R & R Energies, a Utah Corp. v. Mother Earth Industries, Inc.

This opinion is subject to revision before final publication in the Pacific Reporter.

IN THE SUPREME COURT OF THE STATE OF UTAH

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R & R Energies, a Utah

corporation,

Plaintiff and Appellant,

v.

Mother Earth Industries, Inc.,

a corporation,

Defendant and Appellee.

No. 950056

F I L E D

March 28, 1997

Third District, Salt Lake Div. I

The Honorable John A. Rokich

Attorneys: Raymond N. Malouf, Logan, for plaintiff

Jack L. Schoenhals, Salt Lake City, for defendant

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HOWE, Justice:

Plaintiff R & R Energies, Inc. ("R&R"), appeals from a final judgment by the trial court in favor

of defendant Mother Earth Industries, Inc. ("MEI"), dismissing R&R's complaint and granting

MEI attorney fees. R&R assails a protective order granted by the trial court that prohibited R&R

from conducting certain discovery and an order denying R&R's motion to amend its complaint.

R&R seeks reversal of the protective order and the award of attorney fees and asks that it be

allowed to amend its complaint and that judgment as a matter of law be entered in its favor or, in

the alternative, that the case be remanded for trial.

FACTS

R&R filed this action to enforce the terms of a settlement agreement it entered into with MEI in

1982 that resolved a suit between them then pending in federal district court. The federal suit

arose from a dispute surrounding certain geothermal energy fields near Cove Fort, Utah. MEI

had attempted to develop the fields into a viable source of geothermal energy that could be used

in the production of electricity at the same time that R&R was attempting to construct an ethanol

plant on the fields. Because R&R claimed that MEI had interfered with its endeavors to build the

ethanol plant, it filed suit for damages.

The six-page settlement agreement that terminated the federal suit, dated June 16, 1982, required

that MEI pay 0.5 percent of its "gross geothermal energy sales revenue," minus federal royalty

payments, to R&R and a higher percentage from a specific well called "Well 42-7." After the

settlement, MEI negotiated a preliminary power purchase agreement with Provo City. On the

strength of this agreement, MEI began drilling wells in an attempt to tap into the geothermal

energy. In 1983, MEI located a viable geothermal energy source and by 1984 had completed two

producing geothermal wells. Thereafter, Cove Creek Geothermal ("Cove Creek") was created by

the president of MEI, Wayne A. Portanova, and his brother-in-law, Thomas Canada, and Cove

Creek constructed an electrical generating facility adjacent to the geothermal property.

Cove Creek's plant began producing in 1985. Cove Creek leased the geothermal resource from

MEI, converted the geothermal energy into electricity, and sold the electricity produced to Provo

City. Cove Creek paid MEI a steam fee of $0.015 per kilowatt hour ("kWh"). Pursuant to its

interpretation of the settlement agreement, MEI deducted the federal royalty and then paid 0.5

percent⁽¹⁾ of the remainder to R&R.

The federal government values geothermal energy for purposes of calculating its royalty in

several ways. If the steam is sold in an arm's-length transaction, the contract price is considered

to be the actual value and the royalty is calculated on that amount. See Subpart H--Geothermal

Resources, 30 C.F.R. 206.352(b)(1)(i) (1996). If it is not sold in an arm's-length transaction,

the federal government will look to other steam contracts with the same power plant or use the

"netback procedure." 30 C.F.R. 206.352(c)(1)(i), (ii) (1996). The netback procedure is a

formula that begins with revenues from the electricity produced, a figure called "gross revenues,"

and then deducts all reasonable actual costs, including return on investment, to approximate the

market value of the steam. 30 C.F.R. 206.352(d)(1)(ii) (1996). MEI originally paid its 10

percent royalty on the actual sales price charged Cove Creek by MEI. However, after the Mineral

Management Service ("MMS"), the branch of the Bureau of Land Management that actually

administers the leases, determined that the sale of steam to Cove Creek was not arm's-length,

MEI began paying its royalty pursuant to the netback procedure.⁽²⁾

In 1987, R&R filed this suit in the trial court, claiming that (1) MEI received $.032/kWh in

addition to its steam fee as a "capacity charge" that should be considered "gross geothermal

energy sales revenues"; (2) MEI had received a $1 million development fee from Provo City that

should be included as well; and (3) Well 42-7 was being used as a reinjection well, which

entitled R&R to compensation pursuant to the settlement agreement. Additionally, R&R sought

interest and attorney fees.⁽³⁾ After filing its complaint, R&R developed and argued to the court

on numerous occasions its claim that the settlement agreement entitled R&R to 0.5 percent of the

revenues from electricity sold by Cove Creek to Provo City, although it did not amend its

complaint to reflect this new theory.

During discovery, R&R served interrogatories on Provo City seeking information that MEI

considered irrelevant and proprietary concerning the exact location of the wells, and their

records, such as "down-hole logs," temperature gradients, pressures, temperatures, and flow

rates. In response, MEI filed, and the trial court granted, a motion for a protective order

prohibiting R&R from seeking or obtaining such information. R&R later moved to amend its

complaint to add additional parties and claims. The trial court denied the motion.

