The B & a Pipeline Co., Plaintiff, v. Steve Dorney, D/b/a Scd Production Co., Intervenor-plaintiff-appellant, v. Enserch Corporation, D/b/a Lone Star Gas Co., the B & Apipeline Co., and Atlantic Richfield Co.,defendants-appellees, 904 F.2d 996 (5th Cir. 1990)

* We AFFIRM the district court's grant of summary judgment but REMAND the case for appropriate modification of the court's injunction.

II

An understanding of the case requires a detailed summation of the facts. On May 10, 1982 Henderson Clay Products (HCP) entered into a gas purchase contract with B & A Pipeline. B & A, an intrastate pipeline company in Texas, was wholly owned by HCP. The May 10 gas purchase contract provided that HCP would sell and deliver to B & A, at the maximum lawful price, natural gas produced from the leases HCP then held or later acquired within an area outlined on a map referred to in the contract as Exhibit "A".

On May 11, 1982, B & A entered into a gas purchase contract with Enserch Corporation (d/b/a Lone Star) by which B & A would sell gas to Lone Star at B & A's cost plus a transportation charge. This May 11 contract provided that B & A dedicate its "marketable interest in gas produced from the gas reserves underlying the lands and leases described in Exhibit 'B' and all of the gas produced from the lands and leases, subject to the gas purchase contracts described in Exhibit 'A' ".¹ 

Both the May 10 and the May 11 contracts required the buyers (B & A and Lone Star, respectively) to take 85 percent of the delivery capacity of the wells on the contract acreage or to pay for that percentage of the delivery capacity even if the gas were not actually taken. Each contract had a ten year term.

During the period in which the May 10 and 11 contracts were being negotiated, B & A's employee, Wilhite, was negotiating with Dorney, who held leases on approximately 1190 acres in Rusk County, Texas. Dorney alleges that he and Wilhite struck a tentative agreement on the terms of a farmout agreement before May 10 and that Wilhite promised that HCP, through B & A, would market the gas from Dorney's acreage by dedicating it to B & A's upcoming contract with Lone Star. The farmout agreement, however, was not memorialized until November 4, 1982. It provided, among other things, that if HCP and its purchaser ever lowered their sale price below the maximum lawful price, Dorney had the right either to ratify the lower price or to market his gas to third parties. It also provided that, in the event of any payments made for gas not actually taken (such as might occur under a take-or-pay clause), Dorney would share in his proportionate part of all such payments. Dorney points to these two terms as evidence that the farmout agreement implied and the parties understood that HCP agreed to market Dorney's gas through B & A by dedicating Dorney's gas to B & A's May 11 contract with Lone Star.²  The farmout agreement between Dorney and HCP, however, does not mention dedication, B & A, Lone Star, or the May 10 and 11 gas purchase contracts.

On April 15, 1983, HCP, B & A, and Lone Star modified the May 10 and 11 contracts to reduce the sale price to an amount less than the maximum lawful price. Dorney's approval for the reduction was secured pursuant to the farmout agreement.

Lone Star's performance under its May 11 contract with B & A began to falter as the market price of gas fell. On January 25, 1985, B & A filed suit in state court against Lone Star, seeking to recover under the take or pay provisions of the May 11 contract.

On June 1, 1985, Atlantic Richfield Company (ARCO) purchased HCP; this purchase included HCP's full ownership interest in B & A. ARCO stepped into HCP's shoes in relation to the farmout agreement and took over the handling of B & A's take-or-pay litigation against Lone Star.

Dorney filed a plea of intervention on December 27, 1985³  claiming entitlement to what he alleged was his proportionate part of the proceeds of B & A's take-or-pay claim against Lone Star. Dorney based his claim in intervention on the fact that gas from his wells was marketed by B & A to Lone Star under the May 11 contract.

In February 1986, ARCO, B & A, and Lone Star reached a tentative settlement. That settlement was not made final until April 6, 1988. Pursuant to the settlement, B & A dismissed its claims against Lone Star in the state court action.⁴  The settlement took the form of an amendment to the May 11 gas purchase contract between B & A and Lone Star and required that Lone Star buy large quantities of gas above the market price. Lone Star also agreed to transport gas for B & A, ARCO, and ARCO's affiliates at a very favorable rate.

