Phillips Oil Company, Plaintiff-appellee, v. Okc Corporation, et al., Defendants-appellants, 812 F.2d 265 (5th Cir. 1987)

Appellant, OKC Corporation ("OKC"), appeals from the district court's grant of partial summary judgment in favor of appellee, Phillips Oil Company ("Aminoil"),¹  and the decision in favor of Aminoil on trial of the accounting portion of the action. We affirm.

On July 1, 1967, Aminoil, with three partners, acquired from the United States a lease covering an area in the Gulf of Mexico known as South Pass Block 89 ("Block 89"). Aminoil and its partners, known collectively as the SLAM Group, each acquired a 1/4 working interest in Block 89.

According to OKC, from 1967 to 1977, exploratory wells drilled on Block 89 revealed the presence of hydrocarbon reserves having only marginal economic value. As of early 1977, those reserves thought to be recoverable were considered to be located in the northeast portion of Block 89.

In 1976, the operator of Block 89 for the SLAM Group, Marathon Oil Company ("Marathon"), proposed installation of a platform, designated as Platform A, in the northeast portion of Block 89 to drain the known reserves. According to OKC, development of the block in the area south of the platform was not anticipated.

Prior to Marathon's proposal, Aminoil had conducted internal reviews of geological data pertaining to Block 89. According to OKC, this information suggested that there were approximately four million barrels in "proven" and "potential" oil reserves in the area where Platform A was to be located. Another four million barrels were considered "possible," but the possibility of recovering them was "poor." According to OKC, Aminoil believed that even these "possible" reserves were located in the area to be drained by Platform A wells.

Based on its economic review, Aminoil chose not to participate in the proposed installation of Platform A or in the costs of further development. Instead, Aminoil decided that it would "farm out" its interest in Block 89 to a party willing to bear the construction costs of Platform A in exchange for the acquisition of an investment in the Block 89 lease.

In consideration of certain obligations to be undertaken by OKC, and subject to the reservation of an overriding royalty which was convertible to an escalating net profits interest, Aminoil "farmed out" its entire 1/4 working interest in Block 89 to OKC under a written agreement ("the Farmout") executed June 14, 1977. Aminoil and OKC subsequently executed, on July 11, 1977, an "Assignment of Interest in Oil and Gas Lease," pursuant to the Farmout.² 

Discussions concerning a possible farmout of Aminoil's interest in Block 89 began sometime in the fall of 1976 or the early months of 1977. According to OKC, at their first meeting, officials of OKC and Aminoil discussed the opportunity for OKC to acquire Aminoil's interest in Block 89 but did not discuss the reservation by Aminoil of any interest in the property. According to OKC, negotiations continued after the first meeting, with Aminoil representative, Harry Fisher, for the first time advising OKC representative, Gary Adams, that Aminoil wanted to retain an overriding royalty interest convertible upon payout of Platform A to a net profits interest in production from Platform A.

Adams advised OKC President Cloyce Box of Aminoil's desire. According to OKC, Box discussed the matter with Aminoil's George Dawson who proposed assigning to OKC Aminoil's entire interest in Block 89, subject to Aminoil's retention of an interest in production from Platform A, in return for OKC's assumption of Aminoil's cost obligations with regard to the Block. Box agreed to the proposal and according to OKC, no further communications occurred between the parties concerning different terms. A telex, dated March 25, 1977, was prepared by Aminoil, outlining the text of a letter of intent to be executed by the parties. In the telex, Aminoil described its retained interest with specific reference to Platform A.³  The telex concluded with the representation that Aminoil would "enter into a farmout agreement which incorporates the aboe [sic] conditions and such other conditions as the parties agree are appropriate." Aminoil undertook to draft the required documents.⁴ 

On May 11, 1977, the proposed Farmout was delivered to OKC, under the letter of Aminoil's Roger Edwards. Under the terms of the proposed Farmout, Aminoil agreed to assign its entire 1/4 interest in the Block 89 lease to OKC, subject to Aminoil's reservation of an overriding royalty convertible to an escalating net profits interest as provided in Paragraph IV of the proposed Farmout:

Aminoil shall reserve to itself from the interest to be assigned under the terms of this agreement, an overriding royalty interest equal to one-twelfth ( 1/12) of one-fourth ( 1/4) of eight-eighths ( 8/8) of production, until "net profits" are received as the term is defined hereafter, at which time Aminoil's overriding royalty interest shall automatically convert to a net profits interest equal to twenty percent (20%) of one-fourth ( 1/4) of eight-eighths ( 8/8) of production, until recovery from first production from the subject lease of four million (4,000,000) gross barrels of oil, condensate and/or gas equivalent based on ten (10) MCF of gas equaling one (1) gross barrel of oil and/or condensate; thereafter Aminoil's net profits interest shall be increased to thirty-three percent (33%) of one-fourth ( 1/4) of eight-eights ( 8/8).

