Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-01067/USCOURTS-ca10-90-01067-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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PUBLISH 

FILED 

United States Court of Ap~lG Tent.'i Circuit 

UNITED STATES COURT OF APPEALS AUG 3 0 1991 

TENTH CIRCUIT 

NORTHWEST CENTRAL PIPELINE CORPORATION, ) 

renamed WILLIAMS NATURAL GAS COMPANY, ) 

Plaintiff-Appellant, 

v. 

JER PARTNERSHIP; ELLIS PETROLEUM 

CORPORATION, INC.; YUMA COUNTY OIL 

CORPORATION, INC.; PRIMA ENERGY 

CORPORATION; ALPAR RESOURCES, INC.; 

TALUS PROPERTIES LTD.; JOHN P. 

LOCKRIDGE 

Defendants-Appellees. 

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NORTHWEST CENTRAL PIPELINE CORPORATION, 

renamed WILLIAMS NATURAL GAS COMPANY, 

Plaintiff-Appellee, 

v. 

JER PARTNERSHIP; YUMA COUNTY OIL 

CORPORATION, INC., 

Defendants-Appellants, 

and 

ELLIS PETROLEUM CORPORATION, 

Defendant. 

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ROBERT L. HOECKER 

Clerk 

No. 90-1067 

No. 90-1090 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF COLORADO 

(D.C. NO. 85-N-631) 

Appellate Case: 90-1067 Document: 01019762492 Date Filed: 08/30/1991 Page: 1 
John T. Schmidt of Hall, Estill, Hardwick, Gable, Golden & Nelson, 

P.C., Tulsa, Oklahoma (C. Kevin Morrison and Wade R. Wright of 

Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., Tulsa, 

Oklahoma; Michael S. McCarthy and Catherine A. Lemon of Faegre & 

Benson, Denver, Colorado; and Lewis A. Posekany, General Counsel 

of Williams Natural Gas Company, Tulsa, Oklahoma, with him on the 

briefs), Attorneys for Plaintiff. 

Theodore M. Smith, Denver, Colorado (Barry w. Spector, Denver, 

Colorado, with him on the briefs), Attorneys for Appellees/CrossAppellants, Yuma County Oil Company and JER Partnership. 

Gary c. Davenport of McGloin, Davenport, Severson and Snow, 

Denver, Colorado (Eric A. Beltzer of McGloin, Davenport, Severson 

and Snow, Denver, Colorado; William F. Demarest, Jr. of Holland & 

Hart, Washington, D.C., with him on the briefs), Attorneys for 

Appellees, Prima Energy Corporation, Alpar Resources, Inc., Talus 

Properties Limited Partnership, and John P. Lockridge. 

Before ANDERSON, MCWILLIAMS, Circuit Judges, and ALLEY,* District 

Judge. 

ANDERSON, Circuit Judge. 

* Honorable Wayne E. Alley, United States District Judge for 

the Western District of Oklahoma, sitting by designation. 

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Appellate Case: 90-1067 Document: 01019762492 Date Filed: 08/30/1991 Page: 2 
Williams Natural Gas Company ("Williams") appeals a district 

court order granting judgment to defendant/appellees. We affirm. 

BACKGROUND 

This dispute involves the interpretation of three long-term 

natural gas purchase contracts. Williams operates an interstate 

natural gas pipeline. In 1982, Williams 1 entered into a series of 

contracts to purchase natural gas from producers in Yuma County, 

Colorado. The three contracts in dispute here are with Yuma 

County Oil Company ("Yuma"), JER Partnership ("JER"), and a 

collection of entities referred to as "the Lockridge Group" (Alpar 

Resources, Inc., Talus Properties Limited Partnership, and John P. 

Lockridge). Each of the contracts is a "take-or-pay" agreement 

for a term of twenty years. 

When the contracts were executed, the gas involved was price 

regulated under the Natural Gas Policy Act of 1978 ("NGPA"), 15 

u.s.c. § 3301, et. seq. Almost all of the wells covered by the 

contracts produce gas from the Niobrara formation, a designated 

"tight formation" for purposes of special incentive pricing under 

§ 107 of the NGPA, 15 U.S.C. § 3317. See 18 C.F.R. 

§ 271.703(d)(20). 2 On January 1, 1985, the§ 107 gas involved in 

1 During the period relevant to this litigation, Williams was 

also known as Cities Service Gas Company and Northwest Central 

Pipeline Company. As a result, the record often refers to 

Williams under one of these other names. We uniformly use the 

appellant's current company name. 

2 Two of the 74 wells producing gas involved in the contracts 

are "stripper wells," regulated under section 108 of the NGPA, 15 

u.s.c. § 3318. 

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Appellate Case: 90-1067 Document: 01019762492 Date Filed: 08/30/1991 Page: 3 
the contracts became deregulated pursuant to § 121 of the NGPA. 

