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

Heading: The Underlying Plug and Abandon Indemnity Claims

Text: 64 On cross-appeal, Rocky Mountain and the investors argue that the district court erred in granting summary judgment in favor of Chevron with respect to Chevron's underlying plug and abandon indemnity claims. They argue that Chevron is not entitled to a declaratory judgment that Rocky Mountain and the investors owe Chevron indemnity in solido for the entirety of any [plug and abandon] obligations on the [Bayou Couba] lease. While we agree with the investors that they do not owe Chevron indemnity for the entirety of any plug and abandon obligations, we disagree with Rocky Mountain that it owes no such indemnity to Chevron.
65 Initially, we address several jurisdictional arguments raised by the parties. In particular, we address arguments that (a) Chevron's plug and abandon indemnity claims are moot, (b) Chevron's plug and abandon indemnity claims are not ripe for judicial review, and (c) the district court should have abstained from ruling on Chevron's plug and abandon indemnity claims. For the following reasons, we reject each of the jurisdictional arguments and hold that the district court correctly reached the merits of Chevron's claims. 66
67 Two of the investors, Tellurogenic, Inc. (Tellurogenic) and Spencer Oil Company (Spencer Oil), raise a mootness argument. They point to the 1990 amendment to section 30:4.C(1) of Louisiana's Revised Statutes, which states that only an owner--i.e., the person who has the right to drill into and produce from a pool and to appropriate the production either for himself or for others--may be held liable by the Louisiana Conservation Commissioner for plugging and abandoning wells on an oil and gas lease. They argue that this amendment has rendered moot any case or controversy respecting the parties' liability for plugging and abandoning wells on the Bayou Couba lease. 68 A controversy becomes moot where, as a result of intervening circumstances, there are no longer adverse parties with sufficient legal interests to maintain the litigation. Mills v. Green, 159 U.S. 651, 653, 16 S.Ct. 132, 133, 40 L.Ed. 293 (1859). Mootness can arise in one of two ways: First, a controversy can become moot when the issues presented are no longer 'live.'  Powell v. McCormack, 395 U.S. 486, 496, 89 S.Ct. 1944, 1951, 23 L.Ed.2d 491 (1969). A controversy can also become moot when the parties lack a legally cognizable interest in the outcome. Id. 69 There are two problems with the mootness argument advanced by Tellurogenic and Spencer Oil. One is that it ignores the express promise made by Chevron's predecessor Gulf, in its original lease with Delta Securities Company, to plug and abandon all wells on the released and surrendered acreage in accordance with the rules and regulations of any governmental agency, official or department having jurisdiction. Under section 129 of the Louisiana Mineral Code, [a]n assignor ... is not relieved of his obligations or liabilities under a mineral lease unless the lessor has discharged him expressly and in writing. LA.REV.STAT.ANN. § 31:129 (West 1989); see also Kleas v. Mayfield, 404 So.2d 500, 506 (La.App. 3d Cir.1981). The 1990 amendment to section 30:4.C(1) of the Louisiana Revised Statutes does not, therefore, affect Chevron's obligation under the original lease with Delta Securities to plug and abandon the wells. The second problem with the argument is that it ignores the possibility that Chevron might be held liable for plugging and abandoning the wells as a prior owner of the Bayou Couba lease. That is, nothing in the language of 1990 amendment prohibits the Louisiana Conservation Commissioner from interpreting the word owner broadly and proceeding against a prior owner of the Bayou Couba lease. See Memorandum from the Louisiana Comm'r of Conservation re: Enforcement Policy--Abandoned Wells and Pits (July 24, 1990). Because there is still a substantial possibility that Chevron will be held liable for plugging and abandoning the wells on the Bayou Couba lease, we hold that the 1990 amendment does not moot Chevron's claim for a declaratory judgment that Rocky Mountain and the investors are liable to indemnify Chevron for any subsequently incurred plug and abandon obligations. 70
