Roberts v. Unimin Corp.

KATHY ROBERTS and KAREN MCSHANE PLAINTIFFS v. UNIMIN CORPORATION DEFENDANT

No. 1:15CV00071 JLH

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF ARKANSAS NORTHERN DIVISION

December 5, 2016

OPINION AND ORDER

The question before the Court is whether to award attorney's fees and costs to the prevailing party, Unimin Corporation. Kathy Roberts and Karen McShane, currently the lessors under a 1961 mineral lease, sought a declaratory judgment that the lease was terminable at will under Arkansas law. The Court granted summary judgment in favor of the lessee, Unimin, holding that the lease was not terminable at will and dismissing the action with prejudice. Unimin has now filed a motion seeking attorney's fees pursuant to Federal Rule of Civil Procedure 54(d)(2) and Ark. Code Ann. § 16-22-308, as well as costs under Rule 54(d)(1). Unimin asks this Court to award $103,347.93 in attorney's fees and $2,225.60 in costs. For the following reasons, Unimin's motion for attorney's fees is denied and the request for costs is granted.

The lease at issue was the third in a series of leases dating back almost a century. In 1918, J.W. Williamson and Lizzie Williamson entered into a lease that granted Odell-Daly Material Company the right to mine the property for siliceous materials for a term of twenty years. The lease contained a royalty provision that provided:

For the first Five (5) years of said term the royalty shall be five (5) cents per ton on all materials shipped in crude form and three (3) cents per ton on all materials shipped in milled or pulverized form; that during the remainder of said term it is agreed that the royalty shall be five (5) cents per ton on all materials alike.

In 1934, J.W. Williamson entered into another lease for the property with similar royalty language: "Five cents (5¢) per ton on all material shipped, whether in crude form or shipped in milled or pulverized form." When J.W. Williamson died in 1943, he left the property to his two sons, Ray Williamson and Collie Williamson. Then in 1961, after Collie Williamson's death, a new lease was entered into between Ray Williamson and the devisees of Collie Williamson, as lessors, and the Silica Products Company, Inc. Unimin is the successor in interest to Silica. Kathy Roberts and Karen McShane, who are Ray Williamson's granddaughters, now own the subject property and are assignees of the 1961 lease.

The 1961 lease provides for the following royalty structure:

1. In consideration of the premises, the Lessee covenants and agrees to pay to Lessor the following royalties of all materials mined from or hauled over, across or under the above described lands . . . and shipped by Lessee whether in crude form or shipped in milled or pulverized form, which amount shall be net to Lessors;

(a) Five (5) cents per ton for all siliceous materials mined or quarried from the [subject property];

(b) Two (2) cents per ton for all siliceous materials mined or quarried from lands other than the above [subject property] and hauled over, across or under the above [subject property] . . .

(c) Provided, however, that lessee agrees to pay to Lessor a minimum royalty of five (5) cents per ton of twenty five (25%) per cent of all siliceous materials mined or quarried from or hauled over, across or under the property of Lessors: and the royalty paid on the siliceous materials mined or quarried from Lessors property shall be chargeable against this 25% minimum royalty.

The provision establishing the term of the 1961 lease states:

TO HAVE AND TO HOLD . . . unto the lessee and to its successors and assigns for and during the term beginning the 1st day of March 1961 and ending the 31st day of January, 2007, and as long thereafter as mining and/or mining operations are prosecuted on [the subject property] and/or siliceous materials are hauled, transported over, across or under [the subject property] . . . .

This provision of the lease is called "the habendum clause" because it defines the mineral estate's duration. Black's Law Dictionary 838 (4th ed. 1968); Gulf Oil Corp. v. Southland Royalty Co., 496 S.W.2d 547, 552 (Tex. 1973). The language at the center of this dispute was the "thereafter" clause, which provides that the lease continues so long as Unimin is mining or engaged in certain mining operations on the property. The plaintiffs contended that after January 31, 2007, the lease term became indefinite and, therefore, terminable at will. The issue was one of first impression in Arkansas. Ultimately, the Court predicted that the Arkansas Supreme Court would hold that such a lease is not terminable-at-will.

I.

"In a diversity action, state law governs the availability of attorney's fees where no conflicting federal statute or court rule applies." FutureFuel Chem. Co. v. Lonza, Inc., 756 F.3d 641, 649 (8th Cir. 2014); see also All-Ways Logistics, Inc. v. USA Truck, Inc., 583 F.3d 511, 520 (8th Cir. 2009). Arkansas law generally precludes an award of attorney's fees, unless a statute or contractual agreement provides for such an award. Stokes v. Stokes, 2016 Ark. 182, 10, 491 S.W.3d 113, 120. Unimin asks this Court to award attorney's fees pursuant to Ark. Code Ann. § 16-22-308, which provides:

In any civil action to recover on an open account, statement of account, account stated, promissory note, bill, negotiable instrument, or contract relating to the purchase or sale of goods, wares, or merchandise, or for labor or services, or breach of contract, unless otherwise provided by law or the contract which is the subject matter of the action, the prevailing party may be allowed a reasonable attorney's fee to be assessed by the court and collected as costs.

