EFLO ENERGY; PACIFIC LNG OPERATIONS, LTD. v. DEVON ENERGY CORPORATION
No. 22-6051
United States Court of Appeals for the Tenth Circuit
April 24, 2023
67 F.4th 1105
BRISCOE, Circuit Judge.
PUBLISH. Appeal from the United States District Court for the Western District of Oklahoma (D.C. No. 5:19-CV-00544-J)
Timothy J. Bomhoff and Spencer F. Smith (Cole McLanahan with them on the brief), McAfee & Taft, Oklahoma City, Oklahoma, appearing for the Appellee.
Before MATHESON, BRISCOE, and MORITZ, Circuit Judges.
BRISCOE, Circuit Judge.
Plaintiffs EFLO Energy (EFLO) and Pacific LNG Operations, Ltd. (Pacific) filed this diversity action alleging that defendant Devon Energy Corporation (Devon Energy) violated warranties under Oklahoma’s Uniform Commercial Code,
I
Factual history
a) The Kotaneelee Leases
In the late 1950s, “the Government of Canada issued certain permits” to two petroleum companies. Aplt. App. at 198. Those permits “were later converted to leases governed by and granted by” the Yukon. Id. Those leases are known as the Kotaneelee Leases. “The Kotaneelee Leases grant rights to explore for and produce oil and gas from a field located in” the Yukon. Id.
b) Devon Canada’s operations on the Kotaneelee Leases
Between early 1977 and June 2012, Devon Canada, a Canadian corporation with its principal place of business in Calgary, Alberta, Canada, had a working interest in oil and natural gas rights, as well as oil and gas processing equipment and facilities, related to the Kotaneelee Leases. In addition, during that same time period, Devon Canada was one of several parties to a Joint Operating Agreement (JOA) that governed the development of the Kotaneelee Leases. Devon Canada had a 22.98935% working interest in the JOA and, under the terms of the JOA, served as
c) Devon Canada’s sale to EFLO
On June 29, 2012, EFLO, a Nevada corporation with its principal place of business in Houston, Texas, purchased Devon Canada’s assets related to the Kotaneelee Leases. More specifically, EFLO entered into an Agreement of Purchase and Sale (Sale Agreement) and a Kotaneelee Closing Agreement (Closing Agreement) (collectively the Agreements) with Devon Canada. The cash purchase price to be paid by EFLO to Devon Canada was $270,000 in Canadian dollars. As part of this transaction, EFLO also acquired Devon Canada’s working interest in the JOA.
Article 6 of the Sale Agreement, titled “PURCHASER’S INDEMNITIES,” provided as follows:
6.1 General Indemnity
[EFLO] shall be liable to [Devon Canada] for and shall, in addition, indemnify [Devon Canada] from and against, all Losses suffered, sustained, paid or incurred by [Devon Canada] which arise out of any matter or thing occurring or arising from and after the Closing Time and which relates to the Assets, provided however that [EFLO] shall not be liable to nor be required to indemnify [Devon Canada] in respect of any Losses suffered, sustained, paid or incurred by [Devon Canada] which arise out of a breach of [Devon Canada’s] representations and warranties contained in clause 4.1 hereunder.
6.2 Limitation
Notwithstanding any other provision in this Agreement: (i) neither Party shall be responsible for indirect or punitive damages (including without limitation consequential losses or loss of profits) suffered or incurred by the other Party; and (ii) [EFLO] shall not be liable to nor be required to indemnify [Devon Canada] in respect of any Losses suffered, sustained, paid or incurred by [Devon Canada] in respect of which [Devon Canada] is liable to and has indemnified [EFLO] pursuant to clause 5.1 [which addressed Devon Canada’s indemnities for representations and warranties] and [Devon Canada] shall not be liable to nor be required to indemnify [EFLO] in respect of any Losses suffered, sustained, paid or incurred by [EFLO] in respect of which [EFLO] is liable to and has indemnified [Devon Canada] pursuant to clause 5.2 [which addressed EFLO’s indemnities for representations and warranties], in both cases disregarding the time limit set out in clause 5.3.
Id. at 123 (emphasis added).
In the Closing Agreement, EFLO agreed to indemnify Devon Canada against certain environmental and regulatory liabilities associated with the purchased items. Specifically, Article 3 of the Closing Agreement, titled “ENVIRONMENTAL INDEMNITIES,” provided as follows:
3.1 Abandonment and Reclamation
[EFLO] shall see to the timely performance of all Abandonment and Reclamation Obligations pertaining to the Assets, which in the absence of this Agreement would be the responsibility of [Devon Canada]. After Closing, [EFLO] shall be liable to [Devon Canada] for and shall, in addition, indemnify [Devon Canada] from and against, any and all Losses suffered, sustained, paid or incurred by [Devon Canada] should [EFLO] fail to timely perform such obligations.
