Opinion ID: 1224637
Heading Depth: 2
Heading Rank: 1

Heading: Interpretation of the Settlement Agreement

Text: The settlement agreement provides that MEI shall pay to R & R one-half of one percent (0.5%) of the gross geothermal energy sales revenues received by MEI after deductions of amounts paid as federal royalty payments from the geothermal field owned by MEI. After the minitrial, in which four experts testified, the court found that the term `geothermal energy' is understood in the industry to mean the natural heat of the earth which can be extracted in the form of hot water and/or water vapor and/or [sic] both. [5] The trial court further concluded: The gross geothermal energy sales revenues received, shall therefore be only those revenues received by Defendant from the sale of the geothermal energy, and do not include revenues received from products produced by virtue of the utilization of the geothermal energy. On the basis of its ruling that no specialized meaning existed, the court concluded that the agreement was unambiguous and granted summary judgment in favor of MEI, reserving the issues of the amount owed by MEI and the amount of MEI's attorney fees for future determination. R & R contends that the trial court erred in granting summary judgment in favor of MEI because the settlement agreement is ambiguous and interpretation of the contract should have been preserved for trial. See, e.g., Saunders v. Sharp, 806 P.2d 198, 200 (Utah 1991) (The interpretation of a contract is a matter of law for the court to determine unless the contract is ambiguous and evidence of the parties' intent (which is a matter of fact) is necessary to establish the terms of the contract.); Records v. Briggs, 887 P.2d 864, 871 (Utah.Ct.App.1994) (Generally, when contract interpretation will be determined by extrinsic evidence of intent, it becomes a question of fact.). Of course, a motion for summary judgment may not be granted if a legal conclusion is reached that an ambiguity exists in the contract and there is a factual issue as to what the parties intended. Faulkner v. Farnsworth, 665 P.2d 1292, 1293 (Utah 1983) (citing Grow v. Marwick Dev., Inc., 621 P.2d 1249 (Utah 1980)). Language in a contract is ambiguous when it is reasonably capable of being understood in more than one sense.... Ambiguity of language is to be distinguished from unintelligibility and inaccuracy, for words cannot be said to be ambiguous unless their signification seems doubtful and uncertain to persons of competent skill and knowledge to understand them. Black's Law Dictionary 73 (5th ed. 1979). However, a contract provision is not necessarily ambiguous just because one party gives that provision a different meaning than another party does. To demonstrate ambiguity, the contrary positions of the parties must each be tenable. Plateau Mining Co. v. Utah Div. of State Lands & Forestry, 802 P.2d 720, 725 (Utah 1990) (citation omitted). Under this definition, R & R's contention that the settlement agreement is ambiguous takes two potential forms: First, it could be an attack on the trial court's factual finding that no specialized meaning exists in the industry. A specialized meaning would create ambiguity because at least two plausible meanings, one plain and one specialized, would exist. Second, it could be an attack on the trial court's conclusion that the plain language of the contract has only one tenable meaning. Although R & R's brief is far from clear as to whether it is relying on the first or the second theory (or both), elements of both arguments are present. Therefore, we will address each. This court will not disturb the trial court's factual finding that the term gross geothermal energy sales has no specialized meaning in the industry, unless it is clearly erroneous. See Utah R. Civ. P. 52(a) (Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses.). A trial court's factual finding is deemed `clearly erroneous' only if it is against the clear weight of the evidence. Doelle v. Bradley, 784 P.2d 1176, 1178 (Utah 1989) (citations omitted). Having thoroughly reviewed the record, we cannot conclude that the trial court's finding of fact that no specialized meaning exists was against the clear weight of the evidence. For example, Kenneth Powell, plaintiff's principal expert witness, testified that he had formed an opinion on the meaning of the phrase gross geothermal energy sales by examining the settlement agreement and some industry publications and by researching some Utah Power and Light contracts. That is scant support for the proposition that there is a specialized meaning of the phrase throughout the industry, which was the only issue before the trial court. In addition, Powell admitted that he had never read an article or a contract that equated the terms geothermal energy and electrical power output. At another point, he testified