Kerr-McGee Corporation v. Bokum Corporation

• Decision Date: 21 January 1972
• Docket Number: No. 664-70 (7753).,664-70 (7753).
• Citation: 453 F.2d 1067
• Parties: KERR-McGEE CORPORATION, a Delaware corporation, Appellee, v. BOKUM CORPORATION, a New Mexico corporation, Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

453 F.2d 1067 (1972)

KERR-McGEE CORPORATION, a Delaware corporation, Appellee, v. BOKUM CORPORATION, a New Mexico corporation, Appellant.

No. 664-70 (7753).

United States Court of Appeals, Tenth Circuit.

January 21, 1972.

COPYRIGHT MATERIAL OMITTED

Harry L. Bigbee, Santa Fe, N. M. (Harl D. Byrd, Richard N. Carpenter, G. Stanley Crout and Paul D. Gerber, of Bigbee & Byrd, Santa Fe, N. M., were on the brief), for appellant.

John D. Robb, Albuquerque, N. M. (William C. Briggs, Mark K. Adams and William S. Dixon, of Rodey, Dickason, Sloan, Akin & Robb, Albuquerque, N. M., Willard P. Scott, Oklahoma City, Okl., and Henry S. Glascock, of Denny, Glascock & McKim, Gallup, N. M., were on the brief), for appellee.

Before LEWIS, Chief Judge, and McWILLIAMS and DOYLE, Circuit Judges.

LEWIS, Chief Judge.

Kerr-McGee Corporation, as lessee under a uranium mining lease, brought this action for declaratory judgment requesting judicial interpretation of certain provisions of the lease. In response, the lessor, Bokum Corporation, filed an answer and counterclaim seeking possession of the property and claiming that it had terminated the lease for various alleged breaches by Kerr-McGee. The United States District Court for the District of New Mexico ruled against Kerr-McGee on part of its declaratory judgment contention and generally against Bokum on its counterclaim. Only Bokum appeals.

The lease that is the center of this controversy was executed in 1962. In dispute are the rights in approximately four sections of land covered by the lease and located in the Ambrosia Lake area near Grants, New Mexico in the largest uranium mining district in the United States. Kerr-McGee has been operating the properties since development began under the original lease entered into in 1956.¹

Although the lessee interest has been shared with co-lessees from time to time, Kerr-McGee from the beginning has had controlling interest in the property, and is now the sole owner of the lessee's interest. The original owners of the property were the members of the Branson family, and the Bransons were the lessors in both the 1956 and 1962 leases. The appellant Bokum acquired the Branson's interest in 1968 and this dispute arose in the same year.

Prior to 1968 the only market for uranium was the federal government through the Atomic Energy Commission, and the AEC only purchased the milled uranium concentrate U3O8, known as "yellowcake"; it did not purchase ore. In 1968, however, a private market for raw ore developed through the sale to large utility companies. At the price the utilities were offering for ore, the royalty payments on the sale of raw ore would be higher than the royalties on the sale of yellowcake produced from the same ore. When this situation arose, Bokum, the new lessor, contended that Kerr-McGee was required by express and implied covenants in the lease to dispose of the ore in the manner that would result in the highest royalties to the lessor —that it must sell the ore rather than process it through its mill. Kerr-McGee felt that the lease gave it complete discretion to dispose of the ore as it saw fit as long as it paid the royalties provided for in the lease.

A second disagreement over proper interpretation of the lease arose shortly after Bokum acquired the lessor's interest. The lease provided that "Lessee shall furnish quarterly statement unto Lessor reflecting any findings from drilling operations regarding ore bodies or ore reserves on the Leased Premises." Kerr-McGee had interpreted "findings" as used in the lease, to mean the factual data from which ore reserves may be computed, and it had been supplying such data to the lessor on a quarterly basis. Bokum, however, insisted that "findings" meant that Kerr-McGee was obligated to furnish its ore reserve estimates as well as raw data, and made a corresponding demand on Kerr-McGee. Additional challenges by the new lessor dealt with the sufficiency of royalty payments and the method of computing them.

Kerr-McGee filed its suit for declaratory judgment on September 27, 1968, asking the court to determine the meaning of the lease as to these disputes. Shortly thereafter, on October 15, 1968, Bokum notified Kerr-McGee by telegram that it was unilaterally canceling the lease for various alleged breaches of the lease. In this telegram Bokum raised for the first time claims of fraud, unminerlike mining and milling practices, and additional royalty breaches later included in the counterclaim. Bokum's answer and counterclaim was filed January 2, 1969.