See Northwest Central Pipeline Corp. v. Mesa Petroleum Co., 643 F. 

Supp. 280 (D. Colo. 1986). 3 On January 4, 1985, Williams wrote 

each of the appellees and informed them that, pursuant to deregulation, Williams was exercising its contract right to "market out" 

of the agreements. The appellees disputed the existence of any 

such right to withdraw from the contracts, and this litigation 

ensued. 

The contract language at issue is found in Section 3, which 

provides as follows: 4 

3. Price 

For all gas received by Bonny for the account of 

Buyer under this Contract less Seller's gas used by 

Bonny as compressor fuel, Buyer shall pay Seller by 

check on or before the 25th day of the next calendar 

month succeeding each Fiscal Month in which such gas had 

been delivered, the applicable one of the following 

prices for the gross heating value thereof as determined 

pursuant to Section 4 (g): 

(a) For gas received during the month of January, 

1982, the price shall be three dollars and three tenths 

cents ($3.003) per million (1,000,000) Btu's. 

(b) For gas received during each succeeding month 

thereafter, the price per million (1,000,000) Btu's 

shall be the applicable maximum lawful price determined 

in accordance with the Natural Gas Policy Act of 1978, 

as such price may be revised from time to time by the 

Federal Energy Regulatory Commission. 

3 The gas from the two stripper wells also became deregulated 

the same day. See FERC v. Martin Exploration Management Co., 486 

U.S. 204 (1988). 

4 Recited is the actual language of the Lockridge contract. 

Minor differences in the other contracts are insignificant to this 

litigation. 

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Appellate Case: 90-1067 Document: 01019762492 Date Filed: 08/30/1991 Page: 4 
(c) Notwithstanding anything herein to the 

contrary, it is agreed that if the Federal Energy 

Regulatory Commission as heretofore defined is 

exercising pricing jurisdiction over the gas purchased 

and sold hereunder, the price to be paid for such gas 

shall be equal to the applicable maximum lawful rate 

approved by such authority. If such authority shall at 

any time or from time to time authorize, prescribe, 

approve or permit a maximum lawful price or prices, 

however determined, applicable to the gas being sold and 

delivered hereunder, which is higher than the price 

otherwise applicable hereunder, then the price for gas 

sold hereunder shall be increased to equal such higher 

maximum lawful price effective as of the date such 

authority allows the same to become effective. Whenever 

the provisions of Paragraph (c) or (d) of this Section 

effectuate an increase in price, such increased price 

including any adjustments, reimbursements and/or 

escalations shall thereupon be substituted for and 

become the applicable Contract price hereunder. 

(d) In the event the regulation of the price at 

which natural gas is sold ceases in whole or in part, or 

is modified, so as to allow for the sale of gas 

hereunder at redetermined prices, then Seller shall have 

the right to request a redetermination of the price at 

which natural gas is to be sold hereunder. Any such 

request shall be made in writing and shall in the first 

instance be made during the six (6) month period 

immediately following the effective date of such 

deregulation and subsequently at any time during the six 

(6) month period preceding each yearly anniversary of 

the effective date of such deregulation. The 

redetermined price, including tax reimbursement, to be 

paid during each such period shall be the arithmetic 

average of the two (2) highest prices then being paid by 

two different gas transmission companies pursuant to 

contracts for gas of substantially the same quality and 

quantity, and produced within the Denver Julesburg 

Basin, plus the escalations and reimbursements provided 

for therein. The redetermined price will become 

effective in the first instance on the effective date of 

deregulation and subsequently on each yearly 

anniversary date of such deregulation, but in no event 

shall the redetermined price result in a price which is 

less than five dollars and fourteen and four-tenths 

cents ($5.144) effective January 1, 1982, with an 

escalation of ten percent (10%) per year thereafter. If 

at any time Buyer determines in its sole judgment that 

it is uneconomical to continue to purchase Seller's gas 

at the price established in this Paragraph (d), then, 

Buyer may terminate this Contract upon thirty (30) days 

written notice to Seller; provided, however, within said 

thirty (30) day period, 

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Appellate Case: 90-1067 Document: 01019762492 Date Filed: 08/30/1991 Page: 5 
Seller may reduce the redetermined price to the highest 

price Buyer may find to be compatible with the economic 

operation of Buyer's pipeline, in which event this 

Contract shall not be terminated under this Paragraph 

( d) • 

(e) If the Federal Energy Regulatory Commission or 

any other authority shall at any time authorize, 

prescribe, approve or permit a price for High-Cost 

Natural Gas (as described in Section 107 of the Natural 

Gas Policy Act of 1978) including, without limitation, 

High-Cost gas from Tight Formations, applicable to the 

gas sold hereunder, which price is in excess of the 

price as determined in Paragraphs (a), (b), (c) or (d) 

hereof then Seller shall receive a price not less than 

the highest price in Paragraphs (a), (b), (c) or (d) or 

the applicable maximum lawful price prescribed, approved 

or permitted by the Federal Energy Regulatory Commission 

pursuant to their incentive pricing authority granted in 

Section 107 Paragraph (b) of the Natural Gas Policy Act 

of 1978. 

