SIERRA CLUB, Et Al. v. DOMINION COVE POINT LNG, L.P.

HOTTEN, J. The Sierra Club, a non-profit California corporation, and the Sierra Club Maryland Chapter (collectively the “Sierra Club”) bring this appeal in response to the circuit court’s ruling in a declaratory judgment action filed by Dominion Cove Point LNG, L.P. (“Dominion”). The Sierra Club challenges Dominion’s assertion that an agreement between the two restricting the use of Cove Point permits the exportation of natural gas. The Circuit Court for Calvert County found that the agreement was unambiguous and permitted Dominion to expand its operations to include exportation.

The Sierra Club appealed and presents one question for our consideration: ³²⁶ Does the 2005 Agreement between Dominion, Sierra Club and [Maryland Conservation Counsel Inc.] allow Dominion to construct LNG export facilities at the Cove Point site even though export is not included on the list of authorized activities under the Agreement? For the reasons that follow, we shall affirm the judgment of the circuit court. FACTUAL AND PROCEDURAL HISTORY Columbia Gas was Dominion’s predecessor in ownership of a 1,017 acre parcel of land in Maryland located at, and referred to as, Cove Point. In 1972, Columbia Gas began to construct a liquid natural gas (“LNG”) import terminal on a portion of the land.

Natural gas 1 is liquified in order to transport it because in its gaseous state, it takes up 600 times as much space as LNG. At this time, it was necessary to transport natural gas because it was only available if imported from foreign nations. In 1978, after interested parties expressed concern regarding potential harm to the environment, Columbia Gas, the Sierra Club and the Maryland Conservation Counsel Inc. (“MCC”) entered into an agreement regarding the use of Cove Point. After the 1978 agreement went into effect, Columbia Gas began importing LNG at Cove Point, but suspended operations in 1980.

In 1994, Columbia Gas desired to reopen Cove Point to add new “peaking” services. Peaking is a service that allows energy providers to store natural gas for future use by utility companies during peak energy use time periods. Providing peaking services would require Colombia Gas to construct liquification capabilities at the Cove Point facility. The three parties negotiated a new agreement, granting Columbia Gas the ability to liquefy, store and regasify natural gas.

In 2002, Dominion purchased Cove Point from Columbia Gas. ³²⁷ 2005 Agreement Between 1994 and 2005, Cove Point was used only to import natural gas and for peaking services. However, in 2005, Dominion sought to expand its Cove Point operations to meet rising domestic natural gas demand. As a result, Dominion, Sierra Club and MCC negotiated a new agreement. It was agreed that the 2005 Agreement would replace in its entirety all previous agreements and understandings regarding use of Cove Point.

The agreement provides that Dominion may use the area designated as the LNG Terminal Site solely to perform “LNG Terminal Operations.” Within the Terminal Site, there is an area identified as the Fenced Area, which is where the natural gas tanks are located. The 2005 Agreement defines LNG Terminal Operations as: “LNG Terminal Operations ” means and is limited to any use or activity related to (i) the construction, operation or maintenance of facilities and equipment associated with the following activities (a) through (j): (a) marine operations involving the importing of LNG; (b) the liquefaction of natural gas; (c) the storage of LNG in tanks; (d) the regasification of LNG; (e) the receipt by tanker and the receipt or delivery by pipeline of LNG, revaporized LNG or natural gas at or from the LNG Terminal Site; (f) the treatment of LNG or revaporized LNG by nitrogen injection or the separation and removal of constituent parts; (g) the provisioning of LNG tankers with water and miscellaneous supplies, provided that the principal method of provisioning LNG tankers shall be by means of shipments of materials and supplies from locations other than the Cove Point Site to the off-shore pier for storage and transfer to LNG tankers docked at the off-shore pier; (h) the recovery and use on the LNG Terminal Site for other LNG Terminal Operations of the cryogenic properties of LNG; (i) the recovery and use on the LNG Terminal Site of waste heat for other LNG Terminal Operations; (j) the generation or cogeneration of electricity within the limitations prescribed herein; and (ii) the construction, operation or maintenance ³²⁸ of facilities and equipment directly supporting the foregoing activities (a) through (j), including office buildings, warehouses, maintenance shops, firefighting equipment and utilities. As discussed more fully, infra, the 2005 Agreement provides for other rules regarding what operations may be performed and in some instances, explicitly prohibits other activities. Dominion’s Proposed Export Project Since 2005, the domestic natural gas market has changed dramatically.

