Filed 8/29/17 DIII Properties v. EDF Renewable Energy CA1/5

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION FIVE

The predecessor-in-interest of plaintiff DIII Properties, LLC (collectively, DIII) granted an easement over its land to the predecessor-in-interest of defendant EDF Renewable Energy (collectively, EDF) for the purpose of allowing EDF to operate a wind farm to generate electricity. A dispute arose over the scope of the easement and whether it allowed the use of underground lines placed by EDF across a corner of DIII’s property to transmit electricity generated by wind turbines on neighboring pieces of property. DIII brought this action for declaratory relief, quiet title and trespass. The trial court concluded the written easement, as clarified by a subsequent letter agreement, did allow the placement of the line and its use to transmit off-site electricity. It accordingly granted summary judgment in favor of EDF on DIII’s claims. We affirm.

BACKGROUND

A. The Written Easement and Shiloh II Project

DIII owns about 475 acres of agricultural land in Solano County near the intersection of Highway 12 and Currie Road (the Property). Duncan McCormack III (McCormack) is DIII’s managing partner. EDF is in the business of developing, constructing and operating wind energy projects.

In 2003, EDF sought to develop a wind energy project on and near the Property, and entered into a written agreement known as the Wind Farm Easement (Original Easement Agreement). A few years later, on June 9, 2007, the parties executed the Amended and Restated Wind Farm Easement (Amended Easement Agreement), which restated and continued the Original Easement Agreement. McCormack signed both easement agreements on behalf of DIII.

Paragraph 1 of the Amended Easement Agreement provides, “[DIII] hereby grants and conveys to [EDF] an easement in gross on, over, under and across the Property for the term hereof exclusive to [EDF] for the generation of wind, wind resource evaluation, wind energy development, energy transmission, the installation, construction, maintenance, repair, replacement and removal of wind-energy producing facilities and energy transmission facilities, and related wind energy and energy transmission uses, all as described below (collectively, a “Wind Farm”), excluding, however, the right to install an electrical substation (to collect, increase or decrease voltage for transmission) on the Property without the separate written agreement of [DIII]. [DIII] also hereby grants to [EDF] a non-exclusive easement in gross on, over and across any and all access routes to and from the Property for the purposes of ingress and egress to and from the property. The easements and other rights granted by [DIII] in this Easement Agreement are an easement in gross for the benefit of [EDF], its successors and assigns. The easements and other rights granted by [DIII] in this Easement Agreement are independent of any lands or estates or interest in land, there is no real property benefiting from the easements granted in this Easement Agreement, and, as between the Property and other tracts of property on which [EDF] may locate wind turbine generators, no tract is considered dominant or servient as to the other.”

Paragraph 3.1 of the Amended Easement Agreement defined EDF’s right to use the Property: “[EDF] shall have an exclusive right and easement to use the Property for the design, construction and operation of a wind-powered electrical generating facility (the “Wind Plant”) for the conversion of wind energy into electrical energy, and for any other related use permitted under applicable zoning, land use, and other laws. . . .[EDF] shall have the right to locate the wind turbine generators (approximately 1/10 acre each), service roads, and associated Wind Plant buildings and equipment on the Property; provided, however, [EDF] shall consult with [DIII] and attempt to incorporate ideas and requests of [DIII] into the planning and location of facilities. . . .”

Paragraph 4.3 set forth the payments owed to DIII under the Amended Easement Agreement: “After the date the Wind Farm on the Property begins generating electricity for sale to third parties pursuant to the terms of a power purchase agreement (said generation being hereinafter referred to as ‘Wind Farm Operations’ and said date as the ‘Operations Commencement Date’), [EDF] shall make monthly payments to [DIII] (‘the Monthly Operating Payments’) equal to the greater of (a) four percent (4%) of the Gross Operating Receipts (the ‘Share of Receipts Amount’) or (b) Four thousand dollars ($4,000.00) per year times the installed generating capacity of the Wind Plant, which lies within the boundaries of the Property, expressed in whole or partial megawatts, which sum shall be divided into twelve (12) equal installments (one for each month) but in no event less than Seventy-five Dollars ($75.00) per acre per year regardless of the number of megawatts of installed generating capacity on the Property (the ‘Megawatts-based Amount’). . . . For the purpose of the foregoing, ‘Gross Operating Receipts’ means all gross receipts under power purchase agreements from the sale of electricity generated by turbines owned by [EDF] and located on the property.”

