Court Opinion

ID: 799284
Source: CourtListenerOpinion
Date Created: 2012-05-03 19:45:50+00
Date Added: 2024-06-11T17:59:48.440119
License: Public Domain

UNPUBLISHED

                  UNITED STATES COURT OF APPEALS
                      FOR THE FOURTH CIRCUIT

                            No. 11-1398

CABOT OIL & GAS CORPORATION, a foreign corporation,

                Plaintiff - Appellant,

           v.

DAUGHERTY PETROLEUM, INCORPORATED, a Kentucky corporation,

                Defendant - Appellee.

Appeal from the United States District Court for the Southern
District of West Virginia, at Huntington.  Robert C. Chambers,
District Judge. (3:09-cv-00955)

Argued:   March 23, 2012                      Decided:   May 3, 2012

Before GREGORY, KEENAN, and FLOYD, Circuit Judges.

Affirmed by unpublished per curiam opinion.

ARGUED: Timothy Minor Miller, ROBINSON & MCELWEE, PLLC,
Charleston, West Virginia, for Appellant.      Ramonda C. Lyons,
LEWIS, GLASSER, CASEY & ROLLINS, PLLC, Charleston, West
Virginia, for Appellee. ON BRIEF: Benjamin W. Price, ROBINSON &
MCELWEE,   PLLC,  Charleston,   West  Virginia,   for  Appellant.
Richard L. Gottlieb, LEWIS, GLASSER, CASEY & ROLLINS, PLLC,
Charleston, West Virginia, for Appellee.

Unpublished opinions are not binding precedent in this circuit.
PER CURIAM:

      This case involves a breach of contract claim asserted by

Cabot      Oil     &     Gas    Corporation       (Cabot      Oil)       against     Daugherty

Petroleum, Inc.               According to Cabot Oil, the two parties formed

a binding contract in which Cabot Oil agreed to sell oil and gas

leases      to     Daugherty          Petroleum.           Cabot     Oil    contends        that

Daugherty        Petroleum           breached    this       agreement      by    failing      to

complete      the       purchase.         The    district         court    granted     summary

judgment in Daugherty Petroleum’s favor on the ground that there

was no binding agreement between the parties.                                Cabot Oil now

appeals.      For the following reasons, we affirm.

                                                I.

      Cabot        Oil    is     a    Delaware        corporation        authorized     to    do

business     in        West    Virginia.         On    July   31,    2008,      it   issued    a

solicitation for bids for the purchase of oil and gas leases

located      across       three       counties       in   West    Virginia.          Daugherty

Petroleum, a Kentucky corporation, was one of the companies to

receive the solicitation.

      In     the       solicitation       letter,         Cabot    Oil    stated     that    the

leases covered approximately 15,367 gross acres and 15,085 net

acres.      Included with the letter were a map and schedule of the

leases, but Cabot Oil disclaimed making any representations as

to   their       accuracy       or    completeness.           The    solicitation       letter

                                                 2
invited recipients to submit a “preliminary bid or proposal” and

provided that “those submitting such proposals, if any, will be

notified for further discussion and negotiation.”

       Daugherty Petroleum responded by letter on August 15, 2008.

Throughout      its   letter,        Daugherty     Petroleum      characterized        its

response as a “bid” or an “offer.”                    It accordingly proposed a

purchase price of $175 per net acre and a 2% overriding royalty

interest    for    the    leases.       Daugherty        Petroleum     noted    that    it

anticipated being able to close the transaction within seventy-

five days of Cabot Oil’s acceptance.

       Daugherty Petroleum emphasized, however, that its bid was

“contingent and conditioned” on a number of terms.                        One involved

the form of consideration, which Daugherty Petroleum provided

would likely involve payment of cash by wire transfer at the

closing.       Another condition entailed a due-diligence requirement

that    would     allow   Daugherty         Petroleum     to    conduct    appropriate

title searches and that further required Cabot Oil to provide

Daugherty Petroleum access to all documents in its possession

relating to the lease properties and rights of access to the

lease properties.         A third condition required Cabot Oil to agree

to   take   the    leases      off    the   market    for      sixty   days    to   allow

Daugherty       Petroleum      to     conduct      due    diligence.           Daugherty

Petroleum specified it would not conduct due diligence unless

Cabot    Oil    agreed    to    such    an       exclusivity     period.        Finally,

                                             3
Daugherty Petroleum provided that while it was conducting due

diligence       the    parties      were       to    “negotiate     the        terms    and

conditions of an asset purchase agreement.”