71 At oral argument, Rocky Mountain also suggested that Chevron's plug and abandon indemnity claims are not ripe for adjudication. Rocky Mountain's argument in this regard is related to the mootness argument raised by Tellurogenic and Spencer Oil. Specifically, Rocky Mountain contends that, because no one has yet threatened to require Chevron to plug and abandon the wells on the Bayou Couba lease, their request for a declaratory judgment is not yet ripe for review. 72 In New Orleans Public Service, Inc. v. Council of New Orleans, 833 F.2d 583 (5th Cir.1987), this court set forth the prevailing standards for determining whether a dispute is ripe. We stated: 73 A court should dismiss a case for lack of ripeness when the case is abstract or hypothetical. The key considerations are the fitness of the issues for judicial decision and the hardship to the parties of withholding court consideration. A case is generally ripe if any remaining questions are purely legal ones; conversely, a case is not ripe if further factual development is required. 74 Id. at 586-87 (citations omitted). Thus, the ripeness inquiry focuses on whether an injury that has not yet occurred is sufficiently likely to happen to justify judicial intervention. See 13A C. WRIGHT, A. MILLER & E. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3531.12, at 50 (1984). 75 We hold that Chevron's plug and abandon indemnity claims, which present an actual controversy as to the obligations of successive holders of the Bayou Couba lease to Chevron, are ripe for adjudication. As already discussed, there is a substantial possibility that Chevron will be required to plug and abandon the wells on the Bayou Couba lease. Moreover, the only remaining question is a legal one--namely, whether Rocky Mountain and the investors are liable, as transferees of interests in the Bayou Couba lease, to indemnify Chevron for any subsequently incurred plug and abandon obligations. Finally, judicial resolution of Chevron's plug and abandon indemnity claims at this time is consistent with the purpose of Declaratory Judgment Act itself. See Hardware Mut. Cas. Co. v. Schantz, 178 F.2d 779, 780 (5th Cir.1949) (The purpose of the Declaratory Judgment Act is to settle 'actual controversies' before they ripen into violations of law or breach of some contractual duty.). 76 (c) Should the district court have abstained from ruling on Chevron's plug and abandon indemnity claims? 77 Tellurogenic and Spencer Oil also argue that, under Burford v. Sun Oil Co., 319 U.S. 315, 63 S.Ct. 1098, 87 L.Ed. 1424 (1943), the district court should have abstained from determining who is liable to plug and abandon Louisiana oil wells. 11 They argue specifically, citing Magnolia Coal Terminal v. Phillips Oil Co., 561 So.2d 732 (La.App. 4th Cir.1990), aff'd in part and rev'd in part, 576 So.2d 475 (La.1991), that only the Louisiana Commissioner of Conservation can make and enforce plug and abandon rules and regulations. They further reason that, because the district court decided matters within the Louisiana Commissioner's jurisdiction, there is the possibility of conflicting results and standards between the Louisiana Commissioner and the federal courts on the issue of who is obligated to plug and abandon the wells on the Bayou Couba lease. 78 Tellurogenic and Spencer Oil misconstrue the nature of the district court's ruling. The district court did not order Rocky Mountain and the investors to plug and abandon the wells on the Bayou Couba lease, nor did it determine who is ultimately obligated to plug and abandon the wells under Louisiana law. Rather, the district court held only that, if Chevron is required to expend money to plug and abandon the wells on the Bayou Couba lease, Rocky Mountain and the investors must indemnify Chevron. Contrary to the assertion by Tellurogenic and Spencer Oil, then, the district court did not exercise jurisdiction or render a judgment in a manner that potentially conflicts with the authority of the Commissioner of Conservation. Therefore, the district court was not required to abstain under Burford.
