Diamond Shamrock Corp. v. Zinke & Trumbo, Ltd., s. 85-1698

• Decision Date: 21 May 1986
• Docket Number: Nos. 85-1698,85-1803,s. 85-1698
• Citation: 791 F.2d 1416
• Parties: DIAMOND SHAMROCK CORPORATION, a Delaware Corporation, Plaintiff-Appellant, Cross-Appellee, v. ZINKE & TRUMBO, LTD., a business association, Robert M. Zinke, an individual, and David B. Trumbo, an individual, Defendants, Counterclaimants-Appellees, and Morris A. Richardson, John Hamilton and Martha Francis, Counterclaimants- Cross-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1416

791 F.2d 1416 DIAMOND SHAMROCK CORPORATION, a Delaware Corporation,
Plaintiff-Appellant, Cross-Appellee,
v.
ZINKE & TRUMBO, LTD., a business association, Robert M.
Zinke, an individual, and David B. Trumbo, an
individual, Defendants, Counterclaimants-Appellees,
and Morris A. Richardson, John Hamilton and Martha Francis,
Counterclaimants- Cross-Appellants. Nos. 85-1698, 85-1803. United States Court of Appeals,
Tenth Circuit. May 21, 1986.
Rehearing Denied July 16, 1986.

Page 1417

Richard K. Books (H.B. Watson, Jr., and Sharon L. Thomas with him on briefs), Watson & McKenzie, Oklahoma City, Okl., for plaintiff-appellant/cross-appellee.

Richard C. Ford (Gary W. Davis, James U. White, Jr., and L. Mark Walker with him on briefs), Crowe & Dunlevy, Oklahoma City, Okl., for counterclaimants/cross-appellants.

Before BARRETT, McKAY and TACHA, Circuit Judges.

BARRETT, Circuit Judge.

This appeal and cross-appeal is from a judgment containing an interlocutory order, duly certified pursuant to Fed.R.Civ.P. 54(b). Our jurisdiction vests pursuant thereto and by virtue of 28 U.S.C. Sec. 1292(b). There are many issues presented in this complex diversity based case. However, only one is dispositive. That involves a party's failure to object to a jury's general verdict on the ground of inconsistency prior to the discharge of the jury.

I.

Factual Background

Appellees John Hamilton and Martha Francis own three-fourths of the mineral estate underlying a 640 acre tract situate in Ellis County, Oklahoma, described as Section 33, Township 23 N., Range 26 W. Their interest was leased to Diamond Shamrock. The remaining one-fourth interest is owned by appellee Morris Richardson, who leased his interest to Zinke and Trumbo, Ltd. The Oklahoma Corporation Commission established Section 33 as a 640 acre drilling and spacing unit for production from the Morrow formation.

In 1981, Diamond Shamrock, as 100 percent working interest owner, drilled and completed a well producing from the Morrow formation situate in Lipscomb County, Texas, known as the Travis Well. This well is adjacent to Section 33, supra. In September of 1981, Diamond Shamrock proposed the drilling of the Hamilton No. 1-33 at a location in the SW 1/4 of Section 33. Zinke and Trumbo requested that Diamond Shamrock drill the well as an offset to the Travis Well in order to protect them from drainage resulting from production from the Travis Well. Diamond Shamrock agreed and obtained a location exception from the Commission to drill the Hamilton No. 1-33 Well 317 feet from the south line and 367 feet from the west line in the SW 1/4 of Section 33. Diamond Shamrock and Zinke and Trumbo entered into a Joint Operating Agreement whereby Diamond Shamrock was designated as operator. The well was drilled by Diamond Shamrock to the Morrow formation and completed in September, 1982. It was reported by Diamond Shamrock as a shut-in gas well awaiting a pipeline connection. No gas has been produced and sold from the Hamilton 1-33 Well.

In the course of completion operations, a dispute arose between Diamond Shamrock and Zinke and Trumbo relative to completion procedures. This resulted in the instant litigation. On October 12, 1982, Diamond Shamrock sued Zinke and Trumbo under the terms of the Operating Agreement (breach of contract claim) for the proportionate share of costs and expenses incurred in the drilling and completion of Hamilton 1-33 Well in amount of $133,551.71, together with further accruing costs, interest thereon, costs of the action and a reasonable attorney's fee. In addition, Diamond Shamrock sought an order of foreclosure on Zinke and Trumbo's leasehold interests in satisfaction of the claim.

Zinke and Trumbo answered and denied any liability. On June 28, 1983, Zinke and Trumbo, as defendant, joined by Morris A. Richardson, John Hamilton and Martha N.

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Francis filed a Counterclaim against Diamond Shamrock alleging that they had been damaged because of the negligence and gross negligence of Diamond Shamrock in the completion of the well. Specifically, they alleged that Diamond Shamrock's completion attempt of the Hamilton 1-33 Well "[w]as not done in a good and workmanlike manner despite suggestions, warnings, demands, protests, and objections from Zinke and Trumbo" and that Diamond Shamrock's "[c]ompletion attempt of the John Hamilton # 1-33 Well irreparably damaged the productive strata ... [the Morrow formation at 8862' - 8874'] ... underlying Section 33, by fracing into the salt water bearing strata and contaminating the productive strata with salt water constituting alleged gross neglect and willful misconduct." R., Vol. I, pp. 59, 60. Counterclaimants John Hamilton and Martha Francis sought actual and punitive damages for Diamond Shamrock's alleged breach of implied covenant of their oil and gas leases to protect against drainage and to market production from the well.

