Hall Ponderosa, LLC v. Petrohawk Properties, Lp

STATE OF LOUISIANA
COURT OF APPEAL, THIRD CIRCUIT

11-1056

HALL PONDEROSA, LLC

VERSUS

PETROHAWK PROPERTIES, L.P.

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APPEAL FROM THE
FOURTEENTH JUDICIAL DISTRICT COURT
PARISH OF CALCASIEU, NO. 2009-3560
HONORABLE WILFORD D. CARTER, DISTRICT JUDGE

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PHYLLIS M. KEATY
JUDGE

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Court composed of Sylvia R. Cooks, Elizabeth A. Pickett, and Phyllis M. Keaty,
Judges.

REVERSED AND RENDERED.

Kenneth Michael Wright
Attorney at Law
203 West Clarence Street
Lake Charles, Louisiana 70601
(337) 439-6930
Counsel for Plaintiff/Appellee:
Hall Ponderosa, LLC

Jamie S. Manuel
Mayhall & Blaize, L.L.C.
5800 One Perkins Place Drive, Suite 2-B
Baton Rouge, LA 70808
(225) 810-4998
Counsel for Defendant/Appellant:
Petrohawk Properties, L.P.

KEATY, Judge.

In this action for reformation of a lease, the managers of Hall Ponderosa,

LLC, asserted that an entire section of property owned by Hall Ponderosa was

inadvertently left out of the lease agreement. Claiming mutual error, Hall

Ponderosa sought to have the lease reformed to include that section of property and

sought payment for that section‟s acreage at the rate of bonuses, $15,000 per acre.1

After a bench trial on the merits, the trial court found that Hall Ponderosa had met

its burden of proving, by clear and convincing evidence, that mutual error existed.

The trial court then ordered reformation of the lease to include the additional

section and ordered Petrohawk Properties, L.P., to pay $15,000 per additional acre.

After carefully reviewing the record, we find no evidence of proof, by clear and

convincing evidence, that mutual error occurred. We further find that Hall

Ponderosa was negligent in executing the lease agreement and cannot now seek to

reform the lease. For the following reasons, we reverse the trial court‟s judgment

and render judgment in favor of Petrohawk Properties.

Facts and Procedural History

The basis for this case is a mineral lease executed between Hall Ponderosa

and Petrohawk Properties. Hall Ponderosa is owned by descendants of Wallace

Alford Hall and Frances Tipton Hall and was created so that property owned by the

Hall descendants could be managed more effectively. Hall Ponderosa owns two

pieces of property in Red River Parish that are subjects of the instant litigation.

One tract is in Section 14 and is known as Stella Plantation, and the other is located

in Section 13 and is known as the Town Dump. The properties are separated by a

natural boundary, the Bayou Coushatta. These properties were contributed to Hall

1
$15,000 per acre is the amount Hall Ponderosa was paid for the property included in the
lease agreement.

Ponderosa on June 26, 2008, the day before the lease in question was signed.2 At

the time that the lease was signed, no one knew the exact size of either tract of land,

but the managers of Hall Ponderosa believed that the Section 14 tract was about

170 acres and that the Section 13 tract was about thirty acres. Although the actual

acreage of the tracts of land was unknown, the property descriptions for both tracts

were available at the time the lease was signed and could have been included in the

lease without a survey on the properties. Two of Hall Ponderosa‟s managers,

Tommy Wright and Greg Hall, were responsible for the lease with Petrohawk.3

Wright is an experienced landman, and Hall is a petroleum engineer with

experience in oil and gas exploration.

Petrohawk leased certain mineral rights in the Section 14 property owned by

Hall Ponderosa. Shortly before the lease was executed, in early summer 2008,

Petrohawk was involved in a “land rush” to acquire oil and gas leases in areas that

might be within the Haynesville Shale region. Exploration had not progressed far

enough along for anyone to know where exactly the Shale region was located.

Initially, landmen were encouraged to acquire leases in a large area, including Red

River Parish, Louisiana. As exploration progressed, the areas Petrohawk was

interested in leasing became more defined.

