BHP Petroleum (Americas), Inc. v. Texaco Exploration and Production, Inc., 98-117.

• Decision Date: 31 March 2000
• Docket Number: No. 98-117.,98-117.
• Citation: 1 P.3d 1253
• Parties: BHP PETROLEUM (AMERICAS), INC., a Delaware corporation, Appellant (Plaintiff), v. TEXACO EXPLORATION AND PRODUCTION, INC., a Delaware corporation, Appellee (Defendant).
• Court: Wyoming Supreme Court

1 P.3d 1253

BHP PETROLEUM (AMERICAS), INC., a Delaware corporation, Appellant (Plaintiff), v. TEXACO EXPLORATION AND PRODUCTION, INC., a Delaware corporation, Appellee (Defendant).

No. 98-117.

Supreme Court of Wyoming.

March 31, 2000.

Representing Appellee: David F. Evans and Richard D. Bush of Hickey, Mackey, Evans, Walker & Stewart, Cheyenne, Wyoming. Representing Appellee: Richard E. Day and Scott W. Skavdahl of Williams, Porter, Day & Neville, Casper, Wyoming; and Dennis Cameron of Gable & Gotwals, Inc., Tulsa, Oklahoma.

Before LEHMAN, C.J., and THOMAS, MACY, GOLDEN, and TAYLOR,¹ JJ.

THOMAS, Justice.

The issue presented in this case is where, as a matter of law, did a cause of action on a claim for breach of contract arise. In granting a motion for summary judgment in favor of Texaco Exploration and Production, Inc. (Texaco), the district court ruled that the cause of action arose in Colorado, and it invoked the Colorado statute of limitations pursuant to Wyo. Stat. Ann. § 1-3-117 (Lexis 1999). A collateral issue is raised of waiver of the defense of the statute of limitations by the failure to plead it as an affirmative defense in the answer. We conclude that the district court correctly determined on the undisputed facts that the claim for breach of contract was a cause of action that arose in Colorado, and it correctly applied the Colorado statute of limitations in granting summary judgment. We also hold that the defense of the statute of limitations was not waived by the failure to plead it as an affirmative defense in the answer. The Summary Judgment entered in the district court is affirmed.

The issues, as they are articulated in the Brief of Appellant BHP Petroleum, Inc., are:

I. Does the Colorado statute of limitations apply to bar a breach of contract action for the payment of royalties on Wyoming oil & gas production from the Madden Deep Unit?

II. Can the statute of limitations be raised for the first time on summary judgment?

As stated in the Brief of Appellee Texaco Exploration & Production Inc., the issues are:

1. Did the District Court correctly apply the Wyoming Borrowing Statute in finding that BHP's breach of contract action arose in Colorado and was, therefore, time barred by the Colorado Statute of Limitation?

2. Was the Statute of Limitation defense timely raised by Texaco and if not, was BHP prejudiced by Texaco's raising it in its Motion for Summary Judgment in November of 1998?

BHP Petroleum (Americas), Inc. (BHP) and Texaco both owned working interests in the Madden Deep Unit (Madden Unit), a large federal oil and gas unit that is located in the northeastern corner of the Windriver Basin in Fremont and Natrona Counties.² BHP was also the operator of the Madden Unit. At the time material to this dispute, there were twenty-one working interest owners in the unit and 160 royalty owners. The diverse ownership made calculation of royalty payments complex. Disagreement arose among several of the working interest owners with respect to the appropriate calculations, and BHP sought to change the method of paying royalties from the existing "entitlement method" to the Unit Allocation Method (UAM).³ Pursuant to the UAM, BHP would have been responsible for the payment of royalty to all royalty owners in the Madden Unit, and Texaco then would reimburse BHP for Texaco's portion of the royalties paid. The Madden Unit is a federal unit, and the Minerals Management Service, United States Department of Interior (MMS), has supervisory authority with respect to the valuation and payment of the royalties on all of the federal leases in the Madden Unit. The Madden Unit encompasses eight participating areas, including the Cody Formation Participating Area (Cody PA). Texaco's interest in the Madden Unit was 2.5% of the Cody PA. The Cody PA is comprised of 57.26% federal land, 7.59% state land, and 35.15% patented land. MMS has no jurisdiction with respect to any matters relating to the payment of royalties on any private leases.

