IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 99-11049
HARRY PTASYNSKI; WL GRAY & CO,
Plaintiffs-Appellees-Cross-Appellants,
versus
SHELL WESTERN E&P INC, ET AL,
Defendants,
SHELL WESTERN E&P INC; SHELL OIL COMPANY; MOBIL OIL CORP,
Defendants-Appellants-Cross-Appellees.
Appeals from the United States District Court
for the Northern District of Texas
February 13, 2002
Before GARWOOD, PARKER, and DENNIS, Circuit Judges.
GARWOOD, Circuit Judge:*
Defendants-appellants-cross-appellees Shell Western E&P Inc., Shell
Oil Co. (collectively “Shell”) and Mobil Oil Corp. (“Mobil”) appeal the
*
Pursuant to 5TH CIR. R.47.5 the Court has determined that this
opinion should not be published and is not precedent except under the
limited circumstances set forth in 5TH CIR. R. 47.5.4.
1
district court’s judgment for plaintiffs-appellees-cross-appellants
Harry Ptasynski (Ptasynski) and W.L. Gray & Co. (“Gray”) as to their
negligent misrepresentation and declaratory judgment claims. Ptasynski
and Gray appeal the district court’s finding for defendants as to their
contract and negligence per se claims and also complain that the award
of prejudgment interest to them should have been based on Colorado law.
We affirm in part and reverse in part.
Facts and Proceedings Below
In the 1970s, due to the rising costs of oil, petroleum companies
began to investigate the use of carbon dioxide to increase oil output
from older fields. They discovered that when carbon dioxide is injected
under sufficient pressure into an older field (CO2 flooding), it mixes
with oil underground, dislodging it from the surrounding rock and
enhancing its recovery. This process is known as tertiary or enhanced
oil recovery (EOR). Oil fields in West Texas were considered prime
candidates for EOR.
The largest carbon dioxide field capable of supplying these West
Texas fields was the McElmo Dome area, located in Montezuma and Dolores
counties, Colorado. As of 1981, the McElmo Dome area was divided into
seven small units. Together, Shell and Mobil Producing Texas & New
Mexico Inc. (MPTN), a Mobil subsidiary, owned 87% of the total working
interest in the McElmo Dome area. Shell and Mobil believed that the
abundant carbon dioxide reserves of the McElmo Dome area could be
harvested more efficiently if the area was operated as a single unit.
2
Throughout 1982, Shell and Mobil took steps to realize their vision for
the McElmo Dome area. A partnership called Cortez Pipeline Co. was
formed to construct, own and operate a 500 mile pipeline that would
carry carbon dioxide from McElmo Dome to fields in West Texas.1 Shell
also entered into a contract with the Denver Unit in West Texas for the
sale of a large volume of carbon dioxide.2
Finally, Shell filed an application with the Colorado Oil & Gas
Commission to operate the McElmo Dome area as a single unit. MPTN
supported this application. The Commission held public hearings on
Shell’s application on October 18-19, 1982. At the conclusion of these
hearings, the Commission preliminarily approved Shell’s application, but
required Shell to obtain the consent of 80% of the cost-bearing working
interest owners and 80% of the non-cost bearing royalty interest owners.
Because Shell and MPTN collectively owned 87% of the total working
interest, the first requirement was instantly satisfied. Prior to the
hearing, Shell had obtained the preliminary approval of the United
States Minerals Management Service (MMS), which owned 76% of the total
royalty interest. Thus, Shell had only to obtain consent of an addition
4% of the total royalty interest in order to secure final approval from
1
Shell Cortez Pipeline Co., a Shell subsidiary, was a 50% partner
in the Cortez Pipeline Co. Mobil Cortez Pipeline Co., a Mobil
subsidiary, was a 37% partner.
2
The price of the carbon dioxide under the Denver Unit contract was
$.90 per thousand cubic feet (mcf), but the contract provided this price
would fluctuate according to the price of oil. In addition, the
contract required the Denver Unit operator to also reimburse Shell for
the cost of transporting the carbon dioxide from McElmo Dome to West
Texas.
3
the Commission.
In order to obtain such consent, Shell, on January 6, 1983, sent
a package of materials to the royalty interest owners. The package
included: 1) a brochure entitled “A Program for Unit Operations,” which
was designed to provide an overview of the project; 2) the Unit
Agreement for the proposed McElmo Dome Unit; and 3) a ratification form
by which the royalty interest owners could manifest their assent to the
Unit Agreement. The brochure contained, inter alia, information in the
form of questions and answers. Among these were the following:
“What is the price for CO2?
The sales price provided in the contract with the Denver Unit
is 90¢ per thousand cubic feet as of 12/1/81. This price
will fluctuate up or down based on the price of West Texas
crude. Based on December, 1982 oil prices, the sales price
is about 85¢ per thousand cubic feet.
Will the royalty owners of interest in this unit have to pay
for the pipeline, transportation or injection of CO2 in West
Texas?
No.”
Harry Ptasynski and Wilfred L. Gray3 are independent geologists
with over forty years of experience in the oil and gas industry. In the
1960s and 1970s, both acquired leases in the McElmo Dome area—Ptasynski
from the federal government and Gray from the federal government and the
state of Colorado. Each assigned his lease to others but retained an
overriding royalty interest. Each received Shell’s package and signed
3
Wilfred L. Gray later transferred his interests in the leases to
W.L. Gray & Co., a partnership owned by Wilfred L. Gray and his wife.
W.L. Gray & Co. is the named plaintiff.
4
and returned the ratification form. Together, Ptasynski and Gray own
about 0.05% of the total royalty interest in McElmo Dome. Ultimately,
Shell obtained the consent of 92.5% of the total royalty interest. As
a result, the McElmo Dome Unit became effective on April 1, 1983, and
production of carbon dioxide began in December 1983. Ptasynski and Gray
have been receiving royalties from this production since 1984. Such
royalties were based on the carbon dioxide’s value before being
transported to West Texas. Defendants generally determined this value
by in effect subtracting the cost of transportation from the delivered
sales price. Plaintiffs claim they were not aware of this until fellow
royalty interest owner George Bailey filed his own lawsuit on March 11,
1997.
Plaintiffs filed their complaint on May 21, 1997. The gravamen of
the complaint is that, contrary to the representation in the brochure,
plaintiffs were, in effect, charged for transporting the carbon dioxide
to West Texas. The complaint alleges that defendants are liable for:
1) willfully filed fraudulent tax documents in violation of 26 U.S.C.
