Howell Petroleum Corp. v. Samson Resources Co.

• Decision Date: 17 May 1990
• Docket Number: Nos. 88-2129,88-2551 and 88-2629,s. 88-2129
• Citation: 903 F.2d 778
• Parties: HOWELL PETROLEUM CORPORATION, Plaintiff-Appellant, Cross-Appellee, v. SAMSON RESOURCES COMPANY, Defendant-Appellee, Cross-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 778

903 F.2d 778

HOWELL PETROLEUM CORPORATION, Plaintiff-Appellant, Cross-Appellee, v. SAMSON RESOURCES COMPANY, Defendant-Appellee, Cross-Appellant.

Nos. 88-2129, 88-2551 and 88-2629.

United States Court of Appeals Tenth Circuit.

May 17, 1990.

B.J. Rothbaum, Jr. (David E. Pepper, Michael S. Richie, William J. Skepnek and Brinda K. White on the briefs), Linn & Helms, Oklahoma City, Okl., for appellant/cross-appellee, Howell Petroleum Corp.

James A. Kirk (Jon W. Laasch with him on the briefs), Kirk & Chaney, Oklahoma City, Okl., for appellee/cross-appellant, Samson Resources Co.

Before McKAY, ANDERSON, Circuit Judges, and THEIS, ^* District Judge.

STEPHEN H. ANDERSON, Circuit Judge.

Howell Petroleum Corporation ("Howell") owns overriding royalty interests in three oil and gas wells operated by Samson Resources Company ("Samson"): the McClure No. 2-5 Well in Ellis County, Oklahoma ("the Oklahoma well"), and the Ozark Real Estate No. 2-19 Well and the Yeager No. 2-20 Well in Johnson County, Arkansas (respectively, "the Ozark well" and "the Yeager well"; collectively, "the Arkansas wells"). When Samson failed to pay any royalties, Howell brought suit in federal court in Oklahoma, seeking proceeds of $183,535.13 from the Oklahoma well and $543,649.60 from the Arkansas wells, plus statutory interest. Samson answered, denying liability.

Before the trial, the claim arising from the Oklahoma well was settled. The Arkansas claims were tried to the court. Samson argued that Howell could not recover any proceeds which were due more than three years before suit was filed, on the theory that the action was brought under Ark.Stat.Ann. Sec. 53-525 (which governs the payment of "proceeds derived from the sale of oil or gas production"), and therefore was subject to Oklahoma's three-year limitations period for "an action upon a liability created by a statute ...," Okla.Stat. tit. 12, Sec. 95. Howell contended that a different limitations period applied because the action was one for the imposition of a constructive trust.

The court found that Samson had withheld royalties, but that Howell was not entitled to a constructive trust because that theory had not been pled. Consequently, Howell's recovery was limited to the $86,836.55 which had come due in the three years preceding the suit. The court also held that Howell could not collect interest under the authority of the Arkansas statute.

Each party claimed to have prevailed, and sought attorney's fees under section 53-525. In addition, Howell sought a fee award for successfully settling the Oklahoma claim, and court costs. The court denied both parties' motions.

I.

Howell first argues that the district court erroneously denied its request for a constructive trust and should have applied "the statute of limitations applicable to actions for the imposition of a constructive trust." Brief of Appellant at 14. The parties' contentions revolve around whether or not Howell sufficiently pled a constructive trust theory, and, if so, whether or not Howell was entitled to such relief. We need not resolve these questions, however, because Howell's argument misconstrues the nature of a constructive trust. A constructive trust is a remedial device used by courts to enforce substantive rights, Ladd v. State ex rel. Oklahoma Tax Comm'n, 688 P.2d 59, 62 (Okla.1984); Goodwin v. Beard, 434 P.2d 192, 196 (Okla.1967); Wootton v. Melton, 631 P.2d 1337, 1341 (Okla.Ct.App.1981); it is not itself a substantive right. See generally G. Bogert & G. Bogert, The Law of Trusts and Trustees Sec. 471 (1978 & Supp.1989); 5 A. Scott & W. Fratcher, The Law of Trusts Secs. 461-62 (1989).

A suit seeking a constructive trust is governed by the statute of limitations applicable to the underlying cause of action. See Green v. Oilwell, Div. of United States Steel Corp., 767 P.2d 1348, 1353 n. 9 (Okla.1989); Hughes v. Fidelity Bank, N.A., 645 P.2d 492, 495 (Okla.1982); Barefoot v. Oklahoma Nat'l Bank & Trust Co., 474 P.2d 652, 656 (Okla.1970); Jones v. Jones, 459 P.2d 603, 604 (Okla.1969); Morris v. Leverett, 434 P.2d 912, 920 (Okla.1967). ¹ The district court did not err in failing to apply "the statute of limitations applicable to actions for the imposition of a constructive trust" because Oklahoma has no such thing. ²

II.