A new procedure known as hydraulic fracturing (“fracking”) has unlocked vast new supplies of natural gas in the United States. Fracking is a process by which gas companies drill into layers of shale rock and extract gas reserves from within the rock. 2 In response to the new fracking developments, in 2011, Dominion announced plans to expand its Cove Point operations in order to add new export capabilities. Dominion applied to the Federal Energy Regulatory Commission (“FERC”) to obtain permission to construct and operate the exporting facilities. It also sought approval from the federal Department of Energy to export natural gas to foreign countries.

Unlike the practice followed in prior instances of negotiating agreements prior to seeking approval of expansion, Dominion did not approach Sierra Club until several months after it sought federal approval. Sierra Club filed comments protesting the proposed expansion. Dominion then approached the Sierra Club and MCC, as required by the 2005 Agreement, to seek approval for the project. During discussions, the Sierra Club expressed that it did not intend to approve the proposed expansion. 3 As a result, Dominion revised its plans and ³²⁹ proposed to construct new facilities outside of the Terminal Operations area that is subject to the 2005 Agreement.

The Sierra Club then asserted that the 2005 Agreement does not authorize LNG to be exported from the Terminal Site. Dominion thereafter filed an action for declaratory judgment against Sierra Club and MCC in the circuit court. Circuit Court Proceedings In the circuit court, the parties filed cross motions for summary judgment. Dominion sought judgment confirming its right to construct new liquefaction facilities within the Fenced Area and its right to transfer LNG from Cove Point to the offshore pier.

The Sierra Club argued that the 2005 Agreement does not authorize Dominion to export LNG from the Cove Point facility because the Agreement “limits Dominion to an exclusive list of enumerated activities at Cove Point, and export of LNG is not authorized by that list.” Following a hearing on the cross motions, the circuit court issued an opinion and order in favor of Dominion. The circuit court reasoned: In my opinion, subsection (e) of Section 1.01 of the Agreement unambiguously does give Dominion the right to use the Cove Point Facility for the export of LNG. Excluding unnecessary words, subsection (e) of Section 1.1 allows Dominion to carry on activities related to (e) the receipt by tanker and the receipt or delivery by pipeline of LNG, revaporized LNG, or natural gas at or from the LNG Terminal Site .... To export LNG, Dominion will be transferring the LNG produced by the new liquification facilities by pipeline from the LNG Terminal Site to tankers docked at the offshore pier.

From there, the LNG will be shipped to customers in other countries. Subparagraph (e) expressly permits the facility to be used for “receipt by tanker of LNG ... from the Terminal Site.” The Agreement specifically allows for “the delivery by pipeline of LNG from the LNG Terminal Site.” This plainly allows the tankers at the pier to receive LNG from the Terminal Site. ³³⁰ In its summary judgment, the Sierra Club, in various ways, attempts to circumvent the plain language of subsection (e). For the reasons set forth in Dominion’s opposition to the Sierra Club’s motion, I do not find that any of those arguments are persuasive. The court ordered that the new liquefaction facilities could be built within the Fenced Area and that Dominion could export LNG from the Terminal Site to the offshore pier.

Sierra Club noted a timely appeal. MCC did not join in the appeal. Additional facts shall be provided, infra, to the extent they prove relevant in addressing the issue presented. STANDARD OF REVIEW Summary judgment is proper where the circuit court determines that there are no genuine disputes as to any material fact and that the moving party is entitled to judgment as matter of law.

See Md. Rule 2-501. Disputes concerning contract interpretation are questions of law and frequently regarded as appropriate for summary judgment. See Sandler v. Executive Mgmt. Plus, 203 Md.App. 399, 423 , 38 A.3d 478 (2012) (noting that contract interpretation is a question of law).