Over a period of nearly five weeks, the proposed Farmout was reviewed by various OKC officials.⁵  On June 14, 1977, OKC's Executive Vice President, without reading the Farmout himself, executed the Farmout without making any changes in the document that had been submitted by Aminoil to OKC for approval. On July 11, 1977, Norman Smith, one of the OKC employees who had reviewed the Farmout, accepted the assignment of one-quarter interest in Block 89 by virtue of the "Assignment of Interest in Oil and Gas Lease" subject to the Farmout.

From 1977 to 1980, exploratory wells were drilled in the southern portion of Block 89 and substantial accumulations of hydrocarbons were discovered. In 1980, the fabrication and installation of a development platform, Platform B, in the southern portion of Block 89 were proposed.

The instant controversy arose in February of 1981 when OKC, in aid of its liquidation,⁶  mailed a public bid letter to various oil and gas companies, including Aminoil. The bid letter suggested that Aminoil's reserved interest was restricted to Platform A in the northern portion of Block 89, instead of the entirety of Block 89 (including Platform B). Following its receipt of OKC's bid letter, Aminoil filed the instant action against OKC seeking a declaratory judgment that Aminoil's reserved interest under the Farmout applied to the entirety of the Block 89 lease and all production therefrom, and for an accounting on that basis. The action was filed in federal district court on the basis of diversity jurisdiction.

Aminoil's complaint alleged that its reserved overriding royalty and net profits interest was effective as to all production from the subject lease, that this was disputed by OKC, and that Aminoil was entitled to a declaratory judgment in accordance with its interpretation of the agreements. OKC denied the correctness of Aminoil's interpretation of the Farmout and counterclaimed alleging error and seeking reformation of the Farmout to conform with OKC's argument that Aminoil's reserved interest was restricted to production from Platform A. OKC asserted that the mutual intent of the parties under the Farmout and Assignment was that Aminoil's reserved overriding royalty and net profits interest did not apply to production from the entire lease, but rather, only to production from Platform A.

Aminoil responded to OKC's counterclaim, contending that the Farmout clearly and unambiguously reflected the parties' understanding and mutual intention that Aminoil's reserved interest would apply to the entire lease and all production therefrom. Additionally, Aminoil alleged that if OKC were in error as to the extent of Aminoil's reserved interest, such error was the result of OKC's own negligence, fault, or inattentiveness in reviewing, or failing to review, the Farmout.

Aminoil moved for partial summary judgment and also filed a motion in limine to exclude parol evidence to be offered by OKC.⁷  By minute entry dated July 27, 1984, the district court granted both motions. The court found that Aminoil's reserved interest applied to all production from the entirety of Block 89, saying that "the intent of the parties with regard to the scope of Aminoil's reserved interest is set forth in a clear, consistent and extensive manner which leaves no doubt as to what was intended." Minute Entry at 6. The court concluded that:

insofar as the scope of Aminoil's reserved overriding royalty and net profits interest, the Farmout and Assignment are clear, unambiguous and complete and, under controlling legal principles, parol evidence is inadmissible to vary or modify the words of the contract or to prove an intent different than that which is unmistakably and clearly stated in the contract.⁸  Because, as a matter of fact and law, the Farmout and Assignment provide that Aminoil's reserved interest shall apply to the entirety of Block 89, summary judgment is appropriate on these grounds alone....

Additionally, this Court finds that a review of the undisputed circumstances surrounding the execution of the Farmout confirms Aminoil's contention that the clear language of the Farmout expresses the true intent of the parties, and precludes any reasonable probability of error.

... after first executing the Farmout after extensive review and analysis without requesting a single change, OKC again expressly ratified that same Farmout several weeks later.

Minute Entry at 14-15 (footnote omitted). The court added that:

If OKC was in error during the negotiations, whether by its own fault or otherwise, the circumstances surrounding the execution of the contract lead this Court to conclude that there can be no legitimate dispute that OKC was not, or should not, have been laboring under that error, however caused, after reviewing the Farmout for five weeks. OKC cannot possibly carry its burden of proving that it was somehow misled by Aminoil and the Court's conclusion in this respect provides an equally strong and additional basis for granting Aminoil's partial summary judgment. Furthermore, established legal principles which are also applicable to these facts preclude any such claim by OKC; Hope v. Barham, [28 F. Supp. 561 (W.D. La. 1939) ].

