Davis Oil Co. v. Cloud

• Decision Date: 18 November 1986
• Docket Number: No. 61473,61473
• Citation: 766 P.2d 1347,1986 OK 73
• Parties: DAVIS OIL COMPANY, Appellant, v. Anna Lee CLOUD, Appellee.
• Court: Oklahoma Supreme Court

Page 1347

766 P.2d 1347

1986 OK 73

DAVIS OIL COMPANY, Appellant, v. Anna Lee CLOUD, Appellee.

No. 61473.

Supreme Court of Oklahoma.

Nov. 18, 1986.

As Corrected Jan. 13, 1989.

Rehearing Denied Jan. 17, 1989.

Dissenting Opinion On Rehearing

Jan. 17, 1989.

Appeal from District Court of Haskell County; John Henderson, Trial judge.

Oil Company appeals from judgment rendered on jury verdict in action brought pursuant to surface damages act, 52 O.S.Supp.1982 §§ 318.2 through 318.9. Oil Company challenges the constitutionality of the application of this legislation in the present case on grounds that such an application retroactively impairs its vested rights. Appellant also challenges the allowance of recovery of damages on nuisance theory in this case.

Moricoli, Wilson, Harris & Dubberstein by John C. Moricoli, Jr., Michael G. Harris

and Dale E. Cottingham, Oklahoma City, for appellant.

Stipe, Gossett, Stipe, Harper, Estes, McCune & Parks by Clyde Stipe, McAlester, for appellee.

LAVENDER, Justice:

Appellant, Davis Oil Company, the holder of leasehold interests covering some 240 acres in a certain Section 9 in Haskell County, Oklahoma, proposed to drill a well to obtain oil and gas in the center of the NW/4 of the NW/4 of the Section. ¹ The surface of the land to be affected by the proposed well location was divided in ownership. The North 1/2 of the 40 acre surface plot was owned by Stanley Wilson. The South 1/2 of the property was owned by appellee, Anna Lee Cloud.

Appellant entered into negotiations with the surface owners regarding a surface damages agreement in accordance with the procedure set out in the recently enacted legislation regarding surface damages resulting from oil and gas drilling operations (the surface damages act). ² Appellant and Stanley Wilson were able to arrive at a satisfactory agreement. Appellant and appellee were not able to agree to terms.

Following the failure of negotiations between appellant and appellee, appellant took the next step under the surface damages legislation and petitioned the district court for the appointment of appraisers to assess damages to the surface estate. ³ In petitioning for appraisement, appellant also raised an objection to the constitutionality of the application of the surface damages legislation to this case.

Appraisers were appointed under the petition and instructed by the district court. The appraisers awarded the sum of $2500 for damages to appellee's surface estate. On return of this report appellee filed a demand for jury trial as provided under 52 O.S.Supp.1982 § 318.5(F).

Prior to the time this matter came on for jury trial the well in question was completed as a dry hole and was subsequently plugged and abandoned. The drilling pad and access road which had been constructed in conjunction with the well were bulldozed out. Most of the materials which had been brought in in connection with these constructions were moved onto Stanley Wilson's land to form a high place for his livestock in wet weather.

At the trial to the jury, appellee, without objection, presented evidence regarding damages from the inconvenience of broken water lines resulting from appellant's operations in building its access road. Appellee also presented other evidence of inconvenience coming from appellant's running of twenty-four hour a day operations in site preparation, which also resulted in occasionally blocking her immediate access to the highway. The major evidence of damages presented by appellee, however, concerned the diminution in the value of her land. This diminution was attributed to the materials brought in to construct the well pad, which had been leveled out on her property, and a laking effect which subsequently occurred on her property. The cause of the laking effect was attributed to the pad and road materials which were placed on the Wilson property and which interfered with appellee's drainage. Appellee presented evidence that her property was a high quality hayfield, and that appellant's activities had considerably interfered with the use of the property in this capacity.

The trial court instructed the jury that the measure of damages which they should use in the case was the diminution in fair market value of appellee's property. They were also instructed that they could consider the inconvenience suffered in the actual use of the land by appellant and actual damages to growing crops as those factors affected the market value of the tract.

The jury assessed appellee's damages at $15,000 and returned a verdict in that amount. Appellant moved for judgment notwithstanding the verdict. This motion was denied and judgment entered on the verdict. Appellant now challenges that judgment.

I.

