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Cascade Pacific Pulp, LLC v. Georgia-Pacific Consumer Products LP

Court of Appeals of Oregon

November 14, 2013

CASCADE PACIFIC PULP, LLC, Plaintiff-Respondent,

Argued and submitted on March 04, 2013.

Linn County Circuit Court 091549 John A. McCormick, Senior Judge.

William F. Gary argued the cause for appellant. With him on the brief were Sharon A. Rudnick, J. Aaron Landau, and Harrang Long Gary Rudnick PC. On the reply brief were Willam F. Gary, Sharon A. Rudnick, and Harrang Long Gary Rudnick PC.

James T. Waldron argued the cause for respondent. With him on the brief were Sara C. Cotton, Sara Kobak, and Schwabe, Williamson & Wyatt, P.C.

Before Schuman, Presiding Judge, and Wollheim, Judge, and Duncan, Judge.


Plaintiff Cascade Pacific Pulp, LLC (Cascade) and defendant Georgia-Pacific Consumer Products LP (Georgia-Pacific) are the present owners of adjoining mills in Halsey, Oregon. The two mills, paper and pulp, were once part of an integrated facility with a single owner, and they share a common infrastructure, including a water treatment system and an effluent discharge system. After the two mills came under separate ownership (by the parties' predecessors-in-interest), disputes arose concerning the use of the shared infrastructure. The disputes were resolved in the early 1990s by way of a settlement and operating agreement, an easement agreement, and a later amendment to the easement agreement.

The present dispute between Cascade, which now owns the pulp mill, and Georgia-Pacific, which owns the paper mill, concerns the interpretation and effect of the easements and service rights granted in the early 1990s. Georgia-Pacific argues that, as part of the settlement, its predecessor obtained express easements in the pulp mill's process water and effluent lines, and that Cascade therefore is limited to charging cost-based rates for the use of the shared system. Cascade, meanwhile, argues that the easement agreements unambiguously do not grant Georgia-Pacific the easements and service rights that it claims, thereby allowing Cascade to charge market-based rates for the use of the pulp mill's process water and effluent lines. We agree with Cascade's understanding of the easement agreements and therefore affirm.


A. History of the Mills

In 1968, American Can Company built a paper mill and a pulp mill in Halsey. The mills were constructed as part of an integrated facility on a single site with a common infrastructure. That infrastructure includes a water treatment system that draws from the Willamette River and treats and transports millions of gallons of process water each day for the two mills. The infrastructure also includes an effluent discharge system that conveys treated effluent back to the river.

By the mid 1980s, American Can Company had sold its interests in the mills. Pope and Talbot, Inc. (P&T) became the sole owner of the pulp mill by 1983, and by 1986, James River Corporation (James River) had taken over the paper mill. In the process, P&T and James River (or those parties' predecessors) had executed the Original Easement Agreement, Amended Easement, and Necessary Services Agreement to ensure that both mills continued to enjoy the use of the shared infrastructure. For a time, James River managed operations at both mills despite their separate ownership, and P&T's pulp mill sold process water and effluent discharge services to James River's paper mill pursuant to the written agreements.

In 1989, P&T took over the operation of its pulp mill as the relationship between P&T and James River turned acrimonious. Shortly after P&T took over the pulp mill, James River announced plans to terminate its pulp purchases from P&T; James River then terminated its contract to purchase steam from P&T. In response to those terminations, P&T announced that it was terminating all other services sold to James River as well, including the process water and effluent discharge services. The parties then entered into tense negotiations to resolve their differences.

B. The Settlement and Easements

P&T and James River eventually settled their dispute with a series of agreements that addressed, among other issues, use of and access to process water and effluent discharge services. The documents memorializing their agreements--the 1991 Settlement and Operating Agreement, the 1991 Easement Agreement, and the 1993 Amendment--are at the center of this appeal.

1. The Settlement and Operating Agreement

In the Settlement and Operating Agreement (SOA), P&T and James River agreed to terminate the previous Necessary Services Agreement and instead to share services as provided in the SOA. Section 2.1 of the SOA ("Ongoing Necessary and Shared Services") states:

"P&T shall provide the services specified in Schedule 2.1A ('Ongoing Necessary Services'), the services specified in Schedule 2.1B ('Ongoing P&T Shared Services') and steam, as described in Schedule 2.1C ('Ongoing Steam Services'), to the Paper Facility, and [James River] shall provide the services specified in Schedule 2.1D ('Ongoing JR Shared Services, ' and together with the Ongoing P&T Shared Services, 'Ongoing Shared Services') to the Pulp Facility. Such services shall be provided by P&T and [James River] in a manner consistent with the manner in which such services are being provided as of the date hereof and shall be provided at levels which are consistent with the historical consumption of such services by the Paper Facility or the Pulp Facility, as the case may be, prior to the date hereof * * *."