Hoping to resolve the case without a trial, MEI moved for summary judgment.⁽⁴⁾ However,

because R&R contended that the term "gross geothermal energy sales" had a specialized meaning

within the industry, the trial court stayed decision on the summary judgment motion and

scheduled a "minitrial" limited to determining whether the term indeed had a specialized

meaning. After hearing testimony from experts on both sides, the court ruled that the term did

not have a specialized meaning and that, due to its plain and unambiguous language, the

settlement agreement did not require MEI to pay a percentage of the revenues received from

Provo City for the sale of electricity to R&R.

MEI then filed a second motion for summary judgment, which incorporated its prior motion for

partial summary judgment, seeking judgment in its favor as well as attorney fees. The trial court

granted the motion, holding that the settlement agreement did not entitle R&R to any payments

for the sale of electricity to Provo or the use of Well 42-7, and granted MEI attorney fees. The

court expressly reserved the issues of the amount of payments due by MEI to R&R under its

interpretation of the settlement agreement and the amount of attorney fees to be awarded to MEI.

To resolve those issues, the trial court ordered that MEI file a disclosure of payments due R&R,

which MEI did. After R&R objected to the disclosure filed, MEI served "Requests for

Admissions, Interrogatories, and Requests for the Production of Documents" on R&R, requiring

that R&R either admit the accuracy of MEI's disclosure or demonstrate its inaccuracy. R&R did

not respond until ordered by the court. Even then, rather than addressing MEI's request, R&R's

response continued to argue against the trial court's earlier ruling that "gross geothermal energy"

did not include electricity, and concluded with a list of "lies," numbered one through ten, that

MEI had allegedly told the court. Basing its decision in part on R&R's lack of response and in

part on MEI's supporting documents, which included detailed accounting and business records

and an affidavit from Portanova, which demonstrated that MEI's figures were prepared in the

ordinary course of business and constituted the documents used to pay the federal royalties, the

court ruled that MEI's accounting of the amount due was correct. It also ordered that plaintiff

pay $63,301 in attorney fees and subsequently ordered plaintiff's counsel, Raymond Malouf, to

pay $3,500 of those fees because of his "dilatory tactics and for filing pleadings that were not

relevant or productive in the production of the case." A final judgment and order to that effect

was thereafter entered, from which R&R appeals.

R&R contends that (1) the trial court erred in ruling that the term "gross geothermal energy

sales" is unambiguous and does not include proceeds from the sale of electricity by Cove Creek

to Provo City; (2) the trial court erred in granting summary judgment on the issue of whether

Well 42-7 was "producing"; (3) the trial court erred in entering a protective order prohibiting

R&R from obtaining certain information from Provo City; (4) the trial court erred in refusing to

allow R&R to amend its complaint to join additional parties and allege fraud; and (5) the trial

court erred in awarding attorney fees to defendant and making plaintiff's counsel personally

liable for a portion of them.

ANALYSIS

A. Interpretation of the Settlement Agreement

The settlement agreement provides that "MEI shall pay to R&R one-half of one percent (0.5%)

of the gross geothermal energy sales revenues received by MEI after deductions of amounts paid

as federal royalty payments from the geothermal field owned by MEI." After the minitrial, in

which four experts testified, the court found that "the term 'geothermal energy' is understood in

the industry to mean the natural heat of the earth which can be extracted in the form of hot water

and/or water vapor and/or [sic] both."⁽⁵⁾ The trial court further concluded: "The gross

geothermal energy sales revenues received, shall therefore be only those revenues received by

Defendant from the sale of the geothermal energy, and do not include revenues received from

products produced by virtue of the utilization of the geothermal energy." On the basis of its

ruling that no specialized meaning existed, the court concluded that the agreement was

unambiguous and granted summary judgment in favor of MEI, reserving the issues of the amount

owed by MEI and the amount of MEI's attorney fees for future determination.

R&R contends that the trial court erred in granting summary judgment in favor of MEI because

the settlement agreement is ambiguous and interpretation of the contract should have been

preserved for trial. See, e.g., Saunders v. Sharp, 806 P.2d 198, 200 (Utah 1991) ("The

interpretation of a contract is a matter of law for the court to determine unless the contract is

ambiguous and evidence of the parties' intent (which is a matter of fact) is necessary to establish

the terms of the contract."); Records v. Briggs, 887 P.2d 864, 871 (Utah Ct. App. 1994)

("Generally, when contract interpretation will be determined by extrinsic evidence of intent, it

becomes a question of fact."). "Of course, a motion for summary judgment may not be granted if

a legal conclusion is reached that an ambiguity exists in the contract and there is a factual issue as

to what the parties intended." Faulkner v. Farnsworth, 665 P.2d 1292, 1293 (Utah 1983) (citing

Grow v. Marwick Dev., Inc., 621 P.2d 1249 (Utah 1980)).