At that time, Petrohawk contracted with thirteen firms that employed many

landmen. One of the firms they contracted with was Cornay-Lowrey, which in

turn employed Jeff Heard, one of many landmen working to acquire oil and gas

2
The lease states that it was signed on June 25, 2008, but testimony indicates that the
lease was actually signed on June 27, 2008.

The original contribution of real estate contained property descriptions for two pieces of
property, Section 13 and Section 14. The property description for the Section 13 property was
inaccurate and was later corrected to reflect its actual location.
3
Tommy Wright and Greg Hall were the only two managers of Hall Ponderosa involved
in the lease negotiations with Petrohawk. For purposes of this opinion, they are referred to as
Wright and Hall.
2

leases for Petrohawk. Heard was the individual responsible for acquiring and

negotiating the lease with Hall Ponderosa on behalf of Petrohawk.

Petrohawk employed a database manager to send blanket mail-outs to land

owners on the tax rolls of parishes in the areas of interest. These mail-outs stated

that Petrohawk was doing some oil and gas exploration in the area and might be

interested in leasing the landowner‟s property.

Wright‟s mother, one of the Hall descendants, received two mail-outs, one

for each tract of land she co-owned in Red River Parish. Shortly thereafter, on

June 10, 2008, Heard contacted Wright‟s mother by telephone. Wright spoke with

Heard who indicated Petrohawk was interested in obtaining an oil and gas lease on

the Hall property.

Wright relayed that conversation to his cousin, Hall. Hall then emailed a

friend, who owned an oil and gas company, and explained that they owned two

pieces of property totaling about 200 acres that were available for lease. The

cousins were also in negotiations with Pride Energy as late as June 25, 2008, and,

ultimately, ended negotiations because the details of that lease could not be agreed

upon by the parties.4

Heard testified that he ignored all property in Section 13 because it was near

the town of Coushatta, it was hard to find large pieces of property in populated

areas, and Petrohawk generally only wanted to lease property that was about 100

acres or more. He also testified that he knew that Section 13 was on the edge of

the area of interest. Instead, Heard focused his attentions on Section 14,

particularly Stella Plantation, which was about 170 acres according to old leases.

4
Wright initially testified that he ended negotiations with Pride because they signed a
lease with Petrohawk; however, his deposition and his answers later in his trial testimony
indicate that the reason he stopped negotiating with Pride was because the parties could not come
to an agreement concerning the lease terms.
3

After Heard‟s telephone conversation with Wright, the two began

negotiating a lease with input from Hall. All parties testified that the lease was

executed quickly. The initial telephone conversation occurred on June 10, 2008,

and the lease was executed on June 25, 2008. Wright made sure that the lease

contained a competing nations clause and a provision that the bonus would not

have to be returned even if the property totaled less than 170 acres once surveyed.

Hall relied on Wright‟s expertise as a landman in drafting the leases. The property

description attached as Exhibit A to the lease was the exact property description

included in the previous leases of Stella Plantation, which was provided to Heard

by Wright for use in the instant lease.

Neither Wright nor Hall specifically stated to Heard that they owned the

Section 13 property, and it needed to be included in the lease. Heard testified that

he was not aware that they owned any property in Section 13; he only knew about

and was only interested in the Stella Plantation. At the time that the parties were

negotiating, the two properties had not been contributed to Hall Ponderosa. That

contribution was not final until the day before the lease was signed, and Heard was

not made aware of Section 13‟s inclusion in the Hall Ponderosa contribution or of

Hall Ponderosa‟s intent to lease both pieces of property.

Wright saw the lease and the property description at issue, which only

described the Section 14 tract, on the day the lease was signed. Hall testified that

he did not receive a copy of the lease but that Wright told him it was acceptable to

sign. Section 13 was not included in either document. Because the lease was

executed so quickly, it contained some errors that needed to be cleaned up, and

Heard said he would take care of them. Wright, Hall, and Heard then exchanged

several emails in early July concerning the cleanup of the lease. Section 13 was

not mentioned. In his final email to Wright containing the cleaned-up lease and
4

signature pages, Heard outlined all of the changes he made to the lease. Again,

Section 13 was not mentioned.

