Hicks v. FG Minerals ( 2021 )

FILED
United States Court of Appeals
UNITED STATES COURT OF APPEALS Tenth Circuit
FOR THE TENTH CIRCUIT May 27, 2021
_________________________________
Christopher M. Wolpert
Clerk of Court
TRUEY DUANE HICKS,
Plaintiff - Appellant,
v. No. 20-7048
(D.C. No. 6:19-CV-00203-TDD)
FG MINERALS, LLC, (E.D. Okla.)
Defendant - Appellee,
and
SHEILA LEWIS,
Defendant.
_________________________________
ORDER AND JUDGMENT*
_________________________________
Before HARTZ, PHILLIPS, and CARSON, Circuit Judges.
_________________________________
This appeal presents only one question: Did a lease assignment require Defendant
FG Minerals LLC to pay Plaintiff Truey Duane Hicks a royalty on all sand processed by
a sand plant on a 160-acre tract of land owned by Sheila Lewis or only on processed sand
that had been mined from the Lewis property? The United States District Court for the
Eastern District of Oklahoma granted Defendant’s motion for judgment on the pleadings,
*
This order and judgment is not binding precedent, except under the doctrines of law of
the case, res judicata, and collateral estoppel. It may be cited, however, for its persuasive
value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
ruling that the assignment unambiguously required payment only on sand mined from the
Lewis property. Plaintiff appeals. We have jurisdiction under 28 U.S.C. § 1291 and
affirm.
I. BACKGROUND
A. Factual Background
Because this case comes before us on review of a judgment on the pleadings, we
accept as true the well-pleaded allegations in Plaintiff’s First Amended Complaint (the
Complaint), the operative pleading. See Sinclair Wyoming Ref. Co. v. A & B Builders,
Ltd., 989 F.3d 747, 765 (10th Cir. 2021). In February 2005 Ms. Lewis entered into a
renewable 25-year lease (the Lease) with Plaintiff and his business partner, Henry
McCabe. Mr. McCabe, who is not an attorney, drafted the Lease by “us[ing] prior lease
forms to piece together” the agreement. Aplt. App., Vol. I at 15. The purposes of the
Lease included allowing Plaintiff and Mr. McCabe to mine and process silica sand on
Ms. Lewis’s land. In lieu of rent the lessees were to pay Ms. Lewis a production royalty
of 30 cents per ton of sand mined from the property. Until the necessary infrastructure
was installed and operations could commence, the lessees were to make various advance
payments to Ms. Lewis, which would be deducted from her future royalties.
In May 2005 Plaintiff and Mr. McCabe assigned the Lease (the First Assignment)
to Folsom Quartz Sand L.L.C., an entity owned by Mr. McCabe. Plaintiff and Mr.
McCabe assigned all their rights and obligations under the Lease, but the First
Assignment reserved for each man an overriding-royalty payment of 30 cents per ton on
all sand “mined from the Property that is delivered or shipped to customers after
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processing.” Id. at 119. This overriding-royalty provision is the basis for the present
dispute.
In December 2006 Folsom Quartz Sand assigned the Lease (the Second
Assignment) to Defendant. Defendant assumed all obligations under the Lease and First
Assignment, including payment of the overriding royalties. It thereafter installed the
necessary infrastructure and started to mine and process silica sand on the Lewis
property; and it paid Plaintiff the overriding royalties he was owed under the First
Assignment. There were apparently no disputes before 2018, when Defendant installed a
conveyor belt under the adjacent highway to transport substantial quantities of sand
mined from properties near the Lewis land for processing. With its sand now being
mined from other lands, Defendant stopped paying overriding royalties to Plaintiff.
B. Procedural History
Plaintiff sued Defendant and Ms. Lewis in April 2019 in Oklahoma state court.
Defendant removed the case to federal district court based on diversity jurisdiction. See
28 U.S.C. § 1441. The district court ruled that Ms. Lewis had been fraudulently joined,
dismissed without prejudice the claims against her, and denied Plaintiff’s motion to
remand the case to state court for lack of diversity. Plaintiff does not challenge these
rulings on appeal. The court ultimately dismissed under Fed. R. Civ. P. 12(b)(6) the
remaining claims against Defendant: one for breach of contract and one for conspiracy.
