NANCY F. ATLAS, SENIOR UNITED STATES DISTRICT JUDGE.
By Order [Doc. # 71] entered November 1, 2017, motions and other pretrial matters in this case were referred to United States Magistrate Judge Dena Palermo pursuant to 28 U.S.C. § 636(b)(1)(A) and (B). On June 28, 2018, Magistrate Judge Palermo issued a Report and Recommendation [Doc. # 163], recommending that this Court grant the Motion for Partial Summary Judgment filed by Defendant Marubeni Oil & Gas (USA), Inc. ("MOGUS") [Doc. # 92], grant the Motion for Summary Judgment filed by Plaintiff Total E&P USA, Inc. ("Total") as to MOGUS's unjust enrichment claim, and deny Total's Motion for Summary Judgment Regarding Contract Claims [Doc. # 97] and Motion for Summary Judgment Due to Prior and Complete Satisfaction of Decommissioning Obligations [Doc. # 98] in all other respects.
Total filed timely Objections [Doc. # 172] to the Magistrate Judge's Report and Recommendation, to which MOGUS filed a Response [Doc. # 178], and Total filed a Reply [Doc. # 179]. The Court has reviewed the Report and Recommendation, the evidence submitted in connection with the summary judgment motions,
Total's Objections regarding its contractual and subrogation liability for a share of decommissioning costs involve arguments presented to and rejected by the Magistrate Judge. Contrary to Total's arguments, the express terms of the CEPS Operating Agreement, settled legal principles concerning a party's retention of its obligations following an assignment, and the extensive body of case law involving predecessor decommissioning liability all demonstrate that Magistrate Judge Palermo's analysis and recommendation are well-reasoned and correct. Indeed, all relevant legal authority — as cited and fully discussed by Magistrate Judge Palermo in her Report and Recommendation — is contrary to Total's arguments regarding its liability for a share of the decommissioning costs.
Similarly, Magistrate Judge Palermo correctly analyzed the effect of the ATP bankruptcy on Total's obligation for a share of the decommissioning costs for the CEPS. The relevant documents in the bankruptcy proceeding, including the Bankruptcy Court's Final Order, demonstrate that MOGUS preserved and retained its rights against Total for a share of decommissioning costs. Agreements between ATP and MOGUS, limited to "as between themselves only," did not eliminate or otherwise restrict MOGUS's retained rights as to Total.
Total argues also in its Objections that there are issues that need to be resolved by a jury. Contrary to Total's position throughout the summary judgment briefing and argument, Total now suggests that the language in the CEPS Operating
Total argues that the value of the overriding royalty interest MOGUS received as part of the ATP bankruptcy settlement is a fact to be decided by the jury. As the Magistrate Judge noted, Total failed to present evidence in the summary judgment process to raise a genuine issue of material fact beyond mere speculation regarding the value of the royalty interest. Total had a full and fair opportunity to present evidence on this issue to the Magistrate Judge, but presented only evidence that was highly speculative and insufficient to raise a genuine issue of material fact to be submitted to a jury.
Total argues that if it retained obligations under the CEPS Operating Agreement, it also retained corresponding rights of notice and participation that MOGUS failed to observe. As explained fully and accurately by Magistrate Judge Palermo, Total's rights — unlike its obligations — under the CEPS Operating Agreement were extinguished upon its assignment of the agreement to ATP. Total had no rights to notice and participation, having assigned those rights to ATP.
The Court, based on its de novo review, agrees fully with Magistrate Judge Palermo's Report and Recommendation. The Report and Recommendation will be adopted as this Court's Memorandum and Order. Accordingly, it is hereby
Dena Hanovice Palermo, United States Magistrate Judge
Before the Court are the Parties' cross motions for summary judgment.
This dispute arises out of the liability for the decommissioning of three properties located in the Outer Continental Shelf ("OCS") in the Gulf of Mexico. This includes two oil and gas fields—Mississippi Canyon Block 305 ("MC 305") and Mississippi Canyon Block 348 ("MC 348")—and the Canyon Express Pipeline System ("CEPS") (collectively "the Assets") that connects these fields and others. Total filed a separate action as to each MC 305, MC 348, and CEPS. Total's action concerning CEPS is pending before this Court.
MOGUS asserts that Total is liable for its share of decommissioning costs incurred with respect to the Assets, and MOGUS seeks reimbursement of Total's share of the costs pertaining to CEPS in this case. Total has refused to pay, claiming that it is not liable under the respective Operating Agreements ("OAs") because it was no longer an owner at the time of abandonment and MOGUS already has been fully satisfied for any such costs from the third party who acquired Total's interests in the Assets.
