Dickson v. Sklarco

C. BICKHAM DICKSON, III, ET AL v. SKLARCO L.L.C. and PETROHAWK PROPERTIES, L.P.

CIVIL ACTION NO. 5:11-cv-0352

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF LOUISIANA SHREVEPORT DIVISION

September 9, 2014

JUDGE ELIZABETH ERNY FOOTE

MAGISTRATE JUDGE MARK HORNSBY

MEMORANDUM ORDER

The Plaintiffs, C. Bickham Dickson, III, James S. Dickson, Denise M. Dickson, Michael R. Dickson, Addie S. Dickson, and Martha A. Dickson Bigler (collectively "Plaintiffs"), come before this Court with their Motion in Limine to Exclude Testimony of Kris L. Terry ("Terry"). [Record Document 58]. The Defendant, Petrohawk Properties, L.P., seeks to introduce the testimony of Terry as an expert in the oil and gas industry for the purpose of assisting in the interpretation of the contractual terms of the parties' leases. [Record Document 60]. Given the ambiguous contractual provisions contained within the leases, expert testimony can provide context to the purpose of midstream pipeline systems in the industry, as well as elucidate for the Court the custom and usages of contractual and lease terms in this industry as they relate to midstream operations and post-production services that have an effect on the value of gas and royalties. As a result, after considering the parties' filings, this Court finds that Terry's testimony is admissible to a limited extent in both phases of the bifurcated trial. While Terry's testimony will be permitted to provide context to technical terms of art in the oiland gas industry, she can neither offer legal conclusions concerning the contractual duties of the parties nor offer any conclusion that could threaten the agreed upon trial structure based on the specific exclusions outlined below.

Thus, for the reasons stated below, IT IS ORDERED that the Plaintiffs' Motion in Limine to Exclude Testimony of Kris L. Terry [Record Document 58] is GRANTED in part and DENIED in part.

I. Factual and Procedural Background

In the present case, the dispute between the Plaintiffs and Defendant arose from the terms contained within two oil, gas, and mineral leases ("Leases") on property that the Plaintiffs owned in Caddo Parish, Louisiana. Record Document 32-2, p.2. The land was leased by the Plaintiffs in two agreements with Sklarco L.L.C., which was the sole lessee, beginning in September 2005 and recorded in the Conveyance Records of Caddo Parish in December 2005. Id., Record Document 34, p.1. The Leases contained both typical "Bath" forms and amended post-production cost clauses that were identical in each lease. Record Document 1-2, Exhibit 1 In Globo. While Exhibit "A" provided a description of the property that was covered by the Leases, Exhibit "B" attached provisions that were included in addition to the other previous provisions contained within the Leases' Bath provisions. Id. In February 2008, a partial sublease of oil, gas, and mineral leases between Sklarco L.L.C. and Petrohawk became effective. Record Document 34-1, p.3.¹ The Plaintiffs then granted an extension of this sublease in July2008, extending the primary terms of the Leases until August 2011. Id.

The principal dispute in this case centers on the interpretation of these provisions and the intent of the parties to deduct post-production costs from the Plaintiffs' royalties. As this Court previously found, despite arguments by both the Plaintiffs and Defendant to the contrary, there exists a genuine issue of intent regarding what post-production costs were deductible from the Plaintiffs' royalties. Record Document 44, p.19. In denying the motions for summary judgment by each party, this Court found that two provisions contained within the Leases addressed the deduction of post-production costs, making the intention of the parties with regard to these costs ambiguous. Id., pp.15-18.

In its analysis of the four corners of the contract, the Court reasoned the inclusion of the standard "market value lease" provision in Paragraph 4, by itself, would likely permit the finding that post-production transportation and gathering costs were deductible. Record Document 44, p.12.² However, by including a second provision inthe Leases in Paragraph 8 of Exhibit "B" that related to post-production costs,³ the Court determined there was an issue of fact as to the intent of the parties regarding what costs were deductible. Record Document 44, p.15. The purpose of Exhibit "B" in general was to alter and amend the form contract and the Bath provisions, including Paragraph 4's provision relating to post-production costs. As the Court explained: "Why, then, was [Paragraph 8] added to the contract? At the very least, the placement of the provision Exhibit 'B', as well as the language contained within it, raises issues of fact as to the parties' intent." Id. Thus, this Court found that the Leases were not unambiguous and there remained a genuine factual issue of intent to be determined at trial. Id., p.19.

