Carlson v. Flocchini Investments
Decision Date | 15 February 2005 |
Docket Number | No. 04-49.,04-49. |
Parties | C.E. CARLSON and Iris M. Carlson, Trustees of the Carlson Family 1982 Trust; Michael H. Samuels; William Samuels; Babit Limited Partnership; Estate of Frank L. Shogrin, by and through Gay Woodhouse, Personal Representative; James D. Medema and Millie M. Medema, Trustees of the Medema Family Trust; Edna Mae Walker, Trustee of the Edna Mae Walker Revocable Trust; Valorie Walker, Trustee of the Jack V. Walker Revocable Trust; Peter T. Balog; and Lowell A. Rasmussen, Appellants (Plaintiffs), v. FLOCCHINI INVESTMENTS, a California Partnership; The Bud and Mary Lou Flocchini Family Partnership, a California Partnership; Bud Flocchini; Mary Lou Flocchini; The Richard J. and Partricia Flocchini Family Partnership, a California Partnership; Richard J. Flocchini; Patricia Flocchini; The Armando and Lena Flocchini Family Partnership; Lena Flocchini; Armando J. Flocchini, Jr., a/k/a A.J. Flocchini, Jr.; and Durham Ranches, Inc., a Wyoming Corporation, Appellees (Defendants). |
Court | Wyoming Supreme Court |
Representing Appellants: Drake D. Hill and Timothy M. Stubson of Brown, Drew & Massey, LLP, Casper, Wyoming.
Representing Appellees: Thomas Klepperich and David Smith of Lonabaugh & Riggs, Sheridan, Wyoming.
Before HILL, C.J., and GOLDEN, KITE, and VOIGT, JJ., and YOUNG, D.J.
[¶ 1] In this coalbed methane royalty dispute, the royalty owners1 filed an action against the mineral owners2 claiming they were entitled pursuant to a mineral lease executed by the parties' successors in interest to a share of an overriding royalty interest in minerals produced from certain ranch lands. Prior to trial, the district court granted summary judgment for mineral owners on royalty owners' breach of contract claim. The royalty owners' claims for breach of fiduciary duty and breach of the covenant of good faith and fair dealing proceeded to trial. After trial, the district court entered judgment for the mineral owners. Royalty owners appealed. We affirm.
[¶ 2] Royalty owners present the following issues:
Mineral owners restate the issues as follows:
[¶ 3] In 1957, Robert and Velma Wright owned the surface estate of a large ranch in Campbell County, Wyoming. Mr. Wright's sister, Alice Spielman, owned some of the minerals underlying the ranch. In May of 1957, Ms. Spielman and the Wrights entered into a "Cross Conveyance and Stipulation of Interests" concerning the minerals underlying the ranch. Pursuant to the stipulation, Mr. Wright acquired all of Ms. Spielman's interest in the minerals, including the executive right to lease the minerals, and Ms. Spielman retained a nonparticipating royalty interest in the minerals.
[¶ 4] Between 1957 and 1979, Mr. Wright conveyed his interest in the ranch and minerals to the mineral owners and Ms. Spielman conveyed her royalty interest to the royalty owners. In 1981, the royalty owners filed suit against the mineral owners, claiming they diverted royalty payments to themselves rather than sharing those payments with the royalty owners as required by the cross conveyance and stipulation. The suit was settled when the parties reached an agreement, effective November 15, 1982, providing that the term "landowner's royalty" as used in the cross conveyance included all royalties acquired by the mineral owners for oil, gas and minerals produced from the subject ranch land, including overriding royalties, and in essence that, in exchange for dismissal of the suit, the mineral owners would divide royalty payments among the parties as intended by the cross conveyance. The settlement agreement also provided:
The mineral owners shall negotiate all future oil and gas leases and other mineral leases in good faith and as ordinary prudent mineral owners.... Except as specifically hereinafter provided, should the Mineral Owners acquire an overriding royalty in the Subject Lands, the same shall be considered to be part of the "landowner's royalty."
[¶ 5] In 1994, interest began to grow in the production of methane gas from the ranch. At that time, Durham Ranches, Inc.,3 owned a portion of the surface estate of the ranch, the mineral owners owned a portion of the mineral interest previously owned by Mr. Wright, and the royalty owners owned the non-participating royalty interest previously owned by Ms. Spielman. The mineral owners were interested in investigating the possibilities of coalbed methane development while Durham Ranches was concerned with the effects such development would have on the ranch. Mr. Flocchini was charged with negotiating mineral leases on behalf of the mineral owners and surface use agreements on behalf of Durham Ranches. Petrox Resources, Inc. approached Mr. Flocchini concerning the production of methane gas from beneath the ranch. Mr. Flocchini and Petrox negotiated an agreement whereby the mineral owners agreed to lease the minerals to Petrox in exchange for a 15% royalty interest and Petrox agreed to compensate Durham Ranches for surface use and damages by making a lump sum payment of $50,000, a producing well payment of $1,000 per well and a 3% overriding royalty interest in all minerals under the ranch. On the basis of this agreement, the mineral owners and Petrox executed a mineral lease on August 3, 1994, providing for payment of the 15% royalty interest. By separate letter agreement, Petrox and Durham Ranches set forth the terms for surface damage compensation, including the 3% overriding royalty interest Petrox agreed to pay to Durham Ranches.
[¶ 6] On August 24, 2001, after learning of the letter agreement, the royalty owners filed suit against the mineral owners, alleging they had entered into an agreement having the effect of diverting to themselves royalty payments owed to the royalty owners. Royalty owners claimed Durham Ranches was an alter ego for the mineral owners and by virtue of the letter agreement providing for payment of the 3% overriding royalty interest to Durham Ranches, the mineral owners acquired royalties that the 1982 settlement agreement required to be shared with the royalty owners. Specifically, royalty owners claimed they received only their proportionate share of the 15% landowner's royalty interest when they also should have received their proportionate share of the 3% overriding royalty interest paid to the mineral owners alter ego, Durham Ranches. Royalty owners alleged claims for breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, conversion, tort[i]ous interference, constructive fraud and fraud, alter ego liability, civil conspiracy, and attorneys fees and costs.
[¶ 7] On October 29, 2002, mineral owners filed motions seeking summary judgment on all claims. Royalty owners also filed a motion for summary judgment. The district court conducted a hearing and, on February 21, 2003, issued a decision letter in which it held that summary judgment was appropriate for mineral owners on all claims except the claims against Mr. Flocchini for breach of fiduciary duty and breach of the covenant of good faith and fair dealing.
[¶ 8] Royalty owners filed a motion for reconsideration and clarification. Following a hearing, the trial court denied the motion as part of its order on summary judgment, which it issued the first day of trial. The parties tried the breach of fiduciary duty and breach of the implied covenant claims to the court in a three and one-half day bench trial beginning October 20, 2003. On February 3, 2004, the trial court entered an order finding generally in favor of Mr. Flocchini. Royalty owners timely appealed.
[¶ 9] Royalty owners seek review of the district court's order granting summary judgment on the breach of contract claim and its findings of facts and conclusions of law following trial on the breach of fiduciary duty and implied covenant claims. Our standards for reviewing summary judgment orders are well established:
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