Wagner & Brown v. Ward Petroleum Corp., CIV-87-2009-A.

• Decision Date: 21 December 1994
• Docket Number: No. CIV-87-2009-A.,CIV-87-2009-A.
• Citation: 876 F. Supp. 255
• Parties: WAGNER & BROWN, Plaintiff, v. WARD PETROLEUM CORPORATION, Defendant.
• Court: U.S. District Court — Western District of Oklahoma

876 F. Supp. 255

WAGNER & BROWN, Plaintiff, v. WARD PETROLEUM CORPORATION, Defendant.

No. CIV-87-2009-A.

United States District Court, W.D. Oklahoma.

December 21, 1994.

Gregory L. Mahaffey, Mahaffey & Gore, Oklahoma City, OK, for plaintiff.

Michael E. Smith, Michael D. Stack, Barnes Smith & Lewis, Oklahoma City, OK, for defendant.

ORDER

ALLEY, District Judge.

Before the Court are two motions for summary judgment filed by defendant Ward Petroleum Corporation ("Ward"). In one, Ward seeks judgment on plaintiff's claims arising from drilling of the Talbert No. 1 well. In the other, Ward seeks judgment on its counterclaim to recover plaintiff's share of costs incurred in drilling the well. Plaintiff concedes that Ward is entitled to judgment on its counterclaim; the Oklahoma Corporation Commission has determined that all costs incurred were reasonable and necessary. However, plaintiff opposes summary judgment on its claims.

All facts material to defendant's motion are undisputed. One dispositive legal issue is presented: Do findings made by the Corporation Commission as part of its cost determination preclude Wagner & Brown from now pursuing its tort claims against Ward for negligent performance of various drilling operations? The Court has reviewed the parties' submissions, and based upon the law and the facts presented by the parties, the Court rules as follows.

STATEMENT OF UNDISPUTED FACTS

In January 1987, the Corporation Commission entered an order pooling mineral interests in a drilling and spacing unit in Grady County, Oklahoma, and naming Ward unit operator. Plaintiff Wagner & Brown, a working interest owner, also asked to be made operator. After losing the contest, Wagner & Brown elected to participate in the well. It was a dry hole.

Wagner & Brown filed this action for declaratory relief and damages on October 2, 1987. It complained of Ward's negligence in drilling the well, including: (1) making a turnkey drilling contract with an affiliate, Ward Drilling Company, that did not meet industry standards; (2) failing to monitor deviation in the well's planned trajectory, resulting in an unacceptable wellbore; (3) rejecting Wagner & Brown's request to correct the deviation by plugging-back the well to 5250 feet and redrilling; (4) over-correcting the deviation, which created a dogleg; (5) rejecting Wagner & Brown's advice that running production casing would be difficult due to the dogleg; (6) running a poor cement job around the casing, which caused saltwater flooding into the borehole from other formations and prevented a valid test of the target formation; and (7) failing to secure competitive bids and incurring unreasonable costs.

On the same day it filed suit, Wagner & Brown applied to the Corporation Commission for a determination of reasonable costs of unit operations. The application averred that Ward already had exceeded estimated costs by more than $175,000 and did not have a useable borehole below 5250 feet. Wagner & Brown asked the Corporation Commission to determine the proper cost for completing the well because of Ward's imprudent drilling and inflation of costs.

In November 1987, Ward moved to dismiss this case on the grounds that the Corporation Commission had primary jurisdiction of the matter and this Court lacked authority to grant the declaratory relief sought. Alternatively, Ward asked that the case be stayed until the Corporation Commission first made its cost determination.

In February 1988, the Court entered a stay. Based on Stipe v. Theus, 603 P.2d 347, 349-50 (Okla.1979), the Court recognized that the Corporation Commission has continuing jurisdiction to determine proper unit costs but that a district court may retain jurisdiction if the Commission cannot grant all relief sought. Thus, the Court ruled as follows:

The plaintiff is seeking monetary relief on its gross negligence claim. Because the Corporation Commission was granted limited powers to enforce its "proper cost" determination and therefore could not grant full relief, this action must remain before this court, but should be stayed until the Corporation Commission makes disposition of plaintiff's application to determine proper costs.

