'Notwithstanding Anything To The Contrary' Language Disputed In Recent Case

Author:Mr Stephen M. Proctor
Profession:Masuda, Funai, Eifert & Mitchell, Ltd.
 
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Drafters frequently use language such as “Notwithstanding anything [in this section] or [in this agreement]” to emphasize and make clear the importance and priority of the provision that follows. But sometimes the intent is not so clear. Recently, the 7th Circuit Court of Appeals issued an opinion on just this type of language and its interpretation. (Pronschinske Trust Dated March 21, 1995 v. Kaw Valley Companies, Incorporated, and KC Proppants, LLC, 7th Circuit Court of Appeals, No. 17-2889, August 10, 2018)

The Pronschinske Trust Dated March 21, 1995 (“Pronschinske”) owned land in Wisconsin that contained frac sand, used in gas and oil fracking operations. In June, 2012, Pronschinske entered into a Mining Lease Agreement (“Lease”) with Kaw Valley Companies (“Kaw Valley”). The Lease gave Kaw Valley the right, but not an obligation, to mine the sand, stone and rock products on the land. Kaw Valley spent approximately $750,000 in preparing to operate the mine. These costs were incurred for surveys, soil borings, entering into a contract for upgrade of the county highway, and widening the road to the land. Ultimately, Kaw Valley decided not to mine the land and terminated the Lease.

Under separate paragraphs in the Lease, Kaw Valley was to pay Pronschinske payments at various stages. Kaw Valley paid an Initial Royalty Credit of $20,000 under paragraph 3.

A Commencement Royalty Credit of $45,000 was to be paid upon commencement of mine or quarry operations under paragraph 5. Kaw Valley did not pay this amount. Both the Initial Royalty Credit and the Commencement Royalty Credit would be used to offset future amounts owed by Kaw Valley to Pronschinske.

The dispute arose over the Production Royalties under paragraph 6. Production Royalties were calculated based on the tonnage mined from the land by Kaw Valley. After describing the calculation of Production Royalties, the following sentence was included in paragraph 6:

“Notwithstanding anything to the contrary contained herein, Lessee shall pay to Lessor an annual minimum Production Royalty of $75,000.00 (the “Minimum Production Royalty”).

Pronschinske claimed $400,000 under the Lease as the Commencement Royalty Credit and Minimum Production Royalties by Kaw Valley. Pronschinske's position was to emphasize the “notwithstanding” language. So the Minimum Production Royalty of $75,000 was to be paid, no matter what.

Kaw Valley argued that thenotwithstanding language only applied to the Production...

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