Pursuing the effort to change the method of royalty payment from the "entitlement method" to the UAM, BHP formally submitted an application to change the royalty calculation method to the UAM to the Colorado office of MMS in April of 1988. The application was not intended to amend the Madden Deep Operating Agreement, Unit Agreement, or any other agreements relating to the Madden Unit, because the operating agreement did not specifically address the payment of royalties. Following the application, correspondence was exchanged between MMS and a former operator of the Madden Unit who at that time was regional land manager for BHP in its Denver, Colorado, office and was charged with the responsibility of the Madden Unit and the application to MMS for implementation of the UAM. A letter from MMS stated:

Any action by MMS regarding BHP's Unit Allocation Method will only affect the valuation for royalty payment purposes of that portion of net production attributable to Federal leases within the Madden Deep Unit. The value of other production subject to internal balancing agreements and various independent contractual requirements is an issue to be settled by the royalty interest owners and their respective lessees.

The shift in royalty payment methodology required BHP to pay royalties on unit sales to all royalty owners including Texaco's royalty obligation to its lessor. The payment to royalty owners in the Cody PA would be made from BHP's home office in Texas and the reimbursements would be made by the Texas office of Texaco.

The application to change the royalty payment method was prepared, executed, and filed in the Colorado office of MMS. After submitting the application to MMS, BHP instituted discussions with respect to the royalty payment method with an attorney for Texaco, who was located in the Colorado office of Texaco. The Texaco attorney submitted a letter to MMS, sent from the office in Colorado, expressing concern about the UAM for the Madden Unit as well as about uniformity in the method of allocations and valuations for royalty payments for its federal leases. This letter was sent in August of 1988, and included the statement that Texaco "will cooperate with BHP in implementing the Unit Allocation Method * * * for the payment of all royalties in the subject unit." With respect to the merits of this litigation, BHP claims that its application to MMS constituted an offer to Texaco to participate in the UAM and that the August letter from Texaco to MMS constituted an acceptance of BHP's offer. The application and the Texaco letter created the alleged contract between BHP and Texaco.

On September 19, 1988, some six weeks after Texaco sent its letter to MMS, the Colorado office of BHP wrote to the Texas office of Texaco specifically requesting assistance in implementing the UAM. In that letter, BHP stated that it was "anxious to secure Texaco's cooperation in implementing the Unit Allocation Method of paying royalties to all royalty owners in the Madden Deep Unit * * *." BHP recognized that historically Texaco had paid its own royalties, and it pointed out that if Texaco desired to continue with that method, the UAM would require Texaco to distribute royalties to over 100 royalty owners participating in the Madden Unit. BHP proposed that Texaco allow BHP as unit operator to pay royalties on its behalf and then be reimbursed by Texaco.

The Texas office of Texaco did not respond to the suggestion of BHP until April 28, 1989. Writing to the Colorado office of BHP, Texaco's manager of operations advised that "Texaco hereby advises that it shall not participate in this [UAM] method for payment of royalties. Texaco shall continue to pay its royalty owners * * *." BHP's theory in bringing its action was that this letter constituted a breach of the contract earlier formed. BHP alleges that Texaco had begun nominating volumes of gas greatly in excess of its ownership percentage in the Madden Unit, forcing BHP, as operator, to pay the remaining royalty owners under the UAM for the excess production attributable to Texaco between 1988 and 1990. BHP alleges that acting in accordance with the UAM, it paid in excess of $1,000,000.00 on Texaco's behalf, and the action that led to this appeal was brought to recover damages resulting from the breach of contract from Texaco.

BHP commenced this action against Texaco in the Wyoming state court on February 22, 1996. On November 14, 1997, following discovery, Texaco filed a motion for summary judgment asserting that the action was barred by the applicable Colorado statute of limitations. The district court agreed that the Colorado statute of limitations was applicable pursuant to Wyoming's borrowing statute, Wyo. Stat. Ann. § 1-3-117, and on February 25, 1998, it granted Texaco's motion. BHP appeals from the Summary Judgment entered in the district court.

Summary judgment is appropriate when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Estate of Noell v. Norwest Bank Wyoming, N.A., 960 P.2d 499, 500 (Wyo.1998). On appeal, we examine the record ourselves to determine if the trial court erred in concluding that there were no genuine issues of material fact and that judgment as a matter of law is appropriate. Krier v. Safeway Stores 46, Inc., 943 P.2d 405, 408 (Wyo.1997). In this instance, whatever factual issues exist with respect to the merits of the breach of contract case, there is no difference between the parties with respect to the date on which the action was commenced and the date on which the alleged breach was committed. These are the only material facts for purposes of invoking the statute of limitations.

The resolution of this case is controlled by the determination of where the cause of action arose. This is so because of our borrowing statute, Wyo. Stat. Ann. § 1-3-117, which provides:

If by the laws of the state or country where the cause of action

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