EDF installed wind turbines on the Property as part of a larger project that encompassed other properties and was known as the “Shiloh II Wind farm” (Shiloh II). Ten of the Shiloh II project’s 75 turbines were placed on the Property, as were underground lines that were used to transmit both energy that had been generated by turbines on the Property, and energy generated by turbines on other Shiloh II properties. Operations of Shiloh II began in February 2009.

After the wind turbines on the Property became operational, DIII received payments under the “Share of Receipts” method of calculation under paragraph 4.3 of the Amended Easement Agreement. Although paragraph 4.3 did not refer to the Shiloh II Project as a whole, McCormack testified in his deposition that he had reviewed the payment statements on behalf of DIII, and while at first he had believed the payments would be based on the individual wind turbines, he learned after operations began that the payments would be based on the amount of power produced by all the turbines in the project: “It seemed to be equitable if somebody in the project had bum luck and all their towers got struck by lightning . . . .” Thus, the payments actually made to DIII were based on a percentage of the revenue generated by the entire Shiloh II project.

B. Dispute Over Shiloh III Project and Letter Agreement

In August of 2011, EDF began constructing a new project, the Shiloh III Windfarm (Shiloh III), the design of which called for the installation of underground lines across a portion of the Property to connect the windfarm to an electrical substation. EDF asserted the placement of the collection lines for Shiloh III was permitted by the 2007 Amended Easement Agreement without the necessity of obtaining further authorization by DIII, but DIII took the position that the Amended Easement Agreement did not encompass the placement of lines unconnected to wind turbines located on the property itself. The parties reached a compromise, under which EDF would pay DIII $375,000 in exchange for the right to place the Shiloh III collection lines within an approximately 30-foot corridor.

The terms of the compromise were memorialized by a letter agreement dated August 25, 2011, and signed by both parties (Letter Agreement). In addition to describing the terms and conditions for placement of the Shiloh III lines, the Agreement stated in relevant part, “[DIII] represents to [EDF] that [DIII] is . . . currently the sole fee owner of the Property. [DIII] hereby consents to [EDF]’s installation, operation and maintenance of the Collection Line as described herein, and [EDF] acknowledges and agrees that no other electrical line not serving exclusively the Property or the Shiloh II Project may be placed over, on, under or across the Property under the Wind Farm Easement or this letter agreement.” (Italics added.)

The reference to the Shiloh II lines was added by DIII’s counsel at the request of counsel for EDF, who, after reviewing a draft of the Letter Agreement that did not include the language, sent an email asking for the change: “In the fourth paragraph, second sentence, please add the words shown in all caps: ‘and [EDF] acknowledges and agrees that no other electrical line not serving exclusively the Property OR THE SHILOH II PROJECT may be placed over, on, under or across the Property under the Wind Farm Easement or this letter agreement.’ This clarification is consistent with both our positions as to the rights conferred by the existing Wind Farm Easement.”[1]

Counsel for DIII added the “Shiloh II” language as requested, stating by email that he had just spoken with McCormack and “[h]e is fine with these changes.” In the same email, counsel for DIII wrote, “While we were talking, [McCormack] noted that he does not know the location of the current Shiloh II lines on the property. He wondered whether [EDF] has a map showing the line locations.” A map from an “as-built” survey was forwarded to counsel for DIII on the day the Letter Agreement was executed, and counsel acknowledged its receipt

C. The Instant Lawsuit

On August 25, 2014, DIII filed a complaint against EDF alleging causes of action for declaratory relief, quiet title and trespass, based on the transmission of electricity generated by off-Property Shiloh II wind turbines across the Property. The complaint alleges in part: “12. Within three years preceding the filing date of this complaint, [DIII] learned that underground power lines from the On-Property Towers run in a southerly direction off the Property, those lines hook into other underground power lines (the “Gathering Lines”) that also carry electricity generated from wind towers not on the Property (the “Off-Property Towers”), and the Gathering Lines then run back under the southwest corner of the Property. [¶] 13. [DIII] has no objection to EDF’s running electricity from On-Property Towers under the Property but is informed and believes, and based thereon alleges, that in transmitting electricity from Off-Property Towers through the Gathering Lines that pass under the Property, [EDF] is committing an intentional trespass onto the Property with respect to that electricity from Off-Property Towers because such electricity transmission is outside the scope of the Amended and Restated Wind Farm Easement or any other right EDF possesses.” (Italics added.)

D. Motion for Summary Judgment

EDF filed a motion for summary judgment arguing it was entitled to judgment in its favor as a matter of law because (1) the 2007 Amended Easement granted it the right to transmit Shiloh II wind power across the Property, even if that power was generated by turbines located off the Property, and (2) the 2011 Letter Agreement confirmed this right.[2] In addition to evidence of the facts set forth above, EDF presented excerpts from the deposition of McCormack. McCormack testified that he did not know other parcels of land would be involved in the wind project when he executed the Original Easement Agreement in 2003, but he saw the construction of turbines on neighboring parcels in 2008 or 2009, and at that time came to understand that the Shiloh II project extended beyond the borders of DIII’s land.