Hall Ponderosa then had its property surveyed. The surveyor determined

that because of accretion, the Section 14 property was actually about 156.87 acres,

and the Section 13 property was 144.55 acres. In November 2008, Wright

contacted Heard and stated that they had unleased property in Section 13 on which

they expected to receive lease offers. He asked Heard if Petrohawk was interested

in leasing that property. Heard declined. In March 2009, Hall Ponderosa sent a

letter to Petrohawk stating that the Section 13 property had mistakenly been left off

of the lease, that the lease needed to be reformed to reflect the properties owned by

Hall Ponderosa, and that they were entitled to the same bonus paid for the Section

14 property, $15,000 per acre. Petrohawk replied that they were mistaken.

Hall Ponderosa then filed the instant lawsuit making the same allegations:

that they intended to lease their entire property to one entity, that Section 13 was

not included in the lease, that the lease needed to be reformed to include Section 13,

and remuneration for the additional acreage was owed. The trial court found that

Hall Ponderosa met its burden in proving there had been a mutual error in the

construction of the lease and that each party meant to lease all of Hall Ponderosa‟s

property. Based on its finding of mutual error, the trial court ordered that the lease

be reformed to include the Section 13 property, an additional 144 acres, and that

Petrohawk pay nearly two million dollars to Hall Ponderosa as remuneration. It

also found that Petrohawk was liable for attorney fees and costs. Petrohawk filed a

motion for new trial, after which the trial court amended its judgment concerning

the amount of judicial interest owed and the date interest began accruing.

Petrohawk appealed, and Hall Ponderosa answered the appeal.

5

Issues

Petrohawk avers that the trial court was erroneous in finding that Hall

Ponderosa met its burden of proof, thereby warranting a finding of mutual error. It

also asserts that the trial court erroneously cast them with attorney fees and costs

after misinterpreting paragraph twenty-five of the lease. In its answer to the appeal,

Hall Ponderosa prays that the trial court‟s judgment be affirmed, that the language

concerning legal interest be amended to that in the original April 18, 2011

judgment, and that they be awarded attorney fees for additional work done on

appeal.

Standard of Review

Appellate courts employ the manifest error/clearly wrong standard to review

judgments that determine whether mutual error existed in a contract because a

finding of mutual error is essentially a finding of fact. Likewise, attorney fees and

the date on which judicial interest begins to accrue are also subject to the manifest

error standard of review. See Thibodeaux v. L. S. Womack, Inc., 94-1375 (La.App.

3 Cir. 4/5/95), 653 So.2d 123, and Ashy v. Trotter, 04-612 (La.App. 3 Cir.

11/10/04), 888 So.2d 344, writs denied, 05-180 (La. 3/24/05), 896 So.2d 1045 and

05-347 (La. 3/24/05), 896 So.2d 1047.

The supreme court provided guidance to courts of appeal on the application

of the manifest error standard of review in Stobart v. State through Department of

Transportation and Development, 617 So.2d 880 (La.1993). In this case, it

reiterated a two-part test that must be met before a trial court‟s finding of fact can

be reversed:

1) The appellate court must find from the record that a
reasonable factual basis does not exist for the finding of
the trial court, and

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2) The appellate court must further determine that the
record establishes that the finding is clearly wrong
(manifestly erroneous).

See Mart v. Hill, 505 So.2d 1120, 1127 (La.1987).

This test dictates that a reviewing court must do more than
simply review the record for some evidence which supports or
controverts the trial court‟s finding. Id. The reviewing court must
review the record in its entirety to determine whether the trial court‟s
finding was clearly wrong or manifestly erroneous.

Id. at 882.

It is not an appellate court‟s duty to determine whether the fact finder was

correct. Rather, it is the duty of the appellate court to determine whether the

findings were reasonable. Id.

