Estate of Jackson v. Phillips Petroleum Co.

Citation676 F. Supp. 1142
Decision Date10 December 1987
Docket NumberCiv. A. No. 82-1404-AH.
PartiesESTATE OF T.K. JACKSON, Jr., (T.K. Jackson, III and Robert H. Jackson, as executors under the Last Will and Testament of T.K. Jackson, Jr., deceased), and J.K. McLean, v. PHILLIPS PETROLEUM CO.
CourtUnited States District Courts. 11th Circuit. United States District Court of Southern District of Alabama

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Frank McRight, Mobile, Ala., for plaintiffs.

Norton Brooker, Jr., Mobile, Ala., for defendant.

ORDER

HOWARD, District Judge.

This cause is before the Court on defendant's "Motion for Judgment Notwithstanding the Verdict, or Alternatively, for New Trial or Remittitur." The 28-page motion asserts 72 grounds in support thereof. The motion has prompted four briefs and memoranda comprising over 200 pages, numerous additional documents, and a lengthy hearing.1

I. BACKGROUND

Plaintiffs and defendant own certain oil and gas interests ("working interests") in Washington County, Alabama. The area in which the parties' interests lie has been unitized for hydrocarbon production. Under the relevant contractual agreements between the parties and the other working interest owners, defendant is the "unit operator" and as such has certain responsibilities regarding production of hydrocarbons. As unit operator, defendant may incur certain expenses related to these tasks ("unit expenses") and charge the other working interest owners, including plaintiffs, their pro rata share of these expenses.

In November 1977, a blowout occurred at the Williams AA well located within the unit. Defendant subsequently charged the working interest owners their proportionate shares of defendant's expenses in ending the blowout, in reworking the well, and in litigating and settling a lawsuit with a third party whose property was damaged by the blowout.

Plaintiffs challenged the charges, contending the expenses were not "unit expenses" as defined in the controlling agreements. To recoup these expenses from plaintiffs, defendant subsequently invoked a lien against the proceeds of plaintiffs' sale of hydrocarbons to a third party (Ergon). Defendant instructed Ergon to withhold payments to plaintiffs and to make the payments to defendant. The amounts diverted from plaintiffs exceeded the amounts defendant claimed plaintiffs owed defendant by several times over. Eventually, defendant returned these excess funds to plaintiffs.

Plaintiffs filed this action to recover the sums defendant obtained from Ergon as plaintiffs' share of the blowout and related costs, together with interest thereon. This claim went to the jury as one for breach of contract; no punitive damages were sought.

Plaintiffs also asserted several tort claims. The Court directed verdicts as to some of these at or before the close of the evidence. Three tort claims were submitted to the jury, all arising out of defendant's invocation of the lien. Plaintiffs sought as compensatory damages the interest lost on those diverted funds that were in excess of the amount defendant claimed from plaintiffs, during the period such excess funds were withheld. Plaintiffs also sought punitive damages under each theory.

The jury returned general verdicts for plaintiffs in the amount of $5,100,000 (Jackson) and $2,550,000 (McLean). The parties have agreed that Jackson's maximum compensatory damages were $55,605.96 on the contract claim and $2,700 on the tort claims, and that McLean's maximum compensatory damages were $29,760.15 on the contract claim and $800 on the tort claims.

II. TORT CLAIMS

Defendant asserts that all of the tort claims should have been dismissed on motion for directed verdict and that, at any rate, no grounds existed for imposing punitive damages under any of those theories.

A. Conversion.
1. Challenged elements.

Although defendant introduces its conversion argument with the rigid pronouncement that "no conversion cause of action exists for money withheld," (Defendant's Brief at 11), the thrust of defendant's argument is evidently that the funds in dispute here were not sufficiently identified under Alabama law to form the subject matter of a conversion.

The funds at issue in this case were the proceeds of the sale of plaintiffs' share of unit production to a third party (Ergon). These proceeds were held by Ergon, who, at defendant's behest, withheld the funds from plaintiffs and eventually transferred them to defendant as they became due to plaintiffs. The Court concludes that these funds were sufficiently identified under Alabama law to be converted.

Money can form the subject matter of a conversion if sufficiently identified. E.g., Limbaugh v. Merrill Lynch, Pierce, Fenner & Smith, 732 F.2d 859, 862 (11th Cir. 1984) (reciting Alabama law). The money need not be specific bills or notes squirrelled away in paper bags, as defendant suggests, to be sufficiently identified. See, e.g., Lewis v. Fowler, 479 So.2d 725, 726-27 (Ala.1985).

Defendant relies heavily on the following language from Lewis: "When there is no obligation to return the identical money, but only a relationship of debtor or sic creditor, an action for conversion of funds representing the indebtedness will not lie against the debtor." Id. at 727. Defendant contends that, because plaintiffs had no right to "identical or specific money" in exchange for the output delivered to Ergon, only a relationship of creditor and debtor existed between them, and that therefore no cause of action for conversion is available.

Defendant, however, ignores the final prepositional phrase of the quoted sentence. Lewis stands only for the proposition that the creditors (plaintiffs) have no cause of action for conversion "against the debtor" (Ergon). Lewis does not purport to preclude a conversion claim against a third party who causes the debtor to withhold payment of the debt and to transfer to the third party the funds representing the debt. The other cases defendant discusses are similarly distinguishable.

Lewis itself suggests that funds in a "special account" are adequately identified.

Id. at 727. As between plaintiffs and defendant, funds held by Ergon, in whatever form, are conceptually equivalent to funds in a special account.