(f) In addition to the other pricing provisions of 

this Section 3, Buyer agrees to compensate Seller for 

production-related costs which the FERC determines may 

be paid pursuant to section 110(a)(2) and/or Section 

122(e) of the Natural Gas Policy Act of 1978. If, at 

any time, the FERC will not permit Buyer to include any 

production-related costs incurred by Buyer hereunder in 

Buyer's then effective gas tariff, Seller agrees to 

promptly pay to Buyer upon receipt of notice thereof or 

Buyer may, without further notice, deduct from the 

monthly gas purchase proceeds paid to Seller pursuant to 

this Contract the amount of money which Buyer is not 

allowed to include in its rates for such productionrelated costs. The term "production-related costs" as 

used herein shall mean any cost or expense incurred by 

Buyer relating to any compressing, gathering, treating, 

dehydrating, conditioning or liquefaction of natural gas 

subject to this Contract or any other production-related 

cost as so defined or designated by the FERC that is 

incurred by Buyer pursuant to this Contract. 

R. Vol. I, Tab 21 at Exhibit G ("GAS PURCHASE CONTRACT" Dated 

February 26, 1982 between JOHN LOCKRIDGE ET AL "Seller" and CITIES 

SERVICE GAS COMPANY "Buyer" and BONNY GATHERING SYSTEM "Gatherer") 

(emphasis added). 

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Appellate Case: 90-1067 Document: 01019762492 Date Filed: 08/30/1991 Page: 6 
Williams originally filed suit in Colorado state court on 

February 8, 1985. On March 4, 1985, the case was removed to the 

United States District Court for the District of Colorado. On 

April 24, 1988, the Honorable John L. Kane ruled on the parties' 

cross-motions for summary judgment. Interpreting Section 3(d), he 

held that a precondition for Williams's right to "market out" of 

the contracts was a seller request for price redetermination. 

Since it was undisputed that no such request had occurred, he 

ruled against Williams, as a matter of law, on its claimed right 

to market out of the contracts. Judge Kane also held that the 

contracts were ambiguous as to the applicable price upon deregulation, and that the intent of the parties on that issue would have 

to be determined at trial. R. Vol. I at Tab 13. 

The case was reassigned to the Honorable Richard P. Matsch on 

April 26, 1988. He ruled on renewed motions for summary judgment 

on May 24, 1989, and reaffirmed Judge Kane's ruling regarding the 

unavailability of any market out right for Williams. He also 

held, however, that the contract was not ambiguous as to price, 

rather, it contained an open price term upon deregulation, and 

held that a reasonable price under U.C.C. § 2-305, Colo. Rev. 

Stat. § 4-2-305 (1973), would be determined at trial. R. Vol. II 

at Tab 25. 

The case was again reassigned in December of 1989 to the 

Honorable Edward w. Nottingham, who tried the matter on February 

5-9, 1990. On the first day of trial, Judge Nottingham (hereinafter "the district court") returned to Judge Kane's original 

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Appellate Case: 90-1067 Document: 01019762492 Date Filed: 08/30/1991 Page: 7 
position regarding the issue of price upon deregulation and ruled 

that parol evidence of the parties' intent could come in on that 

issue. At the conclusion of trial, the court entered judgment on 

behalf of the defendants-appellees. 

The district court found that during the period in which the 

contracts were negotiated and signed, there was a shortage of 

natural gas and Williams was aggressively pursuing long-term 

sources of supply for its pipeline system. Williams was competing 

with other potential purchasers in a market characterized by 

rising prices. Williams needed the long-term contracts to supply 

its customers needs. Moreover, Williams had an additional incentive to secure sources of gas in Yuma County, Colorado. 

The Federal Energy Regulatory Commission ("FERC") had placed a 

"through-put condition" on Williams's pipeline servicing that 

area. If Williams failed to fill the pipeline to a certain 

percentage of its capacity, its shareholders would have to absorb 

fixed costs that it otherwise could pass on to its customer users. 

The court found that the effects of the competitive market and 

Williams's special needs were manifest in the contracts' pricing 

provision, which secured favorable terms for the seller-producers 

(appellees). R. Vol. IX at 8-9. 

The district court upheld the earlier rulings rejecting 

Williams's claimed right to market out of the contracts absent a 

seller request for price redetermination. The court also held 

that, absent such a request, the parties intended the last regulated price to continue as the contract price upon deregulation. 