       Weeks    passed      without     Cabot       Oil   responding      to    Daugherty

Petroleum’s letter.            During this time, representatives from the

two     companies     exchanged        phone      calls.       At   one    point,       Tom

Liberatore from Cabot Oil instructed Jeff Keim, his coworker, to

hold off William Barr of Daugherty Petroleum so that Liberatore

could    consult      with     Cabot    Oil’s       officers    about     whether      they

wanted to pursue a deal.

       On October 6, 2008, Cabot Oil sent Daugherty Petroleum a

letter     in   which     it     accepted         Daugherty    Petroleum’s        offered

purchase    price     and    noted     that       Daugherty    Petroleum’s       proposed

cash settlement was acceptable as well.                       Cabot Oil stated that

it preferred to move directly into negotiating a purchase and

sale    agreement,       which     would      provide      Daugherty      Petroleum      an

opportunity to conduct due diligence.                      Cabot Oil concluded by

informing Daugherty Petroleum that it would begin preparation of

a purchase and sale agreement.

       Cabot    Oil’s     letter       omitted      any    reference      to    Daugherty

Petroleum’s condition requiring a sixty-day exclusivity period.

Cabot Oil insists, however, that after it sent its letter it

took the leases off the market and declined other offers to

purchase them.          Yet the record gives no indication that Cabot

                                              4
Oil notified Daugherty Petroleum it had done so, and Daugherty

Petroleum maintains it first learned that Cabot Oil had removed

the leases from the market when Cabot Oil filed its complaint.

     Daugherty        Petroleum       failed       to     respond      to    Cabot    Oil’s

October 6, 2008, letter, prompting Cabot Oil to send an e-mail

on   November        13,     2008,    asking       how     it    wished      to    proceed.

Daugherty      Petroleum      still    did    not     respond.         Six   days    later,

Cabot Oil sent Daugherty Petroleum a follow-up letter.                               In it,

Cabot    Oil   asserted       that    in     its    October      6,    2008,      letter    it

accepted Daugherty Petroleum’s offer to purchase the leases.                                It

also discussed unreturned phone calls it had made to Daugherty

Petroleum.       The letter concluded by threatening to take legal

action    if    necessary      and    requesting          that    Daugherty       Petroleum

contact it to “consummate [a] purchase and sale and avoid the

necessity of a legal proceeding.”

     Upon receipt of this latest letter, Barr responded via e-

mail on behalf of Daugherty Petroleum.                     He began by stating that

he had been traveling for three weeks and just received Cabot

Oil’s     messages.           He     noted     that       Daugherty       Petroleum        had

conditioned its offer on the execution of a mutually agreeable

purchase and sale agreement and the successful completion of due

diligence.       He further stated that he was awaiting a proposed

agreement      and    that    due    diligence       would       not   begin      until    the

parties    successfully         negotiated         such    an     agreement.         During

                                              5
Barr’s subsequent deposition, however, he testified that by the

time he sent this e-mail he did not believe the parties would be

able to successfully negotiate a purchase and sale agreement

because of the prevailing market conditions.                    He admitted that

he did not convey this belief to Cabot Oil, explaining that he

was agitated with the aggressive, threatening nature of Cabot

Oil’s previous letter.

       On November 24, 2008, Cabot Oil sent Daugherty Petroleum a

proposed purchase and sale agreement (the Proposed Agreement)

via e-mail.         The Proposed Agreement spanned twelve pages.                     It

included terms that differed from Daugherty Petroleum’s August

15, 2008, letter.            For instance, whereas Daugherty Petroleum

provided that it would likely pay with cash by wire transfer at

closing, the Proposed Agreement contained a provision requiring

that   Daugherty        Petroleum    pay   25%   of    the   purchase    price     upon

execution of the agreement and the balance at closing.                              The

Proposed         Agreement   also     contained       terms    not    included       or

contemplated in Daugherty Petroleum’s August 15, 2008, letter,

such   as    terms      providing    for    specific     remedies    upon    certain

events      of     termination      and    various     provisions       relating    to

warranties and representations.

