44 F.3d 837 (10th Cir. 1994), 92-6402, Ruyle v. Continental Oil Co.

Docket Nº:92-6402, 92-6411.
Citation:44 F.3d 837
Party Name:Robert RUYLE and Elizabeth Ruyle; Harvey Fransen and Marjorie Fransen; George Fransen and Yvonne Fransen; and James M. Fransen, Plaintiffs-Appellees/Cross-Appellants, v. CONTINENTAL OIL CO., Defendant-Appellant/Cross-Appellee.
Case Date:December 20, 1994
Court:United States Courts of Appeals, Court of Appeals for the Tenth Circuit

Page 837

44 F.3d 837 (10th Cir. 1994)

Robert RUYLE and Elizabeth Ruyle; Harvey Fransen and

Marjorie Fransen; George Fransen and Yvonne

Fransen; and James M. Fransen,

Plaintiffs-Appellees/Cross-Appellants,

v.

CONTINENTAL OIL CO., Defendant-Appellant/Cross-Appellee.

Nos. 92-6402, 92-6411.

United States Court of Appeals, Tenth Circuit

December 20, 1994

Page 838

[Copyrighted Material Omitted]

Page 839

Clyde A. Muchmore of Crowe & Dunlevy, Oklahoma City, OK (Harvey D. Ellis, Jr., of Crowe & Dunlevy, Oklahoma City, OK, and Charles Puckett of Conoco, Inc., Houston, TX, with him on the briefs), for defendant-appellant/cross-appellee.

Michael J. Rovell, Chicago, IL (Stephen Jones and Michael D. Roberts of Jones & Wyatt, Enid, OK, and Richard E. Hornbeek of Hornbeek, Krahl & Vitali, Oklahoma City, OK, on the brief), for plaintiffs-appellees/cross-appellants.

Before SEYMOUR, Chief Judge, and LOGAN and ANDERSON, Circuit Judges.

SEYMOUR, Chief Judge.

Continental Oil Co. (Conoco) appeals the district court's refusal to hold plaintiffs' action collaterally estopped by a prior decision of the Oklahoma Corporation Commission. We conclude that the district court erred in failing to give the Corporation Commission order preclusive effect, and we therefore reverse.

I.

Robert and Elizabeth Ruyle, Harvey and Marjorie Fransen, George and Yvonne Fransen,

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and James M. Fransen (plaintiffs) own mineral interests underlying certain portions of section 14 in Custer County, Oklahoma. Continental Oil Co. (Conoco) is the lessee of the mineral interests owned by the Fransen plaintiffs. Plaintiffs sued Conoco alleging that offsetting wells were draining the productive formation underlying section 14, that Conoco had failed to protect the section from drainage, and that Conoco had failed to prudently develop the section. 1 A jury awarded plaintiffs total actual damages of $55,898.70 and total punitive damages of $1,140,000.00. In addition, the trial court ordered that Conoco either release its leases or, within 120 days, drill an additional offset well as required to fully develop the leases and to protect against drainage. Conoco contends on appeal, inter alia, that plaintiffs are estopped from recovering on their claims by an order of the Oklahoma Corporation Commission (Commission) allegedly addressing the same claims plaintiffs make here and ruling that no uncompensated drainage was occurring, that Conoco had acted prudently, and that an additional well was not necessary and would in fact result in damage to the correlative rights of owners in adjacent sections. 2

In order to prevent waste and to protect the correlative rights 3 of interested parties in a common source of oil or natural gas, the Commission is statutorily authorized to establish well spacing units. See Okla.Stat., tit. 52, Sec. 87.1 (1993); see also Samson Resources Co. v. Corporation Comm'n, 702 P.2d 19, 22 (Okla.1985). The Commission is likewise empowered to authorize the drilling of an additional well or wells as may be necessary to prevent waste and to protect correlative rights. Id. Pursuant to this authority, the Commission established the original well spacing for section 14 and the adjacent sections.