Discussion

Hall Ponderosa filed suit to reform an oil and gas lease to include a tract of

land not contained in the original lease and to obtain bonus payments of $15,000

per acre on the additional property. After a two-day trial, the trial court found that

there were two mutual errors: the omission of Section 13 and the belief that the

Hall Ponderosa property was 170 acres. The trial court reformed the lease to

include the Section 13 property description and ordered that Petrohawk issue

payment in remuneration for 131.42 acres at $15,000 an acre, totaling $1,971,300.5

Generally, “[w]hen the words of a contract are clear and explicit and lead to

no absurd consequences, no further interpretation may be made in search of the

parties‟ intent.” La.Civ.Code art. 2046. If the words of a contract are clear,

explicit, and lead to no absurd results, it must be interpreted by reference to the

“four corners” of the document and no further interpretation can occur in search of

the parties‟ intent. Hebert v. Ins. Ctr., Inc., 97-298 (La.App. 3 Cir. 1/7/98), 706

5
This figure was computed by the trial court by subtracting 170 acres from the total
acreage owned by Hall Ponderosa and multiplying that amount by $15,000.
7

So.2d 1007, writ denied, 716 So.2d 888, 98-353 (La. 3/27/98). Law and

jurisprudence provide that courts are bound to give legal intent to contracts

according to parties‟ true intent, which must be determined by the words of the

contract when these are clear, explicit, and lead to no absurd consequences.

Ransom v. Camcraft, Inc., 580 So.2d 1073 (La.App. 4 Cir. 1991).

However, when contracts do not reflect the parties‟ true intents,

“[r]eformation is an equitable remedy which is available to correct mistakes or

errors in” those contracts. Teche Realty & Inv. Co., Inc. v. Morrow, 95-1473, p. 4

(La.App. 3 Cir. 4/17/96), 673 So.2d 1145, 1147. To succeed in a reformation

action, the party seeking reformation must establish by clear and convincing

evidence that mutual error and mistake occurred. Id.

A mutual mistake is a mistake shared by both parties to
the instrument at the time of reducing their agreement to
writing, and the mistake is mutual if the contract has been
written in terms which violate the understanding of both
parties; that is, if it appears that both have done what
neither intended.

Id. (quoting Succession of Jones v. Jones, 486 So.2d 1124, 1127 (La.App. 2 Cir.),

writ denied, 489 So.2d 249 (La. 1986)). Reformation is only to be used “to correct

mistakes or errors in the written instrument when such instrument, as written, does

not express the true contract or agreement of the parties.” Brabham v. Harper, 485

So.2d 231, 233 (La.App. 3 Cir. 1986). “The evidence of mutuality must relate to

the time of the execution of the instrument and show that the parties then intended

to say one thing and by mistake expressed another and different thing.” WMC

Mortgage Corp. v. Weatherly, 07-75, p. 4 (La.App. 3 Cir. 6/13/07), 963 So.2d 413,

416, writ denied, 07-1475 (La. 10/5/07), 964 So.2d 945 (quoting Teche Realty, 673

So.2d 1145).

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Reformation “is a personal action, even when applied to real estate, in which

the burden is on the one seeking reformation to establish the mutual error and

mistake by clear and convincing proof.” Agurs v. Holt, 232 La. 1026, 1032, 95

So.2d 644, 646 (La.1957). “Proof by clear and convincing evidence requires more

than „a preponderance of the evidence,‟ the traditional measure of persuasion, but

less than „beyond a reasonable doubt,‟ the stringent criminal standard.” Hines v.

Williams, 567 So.2d 1139, 1141 (La.App. 2 Cir.), writ denied, 571 So.2d 653

(La.1990). “To prove a matter by clear and convincing evidence means to

demonstrate that the existence of a disputed fact is highly probable, that is, much

more probable than its nonexistence.” Id. “[This] distinct standard, persuasion by

clear and convincing evidence, is usually applied „where there is thought to be

special danger of deception, or where the court considers that the particular type of

claim should be disfavored on policy grounds.‟” Id. (quoting MCCORMICK ON

EVIDENCE, Section 340(6) (2d ed. 1972)). In Louisiana, the contract is presumed

to be a true reflection of the parties‟ intent. Thus, reformation, which allows a

party to amend portions of a contract, requires a higher burden of proof before it

can be granted.

After carefully reviewing the record, we find that the trial court was

manifestly erroneous in finding that Hall Ponderosa proved by clear and

convincing evidence that it and Petrohawk intended to include the Section 13

property in the lease. We find that the record is void of a reasonable factual basis

for the trial court‟s finding of mutual error.