       Cabot Oil followed up on multiple occasions in December

2008 and January 2009 to determine how Daugherty Petroleum’s

review   of       the   Proposed    Agreement    was    proceeding.        Daugherty

                                           6
Petroleum     did     not      respond      to       Cabot      Oil’s    inquiries      or    the

Proposed Agreement.                 Nor did Daugherty Petroleum notify Cabot

Oil that it did not intend to go through with the purchase of

the leases.

      In July 2009, Cabot Oil filed a complaint in the Circuit

Court of Putnam County, West Virginia.                           In the complaint, Cabot

Oil   asserted       a    breach       of   contract            claim    against     Daugherty

Petroleum and requested either specific performance or damages

in the amount of no less than $2,564,560.                               Daugherty Petroleum

subsequently removed the case to the Southern District of West

Virginia, invoking the district court’s diversity jurisdiction.

      Thereafter         the    parties      filed         cross-motions         for    summary

judgment.       Cabot         Oil’s    motion        for     partial      summary      judgment

asserted      that       no    genuine      issues         of    material     fact     existed

concerning      Daugherty            Petroleum’s           liability       for     breach      of

contract and that Cabot Oil was entitled to judgment as a matter

of law as to liability.                Daugherty Petroleum, in its motion for

summary       judgment,         contended            that        the     undisputed          facts

demonstrated         that      no    binding         contract      existed       between       the

parties and it was entitled to judgment as a matter of law.

      On March 23, 2011, the district court granted Daugherty

Petroleum’s motion for summary judgment and denied Cabot Oil’s

motion for partial summary judgment.                         The court determined that

Cabot   Oil     and      Daugherty       Petroleum’s             correspondence        did    not

                                                 7
create a binding agreement, but instead constituted preliminary

negotiations.      In so holding, the court emphasized the parties’

consistent mutual recognition of their intent to negotiate and

execute   a     purchase     and    sale        agreement    to     consummate     any

agreement but their failure to do so.                 Alternatively, the court

concluded that there was no meeting of the minds between Cabot

Oil and Daugherty Petroleum because Cabot Oil’s October 6, 2008,

letter and the Proposed Agreement contained terms different from

Daugherty Petroleum’s August 15, 2008, letter.                       Cabot Oil now

appeals the district court’s order.

                                          II.

     We   review    de     novo    the    district     court’s      order   granting

summary judgment.        See Henry v. Purnell, 652 F.3d 524, 531 (4th

Cir. 2011) (en banc).         “Summary judgment is appropriate only if

taking    the    evidence     and        all    reasonable        inferences     drawn

therefrom in the light most favorable to the nonmoving party,

‘no material facts are disputed and the moving party is entitled

to judgment as a matter of law.’”                   Id. (quoting Ausherman v.

Bank of Am. Corp., 352 F.3d 896, 899 (4th Cir. 2003)).                      Inasmuch

as jurisdiction in this case rests on the parties’ diversity of

citizenship, we apply the substantive law of West Virginia.                        See

Moore Bros. Co. v. Brown & Root, Inc., 207 F.3d 717, 722 (4th

Cir. 2000).

                                           8
                                         III.

                                          A.

       The fundamental elements of a binding, enforceable contract

are     “competent         parties,      legal        subject-matter,      valuable

consideration[,] and mutual assent.”                  Eurenergy Res. Corp. v. S

& A Prop. Research, LLC, 720 S.E.2d 163, 168 (W. Va. 2011)

(quoting Virginian Exp. Coal Co. v. Rowland Land Co., 131 S.E.

253,   254    (W.    Va.   1926))     (internal       quotation    marks   omitted).

Mutuality of assent, in turn, generally requires an offer by one

party and acceptance by the other.                See Ways v. Imation Enters.