Language in a contract is "ambiguous" when it is reasonably capable of being understood in

more than one sense. . . . Ambiguity of language is to be distinguished from unintelligibility and

inaccuracy, for words cannot be said to be ambiguous unless their signification seems doubtful

and uncertain to persons of competent skill and knowledge to understand them.

Black's Law Dictionary 73 (5th ed. 1979). "However, a contract provision is not necessarily

ambiguous just because one party gives that provision a different meaning than another party

does. To demonstrate ambiguity, the contrary positions of the parties must each be tenable."

Plateau Mining Co. v. Utah Div. of State Lands & Forestry, 802 P.2d 720, 725 (Utah 1990)

(citation omitted).

Under this definition, R&R's contention that the settlement agreement is ambiguous takes two

potential forms: First, it could be an attack on the trial court's factual finding that no specialized

meaning exists in the industry. A specialized meaning would create ambiguity because at least

two plausible meanings, one "plain" and one "specialized," would exist. Second, it could be an

attack on the trial court's conclusion that the plain language of the contract has only one tenable

meaning. Although R&R's brief is far from clear as to whether it is relying on the first or the

second theory (or both), elements of both arguments are present. Therefore, we will address

each.

This court will not disturb the trial court's factual finding that the term "gross geothermal energy

sales" has no specialized meaning in the industry, unless it is clearly erroneous. See Utah R. Civ.

P. 52(a) ("Findings of fact, whether based on oral or documentary evidence, shall not be set aside

unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to

judge the credibility of the witnesses."). "A trial court's factual finding is deemed 'clearly

erroneous' only if it is against the clear weight of the evidence." Doelle v. Bradley, 784 P.2d

1176, 1178 (Utah 1986) (citations omitted).

Having thoroughly reviewed the record, we cannot conclude that the trial court's finding of fact

that no specialized meaning exists was against the clear weight of the evidence. For example,

Kenneth Powell, plaintiff's principal expert witness, testified that he had formed an opinion on

the meaning of the phrase "gross geothermal energy sales" by examining the settlement

agreement and some industry publications and by researching some Utah Power and Light

contracts. That is scant support for the proposition that there is a specialized meaning of the

phrase throughout the industry, which was the only issue before the trial court. In addition,

Powell admitted that he had never read an article or a contract that equated the terms "geothermal

energy" and "electrical power output." At another point, he testified that geothermal energy is

defined as "energy that comes from the heat of the earth," which he stated was also the dictionary

definition and the definition used in the industry. In view of the fact that plaintiff's own expert

offered testimony supporting the court's interpretation, we cannot hold that the trial court's

finding is against the clear weight of the evidence, and therefore, we refuse to upset its factual

finding that no specialized meaning exists.

We next address whether the trial court erred in ruling that the contractual language itself, even

without a specialized meaning, is not open to more than one reasonable interpretation and is

therefore unambiguous. R&R asserts that "gross geothermal energy sales" could reasonably be

considered the steam harvested and sold by MEI or it could mean the electrical energy that Cove

Creek produced from the geothermal energy and sold to Provo City. This argument is essentially

an attempt to equate geothermal energy and electrical energy, for that is the only way that "gross

geothermal energy" can include the electricity sold by Cove Creek. In support, R&R points out

that geothermal energy is largely unmarketable in its "raw" form and that electrical energy is

merely an altered form of geothermal energy that allows it to be stored, marketed, and

transported. R&R cites one case from another jurisdiction, as well as the Code of Federal

Regulations, that allegedly stands for the proposition that geothermal energy has been equated at

times with electrical energy. We find this argument to be without merit.

First, and most important, R&R's interpretation conflicts with the ordinary meaning of "gross

geothermal energy sales revenues." Geothermal energy is commonly understood to mean hot

water, steam, or hot brines at a high temperature and the heat and pressure therefrom. Accord 30

C.F.R. 206.351; Utah Code Ann. 73-22-3(4), (5) (1989).⁽⁶⁾ According to this definition,

"gross geothermal energy sales" is the gross amount received by MEI from the sale of hot steam,

water, or brines to Cove Creek, as the trial court ruled. Thus, the plain meaning of the term does

not correspond with R&R's interpretation.

Second, there is no legal foundation for the proposition. The one case cited by plaintiff to justify

its argument that geothermal and electrical energy are the same, Occidental Geothermal, Inc. v.

Simmons, 543 F. Supp. 870 (N.D. Cal. 1982), offers little support. The issue in Occidental

Geothermal was whether plaintiffs who had been granted a right to extract geothermal energy

under federal law also had the right to site a "geothermal electric generating plant," id. at 874, on

the producing land. In dicta, the court stated that "because [geothermal] resources cannot be

'removed' without first being 'utilized' (to the extent of being converted into electrical energy),

the two processes can, in the case of geothermal energy, be said to be one." Id. at 874-75

(emphasis added). The court also observed, "If steam cannot be used at the source, but rather

must be conducted through pipes to distant electrical generating facilities, . . . it loses its practical

utility as a source of electrical energy." Id. at 874. Thus, the court held that to give effect to the

federally granted right to use the resource, the act must be interpreted to include the right to site

an electrical generating facility on the producing land because geothermal energy cannot be

extracted and then transported to a distant electrical generating facility like other energy sources.