On appeal Plaintiff challenges the judgment but argues only that he stated a claim for
breach of contract, presenting no additional arguments specifically directed at the
conspiracy claim.
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II. DISCUSSION
The parties agree that Oklahoma law governs their dispute. We review de novo
whether a contract is unambiguous and, if so, the meaning of the contract. See Otis
Elevator Co. v. Midland Red Oak Realty, Inc., 483 F.3d 1095, 1101 (10th Cir. 2007).
“If language of a contract is clear and free of ambiguity the court is to interpret it
as a matter of law, giving effect to the mutual intent of the parties at the time of
contracting.” Pitco Prod. Co. v. Chaparral Energy, Inc., 63 P.3d 541, 545 (Okla. 2003);
see also Okla. Stat. tit. 15, § 154 (“The language of a contract is to govern its
interpretation, if the language is clear and explicit, and does not involve an absurdity.”).
To determine ambiguity, we must consider the contract as a whole. See Pitco, 63 P.3d at
545–46. We should “not create an ambiguity by using a forced or strained construction,
by taking a provision out of context, or by narrowly focusing on [one] provision.”
Osprey L.L.C. v. Kelly-Moore Paint Co., 984 P.2d 194, 199 (Okla. 1999). Ambiguity
exists only if “the language is susceptible to two interpretations on its face from the
standpoint of a reasonably prudent lay person, not from that of a lawyer.” Spears v.
Shelter Mut. Ins. Co., 73 P.3d 865, 869 (Okla. 2003) (ellipsis and internal quotation
marks omitted); see also Pitco, 63 P.3d at 545 (“The mere fact the parties disagree or
press for a different construction does not make an agreement ambiguous.”). If a contract
is unambiguous on its face, it provides “the only legitimate evidence of what the parties
intended,” and we cannot consider extrinsic evidence. Pitco, 63 P.3d at 546; see also
Campbell v. Indep. Sch. Dist. No. 01 of Okmulgee Cnty., 77 P.3d 1034, 1039–40 (Okla.
2003).
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The overriding royalty at issue on appeal was created by the First Assignment. It
entitled Plaintiff to “an overriding royalty interest of 30¢ per ton for whole grain
commodity glass sand or aggregates for all silica sand or aggregates mined from the
Property that is delivered or shipped to customers after processing . . . .” Aplt. App.,
Vol. I at 119 (emphasis added).1 The core dispute between the parties is the meaning of
the word Property. But the definition in the document itself is clear. We place that
definition in the context of the paragraph in which it appears:
That HENRY F. McCABE and TRUEY DUANE
HICKS (referred to herein collectively as the “Assignors”),
for good and valuable consideration, the receipt and
sufficiency of which is for all purposes acknowledged, do
hereby assign, transfer, sell and convey unto FOLSOM
1
The overriding-royalty provision states:
The Assignors hereby each reserve unto themselves
and their respective heirs, successors or assigns and except
from this conveyance the following overriding royalty
interests:
[An overriding-royalty interest to Mr. McCabe.]
Unto Truey Duane Hicks an overriding royalty
interest of 30¢ per ton for whole grain
commodity glass sand or aggregates for all
silica sand or aggregates mined from the
Property that is delivered or shipped to
customers after processing, computed on scale
weights of common or other carrier used,
payable in accordance with the provisions of
Paragraph 3.C.(3) of the Lease.
Aplt. App., Vol. I at 119. Paragraph 3.C.(3) of the Lease, entitled “Payment of
Production Royalty,” simply states that the advance payments made before production
begins should be credited toward royalties and that each royalty should be paid by the
25th day of the month after shipment of the sand to purchasers. Id. at 114.
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QUARTZ SAND L.L.C., an Oklahoma limited liability
company (the “Assignee”), all of the Assignors’ rights, title
and interests in or to [the Lease], executed by Sheila Lewis as
“Lessor” in favor of the Assignors as the lessees . . . ,
covering the following described lands and mineral interest:
The Northwest Quarter (NW¼) of Section
Thirteen (13), Township Four (4) South, Range
Eight (8) East of the Indian Base and Meridian,
Johnston County, State of Oklahoma,
containing 160 acres, more or less
together with all the rights incident thereto, the personal
property thereon, appurtenant thereto, or used or obtained in
connection therewith (the “Property”)[.]