Count I of the counterclaim sought ejectment under N.M.Stat.Ann. §§ 22-8-1 to 22-8-30 (1953). Bokum claimed a right to possession of the property for the reasons that: (1) The lease had been terminated and canceled for several specified breaches which included (a) failure to furnish ore reserve figures, (b) refusal to sell instead of process ore when higher royalties would result from selling, (c) improper calculation and payment of royalties, and (d) the use of improper and unminerlike mining and milling practices; (2) Bokum had declared the lease void and rescinded because its execution had been induced by Kerr-McGee's fraud; and (3) the term of the lease had expired for failure to produce the "fair share" of U3O8 in ore as required by the lease, and had expired as to Sections 31 and 35 of the subject lands due to failure to develop and mine. Damages for wrongful retention were also sought in Count I. Count II of the counterclaim sought an accounting for royalties allegedly underpaid by Kerr-McGee.

Bokum requested a jury trial on all matters raised in Count I of its counterclaim. The district court examined the lease and Count I of the counterclaim and denied the request for a jury trial on the grounds that Count I was not an ejectment action but an action in equity for cancellation. The court ruled that "inasmuch as the Plaintiff is in possession of the premises by virtue of a lease valid on its face and uncancelled, the basic thrust of the action which is phrased in ejectment is really one for cancellation." The court recognized that Bokum would be entitled to a jury trial on the question of damages for wrongful retention, and ruled that a jury trial as to damages would be held if the court ruled in Bokum's favor on the cancellation issue.

After a 44-day trial, the court announced its decision generally in favor of Kerr-McGee with certain exceptions. It ruled in Bokum's favor in deciding that Kerr-McGee must furnish ore reserve figures as well as the data used to arrive at them. Nevertheless, the court found that Kerr-McGee's breach on this issue was due to a "bona fide" misinterpretation of its duty under the lease. The court found three additional breaches by Kerr-McGee dealing with calculation and payment of royalties. The court found that these breaches were minor and not sufficient cause for cancellation of the lease. The court ruled against Bokum and in favor of Kerr-McGee on all other issues. It decided that the express terms of the lease gave Kerr-McGee the prerogative of selling the ore or processing it regardless of which alternative produced greater royalties. The court found that Kerr-McGee's mining and milling practices closely paralleled those of other companies prominent in the industry, and that they were proper and minerlike. Based on the above rulings and findings, the court held Bokum not entitled to cancellation. The court found no evidence to support Bokum's contention of fraud in execution of the lease and held that Bokum was not entitled to cancellation. It held that the "fair share" of ore had been mined and that the lease had thus not expired under its "fair share" requirements provision. It also held that the lease had not expired as to Sections 31 and 35 for failure to develop and mine. Bokum appeals all of these adverse rulings, including the denial of a jury trial.

I.

The appellant's assertion that it was denied its right to a jury trial is entitled to primary consideration. The trial court's ruling on this issue affected the very nature of the case and the manner in which it was tried. Error in the trial court's ruling would require reversal and a retrial.

The right to a trial by jury guaranteed by the seventh amendment extends only to those suits which would have been triable before a jury at common law. Thus, although the Federal Rules of Civil Procedure have abolished the distinction between law and equity, the courts must still refer to that ancient distinction to decide whether a case is entitled to a jury trial or should be assigned for a court trial. This decision, determining the right to a jury trial must be made according to federal law in diversity cases. Simler v. Conner, 372 U.S. 221, 83 S.Ct. 609, 9 L.Ed.2d 691. Thus, the basic issue underlying the propriety of the court's denial of a jury trial is whether the counterclaim is, as Bokum characterizes it, a legal action in ejectment for possession of real property, or, as the trial court ruled, an equitable action for cancellation of the lease.

It is true that the counterclaim was phrased in terms of an action in ejectment, but it is also true that the right to a jury trial is not determined by the form of the complaint, but by an appraisal of the claims, defenses, and remedies. It is the issues, not the form of the complaint, that will determine the method of trial. Bruce v. Bohanon, 10 Cir., 436 F.2d 733; Klein v. Shell Oil Co., 8 Cir., 386 F.2d 659; Barron & Holtzoff, Federal Practice & Procedure, § 873 at 33 (Wright ed. 1961). This principle was expressed by Mr. Justice Black, speaking for the Court in Dairy Queen, Inc. v. Wood, 369 U.S. 469, 477-478, 82 S.Ct. 894, 8 L.Ed.2d 44:

The respondents\' contention that this money claim is "purely equitable" is based primarily upon the fact that their complaint is cast in terms of an "accounting," rather than in terms of an action for "debt" or "damages." But the

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