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Journey Acquisition-II, LP v. Eqt Production Co.

United States District Court, E.D. Kentucky, Southern Division, London

June 25, 2015

JOURNEY ACQUISITION-II, L.P., Plaintiff,
v.
EQT PRODUCTION COMPANY, Defendants.

MEMORANDUM OPINION & ORDER

GREGORY F. VAN TATENHOVE, District Judge.

This matter is before the Court upon the Motion of Plaintiff Journey Acquisition-II, L.P. (Journey) for Entry of Judgment and Proposed Findings of Fact and Conclusions of Law under Federal Rule of Civil Procedure 52 [R. 204], and for Defendant EQT Production Company (EQT)'s corresponding motion for entry of judgment in its own favor [R. 198].[1] For the reasons explained below, and the reasons explicated in the Court's most recent Memorandum Opinion in this case at Docket Entry No. 220, which is incorporated here by reference, Journey's motion will be GRANTED IN PART and DENIED IN PART.

I

A

This case arises out of a contractual dispute between Journey and Defendant EQT Production Company (EQT). In 2001, EQT and Journey entered into a contract by which EQT agreed to sell, lease, and otherwise transfer certain lands as well as certain interests in oil, natural gas, mineral rights, and related assets connected to several large tracts of land located in southeastern Kentucky - mainly in Letcher, Perry, and Leslie Counties. The parties dispute which property and interests were conveyed. The disputed properties include tracts of land that EQT owned, lands and interests that EQT leased from third-party owners, and several hundred existing wells and their associated equipment and operations. The Court has previously set forth the factual and procedural background of this case in its Memorandum Opinion and Order on the parties' summary judgment motions [R. 141] and in its Memorandum Opinion and Order denying EQT's post-trial motions [R. 220], both of which are incorporated here by reference.

After a week-long jury trial, the jury rendered a binding verdict rejecting EQT's affirmative defense of innocent trespass. The Court denied EQT's motion for judgment as a matter of law and for a new trial concerning that issue, and thus the Court will uphold the jury's verdict as to the issue of bad-faith trespass for the reasons set forth in the Court's previous opinion. [ See R. 220.] Concerning EQT's equitable defenses, however, the jury acted in an advisory capacity when it rejected the defenses of laches, waiver, and estoppel. Under Federal Rule of Civil Procedure 52(a), the Court must now enter its own findings of fact and conclusions of law concerning the advisory portion of the jury's verdict.

Federal Rule of Civil Procedure 39(c) provides that the court may use an advisory jury to try any issue not triable of right by a jury. Fed.R.Civ.P. 39(c). "It is within the discretion of the trial court to accept or reject the verdict of an advisory jury." Hyde Properties v. McCoy, 507 F.2d 301, 306 (6th Cir. 1974). When a jury acts in an advisory capacity, the court is not bound to accept the jury's verdict but is required to render its own findings of fact and state its conclusions of law. Fed.R.Civ.P. 52(a) ("In an action... with an advisory jury, the court must find the facts specially and state its conclusions of law separately."); Pennington v. Western Atlas, Inc., 202 F.3d 902, 906 (6th Cir. 2000) (quoting other cases citing Fed.R.Civ.P. 52(a)); see also Hickory Specialties, Inc. v. Forest Flavors Int'l, Inc., 215 F.3d 1326, *7 (6th Cir. May 19, 2000), unpublished decision (quoting Ellis v. Diffie, 177 F.3d 503, 505 (6th Cir. 1999)).

