Kennedy Oil v. Lance Oil & Gas Company

• Decision Date: 17 January 2006
• Docket Number: No. 05-95.,05-95.
• Citation: 126 P.3d 875,2006 WY 9
• Parties: KENNEDY OIL, a Wyoming Corporation, Appellant (Plaintiff), and The Restated Jean P. Harriet Marital Trust and its trustees Honara A. Harriet, Susan I. Harriet, Alex S. Harriet, Christopher J. Harriet, Casey J. Harriet, Martin S. Harriet; the Lohse Security Trust and its Trustee Laci Harriet; the Mike Harriet Trust and its Trustee Mike Harriet; Charles B. Marton; Patricia Marton; John P. Marton; Bernadette Marton Arno; John W. Arno; Celeste C. Arno-Besel; the Arno Mineral Trust and Bernadette C. Arno, John W. Arno and Celeste C. Arno-Besel as its Trustees; S9 Minerals Limited Partnership; John P. Marton Minerals LLC; Charles B. Marton Minerals LLC; Catherine No. 1, LLC, a Wyoming Limited Liability Company and each of its members including S9 Minerals Limited Partnershiip, the Restated Jean P. Harriet Marital Trust, the Restated Martin S. Harriet Revocable Trust, the Lohse Security Trust, the Mike Harriet Trust, John P. Marton Minerals, LLC, Appellants (Third Party Defendants), v. LANCE OIL & GAS COMPANY, INC., a Delaware Corporation, and Williams Production Rmt Company, Inc., a Delaware Corporation, Appellees (Defendants/Third Party Plaintiffs).
• Court: Wyoming Supreme Court

126 P.3d 875

2006 WY 9

KENNEDY OIL, a Wyoming Corporation, Appellant (Plaintiff), and The Restated Jean P. Harriet Marital Trust and its trustees Honara A. Harriet, Susan I. Harriet, Alex S. Harriet, Christopher J. Harriet, Casey J. Harriet, Martin S. Harriet; the Lohse Security Trust and its Trustee Laci Harriet; the Mike Harriet Trust and its Trustee Mike Harriet; Charles B. Marton; Patricia Marton; John P. Marton; Bernadette Marton Arno; John W. Arno; Celeste C. Arno-Besel; the Arno Mineral Trust and Bernadette C. Arno, John W. Arno and Celeste C. Arno-Besel as its Trustees; S9 Minerals Limited Partnership; John P. Marton Minerals LLC; Charles B. Marton Minerals LLC; Catherine No. 1, LLC, a Wyoming Limited Liability Company and each of its members including S9 Minerals Limited Partnershiip, the Restated Jean P. Harriet Marital Trust, the Restated Martin S. Harriet Revocable Trust, the Lohse Security Trust, the Mike Harriet Trust, John P. Marton Minerals, LLC, Appellants (Third Party Defendants), v. LANCE OIL & GAS COMPANY, INC., a Delaware Corporation, and Williams Production Rmt Company, Inc., a Delaware Corporation, Appellees (Defendants/Third Party Plaintiffs).

No. 05-95.

Supreme Court of Wyoming.

January 17, 2006.

Representing Appellants: Morris R. Massey of Brown, Drew & Massey, LLP, Casper, Wyoming; and Timothy J. Kirven of Kirven & Kirven, P.C., Buffalo, Wyoming.

Representing Appellees: Patrick R. Day, P.C., and James R. Belcher, P.C., of Holland & Hart, LLP, Cheyenne, Wyoming.

Before HILL, C.J., and GOLDEN, KITE, VOIGT, and BURKE, JJ.

VOIGT, Justice.

[¶ 1] In a quiet title dispute involving mineral interest lessees, the district court relied upon the relation-back doctrine in granting summary judgment to the appellees. We affirm, but on the related doctrine of after-acquired title or estoppel by deed.

FACTS

[¶ 2] In pursuing their respective summary judgment motions in the district court, the parties entered into a Joint Stipulation of Facts, from which we have gleaned the following information:

[¶ 3] As of 1975, members of the Harriet and Marton families (collectively Harriet-Marton) owned the oil, gas, and other minerals, except coal, lying in and under the N1/2 of Section 19, Township 48 North, Range 78 West, 6th P.M., in Johnson County, Wyoming (the subject property). On December 11, 1975, Harriet-Marton executed a lease in favor of William D. Gibbs, Sophia D. Gibbs Robert M. Gibbs, and Martha W. Gibbs (collectively Gibbs), in which Harriet-Marton averred that they owned and could provide marketable title to all of the oil and gas in and under the subject property.¹ In exchange for rights under the lease, Gibbs obligated themselves to commence drilling an exploratory well into the Shannon Formation. Upon completion of the well, Gibbs was to receive the oil and gas as lessee for three years and as long thereafter as oil and gas was produced in paying quantities. In addition, the lease agreement spelled out the parties' rights and obligations regarding expenses and production, and the effects of non-production. Although the lease agreement was not recorded, a memorandum referring to it was recorded on March 30, 1976. Pursuant to this lease agreement, the Catherine No. 1 and Catherine No. 2 wells were completed as productive on April 1, 1976, and May 12, 1977, respectively.

