Ballard & Cordell Corp. v. Zoller and Danneberg Exploration, Ltd.

• Decision Date: 13 December 1976
• Docket Number: No. 75-1900,75-1900
• Citation: 544 F.2d 1059
• Parties: Fed. Sec. L. Rep. P 95,755 The BALLARD & CORDELL CORPORATION, Plaintiff-Appellee, v. ZOLLER & DANNEBERG EXPLORATION, LTD. and Zoller & Danneberg, Inc., Defendants-Appellants and Counter-Plaintiffs-Appellants, v. Wiley P. BALLARD, Jr. and Robert R. Durkee, Additional Defendants-Appellees on Counterclaim.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1059

544 F.2d 1059

Fed. Sec. L. Rep. P 95,755

The BALLARD & CORDELL CORPORATION, Plaintiff-Appellee, v. ZOLLER & DANNEBERG EXPLORATION, LTD. and Zoller & Danneberg, Inc., Defendants-Appellants and Counter-Plaintiffs-Appellants, v. Wiley P. BALLARD, Jr. and Robert R. Durkee, Additional

Defendants-Appellees on Counterclaim.

No. 75-1900.

United States Court of Appeals, Tenth Circuit.

Argued and Submitted Sept. 23, 1976.

Decided Nov. 11, 1976.

Rehearing Denied Dec. 13, 1976.

William R. Fishman, Denver, Colo. (David H. Drennen, Denver, Colo., on the brief), for appellants.

Jeffrey L. Smith, Denver, Colo. (Marshall W. Taylor, Denver, Colo., on the brief), of counsel; Seawell, Cohen & Sachs, Denver, Colo., for appellees.

Before McWILLIAMS, BREITENSTEIN and BARRETT, Circuit Judges.

BARRETT, Circuit Judge.

Zoller & Danneberg Exploration, Ltd. and Zoller & Danneberg, Inc., defendants and counterclaimants below, hereinafter collectively referred to as ZDI, appeal from two orders of the District Court, to-wit: (1) the order of October 9, 1974, dismissing certain affirmative defenses and counterclaims of ZDI alleged to arise under § 12(2) of the Securities Act of 1933 and § 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and (2) the order and judgment of October 22, 1975, granted in favor of appellee, Ballard & Cordell Corporation, hereinafter referred to as B & C, and against ZDI in amount of $63,473.75 and costs and dismissing with prejudice ZDI counterclaims against B & C, Wiley P. Ballard, Jr. and Robert R. Durkee. Jurisdiction exists by reason of diversity of citizenship. B & C is incorporated under the laws of and maintains its principal place of business in Georgia. ZDI are incorporated under the laws of and maintains its principal offices and places of business in Colorado.

Trial was to the court. B & C initiated the action in 1973, alleging that it contracted with ZDI to sell its 50% working interests in certain oil and gas lease units relating to lands situate in the State of Oklahoma with two producing oil wells located thereon, one on each of the said two lease units, for the sum of $105,000.00. B & C contends that it has, at all times since entering into the contract, been ready, willing, and able to perform its covenant to sell but that ZDI has breached the contract and damaged B & C by reason of its refusal to purchase. In its basic defense to the suit, ZDI denies the existence of a valid, enforceable contract. Seven affirmative defenses were advanced, together with a three-count counterclaim.

A somewhat detailed review of the evidence is necessary to aid in our disposition of the contentions presented. We proceed with this review mindful that the appellate court must view the evidence in the light most favorable to the prevailing party and must affirm the trial court findings and conclusions unless they are clearly erroneous. Fed.Rules Civ.Proc. Rule 52, 28 U.S.C.A.; Garcia v. Gray, 507 F.2d 539 (10th Cir. 1974), cert. denied, 421 U.S. 971, 95 S.Ct. 1967, 44 L.Ed.2d 462 (1975); Scaramucci v. Dresser Industries, Inc., 427 F.2d 1309 (10th Cir. 1970).

ZDI were engaged primarily in the business of oil and gas exploration, commencing about March of 1969, during which time ZDI operated wells, participated in drilling operations and acquired oil and gas properties, including producing acreage. Henry Eugene Zoller, Jr. (Zoller, Jr.) served as president of both corporations (ZDI) during the times here involved. His professional background was that of a geological engineer. During the months of August and September, 1972, ZDI had "in house" technical staff which included engineers, petroleum engineers, petroleum geologists, accountants and landmen.

On December 4, 1970, ZDI received an offer from Texas Oil and Gas Corporation to acquire a 25% working interest in the "Adams Unit," one of the two wells here involved. ZDI acquired the interest and participated in the drilling of the Adams well on a joint venture basis with Texas Oil and Gas and B & C. ZDI had entered into many "deals" with Texas Oil and Gas of like nature prior thereto.