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Appellate Case: 90-1067 Document: 01019762492 Date Filed: 08/30/1991 Page: 8 
DISCUSSION 

I. 

Williams first contends that the district court erred by 

partially vacating, as to deregulated price, the summary judgment 

order entered by Judge Matsch. Williams asserts that the order 

was not "effectively vacated" until after the trial, "thereby 

prejudicing Appellant's preparation for, and conduct of, the trial 

in the district court." Brief of Appellant at 2. 

We reject the proffered factual basis for this assertion. 

Careful scrutiny of the record reveals Williams had ample notice 

before the trial began that Judge Matsch's order no longer 

governed the proceedings. Judge Matsch himself apparently revised 

his ruling on October 13, 1989. In speaking to Williams's 

counsel, Judge Matsch said: 

Well, I--it seems to me what we're walking into then is 

the whole issue that I thought was not going to be 

necessary, and that is what these parties intended, and 

that's what defendants were arguing about the last time 

out, that we can't just do this on the basis of the 

Uniform Commercial Code open price provision. So I 

guess that's the kind of trial we're going to have. 

* * * 

[W]hatever [the parties] intended they didn't write, 

apparently, because your version of what they intended 

is not in the contract. The defendant's version of what 

they intended is not in the contract. So I guess if we 

had an outside law firm involved we'd have a lawsuit 

against them, too, but I don't see any way to get around 

this mess without just saying, "Okay, the trial's open 

to the issue of negotiations and the difference between 

what the expressed intent was in the negotiations or 

intents were in the contract as it was written," which 

is consistent with the defendants saying that there 

never was--well, reformation, I guess, because the 

language of the contract doesn't express the mutual 

intent. I don't know how else we do it but just set it 

for trial and let it all hang out, and that's what we'll 

do. 

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Appellate Case: 90-1067 Document: 01019762492 Date Filed: 08/30/1991 Page: 9 
R. Vol. III at 7-8.s 

Thus, it appears that Judge Matsch returned to Judge Kane's 

position that the court would consider evidence with regard to the 

intent of the parties concerning the appropriate price upon 

deregulation. At any rate, the district court clearly informed 

Williams this was the case at the beginning, not the end, of 

trial. In the opening minutes of the first day of the trial, 

while ruling on several motions in limine, the court explained: 

Judge Matsch in May, of course, construed the contract 

as being silent on the pricing provisions and therefore 

took the view that he would set a price under the 

Uniform Commercial Code gap-filler provisions. The 

defendants argue that Judge Matsch reconsidered that and 

it looks like he might have. At any rate, I don't need 

to decide that because I've looked at the May 24th 

order, and I don't agree with Judge Matsch, and so we're 

going to conduct the trial in the following manner: 

It seems to me when there is no provision as to 

contract price, one of two inferences can be drawn. The 

first inference is that the parties did not intend the 

matter to be integrated and you can therefore supplement 

that inference with custom, usage, trade practice, and 

so forth. The second inference is that the parties did 

intend a complete integration of the contract on this 

point and therefore, because there's silence, you have 

5 Williams argues that this discussion refers solely to the 

defendants' reformation counterclaim. The evidence admissible to 

demonstrate reformation, argues Williams, is significantly 

different from the general intent evidence that was admitted at 

trial, and Williams would have submitted a great deal more 

evidence of the parties' intent had it known the legal issue went 

beyond reformation. 

After carefully reviewing the record, we are not convinced 

that Williams was, as it claims, holding back any significant 

evidence of intent. Whatever the perceived legal rubric, Williams 

vigorously tried the issue of the parties' intent regarding 

contract price upon deregulation. As a result, even if we were to 

conclude that the district court had erred, we could not say that 

Williams was prejudiced. 

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Appellate Case: 90-1067 Document: 01019762492 Date Filed: 08/30/1991 Page: 10 
to go to the UCC gap-filler provisions. It appears to 

me that Judge Matsch was concluding the second, was 

drawing the second inference; namely that there was 

silence, there was no ambiguity, and therefore he went 

to the gap, or he was going to the gap-filler 

provisions. 

I think that's--! don't agree with that. I think 

that the evidence before the Court at that time was 

unclear as to whether there was a complete integration 

on the point, and I mean, that evidence can come out at 

trial here. At any rate, Judge Matsch may have 

reconsidered. If he didn't reconsider, I'll now 

reconsider and we'll get into that evidence. 

R. Vol. Vat 6-7. 

This announcement clearly put Williams on notice that Judge 

Matsch's May 1989 order regarding UCC gap-fillers no longer 

governed the proceedings. 6 Williams did not object or move for a 

continuance, or even seek reconsideration. Instead, Williams 

simply opted to proceed as if the May 24 order were still valid. 7 

Williams is solely responsible for any prejudice resulting from 

this strategy, and cannot now claim that it received insufficient 

notice that the May 1989 order was vacated. 