Id. at 876. However, the court did not state, imply, or hold that electrical and geothermal energy

are the same. Indeed, implicit in the court's analysis, including the portion cited above, is the

notion that the two, although related, remain distinct and that geothermal energy is merely a

source of electrical energy, not its equivalent. Thus, Occidental Geothermal actually supports the

proposition that geothermal and electrical energy are distinct and therefore supports the trial

court's interpretation of the settlement agreement.

Although R&R cites only one case in favor of its argument, a much larger portion of its brief is

devoted to marshaling and attempting to distinguish MEI's numerous supporting case cites.

R&R maintains that MEI's "references actually refute the trial court's interpretation of 'gross

geothermal energy sales revenues,' or fail to justify the court because they are not relevant." We

disagree. After thoroughly reviewing all seventeen cases, we fail to find a single one that

supports R&R's argument that geothermal and electrical energy are synonymous, but we find

many that support, at least in dicta, MEI's position that the two are distinct. For example, many

compare or analogize geothermal energy to coal, oil, and other energy sources that are used to

generate electrical energy, but none of them compare or analogize geothermal energy to electrical

energy itself. In Geothermal Kinetics v. Union Oil Co. of California, 75 Cal. App. 3d 58, 141

Cal. Rptr. 879 (1977), the court stated:

[T]he production of energy from geothermal resources is analogous to the production of energy

from such other mineral resources as coal, oil and natural gas in that materials containing energy

are extracted from the earth and transported to facilities where this energy is transformed into

electrical energy. The fact that extracted coal, oil and natural gas contain chemical energy while

geothermal resources contain thermal energy is not significant; uranium ore is not denied the

status of a mineral because it contains nuclear energy instead of chemical energy.

141 Cal. Rptr. at 882 (footnote omitted). In United States v. Union Oil of California, 549 F.2d

1271 (9th Cir. 1977), the court noted, "Salt water and geothermal steam and brines should be

held the property of the mineral owner who owns such substances as oil, gas and coal, since the

functions and values are more closely related. Geothermal steam is a source of energy just as

fossil fuels such as oil, gas and coal are sources of energy." Id. at 1279 n.18 (citing Olpin, The

Law of Geothermal Resources, 14 Rocky Mtn. Min. L.I. 123, 140-41 (1968)). There is simply no

support for R&R's proposed interpretation of the settlement agreement in the case law brought to

our attention or that we could locate on our own initiative.

R&R next relies upon the C.F.R. definition of "gross proceeds": "the total monies and other

consideration accruing to a geothermal lessee for any disposition of geothermal resources

including total payments for the sale of electricity generated by the lessee from lease produced

geothermal resources." 30 C.F.R. 206.351(4) (emphasis added). R&R then states in its brief,

"The government defines gross proceeds for royalty purposes the same way R&R wants them

defined." However, this comparison of terms is inapposite because although both "gross

geothermal energy sales revenues" and "gross proceeds" contain the word "gross," they are not

synonymous. The other portions of the regulation make it clear that the term "gross proceeds" is

intended to be a rough equivalent of the revenue received for electrical energy, not the value of

geothermal energy.

The term "gross proceeds" is used in the "netback" formula, part of a procedure used to

determine the value of geothermal energy sold in a nonarm's-length transaction.⁽⁷⁾ In the netback

procedure, the government works backward to determine the value of steam in a situation where

it appears that the actual selling price of the geothermal energy might be artificially depressed

because of the close relationship of the parties involved in the transaction. In essence, the

netback starts with the user's gross revenue and then deducts all of its reasonable and actual

expenses to determine a value for the geothermal energy used to produce the electricity. As

stated in the C.F.R., "Under the geothermal netback procedure, the lessee's reasonable actual

costs for the generation and transmission of electricity shall be deducted from the lessee's gross

proceeds received for the sale of electricity to determine the value of the geothermal resource."

30 C.F.R. 206.352(d)(1)(ii) (emphasis added). Obviously, if reasonable generating and

transmission costs are deducted from gross proceeds to determine the value of the geothermal

resource,⁽⁸⁾ then "gross proceeds" is not equivalent to the value of the geothermal

resource/energy. Without a persuasive argument as to why the term "gross geothermal energy

sales" in the settlement agreement should include the electricity produced and sold by Cove

Creek, which R&R has not made, the comparison of the terms is circular and useless. Therefore,

R&R's reliance on the definition of "gross proceeds" is misplaced.