Minute Entry at 19.

The district court ordered OKC to render an accounting to Aminoil for all proceeds of production attributable to Aminoil's overriding royalty interest and net profits interest in accordance with the court's construction of the Farmout.

OKC's accounting was served on Aminoil on September 18, 1984, and Aminoil, through the report of its retained accountants from the accounting firm of Price Waterhouse & Co., excepted to the accounting, taking issue with one of the credits and several of the charges made by OKC against net profits. Pursuant to the provisions of Rule 706 of the Federal Rules of Evidence, the district court appointed its own expert witness who submitted a written report and thereafter was deposed.

Prior to trial of the accounting phase of the lawsuit, OKC and Aminoil resolved all issues under the accounting except two charges made by OKC to the net profits account: (1) a $29,666,997 interest charge;⁹  and (2) a $514,728 charge for legal expenses incurred in connection with the instant lawsuit. OKC contended that it was entitled under the Farmout to recoup these amounts from production from the lease before Aminoil's overriding royalty converted to the net profits interest.

Trial of the accounting issues was held on November 1, 1985.¹⁰  By stipulation of the parties, subject to objection by OKC as to certain portions of the testimony, testimony of the court's expert was introduced by way of his deposition. Aminoil called two Price Waterhouse & Co. partners to testify at trial. They were accepted by the district court as experts in oil and gas accounting. The testimony of the experts was to the effect that the charges against the net profits account for interest and litigation expenses related to the instant lawsuit were not properly made by OKC. OKC offered no testimony or evidence at trial in support of its net profits accounting and no evidence in contravention of the testimony of the experts. Instead, OKC simply objected to the admission of expert testimony. By Findings and Conclusions entered on March 6, 1986, the district court rejected OKC's contentions, and held that, under the net profits accounting provisions of the Farmout, the interest and litigation expenses were not chargeable against the net profits account.

Judgment consistent with the granting of Aminoil's motion for partial summary judgment and the decision on the trial of the accounting portion of the action was rendered on April 8, 1986. This appeal followed.

On appeal, OKC argues that the district court erred in granting partial summary judgment in favor of Aminoil. OKC contends that established Louisiana jurisprudence allows the use of parol evidence in support of a reformation claim, even when a contract is clear and unambiguous on its face, and argues that, in this case, admissible parol evidence shows an antecedent agreement and a material variance between that agreement and the Farmout eventually signed. Therefore, argues OKC, summary judgment was improper.

OKC contends that, contrary to the district court's conclusion that "a review of the undisputed circumstances surrounding the execution of the Farmout confirms Aminoil's contention that the clear language of the Farmout expresses the true intent of the parties, and precludes any reasonable probability of error," Minute Entry at 14, there is a genuine issue of material fact created by the circumstances leading up to the execution of the Farmout. According to OKC, " [t]he critical and disputed issue in this case is whether prior to the execution of the written contract, there existed an antecedent contract between the parties, which, as a result of mutual error, was incorrectly reduced to writing." Original Brief of Defendants-Appellants at 28. OKC argues that, viewing the evidence in the light most favorable to OKC (as we do in considering the propriety of the grant of summary judgment),¹¹  the existence of a genuine issue of material fact is clear. According to OKC, evidence--both oral and written--shows that there was an antecedent agreement which was incorrectly reduced to writing as a result of mutual error:

At the time of the negotiations between Aminoil and OKC, Aminoil was anxious to escape its then pending cost obligations attributable to the lease. In fact, Aminoil's original proposal was to transfer its full interest in consideration of OKC's assumption of those obligations. Subsequently, that proposal was modified to allow for Aminoil's reservation of an overriding royalty convertible upon payout from Platform A production of the costs and expenses of Platform A and its wells to a net profits interest in Platform A production. Ultimately, OKC orally agreed to this proposal, and there were no further communications between the parties concerning different terms....

Aminoil's retention of an interest only in Platform A production made perfect sense. The only known recoverable reserves on the Block were located in the area to be drained by Platform A. Further, Platform A was the only platform contemplated for installation by the SLAM partners. No thought at that time was being given to the location of another Platform in other areas of the Block....