§ 7434; 2) fraud; 3) fraudulent concealment; 4) negligent
misrepresentation; 5) civil conspiracy; 6) breach of contract; and 7)
negligence per se. The complaint also sought a judicial declaration
that, inter alia, “as to all future production from the Unit,
[defendants] shall not be permitted to deduct any transportation costs
from the royalty payments made to plaintiffs.”
Originally, the complaint named only the Shell defendants. Mobil
5
and Cortez Pipeline Co. were added in February 1998, but the latter was
dismissed without prejudice in September 1998. Eventually, the parties
filed cross-motions for summary judgment. The net result was that
plaintiffs’ claim under 26 U.S.C. § 7434 and their attempt to assert a
substantive claim for fraudulent concealment were dismissed with
prejudice.4 All other claims were bench tried on August 2, 3 and 9,
1999. The district court found for defendants on the fraud, civil
conspiracy, contract and negligence per se claims and for plaintiffs on
the negligent misrepresentation and declaratory judgment claims. The
district court ordered Shell to pay Ptasynski $202,910.61 and Gray
$329,029.02, and Mobil to pay Ptasynski $118,409.5
The defendants appeal the district court’s judgment for plaintiffs
as to their negligent misrepresentation and declaratory judgment claims.
The plaintiffs appeal the district court’s finding for defendants as to
their contract and negligence per se claims and complain that it
improperly applied Texas, instead of Colorado, law in awarding
prejudgment interest.
Discussion
I. Standard of Review
4
The district court correctly observed that, in Texas, fraudulent
concealment in this context is not an independent cause of action.
Rather it serves to estop a defendant from relying upon the defense of
limitations until the plaintiff discovers or could by reasonable
diligence have discovered the defendant’s fraud. See Computer
Associates International v. Altai, 918 S.W.2d 453, 456 (Tex. 1996). See
also Rozell v. Kaye, 197 F.Supp. 733, 735 (S.D. Tex. 1961).
5
Gray has not asserted any claims against Mobil.
6
Only the claims disposed of in the bench trial are at issue in this
appeal. “The standard of review for a bench trial is well established:
findings of fact are reviewed for clear error and legal issues are
reviewed de novo.” Kona Technology Corp. v. Southern Pacific
Transportation Co., 225 F.3d 595, 601 (5th Cir. 2000).
II. Negligent Misrepresentation
A. Discovery Rule
The alleged negligent misrepresentation (distribution of the
brochure) occurred in January 1983, over fourteen years before the
plaintiffs filed their original complaint. The statute of limitations
for negligent misrepresentation claims is two years. HECI Exploration
Co. v. Neel, 982 S.W.2d 881, 885 (Tex. 1998). The district court found
that Texas’s discovery rule applies to claims of negligent
misrepresentation and that, because plaintiffs did not learn how the
defendants were computing their royalties until they became aware of the
Bailey lawsuit in 1997, the discovery rule saved plaintiffs’ negligent
misrepresentation claim.
It is uncertain whether Texas’s discovery rule applies to negligent
misrepresentation claims. In Kansa Reinsurance Co. v. Congressional
Mortgage Corp. of Texas, 20 F.3d 1362, 1372 (5th Cir. 1994), this Court
held that Texas law precludes application of the discovery rule to
claims of negligent misrepresentation. Since Kansa was decided, the
Texas Supreme Court has adopted a categorical approach to application
of the discovery rule, but has not clarified whether the rule applies
7
to a claim of negligent misrepresentation. HECI Exploration Co. v.
Neel, 982 S.W.2d 881, 886 (Tex. 1998). The test is whether the nature
of the injury renders it inherently undiscoverable and objectively
verifiable. Id. At least one Texas court of appeals has held that the
discovery rule can apply to a negligent misrepresentation claim ,
Matthiessen v. Schaefer, 27 S.W.3d 25, 31 (Tex. App. 2000), while
another acknowledges that that question has not been settled, Davis v.
Minnesota Life Insurance Co., 2000 WL 795887 *4 n.3 (Tex. App.-Austin,
2000) (unpublished). The district court did not acknowledge any of this
authority or discuss why it believed the Texas Supreme Court would apply
the discovery rule to claims of negligent misrepresentation.
However, even if the discovery rule applies to negligent
misrepresentation claims, accrual of the cause of action is only delayed
until the plaintiff knew, or in the exercise of reasonable diligence
should have known, of the facts giving rise thereto. HECI, 982 S.W.2d
at 886. As mentioned, the district court stated that the plaintiffs did
not actually discover how their royalties were calculated until 1997.
The district court did not address whether the plaintiffs, in the
exercise of reasonable diligence, should have discovered the facts
giving rise to their claims any earlier. However, remand for such a
finding is not necessary where, as will be shown here, the record
demonstrates that plaintiffs’ negligent misrepresentation claim is
without merit. Some of the facts that show the claim’s lack of merit
also indicate that the plaintiffs should have known how their royalties
8
were computed years before 1997. We also note that under the Texas
Supreme Court’s recent decision in Wagner & Brown Ltd. v. Horwood, 585
S.W.3d 372 (Tex. 2001), it is highly doubtful that plaintiffs’ injury
was inherently undiscoverable as required for the discovery rule to be
applicable.
B. Merits
The elements of negligent misrepresentation are: 1) representation
made by defendant in the course of his business or in a transaction in
which he has a pecuniary interest; 2) the defendant supplies false
information regarding an existing fact for the guidance of others in
their business; 3) the defendant did not exercise reasonable care or
competence in obtaining or communicating the information; and 4) the
plaintiff suffered pecuniary loss by justifiably relying on the
representation. Federal Land Bank Ass’n of Tyler v. Sloane, 825 S.W.2d
439, 442 (Tex. 1991). Defendants assert that the district court’s
conclusion that the second and fourth elements were satisfied was
clearly erroneous.
1. False Information
Defendants contend that the question and answer alleged to be false
was, in fact, true. The question and answer at issue amounts to a
representation that, under the proposed Unit Agreement, the royalty
interest owners would not have to pay for three things: 1) construction
of the pipeline; 2) transportation of carbon dioxide to West Texas; and
3) the use of the carbon dioxide to enhance oil recovery in West Texas.
9
The district court held that by deducting “transportation costs prior
to calculating royalty interest payments [defendants were] in effect
requiring the plaintiffs to pay for the transportation cost.”
