Amoco Production Co. v. EM Nominee Partnership Co.

• Decision Date: 14 April 2000
• Docket Number: No. 96-321, No. 96-327.
• Citation: 2 P.3d 534
• Parties: AMOCO PRODUCTION COMPANY, Appellant (Plaintiff), v. EM NOMINEE PARTNERSHIP COMPANY, a/k/a Energy Methods Nominee Partnership Company, a Colorado Partnership, Hallwood G.P., Inc., and E.D.P. Operating, Ltd., Appellees (Defendants). EM Nominee Partnership Company, a/k/a Energy Methods Nominee Partnership Company, a Colorado Partnership; Hallwood G.P., Inc.; and E.D.P. Operating, Ltd., Appellants (Defendants), v. Amoco Production Company, Appellee (Plaintiff).
• Court: Wyoming Supreme Court

2 P.3d 534

AMOCO PRODUCTION COMPANY, Appellant (Plaintiff), v. EM NOMINEE PARTNERSHIP COMPANY, a/k/a Energy Methods Nominee Partnership Company, a Colorado Partnership, Hallwood G.P., Inc., and E.D.P. Operating, Ltd., Appellees (Defendants).

EM Nominee Partnership Company, a/k/a Energy Methods Nominee Partnership Company, a Colorado Partnership; Hallwood G.P., Inc.; and E.D.P. Operating, Ltd., Appellants (Defendants), v. Amoco Production Company, Appellee (Plaintiff).

Nos. 96-321, 96-327.

Supreme Court of Wyoming.

April 14, 2000.

Representing Amoco Production Company: Peter A. Bjork of Bjork, Lindley & Danielson, P.C., Denver, Colorado.

Representing Em Nominee Partnership Company, et al.: Thomas J. Kimmell of Zarlengo & Kimmell, LLC, Denver, Colorado; and J. Kent Rutledge and Lou Piccioni of Lathrop & Rutledge, P.C., Cheyenne, Wyoming.

Before LEHMAN, C.J., and THOMAS, MACY, GOLDEN, and TAYLOR,¹ JJ.

THOMAS, Justice.

The question that we must address here is whether expert testimony articulating the custom and practice in the industry can substitute for the sound of silence to fill a hole in a Unit Agreement and create an obligation to refund overriding royalties. Collateral issues are argued with respect to several theories for recovery of the royalties; a counterclaim for conversion; the effect of the statute of limitations; and the computation of interest. The trial court found that the Unit Agreement was not ambiguous, and it ruled that EM Nominee Partnership Company, a/k/a Energy Methods Nominee Partnership Company, a Colorado Partnership, Hallwood G.P., Inc., and E.D.P. Operating, Ltd. (EM Nominee) had no obligation to repay the royalties to Amoco Production Company (Amoco). Summary Judgment was entered in favor of EM Nominee on all claims asserted by Amoco and also on the claim of EM Nominee to recover royalties from other properties withheld by Amoco in an effort to collect the amount it claimed was due to it. We accept the careful and reasoned analysis by the trial court, and the Order on Motion to Amend Complaint and Motions for Summary Judgment and Judgment entered by the trial court is affirmed in all respects.

In the Brief of Appellant, Amoco Production Company, in Case No. 96-321 the issues are identified as:

A. Whether the District Court erred in granting summary judgment to Appellees (collectively "EM Nominee") on Appellant's ("Amoco") claim for breach of contract?

B. Whether the District Court erred in granting summary judgment to EM Nominee on Amoco's claim for unjust enrichment?

C. Whether the District Court erred in granting summary judgment to EM Nominee on Amoco's claim for conversion, the error including finding that Amoco's claim for conversion was barred by the statute of limitations?

D. Whether the District Court erred in granting EM Nominee summary judgment on its counterclaim for conversion against Amoco?

E. Whether the District Court erred in ruling that the damages recoverable on EM Nominee's counterclaim for conversion were not limited by application of the statute of limitations?

F. Whether the District Court erred in granting EM Nominee a judgment which included pre-judgment interest, when insufficient evidence supporting EM Nominee's interest calculations was submitted to the Court?

These same issues are adopted by reiteration in the Response Brief of Appellees, EM Nominee Partnership Company a/k/a Energy Methods Nominee Partnership Company, a Colorado Partnership, Hallwood G.P., Inc., and E.D.P. Operating, Ltd., in Opposition to Amoco's Appeal. In the Reply Brief of Appellant, Amoco Production Company, these additional statements of issues appear:

A. Summary of Argument.

B. Viewing the provisions of the Unit Agreement and Letter-In-Lieu of Transfer Order in the light most favorable to Amoco, material issues of fact exist which make the District Court's entry of summary judgment improper.

C. Amoco's payments to EM Nominee were not "voluntary." Judgment for EM Nominee on Amoco's claim for unjust enrichment must be vacated.

D. Amoco's claim for conversion was filed within four years after the claim accrued and is not barred by the statute of limitations.

E. The District Court erred in granting summary judgment to EM Nominee on its counterclaim for conversion because Amoco had a legal right to set-off proceeds from other properties.

