUST
DATED MARCH 21, 1995,
Plaintiff‐Appellant,
v.
KAW VALLEY COMPANIES, INCORPORATED,
and KC PROPPANTS, LLC,
Defendants‐Appellees.
____________________
Appeal from the United States District Court for the
Western District of Wisconsin.
No. 3:16‐cv‐00640‐slc — Stephen L. Crocker, Magistrate Judge.
____________________
ARGUED FEBRUARY 22, 2018 — DECIDED AUGUST 10, 2018
____________________
Before BAUER, EASTERBROOK, and ROVNER, Circuit Judges.
ROVNER, Circuit Judge. In June 2012, Ivan and Beverly
Pronschinske through their trust, the Pronschinske Trust
Dated March 21, 1995 (hereinafter “Pronschinske”), entered
into a Mining Leasing Agreement (“the lease”) with Kaw Val‐
ley Companies (“Kaw Valley”). The land owned by
Pronschinske contained frac sand, useful to gas and oil
2 No. 17‐2889
fracking operations, and the lease gave Kaw Valley the right
to mine the sand, stone and rock products, but also provided
that it was not obligated to extract any materials or sell any
product by virtue of the lease.
Kaw Valley ultimately decided not to mine the land and
terminated the lease through its provisions, but Pronschinske
brought a contract action in district court alleging that Kaw
Valley owed $400,000 under the lease provisions that re‐
quired payment of a Commencement Royalty credit and a
Minimum Production Royalty. The district court granted
summary judgment for Kaw Valley, holding that under the
terms of the lease neither payment was owed. On appeal,
Pronschinske argues only that the court erred in determining
that the Minimum Production Royalties were not owed. No
claim to the Commencement Royalty credit is raised in this
appeal. Both parties agree that the language of the lease agree‐
ment is unambiguous and controls the disposition of this con‐
tract claim, but the parties are diametrically opposed as to
what that language unambiguously requires.
The lease grants to Kaw Valley the exclusive rights to
“quarry, process, crush, manufacture, wash, remove and sell
(‘mine’ or ‘quarry’) all sand, gravel, stone and other rock
products from the Property” under the terms set forth in the
lease. It provides for an initial term of 5 years, commencing
on the lease’s Effective Date (with automatic continuation un‐
der certain defined circumstances), but allows for early termi‐
nation. Pursuant to the lease, Kaw Valley engaged in actions
in preparation for mining, including: surveying the property;
conducting well checks; taking soil borings; entering into an
agreement to pay for an upgrade of County Highway N; and
paying for the widening of the road that accesses the
No. 17‐2889 3
property. It expended approximately $750,000 in preparing to
operate the mine, primarily on engineering costs. It eventu‐
ally determined that mining on the property was not commer‐
cially feasible or practical, and exercised its right to terminate
the lease. The issue in this case is whether payments are owed
to Pronschinske that were incurred while the lease was in ef‐
fect.
The lease provides for payments to be made to
Pronschinske at various stages of the mining process, includ‐
ing the Initial Royalty Credit, Commencement Royalty
Credit, and Production Royalties. The Initial Royalty Credit is
payable “[c]oncurrently with the execution of this Lease,” and
mandates a payment of $20,000 “as consideration for the en‐
tering into of this Lease.” Lease ¶ 3. The agreement further
provides that “[t]he Initial Royalty Credit shall be nonrefund‐
able, but shall be used to offset any future amounts and roy‐
alties due Lessor from Lessee.” Id. Therefore, that payment is
a credit against future payments or royalties owed to
Pronschinske, and was paid by Kaw Valley as required under
the lease.
The lease provided for another credit, the Commencement
Royalty Credit in the amount of $45,000, payable “[u]pon
commencement of mine or quarry operations, as determined
by Lessee in its reasonable discretion.” Lease, ¶ 5. As with the
Initial Royalty Credit, the lease provided that “[t]he Com‐
mencement Royalty Credit shall be nonrefundable, but shall
be used to offset any future amounts and royalties due Lessor
from Lessee.” Id. Pronschinske does not argue on appeal that
Kaw Valley owes it the Commencement Royalty Credit.