From 1998 through 2006, Total owned interests in the three Assets: the MC 305, MC 348, and CEPS. ECF No. 97 at 9-10. The CEPS was constructed in 2002 to gather production from the Canyon Express fields (including MC 305 and MC 348) and deliver it to the Canyon Station production facility. ECF No. 92 at 10; CEPS OA, Ex. B-1 at 8, ECF No. 92-4; Ex. 2 at 3, ECF No. 120-2. The various Canyon Express lease owners agreed to jointly participate in the "ownership, operation, maintenance, use and abandonment" of CEPS. Ex. B-1 at 7, ECF No. 92-4. Total was one of the original owners of CEPS. Id.
Ownership in the Assets changed over time. ECF No. 92 at 11; ECF No. 97 at 10. In early 2006, MOGUS acquired its interests in the Assets while Total was the operator. ECF No. 92 at 12; ECF No. 97 at 9-10. A few months later, in July 2006, Total assigned its interests in the Assets to another energy company, ATP Oil & Gas Corporation ("ATP"). ECF No. 97 at 10. ATP replaced Total as the operator of CEPS. Id. The present owners of the Assets are MOGUS, ATP, and Black Elk Energy Offshore Operations, LLC ("Black Elk"). Id. Since its assignment to ATP, Total has not participated in the operation of the Assets. Id. at 11. In August 2012, ATP filed a petition under Chapter 11 of the United States Bankruptcy Code. Petition, No. 12-36187 (Bankr. S.D. Tex. Aug. 17, 2012), ECF No. 1. In February 2014, the bankruptcy court entered a Final Order approving the transfer to MOGUS of certain interests in the Assets ATP had acquired from Total. Ex. M, M-1, M-2, ECF Nos. 98-35, 98-36, 98-37.
The government required MOGUS to decommission the Assets. ECF No. 97 at 14. MOGUS performed the government-ordered decommissioning of the Assets, which has been completed pending final government approval. See ECF No. 92 at 23; ECF No. 120-2 at 7 ¶ 12. MOGUS has spent more than $215 million completing the decommissioning for all of the Canyon Express Assets, and $59.9 million for CEPS in particular. ECF No. 92 at 23-24; ECF No. 120-2 at ¶ 12.
The Parties entered three separate OAs, one for each Asset: (1) the Operating Agreement covering the Aconcagua Prospect Mississippi Canyon Area Block 305, dated effective May 1, 1998 ("MC 305 OA"); (2) the Offshore Operating Agreement covering Mississippi Canyon Area Block 348, dated effective May 1, 1998 ("MC 348 OA"); and (3) the Canyon Express Pipeline System Operating Agreement, dated effective June 1, 2000 ("CEPS OA"). ECF No. 97 at 12.
Total and the other original owners of the Canyon Express leases entered into the OAs to govern the parties' rights and obligations. E.g., Ex. B-1, ECF No. 92-4. In the CEPS OA, each of the owners is defined as a "Common System Owner." Id. at 7. The owners' "Equity Interest" in CEPS is weighted based on their respective ownership in the three Canyon Express fields, including MC 305 and MC 348. Id. at ¶ 1.11 & at Ex. B, ECF No. 92-4.
When MOGUS acquired its interests in the Assets, it likewise entered into these OAs. The Parties agree that they are both subject to the terms of these OAs, which govern their contractual relationship. ECF No. 97 at 12; ECF No. 102-1 at 3.
On January 31, 2014, more than a year after ATP filed for bankruptcy, MOGUS and ATP filed a Joint Motion,
In the Final Order, ATP and MOGUS agreed to establish an "Abandonment Fund." See Ex. 1 to Ex. M, M-1, ECF Nos.
ECF No. 104 at 12. In addition, "Bennu agreed to provide the other half of the ORRI directly to MOGUS."
Rule 56 of the Federal Rules of Civil Procedure provides for the entry of summary judgment against a party who fails to make a sufficient showing of the existence of an element essential to its case and on which it will bear the burden at trial. Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Curtis v. Anthony, 710 F.3d 587, 594 (5th Cir. 2013); Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994) (en banc). Summary judgment "should be rendered if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a); Celotex, 477 U.S. at 322-23, 106 S.Ct. 2548.
