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STANDARD STEEL, LLC v. BUCKEYE ENERGY

September 29, 2005.

STANDARD STEEL, LLC, and DOUGLAS WESTMORELAND, L.P., Plaintiffs,
v.
BUCKEYE ENERGY, INC., Defendant.



The opinion of the court was delivered by: JOY CONTI, District Judge

MEMORANDUM OPINION

On April 7, 2004, plaintiff Standard Steel, LLC ("plaintiff" or "Standard Steel"), commenced the above-captioned case seeking a declaratory judgment declaring the respective rights of Standard Steel and defendant Buckeye Energy, Inc. ("defendant" or "Buckeye") relating to certain agreements entered into between the parties for the sale of natural gas. On August 17, 2004, Douglas Westmoreland, L.P. ("Douglas"), was joined as a party-plaintiff.

On January 17, 2005, the parties submitted this case to private mediation presided over by mediator and former Chief Judge of the United States District Court for the Western District of Pennsylvania Donald Ziegler. On January 21, 2005, counsel for the parties advised the court that, after submitting the case to mediation, the case had settled. On that same day, the court ordered the case closed, but expressly retained jurisdiction in the matter to consider any issue arising during the period when settlement was being finalized, including but not limited to enforcing settlement. On February 4, 2005, new counsel entered a praecipe of attorney appearance for defendant. On February 11, 2005, defendant filed a motion to reopen the case. On February 25, 2005, plaintiffs filed a motion to enforce settlement. On July 27, 2005, this court heard evidence and argument during an evidentiary hearing on plaintiffs' motion to enforce settlement. On September 12, 2005, the parties filed proposed findings of fact and conclusions of law.

  In order to decide the motions, the court must address (1) whether the parties reached an oral agreement to settle the litigation; and, if so, (2) whether the oral settlement agreement is affected by a no-oral modification clause in one of the three underlying agreements at issue in the litigation and (3) whether there is a Statute of Frauds problem with enforcing the oral settlement agreement.

  Pursuant to Federal Rule of Civil Procedure 52, this court makes the following findings of fact and conclusions of law.

  I. FINDINGS OF FACT

  1. On April 7, 2004, plaintiff Standard Steel filed a complaint seeking a declaratory judgment declaring the respective rights of Standard Steel and defendant Buckeye pursuant to certain agreements entered into between Standard Steel and Ter-Ex, Inc., Buckeye's predecessor in interest, for the sale of natural gas. Complaint at ¶¶ 6-16; Complaint, Ex. A, B, C.

  2. One of the three agreements underlying the litigation (the "Farmout Agreement") dated May 20, 1980, contains the following language:
7. The foregoing constitutes the entire agreement between Standard Steel and Ter-Ex [Buckeye's predecessor in interest]. No change, modification or alteration of this agreement shall be valid unless the same be made or specified in writing and signed by the parties hereto, their successors, and their assigns; provided, however, that neither this agreement nor the leasehold estate above mentioned may be assigned in whole or in part without first securing Standard Steel's written consent thereto, and further provided that any assignment hereafter executed shall specifically refer to and be made subject to the terms and conditions hereof.
Respondent's Ex. 2 at 6, ¶ 7 (emphasis added).

  3. The agreements underlying the litigation are contracts for the sale of goods valued at five hundred dollars or more. Complaint, Ex. A, B, C.

  4. On May 14, 2004, defendant Buckeye filed an Answer, Defense and Counterclaim against Standard Steel seeking a declaratory judgement declaring the respective rights of Buckeye and Standard Steel regarding the same agreements and adding a counterclaim for breach of contract against Standard Steel. Answer at ¶¶ 6-16.

  5. On August 4, 2004, Buckeye filed a motion to compel joinder of Douglas pursuant to Fed.R.Civ.P. 19(a). Doc. No. 10. Standard Steel did not oppose the joinder. Doc. No. 11. The court ordered that Douglas be made a party-plaintiff to the litigation on August 17, 2004.

  6. On December 6, 2004, the parties filed a joint motion to stay discovery pending mediation. Doc. No. 20. On December 9, 2004, the court entered an order staying proceedings pending the outcome of the mediation.