The existence of a prior agreement between OKC and Aminoil limiting Aminoil's retained interest to production from Platform A is also reflected in the documents prepared by Aminoil prior to the execution of the farmout agreement. In the March 25, 1977 telex, Aminoil represented and agreed that it would enter into a farmout agreement which "incorporates" the conditions set forth in the telex. Despite this, there is a major material variance between the farmout agreement drafted by Aminoil and the March 25, 1977, telex, which also was drafted by Aminoil. This material variance developed during Aminoil's internal drafting process.

Original Brief of Defendants-Appellants at 28-29. OKC argues further that the reformation claim is not barred by negligence because mutual error, not unilateral error, was alleged. Finally, OKC contends that there was no showing that OKC had the requisite knowledge to ratify the Farmout by subsequently executing the assigned agreement. We turn now to a consideration of OKC's contentions.

As a matter of federal procedural law,¹²  the granting of summary judgment under Rule 56 of the Federal Rules of Civil Procedure is proper when, viewed in the light most favorable to the party opposing the motion, no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law.¹³  See, e.g., Anthony v. Petroleum Helicopters, Inc., 693 F.2d 495, 496 (5th Cir. 1982). On review, this court applies the same legal standard applied by the district court to determine whether summary judgment was appropriate. See, e.g., id. at 496. The party opposing the motion is to be given the benefit of all reasonable doubt in determining whether a genuine factual issue exists. See, e.g., Kellerman v. Askew, 541 F.2d 1089, 1092 (5th Cir. 1976); Impossible Electronics Techniques, Inc. v. Wackenhut Protective Systems, Inc., 669 F.2d 1026, 1031 (5th Cir. 1982). In determining whether a genuine issue of material fact exists, "the court must draw all reasonable inferences most favorable to the party opposing the motion" for summary judgment. Faloona v. Hustler Magazine, 799 F.2d 1000, 1004 (5th Cir. 1986); see, e.g., Anderson v. Liberty Lobby, Inc., --- U.S. ----, 106 S. Ct. 2505, 2513, 91 L. Ed. 2d 202 (1986); Harrison v. Byrd, 765 F.2d 501 (5th Cir. 1985); Southmark Properties v. Charles House Corp., 742 F.2d 862 (5th Cir. 1984).

In its recent opinion in Anderson v. Liberty Lobby, Inc., supra, the United States Supreme Court, undertaking an extensive examination of the summary judgment standard, noted that "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Liberty Lobby, 106 S. Ct. at 2510 (emphasis in original); see also St. Amant v. Benoit, 806 F.2d 1294, 1296-97 (5th Cir. 1987).

With regard to "materiality," only those disputes over facts that might affect the outcome of the lawsuit under the governing substantive law will preclude summary judgment. Factual disputes that are irrelevant or that are unnecessary will not be counted. Liberty Lobby, 106 S. Ct. at 2510.

With regard to "genuineness," the inquiry performed is a threshold inquiry of whether there is a need for a trial, that is, whether "there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Id. at 2511. No genuine issue for trial exists unless there is sufficient evidence favoring the nonmoving party for a factfinder to find for that party. See id.

Considering the specific question posed by the case before it--whether the clear and convincing evidence requirement must be considered by a court ruling on a motion for summary judgment under Rule 56 of the Federal Rules of Civil Procedure--the Court in Liberty Lobby concluded that the inquiry involved in ruling on a summary judgment motion "necessarily implicates the substantive evidentiary burden of proof that would apply at the trial on the merits." Id. at 2512. In the context of the libel suit before it, the Court said:

When determining if a genuine factual issue as to actual malice exists in a libel suit brought by a public figure, a trial judge must bear in mind the actual quantum and quality of proof necessary to support liability under New York Times. For example, there is no genuine issue if the evidence presented in the opposing affidavits is of insufficient caliber or quantity to allow a rational finder of fact to find actual malice by clear and convincing evidence.

Id. at 2513. Therefore, "in ruling on a motion for summary judgment, the judge must view the evidence presented through the prism of the substantive evidentiary burden," id., that the parties must bear at trial.¹⁴  The Supreme Court did caution, however, that, at the summary judgment stage of a case, "the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Id. at 2511. The Court stated that its holding that the substantive evidentiary burden should be taken into account in ruling on summary judgment motions "does not denigrate the role of the jury.... Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions," id. at 2513, not the function of the judge ruling on a summary judgment motion.¹⁵ 

With this guidance from the Supreme Court in mind, we now turn to consider the propriety of the district court's grant of partial summary judgment in favor of Aminoil.