[¶ 4] Upon William D. Gibbs' death, his estate was probated in Johnson County. On September 23, 1991, Harriet-Marton filed creditors' claims in the probate proceedings based upon the 1975 lease agreement, seeking an accounting of income received and expenses paid, and payment of any sums due in regard to the Catherine No. 1 well. Those creditors' claims were settled on June 7, 1994, in an Agreement Concerning Creditor's Claims entered into between the personal representatives of the estate and the then-current Harriet-Marton entities. The gist of that agreement was that Harriet-Marton were not entitled to a share of the production proceeds because expenses ($552,397.17) exceeded production ($283,803.42), but that Harriet-Marton might in the future be entitled to distributions in the event Gibbs' successors recovered costs and production continued. To ensure such distributions, the personal representatives obligated the estate's distributees to provide Harriet-Marton an annual accounting concerning the well. The settlement terms were made part of the estate's distribution plan.

[¶ 5] On May 21, 1998, the appellees (Lance-Williams) obtained, through their agent, Baseline Minerals, Inc., oil and gas leases from Harriet-Marton covering the subject property. The lessors were the same as, or the successors in interest to, the Harriet-Marton mineral owners that were parties to the 1975 lease agreement with Gibbs. In each of the four separate 1998 leases, Harriet-Marton struck the following form language: "Lessor hereby warrants and agrees to defend the title to said land." The primary term of the leases was five years, subject to extension for an additional two years. A concurrent title opinion prepared for Baseline indicated that there were no current unreleased oil and gas leases of record covering the property.

[¶ 6] On October 17, 2002, Harriet-Marton recorded with the Johnson County Clerk a "Notice of Claim of Interest in Real Property." The notice, signed under oath by John P. Marton, declared that Harriet-Marton claimed an interest in the subject property based upon the 1975 lease agreement and the Gibbs distributees' failure to abide by the terms and conditions of the probate settlement agreement. The notice indicated that it was given pursuant to Wyo. Stat. Ann. §§ 34-10-107 and 34-11-101 (LexisNexis 2005).² A few months later, Harriet-Marton filed a civil action against the Gibbs distributees, with the verified complaint containing the following factual allegations and legal conclusions:

1. The plaintiffs are the successors in interest to the Harriet-Marton interests under the 1975 lease.

2. Upon Gibbs' drilling of the Catherine No. 1 well, the oil and gas in and under the subject property was leased to Gibbs for three years and as long thereafter as such was produced in paying quantities.

3. If production ceased, Gibbs' interest would not terminate if Gibbs commenced additional drilling or reworking operations within sixty days. Furthermore, if there was no production at the end of the primary term of the lease, the agreement would remain in effect only so long as Gibbs continued drilling or reworking operations with no cessation thereof for more than thirty days.

4. Gibbs was required under the lease agreement to keep and make available to Harriet-Marton an accurate record of costs, expenses, charges, and credits.

5. The 1975 lease agreement has "terminated by reason of the fact that the primary term of the lease of three (3) years has expired and that neither oil nor gas is being produced in paying quantities from the N1/2 of said Section 19."

6. The 1975 lease agreement "has terminated according to its terms and [the Gibbs distributees] have no further interest therein."

7. The 1975 lease agreement has terminated because, "[a]fter initial discovery of oil in the Catherine No. 1[w]ell, the production thereof has ceased and [the Gibbs distributees] have not commenced additional drilling or reworking operations within sixty (60) days after the cessation of production."

8. The 1975 lease agreement has terminated because the Gibbs distributees have failed to maintain the records and to provide to Harriet-Marton the information required in the probate settlement agreement.

[¶ 7] Finally, as the concluding paragraph in three separate causes of action, the Verified Complaint stated as follows:

[Harriet-Marton] are entitled to a declaration of the respective legal rights of [Harriet-Marton] and [the Gibbs distributees] and [to] a determination that the 1975 Agreement between [Harriet-Marton and the Gibbs distributees] is terminated ... and [the Gibbs distributees] have no further right, claim or title under the terms of said 1975 Agreement; nor to the oil, gas or other minerals lying in or under the [subject property].

[¶ 8] During the pendency of their lawsuit against the Gibbs distributees, Harriet-Marton formed a limited liability company called Catherine No. 1, LLC. The members of Catherine No. 1, LLC are either the original mineral owners or the successors in interest to the original mineral owners who signed the 1975 lease agreement, and are either the original lessors or the successors in interest to the original lessors who signed the 1998 Baseline leases.

[¶ 9] Harriet-Marton's civil action against the Gibbs distributees was dismissed with prejudice, prior to any adjudication, on August 8, 2003. Dismissal followed the parties' filing of their Stipulation for Dismissal With Prejudice on July 31, 2003, which stipulation recited only that "the parties herein have agreed to a settlement of all claims of the parties[.]" It is undisputed that, as part of the settlement, the Gibbs distributees assigned their interests in the 1975 lease agreement to Catherine No. 1, LLC, leaving Catherine No. 1, LLC with a 96% interest in rights granted by the 1975 lease agreement.

[¶ 10] The current controversy has its genesis in what happened next. On December 8, 2003, Harriet-Marton and Catherine No. 1, LLC assigned to the appellant (Kennedy) all of their right, title, and interest in and to the 1975 lease agreement, covering the subject property from the surface to the base of the Fort Union Formation. That assignment was one of the terms of a broader agreement entered into on that same date by Harriet-Marton, Catherine No. 1, LLC, and Kennedy, whereby Kennedy leased the oil and gas on the subject property. Significantly, Kennedy undertook as part of the agreement to pursue for itself and the lessors, a quiet title action against "conflicting claimants." Those "conflicting claimants" were, of course,...