Petrohawk Properties, L.P. v. Chesapeake Louisiana, L.P.

689 F.3d 380, 2012 WL 3011035, 2012 U.S. App. LEXIS 15286
CourtCourt of Appeals for the Fifth Circuit
DecidedJuly 24, 2012
Docket11-30576
StatusPublished
Cited by43 cases

This text of 689 F.3d 380 (Petrohawk Properties, L.P. v. Chesapeake Louisiana, L.P.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Petrohawk Properties, L.P. v. Chesapeake Louisiana, L.P., 689 F.3d 380, 2012 WL 3011035, 2012 U.S. App. LEXIS 15286 (5th Cir. 2012).

Opinion

KING, Circuit Judge:

What follows is the tale of competing mineral leases on the Louisiana property of Lee and Patsy Stockman during the Haynesville Shale leasing frenzy. In April 2008, the Stockmans entered into an extension of their mineral lease with Chesapeake Louisiana, L.P. and received a $240,000 bonus. In May 2008, the Stock-mans entered into a mineral lease with Petrohawk Properties, L.P. for a $1.45 million bonus. In July 2008, Petrohawk dishonored the $1.45 million draft and executed a second mineral lease with the Stockmans, paying them a $1.7 million bonus. Chesapeake sued the Stockmans for breach of contract, and the parties settled at trial. The Stockmans then sued Petrohawk for fraud in obtaining the first mineral lease, and Chesapeake sued Petrohawk for intentional interference with its contract with the Stockmans. Petrohawk prayed for a judgment that its mineral lease was valid or, in the alternative, for a return of its bonus money. After a bench trial, the district court found that Petrohawk procured the first mineral lease by fraud and rescinded the lease. The district court dismissed Chesapeake’s tort claim and dismissed Petrohawk’s claim for a return of its bonus money. Petrohawk appealed, and Chesapeake cross-appealed. For the following reasons, we AFFIRM the judgment of the district court.

I. BACKGROUND

A. Statement of Facts

Lee and Patsy Stockman (the “Stock-mans”) own real property in Caddo Parish, *384 Louisiana (the “Stockman property”). On July 14, 2005, the Stockmans entered into a mineral lease with Stellios Exploration Company (the “Stellios Lease”), which was later assigned to Chesapeake Louisiana, L.P. (“Chesapeake”). The primary term of the Stellios Lease expired on July 14, 2008, and the Stellios Lease did not contain an option to extend the primary term. However, the Stellios Lease provided that the lease could be maintained beyond the primary term by conducting drilling operations on the leased premises. On April 9, 2008, Chesapeake and the Stockmans executed an extension of the Stellios Lease (the “Chesapeake Extension”). Chesapeake tendered to the Stockmans a draft for the lease bonus of $500 per acre, which amounted to $241,430. Chesapeake did not immediately record the Chesapeake Extension.

On May 8, 2008, Lisa Broomfield (“Broomfield”) approached the Stockmans about leasing their property to Petrohawk Properties, L.P. (“Petrohawk”). Broom-field was a landman working for Pangaea Land Services (“Pangaea”) on behalf of its client, Petrohawk. Lee Stockman (“Mr. Stockman”) informed Broomfield that he had already signed the Chesapeake Extension. Broomfield responded that the Chesapeake Extension was not “legal or valid” because Chesapeake had not yet recorded it. Broomfield explained that Louisiana was a race state and that if Petrohawk recorded its lease first, the Chesapeake Extension would be invalid. Broomfield did not tell Mr. Stockman that the Chesapeake Extension would still be valid as to the Stockmans regardless of recordation and that the Stockmans could be liable to Chesapeake for breaching the obligation of good faith if they signed a competing lease with Petrohawk. She offered the Stockmans a lease bonus of $3,000 per acre for a mineral lease with Petrohawk, which amounted to $1.45 million.