Likewise, we reject R&R's argument that the two energy forms are equivalent because

electrical energy is merely an altered form of geothermal energy that allows it to be marketed,

transported, or stored. First, this argument is belied by the fact that the mining of geothermal

energy and the conversion of that energy into electrical energy are often carried out by separate

entities. The federal act makes this clear by distinguishing between arm's-length and nonarm's-length transactions for the sale of geothermal energy. An arm's-length transaction involves two

unrelated parties, see 30 C.F.R. 206.351, which demonstrates that geothermal energy in its

"raw" form is marketable to some degree, even if it cannot be transported long distances like

other energy resources. Second, this argument completely ignores the fact that geothermal

energy, just like coal, oil, natural gas, or water, must go through a conversion process to become

electrical energy. That process requires equipment and facilities completely apart from those

required to mine the resource. In light of these facts, geothermal energy and electrical energy can

hardly be said to be one. Therefore, we reject plaintiff's contention that the term "gross

geothermal energy sales" has more than one reasonable meaning and affirm the trial court's

ruling that the settlement agreement is unambiguous.

Having done so, we turn to interpreting the agreement. Our review of a trial court's

interpretation of an unambiguous contract is for correctness because an unambiguous contract

must be interpreted from the actual words of the contract. See Winegar v. Froerer Corp., 813

P.2d 104, 108 (Utah 1991). "'Questions of contract interpretation not requiring resort to

extrinsic evidence are matters of law, and on such questions we accord the trial court's

interpretation no presumption of correctness.'" Sackler v. Savin, 897 P.2d 1217, 1220 (Utah

1995. (quoting Zions First Nat'l Bank, N.A. v. National Am. Title Ins. Co., 749 P.2d 651, 653

(Utah 1988)).

From our interpretation of the settlement agreement, we conclude that the trial court was correct

when it determined that the "gross geothermal energy sales revenues received, shall . . . be only

those revenues received by Defendant from the sale of the geothermal energy, and do not include

revenues received from products produced by virtue of the utilization of the geothermal energy"

and that, therefore, "revenues received from the sales of electricity produced by conversion of

geothermal energy into electrical energy are not subject to the provisions of the Settlement

Agreement." We hold that MEI is required to pay R&R only 0.5 percent of the amount it

receives for geothermal energy from Cove Creek after deducting the federal royalties, as the trial

court ruled.

Finally, given our interpretation of the term "gross geothermal energy sales," we address whether

summary judgment was properly granted. Because our interpretation of the settlement agreement

is the same as the trial court's, the issue is essentially whether genuine issues of material fact

remained as to whether MEI had complied with the trial court's interpretation of the settlement

agreement. For instance, R&R contends that it raised several issues of material fact regarding the

amount MEI actually received for the sale of steam, which would impact the amount to which it

was entitled. It asserts that the amounts MEI reported in this case differed from those reported to

the government or disclosed in other cases.

Rule 56(e) of the Utah Rules of Civil Procedure states that a party opposing a properly supported

motion for summary judgment, as MEI's motion was in this case, "may not rest upon the mere

allegations or denials of his pleading, but his response, by affidavits or as otherwise provided in

this rule, must set forth specific facts showing that there is a genuine issue for trial." While we

have held that "under Rule 56, Utah R. Civ. P., it is not always required that a party proffer

affidavits in opposition to a motion for summary judgment in order to avoid judgment against

him," Olwell v. Clark, 658 P.2d 585, 586 (Utah 1982), we have also stated that "when a party

opposes a properly supported motion for summary judgment and fails to file any responsive

affidavits or other evidentiary materials allowed by Subdivision (e), the trial court may properly

conclude that there are no genuine issues of fact unless the movant's affidavit affirmatively

discloses the existence of such an issue." Franklin Fin. v. New Empire Dev. Co., 659 P.2d 1040,

1044 (Utah 1983).

In this case, the trial court, after granting summary judgment on the interpretation of the

settlement agreement and other issues of liability, expressly reserved the issue of whether MEI

had complied with the terms of the settlement agreement as the court had interpreted them. The

court ordered MEI to file a disclosure of royalties due, which it did. Because R&R opposed that

disclosure, MEI served requests on R&R for the specific bases for the objections along with

admissible proof as required by rule 56(e). R&R's answers, instead of identifying witnesses,

admissible testimony, or evidence, contained numerous pages of argument regarding the court's

earlier rulings and attacks against MEI. Thereafter, MEI filed an additional motion for summary

judgment that was opposed by R&R's two-page motion containing additional arguments against

the court's earlier rulings and statements of opposition such as "R&R does not believe MEI will

ultimately prevail" and "This motion is premature and unfounded." This utter failure by R&R to

demonstrate the existence of any genuine issues of material fact, along with MEI's extensive

support for its own motion, including over 125 pages of detailed accounting records and

affidavits, justified the trial court's order granting summary judgment on the issue of whether

MEI had complied with the trial court's interpretation of the settlement agreement.

