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Pronschinske Trust v. Kaw Valley Companies, Inc.

United States District Court, W.D. Wisconsin

August 15, 2017

PRONSCHINSKE TRUST DATED MARCH 21, 1995, Plaintiff,
v.
KAW VALLEY COMPANIES, INC. AND KC PROPPANTS, LLC, Defendants.

          OPINION AND ORDER

          STEPHEN L. CROCKER Magistrate Judge.

         This is business contract lawsuit removed to federal court pursuant to diversity jurisdiction. Land owned by Ivan and Beverly Pronschinske contains frac sand, which is useful to gas and oil fracking operations.[1] Through their trust, the Pronschinskes entered into a 2012 Mining Lease Agreement (the Lease) with defendant Kaw Valley Companies, so that Kaw Valley could mine the sand. Ultimately, Kaw Valley walked away without removing any sand, which the Lease allowed it to do. Even so, plaintiff claims that defendants owe it $400, 000 because Kaw Valley's activities on the property constituted the “commencement of mine and quarry” operations that triggered defendants' payment obligations under the Lease.

         Defendants respond that they owe nothing: under the Lease's plain terms, these payments were not triggered until materials actually had been mined or quarried from the property, and that never happened.

         Both sides assert that the Lease's terms are unambiguous so that the court can decide this lawsuit by an analysis limited to the four corners of the document. I agree that the Lease is not ambiguous. Its terms favor defendants. Accordingly, I am granting defendants' motion for summary judgment.

         The facts are not in dispute:

         FACTS

         On June 28, 2012, Ivan Pronschinske and Beverly Pronschinske, as trustees of the Pronschinske Trust, entered into a Mining Lease Agreement (the Lease) with Kaw Valley.[2] The Lease gave Kaw Valley the exclusive right to “quarry, process, crush, manufacture, wash, remove and sell (‘mine' or ‘quarry') all sand, gravel, stone and other rock products” from plaintiff's property in Trempealeau County, Wisconsin, under specified terms and conditions. Mining Lease Agreement, dkt. 26-2, ¶1. The Lease subsequently was assigned from Kaw Valley to KC Proppants in an Assignment of Lease dated February 26, 2015. The term of the Lease was for five years, unless otherwise terminated under the Lease, id., ¶2. The Lease announces that it contains “the entire agreement between the parties.” ¶28.

         The Lease created three sequential payment obligations for defendants: (1) a $20, 000 “Initial Royalty Credit, ” payable upon execution of the Lease, and which was to be “used to offset any future amounts and royalties due Lessor from Lessee, ” id., ¶3; (2) a $45, 000 “Commencement Royalty Credit, ” id., ¶5; and (3) “Production Royalties, ” including a $75, 000 “Minimum Production Royalty.” Id., ¶6. Kaw Valley paid the $20, 000 Initial Royalty Credit upon execution of the lease. The issue in this suit is whether defendant owes the Commencement Royalty Credit or the Minimum Production Royalty.

         Paragraph 5 of the Lease establishes the “Commencement Royalty Credit”:

Upon Lessee's commencement of mine or quarry operations as determined by Lessee in its reasonable discretion, Lessee agrees to pay to Lessor the sum of Forty Five Thousand Dollars ($45, 000.00) (the “Commencement Royalty Credit”). The Commencement Royalty Credit shall be nonrefundable, but shall be used to offset any future amounts and royalties due Lessor from Lessee.

         The phrase “mine or quarry” is defined in paragraph 1 of the Lease to mean “to quarry, process, crush, manufacture, wash, remove and sell . . . all sand, gravel, stone and other rock products[.]”

         Paragraph 6 of the Lease provides for the payment of weight-based royalties once Products are “mined from the Property;” these royalties are referred to as “Production Royalties.” Paragraph 6 reads, in full:

Lessee shall pay Lessor a royalty of $1.50/ton (2, 000 lbs.) for the first 65, 000 ton of sand, stone and rock products mined from the Property in satisfaction of the offset requirements for the Initial Royalty Credit and Commencement Royalty Credit. Thereafter Lessee shall pay Lessor a royalty of $2.50/ton (2, 000 lbs.) for sand, stone and rock products mined from the Property (all such royalties are hereinafter referred to as “Production Royalties”) for the sand, stone and rock products mined from the Property weekly (measured from the Effective Date). Lessee shall make such payments to Lessor no later than the Friday following the week in which products are mined from the Property. Notwithstanding anything to the contrary contained herein, Lessee shall pay to Lessor an annual minimum Production Royalty of $75, 000 (the “Minimum Production Royalty”). In the event that, as of the month containing the anniversary date of the Effective Date, the monthly Production Royalties (as such may be prorated) fail to meet or ...

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