3.2 Environmental Matters
It is acknowledged that [EFLO] has been provided with the right and the opportunity to conduct due diligence investigations with respect to existing or potential Environmental Liabilities. Provided Closing occurs, [EFLO] agrees that [Devon Canada] shall have no liability whatsoever for any Environmental Liabilities and in this regard, [EFLO] shall be solely liable to and indemnify and defend [Devon Canada] from and against all Losses which [Devon Canada] may suffer, sustain, pay or incur as a result of any act, omission, matter or thing related to the Environmental Liabilities except to the extent that any such Losses are matters or things for which [EFLO] is entitled to indemnification pursuant to clause 5.1 of the Sale Agreement. Subject to the foregoing, this liability and indemnity shall apply without limit and without regard to cause or causes, including without limitation the negligence, whether sole, concurrent, gross, active, passive, primary or secondary, or the wilful [sic] or wanton misconduct of [Devon Canada], [EFLO] or any Third Party. [EFLO] acknowledges and agrees that it shall not be entitled to any rights or remedies as against [Devon Canada] under the common law or statute pertaining to any Environmental Liabilities including, without limitation, the right to name [Devon Canada] as a third party to any action commenced by any Third Party against Purchaser. Nothing herein contained shall prejudice any claims or remedies that [Devon Canada] may have against [EFLO] in relation to such claim or remedy outside this Agreement including rights and remedies under the common law or statute.
Id. at 94–95 (emphasis added).
Notably, both the Sale Agreement and the Closing Agreement defined the term “Losses” in the following manner:
“Losses” means all losses, death, injuries, damage, expenses, interest, charges, assessments, damages, liabilities, fines, penalties, actions, causes of action, suits, claims and demands, including all reasonable legal and other professional fees and expenses in relation thereto on a full recovery basis, but notwithstanding the foregoing shall not include any income tax liabilities or any liability for indirect or punitive damages including without limitation any consequential losses or loss of profits.
Id. at 108–09 (Sale Agreement); 94 (Closing Agreement).
d) The letter of credit
To partially secure its indemnification obligations to Devon Canada, EFLO agreed, under the terms of the Closing Agreement, to provide a corporate guarantee and a letter of credit in favor of Devon Canada. Article 2 of the Closing Agreement, titled “CORPORATE GUARANTEE AND LETTER OF CREDIT,” outlined these obligations:
2.1 Corporate Guarantee and Letter of Credit
At Closing, [EFLO] covenants to provide [Devon Canada] with an executed Corporate Guarantee from its affiliate Holloman Corporation and in addition, [EFLO] shall provide to the credit of [Devon Canada] the Letter of Credit. [Devon Canada] agrees to discuss with [EFLO] the termination, amendment or replacement of the Corporate Guarantee or the Letter of Credit, or both, from time to time as requested by [EFLO], however, [Devon Canada’s] agreement to terminate, amend or replace the same shall be at [Devon Canada’s] discretion, acting reasonably, based on equivalent credit risk to [Devon Canada] having regard, inter alia, to equivalent capital size and creditworthiness.
2.2 Letter of Credit
[Devon Canada] shall not be entitled to draw upon the Letter of Credit unless [Devon Canada] first provides written notice to [EFLO] claiming indemnification pursuant to this Agreement or the Sale
Agreement, and after a period of 30 days following [EFLO’s] receipt of such claim.
Id. at 94.
On June 14, 2013, EFLO, with the assistance of Pacific, a British Virgin Islands limited company, obtained Standby Letter of Credit No. SGAX211-1136693 (SLOC) from Credit Suisse AG (Credit Suisse) in the amount of $4,380,000.00 in Canadian dollars.1 The SLOC was “secured by collateral posted by [Pacific],” and “both EFLO and [Pacific] were applicants under the [SLOC].” Id. at 22.
Notably, the SLOC erroneously named Devon Energy, a Delaware corporation with its principal place of business in Oklahoma City, Oklahoma, rather than Devon Canada, as the beneficiary.2 As will be described in greater detail below, Devon Canada attempted, without success, to have EFLO correct the SLOC to reflect the proper beneficiary, and Devon Canada and Devon Energy ultimately agreed that Devon Energy would act as Devon Canada’s agent in the event it was necessary to draw from the SLOC.3
A payment under this standby letter of credit shall be made upon you [Devon Energy] presenting to the issuing bank . . . Beneficiary’s signed demand in writing, along with a certificate executed by an officer of the Beneficiary stating that either (a) the letter of credit is properly payable pursuant to clause 2.2 of the . . . Closing Agreement dated June 29, 2012 between [EFLO] and Devon Canada or (b) the letter of credit is properly payable pursuant to clause 2.1 of the . . . Closing Agreement dated June 29, 2012 between [EFLO] and Devon Canada.
