Exxon Corp. v. Gann

• Decision Date: 11 April 1994
• Docket Number: No. 93-6130,93-6130
• Citation: 21 F.3d 1002
• Parties: EXXON CORPORATION, Plaintiff-Appellee, v. Allen GANN, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1002

21 F.3d 1002

EXXON CORPORATION, Plaintiff-Appellee, v. Allen GANN, Defendant-Appellant.

No. 93-6130.

United States Court of Appeals, Tenth Circuit.

April 11, 1994.

Michael Paul Rogalin of Rogalin & Carpenter, P.C., Oklahoma City, OK, for appellant.

J. Scott Carothers, Exxon Co., U.S.A., Houston, TX, for appellee.

Before BALDOCK, Circuit Judge, BARRETT, Senior Circuit Judge, and BRORBY, Circuit Judge.

BARRETT, Senior Circuit Judge.

Allen Gann (Gann) appeals from the district court's judgment entered in favor of Exxon Corporation (Exxon), 1993 WL 645058. Exxon brought this action against Gann seeking reformation of an Assignment and Bill of Sale (Assignment) of oil and gas leases from Exxon to Gann on the basis of mutual mistake. Gann claimed that there was no mutual mistake in the Assignment and that the Assignment was clear and unambiguous. Gann counterclaimed for quiet title, slander of title, and an accounting of proceeds.

Pleadings

In its complaint Exxon alleged that the agreement of the parties at the sale on August 28, 1991, was that only Exxon's interest in the Snider B 1-24 well (Snider well) would be conveyed to Gann and that by mutual mistake the actual assignment contained language purporting to convey to Gann Exxon's interest in two other wells, Searcey Ramona 1-24 and 2-24 (Searcey wells), as well as the Snider well.

In his answer, Gann denied there was any mistake on his part. He alleged that he intended to purchase Exxon's entire interest in the Lower Des Moines common source and supply as set out in the Assignment. Gann further claimed Exxon had no right, title or interest in any of the wells involved in this action; Exxon clouded and slandered Gann's title to the wells; and Exxon refused to pay him proceeds attributable to the wells.

Facts

Exxon is a New Jersey corporation with its principal place of business in Texas. In August, 1991, Exxon offered certain oil and gas properties for sale at oral auction, including the Snider well in section 24-13N-20W Custer County, Oklahoma. The auction was conducted by EBCO Resources, Inc. (EBCO).

In early August, Gann received a sales brochure from EBCO advertising the sale. Gann reviewed the sales brochure to determine the parameters of the sale and determined it was a no minimum, no reserve, no bid in, no buy back sale to be conducted by oral bid. Gann understood the description of the properties set out in the brochure was for general information only, not to be relied upon, and that he should conduct his own due diligence prior to the sale. ¹ The brochure further advised bidders to review the assignment before bidding for additional terms, provisions, assumptions of risks, including indemnities, which affect the buyer's ownership of the properties.

Prior to the sale, Exxon made available well and production data for each sale property. Gann reviewed the data referencing the "Snider 'B' Unit No. 1-24". No data on the Searcey wells was made available to the buyers nor were these wells mentioned in any of the brochures or catalogs.

Gann testified that in addition to the information provided by Exxon and EBCO, he reviewed completion reports on some of the sale properties. He stated that based on these reports he determined there were three wells, the Snider well and the two Searcey wells, located in section 24-13N-20W Custer County, Oklahoma, which he believed were all producing from the Lower Des Moines common source and supply.

On the day of the sale, Gann received a sale catalog which listed the properties to be sold by lot number. The Snider well was Lot 9. The same disclaimers found in the sales brochure were found in the sale catalog directing the bidder to review the assignment before bidding and not to rely on the other data provided.

Gann reviewed a copy of the Assignment for the first time on the day of the sale. Exhibit A of the Assignment entitled "SNIDER 'B' UNIT NO. 1-24" conveyed "ALL OF EXXON CORPORATION'S RIGHT, TITLE, AND INTEREST IN AND TO THE FOLLOWING OIL AND GAS LEASES AND AMENDMENTS THERETO INSOFAR AND ONLY INSOFAR AS THEY COVER SECTION 24-13N-20W, CUSTER COUNTY, OKLAHOMA, ONLY AS TO THE LOWER DES MOINES COMMON SOURCE OF SUPPLY." (Appellant's Appendix at 856).

At the auction, Gann was the successful bidder on Lot 9 at $700.00. He tendered a check to Exxon for $744.12 for the purchase price, taxes and recording fees.

In September, Gann and Exxon executed the Assignment and it was recorded in Book 847, Page 96, of the records of the County Clerk of Custer County, Oklahoma. Subsequently, Gann and Exxon executed a Letter-in-Lieu of Transfer Order to inform Louisiana Land & Exploration, the operator of the Snider well, of the transfer of Exxon's interest to Gann.