We begin by offering the following illustration. Suppose the plant
tailgate value of carbon dioxide is $1.00 per unit, the cost of
transporting it to the buyer $.50, the downstream price $1.50 and the
overriding royalty interest 10%.6 The royalties based on the tailgate
and downstream values are $.10 and $.15, respectively. The plaintiffs’
share of the cost of transportation is $.05. The royalty the defendants
paid to the plaintiffs corresponds to the $.10 figure in this example.
The defendants contend that, in calculating plaintiffs’ royalty,
they have not charged plaintiffs for their share of transportation
costs. Instead, they claim that the proper point for valuation of
plaintiffs’ overriding royalty interests is the tailgate, and that it
is proper to arrive at the tailgate value by subtracting the total cost
of transportation from the downstream value. This is known as the “net-
back” method, and it is not uncommon for working interest owners to
employ it exactly as the defendants did.
The plaintiffs maintain, and the district court found, that they
6
The tailgate value of the carbon dioxide corresponds to its value
at the tailgate of the McElmo Dome Unit plant, after it has been
gathered from the wellhead and processed, but before it has been
transported to the buyer. The downstream price reflects the increased
value of the delivered carbon dioxide. Assuming the price of
transportation is reasonable, the downstream price should be
approximately equal to the sum of the tailgate price and the cost of
transport.
10
were charged for their share of transportation costs. As is clear from
our example, the net-back method yields the same royalty (10% x ($1.50 -
$.50) = $.10) as basing the royalty upon the downstream price or value
(10% x $1.50 = $.15) then charging the plaintiffs for their share of
transportation costs (10% x $.50 = $.05).
Thus, there is merit in the plaintiffs’ contention, and the
district court’s finding, that the plaintiffs were charged for
transportation. However, it is questionable whether a reasonable
overriding royalty interest owner would have understood the brochure to
promise a greater royalty than the plaintiffs here received. Several
factors place in doubt the reasonableness of plaintiffs’ interpretation
of the brochure. As discussed in greater detail in Part II.B.2, infra,
these factors also render unjustified any reliance upon plaintiffs’
interpretation.
Section 14 of the Unit Agreement stated that it did not change how
working interest owners settle for royalty interests and that such
settlements would be in accord with existing contracts, laws and
regulations. The leases between the plaintiffs and defendants are
silent as to how post-production costs are to be allocated. The
plaintiffs are unable to point to any authority that establishes that
working interest owners cannot share the cost of transportation of
marketable gas with non-working interest owners.7
7
Not surprisingly, when the Colorado Supreme Court later addressed
the issue of cost allocation in Garman v. Conoco, Inc., 886 P.2d 652
(Colo. 1994), it held that working interest owners must bear the entire
11
In addition, the brochure provided that under the Denver Unit
contract, the only contract for the sale of McElmo Dome Carbon dioxide
that Shell had negotiated at the time the plaintiffs were asked to
approve the formation of the Unit, the price of carbon dioxide was $.90
and would fluctuate according to the price of oil. As noted above, the
very next statement in the brochure asserted that plaintiffs would not
be charged for the cost of transportation of the carbon dioxide to West
Texas. Together, these representations imply that the plaintiffs were
to be paid a royalty based on the sales price of $.90 with no charges
for transportation deducted therefrom. Plaintiffs were, in fact, paid
cost of making the resource marketable but, absent agreement to the
contrary, they may share certain value-enhancing costs with the non-
working interest. Transportation was specifically mentioned as such a
value-enhancing cost that may be shared. Id. at 661.
The Colorado Supreme Court’s recent decision in Rogers v. Westerman
Farm Company, 29 P.3d 887 (Col. 2001), does not point in a different
direction in the present context. There the Colorado Supreme Court
stated that “the determination of whether transportation costs (either
short or long distance) are to be allocated between the parties is based
on whether the gas is marketable before or after the transportation
costs are incurred”, id. at 900, and “[o]nce a determination is made
that gas is marketable, costs can be allocated accordingly. Costs
incurred to make the gas marketable are to be borne solely by the
lessees. Alternatively, costs incurred subsequent to the gas being
marketable are to be shared proportionately between the lessee and the
lessors.” Id. at 912-13. Here, the district court clearly determined
that the gas was marketable before the 500 mile transportation to Texas.
In its June 16, 1999 summary judgment opinion the court stated “[t]he
parties in this case are not arguing over the costs of making the carbon
dioxide gas marketable but over the costs of moving the marketable gas
from Colorado to Texas”; and in its oral ruling at the conclusion of the
bench trial the court “incorporate[d] the Court’s memorandum opinion
filed June 16, 1999 in which the cross motions for summary judgment were
granted in part and denied in part. The background facts are as stated
in that memorandum opinion.” Plaintiffs in this appeal have not
challenged the district court’s determination that the gas was
marketable at the tailgate of the McElmo Dome Unit plant.
12
a royalty based on the $.90 price (which had decreased to $.79, in
accordance with the stated formula relating the $.90 price to changes
in the price of oil, by the time plaintiffs’ received their first
royalty payment). The Denver Unit contract provided that the buyer
would, in addition to the $.90 figure referenced in the brochure, pay
Shell for the cost of transporting the carbon dioxide through the
pipeline. Thus, the $.90 figure quoted in the brochure was net of any
charge for transportation.
The representation concerning transportation charges is best
understood as clarifying that the $.90 figure is the one upon which
royalties would be based. Plaintiffs’ interpretation of the brochure
produces the absurd result that they are entitled to a windfall, i.e.
royalty based on the downstream price without being charged for
transportation if Shell sells the carbon dioxide after being
transported, but not if Shell structures the deal so that the buyer
takes possession of the carbon dioxide before it is transported.
The misrepresentation question is not entirely free from doubt
because, when read in isolation, the complained-of section of the
brochure could be viewed as telling plaintiffs they would not be charged
for transportation, and, as we have explained, the plaintiffs were
charged for transportation. But because we find, in Part II.B.2, infra,
that the district court’s conclusion regarding the justifiable reliance
element was clearly erroneous, we do not need to decide whether the
brochure contained a misrepresentation. Accordingly, for purposes of
13
evaluating the propriety of the district court’s ultimate conclusion
that the defendants were liable to plaintiffs for the tort of negligent
misrepresentation, we will assume, without deciding, that the brochure
did contain a misrepresentation.
