Devon Energy Prod. Co., L.P. v. Wyckoff

• Citation: 457 P.3d 284
• Decision Date: 31 December 2019
• Docket Number: Case No. 117,242
• Parties: DEVON ENERGY PRODUCTION COMPANY, L.P., an Oklahoma Limited Partnership, Plaintiff/Appellant, v. Carolyn J. WYCKOFF, and the Harold B. Griffith and Sonya Griffith Revocable Trust dated June 16, 2015, Harold B. Griffith and Sonya Griffith as Co-Trustees, Defendants/Appellees.
• Court: United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma

457 P.3d 284

DEVON ENERGY PRODUCTION COMPANY, L.P., an Oklahoma Limited Partnership, Plaintiff/Appellant,

v.Carolyn J. WYCKOFF, and the Harold B. Griffith and Sonya Griffith Revocable Trust dated June 16, 2015, Harold B. Griffith and Sonya Griffith as Co-Trustees, Defendants/Appellees.

Case No. 117,242

Court of Civil Appeals of Oklahoma, Division No. 1.

FILED DECEMBER 31, 2019

Mandate Issued: January 29, 2020

David A. Elder, Erin L. O'Roke, HARTZOG CONGER CASON & NEVILLE, Oklahoma City, Oklahoma, for Appellant,

Chaille Walraven, Mark E. Walraven, GRAFT & WALRAVEN, PLLC, Clinton, Oklahoma, for Appellees.

Larry Joplin, Presiding Judge:

¶1 Appellant, Devon Energy Production Company, L.P., seeks review of the trial court's July 25, 2018 Journal Entry of judgment in which it granted Defendants', Wyckoff, et al., 12 O.S. 2001 § 2012(B)(6) Motion to Dismiss Devon's cause of action for failure to state a claim on which relief could be granted.¹ For the reasons provided, we reverse and remand this cause to the district court for further proceedings.

¶2 Devon filed its Petition on October 11, 2017 asserting Defendants' attorney approached Devon about entering into a lease with his two clients regarding lease holdings that had recently been released from Chesapeake Exploration, L.L.C. The attorney said his two clients had approximately 400 nma (net mineral acres) in Sec 3-20N-17W in Woodward County and if Devon was still active in this area, would Devon be interested in the leases. The parties entered into a lease agreement in which the Defendants gave no warranty of title and Devon was to assume responsibility for the title search.² In consideration for the two leases, Devon paid $792,807.75 to each of the Defendants for the Wyckoff lease and the Griffith Trust lease, totaling $1,585,615.50. In July 2017, Devon learned Chesapeake's only interest in the section at issue was a wellbore-only interest in the Wyckoff #2-3 well located in Section 3. A 1956 lease covering lands in multiple sections, including the sections Devon understood it was leasing in, were still active due to production by one or more wells; this meant neither Wyckoff nor Griffith Trust had any mineral acres available for lease at the time it entered into the lease agreement with Devon.

¶3 In its Petition, Devon asserted four causes of action, count 1) breach of implied covenant of quiet enjoyment, count 2) actual and/or constructive fraud, count 3) rescission, and count 4) unjust enrichment. We review subject to a de novo standard of review:

An order dismissing a case for failure to state a claim upon which relief can be granted is subject to de novo review. When reviewing a motion to dismiss, the Court must take as true all of the challenged pleading's allegations together with all reasonable inferences which may be drawn from them. The purpose of a motion to dismiss is to test the law that governs the claim in litigation, not the underlying facts. A pleading must not be dismissed for failure to state a legally cognizable claim unless the allegations indicate beyond any doubt that the litigant can prove no set of facts which would entitle the plaintiff to relief. The burden to show the legal insufficiency of the petition is on the party moving for dismissal. Motions to dismiss are usually viewed with disfavor under this standard, and the burden of demonstrating a petition's insufficiency is not a light one.

Tuffy's, Inc. v. City of Oklahoma City , 2009 OK 4, ¶6, 212 P.3d 1158, 1162-63 (citations and footnotes omitted).

¶4 This case seems to rest on the parties' perceived conflict between Peabody Coal Co. v. State of Oklahoma ex rel. Comm'rs of the Land Office , 1992 OK CIV APP 83, 884 P.2d 857 and French Energy, Inc. v. Alexander , 1991 OK 106, 818 P.2d 1234. In Peabody Coal , the coal company brought a cause of action against the Oklahoma Land Office to recover payment of lease bonuses and royalties paid under a quitclaim mineral lease. Peabody Coal , 884 P.2d at 858. The lease in the Peabody Coal case was given without a warranty that the lessor was "seized in fee with the right to lease the minerals." Id . at 859. In effect, the Land Office did not warrant its title or its right to the lease. The court found this meant the lease was in the nature of a quitclaim, for which the coal company acted at its own risk and the doctrine of caveat emptor applied. Id . The court found the coal company could not recover the lease bonuses and royalties paid by claiming the Land Office had no right to the coal it purported to lease.³ Defendants in the present case ask to be similarly treated, because they did not warrant title in their dealings with Devon, and like the Land Office the Defendants should be permitted to keep the lease payments made by Devon since the lessors did not warrant title.

¶5 French Energy examined some of the same issues that arose in Peabody Coal , wherein the purchaser of an oil and gas lease at a judicial sale brought a cause of action seeking actual and punitive damages on claims for fraud or rescission and restitution. French Energy , 818 P.2d at 1235-36. The Oklahoma Supreme Court found the appellant, who had purchased the lease, was entitled to equitable relief, "notwithstanding the doctrine of caveat emptor ." Id .

¶6 The French Energy lease was purchased at a judicial sale, which effectively meant breach of warranty was an "irrelevant defense." Id . at 1237. The mineral rights French Energy "thought it was purchasing were being held by production from within the unit" and resulted in there being nothing to convey. Id . at 1238. The Oklahoma Supreme Court explained "that, regardless of fault, the oil company was not aware of the prior lease when it paid the bonus money to executor", however, the executor "was aware of the existence of a pre-existing lease," of which the executor may or may not have understood the significance. Id . at 1237. "[T]here was at the very least, a mutual mistake that was basic to the parties' bargain in that [lessor] specifically agreed to convey to [lessee] the present right to explore for oil and gas[,]" a situation similar to that which exists in this case. Id . The Oklahoma Supreme Court found that to allow the lessors to keep the bonus money in exchange for nothing would result in them being substantially and unjustly enriched.⁴

¶7 With respect to fraud, the French Energy court said the following:

The doctrine of caveat emptor can never be invoked to perpetrate a fraud. The purchaser is entitled to receive the title owned by the estate of the decedent at the time of his death or prior to the sale. The estate will never be allowed to retain its title to the property and also retain the purchase price therefor. The law requires the estate to part with whatever title it has in and to the land before it will be permitted to retain the purchase price therefor.

Id . at 1239 (emphasis added). The appellate court found the doctrine of caveat emptor would "not shield a seller from purporting to sell that which he does not have." Id . ¶8 It is Devon's allegation of fraud that compels this court, at this time, to reverse the decision of the district court. Whether Devon can or will prevail in its allegation of fraud is not before the appellate court at present, but Devon has alleged the Defendants knew or should have known the net mineral acres they purported to lease to Devon were covered by a 1956 lease that was still in production, so that the minerals were not available to be leased to Devon. Devon...