See also Bank of Montreal v. Signet Bank, 193 F.3d 818, 835 (4th Cir.1999). We review a circuit court’s grant of summary judgment de novo. Mitchell v. Baltimore Sun Co., 164 Md.App. 497, 506 , 883 A.2d 1008 (2005). In reviewing the grant of a motion for summary judgment, appellate courts focus on whether the circuit court’s grant of the motion was legally correct.

Laing v. Volkswagen of Am., Inc., 180 Md.App. 136, 152-53 , 949 A.2d 26 (2008) (citations omitted). “The parameter for appellate review is determining ^whether a fair minded jury could find for the plaintiff in light of the pleadings and the evidence presented, and there must be more than a scintilla of evidence in order to proceed to trial....’” Id. at 153 , 949 A.2d 26 . “Additionally, if the facts are susceptible to more than one inference, the court must view the inferences in the light most favorable to the non-moving party.” Id. ³³¹ DISCUSSION The Sierra Club argues that the 2005 Agreement does not authorize the exportation of LNG from the Terminal Site. It asserts that LNG may be received by tanker but not delivered to tankers and that “[t]he only ‘marine operations’ [the 2005 Agreement] authorizes are those ‘involving the importing of LNG....’” Dominion responds that the 2005 Agreement authorizes it to take each individual step needed for exportation, even if the word itself is not explicitly mentioned in the Agreement. It challenges the Sierra Club’s conclusion that because the word export is not listed in the Recitals of the Agreement, it is therefore prohibited. Dominion notes that the Court of Appeals has held that recitals do not trump the substantive provisions of an agreement and contends that the list of Terminal Operations is not exclusive.

Dominion also asserts that the Agreement is unambiguous and therefore consideration of extrinsic evidence, specifically the parties’ prior agreements, is improper. Finally, Dominion contends that this appeal is not about the 2005 Agreement, but rather a publicity ploy as part of the Sierra Club’s national campaign against natural gas as an energy source. In Maryland, when interpreting a contract, courts “seek to ascertain and effectuate the intention of the contracting parties.” Phoenix Services Ltd. Partnership v. Johns Hopkins Hosp., 167 Md.App. 327, 391 , 892 A.2d 1185 (2006) [hereinafter Phoenix Services ]. In ascertaining the parties’ intent, Maryland adheres to the objective theory of contract interpretation.

See Dumbarton Imp. Ass’n, Inc. v. Druid Ridge Cemetery Co., 434 Md. 37, 51 , 73 A.3d 224 (2013). The objective theory of contract interpretation requires that a court “must first determine from the language of the agreement itself what a reasonable person in the position of the parties would have meant at the time it was effectuated. In addition, when the language of the contract is plain and unambiguous there is no room for construction, and a court must presume that the parties meant what they expressed. ³³² In these circumstances, the true test of what is meant is not what the parties to the contract intended it to mean, but what a reasonable person in the position of the parties would have thought it meant.” Myers v. Kayhoe, 391 Md. 188, 198 , 892 A.2d 520 (2006) (quoting Dennis v. Fire & Police Employees’ Ret.

Sys., 390 Md. 639, 656-57 , 890 A.2d 737 (2006)). The process for determining the intent of the contracting parties is well established in Maryland. First, a court must ascertain whether the agreement is ambiguous. Language in a contract “may be ambiguous if it is ‘general’ and may suggest two meanings to a reasonably prudent layperson.” Pac.

Indem. Co. v. Interstate Fire & Cas. Co., 302 Md. 383, 389 , 488 A.2d 486 (1985). However, this Court has acknowledged that a contract is not ambiguous merely because the parties disagree as to its meaning.

See Fultz v. Shaffer, 111 Md.App. 278, 299 , 681 A.2d 568 (1996). Contracts are interpreted as a whole, and all disputed terms are to be interpreted in context. See Phoenix Services, 167 Md.App. at 392-93 , 892 A.2d 1185 . A court’s next step depends on whether it finds that the contract is ambiguous or unambiguous.

If it finds that a contract is unambiguous, then it must only look to the language of the contract to determine the intent of the parties. See Phoenix Services, 167 Md.App. at 392 , 892 A.2d 1185 . A court must presume that the terms expressed in the agreement are what the parties intended, regardless of what the parties may have meant, but did not state in the contract. Id.

