Dietrich v. Sun Exploration and Production Co.

• Decision Date: 30 March 1994
• Docket Number: Nos. 92-1981,93-1442,s. 92-1981
• Citation: 21 F.3d 427
• Parties: NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit. Edgar J. DIETRICH and Theresita Dietrich, Plaintiffs-Appellants, v. SUN EXPLORATION AND PRODUCTION COMPANY, a Delaware corporation, and Sun Operating Limited Partnership, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 427

21 F.3d 427

NOTICE: Sixth Circuit Rule 24(c) states that citation of unpublished dispositions is disfavored except for establishing res judicata, estoppel, or the law of the case and requires service of copies of cited unpublished dispositions of the Sixth Circuit.

Edgar J. DIETRICH and Theresita Dietrich, Plaintiffs-Appellants, v. SUN EXPLORATION AND PRODUCTION COMPANY, a Delaware corporation, and Sun Operating Limited Partnership, Defendants-Appellees.

Nos. 92-1981, 93-1442.

United States Court of Appeals, Sixth Circuit.

March 30, 1994.

Before: MERRITT, Chief Judge; MILBURN and SILER, Circuit Judges.

MERRITT, Chief Judge.

This action involves plaintiffs' royalty interests in tracts of land in the Columbus III oil field in St. Clair County, Michigan, which is leased to and operated by defendants. Plaintiffs sued, alleging in a five-count complaint various forms of misrepresentation and mismanagement of the field. After five and one-half years of discovery, the district court granted judgment for the defendants. Plaintiffs appeal the court's judgment on four counts of their complaint, and appeal the sanctions assessed against them for abusive litigation practices and under Rule 11. We affirm the judgment of the district court in all respects.

I.

The factual basis for this action began in 1971, when the owners of tracts 1, 2, and 6 of the Columbus III oil field, the Koziaras, assigned overriding royalty interests in the tracts to the law firm of Dietrich & Schrauger. In 1972, the law firm assigned its interest to Helen Spalter, the mother of plaintiff Edgar Dietrich, for life remainder to Katherine Dietrich, Edgar Dietrich's daughter. On June 1, 1984, Katherine Dietrich reassigned her interest to plaintiffs.

Plaintiffs brought this action in Michigan state court in 1987, alleging that the defendant oil company had illegally drained oil from the field, had failed to compensate them for oil drained from the field, and had in other ways improperly managed the field. The defendants removed the case to federal court on diversity grounds, and plaintiffs subsequently filed an amended complaint alleging the following:

Count I: Defendants illegally drained 36,417.5 barrels of oil from the oil field in which the plaintiffs held an interest during the period from November 1, 1971 to June 30, 1974;

Count II: Defendants illegally overproduced oil from the field in addition to that alleged in Count I, in breach of their fiduciary duty to the plaintiffs;

Count III: Defendants negligently or intentionally breached their duty to plaintiffs by failing to use the care and skill of an ordinary oil producer, including underreporting oil reserves, sabotaging wells, and persuading witnesses to give false testimony at earlier administrative proceedings;

Count IV: Defendants fraudulently induced plaintiffs or their predecessors to sign a unitization agreement in 1974.

Count V: Defendants failed to compensate plaintiffs for 881,071 barrels of oil allegedly produced by defendants from November, 1984 to March, 1985.

Pursuant to defendants' first motion for summary judgment, the district court disposed of Count II in favor of the defendants. Plaintiffs do not contest that disposition here and consequently we do not address it. Defendants filed a subsequent motion for summary judgment, which the district court granted on Counts I, III and IV. See Dietrich v. Sun Exploration and Production Co., 784 F.Supp. 383 (E.D.Mich.1992). Plaintiffs pursued Count V until the day of trial, July 2, 1992, at which point they admitted that they were unable to factually substantiate the claim. The district court granted judgment as a matter of law in favor of the defendants on that count, and dismissed the entire action. Plaintiffs appeal the summary judgment disposition of Counts I, III and IV, which we address in Part II of this opinion. Plaintiffs also appeal the district court's judgment as a matter of law on Count V, which we take up in Part III of this opinion.

The district court also imposed two monetary sanctions against the plaintiffs during this litigation. In 1991, after the cause of action had been pending and discovery underway for almost four years, the district court assessed against the plaintiffs approximately $13,000 in reasonable costs and fees for abusive litigation practices. After dismissing the entire action in July of 1992, the court also imposed sanctions under Rule 11 for plaintiffs' pursuit of Count V, a factually unsubstantiated claim. Plaintiffs appeal both assessments, which we address in Part IV of this opinion.

II.