2. Justifiable Reliance
a. Actual Reliance
The essence of plaintiffs’ negligent misrepresentation claim is
that the statement in the brochure about transportation costs induced
them to approve the Unit Agreement. In such a case, the necessary
element of reliance8 requires plaintiffs to prove that but for the
presence of this statement in the brochure they would not have approved
the Unit Agreement–i.e., that if the brochure had not contained that
statement they would not have approved the Unit Agreement. See, e.g.,
Clardy Mfg. Co. v. Marine Midland Business Loans, 88 F.3d 347, 359 (5th
Cir. 1996);9 Haralson v. E.F. Hutton Group, 919 F.2d 1014, 1030 (5th
8
We have referred to the “justifiable reliance” requirement as
being “also called the ‘materiality’ element” of a negligent
misrepresentation claim. Geosearch, Inc. v. Howell Petroleum Corp., 819
F.2d 521, 526 (5th Cir. 1987). See also McCamish, Martin, Brown &
Leoffler v. F.E. Appling, 991 S.W.2d 787, 794 (Tex. 1999) (negligent
misrepresentation claim requires that “a claimant justifiably rely on
a . . . representation of material fact”).
9
In Clardy we held there was no evidence to justify trial on a
negligent misrepresentation claim, stating:
“. . . no reasonable trier of fact would believe that John
Clardy, Jr., in fact relied on Norvet’s representations
regarding the loan approval process. In other words, no
reasonable trier of fact would conclude that Clardy
Manufacturing . . . would not have entered into the letter
agreement if Marine had made explicit the fact that final
14
Cir. 1990) (“. . . the test for materiality is ‘whether the contract
would have been signed by the plaintiff without such representation
having been made’”, quoting Adickes v. Andreoli, 600 S.W.2d 939, 946
(Tex. Civ. App. 1980)). Because in this bench trial testimony
plaintiffs, when interrogated about the matter, declined to state that
they would not have approved the Unit Agreement, and the other evidence
does not support such a conclusion but rather suggests the contrary, the
trial court’s finding that plaintiffs relied on the brochure statement
is either clearly erroneous or based on an erroneous view of what
plaintiffs must establish to satisfy the reliance element of this
negligent misrepresentation claim.
(i) Ptasynski
At trial, Ptasynski testified that the question and answer in the
brochure did not cause him to believe that by entering into the Unit
Agreement, he would receive any “better deal” as to how his royalties
were calculated. Ptasynski also testified that there were several
reasons he entered into the Unit Agreement, among them that in an
undivided unit (like the proposed McElmo Dome Unit) the life of the
leases in the unit is extended for the life of the unit and that he was
glad to be a part of such an ambitious project. The following exchange
occurred during cross-examination at trial:
credit approval had to come from outside of Dallas. Clardy
Manufacturing can therefore not show that the representation
was “material” to its decision to enter into the agreement.”
Id. (footnotes omitted).
15
Q. (By Mr. Aronowitz) All right, sir. You didn’t think,
when you got this unit agreement and brochure and
letter, that you were going to be given a better deal
on your – on how royalties would be calculated under
your override, did you?
A. (Mr. Ptasynski) A better deal?
Q. Right.
A. No, I certainly did not.
Q. You ratified for the reasons we talked about.
A. Among others, right.
Q. All right. And we can go through but they’re in the
brochure and you’ve already talked about them. And
that’s what you perceived to be the consideration you
were to receive for ratifying the unit agreement,
right?
A. Participation of the unit, yes.
Q. Okay. So you would have ratified the unit agreement
even if that question and answer, “Will the royalty
owners of interest in this unit have to pay for the
pipeline, transportation or injection of CO2 in West
Texas,” even if that question and answer hadn’t been
there you would have ratified this unit agreement,
wouldn’t you?
A. I’m not sure. I’m not sure of that because, like I
said, this is a different kind of unit, totally
different kind of unit. If you had stated in the
brochure that there’s a contract price and then there’s
a transportation cost and we’re not going to tell you
what the transportation costs are, I may not have
signed it. I may have sold my interest or got a bunch
of the royalty owners together and said, hey, we don’t
have to sign this. This is a bad deal. I could have
done that. I don’t know.
Q. Well, at least we know that you didn’t ratify the unit
agreement because you thought the brochure enlarged
your rights under the overriding royalty interest you
held, right?
16
A. Had enlarged?
Q. That’s right.
A. No, I never expected to have them enlarged. I expected
to be paid what I’m supposed to be paid and what – in
the manner that the bureau [sic] – that the brochure
states, no charge for transportation cost.
Q. That question and answer – I just want to make sure I
have your testimony precise on this. “Will the royalty
owners of interest in this unit have to pay for the
pipeline, transportation or injection of CO2 in West
Texas?” Answer, “No.”
A. Right.
Q. That question and answer did not change any existing
belief you had, when you received the brochure,
concerning the basis upon which you thought you were
entitled to be paid royalty, correct?
A. It didn’t change anything because I expected to be paid
my 3 and a half percent of the proceeds without any
deduction for transportation costs. (emphasis added)
This testimony was not retracted or modified. Given that the Ptasynski
was unable to testify that, absent the alleged misrepresentation, he
would not have ratified the Unit Agreement, the district court’s finding
that the reliance element was satisfied as to plaintiff Ptasynski was
clearly erroneous.
(ii) Gray
Gray, like Ptasynski, testified on cross-examination that prior to
receiving the brochure he believed his royalty interests entitled him
to be paid royalties on the downstream price of carbon dioxide without
being charged for transportation. During Gray’s cross-examination, the
following exchange took place:
17
Q. (By Mr. Aronowitz) I just want to make it clear. Try
it again. You already believed that transportation
would not be deducted before you got the brochure?
A. (By Mr. Gray) That’s correct.
Q. Okay. And you didn’t rely on anything Shell told you
in the brochure that you didn’t already believe at the
time that you executed the ratification and consent of
the McElmo Dome Unit agreement.
A. When I looked at it I said, by golly, that’s right.
Even they say so. You’re right. I didn’t – it just
reaffirmed what I already thought was probably true.
Q. So you would have ratified the unit agreement even if
that question and answer about transportation hadn’t
been in there, correct?
A. Depend on whether or not you put the statement in there
we’re going to take transportation charges out and it
may be – you may get little or nothing than I may not
have signed it. If you had been truthful and said we
are taking them out, then I might not have signed it.