79 On cross-appeal, Rocky Mountain does not dispute that, under the terms of the original assignment of the Bayou Couba lease, it expressly agreed to be responsible for all costs associated with plugging and abandoning the wells on the lease. Indeed, it is undisputed that, under the terms of the original assignment, Rocky Mountain agreed 80 to promptly plug and abandon all the wells described in Exhibit B as well as any wells drilled by Traillour et al under the terms of the lease identified in Exhibit A, including the saltwater disposal wells, upon termination of operations on the lease acreage in a good, workmanlike manner and in accordance with said lease and the rules and regulations of the Louisiana Commissioner of Conservation. 81 The assignment further provides that [t]he entire costs, expense and risk of plugging and abandoning the above-described wells, cleanup operations and any other operations provided for under the aforesaid lease, shall be borne by Traillour et al. 82 Rocky Mountain nonetheless contends that the district court erred in granting summary judgment in favor of Chevron on Chevron's plug and abandon indemnity claim. Rocky Mountain first argues that the district court abused its discretion in ruling on Chevron's plug and abandon indemnity claim, given that Chevron did not raise the claim until it filed its motion for summary judgment. Alternatively, Rocky Mountain argues that it raised a genuine issue of material fact with regard to whether Chevron is estopped from enforcing the expressly assumed plug and abandon obligations. As discussed below, neither of these arguments has merit. 83 (a) Did the district court abuse its discretion in denying Rocky Mountain's motion for a continuance and ruling on Chevron's plug and abandon indemnity claim against Rocky Mountain? 84 It is undisputed that Chevron raised its plug and abandon indemnity claims belatedly. When Chevron filed its motion for summary judgment raising the plug and abandon indemnity claims, those claims had not been raised in Chevron's complaint. Moreover, Rocky Mountain had not been afforded the opportunity to assert any defenses to the claims. Nor had Rocky Mountain had any opportunity to conduct any discovery with respect to the claims. 85 In response to Chevron's motion for summary judgment, Rocky Mountain filed a motion to continue the hearing on the plug and abandon indemnity claims. At a status conference held prior to the summary judgment hearing, the district court allegedly indicated 12 that it would sever the plug and abandon indemnity claims and refrain from deciding the issue until (i) Chevron had filed an amended complaint formally raising the issue in the litigation, (ii) Rocky Mountain and the investors had been given the opportunity to conduct discovery with respect to, and assert defenses to, the claims, and (iii) after the court had ruled on the letter of credit issues. Notwithstanding its alleged representations at the status conference, the district court ruled on Chevron's plug and abandon indemnity claims at the same time it ruled on the letter of credit claims--despite the fact that Rocky Mountain had not conducted any discovery on the claim. 13 86 Rocky Mountain argues that the district court erred in denying Rocky Mountain's motion for a continuance under Federal Rule of Civil Procedure 56(f) and ruling on Chevron's plug and abandon indemnity claims. In its brief on cross-appeal, Rocky Mountain asserts that [t]he effect of the [d]istrict [c]ourt's action was to deny Rocky Mountain the ability to properly defend Chevron's contentions as to the plugging and abandonment issue, and prevent Rocky Mountain from conducting any discovery or investigation therein. The district court's action, according to Rocky Mountain, was fundamentally unfair. 87 Rule 56(f) of the Federal Rules of Civil Procedure gives district courts discretion to grant motions to continue in the context of summary judgment proceedings. It provides that, under appropriate circumstances, the district court may refuse the application for [summary] judgment or may order a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had or may make such other order as is just. FED.R.CIV.P. 56(f). In order to obtain a continuance for discovery, the non-movant must (i) request extended discovery prior to the district court's ruling on summary judgment, (ii) put the district court on notice that further discovery pertaining to the summary judgment motion is being sought, (iii) demonstrate to the district court specifically how the requested discovery pertains to the pending motion, and (iv) diligently pursue relevant discovery. Wichita Falls Office Assocs. v. Banc One Corp., 978 F.2d 915, 919 (5th Cir.1992) (citing International Shortstop, Inc. v. Rally's, Inc., 939 F.2d 1257, 1267-68 (5th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 936, 117 L.Ed.2d 107 (1992)). The grant or denial of a continuance pursuant to Rule 56(f) will be disturbed on appeal only if the district court abused its discretion. Cormier v. Pennzoil Exploration & Prod. Co., 969 F.2d 1559, 1561 (5th Cir.1992) (citing Paul Kadair, Inc. v. Sony Corp. of Am., 694 F.2d 1017, 1029-30 (5th Cir.1983)). 