Grayhorse Energy, LLC v. Crawley Petroleum Corp.

• Decision Date: 18 October 2010
• Docket Number: No. 107,704.,107,704.
• Citation: 245 P.3d 1249
• Parties: GRAYHORSE ENERGY, LLC; TLJ Investments, LLC; Singer Bros. LLC; and Pedestal Oil Company, Inc., Plaintiffs/Appellants, v. CRAWLEY PETROLEUM CORPORATION, an Oklahoma corporation, Defendant/Appellee.
• Court: United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma

245 P.3d 1249

GRAYHORSE ENERGY, LLC; TLJ Investments, LLC; Singer Bros. LLC; and Pedestal Oil Company, Inc., Plaintiffs/Appellants,

v.CRAWLEY PETROLEUM CORPORATION, an Oklahoma corporation, Defendant/Appellee.

No. 107,704.

Court of Civil Appeals of Oklahoma,

Division No. 2.

July 29, 2010.

Certiorari Denied Oct. 18, 2010.

Appeal from The District Court of Logan County, Oklahoma; Honorable Donald L. Worthington, Trial Judge.

REVERSED AND REMANDED FOR FURTHER PROCEEDINGS.

Jessie V. Pilgrim, Levinson, Smith & Huffman, P.C., Tulsa, OK, for Plaintiffs/Appellants.

Robert W. Dace, Gary W. Catron, Philip D. Hart, McAfee & Taft A Professional Corporation, Oklahoma City, OK, for Defendant/Appellee.

DEBORAH B. BARNES, Judge.

¶ 1 Plaintiffs/Appellants Grayhorse Energy, LLC, TLJ Investments, LLC, Singer Bros. LLC, and Pedestal Oil Company, Inc., (collectively, the GrayHorse ¹ group) seek review of the trial court's order sustaining Defendant/Appellee Crawley Petroleum Corporation's (Crawley) motion to dismiss for lack of subject matter jurisdiction.² We express no view upon the merits of any element of the GrayHorse group's claims,³ but reverse the trial court's order because, in the context of mineral interests and oil and gas leaseholds, subject matter jurisdiction rests solely with the district courts to determine private rights,⁴ and the Oklahoma Corporation Commission (the OCC), although possessing many of the powers of a court of record, is without the authority to entertain a suit for damages.⁵ We remand this case for further proceedings.

FACTS AND PROCEDURAL BACKGROUND

¶ 2 Crawley produces and operates oil and gas wells in Oklahoma. On May 4, 2009, the GrayHorse group filed a petition against Crawley seeking money damages pursuant to the alternative legal theories of conversion, negligence, constructive fraud, and unjust enrichment. The GrayHorse group asserts in the petition that Crawley is the operator of the Russell State # 2-36 oil and gas well (the Well) in which the GrayHorse group owns a working interest. It further claims that in 2008, without its authorization or approval, Crawley wrongfully used the GrayHorse group's "casing, pipe, wellbore and other associated personal property from [the Well]." The GrayHorse group claims that as a result of Crawley's wrongful use or conversion of this property, "the sale of oil and gas ceased and each plaintiff has suffered economic injury."

¶ 3 Crawley filed an answer in which it denies that it performed any wrongful acts. However, Crawley admits that it is the operator of the Well.

¶ 4 Crawley filed a motion to dismiss for lack of subject matter jurisdiction. Crawley argues in its motion that the matters the GrayHorse group seeks to litigate in the district court are matters over which the OCC had exclusive jurisdiction in a previous OCC Cause, CD No. 200804943, resulting in a forced-pooling order, OCC No. 558403 (the Pooling Order), involving the GrayHorse group, named as respondents, and Crawley, as applicant. Crawley maintains that the purpose of the pooling was to re-complete the Well in the Third Deese (Gibson Sand) formation, prior production from the Well having been from the lower Sycamore and Hunton formations. It appears from the documents attached to Crawley's motion to dismiss that the GrayHorse group elected not to participate in the development of the unit under the Pooling Order,⁶ that it did not come forth in opposition to the Pooling Order at the OCC hearing, and that the Pooling Order was not appealed. Crawley argues that the GrayHorse group's attempt to now litigate its claims for conversion, negligence, constructive fraud, and unjust enrichment in the district court constitutes an impermissible collateral attack on the Pooling Order entered by the OCC.⁷

¶ 5 The GrayHorse group filed an objection to Crawley's motion to dismiss. Each of the Appellants (which, for convenience purposes only, we call, collectively, the GrayHorse group) asserts it is a working interest owner in the Well which has produced natural gas from the lower Sycamore and Hunton formations since 1984. The GrayHorse group contends it "owned and still own [s], collectively, 21.875% of the tubing, casing, pipe, wellbore and other associated personal property to the [Well]." ⁸ The GrayHorse group argues that its claims against Crawley constitute a private dispute for money damages and, therefore, the district court has subject matter jurisdiction.

¶ 6 The trial court agreed with Crawley ⁹ and, in an order filed on October 23, 2009, granted Crawley's motion to dismiss for lack of subject matter jurisdiction.¹⁰ In its order,the trial court set forth the following "Findings of Fact:"

1. Each of the Plaintiffs owns a fractional working interest in [the Well].

2. [The Well] is located on a 40 acre drilling and spacing unit established by [the OCC] described as:

SW/4 of the SW/4 of Section 36,

T3N, R3W Garvin County, Oklahoma.

