Case: 10-20599 Document: 00511744203 Page: 1 Date Filed: 02/01/2012
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
February 1, 2012
No. 10-20599
Lyle W. Cayce
Clerk
PRESTON EXPLORATION COMPANY, L.P.; PEC PARTNERSHIP; T.S.C.
OIL & GAS, INC.; AND FRANK WILLIS, III,
Plaintiffs - Appellants
v.
GSF, L.L.C. AND CHESAPEAKE ENERGY CORPORATION,
Defendants - Appellees
Appeal from the United States District Court
for the Southern District of Texas
Before BENAVIDES, and PRADO, Circuit Judges, and ALVAREZ, District
Judge.
MICAELA ALVAREZ, District Judge*:
I. BACKGROUND
Plaintiffs/Appellants Preston Exploration Company, L.P.; PEC
Partnership; T.S.C. Oil & Gas, Inc.; and Frank Willis, III (collectively “Preston”)
appeal the district court’s entry of judgment in favor of Defendants/Appellees
GSF, L.L.C. and Chesapeake Energy Corporation (collectively “Chesapeake”) on
Chesapeake’s statute of frauds defense to Preston’s lawsuit demanding specific
performance of three Purchase and Sale Agreements (“PSAs”) entered between
*
District Judge of the Southern District of Texas, sitting by designation.
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the parties for the sale/purchase of certain oil and gas leases. Following a bench
trial, the trial court granted judgment on the statute of frauds issue in favor of
Chesapeake, determining that the PSAs did not comply with the statute of
frauds as neither the PSAs, nor the exhibits attached to the PSAs, furnished the
means or data by which to identify the leases to be conveyed with reasonable
certainty. Preston appeals the judgment granted in Chesapeake’s favor. For the
reasons set forth below, we VACATE the judgment of the trial court and
REMAND to the district court.
A. Factual Background
In June 2008, Preston and Chesapeake began discussions regarding the
sale/purchase of certain oil and gas leases owned by Preston. In time, the
parties agreed to pursue a transaction and entered into a letter of intent with a
closing date of August 20, 2008. This closing date was later pushed back by a
month to September 19th, then to September 26th and again to October 7th. By
early October, for various reasons, the parties were not yet ready to proceed to
closing. In an effort to move forward with the transaction, the parties agreed to
enter into purchase and sale agreements.
The dispute herein arises in connection with the documents attached to
the PSAs. The PSAs were executed on October 7 and 8, 2008.1 Prior to signing
the PSAs, the parties exchanged drafts of the PSAs along with drafts of the
exhibits attached to the PSAs. The exhibits were specifically referenced in the
PSAs, including a reference to one of the exhibits as the document describing the
oil & gas leases to be conveyed and a reference to a different exhibit as the
document setting out the form of the assignments to be delivered at closing.
The drafts of the PSAs, including the attached exhibits, were exchanged
by e-mail between Preston and Chesapeake in the days immediately preceding
1
Ultimately, three PSAs were executed between the parties. The PSAs are
substantially identical except that each pertains to a distinct Preston entity.
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the actual execution of the documents. During this time, Chesapeake specifically
requested to review the final schedules and exhibits. After some back and forth,
Preston executed the PSAs on October 7th. On the following day, Chesapeake
executed the PSAs without any complaints regarding the attached exhibits. The
PSAs now provided for a November 7th closing date. The PSAs also provided for
payment of a non-refundable deposit of 10% of the unadjusted purchase price.
The deposit amounted to $11,000,000.00.
Following execution of the PSAs, the parties moved towards closing.
Chesapeake continued performing its due diligence examination of the title to
the leases to be conveyed. However, on November 6, 2008, upon inquiry by
Preston, Chesapeake confirmed that it would not close. This suit followed.
B. Procedural Background
Soon after answering Preston’s complaint, Chesapeake filed its motion for
summary judgment asserting that enforcement of the PSAs was barred by the
statute of frauds. Preston thereafter filed its own motion for summary judgment
on its claim for specific performance and on Chesapeake’s counterclaim to
recover its down payment.