A demand along with a certificate pursuant to (a) or (b) must not be dated and/or presented more than 10 calendar days prior to the expiry of this letter of credit (e.g. if expiration date is 24 October earliest date/presentation is 15 October).
* * *
Upon receipt of the said documents, the bank shall pay to you the amount stated under the said demand to be payable to you without enquiring whether you have a right to such amount as between yourself and [EFLO], provided such amount does not exceed the aggregate amount of the standby letter of credit.
Partial drawings are permitted.
* * *
This letter of credit is subject to International Standby Practices (ISP 98) International Chamber of Commerce. In this respect[,] article 3.14 of the ISP98 is hereby expressly waived.
Id. at 30–31.
Between June 2012 and June 2016, the SLOC “was annually extended for an additional year.” Id. at 183. During that time, Devon Canada repeatedly asked EFLO, to no avail, to amend the SLOC to reflect that Devon Canada, rather than Devon Energy, was the proper beneficiary.
This notice is sent to you pursuant to clause 2.2 of the [Closing] Agreement claiming indemnity under the [Closing] Agreement, and Sale Agreement, as defined. We will be drawing on the letter of Credit which is shortly due to expire. We are willing to exchange the cash which we will obtain from our draw for a substitute letter of credit in the same form as the expiring letter of credit and, further, in accordance with the terms of the [Closing] Agreement.
Id. at 182. In response to this letter, EFLO “extended” the SLOC “four times, each on a short-term basis.” Id. at 183.
On September 15, 2016, Devon Canada and Devon Energy entered into a written agreement regarding the SLOC. The agreement stated that, “due to scrivener’s error, the beneficiary under the [SLOC] [wa]s currently listed as” Devon Energy, but that Devon Energy “ha[d] no interest in the [SLOC] or any funds derived therefrom.” Id. at 185. The agreement further stated, in relevant part:
In the event that it is necessary to draw any funds from the letter of credit before the beneficiary name is corrected, [Devon Energy] will (i) execute and deliver any documents and instruments requested by [Devon Canada] to effect such draw, (ii) cause such funds to be paid to [Devon Canada], whether through providing instructions to the letter of credit issuer to make payment directly to [Devon Canada] or by effecting an immediate transfer of the funds to [Devon Canada] upon receipt, and (iii) take such further actions as may be requested by [Devon Canada] in connection with the foregoing.
Id.
On December 8, 2016, Devon Canada sent another letter to EFLO regarding the SLOC. Devon Canada stated in the letter that “[i]t is customary that a letter of credit, at a minimum, should be extended thirty (30) days prior to the then-current
The SLOC was renewed by EFLO several times thereafter to extend its expiration date, with the second-to-last of those renewals having an expiration date of June 16, 2019.
e) The spill at the Kotaneelee Wells and Facility
In August 2015, the Yukon Energy, Mines and Resources Department (YEMR) purportedly “conducted a site visit of the . . . Kotaneelee Wells and Facility” and “discovered a spill from the Facility.” Id. at 208. The YEMR subsequently “issued various environmental protection orders” pertaining to the spill. Id.
On April 13, 2018, Paramount Resources, Ltd. (Paramount), a company with its principal place of business in Calgary, Alberta, Canada, sent a letter to Devon Canada “concerning . . . remediation and abandonment obligations . . . and related costs” that Paramount “was and w[ould] be required to incur in relation to” the Kotaneelee Production Facilities “on behalf of . . . Devon Canada.” Id. at 186. The letter recounted the details of Devon Canada’s sale of its assets in the Kotaneelee Production Facilities to EFLO. The letter in turn stated that, following the sale, EFLO and one of its subsidiaries, EFLO Energy Yukon, became the operator under the JOA and “the holder of the largest working interest in Kotaneelee.” Id. at 187. The letter in turn stated that “[p]ursuant to . . . letters dated May 19, 2015 and June 9, 2015 from the [YEMR], EFLO [Energy Yukon] was ordered to . . . [s]uspend or abandon the Wells” and “[c]omply with” certain sections of the Yukon’s oil and gas drilling and production regulations. Id. The letter also stated that “EFLO [Energy Yukon] . . . ha[d] advised that [it was] insolvent” and that “[i]n or about October, 2015, EFLO [Energy Yukon] notified the YEMR that it was no longer the operator under the” JOA. Id. The letter stated that “[o]n or about June 15, 2016, the YEMR ordered that licenses for the Wells and the Facility be transferred [from EFLO Energy Yukon] to Paramount,” and that “[i]n or about June, 2017, Paramount initiated Remediation procedures in relation to the Wells.” Id. The letter stated that Paramount “ha[d] incurred approximately $13 million in Remediation Costs to date,” “was required to provide letters of credit totaling $7.5 million,” and expected to incur
On May 15, 2018, Devon Canada sent a letter to EFLO notifying it of Paramount’s demand letter. Devon Canada’s letter to EFLO stated, in relevant part, that “[a]s a result” of Paramount’s demands on Devon Canada, Devon Canada was “provid[ing] notice under clause 2.2 of the Closing Agreement that it claim[ed] indemnification under the Sale Agreement and the Closing Agreement . . . and demand[ed] that EFLO perform its obligations under the Sale Agreement and the Closing Agreement, including in particular the payment of EFLO’s share of the Remediation Costs.” Id. at 191. The letter further stated that, “given that the existing letter of credit is expiring on June 16, 2018 and an extension is necessary, we hereby provide you with notice that we will be drawing on the letter of credit unless we receive confirmation on or before June 1, 2018 that the letter of credit has been extended at least one year.” Id. at 192.
