                  UNITED STATES COURT OF APPEALS
                       For the Fifth Circuit



                           No. 99-50987



                        CHEVRON USA, INC.,

                            Plaintiff - Appellee-Cross-Appellant,


                              VERSUS


                       GPM GAS CORPORATION,

                            Defendant - Appellant-Cross-Appellee.




          Appeals from the United States District Court
                For the Western District of Texas
                          (MO-97-CV-199)
                           June 1, 2001
Before POLITZ, DeMOSS, and STEWART, Circuit Judges.
PER CURIAM:*

                                I.

      Appellant GPM Gas Corporation (“GPM”) seeks to reverse the

final judgment of the district court on Appellee/Cross-Appellant

Chevron’s breach of contract suit. The three contracts at issue in




  *
   Pursuant to 5TH CIR. R. 47.5, the Court has determined that this
opinion should not be published and is not precedent except under
the limited circumstances set forth in 5TH CIR. R. 47.5.4.
the case were for the purchase of Chevron’s casinghead gas2, and

each contained a favored nations clause (“FNC”) which Chevron

alleged was violated by GPM. Following a bench trial, the district

court, Judge Lucius D. Bunton, III presiding, found in favor of

Chevron   and   awarded   damages   in    the   amount   of   approximately

$13.8 million, plus interest and fees. Both parties appeal various

aspects of the judgment.     We affirm.

                                    II.

      This case involves a contract dispute between Chevron, the

current successor in interest of Gulf Oil Corporation and Pure Oil

Corporation (the seller under the contracts), and GPM, the current

successor in interest of Phillips 66 Natural Gas Company(the buyer

under the contracts). In November 1961, Chevron’s two predecessors

(Gulf and Pure) entered into three contracts to sell casinghead gas

to Phillips (GPM’s predecessor).

      The first contract between Pure and Phillips covered land in

Ector County, Texas, in the Goldsmith San Andres Unit (“the GSAU

Tract 1 contract”).   The second contract between Gulf and Phillips

covered certain other lands in the same area known as GSAU Tracts

2 and 3 (“the GSAU Tracts 2 and 3 contract).              These first two

contracts are collectively referred to as the GSAU contracts.


  2
     Casinghead gas is defined as “gas issuing from wells, produced
from the same sand or strata which the oil is produced or as the
result of the induction of gas by any method for facilitating or
increasing the production of oil, and gas vaporized from oil after
production.”

                                     2
      The third contract between Gulf and Phillips covered land in

Crane and Upton Counties, Texas, comprising 21 McElroy and other

leases (“the McElroy contract”).       The McElroy contract originally

dealt with 21 leases, 5 of which later comprised the Adamc-Devonian

Unit.   Seven amendments to the McElroy contract added acreage to

it.   All of these leases, excluding the 5 that later became Adamc,

are collectively referred to as the McElroy leases.          The GSAU

contracts and the McElroy contract are collectively referred to as

“the contracts.”

      Each of the three contracts at issue contained a provision

identified as a favored nations clause (“FNC”) which provided as

follows:

           18. FAVORED NATIONS - If at any time fifty
           percent (50%) or more of the casinghead gas
           purchased by Buyer and processed by Buyer in
           its   Goldsmith   Gasoline  plant   is   being
           purchased by Buyer under a casinghead gas
           contract or contracts which produce higher
           prices for casinghead gas than the prices
           payable to Seller hereunder, quality of gas
           and conditions of delivery considered, then
           Seller shall have and is hereby granted the
           option to sell to Buyer, all casinghead gas
           covered by this contract under the terms of
           such other contract or contracts in lieu
           hereof by so notifying Buyer in writing within
           sixty (60) days from receipt by Seller from
           Buyer of notice of the existence of such other
           casinghead gas contract, provided that failure
           to exercise such option, within such time and
           in such manner, shall terminate such option.
           Buyer shall notify seller promptly of the
           existence of such other casinghead gas
           contract.

Phillips/GPM never notified Chevron/Gulf/Pure of any contracts


                                   3
under which it was purchasing 50% or more of its casinghead gas at

a lower price than that specified under the three contracts.

      In its findings of fact, the district court noted that the

FNCs were bargained for in exchange for the life-of-lease term on

the contracts.    For example, the GSAU contracts were to be in

effect as long as the Goldsmith San Andres Unit was a going

concern.   The McElroy contract provided that it would be in effect

for the life of the lease covering the land described provided that

either party could terminate on ten-year anniversary dates.    Gulf

and Pure would not have entered into the contracts without the FNC.

      In March 1961, the Federal Power Commission (“FPC”) issued its

Orders Nos. 232 and 232-A (“the regs”) which stated that FNCs would

be of no effect in certain gas contracts.3     In a 1965 letter of

  3
     The district court explained the implementation of orders 232
and 232-A on pp.9-13 of its order. In short, the FPC first issued
Order 232 (26 F.R. 1983) which stated that all indefinite price
escalation clauses shall be inoperative in contracts after March 3,
1961, and it added the following proviso to the end of § 154.93 (18
C.F.R. § 154.93):
      [A]ny provision for a change of prices of the seller by
      reason of indefinite escalation clauses, as defined in
      § 154.91 [], contained in a contract for the sale or
      transportation of natural gas subject to jurisdiction of
      the Commission tendered for filing on and after April 1,
      1961, shall be inoperative and of no effect at law.
   On March 31, 1961, Order 232-A amended § 154.93 “to specify the
change of price provisions that may be contained in future producer
rate schedules submitted for filing with this Commission” by
substituting the following for the Order 232 provision above:
      [I]n contracts executed on or after April 3, 1961, for
      the sale or transportation of natural gas subject to the
      jurisdiction of the Commission, any provision for a
      change of price other than the following provisions shall
      be inoperative and of no effect at law; the permissible
      provisions for a change in price are:

