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L.P. v. Chesapeake Energy Corp.

United States Court of Appeals, Fifth Circuit

February 15, 2018

FORT WORTH 4TH STREET PARTNERS, L.P.; KSM MINERALS, L.L.C.; MOJITO ENERGY, L.L.C.; 4TH STREET MINERALS, L.L.C.; REILLY FAMILY MINERALS, L.L.C., Plaintiffs-Appellants
v.
CHESAPEAKE ENERGY CORPORATION; CHESAPEAKE OPERATING, L.L.C.; CHESAPEAKE EXPLORATION, L.L.C., as Successor by Merger to Chesapeake Exploration, L.P.; CHESAPEAKE LAND COMPANY, L.L.C.; CHESAPEAKE EXPLORATION, L.P., Defendants-Appellees

         Appeal from the United States District Court for the Northern District of Texas

          Before DENNIS, CLEMENT, and GRAVES, Circuit Judges.

          JAMES L. DENNIS, CIRCUIT JUDGE.

         Fort Worth 4th Street Partners, L.P. (FWP) and its designees brought suit against Chesapeake Exploration, L.L.C. (Chesapeake) and related entities to recover payment allegedly due under a provision of a Surface Use Agreement governing Chesapeake's use of FWP's land. Before this payment came due, FWP sold the surface of this land to Chesapeake Land Company, L.L.C. The district court determined that the payment provision was a covenant that ran with the surface of the land and that FWP accordingly forfeited the benefit of this covenant when it sold that land. We AFFIRM the judgment of the district court.

         I

         In 2005, FWP leased mineral rights in a plot of its land ("FWP Lands") to Dale Resources, L.L.C., Chesapeake's predecessor in interest. Contemporaneously, the parties entered into a Surface Use Agreement (SUA) governing Dale's use of the surface of the FWP Lands while conducting oil and gas operations. Paragraph 17 of the SUA included a payment provision that stated:

On or before the expiration of six (6) years from the date of this Surface Use Agreement (the "Damage Payment Date"), the Working Interest Owner shall pay to the Surface Owner a sum equal to Six Dollars ($6.00) per square foot (the "Base Price") for each square foot included in an Operation Site, the Central Facility, the Water Supply Pit and all roads and pipeline easements appurtenant to any of the same (collectively the "Occupied Lands"); provided, however, if, before the Damage Payment Date, Working Interest Owner has drilled and completed at least eight (8) wells on and from an Operation Site, then the "Base Price" shall be reduced from Six Dollars and No/100 ($6.00) per foot to Three Dollars and No/100 ($3.00) per foot.

         In the subsequent and final section, the SUA additionally established that: "[t]he terms, provisions and conditions hereof shall be covenants running with land and shall be binding upon and inure to the benefit of the Working Interest Owner, the Surface Owner, and each of their respective successors, legal representatives, heirs, assigns, lessees, and sublessees."

         Subsequently, Chesapeake succeeded to Dale's interest in the mineral lease and the SUA. Then, in 2007, before the "Damage Payment Date, " established in Paragraph 17, FWP sold the entirety of the surface of the FWP Lands to Chesapeake Land Company L.L.C., a related entity, for approximately $34 million. In the real estate agreement, FWP expressly reserved its mineral rights, but otherwise conveyed the surface "together with all improvements and fixtures thereon and all rights, privileges, easements, benefits and agreements appurtenant thereto." In connection with the sale of the FWP Lands, FWP and Chesapeake entered into a Master Amendment to amend the lease and SUA to accord with Chesapeake's ownership of the surface rights. Among other amendments, the Master Amendment made the following change to the SUA:

Elimination of Surface Use Restrictions. . . . FWP shall no longer be entitled to restrict or limit where or how operations for drilling, operation and producing oil, gas or other minerals under the Lease are conducted. Therefore, any provision of the Surface Agreement which purports to limit or restrict the "Working Interest Owner's" right to enter upon or use any surface of the FWP Lands are hereby deleted and terminated, including, but not limited to Paragraphs 1 through 13.

         The Master Amendment also reiterated: "The terms, provisions, covenants, and conditions" of the SUA "are intended to be, and shall be deemed to be covenants running with the FWP Lands." Finally, this document included a "Non-Merger Clause" that stated: "The parties hereto acknowledge and agree that the terms and provisions of the Lease, the [SUA], and the Joint Operating Agreement, as amended, shall remain in full force and effect."

         In 2014, three years after the "Damage Payment Date" in Paragraph 17, FWP brought the instant lawsuit against Chesapeake and related entities asserting multiple breach-of-contract claims. The parties settled all claims except FWP's claim for payment of $2, 503, 346.85 under Paragraph 17, on which the parties filed cross-motions for summary judgment. The district court granted summary judgment to Chesapeake, holding that Paragraph 17 created a covenant that ran with the land and, alternatively, that the Master Amendment's deletion of terms essential to calculate the amount of payment rendered the provision indefinite and thus unenforceable.

         II

         We review a district court's grant of summary judgment de novo. Johnson v. World All. Fin. Corp., 830 F.3d 192, 195 (5th Cir. 2016). The determination that a contract is unambiguous and the interpretation of that contract are legal questions also reviewed de novo. Clardy Mfg. Co. v. Marine Midland Bus. Loans Inc., 88 F.3d 347, 352 (5th Cir. 1996). The parties agree that Texas contract and property law govern FWP's claim. See, e.g., Gasperini v. Ctr. for Humanities, Inc., 518 ...


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