CPI Crude, Inc. v. Coffman

• Decision Date: 01 October 1985
• Docket Number: No. 5-114.,5-114.
• Citation: 776 F.2d 1546
• Parties: CPI CRUDE, INCORPORATED, Plaintiff-Appellant, v. Thomas D. COFFMAN, et al., Defendants-Appellees.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

776 F.2d 1546

CPI CRUDE, INCORPORATED, Plaintiff-Appellant, v. Thomas D. COFFMAN, et al., Defendants-Appellees.

No. 5-114.

Temporary Emergency Court of Appeals.

Argued June 3, 1985.

Decided October 1, 1985.

Rehearing and Rehearing Denied October 31, 1985.

John B. Rizo, Jay Allen Chaffee, CPI Crude, Inc., Houston, Tex., Gerald W. Haddock, Fort Worth, Tex., for plaintiff-appellant.

Thomas W. Reavley, Scott, Douglas & Keeton, Austin, Tex., Kenneth M. Stillman, Randall C. Grasso, Robertson & Stensrud, Dallas, Tex., Carl W. Parker, Lang, Parker, Doyle & Cichowski, Port Arthur, Tex., Craig M. Daugherty, Sammons, Parker & Daugherty, Tyler, Tex., Bill C. Hunter, Hunter, Vineyard Drake & Miller, Dallas, Tex., for defendants-appellees.

Before CHRISTENSEN, ESTES and LACEY, Judges.

Rehearing and Rehearing En Banc Denied October 31, 1985.

LACEY, Judge.

Before the court is an appeal from the decision of the district court granting summary judgment in favor of defendants based on a finding that the Texas statute of limitations had run on plaintiff's claim prior to the filing of the original complaint on June 27, 1983. Plaintiff contends that the district court failed to apply the proper analysis in determining what analogous state statute of limitations applies to this action under § 210 of the Economic Stabilization Act, as amended, 12 U.S.C. § 1904 note (1980); that the district court applied the wrong statute of limitations; that the trial court erred in finding the amended statute does not apply to pre-existing causes of action; that the district court misapplied the test for accrual of a federal cause of action; and that the district court erred in failing to find an issue of fact existed based on plaintiff's claim of fraudulent concealment. Defendants assert the propriety of the district court decision in all respects.

THE FACTS

Except for those relating to the claim of fraudulent concealment, the facts are not significantly in dispute. Plaintiff CPI Crude, Inc. (CPI) is a Texas corporation, with its principal place of business in that state, which purchased oil produced from the Yahweh Farm property in Fayette County, Texas. Defendants Coffman, Lynn and Webster own a royalty interest in the Yahweh Farm property. Defendants Thomas, Treischman and Chafin & Hedges Petroleum Company were dismissed from the action for plaintiff's failure to prosecute as to them. The balance of the defendants are working interest owners in the Yahweh property.

Under the Department of Energy (DOE) Mandatory Petroleum Price and Allocation Regulations in effect prior to January 28, 1981, defendants were "producers" of crude oil. 10 C.F.R. § 212.31 (1980). As such they were subject to the mandatory pricing regulations of 10 C.F.R. part 212 subpart D (1980), and the certification requirements of 10 C.F.R. § 212.131 (1980). The regulations provided that "... no producer may charge a price higher than the lower tier ceiling price for any first sale of domestic crude oil", 10 C.F.R. § 212.73(a) (1980), and "no firm may sell domestic crude oil unless it provides the certification required by this section", 10 C.F.R. § 212.131(c) (1980). To charge a higher price, the producer was obliged to show that the crude qualified for the higher price under one of the regulatory exceptions, and the producer was to certify to the purchaser the proper regulatory category of the crude within two months of the sale.

In December 1978 defendants made their first sale of crude oil from the Yahweh Farms property. This oil was sold from the A-1 well and was certified and sold to CPI as "upper tier" crude. In early 1979 defendants began selling crude from the Yahweh Farms B-2 and C-3 wells to CPI at the "upper tier" price. These sales were made pursuant to written division order contracts, executed by each defendant, which authorized CPI's purchase of the oil at "the price being posted or paid ... at the time of such delivery" Record at 6.

Effective June 1, 1979, DOE regulations were amended to permit a new category of crude oil, exempt from price controls. "Newly discovered crude oil", that is, domestic crude produced from a property from which no crude was produced in calendar year 1978, was exempt from the pricing regulations, 10 C.F.R. § 212.79 and § 212.79(b) (1980).

"Property" means the right to produce domestic crude oil, which arises from a lease or from a fee interest. A producer may treat as a separate property each separate and distinct producing reservoir subject to the same right to produce crude oil, provided that such reservoir is recognized by the appropriate governmental regulatory authority as a producing formation that is separate and distinct from, and not in communication with, any other producing formation.