  7. On January 17, 2005, the parties participated in private mediation before former Chief Judge Donald Ziegler (the "mediation"). Transcript of July 27, 2005 Hearing ("Tr.") at 23-27.

  8. Judge Ziegler previously served as a Judge in the Court of Common Pleas of Allegheny County for five years and as a United States District Court Judge for the Western District of Pennsylvania for twenty-five years. Since leaving the bench, Judge Ziegler had been engaged in private practice, doing primarily mediation and arbitration. Tr. at 23-24. 9. Present at the mediation were Judge Ziegler and counsel and client representatives for Standard Steel, Douglas, and Buckeye. Tr. at 24-25. Those present representing the parties had authority to make a binding agreement on behalf of the parties that day. Tr. at 25.

  10. The primary issues being mediated concerned the past and future prices for the sale of natural gas. The five key issues being mediated were the amount that Standard would pay Buckeye for gas it had received in the past, the amount that Douglas would pay Buckeye for gas it would receive in the future, the surcharge that Douglas would pay Buckeye for gas it would receive in the future, the amount of gas that Douglas would take from Buckeye in the future, and the standard of merchantability for the gas if one were applied. See Tr. at 26 (testimony of Judge Ziegler) (emphasis added) as follows:
Q. What do you recall as being the key issue for the mediation?
A. Well, broadly speaking, it broke down to two issues, the amount that standard [sic] would pay Buckeye for gas it had received in the past and the amount that Buckeye would receive for gas sales in the future.
Now that second issue broke down into a number of subset issues. First we had the price that Buckeye would receive in the future from Standard for the sale of gas. The second aspect of that was a surcharge that Buckeye was demanding in addition to the base price. The third aspect of that was the amount of gas that Standard would take on an annual basis from one of the three wells. And then a final issue was whether or not the gas was to be merchantable in quality because one of the wells was producing natural gas that contained water.
Melody Pritchard, President and CEO of Buckeye, confirmed that these were the key points discussed at the mediation. Tr. at 44, 51-52.

  11. Judge Ziegler testified that it was his understanding that the parties reached an agreement to settle the litigation at the mediation: Q. And, Judge Ziegler, did these parties reach an agreement to settle the litigation at the mediation that you were holding that day?

  A. Yes, sir.

  * * * (objection by Buckeye) * * *

 
Q. Judge Ziegler, did the parties reach an agreement that day?
A. Yes, sir.
Tr. at 26-27 (emphasis added).
  12. Judge Ziegler testified to his understanding of the content of the agreement to settle the litigation:
Q. What was the agreement that was reached that day?
A. The agreement was as follows: Standard would pay Buckeye $100,000 in four payments: $25,000 on March 31st, $25,000 on June 30th, $25,000 on September 30th, and $25,000 on December 31st.
Going forward, Buckeye would supply gas to Standard. It would sell it for a price on the market, and the parties would split that price fifty-fifty. Next, that Standard would pay Buckeye a surcharge of ten cents on each of the MCFs thousand cubic feet of natural gas.
Next, that the one well would produce at least one hundred thousand MCF on an annual basis. And that Standard would take up to one hundred thousand MCF from that well, which I believe was the Bearer well, although I may be in error what well of the three it was. I believe it was the Bearer well.
And, lastly, that this oral agreement would apply to the parties with respect to all three wells.
Q. Was there any agreement as to merchantability?
A. Yes, sir; there was. Ms. Pritchard specifically stated in Phase Three of the mediation when we were all together would Standard and Douglas please define merchantability. They did, and she said, "Very good, I understand. I agree."
Q. Judge Ziegler, when you said as to the future price that Buckeye would get one-half of what Douglas was selling it for on the market, was it your understanding that it would truly be one-half of whatever Douglas was getting for the gas?
A. Yes, sir.
Q. So there was no discussion about indexes or anything like that?
A. None whatsoever. And one of the main contentions going into the mediation was Standard was insisting upon the continuation of the fixed price. Buckeye was insisting on a variable going forward. And, therefore, by pegging it to the price that Douglas was able to sell the ...

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