In October 1990, Great Bear Exploration, Inc. (GBE), who was also an interest holder in section 14, filed applications with the Commission seeking an exception to the original spacing order and an amendment to the order to permit GBE to drill an additional well in section 14. GBE alleged the exception and amendment were necessary "to prevent waste and to protect correlative rights." Aplt. app., vol. III, at 355; see also id. at 359. In January 1991, plaintiffs executed agreements with GBE authorizing it to act on their behalf before the Commission and stating their belief that the existing well in section 14 was not adequately protecting against drainage by offset wells in sections adjacent to section 14. Shortly thereafter, plaintiffs filed motions to intervene in GBE's proceedings before the Commission, stating that they supported GBE's applications and desired to appear at the hearings on those applications to present arguments and/or evidence. The initial report of the administrative law judge (ALJ) reveals that plaintiffs did in fact appear at the hearings through their attorney in support of GBE's application.

The evidentiary hearings before the ALJ took place in January, February, and March of 1991. After hearing extensive evidence on the relief sought by GBE, the ALJ concluded on May 2, 1991, that the applications should be denied. The ALJ held that Conoco had

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shown an additional well was not necessary and that the existing well could adequately drain the hydrocarbons underlying the unit. The ALJ further concluded that "[t]o grant an additional well would not be in the interest of the prevention of waste and the protection of correlative rights." Aplt. app., vol. III, at 388. GBE and plaintiffs filed exceptions to the ALJ's initial report, which was upheld by the appellate ALJ. GBE and plaintiffs in turn filed exceptions to the appellate report which was upheld by the Commission on January 13, 1992. GBE appealed the order to the Oklahoma Supreme Court, and the order was affirmed on March 30, 1993.

Plaintiffs filed their original petition in this action in state court on February 22, 1991, while the administrative proceedings were pending. Conoco subsequently removed the action to federal court, and thereafter filed a motion for summary judgment based on the preclusive effect of the Commission order. On February 20, 1992, the district court entered an order denying Conoco's motion for summary judgment. The court ruled, inter alia, that the doctrine of collateral estoppel did not require the Commission's ruling to be given preclusive effect. The court based its decision upon its conclusion that Conoco had not made the requisite showing that plaintiffs were either parties to the Commission proceedings or privies with GBE, nor had Conoco shown that the Commission proceedings afforded plaintiffs an effective opportunity to litigate. 4

On appeal, Conoco reiterates its argument that collateral estoppel bars plaintiffs' entire theory of the case. Conoco contends that this court's opinion in Leck v. Continental Oil Co., 971 F.2d 604 (10th Cir.1992), handed down after the jury trial in this case, is dispositive on the issue. Conoco also argues that a state statute specifically prohibits plaintiffs' collateral attack on the Commission's order. In response, plaintiffs assert that Conoco failed to preserve and/or abandoned its collateral estoppel defense. Alternatively, plaintiffs assert that collateral estoppel does not apply because the privity requirement is not met, because the issues resolved before the Commission were not the same as those plaintiffs raise in this proceeding, and because the Commission's order was not final at the time the district court ruled on Conoco's summary judgment motion. For the reasons set out below, we conclude that Conoco has clearly preserved for appeal the collateral estoppel issue. We further hold that Conoco has established the applicability of both the doctrine of collateral estoppel and the state statute prohibiting collateral attacks upon Commission orders.

II.

We turn initially to plaintiffs' arguments that the collateral estoppel issue is not properly before us on appeal. Plaintiffs first contend that Conoco failed to preserve this issue because it did not raise the matter in its motions for a directed verdict or for judgment as a matter of law. We disagree. Motions under Fed.R.Civ.P. 50(a) for judgment as a matter of law test whether there is a "legally sufficient evidentiary basis for a reasonable jury to find" for the moving party. These motions thus challenge the sufficiency of the evidence...

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