On June 14, 2018, Paramount and several other companies filed a “STATEMENT OF CLAIM” in the Supreme Court of Yukon against EFLO, EFLO Energy Yukon, Devon Canada, Holloman, Pacific, and other companies. Id. at 193.
g) Devon Canada’s continued demands on EFLO regarding the SLOC
On May 24, 2019, Devon Canada sent a letter to EFLO noting that the SLOC was set to expire on June 16, 2019, and asking that the SLOC “be immediately extended for one year to June 16, 2020.” Id. at 214. The letter also again asked EFLO to “amend the name of the beneficiary to the” SLOC. Id. The letter stated that “[s]ince EFLO is well aware of the expiration date(s) of the [SLOC], Devon does not intend to re-issue a separate notice pursuant to Section 2.2 of the Closing Agreement, whether now or in the future, each time EFLO fails to extend the [SLOC],” and that, instead, “[t]he original notice sent by Devon on June 7, 2016, remains in effect for this on-going issue.” Id. The letter notified EFLO that “Devon consider[ed] the failure to timely extend the [SLOC] as warranting a draw under the [SLOC]” because “[t]he intent of the Closing Agreement [wa]s that the [SLOC] remain[] in place as support for EFLO’s obligations.” Id. The letter emphasized that “[t]his matter [wa]s now even more important given the clear and express position taken by the Yukon
On May 25, 2019, an attorney representing Pacific, Steve O’Neill, sent an email to Devon Canada stating: “I am advised that [EFLO] will extend for one year and make the name change.” Id. at 217. Notwithstanding that email, however, Devon Canada received no confirmation from EFLO that the SLOC was being extended and revised as requested.
On June 3, 2019, Devon Canada’s senior legal counsel, Peter Straka, sent an email to O’Neill noting that Devon Canada “had been served with the ‘Paramount Statement of Claim’ in the Province of Yukon.” Id. at 29 (amended complaint). Straka stated in the email that “[w]e will have no choice but to draw on the [SLOC] . . . the week after next unless we clearly see an amendment/extension before then.” Id. at 216.
EFLO ultimately arranged for Credit Suisse to extend the SLOC, but, as discussed below, it failed to finalize the extension until after Devon Canada had directed Devon Energy to draw on, and after Devon Energy had actually drawn on, the SLOC. On June 13, 2019, a representative from Credit Suisse emailed Devon Energy and notified it that the SLOC had been extended through December 2019. In that same email, the Credit Suisse representative also asked Devon Energy for its “claim withdrawal since applicant [EFLO] is seeking it.” Id. at 278.
On June 7, 2019, prior to Credit Suisse notifying Devon Energy of the SLOC renewal, Devon Canada instructed Devon Energy “to submit a draw request on the SLOC.” Id. at 219. That same day, Devon Energy “formally presented the draw request for the total SLOC amount to Credit Suisse.” Id. In a certificate attached to the demand letter that it sent to Credit Suisse, Devon Energy stated, in pertinent part, “that the [SLOC] is properly payable pursuant to clause 2.2 of the Kotaneelee Closing Agreement dated June 29, 2012.” Id. at 222.
On June 12, 2019, Devon Canada’s senior legal counsel, Straka, exchanged emails with O’Neill, the attorney who represented Pacific, regarding the decision to draw on the SLOC. Straka stated, in pertinent part:
Steve, at this time, we have nothing concrete which would make us deviate from the draw process. You sent us some paper from a VP Bank in Lichtenstein which is in German and appears to be providing a guarantee for the Credit Suisse LC. VP Bank is not an approved bank under the terms of our Closing Agreement for Kotaneelee dated June 12, 2012. In addition, as we outlined to you, we are now served with a statement of claim in this matter relating to environmental liabilities. Under the Closing Agreement, we continue to be subject to a live environmental claim and have a resulting liability due to this claim. We have a right to draw on the letter of credit regardless of whether or not it is extended. Even if we were to rely on some form of an extension (which we have the right to refuse to do) we do not have that now since we have no written and binding communication from Credit Suisse whatsoever with respect to any firm extensions. Additionally as you know, we are in the process of selling our assets in Canada to Canadian Natural Resources Limited. In short, the situation is more complicated and requires further approvals and more time to take any steps on this matter one way or another. Unfortunately we must continue with the draw or risk losing the security for the pending claim for which it was put into place.