"Initially, the movant bears the burden of presenting the basis for the motion and the elements of the causes of action upon which the nonmovant will be unable to establish a genuine dispute of material fact." Stewart v. U.S. Bank Nat. Ass'n, 107 F.Supp.3d 705, 707 (S.D. Tex. 2015). "The burden then shifts to the nonmovant to come forward with specific facts showing there is a genuine dispute for trial. Id. "A dispute about a material fact is genuine if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Id. (internal quotation marks and citation omitted). The Court is not required to accept the nonmovant's conclusory allegations, speculation, and unsubstantiated assertions which are either entirely unsupported, or supported by a mere scintilla of evidence. Chaney v. Dreyfus Serv. Corp., 595 F.3d 219, 229 (5th Cir. 2010) (citing Reaves Brokerage Co. v. Sunbelt Fruit & Vegetable Co., 336 F.3d 410, 413 (5th Cir. 2003)); accord Little, 37 F.3d at 1075. "`[A] complete failure of proof concerning
Both Parties moved for summary judgment on the breach of contract claim. Total asserts that it is entitled to summary judgment in its favor because MOGUS cannot establish the existence of contractual obligations, an essential element of the claim. MOGUS seeks summary judgment, arguing that the OA is a valid contract, and Total is obligated to, but failed to pay for its share of the decommissioning costs. The Parties agree that the essential facts are not in dispute and that the Court can decide the contract issue as a matter of law. See, e.g., Boudreaux v. Unionmutual Stock Life Ins. Co. of Am., 835 F.2d 121, 123 (5th Cir. 1988) (the interpretation of an unambiguous contract presents a purely legal issue, well-suited for summary judgment); Steward v. Champion Int'l Corp., 987 F.2d 732, 734 (11th Cir. 1993) (citing Terry Cove North, Inc. v. Baldwin County Sewer Auth., Inc., 480 So.2d 1171, 1173 (Ala. 1985)) (construction of unambiguous contract is a question for the court).
Under general Alabama
Once Upon a Time, LLC v. Chappelle Properties, LLC, 209 So.3d 1094, 1097 (Ala. 2016) (citing Homes of Legend, Inc. v. McCollough, 776 So.2d 741, 746 (Ala. 2000)). If there is any ambiguity, a contract is to be construed against the party who drafted it. Daphne Auto., LLC v. E. Shore Neurology Clinic, Inc., 245 So.3d 599, 605-06 (Ala. 2017).
Under Alabama law, to prevail on a breach of contract claim, a party must prove: the existence of a valid contract, the party's performance, the other party's failure to perform, and resulting damages.
The Parties agree that the OA is a valid contract that controls this dispute. There is no dispute that MOGUS paid for decommissioning. The only dispute is whether Total breached any contractual obligations to pay for decommissioning and, if so, whether MOGUS suffered any damages.
At issue in this case are two provisions in the CEPS OA, one governing abandonment operations—or decommissioning —and one governing assignment.
Total asserts that there are no outstanding contractual obligations because it assigned its rights and obligations under the OA to ATP. Under the common law, the assignment of a contractual obligation does not relieve the assignor (Total) of that obligation unless there is a novation or an express release by the obligee (MOGUS) under the assigned contract (the CEPS OA). Indus. Dev. Bd. v. Russell, 124 So.3d 127, 135 (Ala. 2013). The Alabama Supreme Court had declared that, "upon assignment of a right, the assignor's interest in that right is extinguished; however
Under this general rule, Total's rights in the OA were extinguished upon its assignment to ATP.
There is no proof in the record that there was a novation, i.e., MOGUS and ATP entered into a new contract. Total does not argue there was a novation. To the contrary, Total points to evidence between it and ATP, showing that Total assigned its interest in CEPS to ATP and
Likewise, there is no proof in the record of an express release from MOGUS to Total. Total does not point to any release or argue that it obtained a release. In fact, MOGUS cites Total's corporate representative's deposition where he admits Total never asked for or obtained a release from MOGUS. ECF No. 92 at 29 (citing DeRidder Dep. 33:8-34:12, Ex. C, ECF No. 92-14).
Instead, Total argues in essence that the contract provides otherwise. Total argues that Article 11.3 controls government-mandated decommissioning and it allocates costs to the owners at the time of abandonment. Since it was no longer an owner at that time, having assigned its interest to ATP, Total claims it had no obligations to pay for decommissioning costs. ECF No. 97 at 26-27. MOGUS argues that Article 14.1 controls and expressly states that assignment does not relieve Total of its decommissioning obligations.
Absent a release or novation, Total remains liable for its contractual obligations after an assignment, unless the OA provides otherwise. Thus, the Court must construe the terms of that agreement.
Total relies on Article 11.3 of the CEPS OA, which provides:
Ex. K-1, ECF No. 97-25 (emphasis added); Ex. B-1, ECF No. 92-4.
Total asserts that MOGUS cannot establish an essential element of a breach of contract claim that contractual obligations exist under the OA. ECF No. 97 at 19. Total argues that the government ordered MOGUS to decommission the Assets and Article 11.3 controls government-mandated decommissioning of CEPS.
MOGUS relies on Article 14.1 of the OA, which provides:
Ex. K-1, ECF No. 97-25 (emphasis added); Ex. B-1, ECF No. 92-4 (emphasis added).
The express terms of Article 14.1 of the CEPS OA provide that a Common System Owner who assigns its interest remains liable for contractual obligations attributable to the period before the assignment, which include abandonment. Ex. B-1 at 56-57, ECF No. 92-4, Ex. K-1 at 17-18, ECF No. 97-25. This language appears to limit the common law rule which provides that the assignor remains liable for its obligations under the contract, apparently without respect to timing. This is significant for Total because the issue here turns on when the obligations for decommissioning arose under the contract. If the obligations did not arise before Total assigned its interest, under the OA it is not liable for decommissioning costs. If the obligations arose before the assignment, then Total is liable for decommissioning costs.
