Title: ACT I, LLC v. DAVIS

State: wyoming

Issuer: Wyoming Supreme Court

Document:

ACT I, LLC v. DAVIS2002 WY 18360 P.3d 145Case Number: 01-168Decided: 12/30/2002
OCTOBER TERM, A.D. 2002

                                                                                                

ACT 
I, LLC,

Appellant(Plaintiff),

 

v.

                                                                                                

CHARLES 
B. DAVIS, R. LEE TUCKER,

DNR 
OIL & GAS, INC., and TINDALL

OPERATING 
COMPANY,

Appellees(Defendants).

 

Appeal 
from the District Court of Campbell County

The 
Honorable Dan R. Price II, Judge

 
 

Representing 
Appellant:

Stephen 
H. Kline of Kline Law Office, P.C., Cheyenne, Wyoming; Anthony L. Leffert of 
Clanahan, Tanner, Downing & Knowlton, P.C., Denver, Colorado.  Argument by Mr. Leffert.

 
   

Representing 
Appellee:

Peter 
A. Bjork and David R. Little of Bjork, Lindley, Danielson & Little, P.C., 
Denver, Colorado; John M. Daley of Daly Law Associates, P.C., Gillette, 
Wyoming.  Argument by Mr. Little.

 
   

Before HILL, C.J., and GOLDEN, LEHMAN*, KITE, and VOIGT, 
JJ.

*Chief Justice at time of oral argument

 
 
     

GOLDEN, 
Justice.

 

[¶1]           
Appellees 
own working interests in various oil and gas leases located in the Powder River 
Basin of Campbell County, Wyoming.  
Appellant and Appellees entered into an agreement by which Appellant 
agreed to obtain financing for a project related to developing and working the 
mineral leases in exchange for the opportunity to buy a thirty-five percent 
share of the mineral leases.  
Appellant claims that it procured a suitable financing commitment and 
thereby fulfilled its obligation under the agreement.  Appellees, however, declined to finalize 
any financing agreement and refused to sell the thirty-five percent ownership 
interest in the mineral leases to Appellant.  Appellant sued for breach of contract, 
breach of the duty of good faith and fair dealing, and for specific 
performance.  

 

[¶2]           
Appellees 
moved for summary judgment, arguing the agreement was unenforceable due to the 
operation of the statute of frauds.  
The district court granted summary judgment to Appellees.  We find that, as a matter of law, no 
statute of frauds is applicable to the agreement.  We further find that issues of material 
fact exist regarding the interpretation of the agreement.  Summary judgment was inappropriate, and 
we remand this case back to the district court for appropriate further 
proceedings.

ISSUES

[¶3]           
Appellant presents two issues:

 
 
  

1.  Does Wyoming or Colorado law govern the 
rights of the parties to a contract entered into in the State of Colorado by 
Colorado residents dealing with the right to purchase and develop an interest in 
mineral properties located in the State of Wyoming?

2.  Was the written contract entered into between the parties, obligating 
Appellees to sell Appellants [sic] a 35% interest in certain coalbed methane 
leases upon the Appellants [sic] obtaining acceptable financing for the project, 
enforceable under Wyoming and Colorado law once the Appellees agreed to the 
financing?

 
      
           
           
           
      

Appellees respond with three issues:

 
 
   

1.  Do Wyoming conflict of law principles 
require application of Colorado law to Appellant's causes of action where the 
majority of significant factors related to the contract occurred in, or are 
connected exclusively with, Colorado?

2.  Does Colorado's credit agreement statute 
of frauds, Colo. Rev. Stat. § 38-10-124, bar Appellant's causes of action 
because it is undisputed that the DNR-Tindall Group never signed a writing 
accepting any of the proposed credit agreements?

3. 
 If Wyoming law applies, does 
Wyoming's statute of frauds, Wyo. Stat. Ann. § 1-23-105, bar Appellant's causes 
of action because the DNR-Tindall Group never signed a writing accepting the new 
condition in the proposed credit agreements requiring the DNR-Tindall Group to 
assign a real property overriding royalty interest to the proposed 
lender?

FACTS

[¶4]           
Appellee 
Charles B. Davis is the President of Appellee DNR Oil and Gas, Inc.   Appellee R. Lee Tucker is the 
President of Appellee Tindall Operating Company.  Appellees are all Colorado residents and 
Colorado corporations.  Appellant, ACT I, is a limited liability company doing business in 
Colorado.

 
 
           

[¶5]           
Appellees 
are the owners of a working interest in certain mineral leases in Wyoming.  This working interest includes the right 
to develop and produce coalbed methane natural gas.  Appellees ultimately decided they wanted 
to explore for, drill and gather the coalbed methane themselves.  To this end, on March 20, 2000, 
Appellees entered into a letter of intent (the "LOI") with Appellant.  Pursuant to the LOI, Appellant was to 
procure non-recourse financing for the project in exchange for a percentage 
ownership in the leases.  Some of the 
pertinent language from the LOI includes:

 
  
      

The 
parties agree to work together on a best efforts basis to arrange for the 
completion of the financing upon receipt of an acceptable financing 
commitment.

