Ancora Corp. v. Miller Oil Purchasing Co.

• Decision Date: 30 January 1981
• Citation: 396 So.2d 672
• Parties: ANCORA CORPORATION, a corporation v. MILLER OIL PURCHASING COMPANY, a corporation, Ancora-Citronelle Corporation, a corporation, et al. MILLER OIL PURCHASING COMPANY, a corporation v. ANCORA CORPORATION, a corporation. 79-255, 79-293.
• Court: Alabama Supreme Court

Page 672

396 So.2d 672

ANCORA CORPORATION, a corporation v. MILLER OIL PURCHASING COMPANY, a corporation, Ancora-Citronelle Corporation, a corporation, et al.

MILLER OIL PURCHASING COMPANY, a corporation v. ANCORA CORPORATION, a corporation.

79-255, 79-293.

Supreme Court of Alabama.

Jan. 30, 1981.

Rehearing Denied March 24, 1981.

Robert E. Gibney of Kilborn & Gibney, Mobile, for appellant Ancora Corp.

Irvin J. Langford and John L. Lawler of Howell, Johnston, Langford, Finkbohner & Lawler, Mobile, for appellee Miller Oil Purchasing Co.

Albert W. Key of Hamilton, Butler, Riddick, Tarlton & Allen, Mobile, for appellee Gulf Oil Corp.

Willis C. Darby, Jr. and Paul D. Myrick, Mobile, for appellee Ancora-Citronelle Corp.

John A. Carey, Asst. Atty. Gen., for Amicus Curiae State Oil and Gas Board of Alabama.

JONES, Justice.

On the first appeal of this case, we reversed and remanded the Mobile Circuit Court's order granting motions for summary judgment. Ancora Corp. v. Miller Oil Purchasing Co., 361 So.2d 1008 (Ala.1978). Although the general background of this litigation is set forth in our initial opinion, a brief recital of the pertinent facts and the posture of the case may be helpful in understanding our treatment of the issues presented on the instant appeals.

In February of 1975, Miller Oil Purchasing Company initiated this litigation against (1) Ancora-Citronelle Corporation, (2) Ancora Corporation, and (3) numerous other parties who own an overriding royalty interest in certain wells situated in the East Citronelle Unit of the Citronelle Oil Field in Mobile County.

Miller, in its complaint, sought a declaratory judgment of its right to recover from one or more of the defendants monetary damages in the approximate amount of $83,000, representing an alleged overpayment for oil purchased by it from Ancora-Citronelle, as unit manager of the East Citronelle Unit, which had appropriated the oil from wells in which Ancora and the royalty owners owned an interest. Miller alleged different alternative theories of relief which it contended authorized recovery against at least one of the defendants.

In support of its position that Ancora-Citronelle is liable for such overpayment, Miller alleged that § 9-17-83(7), Code 1975, is unconstitutional as being in violation of due process of law. (The essence of this challenge is this: While §§ 9-17-7(b) and 9-17-83(4) provided for prior notice as a condition to a State Oil and Gas Board order approving unitization of oil and gas properties, no additional notice is required for appropriation pursuant to § 9-17-83(7).)

In the event the statute is found to be constitutional, Miller alleged that Ancora is responsible for the overpayment inasmuch as the funds paid by Miller to Ancora-Citronelle for the appropriated oil were applied to an indebtedness allegedly owed by Ancora to Ancora-Citronelle for ultimate credit to the overriding royalty owners; and thus Ancora should reimburse Miller for such payment.

Additionally, Miller alleged that, in the event neither Ancora-Citronelle nor Ancora is responsible, the overriding royalty owners should be liable, because Miller paid their interest when it was not legally obligated to do so.

Finally, Miller admits, and at all times during this litigation has admitted, owing to Ancora the approximate sum of $63,000 for oil purchased, unassociated with and not produced from the East Citronelle Unit; and, in the event the trial court determined Ancora not to be responsible to Miller, Miller offered to pay this sum to Ancora. In the event Ancora is found liable, Miller offers to offset its indebtedness to Ancora.

All the defendants who answered Miller's complaint denied any liability. Ancora filed a counterclaim seeking to recover compensatory damages from Miller, including the monies Miller admitted it owed to Ancora. In an amended counterclaim, Ancora also sought the imposition of punitive damages. In its amended answer, Ancora joined with Miller in asserting that the appropriation statute was unconstitutional.

Miller, Ancora-Citronelle, and Ancora all filed motions for summary judgment seeking specific relief: Miller seeking to recover from Ancora; Ancora-Citronelle seeking to be dismissed from the litigation; and Ancora seeking to recover its monies from Miller. No overriding royalty owner, individually or on behalf of all royalty owners, filed for summary judgment. The trial court's initial ruling was based upon the pleadings, affidavits, and other documents of record at that time.