88 We cannot say that the district court abused its discretion in denying Rocky Mountain's motion for a continuance and ruling on Chevron's plug and abandon indemnity claim. As the district court noted, Rocky Mountain never asserted what additional discovery would be needed. See Securities & Exchange Comm'n v. Spence & Green Chem. Co., 612 F.2d 896, 901 (5th Cir.1980) (nonmovant requesting a continuance may not simply rely on vague assertions that additional discovery will produce needed, but unspecified, facts), cert. denied, 449 U.S. 1082, 101 S.Ct. 866, 66 L.Ed.2d 806 (1981). Nor did Rocky Mountain diligently pursue any relevant discovery. During the one-and-a-half-month period between the time that Chevron filed its motion for summary judgment and the time the district court took the motion under submission, Rocky Mountain never sought leave to lift the discovery stay in any respect. Accordingly, we hold that the district court was well within its discretion in denying Rocky Mountain's motion for a continuance. 89 (b) Has Rocky Mountain raised a genuine issue of material fact with regard to its estoppel defense? 90 Rocky Mountain further contends that it raised a genuine issue of material fact with regard to whether Chevron is estopped from asserting its plug and abandon indemnity claim against Rocky Mountain. Pointing to Chevron's release of the letter of credit originally obtained by Rocky Mountain for the benefit of Traillour, as well as Chevron's subsequent failure to require the investors to keep in force a letter of credit, Rocky Mountain argues that Chevron should be equitably estopped from seeking to enforce its plugging and abandonment rights against Rocky Mountain. We disagree and hold that the district court correctly granted summary judgment in favor of Chevron on Chevron's plug and abandon indemnity claim against Rocky Mountain. 91 The law of equitable estoppel in Louisiana is one of last resort, to be applied only when the ends of justice so demand. See Howard Trucking Co. v. Stassi, 485 So.2d 915, 918 (La.), cert. denied, 479 U.S. 948, 107 S.Ct. 432, 93 L.Ed.2d 382 (1986). The doctrine is founded upon good faith and is designed to prevent injustice by barring a party, from taking a position contrary to his prior acts, admissions, representations, or silence. Dizell v. Durr, 519 So.2d 863, 866 (La.App. 4th Cir.1988). For equitable estoppel to apply, three elements must be present: (1) a representation by conduct or word; (2) justifiable reliance thereon; and (3) a change of position to one's detriment because of that reliance. Howard Trucking, 485 So.2d at 918. 92 Thus, to successfully withstand Chevron's motion for summary judgment with respect to the plug and abandon claim, Rocky Mountain was required to raise a genuine issue of material fact with regard to each of the elements of equitable estoppel. That is, Rocky Mountain must have come forward with summary judgment evidence sufficient to raise a fact issue concerning: (1) whether Chevron made a representation by conduct or word concerning Rocky Mountain's plug and abandon obligations; (2) whether Rocky Mountain justifiably relied on Chevron's representation; and (3) whether Rocky Mountain detrimentally changed its position because of that reliance. See Howard Trucking, 485 So.2d at 918. 93 In our view, Rocky Mountain has failed to raise a genuine issue of material fact on the first element of equitable estoppel under Louisiana law. Specifically, Rocky Mountain has not pointed to any representation made by Chevron concerning the plug and abandon obligations expressly assumed by Rocky Mountain. Although Rocky Mountain hints that Chevron made such a representation by releasing the original letter of credit procured by Rocky Mountain, we fail to see how Chevron's conduct in releasing the letter of credit, which is independent of the underlying obligation to plug and abandon, see supra Part III.A.2(b), could constitute a representation that Chevron was also releasing Rocky Mountain of its underlying plug and abandon obligations. Therefore, the district court correctly awarded Chevron summary judgment on its plug and abandon indemnity claim against Rocky Mountain.
