Blocker Exploration Co. v. Frontier Exploration, Inc., s. 85SC300

Decision Date27 July 1987
Docket NumberNos. 85SC300,85SC302,s. 85SC300
PartiesBLOCKER EXPLORATION COMPANY, a Texas Corporation, Petitioner, v. FRONTIER EXPLORATION, INC., a Colorado Corporation, Respondent. FRONTIER EXPLORATION, INC., a Colorado Corporation, Petitioner, v. BLOCKER EXPLORATION COMPANY, a Texas Corporation, Respondent.
CourtColorado Supreme Court

Holt & Gebow, P.C., L. Tyrone Holt, Thomas E. Gebow, Elsa D. Burchinow, Denver, for Blocker.

Davis, Graham & Stubbs, Glen E. Keller, Jr., Glenn W. Merrick, Christopher L. Richardson, Denver, for Frontier.

VOLLACK, Justice.

In separate cases, the parties appeal from the court of appeals' holding in Frontier Exploration, Inc. v. Blocker Exploration Co., 709 P.2d 39 (Colo.App.1985). Frontier Exploration, Inc. [hereinafter Frontier] appeals from the court of appeals' holding that because Blocker Exploration Company [hereinafter Blocker] and Lewis Energy Corporation [hereinafter Lewis] had not entered into a mining partnership, Blocker was not liable for Lewis' debt to Frontier. Blocker appeals from the court of appeals' holding that because Blocker did not file notice of cross-appeal on certain additional issues raised in its brief, Blocker had failed to file a timely notice of appeal and the appellate court did not have jurisdiction to address the additional issues. The two cases are consolidated for purposes of appeal. On the mining partnership issue, we affirm the court of appeals' decision. We disapprove the court of appeals' conclusion on the timely notice of appeal issue.

I.

This dispute arises from a series of agreements concerning the exploration and development of oil and gas leases in the State of Michigan. In January 1981, Lewis entered into an agreement with Great Lakes Niagaran [hereinafter GLN] whereby GLN assigned its rights in certain Michigan oil and gas leases to Lewis. The GLN-Lewis agreement designated Lewis as the operator for exploration and development of the leases, and provided that Lewis and GLN would enter into an operating agreement before any drilling began. An unexecuted operating agreement was appended to the GLN-Lewis agreement. In exchange, GLN received a reversionary 15% working interest.

In February 1981, Lewis entered into an agreement with Frontier. Frontier was to conduct seismic work on the Michigan leases, 1 in exchange for fees and expenses as set out in the agreement.

In March 1981, Lewis assigned a portion of its interest in the Michigan leases to Blocker. The Lewis-Blocker agreement gave Blocker a 25% working interest; in exchange, Blocker agreed to contribute certain sums to overhead, pay one-third of Lewis' out-of-pocket expenses for the reconnaissance seismic program, up to $750,000 (and one-fourth of such costs thereafter), and 25% of the costs incurred for the detailed seismic survey if Blocker elected to participate in that stage of the exploration and development. Blocker and Lewis also agreed to share data and interpretation. Finally, the agreement provided that unless otherwise indicated, the parties' rights would be governed by the GLN-Lewis contract.

Frontier performed the reconnaissance seismic work for Lewis, from March through September of 1981. In February 1982, Lewis filed bankruptcy. At that time, Frontier had only been paid a portion of the fees it was owed for the seismic work it had performed under the Lewis-Frontier agreement. Unable to satisfy the outstanding debt through Lewis' bankruptcy proceeding, Frontier filed suit against Blocker, claiming that Blocker was liable for Lewis' debts because a mining partnership existed between Lewis and Blocker.

Frontier and Blocker both filed motions for summary judgment, with Frontier alleging that a mining partnership existed by operation of law, and Blocker contending that such a partnership did not exist.

Based on the agreements presented by the parties (which were not disputed), the trial court granted Blocker's motion for summary judgment. The trial court held that because one of the required elements of a mining partnership--namely, joint operation--was absent, no mining partnership existed. The trial court did not rule on the issues of laches and estoppel, Frontier's election to treat Lewis as solely liable for the debt, and the absence of Blocker's ratification of a prepartnership debt; Blocker raised these alternative issues in its defense.

Frontier appealed, seeking reversal of the trial court's entry of summary judgment on the mining partnership issue. Blocker did not file notice of cross-appeal. However, in its answer brief, Blocker raised in its defense the issues not decided by the trial court: laches and estoppel, Frontier's election to treat Lewis as solely liable for the debt, and the absence of Blocker's ratification of Lewis' prepartnership debt. The court of appeals affirmed the trial court's order of summary judgment on the mining partnership issue, but declined to address the additional and alternative issues raised by Blocker because Blocker had not filed notice of cross-appeal.

