Francis Oil & Gas, Inc. v. Exxon Corp.
| Decision Date | 20 October 1981 |
| Docket Number | No. 79-2259,79-2259 |
| Citation | 661 F.2d 873 |
| Parties | FRANCIS OIL & GAS, INC., Appellant-Plaintiff, v. EXXON CORPORATION, Appellee-Defendant. |
| Court | U.S. Court of Appeals — Tenth Circuit |
Frederic Dorwart, J. Michael Medina, Tulsa, Okl., for appellant-plaintiff.
Varley H. Taylor, G. Michael Lewis, Richard P. Hix, Dorner, Stuart, Saunders, Daniel & Anderson, Tulsa, Okl., for appellee-defendant.
Before DOYLE and LOGAN, Circuit Judges, and TEMPLAR, Senior District Court Judge, *
Francis Oil and Gas, Inc., appellant herein and plaintiff in the trial court, has appealed an unfavorable judgment in this diversity action which was dismissed on a motion for judgment on the pleadings for failure to join indispensable parties as required by Fed.R.Civ.P. 19(b). The indispensable parties were citizens of Oklahoma just as the plaintiff is and it is argued that at least one of these, Phillips Petroleum Co., would be aligned as a defendant so as to destroy the diversity of the plaintiffs and defendant. Francis seeks money damages on its own behalf only based on alleged failure of Exxon, the purchaser of all of the oil here considered, to pay him in accordance with the actual grade of oil which it purchased as certified by Francis based on the particular quantity of the stripper oil. Francis claims it has more stripper well oil than the amounts which Exxon credited to it.
The record reveals this to be more than that which appears on the surface, namely a simple question of money damages asserted by Francis. Essentially this is a Rule 19 problem involving the issue whether other parties who are part of the oil and gas unit in the Yates Oil Field in Pecos and Crockett, Texas, other than Francis Oil, particularly those who are a resident of Oklahoma, are indispensable parties.
The alleged insufficiency in payment allegedly originated in 1974 after Marathon Oil succeeded in forming an oil and gas unit in the Yates Oil Field. Within this field Francis owned a four-well-forty-barrel-per-day lease which occupied 80 acres more or less. Francis' participation in the unit that was eventually formed according to the Unit Agreement is relatively small. It is .12946%. There are other interests in the unit, including several Oklahoma residents, including Phillips, who pose the 19(a) and 19(b) question. The Unit Agreement specifies participation based on the producer's tract size relative to the size of the whole unit. The participation determines the share of costs as well as production. Marathon's participation is the largest. It is 49%. Chevron's is about 15.5%; Gulf's is about 10.5%; Amoco's is about 6.5%; Shell's is about 4%; Getty's is about 4%; Exxon's is about 3%; and so on through many other smaller interests. There are alleged to be 194 separate interests in the unit.
In negotiating the Unit Agreements Marathon limited itself to the larger working interests of the field and after obtaining the consent of these working interests offered the final draft to the small interests, including Francis, on a take it or leave it basis. Needless to say, Francis, although wishing to leave it, opted to take it. The position Francis, through its owner, Mr. Kaiser, takes is at odds with the Unit Agreement.
The formula within the Agreement for allocation of production and payment from the Unit among the working interest participants is especially prejudicial to Francis Oil Company. The oil pricing regulations issued by the Department of Energy have set prices for upper tier oil and lower tier oil but there is no price regulation for stripper well oil. 10 C.F.R. § 212.1, et seq. Stripper well oil is that which is produced from property with wells which pump ten barrels or less per day. 10 C.F.R. § 212.54(c). Apparently Francis has a substantially greater proportion of stripper well oil production for the size of its tract than any of the other tracts in the unit. The unregulated price of stripper well oil is substantially higher than the regulated price of upper and lower tier oil. Despite the prejudice to Francis in having production from the unit allocated according to tract size, Francis nevertheless signed the Unit Agreement under strong and explicit protest but with full awareness of the consequences of the terms.
Exxon purchases all the oil from the producers in the unit under separate individual agreements with the various working interests. Under the Department of Energy regulations each producer certifies its production as being made up of certain amounts of upper tier, lower tier and stripper well oil. 10 C.F.R. § 212.131. The result is that even though the stripper well oil is unregulated, this Unit Agreement in effect subjects it to regulation by means of the purchase formula. The factor which imposes the facially inequitable price payable to plaintiff for its stripper oil is the formula promulgated by the Unit Agreement which specifies participation based on the producer's tract size relative to the size of the whole unit rather than the grades of oil and its value. As a result of this, so it is contended by Francis, the value derived from unregulated stripper oil is lost from Francis and is made available to other members of the unit.
Marathon, the unit operator, had been providing Exxon with a monthly accounting statement showing the participation of all the working interests in the unit based on the tract size according to the terms of the Agreement. The Unit Agreement tract formula covers division of oil produced from the unit among the working interests. Marathon's information was used by Exxon to allocate to upper tier, lower tier and stripper well oil portions of the entire production of each individual producer. The tract area formula was used not only to allocate the whole crude production to each producer, but also to divide the production into the three different priced oils. The net result for Francis was that the amount of stripper well oil allocated to it as a result of using Marathon's statement and the tract formula came out considerably smaller than the actual amount of stripper oil certified by Francis to Exxon.
Francis certified the portion of the stripper oil according to what it had historically produced prior to unitization; it allocated amounts over that to upper and lower tier in the same proportions as was done by the unit. Exxon noticed the discrepancy but at the same time ignored it. Exxon paid Francis in accordance with the formula designed by Marathon. Exxon apparently chose this formula because it was aware that upon unitization, the unit operator, according to DOE regulations, had established a base production control level for the unit which included allocation by proportion to the three types of oil. 10 C.F.R., § 212.72. The resulting money difference demanded by Francis from Exxon amounts to $13,434.10.
Exxon attempted to get a DOE opinion as to which formula should be followed to determine the certified amounts of each of the kinds of oil. DOE however dismissed the request for ruling saying that the question had to do with an internal unit problem.
The motion for judgment on the pleadings was grounded on failure to join all the working interests in the unit, the contention being that these were indispensable parties. This motion was referred to Magistrate Robert Rizley who recommended that Exxon's motion be denied. The Magistrate pointed out first of all that the burden of proof was on Exxon and that Exxon had not met it. The Magistrate said:
The determination whether a person is an indispensable party is one which must be made on a case-by-case basis and is dependent upon the facts and circumstances of each case. Helzberg's Diamond Shops, Inc. v. Valley West Des Moines Shopping Center, Inc., 564 F.2d 816 (8th Cir. 1977); 7 Wright & Miller, Federal Practice and Procedure, § 1607; 3A Moore's Federal Practice, P 19.07-2(0).
In considering whether the missing working interest owners should be joined if feasible under Rule 19(a), the Magistrate said:
The Magistrate continued:
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