6 In its brief, Williams asserts that the district court 

specifically stated that it would not reverse the earlier summary 

judgment order of Judge Matsch. See Appellants Brief at 17-18; R. 

Vol. IX at 10-11. Review of the passage reveals, however, that 

the district court was referring to the portion of Judge Matsch's 

ruling that dealt with Williams's asserted right to market out of 

the contracts. The passage indicates that both Judges Kane and 

Matsch held that Williams had not satisfied the precondition for 

marketing out of the contracts and that the district court agreed 

with the earlier holdings. As stated above, the district court 

had already informed the parties that it was vacating Judge 

Matsch's order regarding the parties' intentions on deregulated 

price. 

7 In opening argument, Williams essentially argued that Judge 

Matsch's order had not been vacated. R. Vol. V at 22-23. 

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We cannot agree with Williams's contention that the district 

court's action violated any law of the case. See Gage v. General 

Motors Corp., 796 F.2d 345, 349 (10th Cir. 1986) ("The law of the 

case rule applies only when there has been a final decision."); 

Lindsey v. Dayton-Hudson Corp., 592 F.2d 1118, 1121 (10th Cir.) 

("Until final decree the court always retains jurisdiction to 

modify or rescind a prior interlocutory order."), cert. denied, 

444 U.S. 856 (1979). Nor do we find that the court abused its 

discretion in this regard. 

II. 

Williams next asserts that the district court erred in considering parol evidence of the parties' intent regarding contract 

price upon deregulation. In admitting the parol evidence, the 

district court found that the contracts were not integrated agreements and that they were also ambiguous. We consider each of 

these independent rationales in turn. 

Integration 

Colorado has adopted section 2-202 of the UCC, which 

provides: 

4-2-202. Final written ex:pression--parol or extrinsic 

evidence. Terms with respect to which the confirmatory 

memoranda of the parties agree or which are otherwise 

set forth in a writing intended by the parties as a 

final expression of their agreement with respect to such 

terms as are included therein, may not be contradicted 

by evidence of any prior agreement or of a contemporaneous oral agreement but may be explained or 

supplemented: 

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(a) By course of dealing or usage of trade (section 

4-1-205) or by course of performance (section 4-2-208); 

and 

(b) By evidence of consistent additional terms 

unless the court finds the writing to have been intended 

also as a complete and exclusive statement of the terms 

of the agreement. 

Colo. Rev. Stat. § 4-2-202 (1973). 

The district court found that the contracts were not intended 

as a complete and exclusive statement of the terms of the agreement. Consequently, the court admitted, under subsection (b), 

extrinsic evidence of a "consistent additional term," namely, the 

agreed-upon price for deregulated gas. R. Vol. IX at 19-20, 39. 

The parties dispute the appropriate standard of review. 

While integration may be viewed as a question of law, Universal 

Drilling Co. v. Camay Drilling co., 737 F.2d 869, 871 (10th Cir. 

1984), it is more commonly characterized as a question of fact. 

Firestone Tire & Rubber Co. v. Pearson, 769 F.2d 1471, 1477 (10th 

Cir. 1985); Transamerica Oil Corp. v. Lynes, Inc., 723 F.2d 758, 

763 (10th Cir. 1983) (citing 2 R. Anderson, Uniform Commercial 

Code 154-155 (3d ed. 1982) and 3 A. Corbin, Corbin on Contracts 

§ 595 (1960)). In this case, the integration determination 

certainly was a predominantly factual inquiry, revolving around 

the unwritten intentions of the parties instead of interpretation 

of a formal integration clause. Cf. Ray Martin Painting, Inc. v. 

Ameren Inc., 638 F. Supp. 768, 773 (D. Kan. 1986). We do not 

disturb a district court's findings of fact unless they are 

clearly erroneous. Fed. R. Civ. P. 52(a); Anderson v. Bessemer 

City, 470 U.S. 564, 573 (1985). 

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Williams asserts that the district court improperly 

"presumed" that the contracts were not integrated. See R. Vol. IX 

at 19-20. We disagree. The district court specifically reviewed 

the evidence and held that it did not support a finding of integration. The court's reference to § 2-202's 11 presumption 118 is 

nothing more than a paraphrase of precedent from this circuit: 

"under section 2-202, there is no longer an assumption that the 

parties intended a writing to be the complete expression of their 

agreement. In fact, the assumption is to the contrary unless the 

court expressly finds that the parties intended the contract to be 

completely integrated." Amoco Production Co. v. Western Slope Gas 

Co., 754 F.2d 303, 308 (10th Cir. 1985). Here, the district court 

expressly found that the parties did not intend the contract to be 

completely integrated. After carefully reviewing the evidence 

before the district court, we cannot say that its finding was 

clearly erroneous. 9 

8 The court stated: 

[T]he presumption under Section 4-2-202 is that the 

contract is not an integrated contract because evidence 

of consistent additional terms can be admitted unless 

the Court finds the writing to have been intended also 

as a complete and exclusive statement of the terms of 

the agreement. 