In October, 1991, Exxon discovered a mistake had been made in the Assignment. Exxon alleged that the parties intended to convey only Exxon's interests in the Snider well but that the Assignment purported to convey Exxon's interests in the Snider well and the Searcey wells due to its language referring to the "Lower Des Moines Common Source of Supply."

Prior to the sale, Exxon hired Texas landman Miles Dart to prepare the title work for the sale properties. Dart knew that only the Snider well was being sold out of section 24-13N-20W. In doing the title work, Dart determined the Snider and Searcey wells were producing out of different formations, the Lower Des Moines and the Red Fork, respectively. He relied on Dwight's Energydata, Inc. (Dwight's), purportedly one of the best sources of well history, to make this determination. Therefore, Dart restricted the language of the Assignment to the "Lower Des Moines Common Source of Supply" in order to convey only the Snider well. Although Dwight's listed the wells in separate formations, all three wells were in fact producing from the same formation, the Lower Des Moines.

Exxon immediately prepared an Amendment to Assignment and Bill of Sale which restricted the conveyance to Exxon's interest in "those hydrocarbons produced from the wellbore of Snider 'B' Unit No. 1-24 Well from the Lower Des Moines Common Source of Supply." (Appellant's Appendix at 970). Gann refused to sign the Amendment to Assignment.

Sometime after the sale, Gann contacted several people at Exxon to see if he could buy Exxon's remaining interest in section 24. Gann represented that he was interested in purchasing Exxon's interests in all formations other than the Lower Des Moines. In connection with this inquiry, Gann requested production information on the Searcey wells. The production information showed that the Searcey wells produced an average of 50 barrels of oil and 3,817 MCF of gas per day (compared to the 4 barrels of oil and 90 MCF of gas per day for the Snider well). The Searcey wells generated an annual income in excess of $39,000, whereas, the Snider well generated approximately $350 annually.

Exxon subsequently filed suit seeking reformation of the Assignment to reflect the intentions of the parties to convey Exxon's interests in the Snider well only. The matter was tried February 8 through 11, 1993. The reformation, quiet title and accounting claims, equitable in nature, were tried to the court. Gann's slander of title counterclaim was tried to a jury.

At the close of evidence, the district court entered a directed verdict in favor of Exxon regarding Gann's slander of title counterclaim. On March 5, 1993, the district court issued its Order with "Findings of Fact and Conclusions of Law" holding that the Assignment was not ambiguous but that Exxon was entitled to reformation and denying Gann's request for quiet title and accounting. Judgment was entered on March 16, 1993, in favor of Exxon reforming the Assignment.

On appeal, Gann contends that the district court erred in (1) granting Exxon reformation of the Assignment absent an antecedent agreement, (2) granting Exxon reformation because the mistake was caused solely by negligent acts of Exxon itself, and (3) applying a negligence standard in a mutual mistake case. Gann does not challenge the district court's order directing a verdict in favor of Exxon on Gann's slander of title counterclaim.

Discussion

I.

Both Exxon and Gann acknowledge that we must accept the district court's findings of fact unless clearly erroneous. See United States v. Barbee, 968 F.2d 1026, 1028 (10th Cir.1992). "A finding is 'clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Stegall v. Little Johnson Assoc., Ltd., 996 F.2d 1043, 1048 (10th Cir.1993). On appeal, we view the evidence in the light most favorable to the district court's ruling, United States v. Soto, 988 F.2d 1548, 1551 (10th Cir.1993), and must uphold any district court finding that is permissible in light of the evidence. Hauptli v. Commissioner, 951 F.2d 1193, 1195 (10th Cir.1991), cert. denied, --- U.S. ----, 112 S.Ct. 1955, 118 L.Ed.2d 558 (1992).

An action seeking reformation proceeds from the premise that the parties came to an understanding but, when it was reduced to writing, some provision was omitted or inserted through mutual mistake or fraud. Evans v. Hartford Life Ins. Co., 704 F.2d 1177, 1179 (10th Cir.1983). Exxon's claim for reformation rests on the grounds of mutual mistake.

The general rule is that when an instrument does not reflect the intentions of the parties because of mistake of fact, equity will correct such mistake unless the rights of third parties intervene. Walter v. Myers, 206 Okla. 100, 241 P.2d 393 (1952) (citing Smith et ux v. Lindley, 202 Okla. 501, 215 P.2d 566, 568 (1950)). Under Oklahoma law, mutual mistake requires proof by clear and convincing evidence of (1) an antecedent agreement to the terms of which the writing should be reformed; (2) a mutual mistake as a result of which the writing reflects something neither party intended; and (3) that ...