Britton v. Green, 7242.

• Decision Date: 29 November 1963
• Docket Number: No. 7242.,7242.
• Citation: 325 F.2d 377
• Parties: Carroll W. BRITTON, W. R. Britton, Rachel Jane Ballou and Fred Ballou, Appellants, v. Milton M. GREEN, Donald C. Bloink, Morgan Hockenberger, Margaretta C. Hockenberger, Ronald E. Mitchell and W. A. Thompson, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

325 F.2d 377 (1963)

Carroll W. BRITTON, W. R. Britton, Rachel Jane Ballou and Fred Ballou, Appellants, v. Milton M. GREEN, Donald C. Bloink, Morgan Hockenberger, Margaretta C. Hockenberger, Ronald E. Mitchell and W. A. Thompson, Appellees.

No. 7242.

United States Court of Appeals Tenth Circuit.

November 29, 1963.

COPYRIGHT MATERIAL OMITTED

Carloss Wadlington, Ada, Okl., for appellants.

John H. Cantrell, of Cantrell, Douglass, Thompson & Wilson, Oklahoma City, Okl., (Lee B. Thompson, Oklahoma City, Okl., with him on brief), for appellees.

Before MURRAH, Chief Judge, and PHILLIPS and SETH, Circuit Judges.

MURRAH, Chief Judge.

This is an interlocutory appeal, pursuant to 28 U.S.C. § 1292(a) (2), from an Order of the District Court appointing a Receiver for oil properties in Lincoln County, Oklahoma. The diversity suit, brought by Michigan citizens against citizens of Oklahoma, asserted two claims. The first is to the effect that the plaintiffs are the separate, legal and equitable owners of undivided fractional interests in two oil and gas leases in Lincoln County (known as the Hopkins and Rives Leases), under written agreements with Carroll W. Britton, wherein she, as owner of the leases, agreed to deliver to the "Purchaser" a specified undivided fractional interest in the leases, less any overriding royalty interest of record, and wherein she agreed to drill and complete a well on each of the leases and operate the same "to the mutual interest of all parties hereto, as economically as good business judgment will warrant;" that Britton and her husband did drill, or cause to be drilled, a well on each of the leases; and, that as authorized agents of the plaintiffs and other owners of undivided working interests, they violated their fiducial obligations to the plaintiffs, by failing to properly complete the wells and by misoperating and mismanaging both leases, to the irreparable damage of the plaintiffs. The prayer was for a temporary restraining order, enjoining the Brittons from continuing the operation of the leases, from removing or disposing of any of the property on either of the leases or any of their interest therein, for an accounting, and for the appointment of an operating Receiver.

The second claim is asserted only by plaintiff Mitchell. It alleges the execution of a promissory note in the amount of $20,000 to Mitchell, by defendant Fred Ballou, for and on behalf of himself and as the authorized agent of the Brittons and Rachel Jane Ballou, and the execution of a mortgage by the said Ballou, on behalf of himself and as agent for the Brittons and Rachel Jane Ballou, to secure the promissory note, covering an undivided one-fourth interest in both the Hopkins and Rives Leases. The claim alleged default in payment of the note, and the failure of the mortgagors to efficiently operate the oil and gas leases, to keep and maintain the mortgaged property in good state of repair, and to cure title defects as required by the mortgage. The prayer was for judgment on the note plus interest and attorney fees, foreclosure of the mortgage, and appointment of a Receiver to operate the oil and gas leases pendente lite, as provided by the terms of the mortgage.

Pursuant to notice and hearing, the Court specifically found that it had jurisdiction of the parties and the subject matter; that the Brittons had violated the contract with plaintiffs and had mismanaged and misoperated the oil and gas leases, resulting in waste and drainage of gas from the Hopkins Lease by off-set wells; and, that they had failed to operate the well on the Rives Lease and had removed the tanks therefrom, without accounting to the plaintiffs therefor. The Court further found that the note was in default more than one year; that the mortgagors had violated the terms of the mortgage by failing to keep and maintain the leases in good repair and efficiently operate them in a workmanlike manner, thus impairing the mortgagee's security; and, that a Receiver should therefore be appointed for both oil and gas leases. A Receiver was appointed and ordered to take immediate possession of the leases and operate the same pursuant to Order of the Court.

Thereafter, the Brittons and the Ballous moved to dismiss the first claim, and to vacate the Order appointing the Receiver, alleging that when the suit was commenced, certain other named citizens of the State of Michigan were also owners of undivided fractional interests in both leasehold estates; that they are indispensable parties to the suit; and, that the Court was without authority to appoint a Receiver for their undivided interests in the properties in their absence. In their separate answer, the Brittons admitted the asserted respective interests of the plaintiffs in the oil and gas leases, subject to the right of Carroll W. Britton, under the agreements, to receive the proceeds of the oil and gas runs, and to be paid the expense of operating the oil and gas leases. The answer reiterated the indispensability of the non-party Michigan resident owners of undivided fractional interests in the same oil and gas leases, and alleged that their alignment as parties defendant in the suit would destroy requisite diversity of citizenship.

Answering the second claim, the Brittons admitted the execution of the note and mortgage, as attached to the complaint, but denied that either of the Brittons were personally liable on said note and stated in that connection that Carroll W. Britton was holding in trust an undivided one-fourth interest in the leasehold estate for the benefit of the mortgage, and that such one-fourth interest was subject to the mortgage.

The Ballous adopted the Brittons' answer to the first claim. They also adopted the Brittons' answer to the second claim, with respect to the note and mortgage, but specifically alleged that the provisions of the mortgage pertaining to appointment of the Receiver were inapplicable in this action, since the mortgage covered only a fractional undivided interest in the leasehold estate, the other interests being owned by persons not parties to the mortgage. Finally, Fred Ballou claimed credit for all payments on the note, and prayed that the mortgage be adjudged a lien only upon the interest held in trust by Carroll W. Britton, for the benefit of the mortgage.

The defendant Thompson answered, admitting the ownership of an undivided one-fourth interest in the Hopkins Lease, subject to an overriding interest of record. He admitted that the Hopkins Lease was being drained by wells on adjoining leases and that immediate action should be taken by the operator to sell the gas from the Lease. He had no objection to the Receivership, provided it was terminated early and its expense kept to a minimum.

On hearing for appointment of Receiver, the Court received in evidence the Journal Entry of a Judgment of the State District Court of Lincoln County, in a quiet title action by all of the parties to this suit and the other Michigan owners of undivided interests in the two oil and gas leases. The State Court Judgment purported to finally adjudicate the respective undivided interests of all the claimants in the Hopkins Lease, in the fractional proportions set out in the margin.¹ The State court proceedings did not involve the Rives Lease, but it seems to be agreed that all of the parties own approximately the same undivided fractional interest in that Lease. The State Court Judgment recited that the respective fractional interests of the Michigan residents, who are not parties to this suit, were held in trust by Carroll W. Britton. The undivided interests of all the parties are evidenced by the same form of agreement, under which Britton is designated as operator of the Leases, with the right to purchase the oil produced at the posted price, for the credit of the other interest holders, and with the duty to manage and operate the Leases for the mutual interest of all the leaseholders.² All of the fractional interest holders are thus co-tenants in the leasehold estates, subject to the separate but uniform operating agreements with Britton. See: Earp v. Mid-Continent Petroleum Corporation, 167 Okl. 86, 27 P.2d 855, 91 A.L.R. 188; Taylor v. Brindley, 10 Cir., 164 F.2d 235; Carter Oil Co. v. Crude Oil Co., 10 Cir., 201 F.2d 547; and Kuntz Law of Oil and Gas, Vol. 1, Ch. 5. It is on this operating agreement that the absent Michigan interest holders are said to be indispensable parties to a suit for appointment of a Receiver. The best of this argument is to the effect that by their agreements with Britton, they designated her as the operator of their leasehold estates, and the appointment of a Receiver, ousting her from operation of the leaseholds, is an unwarranted interference with their contract rights.

Before we reach the question of indispensability, we must heed the frequently stated admonition, "* * * that a federal court of equity should not appoint a receiver where the appointment is not a remedy auxiliary to some primary relief which is sought and which equity may appropriately grant." Kelleam v. Maryland Casualty Co., 312 U.S. 377, 381, 61 S.Ct. 595, 85 L.Ed. 899. And see: Pusey & Jones Co. v. Hanssen, 261 U.S. 491, 43 S.Ct. 454, 67 L.Ed. 763; and Inland Empire Insurance Co. v. Freed, 10 Cir., 239 F.2d 289. This is so, even though a State court, exercising concurrent jurisdiction, may have appropriately appointed a Receiver in the same circumstances. See: Pusey & Jones Co. v. Hanssen, ibid.; and Inland Empire Insurance Co. v. Freed, ibid. Cf. Cameron v. White, 128 Okl. 251, 262 P. 664. And see: Title 12 O.S. § 1551. The only purpose of the first claim is a conservatory Receivership, and it was improper, regardless of the indispensability of parties.

But, different considerations govern the propriety of the Receivership under the second claim by mortgagee Mitchell. He seeks judgment on the note and foreclosure of his mortgage, covering an undivided interest...