Lynal, Inc. v. Patrick Petroleum Co.

Citations: 593 F. Supp. 1325; 1984 U.S. Dist. LEXIS 23109Docket: Civ. A. 84-2443

Court: District Court, W.D. Louisiana; October 2, 1984; Federal District Court

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Lynal, Inc. seeks injunctive relief to prevent Patrick Petroleum and Patrick Petroleum of Michigan from selling their working interest in the Oak Grove Property, claiming a preferential right to purchase under a joint operating agreement. Lynal argues it should be notified of sale terms and given the opportunity to exercise this right. Patrick contends that the preferential purchase clause was intended to be removed by mutual agreement but was accidentally retained due to clerical error. The court held a hearing on September 27, 1984, and ruled that Lynal is not entitled to injunctive relief, granting Patrick the right to reform the operating agreement by eliminating the preferential purchase provision. The findings indicated that a letter agreement from September 4, 1980, clearly stated the intention to delete this clause, though it was not properly executed in the finalized agreement from September 8, 1981. Discussions regarding the preferential right did not occur after the letter agreement until the summer of 1984, and the failure to delete the provision was attributed to a clerical error. Additionally, a letter from Patrick's Vice-President in July 1984 asked Lynal to waive its rights, coinciding with Patrick's sale of its assets to Ladd Petroleum Corporation for $196.9 million.

John Murdy did not participate in the negotiations for the joint operating agreement and did not consult Mr. Roberts, the landman involved with the Oak Grove contract, prior to issuing a letter on July 30, 1984. In a response letter dated July 23, 1984, Lynal indicated that Patrick had not provided adequate notice regarding the sale terms and would not waive its rights under Article VIII (G). In the subsequent letter, Murdy referenced Lynal Inc.'s Preferential Right of Purchase from a prior Operating Agreement and asserted that Patrick Petroleum Company believed it had complied with the agreement's provisions. The court confirmed its jurisdiction based on 28 U.S.C. 1332 and 28 U.S.C. 1441(a). 

The court ruled that the joint operating agreement should be reformed to remove the preferential right to purchase, allowing correction of errors in contract documentation to reflect the parties' true intentions. The burden of proof lies with the party seeking reformation, which Patrick met by demonstrating mutual error through clear and convincing evidence, including witness testimonies indicating no further negotiations on the preferential right after the letter agreement. The court determined that the inclusion of the provision in the agreement was a clerical error, supported by the deletion from the table of contents. Lynal's argument about ambiguity was rejected, as the court prioritized ascertaining the parties' common intent, concluding that the evidence substantiated an intention to delete the preferential purchase provision.

Article 1949 permits the use of other agreements to clarify ambiguities in a written instrument. In this case, the reference to a letter agreement helps resolve doubts stemming from a deletion in the index that favors the removal of a preferential purchase provision. The court notes that the parties did not revisit this issue before finalizing the agreement. Lynal argues that the 1984 Patrick-Lynal correspondence indicates Patrick's intention to retain the preferential purchase provision, supported by Article 1956, which allows for interpretation based on how the contract was executed. However, this article serves as a guideline, subordinate to discerning the parties' common intent. The form-letter correspondence regarding the preferential right to purchase was part of a broader notification and not a definitive indication of intent. When Lynal rejected a waiver of this right, Patrick's subsequent correspondence did not demonstrate a conscious decision to alter the agreement, suggesting that the sender acted under the assumption that the provision was intended to remain. Consequently, the court concludes that evidence supporting the deletion of the preferential purchase provision outweighs Lynal's claims. Lynal is therefore denied both preliminary and permanent injunctive relief against Patrick's sale of the Oak Grove property, as the reformation of the joint operating agreement negates Lynal's chance of success for such relief. Additionally, Lynal will bear all costs associated with these proceedings. There was no authority cited by Lynal that could prevent the court from recognizing ambiguity due to an index alteration, and ambiguity is not a prerequisite for reformation.