B. Well 42-7

Paragraph three of the settlement agreement obligates MEI to "pay to R & R . . . $250,000 . . .

from gross revenues arising from geothermal energy sales specifically and exclusively derived

from Well 42-7." It is undisputed that MEI is currently using Well 42-7 as an injection well,⁽⁹⁾

and R&R asserts that MEI is obligated to compensate it for that use. The trial court disagreed

and ruled that the settlement agreement did not obligate MEI to make royalty payments in

connection with this use. The question is once again one of contract interpretation, which we

review for correctness.

Employing this standard, we find that the trial court's interpretation of the settlement agreement

was correct. It is uncontested that there have been no "geothermal energy sales . . . derived from

Well 42-7." The settlement agreement does not require MEI to pay for simply using Well 42-7;

it requires only that MEI pay a percentage of any revenue derived from steam produced by the

well itself. If the settlement agreement employed the word "use" or one similar thereto, R&R

might have a legitimate claim. However, because the agreement entitles R&R to only a

percentage of "geothermal energy sales" from Well 42-7 and Well 42-7 has never produced any

geothermal energy, R&R is not entitled to compensation.

Our interpretation is supported by the fact that R&R's rate of compensation, if it were entitled to

any, would be based upon the amount of steam actually sold from the well. The settlement

agreement provides that the amount paid "shall be one and one-half percent (1.5%) of the

difference between gross revenues to MEI from geothermal energy sales from Well 42-7 and

federal royalty payments related to said well." MEI correctly argues that if we were to award

compensation to R&R for the use of the well for reinjection purposes, we would have absolutely

no basis for determining the amount MEI is required to pay. Thus we would be required to

divine a formula on our own and would thereby add a term to the parties' agreement that they did

not include themselves. We refuse to engage in such a practice.

Therefore, we hold that according to the plain and clear language of the contract itself, MEI is not

required to compensate R&R for using Well 42-7 for reinjection purposes. The trial court

properly granted summary judgment on this issue as well.

C. The Protective Order

R&R contends that the trial court erred by entering a protective order that prohibited R&R from

obtaining discovery from Provo City of information that the court believed was "secret,

proprietary, and confidential." MEI responds that "the trial court did not preclude R&R from

conducting legitimate relevant discovery" but merely prevented it from "inquiring into

confidential and proprietary information which was not relevant to the issue of royalties."

Rule 26(c) of the Utah Rules of Civil Procedure provides in part:

Upon motion by a party . . . and for good cause shown, the court . . . may make any order which

justice requires to protect a party or person from annoyance, embarrassment, oppression, or

undue burden or expense, including one or more of the following:

(1) that the discovery not be had;

. . . ;

(4) that certain matters not be inquired into, or that the scope of discovery be limited to certain

matters;

. . . ;

(7) that a trade secret or other confidential research, development, or commercial information not

be disclosed[.]

Generally, the trial court is granted broad latitude in handling discovery matters, see Utah Dep't

of Transp. v. Osguthorpe, 892 P.2d 4, 6 (Utah 1995) (giving trial court broad discretion regarding

imposition of discovery sanctions); First Fed. Sav. & Loan Assoc. v. Schamanek, 684 P.2d 1257,

1266 (Utah 1984), and we will "not find abuse of discretion absent an erroneous conclusion of

law or where there is no evidentiary basis for the trial court's rulings." Askew v. Hardman, 918

P.2d 469, 472 (Utah 1996).

In this case, the trial court did not abuse its discretion by entering the protective order because

there was sufficient evidence to support it and there was no erroneous conclusion of law.

Accompanying its motion for a protective order, which was timely filed, MEI included several

affidavits demonstrating that R&R had been, and continued to be, a competitor of MEI. In

addition, the information sought from Provo City was clearly outside the realm of relevant

information. The information sought had little, if anything, to do with the amount that MEI

received for the sale of steam and was highly sensitive information that would not have furthered

the litigation but very well might have given R&R a competitive edge against MEI in future

energy ventures. We therefore uphold the trial court's protective order.

D. Joinder of Additional Parties and Claims

R&R contends that the trial court erred by refusing to allow it to amend its complaint to include

additional parties and claims. Specifically, R&R moved the court to allow it to add Cove Creek

Geothermal, Portanova, Canada, and Provo City and to allege fraud against MEI and Provo. The

motion was dated January 30, 1991, and was filed subsequent to the minitrial and just over four

years after the complaint was filed.

"After a responsive pleading has been filed, . . . 'a party may amend his pleading only by leave

of court or by written consent of the adverse party; and leave shall be freely given when justice so

requires.'" Hill v. State Farm Mut. Auto. Ins. Co., 829 P.2d 142, 149 (Utah Ct. App. 1992).

However, it has long been this court's position that

[r]ule 15(a), Utah Rules of Civil Procedure, . . . is to be applied with less liberality when the

amendments are proposed during or after trial, rather than before the trial. In any event, the

granting of leave to amend is a matter which lies within the broad discretion of the court, and its

rulings are not to be disturbed in the absence of a showing of an abuse of discretion resulting in

prejudice to the complaining party.

