I.C. Gas Amcana, Inc. v. J.R. Hood

• Decision Date: 14 July 1992
• Docket Number: No. 69448,69448
• Citation: 855 P.2d 597,1992 OK 119
• Parties: I.C. GAS AMCANA, INC., a Delaware corporation, the Home-Stake Oil & Gas Company, an Oklahoma corporation, the Home-Stake Royalty Corporation, an Oklahoma corporation, O. Strother Simpson, John O. Sparks, and Van Horn Oil & Gas Inc., an Oklahoma corporation, Appellants, v. J.R. HOOD and Jrhop, Inc., an Oklahoma corporation, Appellees.
• Court: Oklahoma Supreme Court

Page 597

855 P.2d 597

1992 OK 119

I.C. GAS AMCANA, INC., a Delaware corporation, the Home-Stake Oil & Gas Company, an Oklahoma corporation, the Home-Stake Royalty Corporation, an Oklahoma corporation, O Strother Simpson, John O. Sparks, and Van Horn Oil & Gas Inc., an Oklahoma corporation, Appellants, v. J.R. HOOD and Jrhop, Inc., an Oklahoma corporation, Appellees.

No. 69448.

Supreme Court of Oklahoma.

July 14, 1992.

Supplemental Opinion Granting Rehearing in Part and

Otherwise Denying Rehearing July 6, 1993.

Order Denying Motion to Cancel Supersedeas Bond July 6, 1993.

Certiorari to the Court of Appeals, Division I Appeal from the District Court of Garvin County, Okl., KENNETH LOVE, Trial Judge.

Appellants brought a action to quiet title to an oil and gas lease which appellees had assigned to appellants. Appellees filed counter-claims to quiet title and for damages for fraud, drainage, lost profits, as well as punitive damages. The trial court dismissed appellants' action when they voluntarily reassigned the oil and gas lease to appellees. The court then refused appellants' request for a jury trial on the legal actions holding that the paramount issue, i.e. who had title, was one of equitable cognizance. The Court of Appeals affirmed with modifications. CERTIORARI PREVIOUSLY GRANTED. COURT OF APPEALS OPINION VACATED. JUDGMENT OF THE TRIAL COURT REVERSED AND REMANDED.

J. David Jorgenson, Steven K. Balman, Conner & Winters, Tulsa, for appellants.

Jack R. Durland, Jr., Kelley C. Callahan, Crowe & Dunlevy, Oklahoma City, W.D. Hart, Hart, Rennie, McClain & Hart, Pauls Valley, for appellees.

SIMMS, Justice:

Appellants, I.C. Gas Amcana, Inc., The Home-Stake Oil & Gas Company, The Home-Stake Royalty Corporation, O. Strother Simpson, John O. Sparks, and Van Horn Oil & Gas Inc. (Amcana), appeal the judgment of the trial court rendered in favor of appellees, J.R. Hood and JRHOP, Inc. (Hood). After a non-jury trial, the trial court found title to an oil and gas lease properly with Hood and adjudged Amcana liable for damages for drainage and lost profits, as well as attorney's fees and costs. The Court of Appeals affirmed the trial court's judgment in part and modified the damages disallowing prejudgment interest thereon. Certiorari was granted to consider Amcana's claim to a jury trial on the nonequitable causes of action. Because Amcana was denied their right to a jury trial, we vacate the opinion of the Court of Appeals, reverse the judgment of trial court and remand the cause to the district court for jury trial. We do not at this time address the other propositions urged by Amcana.

Hood acquired some oil and gas leases and assigned them to Amcana with the agreement that Amcana would drill a 7,400 foot test well. The assignment further provided:

"[Amcana] upon completion of said test well as previously described either as a producing well or dry hole and if no further drilling is contemplated by [Amcana], [Amcana] will hereby reassign to [Hood] all rights in the Oil and Gas Leases described in Exhibit "A" from 100 feet below the deepest depth drilled by [Amcana].

Additionally, the parties agreed, among other things, to assign to each other royalty interests in any other leases that each party acquired within a prescribed area around the test well.

Amcana completed the test well, and contemplating further drilling, chose not to reassign the deep rights to Hood. Shortly thereafter, Hood made demand upon Amcana to reassign the deep rights, arguing the terms of the assignment required Amcana to reassign the deep rights at least within one year, and possibly within six months. However, Amcana decided to drill a test well to the greater depths and notified Hood of the decision. Perceiving Hood's claim to the deep rights as a cloud on their title, Amcana instituted a quiet title action in Garvin County District Court.

In response, Hood filed a counter-claim against Amcana requesting title be quieted in Hood. Hood further alleged that Amcana made fraudulent misrepresentations to him in order to get him to execute the assignment. These misrepresentations were in the form of oral promises to reassign the deep rights within one year of the test well's completion. Hood sought $275,000.00 damages in lost profits due to the fraud, and $1,000,000.00 in punitive damages.