* 
* * *

. 
. . In exchange for ACT I's arranging financing for the Project, ACT I will 
purchase and DNR and Tindall will sell, a 35% proportionally reduced working 
interest participation in the [project] . . . .

. 
. . The Acquisition Price shall be due upon execution of definitive agreements, 
including, among other things, . . . financing documents for the 
Project.

* 
* * *

. 
. . [T]he parties understand and agree that the transactions contemplated by 
this letter are non-binding and subject to the following:

(a) Completion of definitive agreements incorporating the 
terms of this letter on or before April 20, 2000 which deadline shall 
automatically extend for successive 10 day increments until any party gives 
notice of its intent to terminate this Letter of Intent delivered to all parties 
at least two (2) business days prior to such termination.

 
 
            
           
              
              
  

On 
May 4, 2000, the parties entered into an agreement extending the duration of the 
LOI (the "Extension").  (Unless 
differentiated, further references to the LOI include both the LOI and the 
Extension.)  The 
Extension stated in pertinent part that ACT I had until May 20

 
    
        

in 
order to obtain financing arrangements for the Project and the 
parties.

* 
* * *

The 
parties agree to continue to work together on a best efforts basis to arrange 
for the completion of the financing upon receipt of an acceptable financing 
commitment.

* 
* * *

Upon 
receipt of an acceptable financing commitment, DNR, Tindall, and ACT I shall 
enter into definitive agreements to reflect the terms outlined in the Letter of 
Intent.

The parties understand and agree that the transactions 
contemplated by the Letter of Intent are subject to the following:
 
            
     

(a)  Obtaining of a financing commitment by 
May 20, 2000 with definitive agreements incorporating the terms of the Letter of 
Intent to be finalized by May 31, 2000.  
To the extent the financing commitment is 
received and the parties are working toward completion of the definitive 
agreements, the parties agree to automatically extend for successive 10 day 
increments the Letter of Intent until any party gives notice of its intent to 
terminate the Letter of Intent delivered to all parties at least two (2) 
business days prior to such termination.

 
            
           
            
              
            

Both 
the LOI and the Extension were drafted by Appellant.  Neither agreement contains a governing 
law provision.

 

[¶6]           
Appellant 
successfully negotiated a financing commitment from a lending institution.  Although disputed, there is evidence in 
the record indicating that Appellees orally accepted the terms of the proposed 
financing commitment.  Ultimately, 
however, Appellees decided they did not want to complete the deal and 
consequently never signed any loan documents.  

[¶7]           
Appellant 
believed that it successfully had completed its obligations under the LOI by 
procuring a financing commitment that Appellees accepted.  It demanded that Appellees allow it to 
purchase the thirty-five percent of the mineral leases to which Appellant 
alleged it was entitled under the terms of the LOI.  Appellees countered that they did not 
owe any duty under the LOI unless and until they accepted a financing commitment 
in writing.  Appellant brought suit 
against Appellees alleging breach of contract, breach of the covenant of good 
faith and fair dealing, and demanding specific performance.  

 

[¶8]           
Appellees 
answered, brought various counterclaims, and moved for summary judgment on all 
claims against them.  Appellees 
argued that, because of the operation of the statute of frauds, they needed to 
fully execute a written financing agreement before any other terms of the LOI 
could be legally enforceable against them.  
Wyoming and Colorado have different versions of a statute of frauds that 
might apply so much argument was presented on whether the Colorado or the 
Wyoming version applies.  The 
district court granted Appellees' motion for summary judgment, finding that 
enforcement of the LOI was barred by the operation of the statute of 
frauds.  The district court applied 
Colorado law but specifically held that the outcome would be the same even under 
Wyoming law.  

STANDARD 
OF REVIEW

[¶9]           
When 
we review the granting of a summary judgment, we employ the same standards and 
use the same materials as were employed and used by the trial court.  We examine the record from the vantage 
point most favorable to the party who opposed the motion, and we give that party 
the benefit of all favorable inferences that may fairly be drawn from the 
record.  Summary judgment is 
appropriate only when no genuine issue as to any material fact exists and the 
prevailing party is entitled to have a judgment as a matter of law.  A genuine issue of material fact exists 
when a disputed fact, if it were proven, would have the effect of establishing 
or refuting an essential element of the cause of action or defense which the 
parties have asserted.  We review a 
grant of summary judgment deciding a question of law de novo and afford no 
deference to the trial court's ruling.  
Bevan v. Fix, 2002 WY 43, ¶13, 42 P.3d 1013, ¶13 (Wyo. 2002); 
Hirschfield v. Board of County Comm'rs of Teton Cty., 944 P.2d 1139, 1141 
(Wyo. 1997).  The determination that 
a given agreement is within the statute of frauds is a question of law which we 
review de novo.  Maycock v. 
Maycock, 2001 WY 103, ¶12, 33 P.3d 1114, ¶12 (Wyo. 2001).

