Frederick v. Southern Star Central Gas Pipeline, Inc.

944 F. Supp. 2d 1083, 2013 WL 1947421, 2013 U.S. Dist. LEXIS 66595
CourtDistrict Court, D. Kansas
DecidedMay 9, 2013
DocketCase No. 10-1063-JAR
StatusPublished

This text of 944 F. Supp. 2d 1083 (Frederick v. Southern Star Central Gas Pipeline, Inc.) is published on Counsel Stack Legal Research, covering District Court, D. Kansas primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Frederick v. Southern Star Central Gas Pipeline, Inc., 944 F. Supp. 2d 1083, 2013 WL 1947421, 2013 U.S. Dist. LEXIS 66595 (D. Kan. 2013).

Opinion

MEMORANDUM AND ORDER

JULIE A. ROBINSON, District Judge.

Plaintiffs in this case are seeking equitable reformation and declaratory judgment with respect to the annual payment required to exercise annual options in the natural gas storage leases under which Plaintiffs are lessors and Defendant Southern Star is lessee. This matter is before the Court on Defendant’s Motion for Summary Judgment (Doc. 110). The motion is fully briefed and the Court is prepared to rule. As described more fully below, the Court grants Defendant’s motion for summary judgment.

I. Motion to File Surreply

Plaintiffs seek leave to file a surreply to the motion for summary judgment, arguing that Southern Star’s reply brief raised two new arguments: 1) that the factual basis for reformation does not show a present hardship; and 2) that Plaintiffs’ reformation theory violates public policy. Southern Star did allege in its memorandum in support of summary judgment a lack of hardship factors in the present [1085]*1085case. Southern Star argues that its public policy argument in its reply brief “was asserted in response to plaintiffs re-characterized and expanded claim that reformation could be based even upon industry changes.”1 Because Southern Star relies on the new public policy argument in its reply brief, the Court will grant Plaintiffs’ motion to file their surreply. “[I]f the court relies on new materials or new arguments in a reply brief, it may not forbid the nonmovant from responding to these new materials.”2 Therefore, for purposes of the instant motion for summary judgment, the Court will consider Plaintiffs’ Sur-Reply that is attached to its motion.

II. Uncontroverted Facts

The following facts are either uncontroverted, stipulated to, or viewed in the light most favorable to Plaintiffs.3

The parties and the Alden Field

Defendant Southern Star (“Southern Star”) owns and operates a natural gas storage field located in Rice County, Kansas (“the Alden Field”), as authorized by Certificates of Public Convenience and Necessity issued by the Federal Energy Regulatory Commission (“FERC”). The Alden Field encompasses all of Sections 15, 21, and 22, and portions of Sections 9, 10, 16, 27, and 28 in Township 21 South, Range 9 West, Rice County, Kansas. There are currently thirty-three gas storage leases for this acreage in the Alden Field. Southern Star is the current “Lessee” and operator of the gas storage leases located within the certificated boundaries of the Alden Field. Plaintiffs are owners of mineral and/or surface rights in some of the acreage within the Alden Field and are “Lessors” of the seventeen Alden Field gas storage leases that are the subject of this case (the “gas storage leases”). Over the term of the gas storage leases, Southern Star and its predecessors have always used the subject properties for gas storage, and their use of the subject properties has not changed over time.

Pertinent terms of the gas storage leases

All of the gas storage leases provide for the lease by Southern Star of the land described therein “lying above the top of the Viola lime,” or comparable subsurface geological formations, exclusively for the purpose of natural gas storage and associated activities. All but one of Plaintiffs’ natural gas storage leases gave Southern Star the right to store natural gas during a primary term of fifty years. The one exception was a ten year primary term, which expired in 1988.

Each of the seventeen leases contained language that gave a “repeated annual option to extend and continue this lease for and during each repeated annual period, after the expiration of said primary term, upon the same terms and provisions applicable for and during said primary term, including each repeated annual option.” The amount provided in the leases to be paid during the primary term and for the exercise of subsequent annual options was $1 per acre per year. The yearly rental in each lease is referred to as an “annual payment.” The paragraph of each lease that provides for an annual payment to exercise the yearly option contains the following language:

[1086]*1086It is agreed that the consideration recited in paragraph 1 hereof, together with the herein provided annual payment, shall operate, cover and be held to be full consideration and compensation to Lessor for all privileges, rights and each option granted lessees under this lease, except only as otherwise expressly provided in this lease.

None of the Plaintiffs’ leases contain any provision for upward adjustments for inflation or on any other basis. Under the subject leases, the only basis for exercising the annual option is by making a $1 per acre per year “annual payment” and “being engaged in any one of the purposes of the lease upon said land or upon land in the vicinity thereof.”

All of the gas storage leases provide that Southern Star will, at the landowner’s request, deliver free and/or reduced-price natural gas to the principal dwelling on the leased property (“Domestic Gas”), under conditions specified in the leases — either the existence of an observation well on the premises or upon circumstances that might exist “until a well exists on the premises.” For purposes of this Memorandum and Order, “Domestic Gas” is defined as free and/or reduced-price natural gas to the principal dwellings on the properties subject to Plaintiffs’ gas storage leases. All of the gas storage leases at issue in this case contain provisions obligating Southern Star to deliver some quantity of Domestic Gas, provided that terms and conditions specified in the gas storage leases are met. Some of the leases provide for 250,000 Mcf4 of Domestic Gas free annually and additional gas above that volume for only $.50 per Mcf; others require the lessor to pay $.50 per Mcf for all Domestic Gas received.

Plaintiffs’ Claims

Plaintiffs make no claim that there was fraud, coercion or duress in the negotiation, acquisition, or execution of the gas storage leases. Plaintiffs make no claim' that the negotiation, acquisition, or execution of the gas storage leases was based on a mutual mistake of fact between the parties.

Plaintiffs seek reformation of the gas storage leases “in a manner which requires Southern Star to tender payments to exercise its annual option in an amount determined to be fair and reasonable at current market value rates for underground natural gas storage.” Plaintiffs assert further that the “current market value for gas storage leases is multiple times the one dollar an acre being currently paid by Southern Star.” Plaintiffs also seek a declaratory judgment holding that the storage leases should be reformed “to require Southern Star to tender payments to exercise the annual option in an amount determined to be fair and reasonable at current market value rates for underground natural gas storage.”

Plaintiffs seek relief because of numerous changes in the natural gas business that “were neither anticipated nor reasonably foreseeable” ... and because “[t]he Storage Leases as written drive too hard of a bargain to be enforced and are unconscionable and inequitable.” Among the changes alleged to have been neither anticipated nor reasonably foreseeable were:5

a.

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Bluebook (online)
944 F. Supp. 2d 1083, 2013 WL 1947421, 2013 U.S. Dist. LEXIS 66595, Counsel Stack Legal Research, https://law.counselstack.com/opinion/frederick-v-southern-star-central-gas-pipeline-inc-ksd-2013.