10 C.F.R. § 212.72 (1980). Election to treat separate formations as separate properties is irrevocable unless production becomes commingled or the formations are unitized. FEA Ruling 1977-2, 42 F.R. 4409 (January 25, 1977). The Oil and Gas Lease covering the Yahweh Farms property provides that the lease covers the specific (metes and bounds) property and the right to produce extends to the reservoir known as the "Austin Chalk". See Lease, Record on Appeal, Vol. I, Tab 1, at p. 2.

On June 28, 1979, the Yahweh Farms property was recertified as "newly discovered" through filing for the B-2 and C-3 wells. On August 24 and 27, 1979, the A-1 and D-4 wells were, respectively, recertified as "newly discovered". These recertifications increased the price payable for oil produced from these wells retroactively to June 1, 1979.

CPI challenged the recertification of the A-1 well as its records reflected a sale in 1978, which would have disqualified that well from unregulated pricing.

In response to the challenge, plaintiff was provided with an opinion letter dated November 26, 1979, from the Dallas law firm of Thompson & Knight, Esqs., which concluded that the A-1 well could be recertified as "newly discovered". This conclusion was based on information provided in a letter by Don Crow, Vice President of Field Operations for Chafin & Hedges Petroleum Company to the effect that the 1978 production from the A-1 well was from the "Buda" formation. That well later became blocked, and the "Buda" formation was sealed off. The well was then completed in the "Austin Chalk" formation. According to Chafin & Hedges, the Texas Railroad Commission recognizes that these two formations are separate reservoirs not in communication with each other. Plaintiff asserts that "at the time it received the opinion letter from Thompson & Knight, it had no reason to know of the fraudulent nature of the information underlying the opinion letter."

However, from 1978 on, all production from this lease came from Austin Chalk, and this fact was a matter of public record in early 1979. See Producers Monthly Report of Oil Wells, Record on Appeal, Vol. III, Tab 36, Report for December, dated March 1, 1979. Nevertheless, plaintiff took no further action until early in 1983 when it conducted a detailed review of its purchase records of newly discovered crude "in response to rampant rumors of intentional miscertification of newly discovered crude oil". Id. Upon reevaluation it determined that the Thompson & Knight opinion letter was worthless because of the fraudulent information provided by defendants to the firm.

Plaintiff demanded repayment of the alleged $2,582,182.55 paid out in overcharges. CPI had made its first alleged overpayment on July 27, 1979, with respect to overcharges relating to the B-2 and C-3 wells. The first alleged overcharge paid on the recertified A-1 and D-4 crude was made on September 20, 1979.

Upon defendants' refusal to pay, plaintiff commenced this action on July 27, 1983, seeking relief under §§ 210 and 211 of the Economic Stabilization Act (ESA) of 1970, as amended, 12 U.S.C. § 1904 note, as incorporated and carried forward by § 5(a)(1) of the Emergency Petroleum Allocation Act (EPAA) of 1973, 15 U.S.C. § 754(a)(1). The complaint also asserts a claim for fraudulent concealment. Sometime in January 1984 plaintiff filed an amended complaint which added a state law claim for breach of the division order contracts in the jurisdictional paragraph and the prayer for relief. No separate count specifying the facts alleged in support of the state law claim was set forth. No additional facts were added with respect to the claim of fraudulent concealment. With respect to the fraud, the allegations of the original complaint and the amended complaint merely assert that a 1983 review of plaintiff's records resulted in the new conclusion that the opinion letter was based on fraudulent information. The Chaffee affidavit merely repeats the allegations of the complaint on this issue without adding flesh to the conclusions. See Affidavit of Jay Allen Chaffee, Record on Appeal, Vol. I, Tab 10, at ¶¶ 13 and 14.

THE DISTRICT COURT DECISION

On May 14, 1984, the district court filed an opinion and order disposing of the then pending motion for summary judgment on the statute of limitations issue which had been joined by all defendants. The court first dismissed the complaint as to defendants Thomas, Treischman and Chafin & Hedges for lack of prosecution. Pursuant to Southern District of Texas Local Rule 13(b), this dismissal was entered with prejudice. Plaintiff has not appealed this portion of the May 14, 1984, order.

The district court then noted that this action was based on alleged violations of § 210 of the ESA, that it was a private overcharge action for recovery of actual and treble damages relating to the sale of crude oil, and that a pendent state law claim for breach of contract was also raised. Relying on the two-part test set forth in Ashland Oil Co. of Calif v. Union Oil Co. of Calif, 567 F.2d 984 (Temp.Emer. Ct.App.1977), cert. denied, 435 U.S. 994, 98 S.Ct. 1644, 56 L.Ed.2d 83 (1978), the court held that the most analogous statute of limitations...