An offer was made by B & C in August of 1972 via brochures and an accompanying letter for the sale of its entire 50 percent working interest in two producing wells and the respective leasehold units, to-wit, Adams No. 1 and Eversole No. 1. The brochures were distributed to those engaged in similar enterprises. The brochures clearly stated that the information and data related therein was preliminary only and that any interested purchaser should seek additional information and data from B & C offices. As previously noted, ZDI was then the owner of a 25% working interest in Adams No. 1 and its lease unit. ZDI undertook negotiations with B & C for the purchase of B & C's interests. Zoller, Jr. played a "direct role, actually, in controlling the people who negotiated with their engineers." (R., Vol. I, p. 83). He testified that after the brochures were received ". . . we went to work immediately evaluating them . . . we were attempting to get updated information because we felt that the information we had was extremely out of date." (R., Vol. I, p. 84). Zoller, Jr. did not recollect that any specific request was made of B & C for updated information. He testified that a purchaser of any oil or gas well has risk in relation to unknowns and for that reason ZDI spent a great deal of time getting updated information on the wells. To this end, Zoller, Jr. employed for ZDI an "outside" consultant, one Norman Adams, to "evaluate the two wells along with our in-house petroleum engineer, Mr. Lueck." (R., Vol. I, p. 87). Adams and Lueck conducted an investigation. They made numerous telephone calls. Zoller, Jr. testified that he was made aware of reserve estimates relating to both wells supplied to B & C by Kiplinger & Associates, dated March 1, 1971, and March 1, 1972, and that Norman Adams made a similar report and estimate for ZDI. Adams' evaluation report was not submitted to B & C. Mr. Lueck, who had earned B.S. and M.S. degrees in petroleum engineering and who had worked for Continental Oil Company nine years and for King Resources three years, testified that his particular expertise employed with ZDI involved all aspects of production and operations; that he was very familiar with the procedures utilized by petroleum engineers in estimating recoverable reserves; that the most accepted method is to plot pressure versus cumulative production; that the fair market value of a producing property is directly related to the estimate of reserves; that he and Norman Adams, the independent consultant, were directed by ZDI to evaluate the Adams and Eversole wells; that the only pressure data that he and Adams reviewed and relied upon for evaluation purposes was the "initial" pressure data which did not reflect the substantially lower pressure data obtained by B & C and Texas Oil and Gas prior to recommendation that ZDI submit that which he and Adams believed to be a reasonable purchase offer for the B & C interests in the two wells and lease units, in amount of $105,000.00. This offer was tendered by ZDI via a telegram to B & C on September 8, 1972, subject only to delivery of merchantable title, said purchase to be effective October 1, 1972. The telegram was confirmed on a follow-up basis by a letter from ZDI to B & C on September 12, 1972. B & C evidenced acceptance by tendering the lease assignments on September 26, 1972. The lease assignments were acknowledged as correct and proper in a letter from ZDI requesting that prior to payment ZDI needed additional abstracts of title, additional title information on the Adams well-lease unit, title opinions and supplemental abstracts relative to the Eversole well-lease unit, and a bill of sale and inventories of equipment on the units being sold. All but a portion of the title material was thereafter supplied by B & C. There was considerable discussion and correspondence between the parties and attorneys relating to title requirements. On December 15, 1972, ZDI wrote B & C advising that it was withdrawing the offer to purchase because of delays in supplying title information and the fact that the "title to your interest in the above units is not merchantable . . ."

The trial court found that, (a) although merchantable title had not been furnished by B & C at the date of ZDI's withdrawal of the offer to purchase, that the outstanding title defects could have been adequately corrected by B & C, (b) from September of 1972 to December 15, 1972, the production and well pressure information and data relating to Adams No. 1 well reflected a decline, and that this information was available to ZDI as an owner of a working interest in the well, (c) ZDI attempted to terminate the contract of purchase by its letter of December 15, 1972, because of the decline in production and pressure as to Adams No. 1 well and not because of B & C's failure at that time to have furnished full merchantable title to the two units. The trial court placed substantial reliance for its finding set forth in (c) above on the fact that in January, 1973, Texas Oil and Gas Corporation, the operator, recommended to all parties in interest, including ZDI, that Adams No. 1 well be plugged and abandoned because it was no longer commercially feasible to continue its operation, based upon the decline in production and pressure data reflected in a report filed with the State of Oklahoma early in November of 1972. The court further found that ZDI did not terminate the agreement because of title deficiencies, as evidenced by an agreement between B & C and ZDI to expend funds as late as May of 1973 to rework the Adams No. 1 well in the hope of increasing its production. The trial court found that the "declining production and pressure of the Adams well prior to December 15, 1972, and May, 1973, support a finding that the defendant attempted to...