“The funds from the SLOC were transferred to Devon [Energy] by Credit Suisse on June 13, 2019, pursuant to the June 7, 2019 draw request.” Id. at 219. “Devon [Energy] transferred the SLOC funds to [Devon Canada] on June 14, 2019.” Id.
Procedural history
On June 14, 2019, EFLO and Pacific filed a complaint against Devon Energy in the United States District Court for the Western District of Oklahoma. The complaint alleged a single claim titled “IRREPA[RA]BLE INJURY.” Complaint at 4, EFLO Energy v. Devon Energy Corp., No. 5:19-cv-00544-J (W.D. Okla. June 14, 2019). In the “RELIEF REQUESTED” section, the complaint asked for: “[a] declaratory judgment that Defendant[’s] actions were fraudulent and did violate the Kotaneelee Purchase and Sale Agreement and the Kotaneelee Closing Agreement, and that the draw down upon the SLOC was non-permissible and improper”; “injunctive relief to Credit Suisse to stop the transfer of funds from the SLOC to” Devon Energy; if “the transfer . . . already occurred, issue in rem jurisdiction over the funds, and order that they remain in the United States and unmolested until further proceedings may ensue determining their status”; “[a]ctual and compensatory damages”; and “[p]unitive damages.” Id. at 6 (emphasis omitted).
On November 7, 2019, EFLO and Pacific filed an amended complaint. The amended complaint asserted that the district court “ha[d] jurisdiction under
On November 1, 2021, Devon Energy filed a motion for summary judgment.4 Devon Energy argued in its motion that (1) its June 7, 2019 request to draw on the SLOC did not violate Oklahoma statutory warranties because it was not a party to the Agreements and, in any event, the draw request was proper under the terms of the
On March 3, 2022, the district court issued a written order granting Devon Energy’s motion for summary judgment. The district court noted at the outset that “all of Plaintiffs’ claims [we]re premised on the allegation that [Devon Energy’s] draw on the [SLOC] was ‘wrongful.’” Id. at 311. To determine whether Devon Energy’s draw on the SLOC was wrongful, the district court began by noting that, “[u]nder Section 2.2 of the Closing Agreement,” Devon Canada was “‘not . . . entitled to draw upon the [SLOC] unless [Devon Canada] first provide[d] written notice to [Plaintiff] claiming indemnification pursuant to this Agreement or the Sale Agreement, and after a period of 30 days following [Plaintiff’s] receipt of such claim.’” Id. (quoting Closing Agreement at § 2.2). Thus, the district court concluded, “for [Devon Energy’s] draw on the [SLOC] to have been permissible by the terms of” Section 2.2 of “the Closing Agreement, it must have been pursuant to a written claim by Devon Canada for indemnification under an applicable provision of either the Closing Agreement or the Sale Agreement, and it must have occurred more than 30 days after Plaintiff’s receipt of the indemnification request.” Id. The district court concluded that the undisputed evidence established that these requirements were met when Devon Canada sent written correspondence to EFLO on May 15, 2018, informing it of Paramount’s April 13, 2018 letter asserting claims against Devon Canada relating to incurred and future abandonment and remediation costs.
In addition to concluding that Devon Energy’s draw on the SLOC was proper, the district court agreed with Devon Energy that there were alternative reasons why Devon Energy was entitled to summary judgment with respect to the fraud and unjust enrichment claims. In particular, the district court “f[ound] no false material representation by Devon Canada” that would support plaintiffs’ fraud claim, and it
Final judgment was entered in the case on March 3, 2022. Plaintiffs filed a timely notice of appeal.
II
In their appeal, plaintiffs challenge the district court’s grant of summary judgment in favor of Devon Energy. According to plaintiffs, the district court “premised its summary judgment analysis on whether Devon Energy made a proper draw on the [SLOC].” Aplt. Br. at 24. In resolving that question, plaintiffs assert, the district court misconstrued section 3.2 of the Closing Agreement and concluded that EFLO’s indemnity obligations to Devon Canada “include[d] a prospective loss.” Id. at 25. Plaintiffs argue, however, that EFLO’s “duty to indemnify arises only after a liability has attached.” Id. Plaintiffs also argue that Devon Energy’s alternative arguments in support of summary judgment should be rejected.
Standard of review
“We review the district court’s rulings on summary judgment de novo, applying the same standard as the district court.” Markley v. U.S. Bank Nat’l Ass’n, 59 F.4th 1072, 1080 (10th Cir. 2023). “Summary judgment is appropriate if ‘there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’” Id. (quoting
Choice of law
A federal court sitting in diversity applies the substantive law of the forum state, including its choice-of-law rules. GeoMetWatch Corp. v. Behunin, 38 F.4th 1183, 1201 (10th Cir. 2022); Pepsi-Cola Bottling Co. of Pittsburg v. PepsiCo, Inc., 431 F.3d 1241, 1255 (10th Cir. 2005). Thus, in this case, we are bound to apply Oklahoma state law.
As noted, plaintiffs have asserted three claims for relief against Devon Energy. All three claims purportedly arise out of Devon Energy’s draw on the SLOC. The first claim alleges that Devon Energy breached statutory warranties under Article 5 of the Uniform Commercial Code, which governs letters of credit, by falsely stating that the draw was proper pursuant to Section 2.2 of the Closing Agreement. Notably, Article 5 of the Uniform Commercial Code, which has been adopted by Oklahoma, includes choice-of-law rules pertaining to letters of credit. The parties to a letter of credit may choose the law of the jurisdiction that will govern their respective liabilities.
The SLOC in this case stated that it was “subject to International Standby Practices (ISP 98) International Chamber of Commerce,” with the exception of “article 3.14 of the ISP[ ]98,” which was “expressly waived.” Aplt. App. at 31. ISP 98 “reflects generally accepted practice, custom, and usage of standby letters of credit” and “provides separate rules for standby letters of credit in the same sense that the Uniform Customs and Practice for Documentary Credits (UCP) and the Uniform Rules for Demand Guarantees (URDG) do for commercial letters of credit and independent bank guarantees.” U.N. Secretary-General, International Standby Practices (ISP 98), at 4, U.N. Doc. A/CN.9/477, annex II (Apr. 5, 2000). Notably, however, ISP 98 does not provide a comprehensive legal framework for resolving claims such as the breach of warranty claim asserted by plaintiffs against Devon Energy. Because the SLOC otherwise contains no choice-of-law provision, we conclude that the choice-of-law rule set forth in
Plaintiffs have also asserted two tort claims against Devon Energy, one for unjust enrichment and the other for fraud. For tort cases, “the Oklahoma choice of law rule requires application of the law of the state with the most significant relationship to the parties.” Moore v. Subaru of Am., 891 F.2d 1445, 1448 (10th Cir. 1989). Although the parties do not address this issue, it appears to us, based upon the undisputed evidence in the record, that Oklahoma has the most significant relationship to the parties because that is where Devon Energy is based, where the draw on the SLOC was made from, and where the funds from the SLOC were initially sent. Thus, we conclude that Oklahoma state law applies to plaintiffs’ two tort claims.
Did the district court misconstrue Section 3.2 of the Closing Agreement?
Plaintiffs’ primary argument on appeal is that the district court, in determining whether Devon Energy made a proper draw on the SLOC, misconstrued the phrase in Section 3.2 of the Closing Agreement that states that EFLO “shall be solely liable to and indemnify and defend [Devon Canada] from and against all Losses which [Devon
We reject plaintiffs’ arguments. To begin with, the district court’s analysis did not, as plaintiffs would have us believe, hinge on the meaning of the term “may,” as employed in Section 3.2 of the Closing Agreement, but rather on the broad manner in which the Closing Agreement defines the term “Losses.” To be sure, the district court correctly noted “that some of the indemnity provisions in the Agreements include the language ‘Losses suffered, sustained, paid or incurred,‘” whereas
As we shall proceed to explain, we agree with the district court that the term “Losses” and the phrase “Environmental Liabilities” are defined in the Closing Agreement in such a broad manner as to include the demands and claims that Paramount made against Devon Canada. The first sentence of Section 3.2 of the Closing Agreement sets the stage for the remainder of the language in Section 3.2 by stating: “It is acknowledged that [EFLO] has been provided with the right and the opportunity to conduct due diligence investigations with respect to existing or potential Environmental Liabilities.” Aplt. App. at 95. In the second sentence of Section 3.2, EFLO “agree[d],” “[p]roviding Closing occurs,” “that [Devon Canada] shall have no liability whatsoever for any Environmental Liabilities and in this regard, [EFLO] shall be solely liable to and indemnify and defend [Devon Canada]
Section 3.2 of the Closing Agreement employs the phrase “Environmental Liabilities” and the term “Loss,” both of which, consistent with the intent expressed in Section 3.2, are expressly and broadly defined elsewhere in the Closing Agreement. Specifically, the Closing Agreement broadly defines the phrase “Environmental Liabilities” as follows:
“Environmental Liabilities” means
- any and all damage, contamination or other adverse situations pertaining to the Environment and relating to or caused by the Assets or operations thereon or related thereto, however and by whomsoever caused, and whether such damage, contamination or other adverse situations occur or arise in whole or in part prior to, at or subsequent to the date hereof; and
- all past, present and future obligations and liabilities arising directly or indirectly, whether before or after the date hereof, from:
- Environmental Matters;
- non-compliance with, violation of or liability under any Regulations pertaining to the Environment; or
- the Abandonment and Reclamation Obligations[.]
