Opinion ID: 601816
Heading Depth: 2
Heading Rank: 1

Heading: The Letter of Credit Claims

Text: 32 On appeal, Chevron argues that the district court erred in awarding summary judgment to Rocky Mountain and the investors on its letter of credit claims. Chevron argues that Rocky Mountain is obligated to keep in force a letter of credit in favor of Chevron until all wells on the Bayou Couba lease have been plugged and abandoned and that the district court erred in holding that Chevron is estopped from enforcing this obligation. Chevron further contends that the investors, either as successors in interest to Rocky Mountain or under the terms of LOC 554, are obligated to furnish Chevron with a replacement letter of credit. We address each of these contentions in turn.
33 The district court held that, under the undisputed facts of the case, Rocky Mountain is not required to furnish Chevron with a replacement letter of credit. In so holding, the district court first reasoned that Rocky Mountain made a stipulation pour autrui, or a promise for the benefit of a third party, in favor of Chevron to keep in force a letter of credit until thirty days after Chevron was finally released of all plug and abandon obligations. The district court further reasoned, however, that Chevron, because of its conduct, is estopped from enforcing the stipulation pour autrui. 34 On appeal, the parties complain about different parts of the district court's reasoning. Chevron challenges only the latter part of the district court's reasoning--namely, that it is estopped from enforcing Rocky Mountain's stipulation pour autrui. Chevron agrees with the district court's conclusion that Rocky Mountain made a stipulation pour autrui to continue providing it with letters of credit. 35 Rocky Mountain, on the other hand, agrees with the latter part of the district court's reasoning--that it is entitled to summary judgment on grounds of estoppel. In the alternative, however, Rocky Mountain contends that the district court erred in concluding that it made a stipulation pour autrui in favor of Chevron to keep in force a letter of credit securing plug and abandon obligations. Rocky Mountain's argument in the latter regard is two-fold: First, Rocky Mountain contends that the side agreement it made with Traillour does not constitute a stipulation pour autrui, or a promise in favor of a third party, under Louisiana law. Second, Rocky Mountain contends that, even if the side agreement can be construed as a stipulation pour autrui, it cannot be construed as a promise to continue providing Chevron with replacement letters of credit until thirty days after Chevron has been released from its plug and abandon obligations. 36 We agree with Rocky Mountain that the district court correctly granted summary judgment in its favor; however, we affirm the district court's judgment on other grounds. Contrary to the district court's conclusion, we hold that Rocky Mountain never made a stipulation pour autrui in favor of Chevron to keep a letter of credit in force. Therefore, we do not reach Rocky Mountain's estoppel argument. 5 37 (a) Did Rocky Mountain, in its side agreement with Traillour, make a stipulation pour autrui in favor of Chevron? 38 The Louisiana Civil Code provides that [a] contracting party may stipulate a benefit for a third person called a third party beneficiary. LA.CIV.CODE ANN. art. 1978 (West 1987). However, such a promise, or a stipulation pour autrui, is never presumed. Rather, the intent of the contracting parties to stipulate a benefit in favor of a third party must be made manifestly clear. Homer Nat'l Bank v. Tri-District Dev. Corp., 534 So.2d 154, 156 (La.App. 3d Cir.1988), writ denied, 536 So.2d 1236 (La.1989). As we stated in New Orleans Public Service, Inc. v. United Gas Pipe Line Co., 732 F.2d 452 (5th Cir.) (en banc), cert. denied sub nom. Morial v. United States Gas Pipe Line Co., 469 U.S. 1019, 105 S.Ct. 434, 83 L.Ed.2d 360 (1984): 39 Louisiana law is settled that for there to be a stipulation pour autrui there must be not only a third-party advantage, but the benefit derived from the contract by the third party may not merely be incidental to the contract. Rather, the third-party benefit must form the condition or consideration of the contract in order for it to be a stipulation pour autrui. Moreover, a stipulation pour autrui will be found only when the contract clearly contemplates the benefit to the third person as its condition or consideration. 40 732 F.2d at 467 (internal quotations and citations omitted). 41 In this case the district court concluded that Rocky Mountain, in its side agreement with Traillour, unambiguously made a stipulation pour autrui in favor of Chevron to keep in force a letter of credit to secure the plug and abandon obligations. In reaching this conclusion, the district court relied on the undisputed facts that: (1) at the time the side agreement was executed between Rocky Mountain and Traillour, Traillour had offered to furnish Chevron with a letter of credit until thirty days after Chevron had been released from any plug and abandon obligations; (2) in the prefatory recitals of the side agreement, Rocky Mountain expressly acknowledged that it had agreed to provide the cash bid and required letter of credit to secure the plugging and abandoning of the wells in the Bayou Couba Field; and (3) in the side agreement itself, Rocky Mountain agreed to provide [a] $2,000,000.00 standby letter of credit to secure the plugging and abandoning of the wells in the Bayou Couba Field. From these undisputed facts, the district court held that Rocky Mountain was agreeing to assume the same letter-of-credit obligations that Traillour had undertaken in its January 13th offer to Chevron. 