R. Vol. IX at 20. 

9 Williams asserts that Judge Kane held the contracts were 

integrated. Scrutiny of Judge Kane's order reveals that he ruled 

separately on two distinct issues. While he did hold that the 

contracts were "integrated" as to Williams's right to market out 

of the agreements, he also explicitly held that "the contract's 

construction on the applicable price [at deregulation] depends on 

extrinsic facts and circumstances •.•• " R. Vol. I, Tab 13 at 

4. 

[footnote continued] 

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Ambiguity 

Even if we were to find that the contracts were integrated 

agreements, we would still affirm the district court's use of 

extrinsic evidence to determine the parties' intentions regarding 

contract price upon deregulation. The district court alternatively held that the pricing provision in the contracts is 

ambiguous as to price upon deregulation. "Parol evidence is 

inadmissible to vary or contradict the terms of an unambiguous 

agreement, but where uncertainty exists such evidence may be 

received to explain the contract." Montoya v. Cherry Creek Dodge, 

(footnote continued] 

Williams similarly cites for support to several documents 

filed by the Lockridge Group early in the litigation: a memorandum in support of a motion to strike, and the affidavit of John P. 

Lockridge. R. Supp. Vol. I. In the memorandum, the Lockridge 

Group argued at length that the contracts were integrated. In the 

affidavit, John Lockridge testified: 

23. The written agreements were intended to reflect the 

entirety of the agreement between Northwest Central 

[Williams] and the Sellers. For that reason extensive 

details were included in the contracts in addition to 

the major operative terms such as the pricing provisions, take obligations, quality specifications, etc. 

R. Supp. Vol. I, Exhibit A-1 at 6. 

Although these documents give us pause, and present a close 

case, we do not consider them sufficient to render the district 

court's ruling on integration clearly erroneous. First, the 

apparent admissions are those of only the Lockridge Group, not JER 

or Yuma. Moreover, John Lockridge revised his testimony at trial 

and stated that the contracts were only the entire written agreement between the parties. R. Vol. VIII at 676. It is certainly 

possible that the district court placed more emphasis on this 

courtroom testimony. Williams did not impeach Mr. Lockridge with 

his prior, apparently inconsistent statement. 

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Inc., 708 P.2d 491, 492 (Colo. Ct. App. 1985) (emphasis added); 

see also Amoco Prod. Co. v. Western Slope Gas Co., 754 F.2d at 308 

("Only if in light of the circumstances and purposes of the 

contract the judge finds it unambiguous should he or she prohibit 

parol evidence to explain its meaning."). The ambiguity of a 

contract provision is an issue of law, Teton Exploration Drilling, 

Inc. v. Bokum Resources Corp., 818 F.2d 1521, 1526 (10th Cir. 

1987); Devine v. Ladd Petroleum Corp., 805 F.2d 348, 349 (10th 

Cir. 1986), and we find no legal error in the district court's 

conclusion. 

We are not persuaded by Williams's assertion that the 

district court erred in this regard because the pricing provision 

is merely "silent," not ambiguous, as to the applicable price upon 

deregulation. First, the provision is not "silent" as to deregulation price. Section 3 addresses price in considerable detail, 

and subsection (d) explicitly discusses the effects of deregulation. It provides, in part: 

(d) In the event the regulation of the price at 

which natural gas is sold ceases in whole or in part, or 

is modified, so as to allow for the sale of gas hereunder at redetermined prices, then Seller shall have the 

right to request a redetermination of the price at which 

natural gas is to be sold hereunder. 

R. Vol. I, Tab 21 at Exhibits A, B, C, D, E, F and G. 

A perfectly reasonable interpretation of this language (which 

the district court ultimately adopted) is that nothing happens to 

the contract price upon deregulation unless the seller requests 

redetermination. Otherwise, the seller's redetermination right 

would be rendered meaningless. Ambiguity arises because Williams 

makes the more attenuated claim that, because this language does 

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not explicitly state that the deregulation price will be the last 

regulated price (if the seller does not request redetermination), 

it creates an open price term upon deregulation. Thus, the 

ambiguity concerns the appropriate inference to be drawn from 

3(d)'s language; two rational, but mutually exclusive, choices are 

available. The contract may not be explicit, but it certainly is 

not silent. 

