James Energy Co. v. HCG Energy Corp., s. 75695
| Decision Date | 14 July 1992 |
| Docket Number | 75963 and 76370,Nos. 75695,s. 75695 |
| Citation | 1992 OK 117,847 P.2d 333 |
| Parties | JAMES ENERGY COMPANY et al., Appellants, v. HCG ENERGY CORPORATION et al., Appellees. |
| Court | Oklahoma Supreme Court |
Appeal from the District Court of Okmulgee County; John Maley, Judge.
Action to quiet title in certain mineral interests. District upheld Corporation Commission's order in part, refused to cancel certain leases, and ordered plaintiff, James, and defendant to become working interest partners in the well. The Court also awarded drilling costs to defendant and operating costs to plaintiff.
DISTRICT COURT JUDGMENT IS AFFIRMED IN PART AND VACATED IN PART.
Jones, Givens, Gotcher & Bogan by Kenneth G.M. Mather and James E. Weger, Tulsa, for appellant James Energy Co.
Houston and Klein, Inc. by Ira L. Edwards and David W. Wulfers, Tulsa, for appellee HCG Energy Corp.
This appeal arises from a district court order quieting title to certain oil and gas leases in the plaintiff James Energy Company (James Energy), refusing to cancel other leases held by the defendant HCG Energy Corporation (HCG), dismissing James's actions for slander of title and interference with its contractual relations, and ordering James and HCG to become working interest owners in a gas well.
This action involves 160 acres in the northwest quarter of section 35-11N-12E, Okmulgee County, Oklahoma, and the Ponnequin No. 1-35 Well which was drilled on the acreage. The record title mineral interest owners in the 160 acres in 1986 and their proportionate share of the mineral rights are as follows:
NW quarter of the NW quarter
Archie E. and Wilma Powders 1/4
Ethel Martin 1/4
Scott H. Morse 3/8
J.R. Mitchell and Maggie Mitchell 1/8
NE quarter of the NW quarter
Ponnequin All
SE quarter of the NW quarter
Elmer and Mary Helen Jobe 1/2
Phillip W. Norris 1/2
SW quarter of the NW quarter
Lillian Stephenson 3/4
When the well was drilled, Hold Oil Corporation (Hold), predecessor to defendant HCG Energy Corporation (HCG), had leases from Archie E. and Wilma Dean Powders and Lillian Stephenson. D & W Oil and Gas Properties, Inc. (D & W) had leases from Richard Stanley Lane and Ella Mae Lane, Jack D. Morse, Donald G. Morse and Bob W. Morse (heirs of Scott H. Morse); Delmer Don Kennedy; H.D. Ponnequin; and Elmer W. and Mary Helen Jobe. Each lease contained an habendum clause providing for the continuation of the lease past the primary term "as long thereafter as oil and gas, or either of them, is produced from said land by the lessee." The leases also provided for the payment of shut-in royalty payments if the well was shut in and there was no current production from the well. The shut-in royalty payments were "to be made on or before the aniversary date of [the] lease next ensuing after the expiration of ninety (90) days from the date such well [was] shut in" and every year thereafter. It is undisputed that the shut-in royalty payments were not timely paid.
On February 19, 1986, the Corporation Commission (Commission) entered an order providing for 160-acre spacing. On March 3, 1986, Hold filed an application with the Commission to pool the mineral interest in the previously established 160 acre spacing unit. The application recited that Hold had "conducted a diligent and meaningful search of the local county assessor's records, county treasurer's records, county deed records regarding the property involved for return addresses on recorded instruments, county probate records and city and county telephone directories and other sources of such information to locate each respondent...." The application and a notice of the hearing was mailed to Scott H. Morse, Maggie Mitchell, Don E. Morse, Phillip W. Norris, David Edward Morse, Ethel Martin, John F. Martin, Susan Morse Durfee, and J.R. Mitchell. At the time of the mailing, Maggie Mitchell, J.R. Mitchell, and Phillip W. Norris were deceased. Their heirs did not receive notice.
On April 17, 1986, the Commission issued an order force pooling the mineral interests and designating Hold as the operator. In the order, the Commission found that it had jurisdiction of the subject matter and "that notice [had] been given in all respects as required by law and by the rules of the Commission." The order also stated "that a judicial inquiry was made into the sufficiency of the notice given." The Commission designated Hold as the operator of the well.