Under Louisiana law,¹⁶  the equitable remedy of reformation of a contract is available to parties "if the instrument recites terms to which neither party agreed." Valhi, Inc. v. Zapata Corp., 365 So. 2d 867, 870 (La.App. 4th Cir. 1978). The reformation remedy "lies only to correct mistakes or errors in the written instrument when such instrument, as written, does not express the true contract or agreement of the parties." Fontenot v. Lewis, 215 So. 2d 161, 163 (La.App.3d Cir. 1968). The error or mistake must be mutual. See, e.g., Southwest Gas Producing Co. v. Hattie Bros., 230 La. 339, 353, 88 So. 2d 649, 654 (1956); Amoco Production Co. v. Texaco, Inc., 415 So. 2d 1003, 1007 (La.App.4th Cir. 1982). An action to reform a written instrument "is a personal action, even when applied to real estate, and the burden of proof rests on the one seeking reformation of the instrument to establish the mutual error and mistake by clear and convincing proof, parol evidence being admissible for this purpose."¹⁷  Id. (emphasis added) (citing Agurs v. Holt, 232 La. 1026, 95 So. 2d 644 (1957); Southwest Gas Producing Co. v. Hattie Bros., 230 La. 339, 88 So. 2d 649 (1956); Waller v. Colvin, 151 La. 765, 92 So. 328 (1922); Kemp v. Beasley, 188 So. 2d 425 (La.App.3d Cir. 1966); Walker v. Jim Austin Motor Co., 162 So. 2d 135 (La.App.1st Cir.), writ denied, 246 La. 354, 164 So. 2d 353 (1964)). The high degree of proof required is consistent with the principle that " [w]hen parties reduce their contracts to writing and the writing exhibits no uncertainty or ambiguity as to the nature, the object, and the extent of the agreement, it is presumed that the writing expresses the true and complete undertaking of the parties." Campo v. La Nasa, 173 So. 2d 365, 369 (La.App.4th Cir. 1964), writ denied, 247 La. 874, 175 So. 2d 109 (1965); cf. Southwest Gas Producing Co., 230 La. at 353-55, 88 So. 2d at 654-55 (presumption of correctness of deed). Therefore, under Louisiana law, OKC must present clear and convincing proof of mutual mistake in order to obtain reformation.

Where, as here, the clear and convincing evidence standard applies, the court's inquiry as to whether a genuine issue exists will be "whether the evidence presented is such that a [factfinder] applying that evidentiary standard could reasonably find for either the plaintiff or the defendant," Liberty Lobby, 106 S. Ct. at 2514 (emphasis added). Stated differently, the appropriate summary judgment question will be whether the record evidence could support a reasonable finding by the factfinder either that the plaintiff has shown mutual error and mistake by clear and convincing evidence or that plaintiff has not. See id.

After carefully reviewing the evidence in the record before us, including the numerous depositions and the documentary evidence, we conclude that the evidence is not such that a factfinder, applying the clear and convincing standard, could reasonably find for OKC. Looking through the prism of the clear and convincing evidence standard, the focus of our inquiry must be on the process by which the Farmout was reduced to writing and then reviewed by OKC. If that process could not admit of mutual error as a matter of fact, reformation will not lie.

The ultimate question in a reformation case, and one that is denominated as a fact question, see, e.g., Agurs v. Holt, 232 La. at 1032, 95 So. 2d at 646, is whether a mutual mistake was made. The critical period for purposes of analysis of that question is the period during which the proposed agreement at issue was reduced to writing and reviewed prior to the signing.¹⁸  In analyzing the ultimate question of whether a mutual mistake was made, the court should focus on who reduced the proposed agreement to writing, who the parties to the agreement were, whether the provision at issue was central to the agreement, and what pains the parties took in reviewing the written instrument.

Since this case is before us on appeal of a grant of partial summary judgment, we view the evidence in the light most favorable to OKC and with all inferences drawn in OKC's favor. For purposes of summary judgment we will assume three things: (1) that OKC and Aminoil reached an "antecedent agreement;" (2) that the parties intended that the agreement would be reduced to writing; and (3) that there is a material variance between the antecedent agreement and the written instrument.¹⁹  See, e.g., Merritt v. Hays, 237 La. 557, 567, 111 So. 2d 771, 774 (1959); Campo v. La Nasa, 173 So. 2d at 369. Even assuming, as we do, that OKC could show these three factors, our inquiry would not be at an end. Rather, the existence of those three factors simply poses the problem. Remaining for us to ascertain is whether the record evidence would support a reasonable finding by a factfinder that OKC has shown, by clear and convincing evidence, that a mutual mistake was made, such that the written instrument does not express the true intent of the parties at the time the Farmout was signed. The three factors outlined above are simply probative of that question; they are not dispositive.