The trial court initially granted Chesapeake’s motion and thus denied
relief on Preston’s claim for specific performance. At that time the trial court
also denied Preston’s motion for summary judgment as to Chesapeake’s
counterclaim. Preston thereafter moved to alter or amend the judgment which
motion was granted by the trial court on the issue of whether certain exhibits
were finalized at the time the PSAs were executed. A three day bench trial
followed with each side presenting evidence pertaining, in part, to such issue.
In connection with the bench trial, and in the subsequent briefs, the trial court
permitted the parties to revisit issues and legal arguments whether earlier
determined or not previously presented.
Following the bench trial, the trial court issued findings of fact and
conclusions of law. Of significance to the issues presented in this appeal, the
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trial court determined that the exhibits referenced as Exhibit A and attached to
the PSAs did not contain sufficient information to be statute of frauds compliant.
The trial court also determined, as a factual matter, that the exhibits referenced
as the Assignment Exhibits were not finalized at the time the PSAs were
executed; thus, the trial court determined that those exhibits could not be
incorporated into the PSAs. Based upon these findings, the trial court
determined that the PSAs did not comply with the statute of frauds and were not
enforceable as neither the PSAs, nor the attached exhibits, furnished the means
or data by which to identify the leases to be conveyed with reasonable certainty.
The trial court also held that Chesapeake was not entitled to return of the
$11,000,000.00 paid to Preston as a down payment on the transaction.
Chesapeake did not cross-appeal this issue.
Preston then filed a motion for amended findings and judgment, and in the
alternative, for new trial, as well as a motion to alter judgment. Such motions
were denied by the trial court. Final judgment was entered on June 18, 2010
and this appeal followed.
C. PSA Relevant Terms
The terms of the PSAs as a whole are not in dispute. Thus, only those
terms pertinent to the statute of frauds issue are referenced herein.
Section 1(a)(i) of each of the PSAs describes the properties to be conveyed
as “[a]ll of Seller’s right, title and interest in and to all oil and gas leases. . . [as]
defined in Exhibit ‘A’ attached and made a part hereof. . . .” Exhibit A to the
PSAs is a listing of the leases to be conveyed. That exhibit includes a county
reference in the overall heading and ten columns with the following headings:
lease Id, Lease Name, Lessee, eff. date, gross acres, net acres, royalty, ORRI,
NRI to be conveyed, and value of net.
Section 2 of the PSA sets out the purchase price with a provision for a 10%
nonrefundable deposit.
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Section 3, entitled Effective Date and Closing provides that the conveyance
of the properties shall be effective as of September 26, 2008 and “title thereto
shall be delivered at the Closing which shall take place on November 7, 2008 .
. . .”
Section 8(b)(i) provides that at closing Seller shall deliver an “Assignment
executed and acknowledged by Seller . . . the form of which is attached hereto as
Exhibit ‘C’ (the Assignment form).”
Section 12(b) provides that “[t]his agreement together with the Exhibits
attached hereto and the Assignment and other documents to be delivered
pursuant to the terms hereof, shall constitute the complete agreement between
the parties . . . .” Section 12(q)(vii) provides that “[t]he Schedules and Exhibits
listed in the List of Schedules and Exhibits are attached hereto. Each such
Schedule and/or Exhibit is incorporated herein by reference for all purposes, and
reference to this Agreement shall also include such Schedule and/or Exhibit
unless the context in which used shall otherwise require.”
Also included was a provision for post closing adjustment of the purchase
(Section 10); a provision for curing any title defects pertaining to any particular
lease (Section 6); and a provision obligating Seller to make available to Buyer all
of its “title files” (Section 6(b)).
II. DISCUSSION
A. Standard of Review and Applicable Law
“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
Tech. Corp. v. S. Pac. Transp. Co., 225 F.3d 595, 601 (5th Cir. 2000). As the case
was brought to the district court on diversity jurisdiction, the substantive law
of Texas applies. See Erie R.R. v. Tompkins, 304 U.S. 64, 78-79 (1938).
