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Ferdig Oil Co., Inc. v. Roc Gathering, LLP

Supreme Court of Montana

December 18, 2018

FERDIG OIL CO., INC., a Montana corporation, and SOMONT OIL COMPANY, INC., a Montana corporation, Plaintiffs and Appellants,
ROC GATHERING, LLP, a Montana Limited Liability Partnership, RANCK OIL COMPANY, INC., a Montana corporation, and COMMERCIAL ENERGY OF MONTANA, INC., a Montana corporation, Defendants and Appellees.

          Submitted on Briefs: December 12, 2018

          District Court of the Ninth Judicial District, In and For the County of Toole, Cause No. DV-12-039 Honorable David Cybulski, Presiding Judge.

          For Appellants: Gregory J. Hatley, Tyler C. Smith, Davis, Hatley, Haffeman & Tighe, P.C., Great Falls, Montana

          For Appellees: Thane P. Johnson, Johnson, Berg & Saxby, PLLP, Kalispell, Montana

          Clement L. Glynn, Jonathan A. Eldredge, Glynn & Finley, LLP, Walnut Creek, California


          Beth Baker, Justice.

         ¶1 The Ninth Judicial District Court, Toole County, granted summary judgment in favor of ROC Gathering, LLP, Ranck Oil Company, Inc., and Commercial Energy of Montana, Inc., (collectively, "ROC" or "Defendants") after determining that those parties had not breached their contract with Ferdig Oil Co., Inc. and Somont Oil Company, Inc. (collectively, "Ferdig Oil"). The District Court entered a separate order awarding ROC attorney fees and costs in the action. Ferdig Oil appeals both orders. We consider the following issues on appeal:

1. Whether the District Court properly held on summary judgment that ROC did not breach or repudiate the parties' 2006 Settlement Agreement;
2. Whether the District Court abused its discretion in fixing the amount of attorney fees and costs to which ROC was entitled as the prevailing party.

         We affirm the summary judgment order and reverse for modification of the fees and costs.


         ¶2 The parties to this case are engaged in the business of gathering, processing, and marketing oil and natural gas in northern Toole County, Montana. Barbara Ranck Perry and Ron Perry have ownership interests in each of the three Appellees: ROC Gathering, Ranck Oil, and Commercial Energy. Charles Jansky owns Appellants: Ferdig Oil and Somont Oil. All five companies were signatories to a Settlement Agreement in 2006 ("2006 Agreement") to resolve multiple commercial disputes arising from their various business relationships. At issue in this case is the provision of the 2006 Agreement that allowed Ferdig Oil to tap into a delivery line owned and operated by ROC Gathering.

         ¶3 The delivery line at issue runs from ROC Gathering's natural gas processing facility near Oilmont, Montana (the "Oilmont Plant") to Northwestern Energy's transmission system. Ferdig Oil owns a nearby plant (the "Morton Plant") that processes natural gas containing hydrogen sulfide, called "sour gas." Per the 2006 Agreement, Ferdig Oil paid for the construction of a pipeline from its Morton Plant directly to ROC Gathering's delivery line. The interconnection of this pipeline from the Morton Plant into ROC Gathering's delivery line is physically located in a locked meter house on ROC Gathering's property, along with a block valve that can close the interconnection. Ferdig Oil does not have access to the interconnection or block valve without a ROC Gathering employee unlocking the meter house for it.

         ¶4 Ferdig Oil began using the interconnection into ROC Gathering's delivery line in April 2008. Ferdig Oil shut down the Morton Plant on a number of occasions over the years for maintenance or repairs. The block valve would be closed during these occasions, but Ferdig Oil otherwise consistently used the interconnection until 2014.

         ¶5 On September 30, 2010, counsel for ROC Gathering sent Ferdig Oil a notice of termination, stating that it was terminating Ferdig Oil's right to tap into ROC Gathering's delivery line because Ferdig Oil had breached its obligations under the agreement by allowing sour gas into the pipeline. ROC Gathering took no steps to close Ferdig Oil's interconnection at that time, however, and Ferdig Oil continued using the tap. In July 2012, Ferdig Oil filed a declaratory action against ROC seeking to determine its rights under the 2006 Agreement and injunctive relief to enjoin ROC Gathering from disabling the tap in the future. Ferdig Oil did not prosecute or serve the Defendants with the suit immediately.

         ¶6 Ferdig Oil shut down the Morton Plant in early January 2014 for repairs to its reboiler. ROC Gathering closed the block valve to allow for the repairs. While repairs on the Morton Plant were ongoing, Ferdig Oil served each Defendant with the suit it had filed in 2012. The Defendants answered and brought counterclaims in May 2014.

         ¶7 On July 9, 2014, Jansky e-mailed Ranck Perry that Ferdig Oil had completed reboiler repairs at the Morton Plant, but explained, "[W]e noted a leak in our delivery line, which we are in the process of repairing with a replacement line. And so at this point we are still shut down, hoping to be back up shortly." On July 14, Joe Alborano, an employee at Ferdig Oil, e-mailed Ranck Perry informing her that Ferdig Oil had "a bad sales gas line from the Morton plant over to the old meter shack at your plant" and would "need to dig back from the shack 100 feet or so to tie into" a replacement line. He asked whether an employee from ROC Gathering would be available to unlock the meter house for Ferdig Oil to complete the work. Ranck Perry replied that, because of the pending legal action, she had forwarded the request to ROC Gathering's legal team. She denied Ferdig Oil access to ROC Gathering's property in the interim. While waiting for a response from ROC Gathering's legal team, Ferdig Oil abandoned its plan to tie into a replacement line, because it isolated a leak in the original pipeline on its own property. It repaired the leak by replacing a section of the original pipeline. Ferdig Oil informed ROC Gathering that it had repaired the pipeline.

         ¶8 After discussions between the parties' lawyers, ROC Gathering's counsel sent an e-mail to Ferdig Oil's counsel on July 24, 2014. In the e-mail, ROC Gathering requested verification that the leak in Ferdig Oil's line had been fixed. ROC Gathering's counsel wrote, "We are not at all comfortable that the sole source of the leak has been discovered or that the system is safe to start operations." It requested details of the repairs, including information about who had repaired the pipeline and how it was done. ROC Gathering stated it wanted to inspect the pipeline and have appropriate pressure testing done or to review any data if Ferdig Oil already had completed testing the pipeline. The e-mail explained that

apart from the issues in the pending litigation, we are too concerned about the risk of a continuing leak and potential explosion to agree to let Ferdig simply open the tap and start producing, but we are willing to work with you to determine that your system is safe to re-start.

         ¶9 The second paragraph of the e-mail turned to the ongoing litigation between the parties, reiterating ROC Gathering's position that the 2006 Agreement between the parties was terminated or terminable and that Ferdig Oil's operations were a proper basis for termination. ROC Gathering's counsel sought a non-waiver, non-admissibility agreement to prevent Ferdig Oil from using continued production against ROC Gathering in the litigation. After proposing the non-waiver, non-admissibility agreement, counsel explained that ROC Gathering was "not saying no" to Ferdig Oil's requests to open the tap. As an alternative to the non-waiver, non-admissibility agreement, counsel proposed that the parties attempt to negotiate a global resolution of all of ...

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