94 The investors also challenge the district court's award of summary judgment in favor of Chevron on the plug and abandon indemnity claims. They argue that (a) as sublessees of Traillour, they are not obligated to Chevron to plug and abandon the wells on the Bayou Couba lease or to indemnify Chevron for any plugging and abandoning, (b) even if they are required to indemnify Chevron for plug and abandon obligations, they are only required to pay their proportionate share of plug and abandon costs, and (c) they raised a genuine issue of material fact with regard to their right to rescind the subleases from Traillour on grounds of fraud or error. Because we find the investors' first argument meritorious, we do not address the investors' other arguments. 95 In its memorandum ruling, the district court stated: [The investors] concede that, if their assignments [from Traillour] are valid, then each owes Chevron indemnity for any [plug and abandon] obligations to the extent of that person's working interest in the lease. The district court apparently relied on a statement made by the investors in their memorandum in opposition to Chevron's motion for summary judgment. That memorandum stated: [N]one of the investors have denied that they have an obligation to pay their proportionate share of the costs of plugging and abandoning the wells in proportion to their ownership interest in the lease. 96 On cross-appeal, the investors argue that they never conceded owing any plug and abandon obligations to Chevron. Rather, they argue that, [a]s sublessees of Traillour Oil Company, the individual investors owe no obligation to Chevron[,] who assigned all of its right, title and interest in the Bayou Couba lease to Traillour Oil. They do concede, however, that if the subleases from Traillour are valid, they are obligated to Traillour to bear their share of the costs to plug and abandon the wells. 97 (a) Have the investors waived the argument that they owe no plug and abandon obligations to Chevron? 98 Initially, we address Chevron's contention that the investors have waived the argument that, as sublessees of Traillour, they owe no plug and abandon obligations to Chevron, a once-removed assignor of the Bayou Couba lease. Chevron maintains that the investors are essentially arguing that Chevron is not the real party in interest to prosecute the suit. According to Chevron, because the investors did not raise this defense below, they have waived it. 99 We conclude that the investors did not waive the argument that they owe no plug and abandon obligations to Chevron. Throughout the litigation, the investors have maintained that they have no contractual obligations to Chevron. Moreover, in their memorandum in opposition to Chevron's motion for summary judgment, the investors argued that there was no code-imposed privity of contract between Chevron and the investors. Chevron's waiver argument is without merit. 100 (b) Do the investors owe any plug and abandon obligations to Chevron? 101 Chevron nonetheless maintains that the investors' argument in this regard must fail. Pointing to section 128 of the Louisiana Mineral Code, Chevron contends that it can enforce Traillour's plug and abandon obligations--obligations that clearly run in favor of Chevron--against the investors as sublessees once-removed. Chevron further argues that, even in the absence of section 128 of the Louisiana Mineral Code, the investors are liable to indemnify Chevron for plugging and abandoning the wells on the Bayou Couba lease. 102 Section 128 of the Louisiana Mineral Code provides that, [t]o the extent of the interest acquired, an assignee or sublessee acquires the rights and powers of the lessee and becomes responsible directly to the original lessor for performance of the lessee's obligations. LA.REV.STAT.ANN. § 31:128 (West 1989) (emphasis added). This provision, according to a Louisiana oil and gas commentator, represented a dramatic departure from prior case law. John M. McCollam, A Primer for the Practice of Mineral Law Under the New Louisiana Mineral Code, 50 TUL.L.REV. 729, 831 (1976). It effectively overruled the major premise of the Louisiana Supreme Court's decision in Broussard v. Hassie Hunt Trust, 231 La. 474, 91 So.2d 762 (1956)--that an initial lessor could not sue a sublessee to enforce obligations of the original lease because there was no privity of contract or estate between the two parties. 14 Under the plain language of section 128, then, the original lessor can directly sue both a remote sublessee and a remote assignee to enforce the obligations of the original lease. McCollam, supra, at 831. 103 In Robinson v. North American Royalties, Inc., 463 So.2d 1384 (La.App. 3d Cir.), judgment amended, 470 S.2d 112 (La.1985), the Louisiana court interpreted the term original lessor in section 128 broadly. It held that section 128 allows a lessee-sublessor to enforce obligations created in its sublease against a sublessee once-removed. The Robinson court reasoned: 104 We interpret [section] 128 as the Legislature's creation of a code imposed privity of contract between a lessor and a sublessee in the mineral rights area.... Logic therefore dictates that if there is privity of contract between a lessor and a sublessee, there exists privity of contract between a lessee-sublessor and a sublessee once removed. 105 Id. at 1388. 106 Assuming that Robinson represents a correct statement of Louisiana law, it does not aid Chevron. Chevron is not a lessee-sublessor, but a lessee-assignor. 