Girard v. Appleby, 660 P.2d 245, 248 (Utah 1983); see also Hill, 829 P.2d at 149 ("A trial

court's discretion to deny a motion for leave to amend is broad and its decision will not be

disturbed absent an abuse of discretion." (citation omitted)).

We cannot find that the trial court's refusal to allow plaintiff to amend its complaint was an

abuse of discretion given the facts of this case. The trial court was within its powers to deny

R&R's motion to add new parties and claims more than four years after the case commenced and

after a trial had been held to resolve the fundamental issue in the case. This is especially true

given the fact that R&R's complaint demonstrates that it knew that all of the parties it sought to

add were involved with each other from the outset of the case and therefore that they could have

been joined in a timely manner.

E. Attorney Fees

R&R next contends that it was improper for the trial court to award attorney fees and costs to

MEI and to order that counsel for R&R, Malouf, personally pay a portion of that amount. As to

the issue of whether the trial court should have awarded attorney fees to MEI as the prevailing

party, we find that the trial court was entirely correct in making an award of the amount MEI had

spent defending the case. The settlement agreement stated, "Should a party to this Agreement

bring suit for a breach of this Agreement, the prevailing party in such suit may be awarded costs

and attorney fees incurred in the prosecution or defense of the action." Thus the trial court was

simply enforcing the will of the parties, as expressed in the settlement agreement, when it

awarded attorney fees to MEI, the prevailing party.

Regarding the trial court's order that Malouf be personally responsible for a portion of those fees,

we do not believe that the trial court's order was improper. Rule 11 requires that an attorney

practicing before Utah courts sign documents filed with the court certifying

that to the best of his knowledge, information, and belief formed after reasonable inquiry it is

well grounded in fact and is warranted by existing law or a good faith argument for the extension,

modification, or reversal of existing law, and that it is not interposed for any improper purpose,

such as to harass or to cause unnecessary delay or needless increase in the cost of litigation.

Utah R. Civ. P. 11. We agree with the court of appeals that "[r]ule 11 gives trial courts great

leeway to tailor the sanction to fit the requirements of the particular case" and that "we will

affirm the particular sanction imposed by the trial court . . . absent an abuse of discretion."

Taylor v. Estate of Taylor, 770 P.2d 163, 171 (Utah Ct. App. 1989). Here the trial court based its

ruling on Malouf's "dilatory tactics and . . . filing pleadings that were not relevant or productive

in the prosecution of this case." After reviewing the record, we agree that Malouf has engaged in

numerous dubious acts during the pendency of this case.⁽¹⁰⁾ In light of his improper and

oppressive conduct, the trial court did not abuse its discretion by ordering that he personally pay

a portion of MEI's attorney fees.

MEI has also asked this court for attorney fees on appeal. Since MEI has once again fully

prevailed, an award of attorney fees on appeal is proper. We remand to the trial court for a

determination of the amount of reasonable attorney fees spent by MEI on this appeal and order

that MEI be awarded the amount determined by the trial court.

The judgment is affirmed and the case remanded for a determination of MEI's attorney fees on

appeal.

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Associate Chief Justice Stewart concurs in Justice Howe's opinion.

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ZIMMERMAN, Chief Justice, concurring:

I concur fully in the majority opinion. However, I write to state that this matter should be

referred to Bar Disciplinary Counsel.

The majority characterizes Mr. Malouf's conduct in violation of rule 11 as "improper and

oppressive," states that his "disobedience to court orders and oppressive litigation tactics that

waste court resources and require opponents to spend a great deal of money in defense thereof

appear to be characteristic of Malouf's practice," and notes that on two occasions we have upheld

sanctions against him for analogous misconduct. See Rules of Professional Conduct Rules 3.3,

3.4, 8.4. In my view, the time has come for Bar counsel to review Mr. Malouf's conduct for

possible disciplinary proceedings.

Lawyers and judges increasingly complain about the public's negative perception of the Bar.

They properly observe that the public unfairly tars the vast majority of lawyers with a brush that

should be reserved for a select few miscreants. The only way that the public's misperception of

the vast majority of honest, conscientious, and ethical lawyers will ever be corrected is if

individual judges and lawyers are willing to overcome a natural resistance to being perceived as

troublemakers and vigorously fulfill their sworn duty to refer to disciplinary counsel lawyers who

evidence patterns of improper and oppressive litigation tactics. Indeed, such reporting is a basic

premise of the entire disciplinary machinery of the Bar.⁽¹¹⁾ And the Bar, acting under this court's

supervision, does vigorously pursue discipline of its members when this conduct comes to its

attention.

Today, by referring Mr. Malouf to Bar Disciplinary Counsel, I am fulfilling my obligation and

reaffirming that we lawyers take seriously the need to police our profession.

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Justice Durham and Justice Russon concur in Chief Justice Zimmerman's concurring opinion.