Corp., 589 S.E.2d 36, 44 (W. Va. 2003).                    Offer and acceptance

may    be     manifested      through    “word,       act[,]    or   conduct    that

evince[s]      the    intention     of   the    parties    to     contract.”        Id.

(quoting Bailey v. Sewell Coal Co., 437 S.E.2d 448, 450-51 (W.

Va. 1993)) (internal quotation marks omitted).                    And a meeting of

the minds, which is a sine qua non of enforceable contracts,

Sprout v. Bd. of Educ., 599 S.E.2d 764, 768 (W. Va. 2004), “may

be    shown    by    direct   evidence     of    an    actual     agreement    or    by

indirect evidence through facts from which an agreement may be

implied,” Ways, 589 S.E.2d at 44 (quoting Bailey, 437 S.E.2d at

451) (internal quotation marks omitted).

       Parties may form binding contracts through correspondence.

Sprout, 599 S.E.2d at 768.               Yet courts must be careful not to

construe correspondence as constituting a binding agreement if

                                          9
the   parties      intended      for     it       to    serve     merely         as    preliminary

negotiations.          Id.      If     the    correspondence               reflects      that   the

parties     intended      to    reduce       an    agreement          to    a    formal    written

contract, a presumption arises under West Virginia law that the

correspondence         does     not    constitute            a    binding         contract,     but

instead only preliminary negotiations.                            Blair v. Dickinson, 54

S.E.2d 828, 844 (W. Va. 1949); see also Sprout, 599 S.E.2d at

768     (recognizing      with        approval          this     presumption).                Strong

evidence is necessary to rebut this presumption.                                       Sprout, 599

S.E.2d at 768; Blair, 54 S.E.2d at 844.

      In        considering      whether           a     party        has        rebutted       this

presumption,        the   overarching         goal        is     to   discern         whether   the

parties intended for a final written document to be merely a

“convenient memorial” of their agreement or the “consummation of

the negotiation.”              Blair, 54 S.E.2d at 844 (quoting Elkhorn-

Hazard Coal Co. v. Ky. River Coal Corp., 20 F.2d 67, 70 (6th

Cir. 1927)) (internal quotation marks omitted).                                       The Supreme

Court      of   West   Virginia       has     recognized             six    factors      to   guide

courts in making this determination: 1) “whether the contract is

of that class . . . usually found to be in writing”; 2) “whether

it is of such nature as to need a formal writing for its full

expression”;        3)    “whether           it        has     few     or       many     details”;

4) “whether the amount involved is large or small”; 5) “whether

it    is    a    common   or     unusual          contract”;          and       6) “whether     the

                                                  10
negotiations      themselves           indicate       that    a     written      draft    is

contemplated as a final conclusion of the negotiations.”                                 Id.

(quoting     Elkhorn-Hazard,           20    F.2d   at     70)     (internal     quotation

marks omitted).

      Moreover, “[i]f a written draft is proposed, suggested or

referred to, during the negotiations, it is some evidence that

the     parties   intended        it    to    be    the      final    closing      of    the

contract.”        Id.      (quoting         Elkhorn-Hazard,          20   F.2d     at    70)

(internal quotation marks omitted).                      And if “the parties to an

agreement make its reduction to writing and signing a condition

precedent to its completion, it will not be a contract until

this is done, although all of the terms of the contract have

been agreed upon.”         Id. at 843 (quoting Brown v. W. Md. Ry. Co.,

114   S.E.   457,    457    (W.    Va.       1922))      (internal     quotation        marks

omitted).

                                             B.

      We begin by recognizing that from the start the parties

manifested their intention to reduce any agreement into a final

purchase and sale agreement.                  Daugherty Petroleum’s August 15,

2008, letter proposing a purchase price made the negotiation of

such an agreement a condition to its bid.                        Likewise, Cabot Oil’s

purported acceptance of Daugherty Petroleum’s proposed purchase

price    reflected    an    understanding           that     the    parties    needed     to

                                             11
negotiate a purchase and sale agreement.                      Barr’s response to

Cabot Oil’s follow-up e-mail and letter again emphasized that

Daugherty Petroleum conditioned its offer on the execution of a

mutually agreeable purchase and sale agreement.                    Most emblematic

of the parties’ mutual understanding that they would negotiate a

formal contract, however, is the Proposed Agreement that Cabot

Oil composed and sent to Daugherty Petroleum.                       Hence, because

the parties manifested their mutual intention to memorialize any

agreement     in    a    formal   written      contract,      we   begin    with     the

presumption that their correspondence did not create a binding

agreement in the absence of such a formal contract.