The district court disposed of Counts I, III and IV on summary judgment in favor of defendants. We review summary judgments de novo, applying the same standard as that applied by the district court. The record must demonstrate that no genuine issue of material fact remains, reviewing the record and evidence in the light most favorable to the nonmoving party. Fed.R.Civ.P. 56(c); Anderson v. Liberty Lobby, 477 U.S. 242, 249 (1986); Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986); Niecko v. Emro Marketing Co., 973 F.2d 1296 (6th Cir.1992).

A.

Plaintiffs allege in Count I that the defendants failed to compensate them for over 36,000 barrels of oil that defendants illegally drained from tracts 1, 2 and 6 of the Columbus III oil field between November 1, 1971 and June 30, 1974. Plaintiffs argue that the Michigan Court of Appeals decision in Wronski v. Sun Oil Co., 89 Mich.App. 11 (1979) ("Wronski I "), can be used offensively to collaterally estop the defendants from contesting the claim.

Wronski I began in April, 1975, when two parties with interests in the Columbus III field (the Koziaras the Wronskis) filed an action in Michigan state court, alleging that Sun Oil was overproducing the Columbus III field and converting oil in which they had an interest. ¹ They requested recision of their leases with Sun Oil, or in the alternative, sought damages for the overproduction on their property. As part of its decision in favor of the plaintiffs in the case, the trial court found that Sun Oil had drained illegally 50,000 barrels of oil from the Columbus III field during the time period of February 1, 1970 to June 30, 1974. The Michigan Court of Appeals affirmed the findings and judgment for the plaintiffs. Wronski v. Sun Oil Co., 89 Mich.App. 11 (1979).

The district court found that Wronski I conclusively established that the defendants drained illegally 50,000 barrels of oil from the field during the period of February 1, 1970 to June 30, 1974. Plaintiffs, however, held their interest in the property only from November 1, 1971 to June 30, 1974, creating time and property interest discrepancies between the two cases. Consequently, the district court found that plaintiffs would be required to present proof in addition to the Wronski I opinion to establish whether any of (or what percentage of) the illegal drainage established by Wronski I had occurred during February 1, 1970 to June 30, 1974. Because the plaintiffs admitted that they had no additional evidence to substantiate the claim, the district court granted summary judgment in favor of defendants. Dietrich v. Sun Exploration and Production Co., 784 F.Supp. 383, 387 (E.D.Mich.1992).

Under Michigan's law of collateral estoppel, ² if mutuality exists between the parties, a judgment is conclusive in subsequent litigation only "as to questions actually litigated and determined by the judgment. It is not conclusive as to questions which might have been but were not litigated in the original action." Howell v. Vito's Trucking and Excavating Co., 386 Mich. 37, 42 (1971) (quoting Restatement of the Law, Judgments, Sec. 68 at 293-94); Knoblauch v. Kenyon, 163 Mich.App. 712, 719-20 (1987). Assuming arguendo that mutuality exists, the district court was correct that plaintiffs cannot establish Count I solely through the use of offensive collateral estoppel. Wronski I is conclusive on the finding of the illegal drainage occurring between February 1, 1970 and June 30, 1974; but the parties did not litigate, and the judgment does not establish, the amount of oil drained illegally during November 1, 1971 and June 30, 1974. Wronski I also does not establish that a steady stream was pumped from the field, the percentage pumped during any subperiod of time within the relevant time frame, or the value of oil drained during any subperiod. Thus, Wronski I cannot be used as the plaintiffs' only evidence of the amount of oil drained from the property between November 1, 1971 and June 30, 1974.

Plaintiffs have failed to respond to the problem of lack of identity of issues actually litigated, continuing to argue on appeal that no additional evidence is necessary. Without such additional evidence, plaintiffs cannot prove Count I. Consequently, judgment in favor of the defendants on Count I is proper.

B.

Count III alleges that defendants breached their duty of care as reasonable and prudent oil producers as required under Michigan law. Michigan-Wisconsin Pipeline Co. v. Michigan National Bank, 118 Mich.App. 74 (1984). The defendants argued and the district court found that plaintiff was collaterally estopped from litigating this claim by a series of Michigan state administrative and judicial decisions involving the same parties as Wronski I. The decisions stem from another lawsuit filed by the plaintiffs in Wronski I, the Koziaras and the Wronskis.

In 1975, the Wronskis and the Koziaras filed this second lawsuit against Sun Oil, seeking review of a unitization order of the oil field. ³ Orders were entered by the Supervisor of Wells approving the unitization plan for Sun Oil, allowing Sun Oil to manage the Columbus III field. After the state trial court denied a petition for review by the plaintiffs, the Michigan Court of Appeals remanded to an ALJ for a more detailed hearing and decision. Wronski v. Sun Oil Co., 108 Mich.App. 178 (1981) ("Wronski II" )....