42 We think that the district court, by finding an unambiguous intent to confer a benefit on Chevron, misread the purpose of the side agreement between Rocky Mountain and Traillour. From the face of the agreement, there is no clear manifestation of an intent by Rocky Mountain to confer a benefit on Chevron. Instead, the side agreement indicates that the letter of credit Rocky Mountain agreed to obtain was to be made available for the benefit of Traillour at the closing of the purchase of the Bayou of Couba Field. 6 It is undisputed that Traillour, at the time it entered the side agreement with Rocky Mountain, had agreed to keep in force a letter of credit in favor of Chevron; however, it is also undisputed that Chevron, in the letter accepting Traillour's offer to purchase the Bayou Couba lease, expressly conditioned the sale on Traillour and Marsh's acquisition of a $2,000,000.00 performance bond or irrevocable letter of credit. Therefore, Rocky Mountain's agreement to obtain the initial letter of credit helped Traillour fulfill a condition precedent to Chevron's obligation to assign the Bayou Couba lease. Finally, the recital in the side agreement, on which the district court placed heavy reliance in finding an intent to benefit Chevron, simply does not reveal a clear intent to benefit Chevron. The recital, like the provisions of the side agreement itself, reveals Rocky Mountain's intent to help Traillour close the deal with Chevron. Any benefit derived by Chevron from this side agreement was, in our view, merely incidental. 43 (b) Did Rocky Mountain, in its side agreement with Traillour, make a stipulation pour autrui to keep in force a letter of credit in favor of Chevron? 44 Even if the agreement were read as clearly intending to confer a benefit to Chevron, the agreement does not reveal a clear intent to confer continuing benefits to Chevron. That is, under the unambiguous language of the side agreement, Rocky Mountain agreed only to provide a $2,000,000.00 standby letter of credit at the closing of the purchase of the Bayou Couba Field. Even the recital relied upon by the district court indicates that Rocky Mountain only agreed to provide the cash bid and required letter of credit.... At no point in the side agreement does Rocky Mountain agree to provide letters of credit or to keep in force a letter of credit in favor of Chevron. 45 Accordingly, we hold that the district court erred in concluding that Rocky Mountain agreed to assume the same letter-of-credit obligations that Traillour had undertaken in its January 13th offer to Chevron. The obligation that Rocky Mountain assumed in the side agreement with Traillour was to provide a single letter of credit for the benefit of Traillour. In short, Rocky Mountain agreed to help Traillour close its deal with Chevron by obtaining the cash bid and a letter of credit for Traillour to present to Chevron at the closing. Any benefit to Chevron was incidental and was of a one-time--not a continuing--nature.
46 The district court also granted summary judgment in favor of the investors on Chevron's claim that they were obligated to furnish replacement letters of credit. In doing so, the district court rejected Chevron's arguments that (a) the investors are obligated to provide replacement letters of credit as successors in interest to the Bayou Couba lease and (b) the investors otherwise made a stipulation pour autrui to provide replacement letters of credit in favor of Chevron. We address each of these arguments in turn. 47 (a) Are the investors obligated to provide replacement letters of credit as successors in interest? 48 Chevron contends on appeal that the investors, as successors in interest to Rocky Mountain or Traillour, are obligated to provide it with replacement letters of credit. The argument is as follows: Because Rocky Mountain and Traillour had promised to keep in force a letter of credit to secure the plug and abandon obligations running with the Bayou Couba lease, the investors, when they acquired their interest in the lease, became similarly obligated. For the following reasons, we reject this argument. 49 Initially, we note that Rocky Mountain was never obligated to keep in force a letter of credit to secure the plug and abandon obligations running with the lease. As previously discussed, see supra Part III.A.1(a), Rocky Mountain did not make a stipulation pour autrui in favor of Chevron to keep in force a letter of credit. Rather, Rocky Mountain agreed to provide a single letter of credit for the benefit of Traillour, so that Traillour could close the deal it had made with Chevron. 