Id. at 93. In turn, the Closing Agreement broadly defines the term “Losses” to mean
all losses, death, injuries, damage, expenses, interest, charges, assessments, damages, liabilities, fines, penalties, actions, causes of action, suits, claims and demands, including all reasonable legal and other professional fees and expenses in relation thereto on a full recovery basis, but notwithstanding the foregoing shall not include any income tax liabilities or any liability for indirect or punitive damages including without limitation any consequential losses or loss of profits.
Id. at 94 (emphasis added).
Considering the language of Section 3.2 of the Closing Agreement in light of these two definitions, we have little trouble concluding that the demand for contribution that Paramount asserted in its April 13, 2018 letter to Devon Canada, and the claims that Paramount subsequently asserted against Devon Canada in the lawsuit that it filed in the Supreme Court of Yukon on June 14, 2018, constitute “Losses” that Devon Canada actually suffered and was entitled to be indemnified
Finally, plaintiffs argue that interpreting the Closing Agreement in this manner ignores the well-established distinction between the “duty to defend” and the “duty to indemnify.” We reject this argument for two reasons. First, as Devon Energy correctly notes in its response brief, plaintiffs did not assert this argument below in response to Devon Energy’s motion for summary judgment, and we typically do not address arguments raised for the first time on appeal. See Singleton v. Wulff, 428 U.S. 106, 120, (1976) (“It is the general rule, of course, that a federal appellate court does not consider an issue not passed upon below.“). Second, even if we were to recognize an exception to this general rule, it is readily apparent that plaintiffs’
For these reasons, we agree with the district court that Devon Energy’s draw from the SLOC was proper and that, as a result, Devon Energy was entitled to summary judgment with respect to all of the claims asserted against it in plaintiffs’ amended complaint.
The alternative bases for summary judgment
Devon Energy also argued below that there were alternative reasons why it was entitled to summary judgment with respect to each of the three claims asserted against it by plaintiffs. As we shall discuss below, we agree with Devon Energy on each of these points.
1) Plaintiffs’ claim for breach of statutory warranties
The first claim for relief in the amended complaint alleged that Devon Energy breached statutory warranties, in violation of
(a) If its presentation is honored, the beneficiary warrants:
(1) To the issuer, any other person to whom presentation is made, and the applicant that there is no fraud or forgery of the kind described in subsection (a) of Section 5-109 of this title; and
(2) To the applicant that the drawing does not violate any agreement between the applicant and beneficiary or any other agreement intended by them to be augmented by the letter of credit.
(b) The warranties in subsection (a) of this section are in addition to warranties arising under Articles III, IV, VII and VIII of this title because of the presentation or transfer of documents covered by any of those articles.
Uniform Commercial Code Comment 2 to this statute explains how the warranty outlined in subsection (a)(2) operates:
The warranty in Section 5-110(a)(2) assumes that payment under the letter of credit is final. It does not run to the issuer, only to the applicant. In most cases the applicant will have a direct cause of action for breach of the underlying contract. This warranty has primary application in standby letters of credit or other circumstances where the applicant is not a party to an underlying contract with the beneficiary. It is not a warranty that the statements made on the presentation of the documents presented are truthful nor is it a warranty that the documents strictly comply under Section 5-108(a). It is a warranty that the beneficiary has performed all the acts expressly and implicitly necessary under any underlying agreement to entitle the beneficiary to honor. If, for example, an underlying sales contract authorized the beneficiary to draw only upon “due performance” and the beneficiary drew even though it had breached the underlying contract by delivering defective goods, honor of its draw would break the warranty. By the same token, if the underlying contract authorized the beneficiary to
draw only upon actual default or upon its or a third party’s determination of default by the applicant and if the beneficiary drew in violation of its authorization, then upon honor of its draw the warranty would be breached. In many cases, therefore, the documents presented to the issuer will contain inaccurate statements (concerning the goods delivered or concerning default or other matters), but the breach of warranty arises not because the statements are untrue but because the beneficiary’s drawing violated its express or implied obligations in the underlying transaction.
Id., Uniform Commercial Code Comment, ¶ 2 (emphasis added).
In its motion for summary judgment, Devon Energy argued that EFLO’s “claim for breach of statutory warrant fail[ed] for two reasons: (1) [Devon Energy] [wa]s not a party to the Closing Agreement or the Sales Agreement and accordingly, the Draw Request could not have been in violation of any agreement between [Devon Energy] and EFLO or Pacific, which is not a party to the Agreements either; and (2) in any event, the Draw Request was proper under the terms of the Agreements.” Aplt. App. at 79.