In doing so, the trial court's findings should be both "comprehensive and pertinent to the issues to provide a basis for decision." Deal v. Cincinnati Bd. of Ed., 369 F.2d 55, 63 (6th Cir. 1966) (internal quotation marks omitted); see also Wright v. General Motors Corp., 793 F.2d 1294 (6th Cir. 1986) (noting that "it is essential" that the court's "findings and conclusions be stated with sufficient detail to permit effective appellate review"). However, the trial court is "not required to prepare elaborate findings on every possible issue or contention raised at trial, " but rather should enter findings that are sufficient to support the court's ultimate conclusions. Deal, 369 F.2d at 63-64 (quoting other sources); see also Lopez v. Current Dir. of Tex. Econ. Dev. Comm'n, 807 F.2d 430, 434 (5th Cir. 1987) (explaining that Rule 52 "exacts neither punctilious detail nor slavish tracing of the claims issue by issue and witness by witness") (citation omitted). "[T]he judge need only make brief, definite, pertinent findings and conclusions upon the contested matters; there is no necessity for over-elaboration of detail or particularization of facts." Fed.R.Civ.P. 52 Notes of Advisory Committee on 1946 Amendments (citations omitted); see also Lesch v. United States, 612 F.3d 975, 981 (8th Cir. 2010) (explaining that Rule 52 "does not require explicit detail" but "only requires that the trial court set forth its reasoning with enough clarity that the appellate court may understand the basis of the decision") (internal citations and quotation marks omitted). Moreover, the trial court's findings of fact "must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court's opportunity to judge the witnesses' credibility." Fed.R.Civ.P. 52(d); see also Grover Hill Grain Co. v. Baughman-Oster, Inc., 728 F.2d 784, 792-93 (6th Cir. 1984) (explaining the deferential standard for reviewing the adequacy of the district court's findings in accordance with Rule 52).

Here, the jury concluded that each of EQT's equitable defenses failed. EQT now urges the Court to reject that advisory verdict and to find instead that Journey's claims against EQT are barred by estoppel, waiver, and laches. [R. 198-1 at 14-16.] In contrast, Journey moves the Court to make specific findings of fact and conclusions of law to adopt the advisory jury's verdict, and reject EQT's equitable defenses. [R. 205 at 9-12.] Because EQT has not established the necessary elements for any of these defenses, the Court will adopt the findings of the advisory jury and reject EQT's equitable defenses. In light of Federal Rule 52's mandate explained above, a summary of the Court's findings of fact and legal conclusions concerning EQT's equitable defenses follows.[2]

B[3]

1. As noted above, the factual and procedural background laid out in the Court's prior Memorandum Opinions at Docket Entry No. 141 and No. 220 are incorporated by reference.

2. This Court has already made and explained the following rulings when resolving the parties' motions for summary judgment: (a) EQT must convey to Journey all identified oil and gas interests (including the "Further Assurances Wells" and the "Further Assurances Leases") that lie within the geographic areas outlined on maps attached as Exhibit N to the Purchase and Sale Agreement (PSA), and in accordance with Section 18(a) of the PSA, because EQT is currently in breach of its contractual agreement to convey those properties; (b) the transaction documents of the PSA unambiguously conveyed to Journey all third-party leases described on Exhibit A to the "Master Assignment" of third-party leases to Journey, and leased to Journey all of EQT's fee properties as described on Exhibit A to the "2001 Lease"; (c) EQT's defense of mutual mistake fails as a matter of law, and therefore EQT's counterclaim for reformation of the contractual documents also fails; and (d) Journey was not required to drill a new well on any EQT fee property in order to hold a particular leased tract beyond the 2001 Lease's five-year primary term. [R. 141.]

3. In light of the above rulings, the Court determined that several issues were better left for trial - specifically, a) whether any of Journey's claims were barred by EQT's equitable defenses of laches, waiver, and estoppel; and b) whether EQT was a good-faith trespasser.[4] The resolution of these issues would affect final determination of whether EQT must pay Journey past revenues for trespassing wells for the entire period between July 2001 and the present, and whether Journey was also entitled to prejudgment interest on those revenues. EQT claimed that the defenses of laches, waiver, and estoppel applied to Journey's trespass claims, but raised only the defense of laches to Journey's claim that it should recover the net revenues from the eight Further Assurances Wells that EQT has been operating since July 1, 2001.

4. The jury trial in this matter began on September 8, 2014. Because the defenses of laches, waiver, and estoppel are equitable in nature, the jury acted only in an advisory capacity on those issues. On September 12, 2014, the jury rendered its verdict rejecting EQT's defense of good-faith trespass, and rendered an advisory verdict rejecting each of EQT's equitable defenses. After the conclusion of the trial, EQT moved for judgment as a matter of law in its favor and for a new trial. The Court has already made the following rulings concerning EQT's post-trial motions, which are further explained in the Court's Memorandum Opinion at Docket Entry No. 220: (a) the Court denied EQT's motion for judgment as a matter of law concerning the jury's nonadvisory verdict that EQT is a bad-faith trespasser; (b) the Court denied EQT's motion for a new trial; and (c) the Court upheld the jury's verdict concerning EQT's defense of good-faith trespass. Because the jury's verdict was only advisory concerning laches, waiver, and estoppel, the following factual findings relate primarily to the Court's determination to adopt the jury's advisory verdict that EQT failed to establish the necessary elements to prove its equitable defenses and to enter judgment in favor of Journey.

