Fleet v. Sanguine, Ltd.
| Decision Date | 02 June 1993 |
| Docket Number | No. 73,132,73,132 |
| Citation | 1993 OK 76,854 P.2d 892 |
| Parties | Frank T. FLEET, Executor of the Estate of Margaret Fleet Kalmar, P.A.W.N. Enterprises and Frank T. Fleet, Inc., Plaintiffs-Appellees and Counter-Appellants, v. SANGUINE, LTD., Defendant-Appellant and Counter-Appellee. |
| Court | Oklahoma Supreme Court |
On Appeal from the District Court, Grady County, James R. Winchester, Judge.
Mineral owners brought under several theories of liability an action for damages against an oil and gas well operator and a parallel ancillary proceeding for equitable accounting of oil and gas proceeds alleged to be due them. The trial court (a) held the operator liable as a matter of law for revenue from the mineral owners' "back-in interests" in a certain well and (b) ordered an audit of the operator's accounts. Later, the operator made a § 1101 offer of judgment, which the mineral owners accepted, removing all prejudgment issues from the triers. The mineral owners' postjudgment quest for prejudgment interest met with a favorable decision, but their bid for equitable accounting costs was denied. The well operator's appeal assigns error in the prejudgment interest award and in a certain recitation in the journal entry. By their counter-appeal the mineral owners seek relief from the trial court's refusal to allow against the operator auditing costs incurred in the parallel ancillary proceeding for equitable accounting.
ORDER REVERSED AND CAUSE REMANDED.
Robin F. Fields, Mary E. Mott, McKinney, Stringer & Webster, P.C., Oklahoma City, for appellees and counter-appellants.
Donald L. Kahl, Orval E. Jones, Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., Tulsa, for appellant and counter-appellee.
Two issues are presented by defendant Sanguine Ltd.'s [Sanguine's or the operator's] appeal from a postjudgment order: 1 (1) Did the trial court err by adding prejudgment interest as a penalty after Plaintiffs-Appellees [the mineral owners] had accepted the operator's § 1101 2 offer of judgment? and (2) Should the trial court's memorialized judgment be corrected to make it conformable to the record? We answer both questions in the affirmative.
One additional issue is presented by the mineral owners' counter-appeal: Were auditing costs in the parallel ancillary proceeding for equitable accounting allowable against the operator? Our answer is in the affirmative.
EXOK, Inc. [EXOK] leased plaintiffs' 3 mineral interests in Section 13, Grady County [Section 13]. 4 The leases give each mineral owner an one-eighth royalty, 5 and separate agreements [the letter agreements] provide that the lessee shall assign to the mineral owners a thirty-percent leasehold interest [the back-in interest] as soon as completion and production costs [payout] of any test well drilled in Section The Oklahoma Corporation Commission [the Commission] "force pooled" 8 the leasehold interests in Section 13 and gave Sanguine permission to drill the Annie # 1 well. 9 Sanguine was designated unit operator. 10 EXOK's election not to participate in the well placed Sanguine in the legal status of lessee vis-a-vis the mineral owners. 11 After the well had been completed and production established, each of the mineral owners received an one-eighth royalty. 12 Later, when the operator recouped its production costs, 13 it refused to honor the unrecorded letter agreements.
13 shall have been recovered. 6 Although the leases filed in the Grady County Clerk's office specifically refer to the August 11, 1980 letter agreements, 7 the agreements themselves are not of record
ANCILLARY PROCEEDING FOR EQUITABLE ACCOUNTING
The mineral owners sued the operator for damages. They specifically invoked § 540(B)'s 14 penalty provision (prejudgment interest at the rate of 12%) for Shortly before trial the operator offered to confess judgment for $135,000, 22 and the mineral owners accepted the offer.