Second, to the extent that the pricing provision is not 

explicit in answering the interpretive question at issue, we 

cannot find in Colorado law the rigid ban Williams has described 

preventing admission of parol evidence to explain this sort of 

ambiguity. Instead, the Colorado courts have held that "where 

ambiguity exists, parol evidence is admissible to explain or 

supplement the terms of the contract." Hott v. Tillotson-Lewis 

Constr. Co., 682 P.2d 1220, 1223 (Colo. Ct. App. 1983) (emphasis 

added). Indeed, the case Williams cites to support its proposition fails to do so. In Regents of Univ. of Colo. v. K.D.I. 

Precision Products, Inc., 488 F.2d 261, 267 (10th Cir. 1973), we 

held 

The absence from the contract of such language [concerning ownership of the equipment] does not, as KDI 

asserts, make for ambiguity, but rather the opposite. 

* * * 

It was the conclusion of the trial court that the 

contract under consideration being silent, either by apt 

word or necessary implication, as to the ownership of 

the equipment, was clear and unambiguous on its face and 

conferred no rights to the laboratory equipment or 

machines to [KDI]. We agree. 

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Here, however, as discussed above, the contracts arguably contain 

the sort of "necessary implication" missing from the contract in 

that case. 

In short, we refuse to legally preclude the sort of ambiguity 

created by conflicting inferences that can be drawn from 

incomplete contract language. Since the pricing provision's 

language is susceptible of more than one reasonable interpretation, Fibreglas Fabricators, Inc. v. Kylberg, 799 P.2d 371, 374-75 

(Colo. 1990), we agree with the district court that it is 

ambiguous. 

We therefore affirm, on independent rationales, the district 

court's decision to admit extrinsic evidence of the parties' 

intentions regarding the applicable contract price upon 

deregulation. 

III. 

Finally, Williams asserts that the district court's decision 

"does not comport with the plain language of the contracts and 

establishes an illegal contract price." Brief of Appellant at 37. 

From the outset, this case has presented two main issues: 1) 

whether Williams possesses a right to unilaterally terminate the 

contracts, and 2) what the appropriate contract price is upon 

deregulation of the natural gas industry. We review each in turn. 

Termination 

The district court, adhering to the two previous summary 

judgment holdings, R. Vol. I, Tab 13 at 2-4; R. Vol. I, Tab 25 at 

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3, held that a necessary precondition to Williams's right to 

market out--a Seller request for price redetermination--had not 

been fulfilled, and held that Williams therefore had no right, 

under the contracts, to terminate the agreements. We review this 

legal conclusion de nova. 

The relevant contract language provides: 

If at any time Buyer determines in its sole judgment 

that it is uneconomical to continue to purchase Seller's 

gas at the price established in this Paragraph (d), the 

Buyer may terminate this Contract upon thirty (30) days 

written notice to Seller . • • . 

R. Vol. I, Tab 21 at Exhibits. In clear terms, the termination 

right only applies to "the price established in Paragraph [3(d)]." 

A new contract price is "established" under paragraph 3(d) if the 

seller requests redetermination. No seller has. The contract 

precondition to Williams's termination right has not been satisfied. Moreover, we agree with the district court that Williams's 

claim to a broad, unilateral right to market out is inconsistent 

with Williams's concession to a seller-only right to redetermination. The seller-only redetermination right would be meaningless 

if, whenever a seller chose to retain the current price by not 

requesting redetermination, Williams could nevertheless 

unilaterally terminate the contract. As a matter of contract 

construction, we find no legal error in the district court's 

analysis. We affirm the district court's holding that, in the 

absence of a redetermination, the market out language does not 

provide Williams with a right to terminate the contracts in this 

case. 

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Deregulated Price 

In deciding the issue of applicable price, the district court 

resorted to extrinsic evidence of the parties' intent. "If a 

contract's construction depends upon extrinsic facts and circumstances, then its terms become questions of fact." Amoco 

Production Co. v. Western Slope Gas Co., 754 F.2d at 309; see also 

City of Farmington v. Amoco Gas Co., 777 F.2d 554, 560 (10th Cir. 

1985). We therefore will only overturn the district court's 

construction of the contract's price provision if it is clearly 

erroneous, i.e., "if our review of the record leaves us with a 

definite and firm conviction that a mistake has been made." Amoco 

Production Co. v. Western Slope Gas Co., 754 F.2d at 309 (citing 

Dowell v. United States, 553 F.2d 1233, 1235 (10th Cir. 1977)). 

The district court found that, in the absence of a seller 

request for redetermination, the parties intended the last 

regulated price to be the contract price upon deregulation. 

Overwhelming evidence supported this conclusion. Indeed, 

Williams's witnesses uniformly agreed that this was the parties' 

intention. R. Vol. IX at 37. 10 We cannot say that this finding 

was clearly erroneous. 

Williams argues that the district court's construction of the 

contracts is "internally inconsistent." 

10 Williams's witnesses qualified this testimony with their 

belief that Williams had the right to market out of this price. 