But you’re saying if you just left it out completely?
Q. Take it out.
A. Take it out. I wonder. Maybe. I don’t know. This is
15 years ago. I might wonder why they left that
statement out with all the things that they’re saying,
you won’t be paying for this and you won’t be paying
for that. (emphasis added)
Again, this testimony as not modified or retracted. Gray also testified
that, after figuring the royalties he would receive based on the
brochure’s description of the Denver Unit contract, he believed the Unit
Agreement was a “good deal”. It is undisputed that the brochure’s
representations concerning the Denver Unit contract, upon which Gray
based his conclusion that the Unit Agreement was a “good deal”, were
truthful: the royalty on the sales under the Denver Unit contract was
18
paid upon the therein stated price, as represented in the brochure,
without any deduction from that price for transportation costs.10 As
with Ptasynski, the trial evidence does not support a finding that, but-
for the alleged misrepresentation, Gray would not have ratified the Unit
Agreement.
Accordingly, the district court’s finding that the reliance element
of plaintiffs’ negligent misrepresentation claim was satisfied was
clearly erroneous.
b. Justifiable Reliance
“Texas law requires that a plaintiff claiming negligent
misrepresentation prove that its reliance was justifiable. . . . the
reliance must be reasonable.” Scottish Heritable Trust v. Peat Marwick
Main & Co., 81 F.3d 606, 615 (5th Cir. 1996). Accord Clardy, 88 F.3d
at 358.11 Where the evidence does not support a finding that the
plaintiff’s reliance was justified and reasonable, this court, and the
Texas courts, have not hesitated to hold that the defendant was entitled
to judgment as a matter of law on the negligent. misrepresentation
claim. See, e.g., Scottish Heritable Trust, 81 F.3d at 615 (“We
10
The $.90 price quoted in the brochure was the price as of
December 1981. By the time of the October 1982 hearing, the price had
fallen to $.85, and by the time of the first royalty payment it had
further decreased to $.79, all pursuant to the stated formula calling
for it to be adjusted in accordance with fluctuations in the price of
oil.
11
See also, e.g., American Tobacco Co. Inc. v. Grinnell, 951 S.W.2d
420, 436 (Tex. 1997) (“negligent misrepresentation claims require
reasonable reliance on the representation”); Faciolla v. Linbeck Const.
Corp., 968 S.W.2d 435, 442 (Tex. App.–Texarkana 1998; n.w.h.).
19
therefore hold as matter of law that if SHT did indeed rely on Peat
Marwick’s audit reports with respect to its stock purchases following
the initial acquisition, such reliance was simply unjustified”); Clardy,
88 F.3d at 358-59 (“When viewed against all of the surrounding
circumstances and the plaintiff’s business experience, Clardy
Manufacturing’s reliance on Norvet’s representation was, as a matter of
law, unjustified”); Allied Vista, Inc. v. Holt, 987 S.W.2d 138, 142
(Tex. App.-Houston (14th Dist.) 1999; writ denied) (“Holt’s reliance was
not reasonable or justified as a matter of law”); Bluebonnet Sav. V.
Grayridge Apt. Homes, 907 S.W.2d 904, 909 (Tex. App.-Houston (1st Dist.)
1995; writ denied) (“no evidence of justifiable reliance by a reasonable
business person . . . A reasonable business person, especially one with
Mr. Harvey’s experience . . . would not reasonably rely on it”);
Airborne Freight v. C.R. Lee Enterprises, 847 S.W.2d 289, 297 (Tex.
App.-El Paso 1992; writ denied) (“we find that Lee could not have
justifiably believed that Airborne would continue to employ the delivery
service. . .”). Finally, “[t]he justifiableness of the reliance is
judged in light of the plaintiff’s intelligence and experience.”
Scottish Heritable Trust, 81 F.3d at 614; Clardy, 88 F.3d at 358 (same).
See also Bluebonnet Sav., 907 S.W.2d at 909. Ptasynski and Gray each
had over forty years’ experience in the oil and gas business. To the
extent that plaintiffs may have relied on the alleged misrepresentation,
such reliance was, as a matter of law, not justified.
First, in the October 1982 hearing before the Commission (of which
20
plaintiffs were given notice), Shell clearly stated that nothing in the
Unit Agreement would alter existing royalty arrangements between
overriding royalty interest owners and working interest owners, that
working interest owners would be responsible for paying royalties in
accordance with their leases or assignments from the overriding royalty
interest owners, and that the Unit Agreement did not contain any
provision as to how the carbon dioxide would be valued. Section 14 of
the Unit Agreement plainly states that “[s]ettlement for Royalty
Interest not taken in kind shall be made by Working Interest Owners
responsible therefor under existing contracts, laws and regulations”.
The message from Shell was clearly that the Unit Agreement did not
provide any information concerning any of these issues. Plaintiffs’
reliance on the brochure for any information as to the substance of
those arrangements was unjustified. Under these circumstances, it was,
as a matter of law, unreasonable for two experienced oil men such as
plaintiffs to rely on the statement in the brochure as meaning anything
more than that royalty on sales under the Denver Unit contract would be
calculated on the basis of that contract’s $.90 per m.c.f. price (as
adjusted for fluctuations in the price of oil) without deduction from
the $.90 figure for transportation (or other) costs.
A basic understanding of the Denver Unit contract is incompatible
with justifiable reliance by plaintiffs upon the alleged
misrepresentation. Plaintiffs contend that they are entitled to
royalties based on the proceeds of Shell’s sale of carbon dioxide and
21
that when Shell sells downstream but uses the net back method to
calculate royalty, it is wrongfully charging plaintiffs for
transportation in contravention of the brochure. At the time the Unit
Agreement was approved, the Denver Unit contract was Shell’s only
downstream contract for the sale of McElmo Dome Unit carbon dioxide.
The brochure accurately stated the base price for carbon dioxide, which
was $.90, and that this price would fluctuate with the price of crude
oil. At the October 1982 hearing, Shell stated that the Denver Unit
operator was paying Cortez Pipeline Co. $.50 per mcf to transport the
carbon dioxide from McElmo Dome to the Denver Unit. Section 4.2 of the
Denver Unit contract clearly states that tariff reimbursement is in
addition to the $.90 per mcf price for the carbon dioxide. Thus, the
$.90 per mcf price that the brochure referred to and which rendered the
Unit Agreement a “good deal” (in the words of plaintiff Gray),
represented the McElmo Dome Unit plant tailgate value of carbon dioxide
under the Denver Unit contract. As the gas was marketable at that
point, that $.90 per m.c.f. tailgate value was the appropriate basis on
which to calculate royalty under the leases and assignments giving rise
to plaintiffs’ overriding royalty.