(Underscoring in original.) The levels of historical consumption were set forth in the cross-referenced schedules, which also included descriptions of the particular services within different categories. As pertinent here, the schedule for "Ongoing Necessary Services, " Schedule 2.1A, identifies two services: (1) "Effluent Line" and (2) "Process Water." With respect to the effluent line, Schedule 2.1A states, "P&T maintains a pipeline to transport treated effluent from its aeration ponds to the Willamette River. [James River] will be permitted to run a pipeline from their secondary fiber plant and tie it into P&T's existing pipeline for discharge of [James River's] effluent along with P&T's." As for process water, Schedule 2.1A states, "A water filter plant and a filtered water distribution system is operated for the use of the total Halsey plant site (the combined Paper Facility and Pulp Facility)."

A different section of the SOA, Section 2.4 ("Compensation for Provision of Services") establishes how much the parties will pay one another for the shared services. Under paragraph (a) of that section, James River shall, on a monthly basis, "pay to P&T an amount equal to the sum of (i) P&T's costs in providing each the immediately preceding month (the 'Cost Portion'), plus (ii) an amount equal to 15% of such costs[.]" (Underscoring in original.)

In addition to setting forth the shared services and costs for those services, the SOA contemplated that the parties would execute easement agreements as part of the settlement. Section 4.2 of the SOA states,

"Easement Agreements. P&T and [James River] agree that on the Final Payment Date they shall enter into an Agreement of Easements and Covenants, in substantially the form attached hereto as Exhibit C (the '1991 Easement Agreement'), pursuant to which the parties shall (i) evidence the termination and supersession of the Original Easement Agreement, the Easement Amendment and the Necessary Services Agreement and (ii) in substitution therefor, grant certain new easement rights to the respective parcels on which the Paper Facility and Pulp Facility presently sit. As soon as practicable following the execution of the 1991 Easement Agreement, P&T and [James River] shall jointly cause such document to be recorded in the real property records of Linn County, Oregon."

(Emphasis added; underscoring in original.)

2. The 1991 Easement Agreement

As contemplated in the SOA, P&T and James River executed the 1991 Easement Agreement. The 1991 Easement Agreement provides that it is "being entered into pursuant to, and to carry out the purposes of, the Settlement and Operating Agreement * * *." Paragraph 1.G of the 1991 Easement Agreement further explains the parties' intent:

"To permit the continued use and benefit by [James River], its successors and assigns, of Parcel A [the paper mill] and the continued use and benefit by P&T, its successors and assigns, of Parcel B [the pulp mill], the parties have agreed that certain of the utilities, rights-of-way, parking, storage and other uses of property appurtenant to Parcel A or Parcel B utilized in connection with the operation of the pulp manufacturing and paper manufacturing facilities located thereon continue to be available for the respective owners of Parcels A and B."

Although the 1991 Easement Agreement conveys easements to both mills, the easements at issue in this case are those conveyed by the pulp mill to the paper mill-- i.e., from P&T to James River. Those easements are found in paragraph 3 of the 1991 Easement Agreement, which concerns the interests that "P&T hereby grants and conveys to [James River], for the benefit of [the paper mill]." They include:

"B. An easement over [the pulp mill] for the use of such electric power, natural gas, liquid propane gas, process water, telephone and other communications lines and storage facilities located thereon as presently serve the business operations conducted [at the paper mill];
"* * * * *
"D. To the extent necessary to carry out the terms of Section 2.1 of the [SOA], and only to such extent, an easement in the existing system for the disposal of treated effluent located upon [the pulp mill], to use same to discharge treated industrial effluent generated [at the paper mill];
"E. An easement and right to enter upon, traverse and occupy [the pulp mill] in order to (1) install, repair, maintain, remove or replace anything reasonably necessary to the proper operations and protection of facilities located upon [the paper mill]; (2) install, repair, maintain, remove or replace anything reasonably necessary to the proper construction, operation and protection of fixed assets and facilities hereafter constructed on [the paper mill]; and (3) install, repair, maintain or replace any of the easements granted herein by P&T, provided that in no event shall such easement constitute a right to use or have access to any facilities located on [the pulp mill] necessary for the provision of steam or condensate return or for the processing of broke;
"* * * * *
"H. A right of access over [the pulp mill] to the Willamette River for the intake and discharge of water necessary to conduct business operations [at the paper mill] as presently conducted[.]"

(Underscoring in original.) Paragraph 6 of the easement agreement then further qualifies the effluent-related rights granted in paragraph 3.D, stating, "In the event that Section 2.1 of the [SOA] shall be amended, modified or terminated in any respect, the easements and rights of user granted at Sections * * * 3.D. hereof shall be automatically amended, modified or terminated to the same extent without any additional action on the part of the parties to this Agreement."

As for costs, the 1991 Easement Agreement provides that, "[e]xcept as otherwise contractually provided for between the then current owners of [the paper mill] and [the pulp mill], costs of maintaining, repairing or replacing existing facilities subjected to joint user hereunder shall be prorated between the users as the use of each bears to the whole, and the costs of constructing and maintaining new facilities shall be borne by the benefitted user."

3. The 1993 Amendment

In August 1991, as the parties were finalizing the SOA and 1991 Easement Agreement, the attorney for P&T sent a letter to James River that broached the possibility of creating a map to represent the various easements ...

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