That brings us to the potential payments at issue here,
which are found in the next paragraph of the lease—
4 No. 17‐2889
paragraph 6. We set forth the provision in its entirety, with
the language relied upon by Pronschinske italicized:
6. Lessee shall pay Lessor a royalty of
$1.50/ton (2,000 lbs.) for the first 65,000 ton of
sand, stone and rock products mined from the
Property in satisfaction of the offset require‐
ments for the Initial Royalty Credit and Com‐
mencement Royalty Credit. Thereafter Lessee
shall pay Lessor a royalty of $2.50/ton (2,000
lbs.) for sand, stone and rock products mined
from the Property (all such royalties are herein‐
after referred to as “Production Royalties”) for
the sand, stone and rock products mined from
the Property weekly (measured from the Effec‐
tive Date). Lessee shall make such payments to
Lessor no later than the Friday following the
week in which products are mined from the
Property. Notwithstanding anything to the con‐
trary contained herein, Lessee shall pay to Lessor an
annual minimum Production Royalty of $75,000.00
(the “Minimum Production Royalty”). In the event
that, as of the month containing the anniversary
date of the Effective Date, the monthly Produc‐
tion Royalties (as such may be prorated) fail to
meet or exceed the Minimum Production Roy‐
alty, Lessee shall pay to Lessor the difference be‐
tween the actual amount paid to Lessor during
that year and the Minimum Production Royalty
for such year. This catch‐up payment will be
No. 17‐2889 5
made with the next monthly payment due here‐
under.
Lease, ¶ 6 (emphasis added).
Pronschinske argues that the italicized language reflects a
stand‐alone requirement of a minimum annual payment of
$75,000 beginning with the first anniversary of the Effective
Date, regardless of what actions are taking place on the prop‐
erty. It reads the “[n]otwithstanding anything to the contrary
contained herein” language as meaning that its location in
paragraph 6 is irrelevant and that it represents a minimum
annual payment unconnected to Production Royalties gener‐
ally. Kaw Valley, however, argues that the “notwithstanding”
language references the paragraph in which it is found, and
should be read as stating that notwithstanding the calculation
of Production Royalties in this paragraph, a minimum pay‐
ment of $75,000 is owed once the Production Royalty provi‐
sion is triggered. In other words, Kaw Valley argues that it
merely sets a floor for Production Royalties once owed, which
applies only when product begins to be mined from the prop‐
erty as set forth in paragraph 6.
As Pronschinske recognizes, under Wisconsin law “[t]he
general rule as to construction of contracts is that the meaning
of particular provisions in the contract is to be ascertained
with reference to the contract as a whole.” Tempelis v. Aetna
Cas. & Sur. Co., 485 N.W.2d 217, 220 (Wis. 1992); First Natʹl
Bank of Manitowoc v. Cincinnati Ins. Co., 485 F.3d 971, 976 (7th
Cir. 2007); Folkman v. Quamme, 665 N.W.2d 857, 866 (Wis.
2003). Moreover, we must give contract terms their plain or
ordinary meaning. Huml v. Vlazny, 716 N.W.2d 807, 820 (Wis.
2006). Where, as here, the contract is unambiguous, “our at‐
tempt to determine the parties’ intent ends with the four
6 No. 17‐2889
corners of the contract, without consideration of extrinsic ev‐
idence.” Id. Therefore, the language in the contract at issue
here must be read in context and given its plain meaning.
“’[W]e review a district courtʹs interpretation of an unambig‐
uous contract de novo.’” EraGen Biosciences, Inc. v. Nucleic Acids
Licensing LLC, 540 F.3d 694, 698 (7th Cir. 2008), quoting Plati‐
num Tech., Inc. v. Federal Ins. Co., 282 F.3d 927, 931 (7th Cir.
2002).
Reading the language in context, the district court
properly determined that the Production Royalty payments
were not owed in this case because no mining had begun on
the property as set forth in paragraph 6. First, the placement
of the sentence, in the middle of paragraph 6 after the price
per ton calculations that are due for products mined from the
property, indicates that the language refers to those payment
calculations, and the “anything … herein” language refers to
“anything within this paragraph” not “anything within this
contract.” If the provision was meant to provide a minimum
payment due each year on the anniversary of the effective
date, one would expect that to be set forth separately.