Id. at 118 (emphasis added). This provision unambiguously defines the Property as the
land encompassing the above-emphasized description from the Public Land Survey
System (PLSS)2 and related personal property. And there is no dispute that what it
describes is Ms. Lewis’s 160 acres. No reasonable person would have any question about
what is encompassed.
Plaintiff tries to create an ambiguity by reference to the definition of Property in
the Lease. He asserts that “[t]he First Assignment incorporated all of the language of the
Lease.” Aplt. Br. at 35. True, the Lease and the First Assignment are closely related
documents. But Plaintiff has not explained why the overriding royalty established by the
First Assignment should track the royalty arrangement in the Lease. More importantly,
nothing in the First Assignment explicitly incorporates any language from the Lease.
2
The Public Land Survey System is a rectangular survey system established by the
federal government and used predominately to survey and subdivide public lands in the
western continental United States. See Public Land Survey System, Black’s Law
Dictionary (11th ed. 2019); see also 43 U.S.C. § 751.
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Plaintiff contends that “[i]t was intended with the First Assignment, and the parties to the
First Assignment intended and understood, that the overriding royalty would be based on
the ‘Property’ as that term was used in the Lease and that meant more than just the land
owned by [Ms.] Lewis.” Id. at 40. If that were true, however, the parties to the First
Assignment surely would not have bothered to provide a separate definition of Property
in that assignment, at least not a definition contrary to the definition in the Lease. We
cannot accept an assertion that is plainly contrary to the unambiguous language of the
First Assignment. When contractual terms are unambiguous, they constitute “the only
legitimate evidence of what the parties intended.” Pitco, 63 P.3d at 546.
In any event, the definition of Property in the Lease is of no assistance to Plaintiff.
We begin with the physical appearance of the Lease, because it is so suggestive in itself.
First, the bottom of page one:
7
Aplt. App., Vol. I at 111. The top of page two appears as follows:
Id. at 112.
8
Plaintiff displays great creativity—creativity beyond what judges are permitted to
indulge in—when he treats the language at the top of page two as a description of Tract 2.
See Aplt. Br. at 12 (quoting ¶ 15 of the Complaint, which states that the “Tract 2 legal
description” is the above language from the top of page two of the Lease); id. at 38
(similar). The absence of any language in the substantial empty space under the heading
“Tract 2 Legal Description,” and the clear difference in font between the legal description
for Tract 1 and the language at the top of page two would dissuade any reasonable reader
from thinking that the language on page two is the legal description for Tract 2. It is
obvious that the space for a Tract 2 legal description is simply left blank, a not-
unexpected result given that a nonattorney, Mr. McCabe, “used prior lease forms to piece
together” the agreement, apparently a form that he could use in multiple transactions.
Aplt. App., Vol. I at 15.
More fundamentally, the text on page two cannot be read as a legal description of
property. Plaintiff emphasizes that this text mentions unspecified “other lands,” and he
argues that these lands are what Tract 2 encompasses. But that interpretation strips that
term from its surrounding context. Read in context, it is clear that the text on page two is
a continuation of the paragraph that preceded the “Tract 1 Legal description” heading on
page one. The structure of the document language is: “For valuable consideration,
the . . . Lessor hereby leases to [the lessees] . . . the following described lands . . . [spaces
for legal descriptions] . . . for the purposes hereinafter described . . . .” The text on page
two merely describes the purposes for which Plaintiff and Mr. McCabe may use the
Lewis land. Plaintiff and Mr. McCabe are granted “the exclusive right to prospect, mine
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and use said lands for the production, transportation, processing, [etc.] . . . of silica
sand . . . from the Property or any part thereof and from other lands operated by McCabe
[and Plaintiff].” Id. at 112 (emphasis added). The text further entitles Plaintiff and
Mr. McCabe to “place all things on, over, under and across the Property or other lands as
in the judgment of McCabe [and Plaintiff] are necessary or appropriate for the same,
including pipe, telephone and electric lines, roads, [etc.] . . . .” Id. (emphasis added).