                                 4
agreement, Phillips and Gulf memorialized an understanding that the

FPC regs would affect a FNC in a different contract filed as a rate

schedule;     however,     no    such    understanding      was   reached    or

memorialized regarding a similar contract filed as a percentage

sales contract (like those at issue in this case).                The district

court concluded that the FNCs at issue in these three contracts

were   not   invalidated    by   the    FPC   regs,   as   suggested   by   GPM.

According to the district court, the industry applied the regs

invalidating FNCs only to those contracts that would be required to

be filed with the FPC as rate schedules.              Also according to the

district court, at the time of contracting, Phillips understood the

regs to not apply to the contracts at issue.                We note that the

anti-FNC orders upon which GPM relies in this case were repealed

effective July 28, 1994, as a result of the Natural Gas Wellhead

Decontrol Act of 1989, Pub. L. No. 101-60, 103 Stat. 159 (1989).

See 59 Fed. Reg. 40240 (1994).

       Chevron first developed its present claim in 1996, when it was


       (1) provisions that change a price on order to reimburse
       the seller for all or any part of the changes in
       production, severance, or gathering taxes levied upon the
       seller;
       (2) provisions that change a price to a specific amount
       at a definite date; and
       (3) provisions that, once in five-year contract periods
       during which there is no provision for a change in price
       to a specific amount, change a price at a definite date
       by a price-redetermination based upon and not higher than
       a producer rate or producer rates which are subject to
       the jurisdiction of the Commission, are not in issue in
       suspension or certificate proceedings, and are in the
       area of the price in question.

                                        5
looking into building its own processing plant for the gas coming

out of new CO2 injection projects in the McElroy and Goldsmith San

Andres Units.   GPM contends that Chevron began looking for a way to

get leverage that it could use against GPM in discussions to get

the contracts released, since those contracts requiring that the

gas be sold to GPM were an obstacle to Chevron’s new plans.

Chevron contended that it received a proposed replacement contract

from GPM during discussions of the new CO2 project, which proposal

required Chevron to waive all claims under the FNCs, and this

raised a red flag.    Upon further investigation, Chevron decided it

did not want to waive its FNC claims of which it was previously

unaware.    Chevron sought information from GPM about its other

contracts since GPM had never before notified Chevron nor any of

its   predecessors   that   GPM   was       getting   more   than   50%   of   its

casinghead gas at a higher price than Chevron was receiving.                   GPM

refused to cooperate in providing information about its other

contracts for casinghead gas.            Chevron and GPM entered into a

tolling agreement whereby the parties agreed that any applicable

statute of limitations on FNC claims was tolled as of January 23,

1997.

      Chevron tried this lawsuit on one issue: that is, that GPM and

its predecessors had violated the FNCs in the contracts by failing

to offer Chevron an option in May 1992 to sell its gas under the

price terms of the highest-priced contract GPM then had for the

purchase of casinghead gas at its Goldsmith gas processing plant.

                                        6
Part of Chevron’s claim included the allegation that the McElroy

contract FNC also applied to gas delivered from the Adamc-Devonian

unit.     GPM argued primarily that the FNCs were unenforceable as a

result of FPC Orders 232 and 232-A, and that in any event, the

UCC’s four-year statute of limitations barred recovery.       Chevron

countered that the statute of limitations is inapplicable because

the breaches were continuous, because GPM failed to comply with its

duty to notify Chevron of the triggering of the FNCs, and because

the discovery rule and/or the doctrine of fraudulent concealment

deferred accrual of the statute of limitations.

     The district court agreed with Chevron, and specifically found

as follows:

     1.      The FNCs are valid and not void under FPC Order Nos. 232,
             232-A, nor are they void for indefiniteness;

     2.      The McElroy FNC is applicable to gas from the Adamc-
             Devonian Unit;

     3.      The FNCs were triggered, giving proper consideration to
             quality of gas and conditions of delivery;

     4.      GPM breached the FNCs by failing to notify Chevron about
             the trigger and failing to offer Chevron the option of
             electing to receive a higher price for its gas;

     5.      Chevron suffered quantifiable damages as a result of
             GPM’s breach; and

     6.      Chevron’s claims are not time barred.


                                  III.

     Appellant GPM challenges all aspects of the district court’s

judgment and findings, while Chevron challenges only the district


                                   7
court’s alleged error in interpreting the FNCs to require the

weighted average   pricing   methodology   for   calculating   damages.

Except for GPM’s challenge to the district court’s appointment of

a technical advisor, which is reviewed for an abuse of district,

GPM’s issues are legal ones, subject to de novo review.

     We have now conducted a thorough review of the record of this

case and the issues presented by both parties. Based thereupon, in

conjunction with our consideration of the parties’ respective

briefs, and with the benefit of oral argument, we conclude that the

district court committed no reversible error.        Accordingly, the

judgment entered by the district court in favor of Chevron is

affirmed in all respects.

               AFFIRMED.




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