The district court found, however, that this belief was never 

communicated to appellees, R. Vol. IX at 37; and, as discussed 

above, the district court rejected the existence of any such 

termination right as a matter of law. 

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Under the proper analysis, either the contracts contain 

no deregulated price -- in which case the contracts fail 

for lack of mutual assent or the trial court should have 

determined a reasonable price under UCC § 2-305 -- or 

paragraph 3(d) of the contracts does provide a deregulated price and [Williams] has the right to market out 

of the contracts. 

Brief of Appellant at 38. Williams's argument is based on the 

premise that any deregulated price has to be "established" under 

subparagraph 3(d). Williams emphasizes paragraph 3's introductory 

language: "Buyer shall pay Seller ... the applicable one of the 

following prices •... " According to Williams, the parties 

intended the subparagraphs to apply in the alternative. Since (d) 

is the only subparagraph that explicitly mentions deregulation, 

either it establishes the deregulated price, or there is no 

deregulated price and the trial court should have determined a 

reasonable price under the UCC to fill the open price term. 

The district court specifically considered and rejected 

Williams's argument concerning "the applicable one." In fact, the 

district court's finding of ambiguity as to deregulated price was 

based, in large part, on its attempt meaningfully to apply the 

phrase, "the applicable one," in the manner Williams suggests. 

The district court could not. Neither can we. The structure and 

language of the subparagraphs defy Williams's interpretation. 

First, at least one subparagraph is clearly conjunctive. 11 Since 

11 Paragraph 3(f) states, in part: 

(f) In addition to the other pricing provisions of 

this Section 3, Buyer agrees to compensate Seller for 

production-related costs . 

The Lockridge Contract, R. Vol. I, Tab 21 at Exhibit G. 

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subparagraph (f) applies to every pricing scheme, there are, at a 

minimum, always two "applicable" subparagraphs. Second, the 

subparagraphs cross-reference each other. Subparagraph (c) 

references (d), and subparagraph (e) references (a), (b), (c) and 

(d). Thus, by their own terms, the subparagraphs may "apply" 

simultaneously. 

It was this interaction of the subparagraphs that the 

district court found particularly confusing. R. Vol. IX at 21. 

We have already upheld the court's decision to admit extrinsic 

evidence on this issue, and, unlike the poorly drafted contract, 

the parol evidence was crystal clear: the parties intended the 

last regulated price to be the deregulated price unless the seller 

requested price redetermination. After reviewing the evidence in 

its entirety, we cannot say that this finding by the district 

court was clearly erroneous. 

We reject Williams's attenuated argument that the district 

court's decision somehow violated federal law by impermissibly 

basing the contract price for "tight sands" gas on a provision 

(3(c)) that did not satisfy FERC's requirement to "specifically 

reference[] the incentive pricing authority of the Commission 

under section 107 of the NGPA." 18 C.F.R. § 271.702(a)(l) (1989) 

(codifying Order No. 99, 45 Fed. Reg. 56034 (1980), aff'd Pennzoil 

v. FERC, 671 F.2d 119 (5th Cir. 1982)). Williams's argument is 

premised on its interpretation of "the applicable one" and its 

assertion that the district court based its holding solely on an 

application of subparagraph 3(c). Williams misses the mark on 

both counts. We reject Williams's interpretation of "the 

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I 

\ 

" ' 

applicable one." Moreover, the district court specifically held, 

and we agree, that the last regulated contract price was 

established pursuant to both subparagraphs (c) and (e). See R. 

Vol. IX at 35. 

IV. 

JER and Yuma cross appeal, challenging the district court's 

award of prejudgment interest at the statutory rate of eight 

percent, rather than at a higher rate which appellants sought. 

The relevant Colorado statute allows the court to award interest 

in "an amount which fully recognizes the gain or benefit realized 

by the person withholding such money or property," Colo. Rev. 

Stat. § 5-12-102(1)(a) (Supp. 1990), or at a default rate of eight 

percent, id. at§ 5-12-102((1)(b). In interpreting this provision, we have held that, in order to receive the higher interest 

rate, the claimant must specifically prove that the withholding 

party actually benefited in a greater amount. Lowell Staats 

Mining Co. v. Pioneer Uravan, Inc., 878 F.2d 1259, 1270-71 (10th 

Cir. 1989) • 

The district court found that the evidence did not show 

Williams "benefited to a rate greater than 8 per cent by virtue of 

withholding this money." R. Vol. IX at 43. Upon reviewing the 

evidence, we cannot say that its finding was clearly erroneous. 

See Davis Cattle Co. v. Great Western Sugar Co., 544 F.2d 436, 442 

(10th Cir. 1976), cert. denied, 429 U.S. 1094 (1977). 

Accordingly, we AFFIRM in all respects, the holding of the 

district court. 

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