B. Texas Statute of Frauds
The Texas Statute of Frauds provides that a contract for the sale of real
estate is not enforceable unless it is in writing signed by the person to be
charged. TEX. BUS. & COM. CODE ANN. § 26.01 (West 2009). The statute of
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frauds applies to any transfer of an interest in land, including oil and gas leases.
Minchen v. Fields, 345 S.W.2d 282, 287–88 (Tex. 1961). Further, to be valid, the
writing must contain a sufficient description of the property to be conveyed. Pick
v. Bartel, 659 S.W.2d 636, 637 (Tex. 1983). A property description is sufficient
if the writing furnishes within itself, or by reference to some other existing
writing, the means or data by which the particular land to be conveyed may be
identified with reasonable certainty. Wilson v. Fisher, 188 S.W.2d 150, 152 (Tex.
1945). Only in limited circumstances may extrinsic evidence be used and then
“only for the purpose of identifying the [property] with reasonable certainty from
the data in the [writing].” Pick v. Bartel, 659 S.W.2d at 637 (quoting Wilson, 188
S.W.2d at 152). “The written memorandum, however, need not be contained in
one document.” Padilla v. LaFrance, 907 S.W.2d 454, 460 (Tex. 1995) (citing
Adams v. Abbott, 254 S.W.2d 78, 80 (Tex. 1952)).
C. The Contract
The contracts between the parties are the three PSAs entered into on
October 7th and 8th. In determining that the conveyance at issue here did not
comply with the statute of frauds, the trial court found that the PSAs standing
alone (i.e. considered without the related incorporated documents) did not
contain a description of the property to be conveyed. This issue is not disputed.
However, the PSAs do contain some indication of what is to be conveyed. The
PSAs specifically provide that Preston is to convey “[a]ll of Seller’s right, title
and interest in and to all oil and gas leases” as defined in Exhibit A.
D. The Exhibits
As noted above, the PSAs specifically referenced and incorporated various
exhibits. Because it is undisputed that certain of those exhibits do provide
specific reference to the recording information for each lease, Chesapeake
argued that these documents should not be incorporated into the PSAs because
the documents were not finalized. The trial court agreed with Chesapeake.
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Exhibit C is the assignment form to convey the leases at closing. Exhibit
C is specifically referenced in the PSAs and is incorporated into the PSAs by the
language of Section 12(q)(vii). Section (a) of Exhibit C provides language that
is almost identical to the conveyance language contained in the PSAs.
Specifically, Section (a) of Exhibit C provides that the assignment is of “[a]ll of
Assignor’s right, title and interest . . . [in the] oil and gas leases . . . defined in
Exhibit ‘A’ . . . .” Exhibit C has an Assignment Exhibit attached to it as Exhibit
A and it is undisputed that this Assignment Exhibit includes recording
information for the leases to be conveyed. The dispute arises from Chesapeake’s
contention that it did not consider this document to be part of the PSAs because
it was not yet final. However, the assignment documents could not be final at
the signing of the PSAs because it was clearly intended by the parties that title
work remained to be completed. The PSAs specifically include provisions for
curing title defects and for adjusting the contract price for any title defects which
could not be cured. It is undisputed that title work continued to be done by
Chesapeake even after the execution of the contract as the PSAs also included
a title work completion date of October 14th in Section 6(c). Therefore, the trial
court’s factual finding that the assignment documents were not yet final is not
disturbed.
However, the PSAs clearly reflect the intention of the parties and a
recognition that there was still some title work to be done before a final
determination could be made as to the leases which would ultimately be
conveyed. Thus, the trial court misconstrued this lack of finality as to the
assignment documents as evidence that there was no meeting of the minds as
to the subject of the contract. As a result, the trial court determined that the
exhibits could not be construed as part of the contract. Such analysis reflects the
conflating of two distinct principles - whether parties come to a meeting of the
minds as to the subject matter of a contract with whether a writing’s legal
description is sufficient to meet the statute of frauds. The trial court relied on
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certain discrepancies between the exhibits attached to the PSAs to determine
that there was no meeting of the minds as to the properties to be conveyed.
