144 F.3d 1308 (10th Cir. 1998), 97-6004, Okland Oil Co. v. Conoco Inc.

Docket Nº:97-6004, 97-6102.
Citation:144 F.3d 1308
Party Name:OKLAND OIL COMPANY, Plaintiff-Appellee, Cross-Appellant, v. CONOCO INC., a Delaware corporation, Defendant-Appellant, Cross-Appellee.
Case Date:May 19, 1998
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

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144 F.3d 1308 (10th Cir. 1998)

OKLAND OIL COMPANY, Plaintiff-Appellee, Cross-Appellant,


CONOCO INC., a Delaware corporation, Defendant-Appellant,


Nos. 97-6004, 97-6102.

United States Court of Appeals, Tenth Circuit

May 19, 1998

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Gary W. Davis (L. Mark Walker with him on the briefs), Crowe & Dunlevy, Oklahoma City, OK, for Defendant-Appellant, Cross-Appellee.

Robert N. Barnes (Michael E. Smith and Patranell Britten Lewis with him on the briefs), Barnes, Smith & Lewis, P.C., Oklahoma City, OK, for Plaintiff-Appellee, Cross-Appellant.

Before ANDERSON, LOGAN, and MURPHY, Circuit Judges.


Okland Oil Company brought this diversity action against Conoco, Incorporated, alleging

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breach of contract, fraud in the inducement, deceit by false representation, and deceit by nondisclosure or concealment with respect to Conoco's failure to pay Okland the full amounts owing under a series of gas production contracts entered into between 1980 and 1987. Okland contended that from 1985, when the price of gas was deregulated, to 1992, Conoco secretly and improperly made certain deductions before calculating the amount due Okland under the contracts. Conoco denied these allegations, contending, among other things, that the deductions, amounting to ten cents per MMBTU of gas, were for production-related costs ("PRC's") which the contracts authorized Conoco to deduct. On a separate issue, Conoco conceded liability for failing to reimburse Okland under some of the contracts for state production taxes, but it raised the statute of limitations as a defense to most of that liability.

After a one-week jury trial, the jury found Conoco liable on every claim asserted by Okland and awarded Okland $1,559,633.12 in actual damages and $3,000,000 in punitive damages. After denying Conoco's renewed motion for judgment as a matter of law, the district court entered judgment in favor of Okland for the amount of damages awarded by the jury and awarded Okland its costs in prosecuting the action. On appeal, Conoco does not contest the sufficiency of the evidence to support the breach of contract verdict but challenges the sufficiency of the evidence to support the tort verdicts and attacks the damage awards, especially the punitive damage award. On these and other points, Conoco raises numerous issues, which may be summarized as follows: (1) the district court erred in submitting punitive damages to the jury; (2) Okland's tort claims cannot support the entire actual damage award, which then cannot support the entire punitive damage award, which exceeded the limits defined by Oklahoma law; (3) the verdicts on the fraud and deceit claims were unsupported by the evidence; (4) the punitive damage instructions and verdict form were inadequate; (5) the district court erred in permitting Okland to introduce certain damage exhibits at trial; (6) the court erred in permitting Okland to argue that Conoco's refusal to admit fraud was a basis for awarding punitive damages; (7) the court erred by improperly instructing the jury on fraud; (8) the court erred in refusing to instruct the jury regarding Federal Energy Regulatory Commission ("FERC") Order 94; and (9) the court erred in allowing Okland's expert to testify as to Conoco's intent. Conoco contends that a new trial should be granted and/or that the punitive damage award should be reversed outright.

Okland, in a separate appeal, challenges the district court's denial of its request for recovery of certain costs in prosecuting the action. We address the appeals together for convenience and affirm.


During the period in question, Okland operated numerous wells that produced gas, which it sold to Conoco. Conoco bought, transported, processed, and resold the gas to Resale or "Tailgate" Purchasers. See Appellee's Supplemental App. at 75-76. Under its contracts with Conoco, Okland received a percentage (typically in the range of 84% to 90%) of the price Conoco was paid by the Tailgate Purchasers.

Until 1985, the price of gas was regulated under the Natural Gas Policy Act through FERC. In January 1985 the price was deregulated, allowing Conoco to charge more to its Tailgate Purchasers. In April 1985, Conoco began deducting ten cents per MMBTU of gas from the price it received from its Tailgate Purchasers before calculating and remitting to Okland the percentage it was due under the contracts. The deductions allegedly represented PRC's.