Shortly before a scheduled pre-trial conference, Hood amended its counter-petition to include a claim for drainage in the amount of $1,500,000.00. Amcana objected to this claim and sought a continuance to conduct discovery on the new claim, but the trial court denied the continuance. Amcana then demanded a jury trial. The trial court also denied this request, reasoning that since the paramount issue in the case, the question of title, was an issue of equitable cognizance, Amcana had no right to a jury trial.

Prior to trial, Amcana voluntarily reassigned the deep rights to Hood after determining that the proposed test drilling to the deeper depths had become uneconomical. The trial court again refused Amcana's request for jury trial and dismissed Amcana's claim. Trial was had on Hood's counter-claims, and the court found in favor of Hood awarding $145,703.00 damages in drainage, $155,300.00 in lost profits, pre-judgment interest, attorney's fees, sanctions and costs.

The right of trial by jury in civil cases is guaranteed by Article 2, § 19 of the Oklahoma Constitution which states that such right "shall be and remain inviolate" except in civil cases involving $100.00 or less. ¹ Title 12 O.S.1981, § 556 provides for issues of fact arising in actions for the recovery of money, or of specific real or personal property to be tried to a jury. All other fact issues are to be tried to the court, as are issues of law. 12 O.S.1981, §§ 556-57.

In interpreting these statutory provisions, this Court has long held that a jury trial will be denied only in questions of purely equitable cognizance. Eash v. Pence, 121 Okla. 7, 246 P. 1091 (1926); Liles v. Bigpond, 190 Okla. 112, 121 P.2d 596 (1942). Furthermore, when an equity cause of action and law claim are involved in one suit, the trial court at its discretion may submit the equity case to the jury, but it is its duty to submit the law case to the jury for determination. Chouteau v. Hornbeck, 125 Okla. 254, 257 P. 372 (1927); Garrett v. Kennedy, 193 Okla. 605, 145 P.2d 407 (1943).

In the case at bar, the trial court followed the well-settled rule that where the equitable issues are paramount or the legal issues incidental to or dependent upon the equitable issues, then the issues are treated as equitable for purposes of the trial, and the parties are not entitled to a jury trial. Butcher v. McGinn, 706 P.2d 878 (Okla.1985); Russell v. Freeman, 202 Okla. 421, 214 P.2d 443 (1949); Moschos v. Bayless, 126 Okla. 25, 258 P. 263 (1927). The trial court determined the legal causes of action for fraud, drainage, and lost profits which Hood asserted by counterclaim were incidental to or dependent upon the equitable issue, i.e. who had title to the deep rights. We must disagree.

In determining which issue is paramount, the court must look to "the character of the issues framed by the pleadings," Howard v. Stanolind Oil & Gas Co., 197 Okla. 269, 169 P.2d 737 (1946), including issues arising by counter-claim. Grace v. Hildebrandt, 110 Okla. 181, 237 P. 98 (1925). The Court summarized this rule of law in its Syllabus to Newbern v. Farris, 149 Okla. 74, 299 P. 192 (1931), which reads:

"The character of an action is to be determined by the nature of the issues made by the pleadings and the rights and remedies of the parties, and not alone by the form in which the action is brought or by the prayer for relief ..."

The issues, rights and remedies of the parties in the case at bar, as set forth in the pleadings, primarily centered upon Hood's assertion of fraud in entering into the agreement which gave Amcana an assignment to drill a test well for gas below 7,400 feet under certain conditions. For this alleged fraud, Hood prayed for damages for lost profits from an inability to assign the deep rights to other drillers, drainage for minerals depleted from the deep rights by other operators in the area, and punitive damages. Although Hood requested relief in the form of a judgment quieting title to the deep rights, the legal actions were for damages resulting from actionable fraud.

Without question, Hood's action to quiet title was an issue of equitable cognizance. Hudson v. Smith, 171 Okla. 79, 41 P.2d 861 (1935); Hester v. Watts, 203 Okla. 97, 218 P.2d 641 (1950). The trial court reasoned the quiet title action was paramount because the court first had to find that Hood had title to the deep rights before determining whether Hood was entitled to damages for drainage and lost profits. However, this reasoning is flawed.

Under the assignment, Amcana had title to the deep rights while it contemplated further testing, and there was no time limit on how long Amcana had to "contemplate" further testing. The only way that Hood could establish title in himself was to convince the court that the language of the assignment was not binding upon him because of fraud in the inducement of the contract of assignment. Hence, Hood had to prove that Amcana fraudulently misled him to sign the agreement by orally promising to reassign the deep...