Section 5.1 of the Denver Unit contract provides that “the point
at which title to the carbon dioxide delivered hereunder shall pass from
Seller to Buyer, shall be the flange or weld connecting the facilities
of Cortez Pipeline Company with the facilities of Buyer, and such point
is herein called the ‘Delivery Point’.” Under the “good deal” Denver
22
Unit contract, Shell was selling downstream and, in ultimate economic
effect, calculating royalty via the net-back method. Plaintiffs were,
by their own standards, being charged for their share of transportation
under the Denver Unit contract.
Shell, as it stated it would at the hearing and in the brochure,
thereafter continued to seek other buyers for McElmo Dome Unit carbon
dioxide. Some of these contracts are structured differently than the
original Denver Unit contract. In these contracts, the only price
mentioned represents the downstream value of carbon dioxide. The harm
of which plaintiffs complain is Shell’s deduction of that part of the
downstream value that constitutes the cost of transportation before
plaintiffs’ royalties are calculated. However, provided the amount
deducted for transportation is reasonable, plaintiffs remain in exactly
the same position they enjoyed under the “good deal” that was the Denver
Unit contract.
Any reliance by plaintiffs on the brochure for an arrangement more
favorable than the “good deal” Denver Unit contract was as a matter of
law unjustified.
3. Causation
Even if plaintiffs had justifiably relied on the brochure in
ratifying the Unit Agreement, it is undisputed that all that was
required for the Unit Agreement to go into full effect was approval of
Shell and Mobil and 80% of the total royalty interest, that Shell had
already received consent of 76% of the royalty interest when the
23
brochure was sent out and ultimately secured consent of 92.5% of the
royalty interest, and that plaintiffs, combined, possessed less than
0.05% of the royalty interest. First, neither Ptasynski nor Gray
testified at trial that he would have been motivated to oppose the Unit
Agreement if the brochure had been silent as to transportation costs.
Second, even if we assumed they would have used best efforts to cause
other royalty owners to reject the Unit Agreement, plaintiffs have not
even alleged, much less presented any evidence, that they would, or
even could, have succeeded in preventing 80% royalty interest approval.
Absent a credible allegation and showing that plaintiffs’ opposition to
the Unit Agreement would have prevented the harm of which they now
complain, the misrepresentation is not actionable.
In sum, even if the transportation cost statement in the brochure
is construed to constitute a misrepresentation, we find that the
district court’s conclusion that plaintiffs suffered pecuniary loss by
justifiably relying thereon is clearly erroneous.12
III. Breach of Contract
The district court applied the four year period of limitations
contained in TEX. BUS. & CON. CODE ANN. § 2.725(a) to plaintiffs’ breach
12
Accordingly, we need not and do not reach defendants’ arguments
that: 1) benefit of the bargain damages were inappropriate; 2) the
damage award included damages owed not by Shell or Mobil, but by Santa
Fe; 3) the declaratory judgment order was impermissibly vague; and 4)
Mobil was not responsible for the content of the brochure.
24
of contract claim.13 Section 2.275(b) provides that the cause of action
accrues when the breach occurs. Here, the alleged breach occurred more
than 13 years before plaintiffs brought this action. The district court
also held that the discovery rule did not apply to this claim and,
therefore, it was barred by limitations. Plaintiffs argue that the
district court should have applied TEX. CIV. PRAC. & REM. CODE ANN. §
16.004(c), which provides that in certain actions therein described the
cause of action does not accrue until “the day the dealings in which the
parties were interested together cease.”14
13
TEX. BUS. & COM. CODE ANN. § 2.725 provides:
§ 2.725. Statute of Limitations in Contracts for Sale
(a) An action for breach of any contract for sale must be commenced
within four years after the cause of action has accrued. By the
original agreement the parties may reduce the period of limitations to
not less than one year but may not extend it.
(b) A cause of action accrues when the breach occurs, regardless of the
aggrieved party’s lack of knowledge of the breach. A breach of warranty
occurs when tender of delivery is made, except that where a warranty
explicitly extends to future performance of the goods and discovery of
the breach must await the time of such performance the cause of action
accrues when the breach is or should have been discovered.
(c) Where an action commenced within the time limited by Subsection (a)
is so terminated as to leave available a remedy by another action for
the same breach such other action may be commenced after the expiration
of the time limited and within six months after the termination of the
first action unless the termination resulted from voluntary
discontinuance or from dismissal for failure or neglect to prosecute.
(d) This section does not alter the law on tolling of the statute of
limitations nor does it apply to causes of action which have accrued
before this title becomes effective.
14
TEX. CIV. PRAC. & REM. CODE ANN. § 16.004 provides:
§ 16.004. Four-Year Limitations Period
(a) A person must bring suit on the following actions not later than
four years after the day the cause of action accrues:
(1) specific performance of a contract for the conveyance of real
property;
(2) Penalty or damages on the penal clause of a bond to convey real
property;
25
Plaintiffs do not urge that the district court erred by failing to
allow them recovery for the royalties allegedly underpaid during the
four years just prior to filing suit, but rather appear to take an “all
or nothing” position, namely that under section 16,004(c) limitations
never ran so long as royalty was being paid. Even aside from the fact
that plaintiffs did not urge section 16.004(c) in the district court,
it is plain that this position is without merit. Under Texas law, “the
statute [of limitations] begins to run on money due as royalty under a
written contract when such money is due and payable.” Foster v.
Atlantic Refining Company, 329 F.2d 485, 490 (5th Cir. 1964) (under-
payment of royalty claim). That means that for limitations purposes
“claims for unpaid royalty ‘accrued’ monthly as oil and gas are produced
and the agreed royalty is not paid.” Harrison v. Bass Enterprises
Production Co., 888 S.W.2d 532, 537 (Tex. App.-Corpus Christi 1994;
n.w.h.). See also, e.g., Humble Oil & Refining Co. v. Fanthson, 268
S.W.2d 239, 244 (Tex. Civ. App.–Galveston 1934; writ ref’d) (“The four-
(3) debt;
(4) fraud;
(5) breach of fiduciary duty.