When contract language is clear and unambiguous, there is no room for construction and courts may not consider what the parties thought the agreement meant. See General Motors Acceptance Corp. v. Daniels, 303 Md. 254, 261 , 492 A.2d 1306 (1985). See also Phoenix Services, 167 Md.App. at 392 , 892 A.2d 1185 . If, on the other hand, a court finds that the contract is ambiguous, it must follow the second alternative, which is considering parol and/or extrinsic evidence to determine the parties’ intent when the contract was made.

Id. at 393 , 892 A.2d 1185 . ³³³ A. Is the 2005 Agreement ambiguous? In the case sub judice, the Sierra Club, while it does not explicitly argue that the Agreement is ambiguous, avers that this Court should consider parol evidence, namely the parties’ prior agreements and the state of the LNG market at the time of the contract’s inception. In response, Dominion states that the 2005 Agreement is clear and unambiguous, and therefore, the prior dealings are inadmissible. Furthermore, Dominion asserts that the ambiguity argument is waived as the Sierra Club did not assert this claim at the circuit court.

As noted earlier, we review under a de novo standard and accordingly, since ambiguity is one step of our contract interpretation analysis, we shall discuss whether the 2005 Agreement was ambiguous. In Dennis v. Fire & Police Employees’ Retirement System, 390 Md. 639, 642 , 890 A.2d 737 (2006), the plaintiffs were two former police officers challenging the circuit court’s finding that benefits from their retirement plan qualified as pension payments, thus entitling their former spouses to a portion thereof. The plaintiffs became police officers in the 1960’s and divorced their spouses in 1990 and 1993, respectively. Id. at 643-44 , 890 A.2d 737 .

Each plaintiffs divorce decree required that the former wives were to receive 50% of any pension payments made to the plaintiffs. Id. In 1996, the plaintiffs began participating in a retirement option plan (named DROP) offered by their police department. Id. at 644 , 890 A.2d 737 .

Upon their respective retirements in 2001 and 2002, the plaintiffs were notified that their DROP benefits would be treated as pension payments and accordingly, their wives would receive half. Id. at 645 , 890 A.2d 737 . Over the next few years, the plaintiffs challenged the classification of the DROP payments as pension before the Retirement System, the circuit court and, upon the grant of a bypass certiorari, the Court of Appeals. Id. at 645-47 , 890 A.2d 737 .

Before the Court of Appeals, the plaintiffs argued that under the language of the qualified domestic relations orders, the DROP payments did not qualify as pension payments and ³³⁴ therefore, the former wives were not entitled to any portion. Id. at 650 , 890 A.2d 737 . In support, they contended that the DROP program was not offered until years after their divorces, therefore the parties could not have intended for the payments to be considered as pensions. Id. at 651 , 890 A.2d 737 .

The Court applied ordinary contract interpretation principles to the domestic relations orders, concluding that the language of the orders was unambiguous and required that the DROP payments be considered pensions. It gave “effect to the clear terms of the agreements regardless of what the parties may have intended by those terms at the time of contract formation.” Id. at 656 , 890 A.2d 737 . The Court declined to accept the plaintiffs’ plea to consider the subjective intent of the parties at the time of the divorce because the contract terms were clear and therefore, under the objective theory, courts must abide by the clear meaning of the terms. Id. at 658 , 890 A.2d 737 .

Maryland Courts have acknowledged that when determining whether a contract is ambiguous, the mere fact that the parties disagree as to the meaning does not necessarily render it ambiguous. See Young v. Anne Arundel County, 146 Md.App. 526, 587 , 807 A.2d 651 (2002) (citing Fultz v. Shaffer, 111 Md.App. 278, 298 , 681 A.2d 568 (1996)). The test is whether a reasonably prudent person would consider the contract subject to more than one reasonable interpretation. In Sy-Lene of Washington, Inc. v. Starwood Urban Retail II, LLC, 376 Md. 157 , 829 A.2d 540 (2003), the plaintiff was a lingerie shop which leased a retail space in a shopping center owned by the defendant.