     Using the factors recognized by the Supreme Court of West

Virginia, we next conclude that Cabot Oil has not offered strong

evidence to overcome this presumption.                  Even accepting as true

Cabot Oil’s suggestion that these types of lease contracts are

not unusual, we find that the other five factors reinforce that

an executed purchase and sale agreement was necessary to form a

binding contract.         We address these five factors in turn.

     First,        as    the   district        court   noted       and     Cabot     Oil

acknowledged at oral argument, representatives from both parties

indicated     in        depositions    that      formal    purchase         and    sale

agreements are customary for these types of lease transactions.

Second,   a   formal      contract    appears     to   have    been      necessary   to

fully express the parties’ agreement.                     Although the parties’

                                          12
correspondence         contained      a     number      of     essential     terms        of    an

agreement, such as a proposed price term, general information

about the leases, and so forth, it left many terms for the

parties to negotiate later.                    Third, the numerous details that

the    parties       still    needed      to    negotiate         after     their        initial

correspondence are evidenced by the Proposed Agreement, which

spans twelve pages in length and includes a multitude of terms

that   either        conflicted      with    or     were       additional    to     Daugherty

Petroleum’s          August    15,    2008,       letter.          Fourth,     the       amount

involved in the transaction—over $2,600,000—is large.                                Finally,

the    parties’       correspondence         not     only       reveals     that     a    final

purchase and sale agreement was contemplated as a conclusion to

their negotiations, but, as reflected in Daugherty Petroleum’s

initial proposal, it was a condition to the bid.                             Because these

factors militate in Daugherty Petroleum’s favor, Cabot Oil has

failed to rebut the presumption that a formal purchase and sale

agreement was necessary to form a binding contract.

       We    therefore        agree    with       the     district     court       that        the

undisputed facts indicate that the parties merely engaged in

preliminary negotiations and there was no mutual assent.                                    From

the    start,        the   parties’       correspondence           reflected       that        the

execution of a mutually agreeable purchase and sale agreement

was necessary to consummate their negotiations and would not

merely      be   a    convenient      memorial       of    a    preexisting        agreement.

                                               13
And,   furthermore,    such      a   purchase   and    sale    agreement   was     a

condition precedent to the formation of a binding agreement.                     In

the absence of an executed purchase and sale agreement, we agree

with the district court that under West Virginia law no binding

contract exists between the parties.                  As a result, Daugherty

Petroleum’s      decision   to   abandon     the   negotiations      and   not    to

purchase the leases does not constitute a breach of contract.

                                       IV.

       We address briefly a few arguments made by Cabot Oil to

support its assertion that the district court erred in granting

summary judgment.

                                        A.

       Relying on our decision in Charbonnages de France v. Smith,

597 F.2d 406 (4th Cir. 1979), Cabot Oil contends that summary

judgment   was    inappropriate       because   the    issue    of   whether     the

parties formed a binding agreement was a question for a jury to

resolve.

       In Charbonnages, we reversed a district court’s order that

granted summary judgment on the basis that the undisputed facts

demonstrated no contract existed between the parties.                      Id. at

409.    In doing so, we acknowledged that “disputes about whether

a contract has or has not been formed as the result of words and

                                        14
conduct    over       a    period    of    time       are      quintessentially        disputes

about ‘states of mind,’” which typically a trier of fact must

resolve.        Id. at 414-15.                 We also recognized, however, that

there     can    “be       situations          in    which        the     manifestations       of

intention of both parties . . . not to be bound . . . are so

unequivocal as to present no genuine issue of fact.”                                     Id. at

415.     But, we held, that will rarely be the case in situations

in which there are “protracted negotiations involving a ‘jumble

of letters, telegrams, acts, and spoken words.’”                                 Id. (quoting

Restatement (Second) of Contracts § 21A cmt. a (Tentative Draft

Nos. 1-7, 1973)).               We held that such was the situation presented

in     Charbonnages         and     therefore             that     summary      judgment       was

inappropriate.            Id.