DIII responded that the Amended Easement Agreement extended by its clear terms only to a Wind Farm or Wind Plant on the Property itself, and that the Letter Agreement’s reference to the Shiloh II project did not change the scope of the Amended Easement Agreement because DIII was subjectively unaware that any lines on the Property carried electricity generated by turbines on other properties.

E. Ruling

The trial court granted summary judgment in EDF’s favor. In its written ruling, the court determined “[t]he 2003 Easement Agreement and the 2007 Amended and Restated Easement Agreement were ambiguous as to whether they covered any wind turbines located outside of Owner’s Property. The August 2011 Letter Agreement resolved that ambiguity, but it created another one, as to the scope of EDF’s Shiloh projects, for which EDF was given a contractual right to run electricity generated from wind turbines located outside of Owner’s property through Connection Lines running under Owner’s Property. [¶] . . . . [¶] . . . . [¶] This extrinsic evidence included a declaration from the attorney who represented EDF’s predecessor in interest in the negotiations which led to the execution of the August 2011 Letter Agreement. His declaration attached e-mail exchanges identifying his proposal of the ‘or the Shiloh II project” language, and his assertion made to the attorney negotiating on behalf of [DIII] that this clarification was ‘consistent with both our positions as to the rights conferred by the existing Wind Farm Easement.’ . . . . He relayed that attorney’s response, confirming that he spoke to [DIII]’s principal and that [DIII] was ‘fine with those changes.’ . . . . Thus, although that language on its face constituted an acknowledgement by EDF’s predecessor in interest only, it implied, and the parties must have understood, that it applied to both sides, and constituted a limitation only against the use of the collection lines for wind turbines not a part of Shiloh II.”

II. DISCUSSION

A. Summary Judgment

Summary judgment is available when there is no triable issue as to any material fact and the moving party is entitled to judgment as a matter of law. (Code Civ. Proc., § 437c, subd. (c).) A defendant is entitled to summary judgment if it establishes the cause of action has no merit, in that “one or more of the elements of the cause of action cannot be separately established” or there is “an affirmative defense to that cause of action.” (Code Civ. Proc., § 437c, subd. (p)(2).) “Once the defendant or cross-defendant has met that burden, the burden shifts to the plaintiff or cross-complainant to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.” (Ibid.)

“On appeal, we review the trial court’s decision to grant or deny the summary judgment motion de novo, on the basis of an examination of the evidence before the trial court and our independent determination of its effect as a matter of law.” (Sangster v. Paetkau (1998) 68 Cal.App.4th 151, 165.) We review the result, not the reasons for the ruling, and will affirm if the summary judgment is correct under any legal theory presented in the trial court. (Ibid; William L. Lyon & Associates, Inc. v. Superior Court (2012) 204 Cal.App.4th 1294, 1304.)

B. Interpretation of Easement—General Principles

“ ‘ “An easement is a restricted right to specific, limited, definable use or activity upon another’s property, which right must be less than the right of ownership.” ’ [Citation.] In construing an instrument conveying an easement, the rules applicable to the construction of deeds generally apply. If the language is clear and explicit in the conveyance, there is no occasion for the use of parol evidence to show the nature and extent of the rights acquired. [Citation.] If the language is ambiguous, extrinsic evidence may be used as an aid to interpretation unless such evidence imparts a meaning to which the instrument creating the easement is not reasonably susceptible. [Citation.]” (Scruby v. Vintage Grapevine, Inc. (1995) 37 Cal.App.4th 697, 702.)

As with any other written contract, our fundamental goal in construing the Amended Easement Agreement is to “give effect to the mutual intention of the parties.” (Civ. Code, § 1636.) “The mutual intention to which the courts give effect is determined by objective manifestations of the parties’ intent, including the words used in the agreement, as well as extrinsic evidence of such objective matters as the surrounding circumstances under which the parties negotiated or entered into the contract; the object, nature and subject matter of the contract; and the subsequent conduct of the parties.” (Morey v. Vannucci (1998) 64 Cal.App.4th 904, 912.) “Although the intent of the parties determines the meaning of the contract (Civ. Code, §§ 1636, 1638), the relevant intent is ‘objective’—that is, the objective intent as evidenced by the words of the instrument, not a party’s subjective intent.” (Shaw v. Regents of University of California (1997) 58 Cal.App.4th 44, 54–55.)