While discrepancies certainly exist between the exhibits, the PSAs themselves
clearly reflect the essential terms of the contract - to convey certain leases for a
particular price by a certain date. If in fact there was no meeting of the minds,
there would be no contract whatsoever and the statute of frauds issue would be
moot.
The Texas Supreme Court has repeatedly held that multiple writings
pertaining to the same transaction will be construed as one contract. Owen v.
Hendricks, 433 S.W.2d 164 (Tex. 1968); see also Fort Worth Indep. Sch. Dist. v.
City of Fort Worth, 22 S.W.3d 831, 840 (Tex. 2000) (where the court finds that
two ordinances and other related documents are part of a single settlement
agreement); DeWitt Cnty. Elec. Coop., Inc. v. Parks, 1 S.W.3d 96, 102 (Tex. 1999)
(where the court considers a service agreement, a tariff, and an easement
agreement together to determine the intent of the contracting parties); City of
Houston v. Williams, No. 09–0770, 2011 WL 923980 at *6 (Tex. March 18, 2011)
(where the court construes multiple city ordinances as a unilateral employment
contract between a city and firefighters). Furthermore, “[i]t is uniformly held
that an unsigned paper may be incorporated by reference in the paper signed by
the person sought to be charged.” Owen, 433 S.W.2d at 166. Additionally, “[o]ne
writing may be connected with another either expressly or by necessary
inference because of internal evidence of the subject matter and occasion, that
is, that they relate to the same transaction.” Oliver v. Corzelius, 215 S.W.2d 231,
237 (Tex. Civ. App.– El Paso1948), rev’d on other grounds, 220 S.W.2d 632 (Tex.
1949).
Here, it is clear that the intention of the parties was to convey leases that
complied with the specifications set forth in the PSAs. The PSAs define the type
of leases to be conveyed - those oil and gas leases that had marketable title and
that would continue for at least a one year period after the effective date (Section
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6). Prior to execution of the PSAs, the parties exchanged the documents
pertaining to the transaction, including the attached exhibits, certain of which
provide the recording information for the leases. The attached exhibits are
specifically referenced in, and incorporated into, the PSAs. By the very terms
of the PSAs, the parties intended that title work would continue and that certain
leases might ultimately be excluded from the contract. Clearly, the PSAs and
the attached exhibits were all part of the same transaction and should be
construed together. See Endeavor Natural Gas, L.P. v. Magnum Hunter Prod.,
Inc., No. 13-06-352-CV, 2007 WL 4340870 at *4 (Tex. App.–Corpus Christi, Dec.
13, 2007, no pet.) (Assignment and the Letter Agreement should be considered
in determining the intent of the parties considering both pertained to the same
transaction: the conveyance of the subject wells from one party to another).
It was clearly the intent of the parties that the assignments would not be
finalized until such time as the title work was complete. Thus, the trial court
erred in its holding that the lack of finality prevented consideration of the
exhibits attached to the PSAs as a part of the contract to convey the property.
The exhibits were specifically incorporated into the contract. The exhibits
contain a sufficient legal description to meet the statute of frauds. Thus, the
PSAs are enforceable by specific performance.
To the extent that certain leases are listed on Exhibit A of the PSAs but
contain no corresponding recording information on the Assignment Exhibit A
that is part of Exhibit C, enforcement is limited to those leases identified by
recording information. See Westland Oil Dev. Corp. v. Gulf Oil Corp., 637
S.W.2d 903, 910 (Tex. 1982) (divisible contract may be enforced despite the
failure of part to meet statute of frauds); Kmiec v. Reagan, 556 S.W.2d 567 (Tex.
1977) (holding that a covenant to convey that meets the statute of frauds as to
certain lands but fails as to others is divisible and capable of being enforceable
in part and invalid in part). Therefore, this Court holds that Preston may obtain
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specific performance of those leases listed in Assignment Exhibit A of Exhibit C
which include recording information.
III. CONCLUSION
Accordingly, the district court’s judgment in favor of Chesapeake is
VACATED and the case is REMANDED for proceedings consistent with this
opinion.
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