Three of the five propositions of error presented by appellant on appeal are based on its assertion that it was constitutionally improper for the trial court to instruct the jury that diminution in market value of appellee's property was a proper standard for assessing damages. Appellant argues that the proper standard to be applied was the standard in effect prior to the passage of the surface damages legislation. Under that standard an oil and gas operator would be held liable for surface damages only if such damages resulted from wanton or negligent operations or if the operations affected a more than reasonable area of the surface. ⁴

The legal principles upon which this freedom from liability for "reasonable" surface operations was founded were expressed by this Court in the case of Marland Oil Co. v. Hubbard: ⁵

The rule as to rights and obligations arising under an oil and gas lease is stated in Mills-Willingham Law of Oil and Gas, § 163, p. 252, as follows: "The grant, or reservation, of the right to operate for oil and gas carries with it, as an incident, the right to the use of the premises to an extent reasonably necessary for that purpose. Consequently, the damage to the soil, trees, or crops, upon the land, which is incidental to and the result of such reasonable operations, is damnum absque injuria, and no recovery can be had therefor against the operator. The lessee, however, is liable for damages to the surface resulting from the negligent, as distinguished, from reasonable, use. Most modern leases, however, provided that the lessee shall pay for all damages to the crops, etc."--citing Pulaski Oil Co. v. Conner, 62 Okl. 211, 162 P. 464, 466, L.R.A. 1917C, 1190, wherein this court said: "While an oil and gas lease carries within its implications, if not within its expression, such rights as to the surface as may be necessarily incident to performance of the objects of the contract, yet it is well settled that the implications go no further, and that the holder of a mining or oil and gas lease must protect the surface of the ground in so far as such incident necessity does not exist." See, also, Cosden Oil & Gas Co. v. Hickman et al., 114 Okl. 86, 243 P. 226; Sanders v. Davis, 79 Okl. 253, 192 P. 694, and Rennie v. Red Star Oil Co., 78 Okl. 208, 190 P. 391.

The genesis of these principles in turn comes from the holding that the right to go upon land to prospect for and take oil and gas is a proper subject of ownership which may be granted or reserved. ⁶ As the purpose of a mineral grant or lease is to operate for the recovery of gas or oil, it is necessarily implied that the right to enter the premises is included in that grant. However, the question before us now is not whether that right, which is in the nature of a property right, continues in existence. The question before us now is whether the standard of liability for damages occurring to the surface estate as a result of the exercise of that right may be changed.

In the Marland Oil Co. ⁷ case we stated that damages flowing from reasonable use of the surface constituted an instance of damnum absque injuria. Black's Law Dictionary, ⁸ defines this term as meaning:

Loss, hurt, or harm without injury in the legal sense; that is, without such breach of duty as is redressible by an action. A loss which does not give rise to an action for damages against the person causing it.

Thus the principles espoused in Marland indicates that, since the purpose of oil and gas operations necessarily entails entry onto the surface estate as an incident of the right to so enter the operator would not be held liable for damages resulting from "reasonable" use of the surface.

Appellant's arguments in the present case are premised on the assertions that this standard of liability constitutes a right in the property or that it constitutes a contract right vested by the mineral lease or mineral conveyance. We do not agree. The property right in question is the right to go on the property in pursuit of the oil and gas. The limitation on the operator's liability in the exercise of that right is to be viewed as no more than a defense which has been provided to the operator by operation of the common law in actions for damages by the surface estate holder. The United States Supreme Court, in addressing a claim of denial of due process stemming from the mposition of liability limits on a potential negligence action, stated: ⁹

Our cases have clearly established that "[a] person has no property, no vested interest, in any rule of the common law." Second Employers' Liability Cases, 223 U.S. 1, 50, 32 S.Ct. 169, 175, 56 L.Ed. 327 (1912), quoting Munn v. Illinois, 94 U.S. [4 OTTO] 113, 134, 24 L.Ed. 77 (1877). The "Constitution does not forbid the creation of new rights, or the abolition of old ones recognized by the common law, to attain a permissible legislative object," Silver v. Silver, 280 U.S. 117, 122, 50 S.Ct. 57, 58, 74 L.Ed. 221 (1929), despite the fact that "otherwise settled expectations" may be upset thereby. Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 16, 96 S.Ct. 2882, 2892, 49 L.Ed.2d 752 (1976). See also Arizona Employers' Liability Cases, 250 U.S. 400, 419-422, 39 S.Ct. 553, 555-556, 63 L.Ed....