At any rate, and as defendant concedes, (Defendant's Reply Brief at 3-4), the evidence showed that Ergon escrowed the funds upon receiving defendant's instructions to withhold them from plaintiffs, and that defendant again placed the funds in escrow upon receipt of them from Ergon. Thus, from the time Ergon received defendant's notice, the funds at issue were segregated from all other funds in the universe and constituted "specific money capable of identification." United States Fidelity & Guaranty Co. v. Bass, 619 F.2d 1057, 1060 (5th Cir.1980). The funds were thus as well identified as the special purpose deposit which the Alabama Supreme Court found sufficiently identified to support a claim for conversion in Rainsville Bank v. Willingham, 485 So.2d 319 (Ala.1986).2

2. Punitive damages.

Defendant next argues that, even if the conversion claim was properly submitted to the jury, punitive damages can be awarded only when the defendant acts "`in known violation of law and of owner's rights, with circumstances of insult, or contumely, or malice.'" (Defendant's Brief at 20 (quoting Crabtree v. Ford Motor Credit Co., 413 So.2d 1161 (Ala.Civ.App.1982))). Defendant contends that it relied on Paragraph 11.5 of the Unit Operating Agreement in instructing Ergon to withhold funds in excess of those defendant claimed to be due it from plaintiffs as their share of the blowout expenses. Since "reliance by a defendant on the contract negates a finding that the defendant's action was `in known violation of law or of owner's rights,'" Crabtree, 413 So.2d at 1163, defendant concludes that a prerequisite for imposing punitive damages is absent and that no punitive damages could be assessed in the face of this deficiency. The argument fails for two reasons.

First, defendant assumes that its reliance on Paragraph 11.5 was established beyond peradventure and that the reasonableness of that reliance follows as a matter of law from the Wyoming Supreme Court's decision in Andrau v. Michigan Wisconsin Pipeline Co., 712 P.2d 372 (Wyo.1986).

In pertinent part, Paragraph 11.5 reads as follows:

In addition, upon default by any Working Interest Owner plaintiffs in the payment of its share of Unit Expenses allegedly, the blowout expenses, Unit Operator defendant shall have the right, without prejudice to other rights or remedies, to collect from the purchaser Ergon the proceeds from the sale of such Working Interest Owner's share of Unitized Substances until the amount owed by such Working Interest Owner, plus interest, has been paid. Each purchaser shall be entitled to rely upon Unit Operator's written statement concerning the amount of any default.

Defendant insists that Andrau demonstrates that defendant was entitled under this language to divert to itself payments in excess of the amounts it claimed plaintiffs owed defendant. Although the contract in Andrau contains language similar to that quoted above, the Wyoming Supreme Court did not, and was not asked to, interpret that language. The Andrau court reviewed only an adjacent provision, markedly different in its terms, concerning sale of the mineral interest itself as a means of collecting the owner's arrears. No doubt the remedy discussed in Andrau was "clear", as defendant insists, but it is simply not the remedy at issue here, nor is it couched in similar terms.

The Court ruled as a matter of law that the quoted language of Paragraph 11.5 allowed defendant to obtain from Ergon funds up to the amount claimed by defendant as owing from plaintiffs. The Court, however, did not render a legal ruling as to whether the quoted language allowed or forbade defendant to divert funds in excess of plaintiffs' alleged debt. Without objection, the Court informed counsel, "I feel that you had an obligation, or at...

To continue reading

Request your trial
10 cases
  • Simple Helix, LLC v. Relus Techs., LLC
    • United States
    • U.S. District Court — Northern District of Alabama
    • 8 Octubre 2020
    ...not be specific bills or notes squirrelled away in paper bags ... to be sufficiently identified," Estate of Jackson v. Phillips Petroleum Co. , 676 F. Supp. 1142, 1147 (S.D. Ala. 1987), and funds in an escrow account reside "segregated enough to qualify as specific and identifiable." Willin......
  • Atchafalaya Marine, LLC v. Nat'l Union Fire Ins. Co. of Pittsburgh
    • United States
    • U.S. District Court — Southern District of Alabama
    • 1 Abril 2013
    ...of whether jury verdict is excessive in a diversity case is left to the state substantive law); Estate of Jackson v. Phillips Petroleum Co., 676 F.Supp. 1142, 1152 (S.D.Ala.1987) (state substantive law determines whether the verdict was “excessive”). American Employers, 931 F.2d at 1457–145......
  • Fuller v. Exxon Corp., Civil Action No. 99-0774-RV-S.
    • United States
    • U.S. District Court — Southern District of Alabama
    • 12 Enero 2001
    ...11 F.3d 168 (11th Cir.1993)($4.6 million in punitive damages awarded to approximately 12 plaintiffs); Estate of T.K. Jackson v. Phillips Petroleum Company, 676 F.Supp. 1142 (S.D.Ala. 1987)(over $7.5 million awarded to two plaintiffs). However, other than the fact that these two verdicts wer......
  • Ferguson v. Coronado Oil Co.
    • United States
    • United States State Supreme Court of Wyoming
    • 14 Noviembre 1994
    ...Trover & Conversion § 23 (1955); 7 Stuart M. Speiser et al., The American Law of Torts § 24:6 (1990); Estate of Jackson v. Phillips Petroleum Co., 676 F.Supp. 1142, 1146 (S.D.Ala.1987). There must also be an obligation to deliver that money in a specific manner. Richardson's Restaurants, In......
  • Request a trial to view additional results

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT