Brumark Corp. v. Samson Resources Corp., s. 94-6113
| Decision Date | 13 June 1995 |
| Docket Number | Nos. 94-6113,94-6174,s. 94-6113 |
| Parties | BRUMARK CORPORATION, a Delaware Corporation; Bruce Steinberg, an individual; Imperial Lease Fund, Ltd., a California limited partnership; Brumark Imperial Natural Gas and Oil, Inc., a California corporation, its General Partner; Steinberg Associates, Ltd.--1979 Oil and Gas Program, a California limited partnership; Brumark Corporation, General Partner; Bruce Steinberg, General Partner, Plaintiffs-Appellants, v. SAMSON RESOURCES CORPORATION, an Oklahoma corporation; Dyco Petroleum Corporation, a Minnesota Corporation; Premier Gas Company; Samson Natural Gas Company, an Oklahoma corporation; Dyco Gas Marketing, Inc., a wholly owned subsidiary of Dyco Petroleum Corporation, Defendants-Appellees. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Matthew Standard (James A. Kirk with him, on the briefs) of Kirk & Chaney, Oklahoma City, OK, for appellees.
Richard A. Grimes (Jerry Day with him, on the briefs) of Grimes, Gelders, Anderson & Day, Oklahoma City, OK, for appellants.
Before ANDERSON, BARRETT and BALDOCK, Circuit Judges.
In these consolidated appeals, we review an order of the district court dated February 25, 1994, granting a motion to dismiss filed by Samson Resources Company, an Oklahoma corporation, et al. (Samson or appellees), against Brumark Corporation, et al., (appellants), and an order of the district court dated March 29, 1994, denying appellants' motion for reconsideration or alternative relief.
Appellants owned oil and gas leasehold interests in Section 8-T12N-R26W, Roger Mills County, Oklahoma. In the early 1980's, a well, designated as Davis # 1-8, was drilled in Section 8, completed as a commercial natural gas producer operated by Samson. After Davis # 1-8 was completed, Dyco Petroleum Corporation (Dyco) completed a well designated as Davis # 1-7 in adjoining Section 7. Samson subsequently acquired Dyco's leasehold interest in Sections 7 and 8.
On March 18, 1986, the Oklahoma Corporation Commission (OCC) issued Order No. 294864 (the order), classifying eight sections of land in Roger Mills County, including Sections 7 and 8, as a special allocated pool. 1 The order established detailed field rules governing production, whereby OCC would set monthly production levels for each well in the pool based upon the results of an annual flow test, market demand, and relative ownership in the pool. (Appellants' Appendix at 34-36).
In 1988, a second gas well, Tucker # 2-8, was drilled and completed in Section 8 by Steinberg Associates, Ltd.
In April, 1993, Brumark, on behalf of itself, Steinberg Associates, Ltd., and others, requested that Samson curtail production at the Davis # 1-7 well immediately, to prevent it from taking an undue proportion from the common pool through drainage of Section 8. When Samson refused, appellants filed this suit, alleging that Samson had violated duties imposed by the OCC order. Appellants sought damages for conversion.
Appellants' Amended Complaint alleged that: appellees were depriving them of their fair share of gas, and hence were engaging in conversion; appellees had manipulated the allowable procedures under the OCC's order and had misrepresented the production of the Davis # 1-7 well; appellees had breached their duty not to take an undue proportion of oil and gas from the common supply; and appellees were in breach of their fiduciary duty to appellants as common owners of the oil and gas interests in the common supply. Appellants did not challenge the validity of the order or allege that Samson was producing more than the monthly production levels set by the OCC under the order. 2 Id. at p. 8.
Appellees moved to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and (6), contending that since appellants' action required them [appellants] to establish appellees' liability under the order, and since establishing such liability required a determination of the order, the matter was within the exclusive province of the OCC; thus, the district court should defer to the OCC as the proper forum to settle the dispute.
On February 25, 1994, the district court entered an order granting appellees' motion to dismiss, finding/concluding, inter alia: ultimately, appellants' cause of action is designed to enforce the order; no breach of duty or obligations alleged by appellants flows from a private agreement independent of the order; the underlying theory of appellants' claims is that the order is no longer an effective instrument to allocate the relative rights of the parties; central to this inquiry is the integrity of the order itself; and since any violation of the order would necessarily affect the correlative rights of the common owners and undermine the OCC's ability to safeguard public rights, the court must defer to the OCC as the appropriate forum for adjudication.