A copy of the order was not mailed to J.R. Mitchell, Maggie Mitchell, Phillip W. Norris, or Susan Morse Durfee. Neither was a copy of the order mailed to the heirs of J.R. Mitchell, Maggie Mitchell, and Phillip W. Norris. Hold filed an affidavit stating that the reason that the order was not mailed to these four people was "that the applicant, after the exercise of due diligence, has been unable to ascertain the whereabouts of said parties or whether said parties are living or deceased and, if deceased, the applicant has been unable to ascertain the identity and whereabouts of their heirs, devisees, representatives and assigns."
Hold drilled the Ponnequin No. 1-35 Well. Dayle James, owner of plaintiff James Energy, admitted during his testimony at trial that the well was capable of commercial production, i.e. producing in paying quantities. This same admission was in James Energy's brief on appeal. The cost of drilling the well was $178,262.69. Hold did not sell any oil or gas from the well. Several witnesses testified that Hold attempted to market the gas but was unsuccessful.
James Energy, through its witness George Inglish who did a title examination for James Energy, submitted a chart which reflected the results of Mr. Inglish's review of the mineral estates. The chart, entitled "Mineral Interest Owners At Commencement of Well," shows that Hold held leases from Archie E. and Wilma Jean Powers and from Lillian Stephenson. The chart also shows that D & W held leases from Richard Stanley Lane and Ella Mae Lane, Jack D. Morse, Bob W. Morse, H.D. Ponnequin, Delmer Don Kennedy, and Elmer W. Jobe and Mary Helen Jobe. Therefore, James Energy had notice of these leases even though at least some of them were not filed of record.
H.D. Ponnequin assigned his mineral interest to Robert and Genevieve Sutterfield. In 1989, James Energy procured leases from all the mineral interest owners in the spacing unit on which the Ponnequin No. 1-35 Well was drilled. Before James Energy was able to obtain a lease from the Sutterfields, it filed an application to force pool their interest. On November 16, 1989, the Commission entered an order force pooling the Sutterfields' interest and designating James Energy as the operator of the well. Hold did not receive notice of the hearing, and its interest was not force pooled.
James Energy contacted Hold about buying the casing in the well but Hold refused to sell. James Energy then contracted with Phillips to sell the gas from the well. Hold contacted Phillips claiming an interest in the well. Phillips shut in the well but later resumed production.
Robert and Genevieve Sutterfield and James Energy (collectively, plaintiffs) filed this quiet title action against HCG, Deffenbaugh and Associates, Inc. (successor to D & W), and several Hold partnerships (collectively, defendants) and also sought a cancellation of Hold's and D & W's leases and damages for interference with contractual relations and slander of title. Deffenbaugh, as successor to D & W, filed a disclaimer stating "that D & W Oil and Gas Properties and specifically Pete Westfall conducted the leasing activities in question on behalf of Hold Oil Corp. and all of the oil and gas leases which are of record in favor of D & W Oil and Gas Properties are and were owned by Hold Oil Corp." The defendants filed a Motion to Dismiss and/or for Summary Judgment alleging that the case was not being prosecuted by the real party in interest. The trial court agreed stating: "Plaintiff James Energy Company is not the real party in interest and that this case must be prosecuted by the lessors." Thereafter, James Energy Co., Lillian Stephenson, Archie Powders and Wilma Powders (collectively plaintiffs) filed an amended petition. The defendants continued to assert that James Energy was not the real party in interest.
The matter was tried to the court. The trial court: (1) found that the pooling order was invalid as to interests of Mitchell, Morse, Durfee, and Norris; (2) refused to cancel the leases finding that the lessors had not fulfilled their duty to give notice to Hold to diligently market the gas and that the late payment of the shut-in royalties was insufficient to cancel the leases; (3) found that there was no evidence submitted that D & W had assigned its interest in the well to Hold and that D & W's leases had terminated; (4) found that "any cause of action against James Energy for not being the real party in interest or that [its] lawsuit [was] champertous" failed because the fractional mineral interest owners did not understand their rights and needed someone to represent them; and (5) found in favor of Hold on the issues of slander of title and interference with contractual relations and dismissed those actions. The trial court then ordered that James Energy and Hold (HCG) become working interest partners in the well, that Hold recover its costs from the first run, and that the contract with Phillips be maintained. We affirm in part and reverse in part.
On June 1, 1990, the defendants filed a petition in error and, on July 10, 1990, filed an amended petition. Plaintiffs cross appealed. Then on August 29, 1992, the trial court awarded James Energy $8,700 for past operating expenses and allowed for future expenses. The issues presented by the parties can be condensed into four questions: (1) Was this case brought by the real party in interest? (2) Which mineral interests were held...
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