15 And, as Chevron conceded at oral argument, section 128 does not run in favor of assignors. Thus, while section 128 may impose privity between a lessor and a remote assignee or sublessee, we are not prepared to say--as a federal court sitting in diversity--that it creates statutory privity between all successors in interest to an oil and gas lease. Cf. McCollum, supra, at 829 (observing that, although distinction between an assignment and a sublease is less significant under the Louisiana Mineral Code, it is still of continuing importance). 107 Chevron nonetheless argues that, under the terms of their subleases with Traillour, the investors must indemnify Chevron for plugging and abandoning the wells on the Bayou Couba lease. Pointing to several provisions of those subleases, Chevron argues that the investors expressly assumed Traillour's obligations under the original assignment from Gulf and made a stipulation pour autrui in favor of Chevron to be responsible for the costs of plugging and abandoning the wells. Thus, Chevron contends that it need not rely on section 128 of the Louisiana Mineral Code in order to be entitled to indemnity from the investors. 108 In support of its argument, Chevron primarily relies on two paragraphs in the investors' subleases. First, Chevron points to the provision in which each of the investors agreed to assume all obligations and perform all duties resulting from the ownership of the Subject Interest conveyed hereby or imposed by any governmental authority asserting jurisdiction over the lands covered by the lease. Chevron also relies on the provision in which each investor (i) agreed to comply with all of the express and implied covenants and conditions of [the Bayou Couba lease] and (ii) obligated himself to comply and conduct his operations hereunder in accordance with all rules and regulations of the Commissioner of Conservation. 109 Article 1821 of the Louisiana Civil Code provides that [a]n obligor and a third person may agree to an assumption by the latter of an obligation of the former. LA.CIV.CODE ANN. art. 1821 (West 1987). The article further provides that such an assumption, [t]o be enforceable by the obligee against the third person, ... must be in writing. Because the subleases between Traillour and the investors are in writing, we are only concerned with whether the third parties in this case--i.e., the investors--assumed the obligations running from Traillour to Chevron. 110 We reject Chevron's argument that, by the provisions quoted above, the investors assumed ... the obligations which Traillour had undertaken in its contract with Gulf. Neither of the provisions mentions Traillour's obligations to Chevron, and neither of the provisions refers to the assignment from Gulf to Traillour. By assuming all obligations resulting from their ownership of the conveyed interests in the Bayou Couba lease, the investors were personally assuming only the real obligations running with the Bayou Couba lease, obligations running in favor of the original lessor. The investors similarly obligated themselves to the original lessor by agreeing to comply with all of the express and implied covenants and conditions of [the Bayou Couba lease], as well as the rules and regulations of the Louisiana Commissioner of Conservation. We decline to read into the investors' subleases an express assumption of Traillour's personal obligations to Chevron, where no such assumption is apparent from the face of the documents. 16 111 We likewise reject Chevron's related contention that the above quoted provisions constitute a stipulation pour autrui in favor of Chevron. As already noted, see supra Part III.A.1(a), a stipulation pour autrui will be found only when the contract clearly contemplates a benefit to a third person as its condition or consideration. The provisions in the subleases between Traillour and the investors simply do not clearly contemplate a benefit to Chevron. Rather, any benefit to Chevron would simply be incidental. 112 Chevron also points to the sublease provision in which each investor agreed to bear his proportionate cost, expense and risk of plugging and abandoning the [wells on the Bayou Couba lease].... Chevron suggests that this provision represents a partial assumption of Traillour's obligations to Chevron, as well as a partial stipulation pour autrui in favor of Chevron. Again, we must disagree. There is no indication that the investors, by agreeing with Traillour to be responsible for their proportional share of the costs of plugging and abandoning the wells on the Bayou Couba lease, intended to partially assume Traillour's obligations to Chevron. Nor is there any clear intent that, by this promise, the investors meant to confer a benefit on Chevron. Rather, from the face of this provision, it is clear that Traillour and the investors were agreeing, as among themselves, to share the costs of plugging and abandoning the wells on the Bayou Couba lease. 113 Accordingly, we hold that the district court erred in concluding that the investors are obligated to indemnify Chevron for any subsequently incurred plug and abandon obligations. While undoubtedly the investors are obligated to plug and abandon the wells on the Bayou Couba lease, their obligation runs only to (i) the original lessor, under section 128 of the Louisiana Mineral Code, (ii) Traillour, under the terms of their subleases, and (iii) the Louisiana Commissioner of Conservation, under section 30:4.C(1)(a)(iv) of the Louisiana Revised Statutes. The investors are not obligated to Chevron to plug and abandon the wells. Therefore, they are not obligated to indemnify Chevron for any subsequently incurred plug and abandon obligations. 17