 

DISCUSSION

 

[¶10]      
The 
first issue presented by Appellant is too broadly phrased.  When parties dispute the applicable law, 
there must be an actual conflict between the laws or interests of Wyoming and 
the laws or interests of another state.  
In the absence of a conflict, there is no need for the court to engage in 
a conflict of laws analysis.  The 
existence of such a conflict can only be determined in the context of a specific 
law applied to a specific issue.  
15A C.J.S. Conflict of Laws, § 27 (2002).  As an example, the analytical approach 
to a conflict of law question has been described within the framework of the 
Restatement (Second) of Conflict of Laws as follows:  

The 
Second Restatement method is constructed around the principle that the state 
with the most significant contacts to an issue provides the law governing that 
issue. See [Ingersoll v. Klein,] 262 N.E.2d [593] at 594-95 [Ill. 
1970]. A court therefore conducts a separate choice-of-law analysis for each 
issue in a case, attempting to determine which state has the most significant 
contacts with that issue. International Adm'rs, Inc. v. Life Ins. Co. of 
North America, 753 F.2d 1373, 1376 n.4 (7th Cir. 1985). The 
Second Restatement enumerates specific factors that identify the state with the 
most significant contacts to an issue, and the relevant factors differ according 
to the area of substantive law governing the issue and according to the nature 
of the issue itself. See, e.g., Restatement (Second) at §§ 6, 145, 188. 
To properly apply the Second Restatement method, a court must begin its 
choice-of-law analysis with a characterization of the issue at hand in terms of 
substantive law. Id. at § 7. By prescribing this analytical approach, 
the Second Restatement follows the principle of depecage, which has 
been long applied in connection with various methods for choice of law. 
See Willis L.M. Reese, Depecage: A Common Phenomenon in Choice of Law, 73 
Colum. L. Rev. 58 (1973).

 
      
        

Ruiz 
v. Blentech Corporation, 
89 F.3d 320, 323-24 (7th Cir. 1996) (footnote omitted).  We agree that depecage is the 
proper approach to a conflict of law question.  We therefore will not answer Appellant's 
first issue as phrased because it is not for this Court to make an a 
priori determination as to the applicable law for all issues involved in 
this case.1

 

[¶11]      
The 
specific issue presented in this case is an alleged conflict between a statute 
of frauds in Colorado and a statute of frauds in Wyoming.  There is, however, no conflict to 
analyze under the facts of this case.  
The district court determined that, under both Colorado and Wyoming law, 
the applicable version of the statute of frauds renders the LOI 
unenforceable.  As discussed below, 
we find that neither statute of frauds applies to render the LOI 
unenforceable.  The outcome is the 
same regardless of whether we apply Wyoming or Colorado law, thus it is 
unnecessary to specifically discuss the Colorado and Wyoming statutes or engage 
in a conflict of law analysis to choose between the two.  When there is no conflict, the Court 
applies the law of the forum.  15A 
C.J.S. Conflict of Laws, §§ 27, 41 (2002); 16 Am. Jur. 2d Conflict of 
Laws § 85 (1998).

 
   

[¶12]      
With 
regard to the substantive issue, we believe the question can be answered by 
looking at the general application of a statute of frauds.  A statute of frauds is "[a] statute . . 
. designed to prevent fraud and perjury by requiring certain contracts to be in 
writing and signed by the party to be charged."  Black's Law Dictionary 1422 (7th ed. 1999).  The district court apparently reasoned 
that a statute of frauds applies to prevent the legal enforcement of the 
(written) LOI except upon the completion of a written financing agreement 
between Appellees and a lending institution.  We believe this is a misapplication of a 
statute of frauds.  

 

[¶13]      
It 
is undisputed that the financing agreement, and even the initial financing 
commitment, was never accepted in writing by Appellees.  Appellant is not, however, attempting to 
enforce any aspect of the financing agreement.  Appellant is attempting to enforce the 
LOI and its Extension, both of which are in writing and signed by 
Appellees.  We fail to see how any 
version of the statute of frauds logically applies to render the terms of the 
LOI legally unenforceable.  Summary 
judgment should not have been granted on the ground of the operation of a 
statute of frauds.  