(b) A person must bring suit on the bond of an executor, administrator,
or guardian not later than four years after the day of the death,
resignation, removal, or discharge of the executor, administrator, or
guardian.
(c) A person must bring suit against his partner for a settlement of
partnership accounts, and must bring an action on an open or stated
account, or on a mutual and current account concerning the trade of
merchandise between merchants or their agents or factors, not later than
four years after the day that the cause of action accrues. For purposes
of this subsection, the cause of action accrues on the day that the
dealings in which the parties were interested together cease.
26
year statute of limitations applies insofar as appellees were seeking
to recover payments due them under the mineral lease more than four
years prior to the filing of their action”). These authorities are
necessarily inconsistent with application of section 16.004(c) (formerly
Tex. Rev. Civ. Stats. Art. 5527 sec. 3) under the terms of which
limitations commence to run when, but only when, “the dealing in which
the parties were interested together cease.” We know of no decision by
any court that has ever applied section 16.004(c) (or its said
predecessor) to a mineral lessor’s action for royalty, and we decline
to do so. Indeed, Texas courts have rejected the application of section
16.004(c)’s predecessor, Tex. Rev. Civ. Stats. Art. 5527 sec. 3, to
share of production claims under circumstances arguably much closer to
those covered by that statute than the claims here are. See, e.g.,
Luling Oil & Gas Co. v. Humble Oil & Refining Co., 191 S.W.2d 716, 720-
21 (Tex. 1946) (claims by one lessee against another who operated
property not governed by art. 5527 sec. 3 which “will only apply . . .
to the class or classes of persons clearly coming within its terms, and
only in causes of action named in the statute”); Shell Oil Company v.
State, 442 S.W.2d 457, 459 (Tex. Civ. App.–Houston [14th] 1969; n.r.e.)
(lessor’s royalty claim can’t avoid normal four year statute by calling
it “an accounting for profits”). See also Dvorken v. Lone Star
Industries, 740 S.W.2d 565, 566 (Tex. App.-Fort Worth 1987; n.w.h.)
(“Under Texas law, actions for the recovery of royalty payments. . . are
subject to the general four-year statute of limitations . . . Tex. Civ.
27
Pract. & Rem. Code sec. 16.051 (Vernon 1986)”). We decline to hold that
section 16.004(c) is applicable.
In any event, it is clear that plaintiffs have no breach of
contract claim. As the district court stated in its bench trial ruling,
the breach of contract claim “is founded upon the brochure and the
testimony.” As previously observed, the Unit Agreement expressly and
unambiguously provided that it did not change how working interest
owners settle for royalty interests and such settlements would be
governed by and in accordance with existing contracts, laws and
regulations. Because, as the district court found, the gas was
marketable before being transported from Colorado to Texas, the royalty
interests bear their proportionate share of the cost of that
transportation. See note 7 above. The brochure does not purport to
either be contractual or to alter the Unit Agreement or the existing
contracts which governed royalty settlement, and it is at most
representational. Neither Ptasynski nor Gray testified that they
considered the brochure to be contractual, and, as discussed above (see
part II B 2), each testified that they did not understand it to alter
how their royalty would be calculated or enlarge their royalty rights.
Moreover, as previously noted, neither was able to testify that had the
brochure not contained the challenged statement they would not have
approved the Unit Agreement. For the same reasons (see part II B 2)
that the record does not support a finding of justifiable reliance by
either Ptasynski or Gray on the challenged statement in the brochure,
28
it likewise does not support a finding that that statement created any
contractual right, not provided for in the instruments under which they
hold their royalty interests, to have their royalty calculated without
proportionately bearing the cost of transportation of the marketable gas
from Colorado to Texas.15
IV. Negligence Per Se
Paragraph 46 of the complaint alleges that, by failing to provide
information required by TEX. NAT. RES. CODE § 91.502, defendants committed
negligence per se and are liable to plaintiffs therefor.16 The district
15
With respect to promissory estoppel, even if it were otherwise
available, which is highly doubtful since the relevant computation of
royalty is governed by the contracts or leases under which plaintiffs
hold their royalty interest as expressly and unambiguously provided in
the Unit Agreement, it would be inapplicable because (as demonstrated
in part II B 2) the record does not support a finding of justifiable
reliance by plaintiffs. See Clardy, 88 F.3d at 360-61 (where evidence
would not support finding of justifiable reliance, no promissory
estoppel recovery available); Allied Vista, Inc. v. Holt, 987 S.W.2d
138, 141-42 (Tex. App.-Houston [14th] 1999; writ denied) (jury verdict
for plaintiff on promissory estoppel set aside where “reliance was not
reasonable or justified as a matter of law”. See also Zenor v. El Paso
Healthcare System, Ltd, 176 F.3d 847, 865 (5th Cir. 1999).
16
TEX. NAT. RES. CODE § 91.502 provides:
§ 91.502. Types of Information Provides.
Each check stub or attachment to a payment form must include:
(1) the lease, property, or well name or any lease, property, or well
identification number used to identify the lease, property, or well;
(2) the month and year during which the sales occurred for which payment
is being made;
(3) the total number of barrels of oil or the total amount of gas sold;
(4) the price per barrel or per MCF of oil or gas sold;
(5) the total amount of state severance and other production taxes paid;
(6) the windfall profit tax paid on the owner’s interest;
(7) any other deductions or adjustments;
(8) the net value of total sales after deductions;
(9) the owner’s interest in sales from the lease, property, or well
expressed as a decimal;
29
court concluded that Texas law provides no private enforcement mechanism
for violations of section 91.502. In their briefs to this Court,
plaintiffs reassert their section 91.502 argument and contend, for the
first time, that defendants’ failure to disclose exactly how plaintiffs’
royalties were calculated violates COLO. REV. STAT. § 34-60-118.5(2.3)
and defendants’ fiduciary duty to plaintiffs.17
The complaint does not allege that defendants breached a fiduciary
duty to plaintiffs or that defendants violated COLO. REV. STAT. § 34-60-
(10) the owner’s share of the total value of sales before any tax
deductions;
(11) the owner’s share of the sales value less deductions; and
(12) an address at which additional information may be obtained and
questions may be answered.