F. The amount of the judgment entered in favor of EM Nominee fails to take into account the bar of the statute of limitations.

In Case No. 96-327, these issues are set forth in the Brief of Appellants, EM Nominee Partnership Company a/k/a Energy Methods Nominee Partnership Company, a Colorado Partnership, Hallwood G.P., Inc., and E.D.P. Operating, Ltd., on Cross Appeal:

A. Whether the District Court erred in granting Amoco summary judgment on EM Nominee's Counterclaim for breach of fiduciary duty?

B. Whether the District Court erred in granting Plaintiff, Amoco Production Company ("Amoco"), summary judgment on EM Nominee's Counterclaim for breach of contract?

In the Brief of Appellee, Amoco Production Company in Case No. 96-327, the issues are stated in this way:

A. The District Court properly entered judgment in Amoco's favor on EM Nominee's Counterclaim for breach of fiduciary duty, as no fiduciary relationship existed between the parties as a matter of law.

B. The District Court properly entered judgment in Amoco's favor on EM Nominee's Counterclaim for breach of contract.

In the Reply Brief of Appellants, EM Nominee Partnership Company a/k/a Energy Methods Nominee Partnership Company, a Colorado Partnership, Hallwood G.P., Inc., and E.D.P. Operating, Ltd., on Cross Appeal in Case No. 96-327, these additional issues are claimed:

A. Summary of Argument.

B. Genuine issues of material fact exist that preclude entry of summary judgment as to defendant's counterclaim for breach of fiduciary duty.

C. Summary judgment as to defendant's counterclaim for breach of contract was improperly granted.²

On August 2, 1973, UV Industries, Inc. (UV Industries), a predecessor in interest of EM Nominee, assigned a federal oil and gas lease covering 640 acres in Sweetwater County to Amoco, reserving a 6.25% overriding royalty. Contemporaneously with that assignment, a portion of the 640 acres was unitized and made subject to the Brady (Deep) Unit Agreement. This portion of the assigned leasehold was identified as Tract 11, and it became part of the participating area established for the Nugget "B" Formation within the unit. In order to commit Tract 11 to the Brady (Deep) Unit, Amoco and UV Industries executed a Unit Agreement, which provided in Article 11:

It is the intent of this section that a participating area shall represent the area known or reasonably estimated to be productive in paying quantities; but, regardless of any revision of the participating area, nothing herein contained shall be construed as requiring any retroactive adjustment for production obtained prior to the effective date of the revision of the participating area.

On April 23, 1975, the Bureau of Land Management (BLM) approved the participating area for the Nugget "B" Formation within the Brady (Deep) Unit. On November 28, 1975, the BLM approved a First Revision to this participating area, but Amoco objected to the revision. During a stay of the First Revision, the operator suspended payment of royalties from the participating area to UV Industries until November of 1976 when the proceeds attributable to the suspension were released, and payment of the royalties was resumed.

EM Nominee acquired the 6.25% overriding royalty interest in the lease owned by UV Industries as of March 1, 1984. On June 14, 1984, Amoco accepted a Letter-in-Lieu of Transfer Order which reflected the transaction between UV Industries and EM Nominee. The acquisition of this royalty interest by EM Nominee specifically was made subject to the Unit Agreement that had been executed between Amoco and UV Industries. Between the dates of March 1, 1985 and November of 1988, Amoco paid EM Nominee royalties on production from the participating area in the amount of $248,049.95.

Earlier in January of 1985, Champlin Petroleum Company (Champlin), the operator of the Brady (Deep) Unit, drilled and completed a well within the unit lands. The well was tested until October 31, 1985, when a month long test flow was concluded. On March 7, 1986, Champlin informed Amoco of its intent to apply for a Third Revision to the Brady (Deep) Unit Nugget "B" Formation participating area because of the poor test results on the well. Champlin also advised Amoco that it intended to request that the revision be made retroactive to March 1, 1985. The revision, if approved, would eliminate Tract 11, which included the land subject to EM Nominee's overriding royalty interest, from the participating area. Apparently, Amoco never advised EM Nominee of the Third Revision sought by Champlin.

Initially, Amoco opposed the revision proposed by Champlin, but on December 29, 1986, Amoco entered into a pooling agreement with other owners of leasehold interests in the participating area in order to preserve its revenue interest in the Nugget "B" Formation participating area. On May 2, 1989, in the absence of any opposition to the revision, the BLM approved the Third Revision, which excluded the land subject to EM Nominee's royalty interest from the participating area. The revision was made retroactive to March 1, 1985.

On May 30, 1991, Amoco requested that EM Nominee refund the royalties paid to it between March 1, 1985 and November of 1988. EM Nominee refused to reimburse Amoco for the $248,049.95 that had been paid pursuant to the Unit Agreement. Between March of 1990 and March of 1993, Amoco withheld $17,864.36 in proceeds from other EM Nominee properties that were not related to the Brady (Deep) Unit, and Amoco purported to set off the retained proceeds against its claim that EM Nominee should refund the royalties attributable to Tract 11...