       Furthermore, in Charbonnages, we recognized that although

the    parties     intended         to     execute         a     formal    agreement,      “[a]n

intention to reduce an agreement to writing does not compel the

conclusion       that       this    is     a    condition          to     the   formation       of

contract”       and       that     “[t]his          too     depends       on    the    parties’

manifested intentions.”                  Id. at 417.             We held that the record

before the district court prevented resolving this issue as a

matter of law.            Id. at 417-18.

       We disagree with Cabot Oil’s contention that Charbonnages

precludes       summary         judgment       in    this      case.       Here,      unlike   in

Charbonnages, there are neither protracted negotiations nor a

                                                15
jumble      of   communications       and    conduct.         Rather,     there    are   a

limited number of e-mails and letters, and the undisputed facts

reflect that the parties intended to negotiate a purchase and

sale agreement to consummate a binding agreement.                         West Virginia

law    presumes     no   binding      contract       exists    in   this       situation.

Because Cabot Oil failed to offer facts that could rebut this

presumption, summary judgment is appropriate.

                                            B.

       We    next   address     Cabot       Oil’s    contention      that      Daugherty

Petroleum is estopped from denying the existence of a contract.

In so arguing, Cabot Oil employs two different legal principles,

neither of which is applicable.

       First, Cabot Oil quotes our decision in Stevens v. Howard

D.    Johnson    Co.,    181   F.2d    390    (4th    Cir.     1950),     in    which    we

recognized that “[i]t is a principle of fundamental justice that

if    a     promisor     is    himself      the     cause     of    the    failure       of

performance, either of an obligation due him or of a condition

upon which his own liability depends, he cannot take advantage

of the failure.”          Id. at 393 (quoting George A. Fuller Co. v.

Brown, 15 F.2d 672, 678 (4th Cir. 1926)) (internal quotation

marks omitted).          This passage reflects the general rule that a

party whose duty to perform is conditioned on the occurrence of

an event may not in bad faith prevent the occurrence of that

                                            16
condition        so    as    to     discharge           his       duty    to     perform.           See

Restatement (Second) of Contracts § 245 & cmt. a (1981).                                            That

rule, of course, presumes the existence of a binding agreement

that imposes a duty to perform.                         See id. § 224 cmt. c (“In order

for an event to be a condition, it must qualify a duty under an

existing contract.”).

      As    described        above,          such       a    binding       agreement         imposing

duties      to    perform         does       not    exist         here,     so    this       rule    is

inapplicable.           The execution of a purchase and sale agreement

was not a condition on a duty to perform pursuant to a binding

contract.             Instead,      the       parties         made       the     negotiation        and

execution of a mutually agreeable purchase and sale agreement

necessary to the consummation of a binding agreement between

them.        And       contrary         to    Cabot         Oil’s    suggestion,          Daugherty

Petroleum        had    no       duty    to    negotiate            and    execute       a    binding

purchase and sale agreement.                       As the district court recognized,

because      the        parties         were       still          engaged        in      preliminary

negotiations and no contract existed, Daugherty Petroleum was

“at liberty to retire from the bargain” and to decline to enter

into a binding agreement.                    See Virginian Exp. Coal, 131 S.E. at

261 (internal quotation marks omitted).

      Second, Cabot Oil cites Ross v. Midelburg, 42 S.E.2d 185

(W.   Va.    1947),         in     support         of       its   argument        that    Daugherty

Petroleum is estopped from denying the existence of a contract.

                                                   17
That case, however, recognizes estoppel as an exception to the

statute of frauds.   Id. at 191-92.       Although at the district

court Daugherty Petroleum raised statute of frauds as a defense

and Cabot Oil asserted estoppel to preclude the applicability of

the statute, the district court did not base its ruling on the

statute of frauds.   Thus, because the statute of frauds is not

at issue on appeal, Ross is inapposite.

                               V.

     For these reasons, we affirm the district court’s grant of

summary judgment.

                                                          AFFIRMED

                               18