5. Journey's initial claim involved trespass wells that EQT had drilled on property that was assigned to Journey. During the course of discovery and Journey's internal investigations, Journey eventually discovered eight wells located within the blue boundaries on Exhibit N to the PSA that had not been conveyed to Journey, despite the language in Section 18(a). These wells are referred to herein as "the Further Assurances wells." These eight wells were already in existence when the parties entered into their 2001 agreement, and EQT continued to operate them after the July 1, 2001 effective date of the parties' transaction, even though they were located within the blue outlines on Exhibit N.

6. Section 18(a) of the PSA addressed omitted interests by specifying that if after the date of closing, it was discovered that any interests within the geographic area outlined in blue on the attached map (Exhibit N) had not been conveyed to the buyer, the seller shall convey such interest to the buyer for no additional consideration. Section 18, however, did not specify that either party had a duty to search for omitted interests within the blue boundaries, nor did it specify a timeline in which any omitted interests must be discovered. Therefore, Kentucky's fifteen-year statute of limitations for breach of contract applies to those interests by default.

7. Journey filed suit against EQT in 2012, and then amended its complaint twice in order to account for all eight Further Assurances wells. Thus, Journey did not make a formal demand for the Further Assurances wells until 2013.

8. At trial, the parties agreed that the Court should inform the jury that the parties had stipulated that for the purpose of any defense related to timing, including laches or limitations, Journey first took legal action on December 15, 2011. Tr. (Sept. 9, 2014) at 135.

9. Gregory Bird, president of Journey's affiliate Jetta Operating Company, testified at trial about the reasons why Journey did not discover the Further Assurances wells before 2012, and the business context for those reasons. Tr. (Sept. 9, 2014) at 114-46. In doing so, Mr. Bird described Journey's management structure, explained the inherent difficulties in identifying the exact leaseholds where wells were located given the geographical complications of the particular properties at issue, explained that Greg Shockley had not properly "mapped" the properties, stated that the actual decision-makers for Journey did not know that Shockley had failed to map the properties until after he resigned in 2009, and described the detailed research that was done after 2009, and especially after filing the instant lawsuit, to determine what Journey's rights actually were. Id. Although Mr. Bird admitted that he wished he had insisted that more detailed maps be prepared sooner or that a more systematic review on Journey's part of the conveyed properties had occurred, id. at 144-46, 149-53, the Court finds his explanation of the contextual difficulties in doing so persuasive and credible. The Court further finds that based on the testimony elicited by counsel for both parties, EQT as the operator of the Further Assurances wells was in the better position to determine that it had omitted to convey those wells to Journey. Id. at 143-60.

10. The testimony EQT elicited from Mr. Bird focused mainly on the length of time that had passed between the 2001 transaction and the lawsuit, Mr. Shockley's role within Journey, and the maps used in the Richardson Barr sales offering; but that testimony did not establish that Journey was required to find the Further Assurances wells, or that EQT took any actions other than continuing to operate those wells even after Journey filed the lawsuit and made a demand for them. Id. at 110-12, 148-60. EQT also did not present any evidence at trial or in post-trial motions showing that Journey's delay in demanding the Further Assurances wells caused EQT any particular prejudice, injury, or disadvantage. Id.

11. The Fordson Coal Company third-party lease was listed on Exhibit A of the Master Assignment. The Fordson Lease consists of 6, 333 acres in noncontiguous tracts of land across portions of Letcher, Perry, and Leslie Counties within the Commonwealth of Kentucky. Several portions of the Fordson Lease are located outside of the blue boundaries on Exhibit N to the PSA. The Court previously found that EQT had conveyed the leases listed on Exhibit A of the Master Assignment to Journey, including the Fordson Lease. One of Journey's claims in this lawsuit is that EQT trespassed on Journey's property by drilling a number of wells after 2001 on the Fordson Lease. These wells are referred to herein as "the Trespass Wells." In response, EQT argued that the defenses of laches, waiver, and estoppel barred Journey's trespass claims.