 

[¶14]      
While 
we could end our discussion here, Appellant remarks upon one further finding 
made by the district court that, in the interest of judicial economy, we deem it 
expedient to address.  The district 
court found that the LOI was unambiguous and that "[a]s a condition precedent to 
any assignment of interest to the [Appellant], a financing arrangement 
acceptable to the [Appellees] was required to be produced by the [Appellant] and 
accepted by the [Appellees]."  We 
are unclear as to the significance of this finding.  It does not appear to constitute a 
separate and distinct ground for granting summary judgment, nor have Appellees 
argued such.  Appellant argues that, 
to the extent this finding suggests that written acceptance of a financing 
agreement was necessary to invoke Appellees' duties under the LOI, the finding 
is inappropriate because a clear factual dispute exists regarding the nature of 
this condition precedent.  

 

[¶15]      
The 
finding was specifically requested by Appellees in their motion for summary 
judgment.  Presumably, their intent 
was to obtain an interpretation from the district court that bolstered their 
theory that a written finalization of a financing agreement was a condition 
precedent under the LOI.  We do not 
interpret the finding in the order to support that position.  We agree with Appellant, however, that 
to the extent it does, it is mistaken.    

 

[¶16]  It is for the court to determine, as a matter of law, whether a contract 
is ambiguous.  Emulsified Asphalt, Inc., of Wyoming v. 
Transportation Comm'n of Wyoming, 970 P.2d 858, 864 (Wyo. 
1998) ("Whether a contract contains an ambiguity is a question of law for the 
reviewing court which may be independently determined by this Court.")  
 
Even a cursory review of the language of the LOI convinces us that 
the agreement is ambiguous.  

 

As 
we interpret the Agreement, we are mindful that our primary focus is the intent 
of the parties.  Wolter v. 
Equitable Resources Energy Co., 979 P.2d 948, 951 (Wyo. 1999) (citing 
Woods Petroleum Corporation v. Hummel, 784 P.2d 242, 243 (Wyo. 
1989)).  If the document is clear 
and unambiguous, we review the four corners of the Agreement to determine the 
parties' intent.  Sierra Trading 
Post, Inc. v. Hinson, 996 P.2d 1144, 1148 (Wyo. 2000).  Ambiguity is found if indefiniteness of 
expression or double meaning obscure the intent of the parties, though 
disagreement between the parties as to the Agreement's meaning does not give 
rise to an ambiguity.  
Wolter, 979 P.2d  at 951 (citing Svalina v. Split Rock Land and 
Cattle Co., 816 P.2d 878, 881 (Wyo. 1991)); Mathis [v. 
Wendling,] 962 P.2d [160] at 163-64.  

            

Hansen 
v. Little Bear Inn Co., 
9 P.3d 960, 964 (Wyo. 2000).  It is 
impossible to determine from the language employed in the LOI exactly how the 
parties intended this agreement to operate.  Reading the documents as a whole, many 
questions are raised.  For instance, 
what is meant by "best efforts?"  
What is meant by "arranging financing?"  Was anything in writing required?  At what stage?  What is the effect of the termination 
clauses?  The language of the LOI 
simply does not answer these questions or allow us to determine the intent of 
the parties at the time the LOI was made.  

 

[¶17]       Certain disputes are clear from the arguments of the parties.  Appellees contend that they owe no duty 
to fulfill any of their obligations under the LOI unless and until they formally 
execute a finalized, written financing agreement.2  Appellant argues that Appellees owed 
duties under the LOI as soon as they orally expressed agreement to the terms of 
a proposed financing commitment.  At 
a minimum, Appellant argues, Appellees owed a duty to use their "best efforts" 
to complete the financing agreement.  
While a disagreement between the parties regarding the interpretation of 
a contract does not automatically render the contract ambiguous, in this case 
the language of the LOI is indefinite enough to produce ambiguities.  The district court's finding that the terms of the 
LOI are unambiguous is incorrect. 

CONCLUSION

[¶18]       As a matter 
of law, the statute of frauds does not apply to legally render the LOI 
unenforceable.  The LOI as a whole 
is ambiguous with regards to the nature and timing of the obligations of the 
parties.  The grant of summary judgment is reversed and 
the case remanded for further proceedings.

 
    
         

FOOTNOTES

1The parties are, of course, free to present 
argument to the district court pertaining to any alleged conflict that may arise 
as the case continues upon remand.

 

2Appellees, at oral 
argument, seemed to suggest not a direct, but rather an indirect application of 
the statute of frauds.  Essentially, Appellees argued that the statute of 
frauds represents a public policy decision that, in order to be acceptable, a 
credit agreement such as that contemplated by the LOI, must be in writing.  
Appellees argued that this policy should supplement the language of the LOI, 
removing any potential ambiguity in the LOI regarding the necessity of a written 
financing agreement.  Because the decision of the district court was based 
upon a direct application of the statute of frauds, and not an interpretation of 
the LOI, this argument is not properly before us in this appeal.  It is for 
the district court, in the first instance, to determine the potential 
application and efficacy of this argument should Appellees choose to pursue it 
upon remand.