Total contends that the obligations did not occur until the government mandated decommissioning in 2014 and therefore the obligations had not arisen prior to the date it assigned its interest to ATP in 2006. ECF No. 97 at 21. Thus, Total argues that, because the obligations were not created under the OA before the assignment, it is not liable under Article 14.1, which does not in and of itself create any liability. Id. at 25-26.
In contrast, MOGUS asserts that the legal effect of Total's assignment was that Total's "rights under the CEPS OA were extinguished, but its duties owed under the contract were preserved." ECF No. 92 at
Although Total argues that no decommissioning obligations under the OA arose prior to it assignment, i.e., the obligations did not arise until the government ordered decommissioning, it does not have any legal authority to support that position. See ECF No. 92 at 6 n.2 (stating that no cases hold to the contrary of MOGUS' position). Instead, Total attempts to distinguish the regulatory obligations to the government from the contractual obligations to the co-owners. It cites to Fifth Circuit precedent for the proposition that the regulations create liability to the government and not to private parties. ECF No. 97 at 28 (citing Fruge ex rel. Fruge v. Parker Drilling Co., 337 F.3d 558, 563 (5th Cir. 2003) ("The regulations govern the parties' joint and several liabilities vis-a-vis the Government, not amongst themselves.")). The government has stated in the regulations and comments that, regardless of what the parties agree to in their contract, they remain liable to the government. Fruge, 337 F.3d at 563 n.5 & 6. Thus, parties will always be jointly and severally liable to the government for the cost of decommissioning, no matter what their contract provides, but they are free to reallocate the sharing of costs among themselves in their contract. Id. Total argues that Article 11.3 reallocated that sharing, limiting the obligations to owners at the time of decommissioning, which is when the contractual obligations arise.
The fallacy of Total's argument is that the government order to decommission the Assets did not create the obligations; it merely triggered them. Courts faced with this issue have found, implicitly or explicitly, that the decommissioning obligations arose when the well was spud or the pipeline was installed, which is consistent with when the obligations arise under the regulations.
In fact, recognizing the Fifth Circuit's holding in Fruge, one district court explained that "the regulations provide definitions regarding when obligations accrue." Nippon Oil, 2011 WL 2456358, at *4. Under the relevant regulations, the decommissioning obligations accrued "when [the party] drills a well; installs a platform, pipeline, or other facility...." Id. (discussing leasing regulations). Furthermore, the party jointly and severally retained decommissioning obligations to the government—with each current and prior owner holding an interest at the time the obligations accrued—regardless of its transfer of its interest or when the decommissioning occurred. Id. Recognizing that the parties could reallocate the obligations
In fact, as in the Anadarko case, Article 11.3 specifically refers to the decommissioning obligations as are required by law, not the OA: "The Operator shall conduct the abandonment of the Common System as required by law. ...." Ex. B-1 at 54, ECF No. 92-4 (emphasis added).
Total in effect argues that Article 11.3 limited the abandonment liability to the
This issue has arisen repeatedly in oil and gas contract disputes and the courts have consistently construed contracts with similar language to the OA at issue as not going as far as Total contends. See, e.g., Seagull, 207 S.W.3d at 345-47 (where contract provided that costs for abandonment would be shared according to owners' participating interest, but made no mention of release of the obligations after assignment, the general rule applies that assignor remains liable unless released by other parties to the contract).
Numerous courts have found that assignment, without consent to be relieved of liability, did not relieve the assignor of its liability for later incurred decommissioning costs. Id.; accord Chieftain Int'l, 553 F.3d at 819-20 (assignment of rights under oil and gas lease did not release obligations to pay portion of decommissioning costs to party who paid 100% of decommissioning costs) (Louisiana law); LLOG, 2016 WL 98618, at *6-7 (contract provided abandonment costs were to be shared according to the parties' participating interest and ownership transfers do not release a party from its obligations under the agreement; held prior owner, who had transferred rights to ATP, was responsible for decommissioning costs and transfer did not relieve it of its obligations under the operating agreement); Nippon Oil, 2011 WL 2456358, at *4 (assignor had continuing obligations to pay share of abandonment expenses that accrued prior to assignment) (Louisiana law); GOM Shelf, 2008 WL 901482, at *9-10 (contract provided assignor was not relieved of liabilities accruing prior to assignment without consent; held assignors had continuing obligations to pay share of abandonment expenses that accrued prior to assignment where there was no express or implied release of assignors' obligations) (Texas law).