In response to the Defendant's identification of Terry, an oil and gas consultant, as an expert witness, the Plaintiffs filed a motion in limine to exclude her testimony.Record Document 58. The Plaintiffs claim that Terry's opinions and expert report will not assist this Court and are not relevant to determining any factual issue concerning the contractual intent of the parties. Record Document 58-1. As a result, the Plaintiffs assert that her testimony is inadmissible during the liability phase of the trial. Id. In opposition to this motion, the Defendant has asserted a variety of justifications that permit admission of the expert testimony, which the Plaintiffs responded to with a Reply Memorandum in Support. Record Documents 60 and 63. This Court will now consider whether Terry's testimony will be admissible at trial.

II. Motion in Limine Standard

As the United States Court of Appeals for the Fifth Circuit explained, motions in limine are made prior to a trial to prohibit the opposing party from offering, mentioning, or even alluding to evidence on an issue that is prejudicial enough to the moving party that a timely motion striking the evidence or an instruction to the jury to disregard the evidence cannot overcome its prejudicial impact. See O'Rear v. Fruehauf Corp., 554 F.2d 1304, 1306 n.1 (5th Cir. 1977). In making this determination, a district court has broad discretion concerning the admissibility and exclusion of relevant evidence when the probative value substantially outweighs the risk of unfair prejudice, confusion, delay, wasting time, or needless presentation of cumulative evidence. Fed. R. Evid. 403; Int'l Ins. Co. v. RSR Corp., 426 F.3d 281, 299-300 (5th Cir. 2005); see French v. Allstate Indem. Co. 637 F.3d 571, 578 (5th Cir. 2011) (finding that in a bench trial the district court has broad discretion to weigh the probative and prejudicial value ofevidence under Rule 403). Such deference is given to a district judge "because of his or her first-hand exposure to evidence and familiarity with the course of the trial proceedings." Int'l Ins. Co., 426 F.3d at 300.

More specifically, Federal Rule of Evidence 702 provides for the admissibility of testimony by a qualified expert if that "expert's scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue." Fed. R. Evid. 702; French, 637 F.3d at 578 (explaining a district court has wide discretion to determine whether an expert's testimony will assist the factfinder, particularly when that court is the trier of fact). The admission of expert testimony to provide context on an industry practice and interpret contractual provisions specific to such an industry falls within a district court's discretion, so long as the explanation provided by the expert is needed to more accurately comprehend the meaning of technical terms used within that industry or trade. Compare Phillips Oil Co. v. OKC Corp., 812 F.2d 265, 281 (5th Cir. 1987) (finding the district court's admission of expert testimony by individuals experienced in the oil and gas accounting field for the purpose of "obtaining explanation of the technical meaning of terms used in the net profits accounting provisions of the Farmout seems prudent"), with Fid. Nat'l Title Ins. Co. v. Doubletree Partners, L.P., 866 F. Supp. 2d 604, 615 (E.D. Tex. 2011) (finding inadmissible expert testimony construing and interpreting contract provisions in the absence of specialized trade usage or the assertion of specialized meaning).

III. Law and Discussion

A. Expert Testimony on the Customary Meaning of Oil and Gas Terminology

As stated above, the issue at dispute in this case involves the interpretation and ambiguity created by separate provisions in the Leases and their addendums, specifically Paragraph 8 of Exhibit "B." As the Louisiana Supreme Court explained in Frey v. Amoco Production Co., "Mineral leases are construed as leases generally and, wherever pertinent, codal provisions applicable to ordinary leases are applied to mineral leases." 603 So. 2d 166, 171 (La. 1992); see La. Rev. Stat. § 31:2 (2014); Musser Davis Land Co. v. Union Pac. Res., 201 F.3d 561, 565 (5th Cir. 2000); Alyce Gaines Johnson Special Trust v. El Paso E. & P. Co., 773 F. Supp. 2d 640, 644 (W.D. La. 2011).

The Louisiana Civil Code makes clear that "[i]nterpretation of a contract is the determination of the common intent of the parties." La. Civ. Code art. 2045 (2014). When the language and words contained in a contract are clear and explicit, leading to no absurd consequences, no further interpretation may be made to determine the parties' intent, and the contract should be interpreted by reference only to the four corners of the agreement. La. Civ. Code art 2046 (2014); Tammariello Props., Inc. v. Med. Realty Co., 549 So. 2d 1259, 1263 (La. App. 3d Cir. 1989). When in dispute, a court's role is to determine the intent of the parties to a contract and the obligations created by it, as well as to interpret a contract's...