Moreover, the language in the sentence provides for “an
annual minimum Production Royalty of $75,000.00” not “an
annual minimum payment” or even “an annual minimum
royalty payment.” Lease, ¶ 6. It is characterized as a “Produc‐
tion Royalty,” which is defined in that paragraph as a royalty
due for the tons of sand, stone and rock products mined from
the property. By its definition, then, it is inapplicable before
the mining commences. And the word “minimum” is not cap‐
italized when used in defining the payment (as opposed to in
the parenthetical when “Minimum Production Royalty” is
termed as the shorthand reference). Here, again, is the
No. 17‐2889 7
sentence as a whole: “Notwithstanding anything to the con‐
trary contained herein, Lessee shall pay to Lessor an annual
minimum Production Royalty of $75,000.00 (the “Minimum
Production Royalty”).” The uncapitalized word “minimum”
therefore is an adjective to the term “Production Royalty” in
the sentence, thus setting a minimum, or floor, for Production
Royalties in the paragraph. That interpretation is furthered by
the sentence that follows which makes clear that when the
Production Royalties fail to meet or exceed the Minimum Pro‐
duction Royalty as of the anniversary of the Effective Date,
then the difference between the two must be paid – language
which is consistent with the payment representing a floor for
Production Royalties. It is, as the last sentence explicitly
states, a “catch‐up payment” when the Production Royalties
do not meet expectations.
The structure of the rest of the lease furthers this reading
of the language. First, in the lease as a whole, separate pay‐
ments are set forth in separate paragraphs, with the Initial
Royalty Credit, Commencement Royalty Credit, and Produc‐
tion Royalties set forth in paragraphs 3, 5, and 6, respectively
(paragraph 4 is a nullity, stating only “Intentionally De‐
leted”). (It similarly sets forth a payment provision for prod‐
ucts mined elsewhere but transported over Pronschinske’s
property in paragraph 7.) It would be nonsensical to place a
minimum payment provision of $75,000—which exceeds
both the Initial Royalty Credit and Commencement Royalty
Credit in amount and applies each year rather than as a one‐
time credit – in the middle of a paragraph on Production Roy‐
alties when the other forms of payments are set forth in inde‐
pendent paragraphs.
8 No. 17‐2889
And it would render those credits relatively meaningless.
The Initial Royalty Credit and Commencement Royalty
Credit are “used to offset any future amounts and royalties
due Lessor from Lessee.” Lease , ¶¶ 3,4. If a minimum royalty
payment was paid annually, that offset would occur within
the year automatically, making the payments of minimal sig‐
nificance. Rather than a credit to the Lessor until mining be‐
gins, the credits would merely be a short‐term advance on the
minimum payment that would be paid within that year.
Moreover, that reading cannot coexist with the first sen‐
tence of paragraph 6, which states that a Production Royalty
of $1.50/ton should be paid for the first 65,000 tons of sand,
stone and rocks mined “in satisfaction of the offset require‐
ments for the Initial Royalty Credit and Commencement Roy‐
alty Credit,” and thereafter a royalty of $2.50 per ton is to be
paid. That paragraph therefore alters the payment of the
mined products by $1 per ton for the first 65,000 tons, thus
reducing the payments due to the Lessor by $65,000. That
$65,000 is the amount owed to offset the $20,000 Initial Roy‐
alty Credit and the $45,000 Commencement Royalty Credit;
yet if the Minimum Production Royalty applied as a mini‐
mum annual payment from year one, those credits would
have already been offset in the year that they were paid – by
deducting them from that Minimum Royalty Payment for the
year. Paragraph 6 sets forth that payment amount without ex‐
ception and without any provision for the possibility that
some of the credits would have been offset already, thus mak‐
ing clear that until that time the credits would not have been
offset by any other payments. That payment scheme is thus
inconsistent with a reading of the lease that would recognize
an annual minimum payment due from the start of the lease.
See DeWitt Ross & Stevens, S.C. v. Galaxy Gaming & Racing Ltd.
No. 17‐2889 9
Pʹship, 682 N.W.2d 839, 849 (Wis. 2004) (“[c]ontracts must be
read in such a manner as to give a reasonable meaning to each
provision and without rendering any portion superfluous.”)
Finally, paragraph 9 of the lease provides that: “[t]he roy‐
alties payable under paragraph 6 and paragraph 7 shall be
payable based on the removal from (or transportation across)
the Property.” That sentence creates no exception for the Min‐
imum Royalty Payment, and reinforces the reading of para‐
graph 6 as providing for a minimum payment only once prod‐
uct is mined from the property.
Accordingly, the district court properly held that Kaw
Valley did not owe any Production Royalty payments to
Pronschinske, and its determination is consistent with the
clear language and structure of the lease.
The decision of the district court is AFFIRMED.