violation of § 540(A) 15 and pressed for recovery under several other theories of liability. 16 As an ancillary relief to that action they sought to compel equitable accounting. 17 During the discovery phase of the case, the trial judge ordered the operator to submit its records to an audit by the mineral owners' accountant. 18 Later, he ruled in the mineral owners' favor (as a matter of law) 19 on the operator's liability 20 for the back-in
interests 21 and set for jury trial the only remaining issue, that of recovery which would make the plaintiffs whole
In post-acceptance stage of the trial court's proceedings the mineral owners sought prejudgment interest, costs, and attorney's fees. The parties compromised on the attorney's fees and ordinary cost items to be taxed. Over the operator's objection the trial judge conducted a postjudgment evidentiary hearing to decide whether the mineral owners were entitled to interest under § 540(B) 23 and if so, to determine its amount. Proof of the mineral owners' auditing costs in the parallel equitable accounting was also adduced. The trial judge (a) awarded the mineral owners $56,578.00 in prejudgment interest at the rate of 12% as a penalty (computed by a plaintiffs'-pressed calculation formula) and (b) held he lacked statutory authority to assess accounting costs against the operator. This appeal challenges the prejudgment interest award and the correctness of a certain recitation in the journal entry. The mineral owners' counter-appeal assigns error in the trial court's denial of their audit-related costs.
A PARTY'S ACCEPTANCE OF A § 1101
OFFER OF JUDGMENT REMOVES ALL PREJUDGMENT ISSUES
FROM THE COURT'S CONSIDERATION
OFFER OF JUDGMENT
In an action for the recovery of money, a defendant may offer to allow judgment to be taken against him for a specified sum. 30 Acceptance of a confessed judgment removes all prejudgment issues from the triers' consideration. 31 Issue removal bars the trial court from entertaining evidence material to that which is no longer within the perimeter of adjudicable controversy. The offer of judgment removes from judicial consideration all fact issues whose resolution is necessary to the judgment's pronouncement. 32 In short, a § 1101 offer's acceptance extinguishes the entire cause of action and
substitutes in its place the right to claim the confessed recovery.
AN OPERATOR'S BREACH OF ITS § 540(A)
DUTY, IT PRESENTS A PREJUDGMENT ISSUE
TO BE DECIDED IN THE CASE
The mineral owners had pressed for interest at 12% as an element of their damages. The tendered predicates for interest calculation included (1) an assessment of whether title to the proceeds was marketable, (2) the critical finding of the disputed date payout occurred and (3) an inquiry into details of the operator's liability on a month-to-month basis. 33 Over the operator's objection, the trial judge decided (after a postjudgment hearing) that title to the proceeds was marketable. He resolved in the mineral owners' favor the disputes over payout's date and the principal amount and then added $56,587.00 interest to the judgment. 34
Prejudgment interest 35 is an item of recovery authorized by 52 O.S.1981 § 540(B). 36 It constitutes a part of the judgment and is considered a part of the total liability recovered. 37 The mineral owners rested their claim for prejudgment interest upon the terms of § 540(B). Unlike the statute that governs liability for prejudgment interest in bodily injury cases, 38 § 540(B) includes no direction to the trial judge that interest be added to a jury verdict. Prejudgment interest in the § 540(B) sense is not merely compensation for the use of money belonging to another. 39 Rather, it is interest qua penalty 40 to The statutory penalty which may follow a § 540(A) breach must be treated as an element of the mineral owners' legal damage for the operator's default in payment; 43 it is the triers who must decide whether the operator wrongfully withheld the proceeds after payment was due, particularly where, as here, the penalty's calculation rests upon disputed facts. 44
compel compliance with § 540(A). 41 The cited section (1) governs the payment of royalties on production from an oil or gas unit, 42 (2) imposes a time frame for payment and (3) provides for interest on the proceeds at the rate of 6% if payment is delayed because one's (claimant's) title is unmarketable
OFFER REMOVED FROM JUDICIAL INQUIRY THE ISSUE OF
PREJUDGMENT INTEREST
The mineral owners' acceptance of the operator's § 1101 45 offer of judgment removed from judicial inquiry all elements of the mineral owners' damages, including prejudgment...
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