that geothermal energy is defined as energy that comes from the heat of the earth, which he stated was also the dictionary definition and the definition used in the industry. In view of the fact that plaintiff's own expert offered testimony supporting the court's interpretation, we cannot hold that the trial court's finding is against the clear weight of the evidence, and therefore, we refuse to upset its factual finding that no specialized meaning exists. We next address whether the trial court erred in ruling that the contractual language itself, even without a specialized meaning, is not open to more than one reasonable interpretation and is therefore unambiguous. R & R asserts that gross geothermal energy sales could reasonably be considered the steam harvested and sold by MEI or it could mean the electrical energy that Cove Creek produced from the geothermal energy and sold to Provo City. This argument is essentially an attempt to equate geothermal energy and electrical energy, for that is the only way that gross geothermal energy can include the electricity sold by Cove Creek. In support, R & R points out that geothermal energy is largely unmarketable in its raw form and that electrical energy is merely an altered form of geothermal energy that allows it to be stored, marketed, and transported. R & R cites one case from another jurisdiction, as well as the Code of Federal Regulations, that allegedly stands for the proposition that geothermal energy has been equated at times with electrical energy. We find this argument to be without merit. First, and most important, R & R's interpretation conflicts with the ordinary meaning of gross geothermal energy sales revenues. Geothermal energy is commonly understood to mean hot water, steam, or hot brines at a high temperature and the heat and pressure therefrom. Accord 30 C.F.R. § 206.351; Utah Code Ann. § 73-22-3(4), (5) (1989). [6] According to this definition, gross geothermal energy sales is the gross amount received by MEI from the sale of hot steam, water, or brines to Cove Creek, as the trial court ruled. Thus, the plain meaning of the term does not correspond with R & R's interpretation. Second, there is no legal foundation for the proposition. The one case cited by plaintiff to justify its argument that geothermal and electrical energy are the same, Occidental Geothermal, Inc. v. Simmons, 543 F.Supp. 870 (N.D.Cal.1982), offers little support. The issue in Occidental Geothermal was whether plaintiffs who had been granted a right to extract geothermal energy under federal law also had the right to site a geothermal electric generating plant, id. at 874, on the producing land. In dicta, the court stated that because [geothermal] resources cannot be `removed' without first being `utilized' (to the extent of being converted into electrical energy), the two processes can, in the case of geothermal energy, be said to be one. Id. at 874-75 (emphasis added). The court also observed, If steam cannot be used at the source, but rather must be conducted through pipes to distant electrical generating facilities, ... it loses its practical utility as a source of electrical energy. Id. at 874. Thus, the court held that to give effect to the federally granted right to use the resource, the act must be interpreted to include the right to site an electrical generating facility on the producing land because geothermal energy cannot be extracted and then transported to a distant electrical generating facility like other energy sources. Id. at 876. However, the court did not state, imply, or hold that electrical and geothermal energy are the same. Indeed, implicit in the court's analysis, including the portion cited above, is the notion that the two, although related, remain distinct and that geothermal energy is merely a source of electrical energy, not its equivalent. Thus, Occidental Geothermal actually supports the proposition that geothermal and electrical energy are distinct and therefore supports the trial court's interpretation of the settlement agreement. Although R & R cites only one case in favor of its argument, a much larger portion of its brief is devoted to marshaling and attempting to distinguish MEI's numerous supporting case cites. R & R maintains that MEI's references actually refute the trial court's interpretation of `gross geothermal energy sales revenues,' or fail to justify the court because they are not relevant. We disagree. After thoroughly reviewing all seventeen cases, we fail to find a single one that supports R & R's argument that geothermal and electrical energy are synonymous, but we find many that support, at least in dicta, MEI's position that the two are distinct. For example, many compare or analogize geothermal energy to coal, oil, and other energy sources that are used to generate electrical energy, but none of them compare or analogize geothermal energy to electrical energy itself. In Geothermal Kinetics v. Union Oil Co. of California, 75 Cal.App.3d 56, 141 Cal.Rptr. 879 (1977), the court stated: [T]he production of energy from geothermal resources is analogous to the production of energy from such other mineral resources as coal, oil and natural gas in that materials containing energy are extracted from the earth and transported to facilities where this energy is transformed into electrical energy. The fact that extracted coal, oil and natural gas contain chemical energy while geothermal resources contain thermal energy is not significant; uranium ore is not denied the status of a mineral because it contains nuclear energy instead of chemical energy. 