Although we have already concluded that Devon Energy’s draw on the SLOC was proper, we also agree with Devon Energy’s first argument. Devon Energy was not a party to, and otherwise played no role in, either the Sale Agreement or the Closing Agreement. Nor did Devon Energy have any dealings with EFLO. Devon Energy was named as the beneficiary on the SLOC only due to an error on EFLO’s part, and Devon Canada repeatedly asked EFLO to correct that error but EFLO failed to do so. Thus, there was no “agreement between the applicant and the beneficiary or any other agreement intended by them to be augmented by the letter of credit.”
2) The unjust enrichment claim
The second claim for relief alleged in the amended complaint was for unjust enrichment. The amended complaint alleged that, “[t]hrough its wrongful draw on the [SLOC], Devon Energy obtained funds to which it had no right to receive.” Aplt. App. at 24.
Under Oklahoma law, “[u]njust enrichment arises,” in pertinent part, when “one party holds property that, in equity and good conscience, it should not be allowed to retain.” Am. Biomedical Grp., Inc. v. Techtrol, Inc., 374 P.3d 820, 828 (Okla. 2016) (internal quotation marks omitted). “[A] party is not entitled to pursue a claim for unjust enrichment when it has an adequate remedy at law for breach of contract.” Id.
Devon Energy argued below that it was entitled to summary judgment on the unjust enrichment claim because it was “no longer in possession of the SLOC funds” and because “Plaintiffs have an adequate remedy at law.” Aplt. App. at 87. The district court agreed that Devon Energy was entitled to summary judgment on the enrichment claim “[b]ecause . . . the draw was proper, and because [Devon Energy] promptly transferred the funds from the draw to Devon Canada.” Id. at 317.
Notably, plaintiffs’ amended complaint concedes that the funds obtained by Devon Energy from the draw on the SLOC have now been transferred to Devon Canada. Id. at 26–27 (“Devon Energy . . . sen[t] the money it received from the draw
3) The fraud claim
The third and final claim alleged in the amended complaint was for fraud. The amended complaint alleged in support of this claim that, “[a]t all material times, Devon Canada . . . was the agent for Devon Energy with respect to Devon Energy’s communications to EFLO regarding the draw on the [SLOC].” Aplt. App. at 25. It further alleged that in late May 2019, Devon Canada communicated with EFLO and “represented to EFLO that Devon Energy would draw only if EFLO did not timely renew and extend the [SLOC],” and that “an EFLO representative advised both Devon Energy and Devon Canada . . . that the [SLOC] would be extended before its expiration and amended as requested.” Id. The amended complaint alleged that “Devon Energy misled EFLO and failed to disclose its true intentions.” Id. at 26. Specifically, the amended complaint alleged that “[o]n June 3, 2019, Devon Canada
Devon Energy argued in its motion for summary judgment that “Plaintiffs [were] suffer[ing] from . . . confusion” because Devon Energy “acted as Devon Canada’s agent in all matters relating to the Draw Request, not the other way around.” Id. at 85. Devon Energy argued that because it “was Devon Canada’s agent, [it could not], as a matter of law, be held liable for any alleged tortious statements of Devon Canada.” Id. Devon Energy further argued that “Plaintiffs have not alleged[,] nor can they produce any evidence of[,] any fraudulent conduct on the part of [Devon Energy].” Id. at 86.
The district court addressed the fraud claim and noted that, “[t]o establish a claim for fraud” under Oklahoma law, plaintiffs had to show, in pertinent part, “that [Devon Energy] made a false material representation either knowingly or with reckless disregard for the truth.” Id. at 314 (citing Bowman v. Presley, 212 P.3d 1210, 1217–18 (Okla. 2009)). The district court further noted that, under Oklahoma law, plaintiffs had “the burden of proving at trial, by clear and convincing evidence, that [Devon Energy] acted with knowledge of falsity or reckless disregard for the
Plaintiffs argue in their appeal, albeit in a footnote, that the district court committed reversible error because it sua sponte and “without prior notice or opportunity to brief or present evidence on the issue, . . . analyzed whether EFLO and Pacific . . . reasonably relied on statements made by Devon Energy and Devon Canada for purposes of the Fraud claim.” Aplt. Br. at 24 n.9. We reject this argument for three reasons. First, the district court applied well-established principles of Oklahoma law regarding fraud claims to the undisputed facts of the case. Second, plaintiffs make no attempt in their appellate brief to challenge the substance of the district court’s analysis. And third, we conclude that the district
Plaintiffs also argue in their appellate brief that “Devon Energy did not move on any element of Fraud save for the notion it [could not] be liable for any representation” made by Devon Canada. Id. at 33. That is also incorrect. As we have noted, Devon Energy argued, in pertinent part, that that “Plaintiffs have not alleged[,] nor can they produce any evidence of[,] any fraudulent conduct on the part of [Devon Energy].” Id. at 86. The district court agreed with Devon Energy on this point and plaintiffs have not seriously challenged the district court’s conclusion.
III
The judgment of the district court is AFFIRMED.