Big Sandy Company, Lp v. Eqt Gathering, LLC

• Court: Kentucky Supreme Court
• Decided: April 26, 2018
• Docket: 2016-SC-0561
• Status: Published

Opinion

RENDERED: APRIL 26, 2018 TO BE PUBLISHED

2016-SC-000561-DG

BIG SANDY COMPANY, L.P. APPELLANT

ON REVIEW FROM COURT OF APPEALS v. CASE NO. 2015-CA-000490 PIKE CIRCUIT COURT NO. 13-CI-00617

EQT GATHERING, LLC and APPELLEES EQT PRODUCTION COMPANY

OPINION OF THE COURT BY JUSTICE KELLER

REVERSING

The Pike Circuit Court entered a declaratory judgment in favor of Big

Sandy Company, LP (Big Sandy}, interpreting a pipeline easement agreement in

Big Sandy's favor·. EQT Gathering, LLC and EQT Production Company

(collectively, EQT) appealed, and the Court of Appeals reversed. Big Sandy '' petitioned this Court for discretionary review, which we granted. After careful

review, we reverse the Court of Appeals'.

I. BACKGROUND

The majority of the facts are undisputed. On August 1, 200~, Big Sandy

entered into a Pipeline Easement Agreement (the Agreement) with Kentucky I West Virginia Gas Company, LLC (KWVA). KWVA is EQT's predecessor in interest. In the Agreement, Big Sandy. granted KWVA an easement for the

construction, operation, and maintenance of a pipeline. The parties refer to the ' ·pipeline covered by the Agreement as the "Myra Pipeline." The Agreement was

negotiated by a representative for Big Sandy, Chauncey Curtz, and a

representative of KWVA, tester Zitkus. The parties negotiated the Agreement

from 1999 until t}:le Agreement was signed.

The Agreement granted IfWVAl and its successors-in-interest "a non-

exclusive sixty foot wide temporary easement for initial construction, and a

non-exclusive thirty foot wide rig!it of way and easement" for:

A pipeline twelve inches or less in diameter, fmrthe transportation of natural gas (the Pipeline) over, through, and across certain surface tracts and mineral tracts of Big Sandy situated on the waters of the Elkhorn Creek in Pike County, Kentucky, the centerline of which is as shown on the color print attached hereto and made a part hereof and marked as Exhibit "A."

Exhibit A is a map showing where the 'pipeline crosses Big Sandy's

surface and mineral tracts. The map indicates which portions of the pipeline

were already in the ground and also indicated the location ·of the proposed

route for new pipe.

The Agreement provides that if Big Sandy decides to mine in the vicinity

of an area covered by the easement and the Agreement, EQT must either

purchase the minerals underlying the pipeline or, if EQT does not want to

purchase the minerals, it must remove and relocat~ the pipeline at its own

expense.

1 For the remainder of the opinion, we will refer to the Agreement as being between Big Sandy and EQT, as EQT obtained its interest from KWVA.

' ( Big Sandy desires to mine on three tracts, tracts 1, 2, and 3 (subject

tracts}, on the map. On these subject tracts, Big Sandy holds only a mineral

estate, not a surface estate. Also, on these subject tracts, the :map shows that

pipe was already located in the ground before the Agreement became effective.

EQT argued the Agreement only applied· to those tracts that referenced

"proposed pipeline routes," excluding the tracts where the· pipe was already in

the ground prior to the Agreement. If this interpretation was correct, it would

mean that the Agreement _does not apply to the subject tracts that Big Sandy

intends to mine. If the Agreement is not applicable, Big Sandy would be liable

for the cost of removing and relocating the pipeline if it did, in fact, commence

mining in these locations. Big Sandy of course maintains that the Agreement

applies to all tracts depicted on the map. .. EQT filed suit against Big Sandy requesting declaratory relief regarding

the interpretation and scope of the Agreement. · Big Sandy filed its answer and ·

counterclaims for breach of contract, declaratory relief, and tortious

interference with prospective advantage. EQT then filed an amended complaint . '

adding a claim for reimbursement for costs incurred. The parties each then

filed motions for partial summary judgment. The trial court held a hearing,

ruling only on the interpretation of the Agreement.

The trial court agreed with Big Sandy that the Agreement applied to all

tracts depicted on the map, finding there was no language in the Agreement or

on the map that indicated the parties' intent tO exclude specific tracts from the

.scope of the Agreement. Therefore, according to the trial court, the Agreement

3 was unambiguous, and because .the map was incorporated and made part of

the Agreement, Big Sandy's interpretation prevailed.

EQT appealed. Although also finding the Agreement to be unambiguous;

the Court of Appeals reversed. Relying on four paragraphs (5, 7, 10, and 14),

the Court of Appeals held that Big Sandy's interpretation would be absurd and

render_much of the Agreement meaningless. Judge Thompson dissented and

would have affirmed the trial court. Big Sandy petitioned this Court for

discretionary review. After a thorough review of the record, we now reverse the

Court of Appeals. \ II. STANDARD OF REVIEW

In a declaratory action, findings of fact are reviewed under a clearly

erroneous standard, and conclusions of law are reviewed de novo. Baze v.

