Le Cuno Oil Co. v. Smith
| Decision Date | 26 September 1957 |
| Docket Number | No. 6973,6973 |
| Citation | 306 S.W.2d 190 |
| Parties | LE CUNO OIL COMPANY, Appellant, v. T. P. SMITH, Jr., et al., Appellees. |
| Court | Texas Court of Appeals |
Clayton W. Feild, Jr., Marshall, Bill Cornelius, Jefferson, Wynne & Wynne, Angus G. Wynne, Dallas, for appellant.
Smith & Hall Marshall, for appellees.
This is an accounting case. The judgment of the trial court is reformed, and as reformed, affirmed.
The appellees filed this suit against the LeCuno Oil Company and its several partners in April of 1954, alleging that LeCuno had failed and refused to account to them for the full 1/8 (royalty) of the price received by LeCuno for gas at the well. The defendants responded by motions to abate the suit for want of necessary parties and failure of appellees to exhaust their administrative remedies before the Federal Power Commission. These motions were overuled. In an original and later an amended answer, appellants pled defensively that the subject-matter of controversy was within the exclusive jurisdiction of the Federal Power Commission under the Natural Gas Act, 15 U.S.C.A. Sec. 717 et seq., and that all rates, charges and field prices or changes therein for the royalty gas must be set by that agency. Answering further, it was alleged that during a part of the time since production another Federal Agency, the Office of Price Stabilization, had controlled the field price of gas produced under the leases involved, and had set a price of 10cents per MCF at the wellhead and that appellees having been paid the 10cents ceiling price, they could not come back after the expiration of the law creating the Office of Price Stabilization and sue for a greater price than had been set. For further answer, the appellant denied all the allegations of plaintiffs' petition though it admitted it had taken gas from the wells sued upon by appellees from unitized acreage under the rules and regulations of the Railroad Commission, but insisted that appellant had paid all the royalties due to the appellees. Attached to the answer as an exhibit is the order of the Director of the Office of Price Stabilization and orders of the Federal Power Commission, relied upon by appellant. Then by cross-action LeCuno prayed the court to construe the leases involved and to reform the division order entered into between the parties.
Trial was before a jury on two special issues, and pursuant to jury answers, judgment was entered awarding an aggregate amount of $8,631.63 to the appellees, apportioned in accordance with their respective interest in the unitized leased premises, and denying appellant any relief on its cross-action.
Appellant brings forward 20 points of error and cites 30-odd cases and Rules in support of its contention. Appellees present eight counter-points and cite two cases and two rules. High respect for the opinion of counsel, and the earnestness with which it is urged that the price-fixing orders of the OPS and the rate-making authority of the FPC are involved in this case, has caused this court to study such contentions with unusual interest.
Preliminary to a discussion of contention last mentioned, the relationship of the parties should be noted. This relationship as shown by the record is distinguishable from that found in most cases of this kind. LeCuno, as assignee, holds the mineral leases which initially fix the rights of the parties as lessors and lessee, then in its capacity as lessee LeCuno, with ratification by the lessors, unitized the acreage creating a changed relationship between it and the original lessors. On occurrence of gas production the original lessors executed and delivered to LeCuno division orders creating still a different contractual relationship. In the usual cases growing out of mineral development the lessee or producer and the gatherer or pipe line owner are different persons or corporations, while here LeCuno is both producer and pipe line operator. The contractual relationship created by the division orders permitted LeCuno as a producer, if it chose, to make a contract with LeCuno as gatherer, thus having the privilege of contracting with itself respecting prices of gas at the wellhead. However, no sale of that nature is under examination here. It is in evidence that LeCuno took delivery of the royalty gas involved at the wellhead, ran it through its processing plant and delivered it to certain interstate gas transmission companies under contracts of sale which appellees had no part in making at a price agreed upon between LeCuno and the transmission companies. Such sales to the transmission pipe lines were bona fide arm's length transactions as between LeCuno and the transmission lines so far as this record reveals. Under the contractual relationship described above, LeCuno's division orders requiring it to account to the appellees for their royalty gas on the basis of 'the price received at the wells by LeCuno' would require that LeCuno exercise the highest good faith in any contract it entered disposing of the royalty owners' gas.
Most of the gas involved in this litigation was sold under a contract between LeCuno and the Mississippi River Fuel Corporation and what is said with respect to it is applicable to all other transmission lines involved.
Discussing first the OPS maximum price order, this record shows such order fixed a maximum price of 10cents per MCF at the wellhead on gas delivered by LeCuno to Mississippi River Fuel Corporation. The order does not fix a charge for gathering, transporting and processing gas. Throughout the time the OPS exercised jurisdiction, LeCuno was permitted and did charge and collect $.1225 per MCF for gas delivered. The transmission company paid monthly and at times divided the payment into two checks, one reflecting 10cents per MCF for gas and the other a charge of $.0225 per MCF of gas apparently allowing $.0225 as a gathering and processing charge. There is no evidence showing the OPS set, approved or was even aware that a charge for gathering and processing was being received by LeCuno.
Under the circumstances of this case as outlined in the preceding paragraphs, LeCuno as a gatherer and processor has agreed with appellees to pay them the price LeCuno received for the royalty gas, and it is undisputed that while the OPS order fixing a maximum price of 10cents at the wellhead was in effect, appellees' royalty gas was sold, not at the wellhead, but after being processed and delivered at the tailgate of LeCuno's plant, and LeCuno received $.1225 per MCF for such gas.
There is nothing in the record to show that the OPS set or approved the $.0225 additional charge except that no action was taken to disallow the charge. If the $.0225 charge be considered as having been approved by FPC, it resulted in a windfall gain because under the jury findings the cost of gathering, etc., was only $,0125. Considering it as a windfall or excessive allowance, LeCuno acting in the best of good faith should account for the excess to the royalty owners because the excess was received by it as a result of the sale of the royalty gas.
Following the U. S. Supreme Court decision of June 7, 1954, in Phillips Petroleum Co. v. State of Wisconsin, 347 U.S. 672, 74 S.Ct. 794, 98 L.Ed. 1035, LeCuno as a precautionary measure while denying the jurisdiction of the FPC, filed a rate schedule and began operating under that agency's regulations. LeCuno by the simple act of filing with FPC its contract with Mississippi River Fuel Corp'n, Texas-Eastern Transmission Corp'n, and other interested transmission lines established as its rate the price set up in the respective contracts under rules of the FPC. These contracts each provided for a delivered price after processing (not a wellhead price) and in these contracts no provision is made for a gathering and processing charge, as between the respective parties. In this latter respect the only time such charge appears in the record is where a note of explanation is appended to an invoice offered as an exhibit. The explanatory note said that $.0225 was permitted to be deducted from the sale price by the State of Texas in computing taxes.
The gas division orders executed by the appellees and delivered to LeCuno have a standard provision reading as follows: 'Gas received under this division order shall be paid for...
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