On July 10, 1986, B & A amended its May 10 gas purchase contract with HCP in two ways to comport with the tentative settlement B & A had reached with Lone Star in February. First, the new dedication provision of the contract listed specific wells rather than outlining areas on maps, the method utilized in the initial gas purchase contracts. The defendant/appellees describe this change as a clarification rather than a modification of the wells included. The second amendment deleted B & A's take or pay obligations. Those two changes, Dorney argues, significantly reduced the value to Dorney of the May 10 HCP/B & A contract.⁵ 

On April 19, 1988, Dorney amended his plea of intervention adding several federal claims and including ARCO and Lone Star as parties. Although B & A's state court action against Lone Star (in which Dorney had intervened) was dismissed, ARCO then filed an action in federal court (Dallas) seeking a declaratory judgment that ARCO had no liability for any of Dorney's claims. Dorney, as intervenor in the state court action, then had the state court action reinstated. The defendants removed that state case to federal court (Tyler) in May 1988. It is from this (first) Tyler case that this appeal arises. In July 1988, Dorney filed a second amended complaint in that Tyler suit. The Tyler trial court granted ARCO, B & A, and Lone Star's Motion for Summary Judgment as to Dorney's claims on December 12, 1988. Dorney filed a notice of appeal on January 9, 1989.

On January 16, 1989, Dorney sued ARCO and, for the first time, also sued HCP in state court alleging that the federal summary judgment against him entitled him to cancel or rescind the farmout agreement. ARCO had the portion of this second state court action relating to ARCO (as distinct from HCP) removed to federal court (Tyler) on February 10, 1989 (thus creating the second Tyler case). Also on February 10, ARCO and B & A filed a motion for Rule 54(b) final judgment certification and an application for injunctive relief⁶  to protect and effectuate the district court's December 12 grant of summary judgment in the first Tyler suit.⁷ 

On June 29, 1989, the district court, pursuant to Fed. R. Civ. P. 54(b), certified as final its summary judgment as to all claims and causes of action asserted by Dorney against ARCO, B & A and Lone Star in the first Tyler federal suit. That district court judgment also enjoined Dorney from filing, prosecuting, or further litigating actions in the state courts of Texas or in any other court in the United States against B & A, ARCO, and Lone Star arising out of the November 4, 1982 farmout agreement or the "May 11-12, 1982" [sic] gas purchase contracts. Dorney now appeals from the summary judgment and from the issuance of that injunction.

III

In his second amended complaint Dorney raised three causes of action: one seeking damages for breach of contract, one seeking damages for fraud, and one seeking a declaratory judgment.

Dorney argues that ARCO (through B & A) breached its obligations to Dorney under the May 11, 1982 Lone Star-B & A contract.⁸  Dorney concedes that he is not a party to the contract, but contends that ARCO is nonetheless obligated to him under that contract because his gas was dedicated by B & A to Lone Star under the contract.⁹  As Dorney acknowledges, this claim for damages can prevail only if his gas was in fact dedicated under the May 11 contract.

Dorney, however, stated in his deposition that he had at all times retained the right to take his gas in kind. Indeed, his operating agreement with HCP granted him the right to take his gas in kind; nothing in the farmout agreement conflicts with that grant. As the word implies, in a "dedication" contract, the seller commits the production of the well at issue to be sold to the purchaser party to the contract. As a matter of law, when a gas well owner reserves the right to take the production of the well in kind, the production of that well is not dedicated.^9A We hold therefore that the district court did not err in finding that Dorney's gas was not dedicated in the B & A-Lone Star contract of May 11.¹⁰  Since the gas was not dedicated, Dorney cannot now contend that ARCO is obligated to Dorney by virtue of that May 11 contract.¹¹ 