In Seagull, the issue before the Texas Supreme Court was whether the sale of an oil and gas working interest, subject to an operating agreement, released the seller from any further obligations to the operator. The Texas Supreme Court concluded that the seller remained liable unless released by the operator or the terms of the operating agreement. 207 S.W.3d at 344. Because neither the operator nor the agreement expressly released the seller, the Texas Supreme Court found it was still liable. The language at issue in Seagull was virtually identical to the language in the MC 305 OA, which Total has admitted is similar to the CEPS OA. ECF No. 97 at 30-33. The key language there defined ownership in the lease the same way ownership is defined in the OAs for the Assets:
Seagull, 207 S.W.3d at 345. Likewise, the article governing abandonment imposed the sharing of costs based on the owners' Participating Interests:
Id. at 346. Like Total, the owner there argued that its obligations to reimburse the operator continued only so long as it owned an interest in the property. Because the owner had assigned its interest, it argued that it was released from any continuing obligations for future costs and expenses. The Supreme Court found that the owner
Here, Total's position is even more tenuous because the OA does explain the consequences of an assignment. The OA, in Article 14.1, relieves the assignor of future liabilities, but not of those liabilities existing prior to assignment. Based on the contract language and this precedent, the Court concludes that the language in Article 11.3 providing for cost sharing based on the ownership interests at the time of abandonment does not expressly negate— or release—the obligations that arose for decommissioning at the time the pipeline was installed. Therefore, as required under Article 14.1, the Court holds that Total remains liable for its proportionate share of the costs of decommissioning CEPS, and its assignment to ATP did not relieve it of those obligations.
With regard to MOGUS' damages, Total filed a separate motion for summary judgment, asserting that, even if Total did have contractual obligations to contribute to decommissioning costs, ATP's settlement in bankruptcy with MOGUS fully satisfied and extinguished Total's obligations. ECF No. 98; Tr. I 155:17-25, ECF No. 147; Hr'g Tr. Day 2 (Apr. 10, 2018) ("Tr. II") 40:10-13, ECF No. 149. Total further argues that, because ATP assumed —rather than rejected—the CEPS OA in bankruptcy, it agreed to continue performance and fully satisfied its decommissioning obligations. ECF No. 98 at 18. Total claims that ATP satisfied its decommissioning obligations, providing consideration valued in excess of $393 million, and MOGUS agreed to conduct the decommissioning operations. Id. at 23; Tr. II 39:8-13, ECF No. 149. This satisfied ATP's own regulatory and contractual obligations in full, and by operation of assignment, any obligations Total may have had. ECF No. 98 at 23-24.
MOGUS responds that neither ATP nor Total performed their obligations to pay a share of decommissioning costs, and that Total conflates the regulatory obligations to perform the decommissioning operations with the contractual obligations under the OA to pay a proportionate share of the decommissioning costs. ECF No. 104 at 6, 17. MOGUS argues that the Final Order did not extinguish MOGUS' claims against Total and it explicitly reserved MOGUS' rights against Total. Id. at 6. MOGUS contends Total's assignment to ATP, and ATP's assumption of the OA in bankruptcy, are immaterial. Id. at 26-28.
In bankruptcy, under 11 U.S.C. § 365, the debtor "may assume or reject any executory contract or unexpired lease" before the confirmation of a plan.
In re Penn Traffic Co., 524 F.3d 373, 378-79 (2d Cir. 2008) (citations omitted) (emphasis added).
Id. at 382 (citations omitted). "The Code provisions permitting a debtor to accept or reject an executory contract do not alter the parties' contractual rights. The terms of the contract are unchanged...." Id. at 383.
In this case, ATP assumed the CEPS OA. ECF No. 104 at 25. Accordingly, the contractual rights under the OA remain the same as they were before the bankruptcy.
As the moving party asserting an affirmative defense, Total has the burden to show that ATP fully paid the obligations.
In principle, MOGUS does not dispute that "[p]erformance by the obligor extinguishes the obligation." La. Civ. Code Art. 1854; see ECF No. 104 at 17. However, MOGUS disputes that the consideration it received from ATP constituted full performance, and that the settlement discharged any contractual obligations Total may have had because MOGUS expressly reserved its right to seek reimbursement. ECF No. 104 at 17, 20-21.
Total contends the consideration MOGUS received in the bankruptcy settlement should be valued at the time of settlement
This Court holds as a matter of law that the value of the ORRI is too speculative for a determination that it is in fact worth $381 million.
While case law valuing oil and gas royalties is scant, the Louisiana Third Circuit Court of Appeal has found valuation of prospective royalties to be too speculative to prove a claim for damages. Weaver v. Florida Expl. Co., 608 So.2d 1034, 1040 (La. Ct. App. 1992), writ denied, 612 So.2d 99 (La. 1993). In Weaver, the plaintiff sought reacquisition of oil, gas, and mineral leases it had assigned to Florida Exploration Company, which failed to develop the land as required under the leases. Id. at 1036-37. After succeeding on the merits, the plaintiff sought damages for an overriding royalty that had not materialized due to the defendant's failure to develop the land. Id. at 1040. The Louisiana Third Circuit Court of Appeal affirmed the district court's finding that the "overriding royalties have not been proven. There has been no offer to buy or sell, only the Petitioner's own estimate of what the royalty interest is worth. The value of such interest is thus speculative and uncertain." Id. Likewise here, Total's reliance on MOGUS' "estimate of what the royalty interest is worth" is speculative and uncertain, and therefore is insufficient to prove the ORRI was actually worth $381 million. Id.