Two scenarios can be posited for what might have transpired between OKC and Aminoil. The first is that a mistake was made such that the written instrument varies from the antecedent agreement and fails to reflect the true intent of the parties. The other is that there is a variance between the antecedent agreement and the written instrument, but that the parties agreed to the terms of the written instrument, and thus, that the written instrument accurately reflects their intentions at the time of signing.

The evidence, viewed in the light most favorable to OKC, supports only the second hypothesis. We accept, for purposes of our review, that OKC and Aminoil negotiated and came to an antecedent agreement, describing the reserved interest with reference to Platform A. We also accept that the parties intended that their agreement be reduced to writing and that the written instrument varies from the antecedent agreement in that it refers to a reserved interest in terms of the "subject lease," with no reference to Platform A. The fact of the variance between the antecedent agreement and the written instrument might be enough to raise a genuine issue of material fact, precluding summary judgment, were it not for the existence in the record of evidence regarding the identity of the parties, the review process, and the centrality of the provision to the Farmout. Focusing on those factors, we find no genuine issue of material fact, that is, we find that the evidence is not such that a factfinder, applying the clear and convincing evidence standard, could reasonably find for either OKC or Aminoil. The evidence, viewed in the light most favorable to OKC, overwhelmingly supports the conclusion that there was no mutual mistake.

The evidence shows that the parties, both substantial companies with employees experienced in matters of the type covered by the Farmout, could and did look out for themselves. Aminoil presented the proposed Farmout to OKC for OKC's consideration and approval. Over a period of almost five weeks, OKC officials, experienced in oil and gas transactions, reviewed the proposed Farmout. Several of those OKC officials focused their attention on the very provision now at issue--the reserved interest/net profit provision²⁰ --and gave their approval to that provision. Further, the provision is drafted in clear and simple terms, such that even a reader with no expertise in oil and gas transactions should find it comprehensible.

Paragraph IV of the Farmout provides:

Aminoil shall reserve to itself from the interest to be assigned under the terms of this agreement, an overriding royalty interest equal to one-twelfth ( 1/12) of one-fourth ( 1/4) of eight-eighths ( 8/8) of production, until "net profits" are received as the term is defined hereafter, at which time Aminoil's overriding royalty interest shall automatically convert to a net profits interest equal to twenty percent (20%) of one-fourth ( 1/4) of eight-eighths ( 8/8) of production, until recovery from first production from the subject lease of four million (4,000,000) gross barrels of oil, condensate and/or gas equivalent based on ten (10) MCF of gas equaling one (1) gross barrel of oil and/or condensate; thereafter Aminoil's net profits interest shall be increased to thirty-three percent (33%) of one-fourth ( 1/4) of eight-eighths ( 8/8).

(emphasis added). Under the terms of Paragraph IV, Aminoil reserved its royalty/net profits interest from the "interest to be assigned," under the Farmout, that being all of Aminoil's twenty-five percent working interest in Block 89. No restrictions are apparent. When net profits were received, Aminoil's royalty interest would convert to "a net profits interest equal to twenty percent (20%) of one-fourth ( 1/4) of eight-eighths ( 8/8) of production, until recovery from first production from the subject lease." (emphasis added). References to the "subject lease" continue throughout the eight-page Farmout, with, for example, the production to be considered in calculating Aminoil's net profits interest being "minerals produced from the subject lease for the satisfaction and realization of net profits interest." Further, of great significance in the analysis of this case, is the centrality of the provision at issue to the Farmout. The provision goes to a significant purpose behind the transaction between OKC and Aminoil.²¹ 

It is inconceivable, particularly in view of the review process employed here and the expertise of those involved in that process,²²  that a "mistake" as clear and significant as the one alleged by OKC could have "slipped by."²³  It cannot simply be presumed that there was merely a mistake in transcribing the agreement when we are admonished to proceed with caution and to require clear and convincing proof of the highest degree. See Hollingsworth v. Edwards, 397 So. 2d 34, 37 (La.App.2d Cir. 1981); see also Crowell & Spencer Lumber Co. v. Hawkins, 189 La. 18, 23, 179 So. 21, 23 (1938) ("In these circumstances we do not see how it can be conclusively stated that the contracting parties intended anything but what was written in the contract.").