1. Well 42-7 has never produced any steam, so the higher percentage of revenues that would be

required from that well has never been paid.

2. When the netback procedure was imposed, the MMS recalculated the royalties already paid by

MEI under the contract rate and determined that MEI had actually overpaid. Therefore, we

believe the steam fee actually charged Cove Creek by MEI is representative of the market value

of the geothermal energy. In addition, the Office of Inspector General conducted an audit of MEI

in 1992 in response to complaints of fraud by R&R. The audit concluded that its "analysis

disclosed no serious internal control deficiencies."

3. R&R also petitioned the court to order that MEI issue checks to replace some royalty checks

that had become stale.

4. The motion was actually entitled "Partial Motion for Summary Judgment." However, because

the motion's final request was for an order dismissing plaintiff's complaint, we consider it to be a

motion for complete summary judgment.

5. The court also stated, under the heading of "Findings of Fact," that "Paragraph 2 of the

Settlement Agreement does not provide for revenues to be paid upon any products resulting from

the sale of the geothermal energy such as electrical energy produced therefrom." However, we

think this is better classified as a conclusion of law because the trial court ruled that the

settlement agreement was unambiguous and was therefore interpreting the language of the

contract itself. It is well settled by our prior case law that when a contract is in writing and the

language is unambiguous, the intention of the parties must be determined from the words of the

agreement and that a contract interpreted without regard to extrinsic evidence is a question of

law. See, e.g., Faulkner v. Farnsworth, 665 P.2d 1292, 1293 (Utah 1983). Therefore, the trial

court's conclusion as to the meaning of the second paragraph of the settlement agreement, which

must have been derived from the text of the agreement itself (inasmuch as the court determined

that the agreement was unambiguous), is better categorized as a conclusion of law rather than as

a finding of fact.

6. As noted above, this definition also corresponds with that proposed by R&R's expert, Kenneth

Powell, at the minitrial.

7. Geothermal netback procedure means the

method of determining the value of geothermal resources that are utilized in a lessee-owned

power plant for the generation and sale of electricity by deducting the lessee's reasonable, actual

transmission and generating costs from the sales price or value of the electricity to derive the

value of the geothermal resource at the power plant inlet.

30 C.F.R. 206.351 (1996).

8. The term "geothermal resources" is defined as:

(1) All products of geothermal processes, including indigenous steam, hot water, and hot brines;

(2) Steam and other gases, hot water, and hot brines resulting from water, gas, or other fluids

artificially introduced into geothermal formations;

(3) Heat or other associated energy found in geothermal formations; and

(4) Any byproducts.

30 C.F.R. 206.351 (7-1-96). This corresponds with our stated definition.

9. "Injection Well" means any special well,

converted producing well, or reactivated or converted abandoned well employed for injecting

material into a geothermal area or adjacent area to maintain pressures in a geothermal reservoir,

pool, or other source, or to provide new material to serve as a material medium therein, or for

reinjecting any material medium or the residue thereof, or any by-product of geothermal resource

exploration or development into the earth.

Utah Admin. Code R655-1-1.2(l) (1994).

10. Malouf's apparent improper acts include filing pleadings unauthorized by the Utah Rules of

Civil Procedure, filing numerous pleadings and motions that continued to argue matters

previously settled by court rulings, apparent disobedience to court orders prohibiting certain

discovery, and filing a document in response to a request for admissions and interrogatories

which claimed that MEI had lied to the court and then proceeded to list, one through ten, the

alleged lies.

What is perhaps most troubling is that disobedience to court orders and oppressive litigation

tactics that waste court resources and require opponents to spend a great deal of money in

defense thereof appear to be characteristic of Malouf's practice. On two previous occasions, this

court has upheld sanctions against him. In Utah Farm Production Credit Union Association v.

Labrum, 762 P.2d 1070 (Utah 1988), we upheld a contempt sanction against Malouf for direct

disobedience to a court order. In Barber v. Emporium Partnership, 800 P.2d 795 (Utah 1990), we

stated:

As the trial judge concluded, Malouf has "persist[ed] in pursuing and seeking remedies after all

relevant legal issues have been settled," resulting in the Barbers' being "burdened by the expense

of legal fees to answer matters that have previously been adjudicated. This litigation has

continued since 1979 over a promissory note executed for a value which hardly justifies the time

and money the parties and their attorneys have spent in handling the case or the court time it has

required. The $3,000 sanction against Malouf is affirmed.

Id. at 798. We strongly denounce this pattern of misconduct.

11. Rule 8.3(a) of the Utah Rules of Professional Conduct provides, "A lawyer having knowledge

that another lawyer has committed a violation of the Rules of Professional Conduct that raises a

substantial question as to that lawyer's honesty, trustworthiness or fitness as a lawyer in other

respects, shall inform the appropriate professional authority." Canon 3(D) of the Code of

Judicial Administration adds, "A judge should take or initiate appropriate disciplinary measures

against a judge or lawyer for unprofessional conduct of which the judge may become aware."