Rather than including “other lands” within the meaning of “the Property,” the passage, by
speaking of “the Property or other lands,” distinguishes “other lands” from the Property.
The definitional parenthetical at the top of page two—“(sometimes referred to
collectively herein as the ‘Property’)”—provides another decisive blow to Plaintiff’s
argument. Again, the structure of the document undermines Plaintiff’s interpretation.
Starting with the opening language, the document states that Ms. Lewis “leases . . . the
following described lands . . . : Tract 1 Legal description [followed by a legal
description] . . . [and] Tract 2 Legal Description [followed by blank space] (sometimes
referred to collectively herein as the ‘Property’) . . . .” The only sensible construction of
this language is that the lands that are “sometimes referred to collectively” are those
described by the preceding legal description(s), not those mentioned in the language that
follows. No reasonable person would express the meaning advocated by Plaintiff with
the language that appears in the Lease.
Finally, we note that several contractual provisions show that there was no “Tract
2.” First, the Lease says that the $800 annual advances on Ms. Lewis’s royalty payments
were “computed on the basis of $5.00 per net mineral acre interest in Tracts 1 & 2.” Id.
10
at 114. A simple calculation (800 ÷ 5 = 160) reveals that the two tracts together
contained only 160 acres, precisely the size of Tract 1. Second, Ms. Lewis warranted
title to “the Property as set forth in the descriptions of Tracts 1, & 2 above” and agreed
that if she “at any time owns or is discovered to own less than the interests described
above, the royalty provided [in the Lease] and the payment of such royalty shall be
adjusted accordingly.” Id. at 115. But Plaintiff has not alleged that Ms. Lewis owned
any property beyond Tract 1, so she could hardly have warranted title to a Tract 2. Third,
a recital in the Second Assignment (between Mr. McCabe’s Folsom Quartz Sand and
Defendant) says that through the Lease, “[Ms.] Lewis leased to McCabe [and Plaintiff]
the following described lands and mineral interest,” and then provides nothing more than
the PLSS description of Ms. Lewis’s 160-acre tract. Id. at 122.
In short, the term Property in the Lease and the First Assignment is clearly limited
to property owned by Ms. Lewis. She could not lease property she did not own. By
tying royalty payments to sand mined from the “Property,” the First Assignment
excluded royalties on sand mined elsewhere.
Plaintiff has raised two other arguments not based on either the First Assignment
or the Lease. First, Plaintiff claims support in the Management Services Agreement
(MSA) among Folsom Quartz Sand, Defendant, and Defendant’s owner. The argument
is barred because the First Assignment is not ambiguous. But we note that it is
unpersuasive anyway. Although the MSA recognizes the existence of the overriding
royalty—which is not in dispute—it says nothing about whether the royalty extends to
sand mined from properties other than Ms. Lewis’s. Nor does the MSA alter Plaintiff’s
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rights to the overriding royalty, whatever they might be. As alleged in the Complaint, he
was neither “involved in” the MSA nor “claim[s] any benefits thereunder.” Id. at 28.
And the MSA states, “Nothing in this Agreement, express or implied, is intended to
confer on any person other than the parties [to the MSA], their respective permitted
successors or assigns, if any, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.” Id. at 107.
Second, Plaintiff alleges that Defendant paid overriding royalties for sand mined
from other properties and processed on the Lewis land until 2018, when it installed a
conveyor belt to transport substantial quantities of sand from nearby properties for
processing. He says these earlier payments show that “all participants intended and
understood that the pertinent instruments . . . created a scenario where the overriding
royalty was based on more than just the 160-acre tract.” Aplt. Br. at 41. If true, Plaintiff
might have been able to seek some relief, such as reformation of the First Assignment.
But he does not explain how this practice of Defendant created an ambiguity in the clear
language of the assignment. As previously stated, under Oklahoma law if a contract is
unambiguous on its face, the parties’ “intention cannot be divined from extrinsic
evidence but must be gathered from a four-corners’ examination of the instrument.”
Pitco, 63 P.3d at 546. We therefore reject the argument.
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III. CONCLUSION
We AFFIRM the district court’s judgment.
Entered for the Court
Harris L Hartz
Circuit Judge
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