141 Cal.Rptr. at 882 (footnote omitted). In United States v. Union Oil of California, 549 F.2d 1271 (9th Cir.1977), the court noted, Salt water and geothermal steam and brines should be held the property of the mineral owner who owns such substances as oil, gas and coal, since the functions and values are more closely related. Geothermal steam is a source of energy just as fossil fuels such as oil, gas and coal are sources of energy. Id. at 1279 n. 18 (citing Olpin, The Law of Geothermal Resources, 14 Rocky Mtn. Min. L.I. 123, 140-41 (1968)). There is simply no support for R & R's proposed interpretation of the settlement agreement in the case law brought to our attention or that we could locate on our own initiative. R & R next relies upon the C.F.R. definition of gross proceeds: the total monies and other consideration accruing to a geothermal lessee for any disposition of geothermal resources including total payments for the sale of electricity generated by the lessee from lease-produced geothermal resources. 30 C.F.R. § 206.351(4) (emphasis added). R & R then states in its brief, The government defines gross proceeds for royalty purposes the same way R & R wants them defined. However, this comparison of terms is inapposite because although both gross geothermal energy sales revenues and gross proceeds contain the word gross, they are not synonymous. The other portions of the regulation make it clear that the term gross proceeds is intended to be a rough equivalent of the revenue received for electrical energy, not the value of geothermal energy. The term gross proceeds is used in the netback formula, part of a procedure used to determine the value of geothermal energy sold in a nonarm's-length transaction. [7] In the netback procedure, the government works backward to determine the value of steam in a situation where it appears that the actual selling price of the geothermal energy might be artificially depressed because of the close relationship of the parties involved in the transaction. In essence, the netback starts with the user's gross revenue and then deducts all of its reasonable and actual expenses to determine a value for the geothermal energy used to produce the electricity. As stated in the C.F.R., Under the geothermal netback procedure, the lessee's reasonable actual costs for the generation and transmission of electricity shall be deducted from the lessee's gross proceeds received for the sale of electricity to determine the value of the geothermal resource. 30 C.F.R. § 206.352(d)(1)(ii) (emphasis added). Obviously, if reasonable generating and transmission costs are deducted from gross proceeds to determine the value of the geothermal resource, [8] then gross proceeds is not equivalent to the value of the geothermal resource/energy. Without a persuasive argument as to why the term gross geothermal energy sales in the settlement agreement should include the electricity produced and sold by Cove Creek, which R & R has not made, the comparison of the terms is circular and useless. Therefore, R & R's reliance on the definition of gross proceeds is misplaced. Likewise, we reject R & R's argument that the two energy forms are equivalent because electrical energy is merely an altered form of geothermal energy that allows it to be marketed, transported, or stored. First, this argument is belied by the fact that the mining of geothermal energy and the conversion of that energy into electrical energy are often carried out by separate entities. The federal act makes this clear by distinguishing between arm's-length and nonarm's-length transactions for the sale of geothermal energy. An arm's-length transaction involves two unrelated parties, see 30 C.F.R. § 206.351, which demonstrates that geothermal energy in its raw form is marketable to some degree, even if it cannot be transported long distances like other energy resources. Second, this argument completely ignores the fact that geothermal energy, just like coal, oil, natural gas, or water, must go through a conversion process to become electrical energy. That process requires equipment and facilities completely apart from those