50 Moreover, even as successors in interest to Traillour, the investors are not obligated to furnish Chevron with replacement letters of credit. Although Traillour clearly obligated itself to keep in force a letter of credit to secure the plug and abandon obligations running with the Bayou Couba lease, this obligation is simply not binding on the investors as successors in interest to Traillour. First, neither Traillour's original offer, which contains the promise to furnish letters of credit, nor Chevron's acceptance of the offer, was recorded. Under Louisiana law, therefore, Traillour's promise would not be binding as a real obligation on successors in interest to the Bayou Couba lease. See LA.CIV.CODE ANN. art. 1839 (West 1987); LA.REV.STAT.ANN. § 9:2721 (West 1991). Second, and more importantly, Traillour's obligation to keep in force a letter of credit is a personal obligation, not a real obligation that permanently attached to the Bayou Couba lease. See LA.CIV.CODE ANN. art. 1766. Thus, Traillour's obligation to keep in force a letter of credit in favor of Chevron, unlike a real obligation under Louisiana law, did not run with the land and automatically pass to the investors upon the transfer from Traillour. See LA.CIV.CODE ANN. art. 1764 (West 1989) (A real obligation is transferred to the universal or particular successor who acquires the movable or immovable thing to which the obligation is attached, without a special provision to that effect[,] ... [b]ut a particular successor is not personally bound, unless he assumes the personal obligations of his transferor with respect to the thing.); see also Tall Timbers Owners' Ass'n v. Merritt, 376 So.2d 586, 588 (La.App. 4th Cir.1979) (The jurisprudence is well settled that personal obligations must be expressly assumed.). 51 (b) Did the investors otherwise make a stipulation pour autrui to provide Chevron with replacement letters of credit? 52 The district court also rejected Chevron's argument that the investors independently made a stipulation pour autrui to provide Chevron with replacement letters of credit. The district court first noted that, because Calcasieu Marine, the issuing bank, never agreed to continue providing Chevron with letters of credit, the investors could not have assumed any such obligation of the bank to provide such letters of credit. The district court further reasoned that paragraph 5 of LOC 554 does not itself require any of the investors to provide a letter of credit. Finally, the district court held that the continuing guaranties executed by the investors, which authorized Calcasieu Marine to extend the deadline for its letters of credit, did not (i) require Calcasieu Marine to extend the deadline or (ii) require the investors to have any subsequent letters of credit issued. Accordingly, the district court concluded that neither the letters of credit nor the [c]ontinuing [g]uaranties display in their written terms a 'manifestly clear' intent to grant a third party benefit to Chevron. 53 On appeal, Chevron essentially argues that the district court erred in refusing to find that the investors made a stipulation pour autrui to provide it with replacement letters of credit. Chevron contends that, under the law of the case doctrine, our decision in Chevron I requires a holding that LOC 554 obligated the investors to provide Chevron with replacement letters of credit. Chevron further maintains that, when LOC 554 is construed along with the offering memorandum prepared by Traillour and the continuing guaranties executed by the investors, it becomes clear that the investors stipulated a benefit in favor of Chevron to keep in force a letter of credit. For the following reasons, we disagree. 54 The law of the case doctrine generally precludes the reexamination of issues decided on appeal, either by the district court on remand or by the appellate court itself on a subsequent appeal. Conway v. Chemical Leaman Tank Lines, Inc., 644 F.2d 1059, 1061 (5th Cir. Unit A May 1981). If an issue was decided on appeal--either expressly or by necessary implication--the determination will be binding on remand and on any subsequent appeal. Id. (quoting Lehrman v. Gulf Oil Corp., 500 F.2d 659, 663 (5th Cir.1974), cert. denied, 420 U.S. 929, 95 S.Ct. 1128, 43 L.Ed.2d 400 (1975)). By contrast, if an issue was not expressly or implicitly decided on the prior appeal, then the law of the case doctrine is inapplicable. See United States v. 8.41 Acres of Land, 783 F.2d 1256, 1259 (5th Cir.), cert. denied, 479 U.S. 820, 107 S.Ct. 85, 93 L.Ed.2d 38 (1986). 55 In this appeal, the law of the case doctrine is inapplicable. In Chevron I, we did not expressly or implicitly decide whether the investors were obligated to furnish Chevron with replacement letters of credit. The only question we decided in Chevron I was whether LOC 554 was still in effect. And, although we stated in Chevron I that paragraph 5 of LOC 554 was intended to state the time frame in which the [investors] were to fulfill their underlying obligation to Chevron to either obtain a replacement LOC or pay into escrow, we made this statement only in the context of holding that paragraph 5 was not intended to modify the expiration date of LOC 554. Moreover, our opinion in Chevron I makes clear that we were not deciding whether the investors actually had an underlying obligation to furnish Chevron with a replacement letter of credit, but only observing that LOC 554 made references to an underlying contract between the investors and Chevron. Accordingly, we hold that our decision in Chevron I does not control the issue of whether the investors have an underlying obligation to furnish Chevron with replacement letters of credit. 