“If the contract is capable of more than one reasonable interpretation, it is ambiguous [citations], and it is the court’s task to determine the ultimate construction to be placed on the ambiguous language by applying the standard rules of interpretation in order to give effect to the mutual intention of the parties [citation].” (Badie v. Bank of America (1998) 67 Cal.App.4th 779, 798.) When a contract is ambiguous, extrinsic or parol evidence is admissible to resolve the ambiguity. (Sterling v. Taylor (2007) 40 Cal.4th 757, 767; WYDA Associates v. Merner (1996) 42 Cal.App.4th 1702, 1710.)

The interpretation of a written contract, including the determination of whether an ambiguity exists, is a question of law. (Parsons v. Bristol Development Co. (1965) 62 Cal.2d 861, 865; Wolf v. Walt Disney Pictures & Television (2008) 162 Cal.App.4th 1107, 1127.) When the interpretation of a contract does not turn on the credibility of conflicting extrinsic evidence, such interpretation is a legal question that may be resolved by summary judgment. (Ibid.; Morey v. Vannucci, supra, 64 Cal.App.4th at p. 912.)

Similarly, if the facts are undisputed but may give rise to conflicting inferences, the question of which inferences to draw from the undisputed facts for purposes of contract interpretation is a question of law for the court to decide. (Garcia v. Truck Ins. Exchange (1984) 36 Cal.3d 426, 439; Parsons v. Bristol Development Co., at pp. 865, 866, fn. 2; City of El Cajon v. El Cajon Police Officers’ Assn. (1996) 49 Cal.App.4th 64, 71.)

C. Analysis

It is undisputed that the Shiloh II project, as built, includes wind turbines located on both the Property and on neighboring properties not owned by DIII. It is also undisputed that the gathering lines at issue traverse the Property and transmit power from both the turbines on the Property and turbines located on other properties that are part of the Shiloh II project. To prevail on its claims for declaratory relief, quiet title and trespass, DIII must establish that the 2007 Amended Easement Agreement does not permit EDF to transmit electricity from off-Property turbines through the gathering lines on the property.

DIII argues the Amended Easement Agreement allows only energy generated on the Property to be conveyed through lines running under and across the Property, because the Agreement allows only the operation of a single, self-contained “Wind Farm” or “Wind Plant” upon the Property itself. EDF, for its part, argues that because the Amended Easement Agreement granted it an easement for the various components of a Wind Farm “on, over, under and across the Property” (italics added), it allows the transmission of electricity generated elsewhere as part of a larger project. EDF notes that under the payment structure established by the Amended Easement Agreement, DIII would receive either a set amount for the megawatts generated by turbines on the Property (the “Megawatts-based Amount”) or a percentage of the revenue generated by the overall production of the Shiloh II project (the “Share of Receipts” Amount), a fact acknowledged by McCormack as the managing partner of DIII. Finally, EDF points to language in the Amended Easement Agreement stating “as between the Property and other tracts of property on which [EDF] may locate wind turbine generators, no tract is considered dominant or servient as to the other,” which shows the parties contemplated that turbines on other properties would be a part of the Wind Farm.[3]

We agree with the trial court that the Agreement itself is ambiguous as to whether the wind-related facilities to be placed on the Property would be self-contained (i.e., a single Wind Farm or Wind Plant), or part of a larger operation involving turbines located elsewhere. But we frame the issue slightly differently than the trial court did. The precise question to be answered for purposes of the summary judgment motion is not whether the Amended Easement Agreement granted EDF an easement only for the construction and operation of a self-contained wind farm, but whether the lines crossing the Property, which were indisputably authorized by the easement to the extent they were used to transmit electricity generated on the Property, could also be used to transmit electricity generated elsewhere.

Any ambiguity in this regard was resolved by the 2011 Letter Agreement, which was signed by both EDF and DIII and which states “no other electrical line not serving exclusively the Property or the Shiloh II project may be placed over, on, under or across the Property.” (Italics added.) The Shiloh II reference was added after an email exchange in which counsel for EDF stated that language was “consistent with both our positions as to the rights conferred by the existing Wind Farm Easement,” and counsel for DIII acquiesced by including the requested language. The only reasonable inference to be drawn from the inclusion of the Shiloh II language in addition to the reference to lines serving the property exclusively is that the parties intended the Amended Easement Agreement to extend to collection lines for electricity generated by off-Property wind turbines that were a part of the Shiloh II project. (See Winet v. Price (1992) 4 Cal.App.4th 1159, 1166, fn. 3.)