(Emphasis added). Enacted in 1987, section 16-22-308 and the scope of its application have been the subject of numerous court opinions. The Arkansas Supreme Court noted in its first encounterwith the then recently-enacted statute that it would "no doubt have a considerable impact on [the law concerning attorney's fees]." Damron v. Univ. Estates, Phase II, Inc., 295 Ark. 533, 537, 750 S.W. 402, 404 (1987). The issue here is whether this action is one to recover for breach of contract. If so, then the statute gives the Court discretion to award attorney's fees to Unimin, the prevailing party. See Crockett v. C.A.G. Invs., Inc., 2011 Ark. 208, 12, 381 S.W.3d 793, 801.

Most recently, the Arkansas Supreme Court analyzed the scope of section 16-22-308 in Stokes, where a son filed a petition against his father to quiet title. 2016 Ark. at 2, 491 S.W.3d at 116. The son asked the trial court to set aside a quitclaim deed, to award damages for conversion, fraud, and negligence, and to permit recovery of rents and government payments based on unjust enrichment. Id. The son prevailed and the trial court awarded him attorney's fees pursuant to section 16-22-308. Id. at 3, 491 S.W.3d at 117. The father appealed the award, arguing that section 16-22-308 was inapplicable because the son did not allege a claim for breach of contract. Id. at 11, 491 S.W.3d at 121. The Arkansas Supreme Court agreed with the father for two reasons. Id. First, based on the pleadings, the dispute between the parties did not concern a breach of a contract; rather, the complaint alleged a quiet-title action. Id. Second, the son sought damages based on unjust enrichment, not breach of contract. Id. at 12, 491 S.W.3d at 121.

Section 16-22-308 is inapplicable to this action for similar reasons. First, the action was for declaratory judgment, and second, the plaintiffs sought restitution for unjust enrichment, not breach of contract. The plaintiffs sought a declaration that the lease was terminable-at-will or, if the lease was not terminable-at-will, that the lease was unconscionable. They also sought restitution based on unjust enrichment. The plaintiffs abandoned the unconscionability argument and the Courtultimately held that the lease was not terminable-at-will. Thus, the pleadings show that the nature of the action was one for declaratory judgment.

The Arkansas Supreme Court has "held that attorney's fees [are] not recoverable in declaratory-judgment cases, even when the underlying dispute [arises] from a contract . . . ." Lonoke Cnty. v. City of Lonoke, 2013 Ark. 465, 7, 430 S.W.3d 669, 673 (citing Hanners v. Giant Oil Co. of Ark., Inc., 373 Ark. 418, 425, 284 S.W.3d 468, 474 (2008)). Cf. Sunbelt Exploration v. Stephens Prod. Co., 320 Ark. 298, 896 S.W.2d 867 (1995) (holding that section 16-22-308 applied in action where plaintiff sought the cancellation of oil and gas leases based on a breach by the lessee of the leases' implied and express terms).

Unimin argues that the nature of the plaintiffs' complaint was one for breach of contract, rather than declaratory judgment, and states:

Plaintiffs based their claims on the 1961 Lease, and the meaning of its words. The claim was that the 1961 Lease, by its terms, was terminable at will. According to the Plaintiffs, Unimin had failed to abide by—had breached—the contract's terms by failing to honor Plaintiffs' notice of termination at will . . . . The gist of this case is a suit "to recover upon a . . . contract relating to the purchase or sale of goods . . . or services . . . or breach of contract."

Document #112 at 7, ¶13. The plaintiffs alleged that under Arkansas law, the lease became terminable-at-will in 2007 when the "thereafter" clause kicked in. The plaintiffs did not allege, as Unimin says, that Unimin breached the lease by refusing to honor the plaintiffs' desire to terminate it. A plaintiff is the master of his complaint. Try as it might, Unimin, as the defendant, cannot recast the action as one for breach of contract, rather than one for declaratory judgment. Seeking a declaration from the Court as to when or if a lease may be terminated is not an allegation of a breach of contract. See Walls v. Humphries, 2013 Ark. 286, 13, 428 S.W.3d 517, 526 ("Although appellantssought cancellation of the lease, assignment, and deed,...