12. Greg Shockley was employed by a subsidiary of Journey (called Journey Operating, LLC), and he handled Journey's day-to-day operations in southeastern Kentucky, but he was not actually employed by Journey or by Journey's general partner. Tr. (Sept. 9, 2014) at 114-16, 148-49, 155-56. He did not have legal authority to sign or amend contracts, or to bind or commit Journey as a corporation, nor did he make decisions for Journey. Id. at 105, 114-16.

13. When Journey was preparing to sell some of its property in 2008, Journey discovered that Shockley had not done any of the "mapping" to verify the locations of all the properties conveyed to Journey in 2001 - specifically, that he had not actually mapped out the descriptions of the properties on Exhibit A to the Master Assignment. Id. at 119-24. Because Shockley never created actual lease maps or otherwise verified the 2001 conveyances, he incorrectly assumed that the Exhibit N map boundaries outlined the full extent of the conveyed properties. Id. at 120-25.

14. In 2006, Sam Smallwood, who was EQT's regional land director, id. at 172, 182, suspected a possible discrepancy within the 2001 transaction documents concerning the Fordson Lease, and he accordingly wrote a note to Michelle Weber, the contract administrator, to ask her about what was conveyed to Journey in 2001. Id. at 183-85. Ms. Weber wrote back saying that she thought the Fordson Lease had been conveyed to Journey from the surface to the base of the Devonian shale, id. at 218-19, and after further conversation with Weber and Lester Zitkus, Smallwood contacted Greg Shockley to ask his opinion. Id. at 183-85.

15. In the subsequent meeting between Smallwood and Shockley, Smallwood mentioned that there was some question as to what wells had been sold to Journey and that EQT was still operating certain wells on the Letcher County portion of the Fordson Lease. Id. at 186-88. Shockley orally indicated that he did not think those wells had been conveyed to Journey, but also said he would have to discuss the matter with his boss Brian Baer and get back to Smallwood about it.[5] Id. Smallwood testified several times that Shockley told him he would have to discuss it further with Mr. Baer, and thus it would have been unreasonable to assume that Shockley's opinion by itself was indicative of Journey's position or that Shockley had the authority to bind Journey to what he expressed as his own opinion. Id. at 187, 223-25, 232.

16. Smallwood's testimony also established that he was aware in 2006 of a possible discrepancy concerning the Fordson Lease and that there would need to be a corrective assignment of some kind to establish EQT's rights to it, yet EQT never obtained a corrective assignment, and Smallwood never followed up in writing with Shockley or Baer. Id. at 187-243. (Mr. Bird testified that these discussions between Shockley and Smallwood were never mentioned to him or to Mr. Baer. Id. at 124-25.) Although Mr. Smallwood testified that Shockley told him EQT should prepare some sort of agreement to correct any error in the PSA, Smallwood admitted that no such agreement was ever executed. Id. at 189.

17. Shockley also testified that he did not know of any document releasing Journey's rights in any part of the Fordson Lease, and indicated he did not remember any formal follow-up with EQT after his one meeting with Smallwood in August 2006. Tr. (Sept. 11, 2014) at 129-31. Despite the lack of follow-up to the 2006 conversation with Shockley, EQT drilled multiple trespass wells on the property in question. Tr. (Sept. 9, 2014) at 230-31. Upon the evidence presented, no one with the authority to legally bind Journey confirmed to Smallwood that Journey had no claim to the Fordson Lease, nor does this evidence establish that Journey relinquished its rights to the Fordson Lease.

17. In 2008, Shockley assisted in compiling the materials Journey used in offering several of its Kentucky properties for sale, and the sales brochure contained maps that had similar outlines as the Exhibit N maps because of Shockley's own assumption that those maps A, he would have known that what was actually conveyed was different from what he believed had been conveyed. Tr. (Sept. 11, 2014) at 120-21. showed the full extent of what Journey owned at that time. (Journey did not ultimately sell any of those properties.)

18. EQT received these sales materials in 2008, but counsel for EQT offered no evidence at trial that the sales materials caused EQT to rely on anything within the materials as a basis for drilling additional trespass wells on Journey properties. Moreover, EQT had already drilled twenty trespass wells by the time the sales materials were compiled in 2008, so the sales ...


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