Rees, 217 S.W.3d 207, 210 (Ky. 2006) "The interpretation of a contract

including determining whether a contract is ambiguous, is a question of law to

be determined de novo on appellate review. Kentucky Shakespeare Festival,

Inc. v. Dunaway, 490 S.W.3d 691, 695 (Ky. 2016) (internal citations omitted).

III. ANALYSIS

A. The Agreement is unambiguous and applies to the· subject tracts.

"In interpreting a contract, we first determine as a matter of law whether

the contract is ambiguous. A contract written in clear and unambiguous

language is not subject to interpretation or construction and must be enforced

according to its terms." Board of Trustees of Kentucky School Boards Insurance

Trust v. Pope, 528 S.W.3d 901, 906 (Ky. 2017) (citing New York Life Ins. Co. v.

4 Conrad, 107 S.W.2d 248, 250-51 (Ky. 1937)). A contract is ambiguous if a

reasonable person would find it susceptible to different or inconsistent

interpretations. Cantrell Supply, Inc. v. Liberty Mut. Ins. Co., 94·S.W.3d 381,

. 385 (Ky. App. 2002) (internal citations omitted).

We agree with both the trial court and Court of Appeals that the

Agreement is unambiguous; and furthermore, as a matter of law, we hold the

· Agreement clearly applies to the subject tracts.

Paragraph 1 of the Agre~ment st~tes as follows:

Big Sandy hereby grants and conveys unto KWVA, ... a non- exclusive sixty foot (601 wide temporary eas,ement for initi~ construction, and a non-exclusive thirty foot (301 wide right of way t and easement (the Easement) for a pipeline twelve inches (12~) or le.ss in diameter, for the transportation of natural gas (the Pipeline) over, through and across certain Surface Tracts and Mineral Tracts of Big Sandy . . . . · -

EQT's argument, that the Agr~ement only applies to tracts in which Big

Sandy owns both a surface and mineral estate, or in the alternative, only those

tracts in which pipe was not already in the ground at the time of executing the

Agreement, is refuted by the language of Paragraph 1. The Ag~.eement clearly

states that the grant of the pipeline is over, through and across certain Surface

Tracts and Mineral Tracts.

Additionally, Paragraph 1 is the only provision of the Agreement that.

remotely distinguishes pipe already in the ground and the proposed r9ute of

new pipe. Paragraph 1 grants an initial temporary easement for construction . '

of the pipeline. However, the easement granted for the transportation of

natural gas across Big Sandy's tracts was not a temporary easement like that

5 for the initial construction. Once the initial construction was compieted, the

thirty foot w~de easement applied to the entire pipeline.

Further, the parties agree that the pipeline referenced in Paragraph I .is

the "Myra Pipeline" that is depicted on the map attached to and incorporated

into the Agreement. The Myra Pipeline and the map include both Big Sandy's

surface and mineral estates as well as those tracts in which pipe was already in

the ground and tracts where the pipeline was proposed.

"Any contract or agreement must be construed as a whole, giving effect

to all parts-and every word in it if possible." City of Louisa v. Newland, 705

S.W.2d 916, 919 (Ky. r986). "The legal interpretation of a contract should be

made in such a way as to make the promises mutually binding on all parties

unless such a coristruction is wholly negated by the language used." Id. Aside

from Paragraph 1, which evidences the Agreement applies to the subject tracts,

ample support is found in the remainder of the Agreement.

There is expressly excepted from the foregoing grant and demise, and reserved unto Big Sandy, its successors, assigns and lessees: (i) subject to the provisions of Paragraph 9 below, the right ·to utilize the surface of the lands effected [sic} by the .Easement for any and all purposes including ·but not limited to, the construction of spur tracks, mine tracks, fills, inclines, power lines, telegraph and telephone lines upon, over,, th!ough, across or above the same; and (ii) subject to the provisions of Paragraphs 7 and 9 below, the right to mine, remove, develop, prospect for, and explore for any coal, other mineral or other strata underlying the Easement without liability for any damage which may accrue to · said Easement or to the Pipeline . . . . Subject to the provisions of Paragraphs 7 and .9 below, it is expressly acknowledged and agreed by KWVA that Big Sandy or its lessees are allowed to remove one hundred percent (100%) of the coal under the Pipeline, and that controlled subsidence of the ground surface is planned.

6 Paragraph 5 (emphasis added).

We find Paragraph 5 very persuasive. The emphasized portion

above gives Big Sandy the right to utilize the surface of tracts affected by

the easement. It is undisputable that the easement affects all of the

tracts depicted on the map. Moreover, the last clause of Paragraph 5

gives Big Sandy the right to remove all of the coal under the pipeline,

making no distinction between the pipe in ground and the proposed pipe

route. If the Agreement did not apply to the subject tracts, Big Sandy

would not have had access to those tracts to mine the coal. "Of what

value is a mineral if it cannot be mined? The surface owner has no right

in the minerals; the mineral estate is therefore considered to be the

dominant estate, and the surface estate is the servient one." Kentucky

Southern Coal Corp. v. Kentucky Energy and f£nvironment Cabinet, 396

8.W.3d 804, 813 (Ky. 2013) (Scott, J., dissenting) (quoting Akers v.