In the damages context, "[o]ne of the fundamental rules of damages is that to be compensable they must be direct and reasonably certain, not remote and speculative." Deng v. Scroggins, 169 So.3d 1015, 1026 (Ala. 2014) (quoting Alabama Power Co. v. Alabama Public Serv. Comm'n, 267 Ala. 474, 478, 103 So.2d 14 (1958)). As applied here, whether the ORRI will ever yield income is not "reasonably certain," and the possibility that it will yield income in the future is too "remote" to establish that the actual value of the ORRI is $381 million.
In the cases Total cites to support its argument that ATP's performance extinguished its contractual obligations, there was full performance. See Rip Tide Inv'rs, Inc. v. W & T Offshore, Inc., No. 15-1656, 2017 WL 5472545, at *7 (W.D. La. Nov. 13, 2017) (full performance by sublessee extinguished obligations of sublessor); La. Farm Bureau Mut. Ins. Co. v. Thompson, 719 So.2d 427, 428 (La. 1998) (lessee's full performance under lease extinguished his own obligations as to both his lessor and lessor's insurer, but did not extinguish lessor's
Total cites to two Restatement provisions that also do not support a ruling in Total's favor. Section 293 of the Restatement provides:
Restatement (Second) of Contracts § 293 (emphasis added); see also id. at § 295(3) ("Any consideration received by the obligee for a contract not to sue one promisor discharges the duty of each other promisor of the same performance to the extent of the amount or value received.") (emphasis added). The Restatement establishes only that Total's contractual obligations would be extinguished if ATP fully performed. Since the Court holds as a matter of law that the consideration received was too speculative to value, Total has not established that ATP fully performed. The Restatement supports reducing, but not extinguishing, the amount Total owes.
Total also cites to an excerpt of Section 318 of the Restatement:
See ECF No. 98 at 24 n.13 (citing Restatement (Second) of Contracts § 318). Again, Total has failed to prove that ATP fully performed. Therefore, the Court concludes that Total has failed to establish that ATP's performance extinguished Total's contractual obligations.
Total argues in the alternative that, even if the consideration MOGUS received was not full performance, MOGUS accepted the consideration in full satisfaction of ATP's obligations and this extinguished any contractual obligations Total had. ECF No. 98 at 25-26; Tr. II 39:18-24, ECF No. 149. Total relies heavily on language in the Final Order that ATP "satisfied" or was able to fully comply with its decommissioning obligations,
Consent orders, like the agreed Final Order, are to be construed as contracts. Frew v. Janek, 780 F.3d 320, 327 (5th Cir. 2015); State ex rel. O'Dell v. Coker, 59 So.3d 670, 672 (Ala. 2010); see also Tr. II 117:5-8, ECF No. 149. "The legal effect of judgments or orders should be determined in the light of the literal meaning of the language used. Where that language is not ambiguous, it must be given its usual and ordinary meaning." Id. Additionally, courts should interpret a contract "to give effect and meaning to all of its terms." Once Upon a Time, LLC, 209 So. 3d at 1097 (internal citations omitted).
Here, the Final Order expressly states that the consideration ATP paid constituted partial performance:
Ex. M at 32 ¶ 64, ECF No. 98-35 (emphasis added).
In addition, the Final Order,
It is well established, including in Alabama, that a settlement with one party does not settle a dispute as to all parties where there has been a reservation of rights. See Johnson By and Through McGraw v. Collier, 567 So.2d 1311, 1312 (Ala. 1990) (a settlement agreement that expressly reserves one party's rights against a third party does not preclude that settling party from pursuing an action against the third party); Coleman v. Coleman, 566 So.2d 482, 485 (Ala. 1990) ("[I]f a [person] does not intend a release of all known claims, he or she could expressly reserve a ... claim from the settlement...."); Daugherty v. M-Earth of Alabama, Inc., 519 So.2d 467, 469 (Ala. 1987) (a settlement agreement that expressly reserves one party's rights against a third party does not preclude that settling party from pursuing an action against the third party); Am. Pioneer Life Ins. Co. v. Sandlin, 470 So.2d 657, 661-62 (Ala. 1985) ("[I]t is the right of the injured party to accept satisfaction in part from one tortfeasor, release him, and proceed against the other. Such release operates in favor of such other only as satisfaction pro tanto."