Even if one could conclude that OKC was in error at the time it signed the Farmout--that is, that there was sufficient evidence on that issue to send it to a trier of fact--the evidence would not support a finding that the mistake was mutual. The record evidence would not support a finding that, at the time the Farmout was signed, Aminoil believed that the Farmout meant anything other than what the terms of the Farmout provide. Even if Aminoil believed, at one time, that it made a deal different from the one evidenced by the Farmout, there is no evidence that the Farmout, as signed, does not accurately reflect Aminoil's intent at the time of signing. Indeed, the evidence clearly indicates a deliberate decision on the part of Aminoil, mid-way through the drafting process, to reserve an overriding royalty interest in production from the subject lease as distinguished from an interest in production from Platform A.²⁴ 

Thus, the motion for partial summary judgment was properly granted by the district court because, bearing in mind the clear and convincing burden OKC would bear at trial, the evidence is not such that a factfinder, applying that evidentiary standard, could reasonably find for either OKC or Aminoil. See generally Liberty Lobby, 106 S. Ct. at 2509-15.

OKC next takes issue with the district court's decision on trial of the accounting portion of this action, arguing that the district court erred in excluding charges for interest and litigation expenses from the net profits account.

OKC contends that the language of the accounting section of the Farmout clearly and unambiguously provides for the charging of "costs" to the net profits account²⁵  and that interest on expenditures for mineral exploration, development and production come within both the ordinary meaning of the word "cost"²⁶  and the meaning given the word by accountants. OKC argues that the receipt of expert testimony to arrive at a contrary conclusion was error on the part of the district court. Further, OKC alleges that the Farmout specifically provides for the charging against the net profits account of litigation expenses incurred as a result of the ownership of the lease²⁷  and that the district court's conclusion that the litigation expenses related to the instant lawsuit are not chargeable, based on expert testimony, constituted error.²⁸  Finally, OKC argues that, even assuming the expert testimony was admissible to interpret the Farmout, the testimony was inadmissible here because it lacked a proper evidentiary foundation and timely objection to its admission was made.

Over the objection of OKC, the district court accepted the testimony of its own expert and the two expert witnesses produced by Aminoil. The court's own expert, appointed pursuant to Rule 706 of the Federal Rules of Evidence, was Julian P. Brignac. Brignac is an attorney and certified public accountant who retired in 1982 from his position as a partner in the accounting firm of Peat Marwick Mitchell & Company and is now special counsel to a law firm. Aminoil's experts were Ronald Bannister and William Powell, partners in the accounting firm of Price Waterhouse & Co. Bannister and Powell testified to their extensive accounting experience in general and, in particular, to their oil and gas accounting experience. They were accepted by the court as experts in oil and gas accounting.

Powell and Bannister testified that the net profits accounting provisions in the Farmout at issue in this case, as with similar accounting provisions, are consistently interpreted to exclude interest unless interest is specifically designated as a chargeable item.²⁹  With regard to OKC's charge against the net profits account for litigation expenses, Powell and Bannister testified that such accounting language, under accepted accounting practices in the oil and gas industry, never includes legal expenses related to a dispute between the contracting parties.³⁰ 

In response to OKC's objection to the expert testimony on the ground that expert accountants should not be allowed to "interpret" the Farmout's accounting provisions, the court noted that the net profits accounting provisions in the Farmout have a specialized usage and meaning within the oil and gas accounting field; expert accounting testimony was required to explain the accounting interpretation of those provisions.³¹  The court stated:

These experts are interpreting these net profits accounting provisions, but it is their accounting interpretation based on their training and experience, which they are explaining in aid of this Court's legal determination of the issue of whether OKC has improperly charged such legal expenses and interest. They have not testified violative of the parol evidence rule. Neither Aminoil nor OKC contend that the farmout is ambiguous.

Aminoil USA, Inc. v. OKC Corp., 629 F. Supp. 647, 654 (E.D. La. 1986). The court found that Louisiana Civil Code Article 2047 controlled. Article 2047 provides:

The words of a contract must be given their generally prevailing meaning.

Words of art and technical terms must be given their technical meaning when the contract involves a technical matter.

La.Civ.Code Ann. art. 2047 (superseding arts. 1946 and 1947 of the 1870 Civil Code). Further, the court cited Rule 702 of the General Rules of Evidence as support for the court's rejection of OKC's objections. Rule 702 provides:

If scientific, technical, or other specialized knowledge will assist the trier of fact to understand the evidence or to determine a fact in issue, a witness qualified as an expert by knowledge, skill, experience, training, or education, may testify thereto in the form of an opinion or otherwise.