After speaking with Broomfield, Mr. Stockman called his neighbor, who was a retired geologist and had experience with mineral leases. The neighbor gave Mr. Stockman the following language to include in the lease: “This lease is executed [without] warranty of title, either expressed or implied, not even as to the return of bonus money or any other payments.” That evening, Broomfield sent an email to her supervisor stating that the Stockmans had already signed the Chesapeake Extension. She explained that Mr. Stockman “realizes that if [Petrohawk does not] win the race to the courthouse he is stuck with $500 per acre.” Furthermore, she stated that Mr. Stockman requested a lease bonus of $3,500 per acre and the inclusion of both vertical and horizontal Pugh clauses in the lease. Broomfield also testified that Mr. Stockman had requested a three-year primary term with a two-year option to extend.

On May 9, 2008, Broomfield returned to the Stockmans’ residence with a lease for them to sign. The lease contained different terms than those that Broomfield and Mr. Stockman had negotiated the day before: a $3,000 per acre bonus payment, no Pugh clauses, and a primary term of five years. Broomfield testified that the lease was intended as a “placeholder” in order for Petrohawk to win the race to the courthouse. Mr. Stockman asked Broomfield to include his neighbor’s language expressly excluding any warranty of title. Broom-field called her supervisors, who allowed the Stockmans to strike through the warranty of title in the lease. Broomfield assured Mr. Stockman that striking the warranty would have the same effect as including his neighbor’s language. The Stockmans then signed and executed the mineral lease with Petrohawk (the “May 9 *385 Lease”). Petrohawk tendered to the Stockmans a draft for the lease bonus (the “Petrohawk draft”) in the amount of $1.45 million and payable in thirty days. That same day, Petrohawk recorded the May 9 Lease. Chesapeake did not record the Chesapeake Extension until May 19, 2008.

On May 12, 2008, before depositing the Petrohawk draft, Mr. Stockman went to the clerk of court’s office to ensure that Broomfield was correct that the Chesapeake Extension was unrecorded. The clerk of court showed Mr. Stockman that the Chesapeake Extension was unrecorded and confirmed that Louisiana is a race state. After this investigation, Mr. Stock-man deposited the Petrohawk draft. Mr. Stockman wanted to return Chesapeake’s bonus money, and in late May or early June, he paid an attorney to write a letter to Chesapeake. The attorney drafted the June 2, 2008 letter, which revoked and withdrew the Stockmans’ consent to the Chesapeake Extension and contained a cashier’s check in the amount of Chesapeake’s bonus payment.

The Petrohawk draft was due to be paid to the Stockmans on July 2, 2008, but the Stellios Lease was not set to expire until July 14, 2008. If Petrohawk honored the $1.45 million draft on July 2, and Chesapeake commenced operations on the Stock-man property before the expiration of the Stellios Lease, then Chesapeake would maintain the Stellios Lease and Petrohawk would lose its bonus payment. Thus, Petrohawk intentionally dishonored the Petrohawk draft, which was returned to Mr. Stockman unpaid on July 7, 2008.

Mr. Stockman called Petrohawk to find out why the draft was dishonored. He spoke with Todd Bergeron (“Bergeron”), who explained that Petrohawk’s lawyers had advised Petrohawk not to pay the bonus until July 15, when it could be confirmed that Chesapeake had not extended the Stellios Lease. Bergeron led Mr. Stockman to believe that either party could walk away from the May 9 Lease, but that if Mr. Stockman did so, he would not receive the $1.45 million bonus. Bergeron did not tell Mr. Stockman that he was legally entitled to payment of the Petrohawk draft. Bergeron told Mr. Stock-man that if he allowed a delay in payment until July 15, Petrohawk would increase the bonus.

Thereafter, the Stockmans and Petrohawk executed a new lease on July 15, 2008 (the “July 15 Lease”). Petrohawk agreed to pay the Stockmans a lease bonus of $3,500 per acre, or $1.7 million.

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Cite This Page — Counsel Stack

Bluebook (online)
689 F.3d 380, 2012 WL 3011035, 2012 U.S. App. LEXIS 15286, Counsel Stack Legal Research, https://law.counselstack.com/opinion/petrohawk-properties-lp-v-chesapeake-louisiana-lp-ca5-2012.