Broad Street Energy Company v. Endeavor Ohio, LLC
806 F.3d 402
| 6th Cir. | 2015Background
- Broad Street owned numerous oil-and-gas leases in northeast Ohio and agreed to sell many leases, wells, pipelines, and related assets to Endeavor for $35 million; Endeavor deposited $3.5 million in escrow as partial payment and closing was set 120 days after signing.
- The purchase agreement required Broad Street to deliver an asset list and included definitions and procedures (Article IV) for identifying and valuing "Title Defects," including dispute-resolution and price-adjustment mechanisms.
- Section 10.1(b) permitted either party to terminate if the aggregate "Title Defect Values" equaled or exceeded 30% of the unadjusted purchase price; "Title Defect Values" is a defined term tied to Article IV procedures.
- During due diligence Endeavor concluded title defects reduced value by 55% (affecting over 40% of leases) and sent a termination letter without invoking Article IV dispute-resolution or requesting further information.
- Broad Street sued for breach, claiming Endeavor improperly terminated and sought the $3.5 million escrow (plus interest) and other relief; a jury found for Broad Street and awarded the escrow; the district court added prejudgment interest; both parties appealed.
Issues
| Issue | Plaintiff's Argument (Broad Street) | Defendant's Argument (Endeavor) | Held |
|---|---|---|---|
| Whether Endeavor could unilaterally terminate under §10.1(b) by its own valuation of Title Defect Values | §10.1(b) incorporates Article IV; Title Defect Values must be determined using Article IV procedures before termination | §10.1(b) permits termination "at any time" and operates "notwithstanding Article IV," so buyer could unilaterally decide 30% threshold | Court held Broad Street’s reading correct: termination could follow only after Title Defect Values were established under Article IV; Endeavor had no unilateral right to terminate on its assessment |
| Whether Broad Street materially breached by listing some leases as 100% owned in Exhibit A | Disclosures elsewhere in the agreement and schedules qualified Exhibit A; parties understood sales were "warts and all," so no material breach as a matter of law | Errors in Exhibit A (less than 100% ownership of many leases) constituted a material breach from day one | Jury reasonably found no material breach by Broad Street; issue properly went to jury |
| Admissibility of detailed title documentation Endeavor produced with termination letter | Documents were relevant to show extent/quality of title defects | District court excluded the box of dense technical documents; exclusion prejudiced Endeavor | Exclusion upheld under Rule 403 as cumulative and potentially confusing; district court did not abuse discretion |
| Whether escrow agreement displaced statutory prejudgment/post-judgment interest rates | Escrow provision (non-interest-bearing account) displaces Ohio statutory prejudgment interest and federal post-judgment interest | Statutory prejudgment interest (Ohio) and federal post-judgment interest apply despite escrow language | Court awarded 3% prejudgment interest under Ohio law and federal post-judgment interest; escrow language did not override statutory rates |
Key Cases Cited
- CFE Racing Prods., Inc. v. BMF Wheels, Inc., 793 F.3d 571 (6th Cir.) (abuse-of-discretion review for new-trial motions)
- Farmers’ Nat’l Bank v. Del. Ins. Co., 94 N.E. 834 (Ohio) (contract interpretation principle: give meaning to all terms)
- Lincoln Elec. Co. v. St. Paul Fire & Marine Ins. Co., 210 F.3d 672 (6th Cir.) (prevailing party entitled to prejudgment interest under Ohio law)
- FDIC v. First Heights Bank, FSB, 229 F.3d 528 (6th Cir.) (federal law governs post-judgment interest)
- Kaiser Aluminum & Chem. Corp. v. Bonjorno, 494 U.S. 827 (U.S.) (purpose of post-judgment interest is to compensate for delay in payment)