Appellants moved for reconsideration or alternative relief. On March 29, 1994, the district court entered an order denying appellants' motion, finding/concluding, inter alia: a motion for reconsideration is an extreme remedy to be granted in rare circumstances; the decision to grant reconsideration is committed to the sound discretion of the district court; in exercising that discretion, courts consider whether there has been an intervening change in the law, new evidence, or the need to correct clear error or to prevent manifest injustice; none of these three factors has occurred or is present; and appellants have failed to present any rationale for reconsideration save their disagreement with the court's conclusion.
The district court also rejected appellants' request that it stay the proceedings to toll the relevant statute of limitations, concluding that there were no proceedings then presently before the court and that the appellants had not presented any compelling reasons as to why the court should toll the statute of limitations on their claims.
Appellants contend in No. 94-6113 that: (1) the district court has subject matter jurisdiction to entertain appellants' action for money damages predicated on the violation of duties owed by appellees; (2) the district court is not precluded by state law from adjudicating the issue of a violation of the OCC's order; assuming that the district court was correct in deferring to the OCC on the question of violation of the order, the court should have stayed or suspended appellants' case pending resolution by the OCC, rather than dismissing the case for lack of jurisdiction; and (3) the district court erred in finding that it lacked jurisdiction to hear a claim for conversion.
Appellants contend in No. 94-6174 that the district court erred in denying their motion for reconsideration or alternative relief.
We review the district court's order of dismissal for lack of subject matter jurisdiction or failure to state a claim upon which relief can be granted de novo. Maddick v. United States, 978 F.2d 614, 615 (10th Cir.1992); Johnson v. Thompson, 971 F.2d 1487, 1492 (10th Cir.1992), cert. denied, --- U.S. ----, 113 S.Ct. 1255, 122 L.Ed.2d 654 (1993).
Appellants contend that the district court has subject matter jurisdiction to entertain their action for monetary damages predicated upon appellees' violation of duties appellees owed to them.
Appellants argue that since the OCC has already adjudicated the correlative rights of the parties under the order, they may proceed with their tort action against appellees in the district court. Appellants argue that they are not seeking relief which impinges on the exclusive authority of the OCC, but rather they seek to enforce rights private in nature arising from the appellees' breach of "the duties owed to owners of oil and gas interests in a common source of supply of gas regulated by the Commission." (Brief for Appellants at 6).
Oklahoma's Oil and Gas Conservation Act, 52 Okla.Stat.Ann. Sec. 81, et seq., was established to prevent waste and to protect correlative rights. Atlantic Richfield Co. v. Tomlinson, 859 P.2d 1088, 1095 (Okla.1993). In Kingwood Oil Co. v. Corporation Commission, 396 P.2d 1008, 1010 (Okla.1964), the Oklahoma Supreme Court stated:
The term 'correlative rights' has been defined as a convenient method of 'indicating that each owner of land in a common source of supply of oil and gas has legal privileges as against other owners of land therein to take oil and gas therefrom by lawful operations conducted on his own land, limited, however, by duties to other land owners not to injure the source of supply and by duties not to take an undue proportion of the oil and gas.' Summers Oil and Gas, Vol. 1, Sec. 63.
"The term correlative rights refers to all the rights and duties which exist between mineral owners with regard to a common source of hydrocarbon supply." Pelican Production Corp. v. Wishbone Oil & Gas, Inc., 746 P.2d 209, 211-12 (Okla.App.1987).
The OCC "has the sole authority to adjust the equities and to protect the correlative rights of interested parties." Woods Petroleum Corp. v. Sledge, 632 P.2d 393, 396 (Okla.1981). The OCC's power to protect correlative rights is governed by the terms of 52 Okla.Stat.Ann. Sec. 87.1. In Samson Resources Co. v. Corporation Commission, 702 P.2d 19, 22 (Okla.1985), the Oklahoma Supreme Court addressed this statute:
Under this statute the Commission properly exercises its power to protect correlative rights by the establishment of spacing units and the setting of allowable production. This allows protection of the public interest in orderly development and production of resources and the prevention of the drilling of unnecessary wells. The setting of allowables on production insures that no one party or parties take an undue proportion of the oil and gas.
In Nilsen v. Ports of Call Oil Co., 711 P.2d 98, 103 (Okla.1985), the court observed that:
where the parties, such as here, are...
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