3. [Crawley] owns a fractional working interest in [the Well] and is the operator of [the Well].

4. Prior to, on or about May 28, 2008 [the Well] had been productive from the Sycamore and Hunton formations.

5. [Crawley] on or about May 28, 2008 proposed to [the GrayHorse group] and other owners of working interests in [the Well] to recomplete [the Well] in the Third Deese (Gibson Sand) formation.

6. [The GrayHorse group] declined to participate as working interest owners in [Crawley's] proposal to recomplete [the Well] in the Third Deese (Gibson Sand) formation.

7. [Crawley] thereupon filed an application, Corporation Commission cause CD No. 200804943, for an order pooling interests and adjudicating the rights and equities of oil and gas owners in the Third Deese (Gibson Sand) common source of supply underlying the forty acre tract of land upon which [the Well] is located.

8. On August 21, 2008 [the OCC] entered its order number 558403 pooling and adjudicating the rights and equities of owners in the proposed completion efforts in the Third Deese (Gibson Sand) formation in [the Well].

9. [Crawley] proceeded to recomplete [the Well] in the Third Deese (Gibson Sand) formation after [the GrayHorse group] declined to participate in those efforts as working interest owners.

10. [The GrayHorse group] in this case alleges [Crawley] converted the casing, pipe and wellbore of [the Well] to its own use in recompletion of [the Well] in the Third Deese (Gibson Sand) formation, causing damage to [the GrayHorse group].

¶ 7 The trial court determined that because "[the OCC] has sole authority to adjust the rights and equities and protect the correlative rights of all interested parties in proceedings for the issuance of a pooling order" (citing Woods Petroleum Corp. v. Sledge, 1981 OK 89, 632 P.2d 393), the GrayHorse group's sole recourse was a timely appeal of the Pooling Order to the Oklahoma Supreme Court. Therefore, the trial court granted Crawley's motion to dismiss for lack of subject matter jurisdiction. From this order, the GrayHorse group appeals.

STANDARD OF REVIEW

¶ 8 "When reviewing a trial court's dismissal of an action an appellate court examines the issues de novo." Rogers v. Quiktrip Corp., 2010 OK 3, ¶ 4, 230 P.3d 853, 855-56 (footnote omitted). "Motions to dismiss are generally viewed with disfavor." Id. (footnote omitted.) "The purpose of a motion to dismiss is to test the law that governs the claim in litigation rather than to examine the underlying facts of that claim." Id. (footnote omitted). "When reviewing a motion to dismiss, the Court must take as true all of the challenged pleading's allegations together with all reasonable inferences which may be drawn from them." Tuffy's, Inc. v. City of Oklahoma City, 2009 OK 4, ¶ 6, 212 P.3d 1158, 1162 (footnote omitted).¹¹

¶ 9 The only issue on appeal is whether the trial court has subject matter jurisdiction. We will review this issue of law de novo, without deference to the trial court.¹²

ANALYSIS

¶ 10 Although the OCC has the authority of a court of record, it has limited jurisdiction. Tucker v. Special Energy Corp., 2008 OK 57, ¶ 9, 187 P.3d 730, 733. Any action by the OCC must be authorized by statute. Id. See also Rogers v. Quiktrip Corp., 2010 OK 3, ¶ 6, 230 P.3d 853, 857 (the OCC "possesses only such authority as is expressly or by necessary implication conferred upon it by the constitution and statutes of Oklahoma."). Pursuant to 52 O.S. Supp.2006 § 86.1 et seq., the OCC oversees the conservation of oil and gas and its jurisdiction is limited to the resolution of public rights. Tucker at ¶ 9, 187 P.3d at 733. "Public rights are involved [in the area of oil and gas conservation] when 'a unitization order, pooling order, or order setting the allowables on the unit's well' affects 'the correlative rights of all mineral rights owners in [a] common source of supply [in a] unit.' " Id. (quoting Leck v. Continental Oil Co., 1989 OK 173, ¶ 8, 800 P.2d 224, 226).¹³

¶ 11 Once the OCC has entered an order, it cannot be "collateral[ly] attack[ed]" in the district court. 52 O.S.2001 § 111. That is, "the sole method" of reviewing OCC orders "and inquiring into and determining their validity, justness, reasonableness or correctness shall be by appeal from such orders ... to the Supreme Court." Id. See also SKZ, Inc. v. Petty, 1989 OK 150, ¶¶ 11-12, 782 P.2d 939, 943 ("[w]hen free from [a jurisdictional] infirmity, a pooling order is res judicata "). However, a pooling order, or other OCC order, does not immunize the operator, or other parties connected to the pooling order, from lawsuits in the district courts. Rather, the district courts are simply without power to reverse, modify, or correct OCC orders. 52 O.S.2001 § 111. The district courts do have the power to adjudicate the legal effect of an OCC order when necessary to resolve a dispute over private rights. See Tucker at ¶ 11, 187 P.3d at 734 (quoting Nilsen v. Ports of Call Oil Co., 1985 OK 104, ¶ 12, 711 P.2d 98, 101) ("[t]he district court clearly has jurisdiction to adjudicate the...