Blocker and Frontier separately filed petitions for writ of certiorari to this court. We granted both petitions and consolidated the cases.

II.
A. Elements of Mining Partnership

"Mining Partnerships developed as a special type of partnership peculiarly adapted to serve the mining industry (including the oil and gas field)." Mud Control Laboratories v. Covey, 2 Utah 2d 85, 91, 269 P.2d 854, 858 (1954). Mining partnerships have been recognized for the purpose of "impos[ing] joint and several liability on nonoperating interest owners in favor of third parties transacting business with or injured by a mineral venture." Boigon & Murphy, Liabilities of Nonoperating Mineral Interest Owners, 51 U.Colo.L.Rev. 153, 154 (1980). Oil and gas partnerships are treated as a type of mining partnership for purposes of analysis.

The three essential elements of a mining partnership are: (1) joint ownership; (2) joint operation; and (3) an express or implied agreement to share profits and losses. Mud Control Laboratories, 2 Utah 2d at 91-92, 269 P.2d at 858. This mining partnership test has been adopted in the jurisdictions which have addressed this issue. Gilroy v. White Eagle Oil Co., 201 F.2d 113 (10th Cir.1952) (applying Oklahoma law); Gilbert v. Fontaine, 22 F.2d 657, 661 (10th Cir.1927) (applying Kansas law); Edwards v. Hardwick, 350 P.2d 495, 501-02 (Okla.1960); Lyons v. Stekoll, 186 Okla. 94, 96 P.2d 60 (1939). See Fiske, Mining Partnership, 26 Inst. on Oil & Gas L. & Tax'n 187, 193 (1975).

If a mining partnership exists, the partners are characterized as operators and have a limited power (less than the power of a general partner) to bind other members of the partnership. Smaller v. Leach, 136 Colo. 297, 313, 316 P.2d 1030, 1040 (1957). Frontier asks us to find that Lewis and Blocker were partners, and that Lewis had the power to bind Blocker, leaving Blocker liable on the Lewis-Frontier contract.

The parties conceded the existence of joint ownership. The record shows, and the parties do not dispute, that Lewis and Blocker agreed to share profits and losses. The element of joint operations is the critical issue presented by these facts.

B. Joint Operations

As pointed out by the court of appeals, other jurisdictions have formulated various standards for determining what constitutes joint operation. Co-ownership alone does not give rise to a mining partnership. Williston Oil & Gas Co. v. Phoenix Ins. Co., 271 F.2d 745, 746 (10th Cir.1959) (applying Wyoming law). All investors are not mining partners by virtue of holding a working interest in an oil or gas lease. Dunbar v. Olson, 349 Ill.App. 308, 110 N.E.2d 664 (1953). The court of appeals correctly held that "the determining factor is related to the degree of active participation in control or management of the venture that is exercised by a co-tenant or co-owner." Frontier Exploration, Inc., 709 P.2d at 42 (emphasis added).

The issue then becomes: what rights and actions of co-owners rise to the level of active participation in control or management, rendering them mining partners and not mere co-owners or investors?

Texas has held that the right of a co-owner to give counsel to the company does not make the co-owner a partner. Templeton v. Wolverton, 142 Tex. 422, 179 S.W.2d 252 (1944). Nor does the right to approve certain expenditures, the right to take in kind, or the right of access to the site. Ayco Dev. Co. v. G.E.T. Serv. Co., 616 S.W.2d 184 (Tex.1981); Youngstown Sheet & Tube Co. v. Penn, 355 S.W.2d 239 (Tex.Civ.App.1962), modified, 363 S.W.2d 230 (Tex.1963). In Berchelmann v. Western Co., 363 S.W.2d 875 (Tex.Civ.App.1962), the appellants were held not liable as partners because "the very operating agreements themselves, wherein appellants were designated as the 'non-operators' and Texita as the 'operator' do not contain the basic elements of sharing of liability, control, risk and profits, along with the elements of agency, necessary to constitute a partnership or mining partnership." Id. at 876-77. Other factors in Berchelmann included the non-operators' contribution of a portion of the operator's expenses (while the operator controlled drilling and production), the operator's exclusive management and control of operations, and the fact that the operator's purchase of labor and materials was charged to accounts in the operator's name only. Id. at 877. The Texas Court of Appeals has held that joint operation was not established by proof that the non-operator counseled the operator, was present at the well and interested in the drilling results, and knew there was a contract which failed to authorize the operator to create liability to third parties binding on the non-operator. U.S. Truck Lines v. Texaco, Inc., 337 S.W.2d 497, 500 (Tex.Civ.App.1960).

Oklahoma has held that the assignee of an interest in an oil and gas lease was not liable to a third party creditor as a mining partner because his...

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