On June 23, 1977, the trial court entered an order (1) finding that the appropriation statute was constitutional on the basis that no "state action" was involved in the oil appropriation, and (2) granting summary judgment to Ancora-Citronelle and dismissing it from the litigation. In its order, the court reserved for future determination the claims between Miller and Ancora. Upon reconsideration of its June order, the trial court on August 3, 1977, entered its final judgment on Miller's behalf against Ancora for the sum of $22,677.97, that being the difference between the alleged overpayment and the money owed by Miller to Ancora plus interest. We sustained Ancora's challenge of the propriety of this summary judgment on the first appeal and the case was remanded.

Additionally, in the original cause before the trial court, Ancora-Citronelle and Miller attempted to set up the res judicata effect of a California judgment in an action between Ancora and Ancora-Citronelle to estop Ancora from contesting the correctness of the charges arising from the appropriations. The trial court expressly held that both the correctness of the appropriation and the amount appropriated were settled in the California judgment. In reversing the trial court's granting of summary judgment, we pretermitted further discussion of the claims of res judicata presented in the first appeal.

After reversal and remand, upon a detailed stipulation of facts and a nonjury evidentiary hearing, the trial court in its final decree concluded: (1) the actions of Ancora-Citronelle, as unit operator, in appropriating the oil interests of Ancora were "private action" and hence not subject to the constitutional requirements of due process; (2) Miller was in privity with Ancora-Citronelle as a formal party to the California judgment and hence Miller possessed all the rights and benefits of the doctrine of res judicata; (3) Ancora was indebted to Miller for its overpayment for oil in an amount of.$19,720.42, after allowable credits, plus lawful interest; (4) the unitization statute was a constitutional exercise of the police power of the State and the action of the State Oil and Gas Board in 1964, ordering unitization of the East Citronelle Unit, afforded all interested persons full due process of law; and (5) under § 9-17-83(7), the royalty owners became subrogated to the rights of Ancora-Citronelle as unit operator against Ancora to the extent that the royalty owners' interest were appropriated to pay the delinquent costs and expense of unit operations due from Ancora. When Miller paid the overriding royalty owners the full amount attributable to their interests, Miller obtained those subrogation rights.

Accordingly, the circuit court entered a final judgment against Miller in favor of Ancora-Citronelle and the royalty owners, and in favor of Miller against Ancora. Ancora appeals the judgment against it, while Miller cross-appeals against Ancora-Citronelle and the royalty owners. We affirm as to both the appeal and the cross appeal.

I. APPROPRIATION OF OIL WITHOUT NOTICE AND A HEARING.

Initially, Ancora contends that the trial court erred in holding that the actions of Ancora-Citronelle, as unit operator of the East Citronelle Unit, in appropriating seven-eighths of the oil attributable to Ancora's tract, pursuant to § 9-17-83(7) (the provisions of which were incorporated in the pertinent article of the Unit Operating Agreement by order of the State Oil and Gas Board), did not constitute "state action," and thus did not violate procedural due process under the United States and Alabama Constitutions. We agree with this holding of the trial court.

Twelve years after the East Citronelle Unit was approved by the State Oil and Gas Board, Ancora has attacked the constitutionality of § 9-17-83(7) of the unitization statute. ¹ Ancora argues that the procedure of unit operations established by the unitization statute is unconstitutional insofar as § 9-17-83 requires that the unit operators have the authority to appropriate oil for the payment of unit expenses. ² Ancora contends:

The (unitization) statute speaks in terms of "shall" and not "may" .... In 1964 ... the (State Oil and Gas) Board, an admitted state agency for the State of Alabama, ordered the formation of the East Citronelle Unit. In its order ..., the Board in following the requirements of the statute, ordered the unit operations and further ordered that a provision for appropriation of an interest owner's oil as required by statute be included in the Unit Operating Agreement.

Clearly, the action of the Oil and Gas Board in 1964 was "state action" subject to the due process guarantees of the United States Constitution. The circuit court specifically found:

11. The taking of Ancora's property (in the constitutional sense) occurred not at the time of the appropriation by Ancora-Citronelle as unit operator but rather in late 1964, when the State Oil and Gas Board approved the East Citronelle Unit Operating Agreement which contained the unit operator's appropriation provision. As stated in Superior Oil Co. v. Humble Oil & Refining Co., 165 So.2d 905 (La.App.1964), a participant in a pooling agreement is "divested of sole and exclusive ownership and control of production from its well by operation of the unitization order ..." Id. at 907-08.

14. The only state action involved in forming the East Citronelle Unit, the action of the ...