The Counterclaim further alleged that: due to the limited size of the reservoir and geological and economic conditions, a replacement well cannot be drilled on Section 33; Hamilton 1-33 Well is noncommercial; counterclaimants own no interest in the Travis # 1 Well and therefore do not share in production therefrom; Travis # 1 Well has been producing from the same common reservoir as the unproductive Hamilton 1-33 Well due solely to Diamond Shamrock's gross neglect; and Travis # 1 Well will drain all of the hydrocarbons from the reservoir to the detriment of counterclaimants. Id. at 59-61.

The Counterclaim alleged, based on log calculations and production in the area, that the reserves of Hamilton 1-33 Well and values to counterclaimants were: $906,100.00 to Zinke and Trumbo; $209,100.00 to Morris A. Richardson; $522,750.00 to John Hamilton; and $104,550.00 to Martha N. Francis. Id. at 61. A jury demand was made by the counterclaimants.

In Answer to the Counterclaim, Diamond Shamrock alleged that the Hamilton 1-33 Well "[i]s capable of producing gas in paying quantities from the Morrow formation, but that said well is shut in awaiting a pipeline connection" and that its every action with regard to Hamilton 1-33 Well has been that of a prudent operator, including every action necessary to market production from the well but, notwithstanding, no market has been located. Further, Diamond Shamrock denied that a replacement well cannot be drilled upon Section 33, and that production from the Travis # 1 Well has or will cause drainage to Section 33. Id. at 65-67.

Zinke and Trumbo filed an amendment to its Answer setting up Affirmative Defenses by virtue of an alleged oral agreement on February 16, 1982, with Diamond Shamrock "[a]s to the manner in which the subject well was to be completed and that Diamond Shamrock Corporation breached that agreement by completing the well in a manner different from that agreed to by Zinke & Trumbo, Ltd. and Diamond Shamrock Corporation with the result that the pay zone in the subject well was irreparably damaged and has subsequently been cemented off." Id. at 76. Zinke & Trumbo also filed a Second Amendment to Answer which alleged two additional affirmative defenses: (1) the offer of Zinke & Trumbo to participate in the completion attempt by Diamond Shamrock was conditioned upon a particular manner of completion which was rejected by Diamond Shamrock, thus relieving Zinke & Trumbo from any liability for completion costs, and (2) Diamond Shamrock's employees took bribes and kickbacks from suppliers and others concerning materials, supplies, and work, resulting in improper charges to Zinke and Trumbo. Id. at 78. An Amended Counterclaim was thereafter filed incorporating the aforesaid affirmative defenses with four additional causes of action, seeking punitive damages of $10 million. Id. at 80-92. These allegations were joined in denial by Diamond Shamrock's Answer. Id. at 101-109.

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A.

First Trial

The case proceeded to trial on October 27, 1983. The jury returned a verdict on November 2, 1983, as follows:

(1) for Diamond Shamrock against Zinke & Trumbo for breach of the Joint Operating Agreement (balance owing of drilling and completion costs) in amount of $212,805.60;

(2) for Diamond Shamrock and against Zinke & Trumbo upon Zinke & Trumbo's claim for breach of a new agreement (no damages awarded);

(3) for Zinke & Trumbo upon its claim against Diamond Shamrock for gross negligence and/or willful misconduct in the operation of the well in amount of $995,196.00;

(4) for counterclaimants John Hamilton, Martha Francis and Morris Richardson against Diamond Shamrock for negligence in the operation of the well in amount of $971,179.00;

(5) for Diamond Shamrock and against counterclaimants John Hamilton and Martha Francis for breach of the implied covenant to market (no damages awarded); and

(6) for counterclaimants John Hamilton and Martha Francis against Diamond Shamrock for breach of the implied covenant to protect against drainage in the amount of $32,499.00 and punitive damages in amount of $1,000,000.00.

The parties did not object to the verdict form. (R., Vol. X, p. 43.) The court, prior to returning the jury, addressed counsel and stated that "[I] understand we have a verdict and I have sent for the jury. Due to the length of deliberation and the somewhat complexity of the verdict form, I will want to have a bench conference before I read and record the verdict and allow you all to examine it. That will be particularly true if there appears to be any inconsistencies in the verdict form." Id. at 45, 46. When the jury reported in, the jury's verdict was handed to the court and counsel were then called to the bench to examine the verdict before it was read and recorded. The following colloquy then occurred:

THE COURT: Any reason why the Court should not read and record the verdict?

MR. WATSON: (Counsel for Diamond Shamrock): I can think of a lot of reasons, but none that are valid.

Id. at 46.

Thereupon, the clerk read and recorded...