At trial, Okland contended that Conoco was not permitted under the terms of the gas purchase contracts between them to deduct PRC's from the resale price before calculating the percentage due to Okland, and that it did so secretly and deceitfully, by not accounting for the deductions and by representing the adjusted resale price as the gross resale price. Okland argued that it relied on Conoco's monthly statements, which listed "0.00" in the column marked "deductions," oral conversations between Conoco and Okland representatives, and letters to Okland explaining the price calculations, none of which disclosed the deductions or intimated that Okland was receiving less than the agreed upon percentage of the full resale

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price as required under the contracts. Neither did Conoco tell Okland of the deductions during the amendment of some of the contracts after April 1985.

Conoco, on the other hand, argued that the contracts contained clear language giving Conoco the right to deduct the ten cents from the amount it received from the Tailgate Purchasers. The provision upon which Conoco relied is as follows:

If Congress, the Federal Energy Regulatory Commission ... or successor governmental authority having jurisdiction shall cease to regulate the price for gas sold and delivered hereunder, [Okland] shall receive [a percentage] of the price per MMBTU received by [Conoco] for the subsequent sale of the gas exclusive of any production-related costs that [Conoco] has been authorized to receive.

Appellant's App. Vol. I at 270 (emphasis added).

Conoco claimed that FERC Order 94, under which certain PRC's could be added to the maximum legal price charged to Tailgate Purchasers during regulation, authorized it to exclude the ten cents as PRC's, even though Conoco was never actually paid separately for any PRC's by its Tailgate Purchasers. Okland countered by submitting evidence that in any case Conoco never qualified under Order 94 to deduct PRC's, even during regulation.

On a separate issue, tax reimbursements, Conoco admitted it had mistakenly failed to reimburse Okland for production taxes, but argued that the statute of limitations prevented Okland's recovery of all but a small amount of those taxes.

Okland quantified its actual damages by listing the amount it was underpaid on each contract. The total revenue loss, plus interest and litigation costs, amounted to $1,559,633.12. 1 The jury was asked to sort through the tangle of conflicting liability claims and damage amounts and rendered its verdict on a form which first required the jury to mark, claim by claim, involving both tort and contract, whether it believed Conoco was liable. It found for Okland on all of the claims. The form then asked the jury to provide a single actual damage award if it had found Conoco liable on one or more of the claims, inclusive of both tort and contract. 2 The jury responded

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with an award of $1,559,633.12 actual damages, and an additional $3,000,000 in the second stage for punitive damages.


I. Punitive Damages

Conoco attacks the punitive damage award on numerous grounds. While the analysis of Conoco's contentions is intertwined, we address the issues separately, some in this section and others elsewhere in the opinion, as Conoco has argued them.

A. Breach of Contract

Conoco argues that the district court should not have allowed the jury to consider punitive damages because the action was solely for breach of contract, and punitive damages do not apply in such actions. 3 Conoco adequately preserved this issue for appeal, 4 Appellant's App. Vol. III at 1139-41, Vol. IV at 1550-51, and we review it de novo. City of Wichita v. United States Gypsum Co., 72 F.3d 1491, 1494-95 (10th Cir.1996).

The jury found Conoco separately liable for the torts of fraud and deceit, both of which may support an award of punitive damages under Oklahoma law. See Zenith Drilling Corp. v. Internorth, Inc., 869 F.2d 560, 565 (10th Cir.1989); Burk v. K-Mart Corp., 770 P.2d 24, 28 & n. 10 (Okla.1989); Okla. Stat. tit. 23, § 9.1(A). This is true even where breach of contract is also alleged and where the "parties' relationship basically is contractual, if the breaching party's acts constitute 'an independent, willful tort.' " Zenith, 869 F.2d at 565 (quoting Z.D. Howard Co. v. Cartwright, 537 P.2d 345, 347 (Okla.1975)); Burk, 770 P.2d at 28 & n. 10; see also Woods Petroleum v. Delhi Gas Pipeline, 700 P.2d 1023, 1027 (Okla.Ct.App.1983) (allowing punitive damages in a breach of contract

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action where defendant also breached a common law duty to "perform the thing to be done with care, skill, reasonable expediency and faithfulness"); Christian v. American Home Assur. Co., 577 P.2d 899, 904-05 (Okla.1977) (stating duty to act in a manner that neither fraudulently induces a party to enter into a contract, nor deceives another); Burton v. Juzwik, 524 P.2d 16, 19 (Okla.1974) ("Punitive damages were allowed because defendant breached [its] common law duty ... and part of plaintiff['s] actual damages resulted from [that breach]."); Barnes v. McKinney, 589 P.2d 698, 702-03 (Okla.Ct.App.1978)...

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