Order at 3. Running of the time period for Ward to file its defenses and counterclaims was also stayed because "issues in this case are dependent upon the decision of the Oklahoma Corporation Commission." Order at 4.

An administrative law judge (ALJ) held hearings on Wagner & Brown's cost application for 22 days during 1988, 1989 and 1990. The ALJ heard testimony of ten witnesses and received 186 exhibits. In August 1991, the ALJ issued an 84-page report summarizing the evidence and making factual findings on the issues raised by Wagner & Brown. The ALJ concluded, "there was nothing to indicate that any of the actions or procedures used by Ward were anything other than reasonable." Initial Report at 84. The ALJ thus recommended setting reasonable costs of the well at the actual cost incurred by Ward of $754,724 minus a downward adjustment of $72,087 for the turnkey drilling contract, because the ALJ found no evidence that Ward had obtained other bids before drilling commenced.

Both parties took timely appeals from the ALJ's report. Ward objected to a reduction for the turnkey drilling contract. Wagner & Brown challenged the ALJ's findings and argued that Ward made numerous errors in drilling, completing and testing the well. Wagner & Brown asked that reasonable costs be set at an amount equal to what Ward incurred in drilling to a depth of 5250 feet.

The appellate ALJ found no merit in Wagner & Brown's appeal. He did, however, agree with Ward that the ALJ overlooked record evidence concerning other bids for turnkey drilling contracts. Thus, the appellate report adopted the ALJ's findings but reversed the $72,087 reduction of actual costs. Wagner & Brown appealed to the Commission en banc. In June 1992, the Commission issued its order adopting the conclusions of the appellate ALJ, finding that Ward "acted as a reasonable and prudent operator in drilling, completing and testing" the well, and determining the reasonable costs of the well to be the actual costs incurred of $754,724.

Wagner & Brown appealed the Commission's order to the Oklahoma Supreme Court. The appeal was assigned to the court of appeals, and an opinion affirming the order was issued in June 1993. The court of appeals found "that the case was thoroughly and zealously tried by both parties and that the decisions were made with great deliberation in painstaking detail." Memorandum Opinion at 5. Wagner & Brown petitioned for rehearing and for certiorari; both were denied. The latter denial occurred on October 12, 1993.

This case was reopened on October 25, 1993. Ward filed its answer and counterclaim and then moved for summary judgment. As stated above, Ward argues the preclusive effect of the Corporation Commission's factual findings and cost determination.

SUMMARY JUDGMENT STANDARD

Summary judgment is appropriate if the pleadings and evidence on file "show that there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). When as here, a dispositive legal issue is presented for decision on undisputed facts, summary judgment is proper if the movant's view of the law is correct.

ISSUE PRECLUSION

The Oklahoma Statutes and constitution, and the common law doctrine of issue preclusion or collateral estoppel, prohibit a district court from entertaining a collateral attack on an order of the Corporation Commission. Leck v. Continental Oil Co., 971 F.2d 604, 606-07 (10th Cir.1992); Woods Petroleum Corp. v. Sledge, 632 P.2d 393, 396 (Okla.1981); Okla. Const. art. IX, § 20; Okla. Stat. tit. 52, § 111. Thus, the Commission's decision on a disputed issue of fact or law within its lawful cognizance must be given preclusive effect in a later suit between the same parties involving a different claim. The doctrine "applies with equal force to jurisdictional and nonjurisdictional questions" and operates to bar relitigation of correct and incorrect decisions, if the party against whom the bar is asserted had a full and fair opportunity to litigate the issue in the prior proceeding. Fent v. Oklahoma Natural Gas Co., ___ P.2d ____, 1994 WL 534502 at *4 (Okla. Oct. 4, 1994); Veiser v. Armstrong, 688 P.2d 796, 800 (Okla.1984). A district court's examination of a final order of the Commission is limited to determining, from inspection of the record, whether the Commission had jurisdiction to issue the order. Fent, at ___; Kaneb Prod. Co. v. GHK Exploration Co., 769 P.2d 1388, 1391-92 (Okla.1989); Mullins v. Ward, 712 P.2d 55, 59 n. 7 (Okla.1985).

There is no question that the Commission had jurisdiction to enter the cost determination order. Nevertheless, Wagner & Brown contends that the Commission's finding that Ward acted as a reasonable and prudent operator cannot bar litigation of negligent drilling...