Thus, contrary to Total's argument that MOGUS accepted ATP's performance as full satisfaction, the lengthy reservation of rights language demonstrates the consideration MOGUS received was not in full satisfaction of ATP's obligations. To conclude that MOGUS accepted the consideration in full satisfaction of ATP's decommissioning obligations would render numerous provisions of the Final Order meaningless, contrary to general contract construction principles. The Final Order must be read as a whole, and the provisions must be read together. Stericycle, Inc. v. Patterson, 161 So.3d 1170, 1182-83 (Ala. Civ. App. 2013) ("Separate provisions of judgments, like provisions of contracts, should be construed in pari materia,
In its reply, Total contends the reservation provisions only preserved MOGUS' "rights to seek reimbursement;" they did not substantively preserve any rights MOGUS may have because the bankruptcy court had no jurisdiction to adjudicate such issues. ECF No. 132 at 24. The Final Order provided that it did not substantively determine any such rights;
To the extent there is any ambiguity as to whether MOGUS reserved its rights against Total in the Final Order—which there is not—the Court may consider the circumstances of the agreement to the Final Order and extrinsic evidence. Under Alabama law, "[t]he true rule of interpretation of contracts is to make them speak the intention of the parties as at the time they were made." Once Upon a Time, LLC, 209 So. 3d at 1099 (citation omitted) (emphasis in original). If contract terms are ambiguous, the court may consider "parol evidence to determine the intention of the parties." Seymour v. Seymour, 241 So.3d 733, 744 (Ala. Civ. App. 2017). "When the examination `must go beyond the four corners of the agreement in construing an ambiguous agreement, the surrounding circumstances, including the practical construction put on the language of the agreement by the parties to the agreement, are controlling in resolving the ambiguity.'" ADTRAV Corp. v. Duluth Travel, Inc., No. 2:14-CV-56, 2016 WL 4614842, at *18 (N.D. Ala. Sept. 6, 2016) (quoting Voyager Life Ins. Co., Inc. v. Whitson, 703 So.2d 944, 949 (Ala. 1997)) (applying Alabama law).
In addition, "releases ... and all judgments entered pursuant to pro tanto settlements, must have effect according to their terms and the intentions of the parties thereto." Ala. Code § 12-21-109. The Supreme Court of Alabama has affirmed that express reservations of rights are to be given effect.
Am. Pioneer Life Ins. Co., 470 So. 2d at 661 (quoting Steenhuis v. Holland, 217 Ala. 105, 107, 115 So. 2, 3 (1927)); see also Irvin v. Griffin Corp., 808 F.2d 802, 804-05 (11th Cir. 1987) (applying Alabama law) ("[A] release, which has as its intent the
The reservation of rights language in the Final Order was unambiguous and the Court need not go beyond the four corners of the Final Order to conclude it preserved MOGUS' rights against Total. However, even if the reservation of rights language in the Final Order was ambiguous, evidence of the circumstances of negotiation of the Final Order provides further support that the parties intended to preserve their pre-existing contractual obligations and compels the same outcome.
At the time the Final Order was entered, the government had not yet ordered decommissioning for CEPS.
Both parties moved for summary judgment on MOGUS' claim for subrogation. Total argues, under the theory of subrogation, that ATP satisfied its own regulatory obligations for MC 305 and MC 348, and MOGUS voluntarily satisfied its regulatory obligations for CEPS.
MOGUS argues that MOGUS, ATP, and TOTAL were all jointly and severally liable to the government for decommissioning, and MOGUS was the sole party to perform those operations. ECF No. 92 at 34; ECF No. 104 at 28, 31. MOGUS further asserts that its satisfaction of this common liability entitles it to recover contribution from Total. ECF No. 92 at 35; ECF No. 104 at 28. In addition, it argues that the bankruptcy did not affect MOGUS' claims against Total and these were expressly reserved in the Final Order.
Under Alabama law, "[t]he right of contribution arises, as against noncontributing co-obligors, when one or more of the co-obligors satisfies and procures a discharge of the common obligation."
Total contends that MOGUS is not entitled to subrogation because it fulfilled its own decommissioning obligations rather than "stand[ing] in the[ ] shoes" of another, Perkins v. Scaffolding Rental & Erection Serv., Inc., 568 So.2d 549, 551 (La. 1990), and "perform[ing] the obligation of another," La. Civ. Code Art. 1826. Total's argument that MOGUS was conducting its own decommissioning obligations because it assumed the CEPS ROW from ATP ignores the fact that ATP did not assign its contract rights in CEPS to MOGUS. ATP retained its 25.834% interest in CEPS. ECF No. 92 at 17; ECF No. 104 at 26; Ex. 3 to Ex. M-2 at 19, ECF No. 98-37. Therefore, because ATP retained its ownership interest in CEPS, MOGUS performed ATP's decommissioning obligations.