Testimony by Hall supports a conclusion that the trial court‟s finding of

mutual error was erroneous. Mutual error must “relate to the time of the execution

of the instrument.” WMC Mortgage Corp., 963 So.2d 416. Hall testified that they

(he and Wright, who signed the lease on behalf of Hall Ponderosa) were “satisfied
9

with the terms of the oil and gas lease.” He further stated that they “were happy

when the lease was signed.” These statements defeat a suggestion that, at the time

the lease was signed, they intended to lease the Section 13 property.

Even if we ignore the plaintiff‟s assertion that Hall Ponderosa was happy

with the lease when it was signed, the trial court was still manifestly erroneous

when it found mutual error between the parties. Hall Ponderosa had the burden of

proving, by clear and convincing evidence, that Petrohawk intended to lease from

Hall Ponderosa the Town Dump property located in Section 13. They failed to

meet that burden.

Never, during their negotiations with Heard, did Hall or Wright mention

owning property in Section 13. Although they told him they would be contributing

all of their property to Hall Ponderosa before signing the lease, they never

expressly mentioned that they wanted to lease all of their property to Petrohawk.

The contribution of property was not completed until the day before the lease was

signed. Heard testified that he did not even look at Section 13. Hall testified that

the parties spent the majority of the time negotiating the terms of the lease and that

there was little discussion concerning the property description because there was

no question about title.

Wright, a landman who is experienced in negotiating oil and gas leases,

testified that he made sure the lease included the specific term, delay rentals,

drainage clause, warranty of title, and a favored nations clause. Wright sent a copy

of a 1990 lease of the Stella Plantation, which he helped negotiate, to Heard on

June 19, 2008, so that Heard could use it as the basis for the 2008 lease. Heard

testified that Wright wanted the lease to reflect his (Wright‟s) form. There are

emails between the two men corroborating that testimony. In those emails, Wright

never mentioned including Section 13 in the lease and never sent a Section 13
10

property description to Heard to be included in the lease, though he did send the

Section 14 property description. Although Hall knew Hall Ponderosa owned

property in Sections 13 and 14 when the lease was created and although he

testified that he wanted to lease all of Hall Ponderosa‟s property to one operator, he

also testified that there was no specific conversation, email, or letter between him

and Petrohawk that would indicate that Hall Ponderosa wanted the lease to include

both Section 13 and Section 14.

After the original lease was signed, there were some small mistakes and

omissions that needed to be “cleaned up.” The parties emailed back and forth

several times negotiating these changes. Ultimately, the second and final version

of the lease was signed in early July, 2008. During those negotiations, the Section

13 property was not mentioned, despite Wright‟s testimony that he looked at the

original lease and the property description before signing the instrument, and that

he discussed the absence of Section 13 in the property description with Heard on

the original signing date. Although Wright claims he told Heard the Section 13

property description was missing from the lease, he failed to mention it again until

November 2008, despite negotiating other details with Heard subsequent to the

alleged discussion of Section 13‟s exclusion from the lease.

Hall Ponderosa‟s contention that it intended to lease the Section 13 property

did not arise until after they had their property surveyed and found out that Section

13 totaled 144.55 acres of land due to accretion from a river. At that time, Wright

sent an email to Heard stating that they had “unleased property in Section 13,” that

they expected to receive lease offers on the acreage, and inquired about

Petrohawk‟s interest in leasing the property. Wright testified that he used this

language because he “isn‟t a lawyer,” and he thought if it was not described, it was

not leased. Although Wright is not a lawyer, he is a certified petroleum landman
11

with over thirty years in the oil and gas industry and has negotiated mineral leases

as part of his primary job duties. When questioned about the email, he stated, “it

says what it says.” He also testified that what he intended to state, though did not,

in his email was that the parties needed to conform the lease to include the Section

13 property. He failed to mention any agreement about amending the property

description to include Section 13 and when questioned further, testified, “I said

what I said, document speaks for itself.” The email from Wright to Heard states, in

pertinent part: “To follow up with our telephone conversation today, I wanted to

let you know that Hall Ponderosa, LLC has unleased acreage in Sec. 13, T12N,

R10W, Red River Parish, La[.] which is contiguous with the property we own in

Sec. 14.” The document further states, “I wanted to let you know of this

information, as we expect to receive lease offers on this acreage…..Please feel free

to contact me. Have a good Thanksgiving!!”