Dorney contends that ARCO (through B & A) committed fraud, as defined under Texas statutory law¹²  and the common law, by falsely promising to prosecute B & A's take-or-pay claim against Lone Star for Dorney's benefit. Dorney argues that the false promise was intended to induce him to continue to perform under the farmout agreement. Dorney has made no showing of the reliance necessary to establish fraud. Dorney intervened in the take-or-pay case on December 27, 1985, before B & A agreed in principle to settle its claim with Lone Star. Dorney stated in his deposition that, following his intervention, he did not depend on ARCO or B & A to act on his behalf.C. THE DECLARATORY JUDGMENT ACTION

In his second amended complaint, Dorney requested, as an alternative to the damages for prospective breach requested in count one, that the court declare his rights under the farmout agreement and the two gas purchase contracts (of May 10 and 11) with regard to: 1) ARCO's and Lone Star's obligations to take the appropriate amount of their gas at the Section 107 price for the remaining life of the B & A-Lone Star contract; 2) ARCO's obligation to comply with the continuous development obligation contained in the farmout agreement;¹³  and, 3) ARCO's obligation to enforce the B & A-Lone Star contract so as to protect his reversionary rights under the farmout agreement. Dorney argues that the district court failed to take into account the May 10 HCP/B & A contract in its declaratory judgment.

Dorney requested a declaratory judgment stating his rights under three contracts: the May 10 and 11 contracts and the farmout agreement. In the Defendants' Motion for Summary Judgment, the defendants argued for summary judgment as to the declaratory judgment issues only insofar as those issues related to the May 11 contract. Dorney argued, in his Response to Defendants' Motion for Summary Judgment, that, because his claims regarding the May 10 contract and the farmout agreement were not addressed in the Defendants' Motion for Summary Judgment, a grant of that motion would not constitute a final judgment as to all the issues in the case. The district court's opinion makes explicit reference only to the May 11 B & A-Lone Star contract and the farmout agreement. Dorney contends, therefore, that not all of his claims for declaratory judgment are decided by the district court's opinion.

Dorney's argument in this regard must fail. Although the district court does not make explicit reference to the May 10 contract, the significance of that contract is clearly defined by the district court's finding that Dorney's gas was not dedicated under the May 11 contract. The district court found that Dorney's gas could not have been dedicated because Dorney retained the right to take his gas in kind. The significance of the May 10 contract, according to Dorney, is that it shows that Dorney's gas was later "rededicated" in the May 11 contract.¹⁴  The district court's finding that Dorney's gas was not dedicated under the May 11 contract and indeed could not have been dedicated is a clear rejection of Dorney's argument about the significance of the May 10 contract. In that way, the district court did account for all of the contracts with regard to which Dorney had requested declaratory judgment and declared Dorney's rights under all of those contracts.

IV

In the injunction issued by the district court in its June 29, 1989 Final Judgment, the district court enjoins Dorney "from filing, prosecuting, or further litigating actions in the state courts¹⁵  of Texas or any other court in the United States, against Defendants, B & A, ARCO, and Enserch Corp. d/b/a Lone Star Gas Co., arising out of either the November 4, 1983 Farmout Agreement or the May 11-12, 1982 gas purchase contracts which were the subject of this action".¹⁶  Because Dorney and ARCO are continuing to do business under the November 4 farmout agreement, new claims, independant of the current litigation, may yet arise under that contract. If ARCO were now to breach that contract in a manner unrelated to the present case, then Dorney would have a right to seek redress in court. The injunction, therefore, must be modified to allow for that contingency.¹⁷ 

V

This Court, in reviewing a grant of summary judgment, reviews the motion de novo using the same criteria used by the district court in the first instance.¹⁸  As stated in Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment shall be granted "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law". "Material facts" are facts that might affect the outcome of the suit under the governing law.¹⁹  A dispute about a material fact is "genuine" if the evidence is such that a reasonable jury could return a verdict on that issue for either party.²⁰ 

In this case, we agree with the district court that no genuine issue of material fact was raised by Dorney and AFFIRM the grant of summary judgment. We REMAND this case to the district court for appropriate modification of the injunction.