Id. at 160 , 829 A.2d 540 . As part of the lease, the defendant agreed to provide employee parking spaces at a reduced fee and reserved “the right to limit the number of employee parking spaces to be provided____” Id. at 161 , 829 A.2d 540 . The plaintiff requested five spaces; the defendant denied that request and charged them more than the reduced amount guaranteed in the lease. Id.

It later informed the plaintiff that it would be canceling the monthly parking agreement entirely. The plaintiff sued, arguing that the lease provision which allowed the defendant to restrict the ³³⁵ number of spaces did not allow it to eliminate all of its parking. Id. The circuit court granted the defendants’ motion to dismiss, stating that the contract was not ambiguous.

Id. at 162 , 829 A.2d 540 . We affirmed the circuit court’s ruling and the Court of Appeals granted certiorari. Id. Before the Court of Appeals, the plaintiff argued that the lease was ambiguous and that parol evidence should be admitted to determine the parties’ intent at the time the lease was signed.

Id. at 165 , 829 A.2d 540 . The defendant countered, arguing that the plain language of the lease did not provide any upper or lower limit to the number of spaces that must be provided, and therefore, it could eliminate all the spaces. It also argued that because the language was clear, no parol evidence should be admitted. Id. at 166 , 829 A.2d 540 .

The Court noted that under the objective test of contract interpretation, if the written contract is clear the court will give effect to its plain meaning. It explained, however, that a contract is ambiguous if it could be “subject to more than one interpretation when read by a reasonably prudent person.” Id. at 167 , 829 A.2d 540 . The Court then looked to the language of the contract, to answer the question of whether the term “limit” meant that the defendant could eliminate. Id. at 168 , 829 A.2d 540 .

First, it reviewed the dictionary definition of the word “limit,” and then addressed the parties’ arguments regarding the various meanings of the term. After examining caselaw from other states, the Court concluded that the “limit” did not mean “eliminate” and ruled that the defendant could not deny plaintiff any parking spaces entirely. Id. at 169 , 829 A.2d 540 . The Court remanded the case back to the circuit court in order for it to consider parol evidence and determine the intended amount of spaces at the time of contracting.

Id. In the instant case, the dispute concerns what activities are permitted by the phrase “receipt by tanker and the receipt or delivery by pipeline.” As the Court of Appeals did in Sy-Lene, we will begin with the dictionary definition to determine whether there is any ambiguity in the phrase. The American Heritage Dictionary defines “receipt” as “the act of receiving ³³⁶ something” and delivery as “the act of conveying or delivering.” American Heritage Dictionary (5th Edition 2013). It lists several definitions for the preposition “by,” 4 but, the only one that logically applies to the phrase as written is the definition “with the use of; through.” The American Heritage Dictionary, 182 (1981).

It is also evident that this is the correct meaning of “by.” During oral argument, both parties used the analogy of “delivery by mail” to illustrate the manner in which the word “by” was used in the Agreement. Therefore, taking into account the dictionary definition, it is clear that the Agreement authorizes LNG to be received from tankers and to be received or delivered through the pipeline. As the Sierra Club conceded at oral argument, this phrase could have been worded differently to more accurately reflect what activity was being authorized. However, it does not render the clause ambiguous.

Furthermore, as noted above, the fact that the parties disagree over the meaning of the phrase does not render the contract, in its entirety, ambiguous. We conclude that the language is clear and that the meaning of the disputed phrase is not ambiguous. ³³⁷ B. What does the language of the 2005 Agreement express as the parties’ intent? Since the 2005 Agreement is not ambiguous, we must look to its language to determine whether it explains what the parties intended. Here, the crux of the dispute is not whether a term provides for the performance of some activity, but rather whether the failure to prohibit exportation means that it is permissible.

This Court recently addressed a contractual dispute that is similar in John Newell et al. v. Johns Hopkins University, 215 Md.App. 217 , 79 A.3d 1009 (2013). In Newell, Ms. Banks, the owner of a large piece of property, referred to as Belward Farms, had “stiff armed [many] efforts to buy and develop” the Farm because of her disdain of massive development projects that were