56 The question we must decide, then, is whether Chevron has raised a genuine issue of material fact with regard to the existence of an underlying obligation, or a stipulation pour autrui, by the investors to furnish Chevron with replacement letters of credit. Pointing to (i) paragraph 5 of LOC 554 and (ii) other documents received or executed by the investors, Chevron argues that it has raised a fact issue. We do not agree. 57 Paragraph 5 of LOC 554, which is quoted in full supra Part I.C., at first glance appears to require the investors to provide Chevron with replacement letters of credit. It states that, before termination of said Letter of Credit, [the investors] shall either furnish [Chevron] another Letter of Credit as provided herein or pay the amount of said Letter of Credit, reduced as provided herein into an escrow account. Upon closer scrutiny, however, it becomes clear that paragraph 5 of LOC 554 imposes no such obligation on the investors. 58 Under Louisiana law, as elsewhere, [a] letter of credit is merely a written engagement by the issuer, usually a bank, to honor demands for payment which comply with the terms of the credit. Cromwell v. Commerce & Energy Bank of Lafayette, 464 So.2d 721, 728 (La.1985) (quoting Hawkland & Holland, UCC Series § 5-101:02 (Art. 5)). And, although letter of credit transactions usually involve three contracts, 7 [t]he letter of credit [contract] is separate and distinct from the underlying transaction between the party requesting issuance of the letter of credit (the customer) and the beneficiary of the letter of credit. Cromwell, 464 So.2d at 729. The letter of credit contract between the issuing bank and the beneficiary is not affected by the underlying contract between the beneficiary and the customer. See LA.REV.STAT.ANN. § 10:5-114(1) (West Supp.1993) (An issuer [of a letter of credit] must honor a draft or demand for payment which complies with the terms of the relevant credit regardless of whether the goods or documents conform to the underlying contract between the customer and the beneficiary.). Nor, it follows, should the underlying obligation between the beneficiary and the customer be governed by the terms of letter of credit itself. 59 Regardless of what paragraph 5 appears to say about the investors' duty to provide a replacement letter of credit, the so-called independence principle applicable to letter of credit transactions argues against such an interpretation. Under settled Louisiana law, the investors' obligation to Chevron to provide replacement letters of credit is independent of the issuing bank's obligation to honor the terms of the letter of credit itself. It follows that the letter of credit obligating the issuing bank, Calcasieu Marine, to Chevron should not be read by itself to impose any obligations on the investors. 60 More importantly, the undisputed facts reveal that the investors never signed this letter of credit. That is, they never agreed that, before LOC 554 terminated, they would either furnish [Chevron] another Letter of Credit ... or pay the amount of said Letter of Credit, reduced as provided herein into an escrow account. Thus, even beyond the problems raised by the independence principle, Chevron is essentially arguing that the investors should be bound by a written agreement to which they were not a party. We decline to so bind the investors. 8 61 Nor can Chevron point to any other document in which the investors agreed to provide replacement letters of credit. In the offering memorandum provided the investors by Traillour, the investors were informed (i) that Traillour was obligated to keep in force a letter of credit in favor of Chevron and (ii) that they would each be required to personally execute an agreement guaranteeing the entire amount of the $2 million letter of credit issued by the Calcasieu Marine National Bank of Lake Charles in favor of [Chevron]. The offering memorandum does not state that the investors themselves would be obligated jointly and severally, or in solido, to provide Chevron with an irrevocable letter of credit. Moreover, the continuing guaranties executed are not the source of any letter of credit obligations running from the investors to Chevron. The continuing guaranties merely gave Calcasieu Marine the power to extend the terms of the letters of credit issued in Chevron's favor and to make changes in the terms of the guaranty contracts themselves. They simply do not reveal any intent by the investors to provide Chevron with replacement letters of credit. Finally, Chevron does not contend that the documents transferring to the investors an interest in the Bayou Couba lease contain an obligation to provide it with a letter of credit. 9 62 Accordingly, we hold that the district court correctly concluded that, on the undisputed facts of this case, the investors have made no stipulation pour autrui in favor of Chevron to provide replacement letters of credit. None of the documents that Chevron points to reveals any intent by the investors, much less a manifestly clear intent, to confer a benefit on Chevron. All that Chevron can point to is the fact that the investors guaranteed LOC 465 and later ordered that LOC 465 be replaced with LOC 554. This evidence, standing alone, is insufficient to raise a genuine issue of material fact with regard to the existence of an underlying agreement clearly manifesting an intent by the investors to provide replacement letters of credit for the benefit of Chevron. 10 63