DIII contends we should not look to the 2011 Letter Agreement because it did not define what constitutes the Shiloh II Project and was, therefore, itself ambiguous. It argues: “Nothing in the numerous cases outlining the procedures for interpreting an ambiguous contract recognizes or otherwise endorses the use of extrinsic evidence to interpret one ambiguous contract, which is itself extrinsic evidence to another ambiguous contract.” While it is necessary to look outside the terms of 2011 Letter Agreement to ascertain the scope of the Shiloh II Project, it is undisputed that Shiloh II includes turbines not located on the Property. The 2011 Letter Agreement and related email correspondence were admissible to interpret the 2007 Amended Easement Agreement. (See Southern Pacific Transportation Co. v. Santa Fe Pacific Pipelines, Inc. (1999) 74 Cal.App.4th 1232, 1242 [“In construing contract terms, the construction given the contract by the acts and conduct of the parties with knowledge of its terms, and before any controversy arises as to its meaning, is relevant on the issue of the parties’ intent”].)

DIII argues that it raised a triable issue of material fact by presenting extrinsic evidence of a letter written by its attorney to EDF’s counsel on August 15, 2011, regarding its initial objection to the placement of the Shiloh III lines. In that letter, DIII’s counsel asserted the 2007 Amended Easement did not allow EDF to “run a power transmission line under the [Property] for purposes of transmitting power from the proposed Shiloh III project that does not involve the Property (i.e., the line would run from that project under the Property and would not involve windmills on the property).”

We are not persuaded. Whatever position DIII’s counsel might have taken in the negotiations concerning the Shiloh III collection lines, DIII’s managing partner subsequently signed a binding agreement recognizing that the existing easement extended to lines servicing the Shiloh II project. Similarly, DIII has not raised a triable issue of material fact by the submission of its verified complaint in its lawsuit against EDF concerning the placement of the Shiloh III lines (see fn. 1, ante). That pleading, which alleges “[DIII] contended that the ‘Amended and Restated Wind Farm Easement’ did not provide [EDF] with any right to run collection lines under the Property for the purpose of transmitting electricity from turbines located outside the boundaries of the Property,” simply reiterates a legal position taken in a separate dispute and does not change the fact that DIII subsequently signed off on an agreement clearly recognizing EDF’s right to run lines in connection with the Shiloh II Project.

DIII argues that the 2011 Letter Agreement and correspondence do not establish as a matter of law that the Amended Easement Agreement allowed the delivery of electricity generated by off-Property turbines in the Shiloh II project. It notes that the Letter Agreement stated only that EDF “acknowledged and agreed that no other electrical line not serving exclusively the Property or the Shiloh II Project may be placed over, on, under or across the Property under the Wind Farm Easement or this letter agreement.” But while phrased as an acknowledgment by EDF, the Letter Agreement was signed by both EDF and DIII, and was expressly made “binding upon the parties hereto and their respective successors and assigns.” Moreover, the Letter Agreement and its enforceability is not directly at issue in this action; rather, it is introduced as extrinsic evidence to interpret an earlier agreement between the same parties.

DIII also contends the Letter Agreement is not controlling because when it was signed in 2011, DIII did not yet know that gathering lines under the Property were being used to collect electricity from off-Property turbines as part of the Shiloh II project. This is little more than an attempt to supplant the plain language of the 2011 Letter Agreement—and by extension, the 2007 Amended Easement Agreement— with the unexpressed subjective understanding of one of its signatories. “The parties’ undisclosed intent or understanding is irrelevant to contract interpretation.” (Iqbal v. Ziadeh (2017) 10 Cal.App.5th 1, 8.)

DIII complains that the Letter Agreement’s reference to Shiloh II was prospective in nature (i.e., no other lines “may” be placed), and did not encompass lines already in the ground. This argument ignores that the Letter Agreement is being offered as extrinsic evidence defining the scope of the easement under the Amended Easement Agreement—so long as the lines at issue fall within the scope of the easement, it does not matter whether they were extant at the time the Letter Agreement was executed.

Because the 2011 Letter Agreement and related email correspondence show that the 2007 Amended Easement Agreement allows the placement of lines transmitting energy from all Shiloh II turbines, and because the undisputed evidence shows the Shiloh II project includes turbines not located on the property, DIII cannot prevail in its claims for declaratory relief, quiet title and trespass. EDF is entitled to summary judgment and the trial court did not err in granting its motion.

III. DISPOSITION

The judgment is affirmed. Costs are awarded to respondent EDF.

NEEDHAM, J.

We concur.

JONES, P.J.

SIMONS, J.