17
COLO. REV. STAT. § 34-60-118.5(2.3) provides:
(2.3) Notwithstanding any other applicable terms or arrangements, every
payment of proceeds derived from the sale of oil, gas, or associated
products shall be accompanied by information that includes, at a
minimum:
(a) A name, number, or combination of name and number that identifies
the lease, property, unit, or well or wells for which payment is being
made;
(b) The month and year during which the sale occurred for which payment
is being made;
(c) The total quantity of product sold attributable to such payment,
including the units of measurement for the sale of such product;
(d) The price received per unit of measurement, which shall be the price
per barrel in the case of oil and the price per thousand cubic feet
(“MCF”) or per million British therman units (“MMBTU”) in the case of
gas;
(e) The total amount of severance taxes and any other production taxes
or levies applied to the sale;
(f) The Payee’s interest in the sale, expressed as a decimal and
calculated to at least the sixth decimal place;
(g) The payee’s share of the sale before any deductions or adjustments
made by the payor or identified with the payment;
(h) The payee’s share of the sale after any deductions or adjustments
made by the payor or identified with the payment;
(i) An address and telephone number from which additional information
may be obtained and questions answered.
30
118.5(2.3). Neither argument appears to have been presented to the
district court. Accordingly, this Court cannot consider them. See Diaz
v. Collins, 114 F.3d 69, 71 n.5 (5th Cir. 1997). However, we note the
following: 1) COLO. REV. STAT. § 34-60-118.5(2.3) was not enacted until
July 1, 1998; 2) the Colorado Supreme Court has held that there is no
private right of action under the Oil and Gas Conservation Act (see
Gerrity Oil & Gas Corp. v. Magness, 946 P.2d 913, 919 (Colo. 1997)); 3)
neither Colorado or Texas law recognizes a fiduciary relationship
between royalty interest and working interest owners (see HECI
Exploration Co. v. Neel, 982 S.W.2d 881, 888 (Tex. 1998) and Garman v.
Conoco, Inc., 886 P.2d 652, 659 n.23 (Colo. 1994)); and 4) the Tenth
Circuit has suggested that the Colorado Supreme Court would probably not
impose a fiduciary duty upon unit operators (Atlantic Ritchfield v. Farm
Credit Bank of Wichita, 226 F.3d 1138, 1162 n. 12 (10th Cir. 2000)).
At oral argument, plaintiffs opined, for the first time, that Shell
owed plaintiffs a fiduciary duty because the Unit Agreement constituted
a joint venture under Colorado law. Plaintiffs rely heavily upon Dime
Box Petroleum Corp. v. Louisiana Land and Exploration Co., 938 F.2d
1144, 1147 (10th Cir. 1991), which found than an operating agreement
satisfied Colorado’s three-part test for the existence of a joint
venture. The elements are: 1) a joint interest in property; 2) an
express or implied agreement to share in the losses or profits of the
venture; and 3) conduct showing cooperation in the venture. Id.
(quoting Agland, Inc. v. Koch Truck Line, Inc., 757 P.2d 1138 (Colo. Ct.
31
App. 1975)). While Shell and the plaintiffs do have a joint interest
in the carbon dioxide until Shell sells it, the Unit Agreement does not
provide that profits and losses are shared. Whether Shell extracts the
carbon dioxide for free or for triple the amount it could be sold for,
Shell still owes plaintiffs the same royalty. Profits and losses are
not shared.
As to the district court’s conclusion that there is no private
right of action for violation of TEX. NAT. RES. CODE § 91.502, plaintiffs’
only response is a citation to Lively v. Carpet Services, 904 S.W.2d
868, 871 (Tex. Ct. App. 1995), which states that the absence of a
specific statutory provision authorizing private enforcement is not
necessarily fatal to maintenance of an action for negligence per se.
Plaintiffs make no attempt to argue that, considering the factors set
forth by the Texas Supreme Court in Perry v. S.N., 973 S.W.2d 301 (Tex.
1998), violation of section 91.502 constitutes negligence per se. The
two most relevant factors are: 1) whether the statute is the sole source
of any tort duty from the defendant to the plaintiff or merely supplies
the standard of conduct for an existing common law duty; and 2) whether
the plaintiff’s injury is a direct or indirect result of the violation
of the statute. Id. at 309. Both of these factors seem to militate
against viewing violation of section 91.502 as negligence per se.
However, as plaintiffs have not even attempted to argue the relevant
Texas law on this point, their position can be rejected without further
analysis. Moreover, plaintiffs have cited no authority to indicate that
32
section 91.502 is applicable to royalty payments made to nonresidents
of Texas on the basis of instruments executed outside of Texas and in
respect to mineral production in Colorado.
V. Fraud
The district court in its bench trial findings rejected plaintiffs’
claims of fraud and fraudulent concealment, finding that neither was
supported by the evidence.18 Plaintiffs fail to address the district
court’s finding that no facts were adduced at trial to support their
claims in this respect. Plaintiffs do not allege the district court
committed any legal errors or argue that its findings of fact were
clearly erroneous. No error is presented as to any of these matters.
18
The court found:
“There has been no evidence during trial that would establish
that the defendants were reckless with their choice of
language in the brochure or that they intended for the
plaintiffs to interpret the brochure language to their
detriment in the matter claimed in the fraud count.
They have also failed to establish the third and fourth
elements of the fraud claim, that’s made with the intent that
the plaintiff would rely on that claim and also made knowing
false or recklessly made.
So I would find for the defendant on the fraud claim.”
It also found:
“the Court does specifically find that the plaintiffs failed
to introduce any evidence at trial which established either
that the defendants knew that they were negligently
misrepresenting their method of calculating royalty payments
or failing to disclose, as required by Texas law; or, that
the – secondly, that they used deception to conceal either
of these torts. Accordingly, the defense of fraudulent
concealment does not prevent the running of the applicable
Statute of Limitations periods.”
33
Conclusion
Even if the district court was correct that the brochure contained
a misrepresentation, it is clear that the plaintiffs did not rely
thereupon. To the extent that they may have relied on the brochure,
such reliance was not justified. And even if such reliance would have
been justified, it did not cause the harm of which plaintiffs now
complain. As explained, the district court’s express and implied
findings to the contrary were clearly erroneous. The judgment for
plaintiffs on the negligent misrepresentation and declaratory judgment
claims is reversed. The plaintiffs’ cross-appeal concerning prejudgment
interest is moot. Finally, we affirm the dismissal of all of
plaintiffs’ remaining claims, including their breach of contract,
negligence per se and fraud claims.
AFFIRMED in part, REVERSED in part.
34