Baldwin, 736 S.W.2d 294, 297 (Ky. 1987)).

Paragraph 7 discusses EQT's obligation to relocate the pipeline or

purchase Big Sandy's mineral.interest in the event Big Sandy desires to

commence mining in the vicinity of the pipeline. Additionally, Paragraph 9

states:

Except as otherwise provided herein, in no case shall Big Sandy continue its operations in such a way as to cause the additional loss of lateral or subjacent support with respect to, or to further endanger the safety of persons or the Pipeline or interfere with the construction, operation or maintenance of the Pipeline, unless KWVA has specifically released in writing Big Sandy's obligation to conduct its operations in such a manner, or KWVA has failed to

7 respond to a Notfoe within the applicable time period ·set. forth below.

Big Sandy has the right to mine one hundred percent of the coal as

long as it provides notice to EQT (Paragraph 7) and conducts its

operations in a reasonable manner so as not to cause any additional

harm to the pipeline (Paragraph 9). The Pike Circuit Court noted that

had the parties intended the Agreement to apply to some tracts and not

others, the parties could have drafted the Agreement to include such

language. We agree. The Agreement clearly and unambiguously applies

to the subject tracts.

B. The Court of Appeals' analysis fails as a matter of law.

The Court of Appeals focused on Paragraphs 7, 10, and 14 in

addition to Paragraph 5, discussed above. Paragraph 7 addresses Big

Sandy's duty to notify EQT if it plans to mine in the vicinity of the

pipeline and EQT's duty to relocate the pipeline or purchase the

minerals. The Court of Appeals focused on one phrase, that EQT could

relocate the pipeline "elsewhere _on Big Sandy's Surface Tracts." Because

any relocation of pipe would be on Big Sandy's surface tracts, the Court

of Appeals concluded that the entire Agreement only applies to pipeline

located on Big Sandy's surface t~acts.

· This interpretation must fail. The Court of Appeals is correct when

it cited that the owner of a mineral estate has a limited right to access

the surfac~. See General Refractories Co. v. Swetman, 197 S.W.2d 908,

· 910 (Ky. 1946). However, this does not equate,_ as the Court of Appeals 8 found, to the Agreement only applying to Big Sandy's surface tracts. It

plainly means that if the pipeline has to be relocated, it will be relocated

on Big Sandy's surface tracts. This is logical based on Swetman because

Big Sandy would have no authority to order the pipeline to be placed on

land in which it did not have an interest.

"There is no better established rule of law in this state than that a

court cannot make a contract for the parties, but can only construe the

contract it finds they have entered into. Nor has the court the authority

to read words into a contract." Alexander v. Theatre Realty Corp., 70

S.W.2d 380, 387-88 (Ky. 1934) (internal citations omitted). We believe

that the Court of Appeals' opinion effectively reads into the Agreement

terms and conditions the parties never intended, limiting the scope of the

Agreement as applied to the easement. As such, the Court of Appeals'

opinion must be reversed.

Paragraph 10 provides that if EQT elects to relocate the pipeline,

· that portion of the easement "shall automatically and without cost revert

to Big. Sandy immediately upon completion of such removal." Paragraph

14 addresses what constitutes abandonment of the easement by EQT

and provides that the abandoned portion shall "automatically and

immediately revert to Big Sandy without execution of release." The Court

of Appeals held that it was absurd to hold the Agreement applied to the

subject tracts because Big Sandy could not have a reversionary interest

in something it does not own (the surface).

9 As Judge Thompson noted in his dissent, "If Big Sandy does not /

own the surface estate in any portion of the easement, Big Sandy would

obviously not have a reversionary ownership interest superior to the true

owner." We agree. "It is a fundamental rule that the grantor can grant

only his interest in the property." Dukes v. Link, 315 S.W.3d 712, 717

(Ky. App. 2010). Big Sandy had some form of interest in all 35 tracts of

land, and it conveyed an easement to EQT. Paragraphs 10 and 14 refer

to the interest in the easement r~verting back to Big Sandy in the case of

the pipeline being relocated or abandoned. This is the only logical

explanation as Big Sandy and EQT are the only parties to the Agreement ·,

and are the only parties who can be bound by the Agreement.

Big Sandy additionally argues that the Court of Appeals' decision

relied on new grounds for reversal that weren't raised or briefed by the

parties. Because we agree with the trial court's interpretation of the . . Agreement, we need not address this issue. The Court of Appeals'

interpretation fails as a matter of law.

IV. CONCLUSION

For the foregoing reasons, the Court of Appeals' opinion is reversed and

the partial summary judgment entered by the Pike Circuit C~urt is reinstated.

Minton, C.J., Cunningham, Hughes, Keller, VanMeter and Venters, JJ.,

concur. W ng I sitting. . h t, J :, not ..

10 COUNSEL FOR APPELLANT: .

Grahmn New Morgan Adrianne Strong Dinsmore & Shohl LLP

David Baird Baird & Baird, PSC

COUNSEL FOR APPELLEE:

John Kevin West Candace Smith Steptoe & Johnson PLLC

)