Although the trial court discredited all of defendant‟s testimony and greatly

weighed the testimony of Hall and Wright, neither Hall nor Wright were able to

give precise statements about their actions. Though they contend that they

intended to lease all of the property to Petrohawk, they were unable to give clear

answers for their failure to mention Section 13 during lease negotiations or to

account for their choice of language in the November 2008 email in which they

classified the Section 13 property as “unleased.” Further, Hall testified that they

entered into the lease because they “wanted the money.” Finally, they were unable

to explain why they waited until March 2009 to assert that the parties had agreed

that Section 13 should be included in the lease, when they were aware of its

exclusion in June 2008.

The trial court relies on Hall Ponderosa‟s aborted negotiations with Pride as

part of its reasons for finding mutual error. Initially, Wright testified that
12

negotiations with Pride fell through because they had entered into a lease with

Petrohawk, but in his deposition, he stated that the reason was because there was a

problem with the lease terms. When questioned further at trial, Wright stated that

an inability to agree to lease terms and language was one of the reasons they

stopped negotiating with Pride. Tellingly, Wright testified, “[h]e [Heard] knows

what he wants to lease” and “I know what I wanted to lease or our family wanted

to lease.” There is absolutely nothing in the record to indicate that Heard ever

intended to lease the Section 13 property. In fact, he testified that he did not know

they owned property in Section 13.

Hall Ponderosa did not offer any evidence that Petrohawk intended to lease

their property in Section 13. There are no emails, letters, or other written

communications to indicate that Petrohawk intended to lease both properties.

Further, testimony from both parties indicates that there was never a discussion

about specific property descriptions or that Hall Ponderosa intended to lease all of

its property to Petrohawk. The only property description exchanged between the

parties in connection with drafting the lease was that of the Stella Plantation in

Section 14. Finally, the contribution of real estate, which is the only document

exchanged that contains any reference to the Section 13 property, was not

completed until the day before the lease was signed and after negotiations were

complete. Even if Hall Ponderosa had stated that it wanted to lease its property to

Heard, Heard, who was only working on the Section 14 property, would not have

had any way of knowing what Hall Ponderosa meant by “all of its property” when

drawing up the lease, as neither Wright nor Hall ever mentioned owning property

in Section 13.

Finally, Hall testified that he did not read the lease before signing it. Wright

testified that he signed the lease even though the property description for Section
13

13 was not attached. After the lease was signed, the parties negotiated “clean up”

items. Section 13 was not mentioned. “The law of Louisiana is that one who signs

an instrument without reading it has no complaint.” Capdeville v. White’s Temple,

99-1040, p. 2 (La.App. 3 Cir. 12/22/99), 755 So.2d 923, 925 (quoting Tweedel v.

Brasseaux, 433 So.2d 133 (La.1983)). Although the law “does not compel people

to read or to inform themselves of the contents of instruments which they may

choose to sign, [. . .] it holds them to the consequences, in the same manner and to

the same extent as though they had exercised those rights.” Id. “[S]ignatures to

obligations are not mere ornaments.” Id. Further, “[a] party cannot rescind an

instrument which he negligently executed.” Humble Oil & Refining Co. v.

Chappuis, 239 So.2d 400, 406 (La. App. 3 Cir.), writ refused, 256 La. 915, 240

So.2d 375 (La.1970) (in which Judge Miller dissents with the majority opinion).

Both Wright and Hall signed the original lease and the cleaned-up version of the

lease. This was negligence on their part. Hall should not have signed the lease

without reading it. Wright should not have signed a lease that did not reflect Hall

Ponderosa‟s intent. Wright‟s negligence in signing a lease that he knew did not

conform to Hall Ponderosa‟s intent and Hall‟s negligence in failing to read the

lease to which he affixed his name preclude them from seeking reformation of the

lease due to error.

Disposition

For these reasons we find that Hall Ponderosa failed to prove by clear and

convincing evidence that mutual error existed in the lease contract. We reverse the

trial court‟s judgment in its entirety. We deny Hall Ponderosa‟s request for

attorney fees for work done on appeal. Accordingly, we need not address the

remaining assignments of error. Costs are cast against Hall Ponderosa, LLC.

REVERSED AND RENDERED.
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