Fed.R.Evid. 702. Finally, the court noted that " [t]he evidence does not vary or contradict the net profits accounting provisions. It explains them." 647 F. Supp. at 654.

We note first that in a diversity case, the Federal Rules of Evidence govern the admissibility of evidence. Garwood v. International Paper Co., 666 F.2d 217, 223 (5th Cir. Unit B 1982). "The admission or exclusion of expert testimony is a matter left to the discretion of the trial judge, and his or her decision will not be disturbed on appeal unless it is manifestly erroneous." Perkins v. Volkswagen of Am., Inc., 596 F.2d 681, 682 (5th Cir. 1979) (citing Fed.R.Evid. 702); see also Vallot v. Central Gulf Lines, Inc., 641 F.2d 347, 350 (5th Cir. Unit A April 1981).³²  In this case, the decision of the trial court to admit expert testimony clearly does not require reversal.

In arguing that the district court erred in excluding the charges for interest and litigation expenses from the net profits account on the basis of the expert testimony admitted at trial, OKC correctly cites several general principles of Louisiana law. First, it is clear that courts must give legal effect to contracts according to the true intent of the parties, that intent to be determined by the words of the contract when those words are clear and explicit and lead to no absurd consequences. La.Civ.Code Ann. art. 2046; see, e.g., Leenerts Farms, Inc. v. Rogers, 421 So. 2d 216, 218 (La.1982). Further, under Louisiana law, contractual provisions are to be given their "generally prevailing meaning." La.Civ.Code Ann. art. 2047; see, e.g., Fishbein v. Bankston, 426 So. 2d 649, 651 (La.App.1st Cir. 1982).³³  However, OKC fails to give weight to the very provision of the Louisiana Civil Code that the district court cited in support of its decision to reject OKC's objection to the admission of expert testimony. Article 2047, after providing that words of a contract must be given their generally prevailing meaning, recognizes that " [w]ords of art and technical terms must be given their technical meaning when the contract involves a technical matter."³⁴  La.Civ.Code Ann. art. 2047; see, e.g., Van Geffen v. Herbert, 439 So. 2d 1257, 1259 (La.App.5th Cir. 1983) (stating that article 1947 of the Civil Code, whose substance is reproduced in article 2047, provides that terms of art or technical phrases must be interpreted according to received meaning in the profession or art in question).³⁵ 

Consistent with article 2047, and with Fed.R.Evid. 702, the district court admitted the testimony of Bannister, Powell and Brignac. We believe that the district court's admission of this expert testimony was not manifestly erroneous. Indeed, in this case, the admission of the expert testimony of the individuals experienced in the oil and gas accounting field for the purpose of obtaining explanation of the technical meaning of terms used in the net profits accounting provisions of the Farmout seems prudent.³⁶  See, e.g., Gorenflo v. Texaco, Inc., 735 F.2d 835, 838 (5th Cir. 1984) (noting in Louisiana diversity case that " [a]rticles 1946 and 1947 of the [1870] Louisiana Civil Code direct interpretation of the words 'develop and operate' [in oil, gas and mineral lease] consistent with their received meaning within the oil and gas industry."); Van Geffen v. Herbert, 439 So. 2d 1257 (La.App. 5th Cir. 1983) (applying principle of 1870 Civil Code article 1947 "that terms of art or technical phrases appearing in contracts are to be interpreted according to their received meaning in the profession or art in question" and concluding that lease term "practice of general dentistry" does not include specialized practice of orthodontics; court relied on testimony of several expert dental witnesses); cf. Agnelly v. Lauricella, 383 So. 2d 813 (La.App. 4th Cir. 1980) (finding testimony of certified public accountant served to assist court in interpretation of accounting terms, citing 1870 Civil Code article 1947). Under the substantive law of Louisiana, the technical meaning of the technical terms used in the Farmout was relevant. To maintain, as OKC does, that contract terms for which one can find a dictionary definition must be interpreted as per that dictionary definition is to ignore article 2047's dictate that technical terms be given their technical meaning when the contract involves a technical matter. What better way is there to discover the technical meaning than through the use of Federal Rule of Evidence 702.

In conclusion, we note that the district court's finding that the charges for interest and litigation expenses claimed by OKC are prohibited was not erroneous.

For the reasons set forth above, the judgment of the district court is AFFIRMED.