All parties who accrue decommissioning obligations to the government remain liable to the government. See supra, § III.A.2. While MOGUS may have extinguished all of their regulatory obligations to the government to conduct decommissioning operations, Tr. II 54:10-19, 55:21-23, ECF No. 149, there still remained separate contractual obligations to contribute to the decommissioning costs. Under the case law and OA, Total's assignment to ATP did not relieve it of the contractual decommissioning obligations because they accrued before the assignment, when the pipeline was installed. Because the consideration MOGUS received from ATP did not constitute full performance, or otherwise extinguish those contractual obligations, MOGUS' motion for summary judgment on subrogation from Total should be granted.
The OA provides MOGUS with an independent basis for contribution.
Ex Parte Diamond, 596 So. 2d at 425-26 (internal citations omitted).
Total further argues that since MOGUS received "substantial consideration ... valued at more than $393 million, far in excess of actual decommissioning costs—ATP can hardly be considered a `non-contributing co-obligor.'" ECF No. 98 at 35 n.23. However, Total's argument fails since, as established above, the value of the ORRI MOGUS received was speculative. Although BP and Marathon (ATP's predecessors) and Nippon (Black Elk's predecessor) have paid MOGUS their proportionate shares of ATP's and Black Elk's proportionate share of decommissioning costs for CEPS,
Total moved for summary judgment on MOGUS' unjust enrichment claim, arguing that MOGUS' unjust enrichment claim fails as a matter of law because a contract governs the parties' dispute. ECF No. 98 at 36-37. Under Alabama law, "[t]he existence of an express contract extinguishes an unjust enrichment claim altogether because unjust enrichment is an equitable remedy which issues only where there is no adequate remedy at law," e.g., no express contract exists. See Univalor Tr., SA v. Columbia Petroleum, LLC, 315 F.R.D. 374, 382 (S.D. Ala. 2016). "The important question is whether another remedy is available, not whether the party seeking a remedy will be successful." Ferrara Fire Apparatus, Inc. v. JLG Indus. Inc., 581 Fed. Appx. 440, 443-44 (5th Cir. 2014). "[I]t is not the success or failure of other causes of action, but rather the existence of other causes of action [at law], that determine whether unjust enrichment can be applied." Id. at 444 (quoting Garber v. Badon & Ranier, 981 So.2d 92, 100 (La. Ct. App. 2008), writ denied, 992 So.2d 943 (2008)) (emphasis in original).
Certainly MOGUS is permitted to plead alternative theories. Bujalski v. Kozy's Restaurant, Inc., No. 7:13-CV-1446, 2015 WL 12839231, at *7 n.8 (N.D. Ala. May 5, 2015) (denying a motion to dismiss alternatively plead unjust enrichment claim, but noting that "[i]f the plaintiffs prevail on their breach of contract claim, they cannot recover under ... unjust enrichment...."). The evidence demonstrates, however, that the OA governs the parties' dispute and dismissal on summary judgment is appropriate. Because a claim for unjust enrichment is not available where an express contract applies, Total's motion for summary judgment on MOGUS' unjust enrichment claim should be granted.
The Court recommends that:
Signed at Houston, Texas, on June 28, 2018.
Article 18.4 of the MC 305 OA provides:
Ex. I-2, ECF No. 97-15 (emphasis added).
Article 18.5 of the MC 348 OA provides:
Ex. J-2, ECF No. 97-21 (emphasis added).
Article 24.1.4 of the MC 305 OA provides:
Ex. I-3, ECF No. 97-16.
Article 24.1.1 of the MC 348 provides:
Ex. J-3, ECF No. 97-22.
Ex. V. at 9, ECF No. 98-50. MOGUS objects to Total's reliance on the report as hearsay. ECF No. 104 at 15 n.37. Total contends it is admissible as a party admission. ECF No. 132 at 14 n.18. The Court need not rule on its admissibility because the report is insufficient evidence as a matter of law.
"Moreover, nothing contained in this [Final Order] shall: (a) alter, define, diminish, waive, relinquish, amend, bind, restrict, impair, enjoin or adjudicate the rights, including but not limited to the rights to seek reimbursement, contribution and/or subrogation, claims, actions, defenses, remedies, or interest of MOGUS, BP and/or Total under the Kings Peak Leases and the MC 305 and MC 348 leases, the Operating Agreements, or any related contracts, whether at law or in equity including, but not limited to, responsibility for claims regarding ATP's share of lease obligations including Decommissioning expenses, .... All such rights as between MOGUS, BP and Total are expressly reserved, preserved and/or maintained without prejudice." Id. at 31 ¶ 63. "MOGUS and ATP acknowledge and agree that this MOGUS order and the Agreements are without prejudice as to any of the respective rights, claims, actions, defenses, remedies, and responsibilities of and will not impair BP's or Total's including to the extent they may be Third Party Obligors, ability to complete or perform any Decommissioning ordered by BSEE [the Bureau of Safety and Environmental Enforcement], with all such rights, actions, claims, defenses, remedies, and interests being fully reserved." Id. at 32 ¶ 65.