Howell also claims that the district court erred when it denied Howell statutory interest. Ark.Stat.Ann. Sec. 53-525 (now Ark.Stat.Ann. Sec. 15-74-601(a)) sets time limits for the payment of "proceeds derived from the sale of oil or gas production," and allows for twelve percent annual interest on late royalties. However, the statute provides that "any delay in determining the persons legally entitled to an interest in such proceeds from production caused by unmarketable title to such interest shall not affect payments to persons whose title is marketable." Id. This implies that the interest penalty does not apply to payments which were late because the payee's title was unmarketable.

In TXO Production Corp. v. Page Farms, Inc., 287 Ark. 304, 698 S.W.2d 791 (1985), the Pages executed an oil and gas lease to TXO. The Pages were sent a division order which correctly recited their interest, but they did not promptly sign and return it. For this reason, TXO withheld royalty payments. The Arkansas Supreme Court affirmed an award of interest under section 53-525. Regarding TXO's argument that the delay was caused by the Pages' title being unmarketable, the court said:

"The marketability of a title is to be determined by the public record. There is no indication that Page Farms did not have a clear record title while TXO was delaying its payments. In fact, TXO's own examining attorney had approved the title."

Id. 698 S.W.2d at 792. The court went on to state that the title was not rendered unmarketable by the Pages' failure to execute the division order. Id. at 793; accord Hull v. Sun Refining & Marketing Co., 789 P.2d 1272 (Okla.1989) (interpreting an identical statute and holding that "because the only condition for which [the statute] justifies suspension of royalty payments is the existence of unmarketable title, failure to execute a division order is not a defense to an action for the payment of proceeds from oil production").

In Atlanta Exploration, Inc. v. Ethyl Corp., 301 Ark. 331, 784 S.W.2d 150 (1990), one Ferguson assigned a plot of land to his grandson ("Ferguson, Jr."), who died and left the land to his son ("Ferguson III"). After Ferguson, Jr. died, Ferguson conveyed the same land to his son ("Ferguson, Sr."), who leased the oil and gas rights to the defendant. Unaware that Ferguson III actually owned the land, the defendant paid royalties to Ferguson, Sr. Ferguson III sued to collect past royalties. The Arkansas Supreme Court affirmed the trial court's refusal to award statutory interest:

"Here, [the defendant] made timely payments, but due to a mistake, it made them to the wrong person.... [O]ur law governing timely oil and gas payments ... should be construed with appropriate regard to the spirit which prompted its enactment, the mischief sought to be abolished and the remedy proposed. Arkansas's law is designed to prevent a company from withholding the payment of royalties to persons entitled to them. It does not, however, embrace the situation where timely payments are made but, by mistake, were made to the wrong person."

Id. 784 S.W.2d at 153 (citations omitted).

A.

Samson sent Howell a division order for the Ozark well, based upon a title opinion, reciting Howell's interest as approximately six percent. Howell disputed this figure, believing that its share was seven percent, and did not sign and return the order. Samson would not pay royalties without an executed division order. There was no dispute over the marketability of Howell's title to the six percent claim; only its title to the land entitling it to additional royalties was unmarketable.

Had Howell not asserted an entitlement to the additional one percent, Samson clearly would not have been justified in delaying payment of the undisputed six percent. As in Page Farms, the defendant's own title opinion showed the marketability of Howell's six percent interest, and Howell's failure to return the division order did not render that title unmarketable. It is clear from the statute that the unmarketability of one person's title should not delay the payment of other entitled parties' royalties, but it is not clear whether the unmarketability of part of one person's title justifies a delay in paying the rest of that same person's proceeds. While the issue is not free from doubt, we believe that the Arkansas Supreme Court would not interpret this provision as excusing a delay in the payment of royalties on the interest in which Howell's title was marketable. See Wright, The Arkansas Law of Oil and Gas, 10 U.Ark. Little Rock L.J. 5, 25 (1987-88) ("the Arkansas Supreme Court is likely to interpret section 53-525 in favor of the ... party entitled to receive lease proceeds" (citing, e.g., TXO Prod. Corp. v. First Nat'l Bank, 288 Ark. 338, 705 S.W.2d 423, 424-25 (1986) (holding that the time limits in section 53-525 begin to run as soon as the oil or gas is delivered, not when payment is actually made)). This is a case of "a company ... withholding the payment of royalties to persons entitled to them." Atlanta Exploration, Inc. v. Ethyl Corp., 784 S.W.2d at 153. Accordingly, we reverse the district court's decision not to grant interest on Howell's royalties from the Ozark well.

B.

A mortgage on Howell's share of the Yeager well had been released, and the release filed with the county, shortly after the well began producing. However, Samson was unaware of the release and sent Howell a division order reflecting the existence of the mortgage, along with a request for evidence that the mortgage had been satisfied. Howell signed and returned the order, but did not provide a copy of the release. Consequently,...