required to mine the resource. In light of these facts, geothermal energy and electrical energy can hardly be said to be one. Therefore, we reject plaintiff's contention that the term gross geothermal energy sales has more than one reasonable meaning and affirm the trial court's ruling that the settlement agreement is unambiguous. Having done so, we turn to interpreting the agreement. Our review of a trial court's interpretation of an unambiguous contract is for correctness because an unambiguous contract must be interpreted from the actual words of the contract. See Winegar v. Froerer Corp., 813 P.2d 104, 108 (Utah 1991). `Questions of contract interpretation not requiring resort to extrinsic evidence are matters of law, and on such questions we accord the trial court's interpretation no presumption of correctness.' Sackler v. Savin, 897 P.2d 1217, 1220 (Utah 1995) (quoting Zions First Nat'l Bank, N.A. v. National Am. Title Ins. Co., 749 P.2d 651, 653 (Utah 1988)). From our interpretation of the settlement agreement, we conclude that the trial court was correct when it determined that the gross geothermal energy sales revenues received, shall ... be only those revenues received by Defendant from the sale of the geothermal energy, and do not include revenues received from products produced by virtue of the utilization of the geothermal energy and that, therefore, revenues received from the sales of electricity produced by conversion of geothermal energy into electrical energy are not subject to the provisions of the Settlement Agreement. We hold that MEI is required to pay R & R only 0.5 percent of the amount it receives for geothermal energy from Cove Creek after deducting the federal royalties, as the trial court ruled. Finally, given our interpretation of the term gross geothermal energy sales, we address whether summary judgment was properly granted. Because our interpretation of the settlement agreement is the same as the trial court's, the issue is essentially whether genuine issues of material fact remained as to whether MEI had complied with the trial court's interpretation of the settlement agreement. For instance, R & R contends that it raised several issues of material fact regarding the amount MEI actually received for the sale of steam, which would impact the amount to which it was entitled. It asserts that the amounts MEI reported in this case differed from those reported to the government or disclosed in other cases. Rule 56(e) of the Utah Rules of Civil Procedure states that a party opposing a properly supported motion for summary judgment, as MEI's motion was in this case, may not rest upon the mere allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in this rule, must set forth specific facts showing that there is a genuine issue for trial. While we have held that under Rule 56, Utah R. Civ. P., it is not always required that a party proffer affidavits in opposition to a motion for summary judgment in order to avoid judgment against him, Olwell v. Clark, 658 P.2d 585, 586 (Utah 1982), we have also stated that when a party opposes a properly supported motion for summary judgment and fails to file any responsive affidavits or other evidentiary materials allowed by Subdivision (e), the trial court may properly conclude that there are no genuine issues of fact unless the movant's affidavit affirmatively discloses the existence of such an issue. Franklin Fin. v. New Empire Dev. Co., 659 P.2d 1040, 1044 (Utah 1983). In this case, the trial court, after granting summary judgment on the interpretation of the settlement agreement and other issues of liability, expressly reserved the issue of whether MEI had complied with the terms of the settlement agreement as the court had interpreted them. The court ordered MEI to file a disclosure of royalties due, which it did. Because R & R opposed that disclosure, MEI served requests on R & R for the specific bases for the objections along with admissible proof as required by rule 56(e). R & R's answers, instead of identifying witnesses, admissible testimony, or evidence, contained numerous pages of argument regarding the court's earlier rulings and attacks against MEI. Thereafter, MEI filed an additional motion for summary judgment that was opposed by R & R's two-page motion containing additional arguments against the court's earlier rulings and statements of opposition such as R & R does not believe MEI will ultimately prevail and This motion is premature and unfounded. This utter failure by R & R to demonstrate the existence of any genuine issues of material fact, along with MEI's extensive support for its own motion, including over 125 pages of detailed accounting records and affidavits, justified the trial court's order granting summary judgment on the issue of whether MEI had complied with the trial court's interpretation of the settlement agreement.