Koch Oil Co. v. Wilber
| Decision Date | 16 March 1995 |
| Docket Number | No. 09-92-224,09-92-224 |
| Citation | 895 S.W.2d 854 |
| Parties | KOCH OIL COMPANY and Tesoro Crude Oil Company, Appellants, v. B.E. WILBER, Individually and as Representative of a Certified Class of Plaintiffs, Appellees. CV. |
| Court | Texas Court of Appeals |
David B. Hurst, Caldwell & Hurst, Mary-Ann A. Bellatti, Sheinfeld, Maley & Kay, J. Philip Griffis-Hays, McConn, Rice & Pickering, Houston, David J. Fisher, Orgain, Bell & Tucker, Beaumont, for appellants.
John Zukowski, Campbell, Zukowski & Bresenhan, Chris E. Ryman, Coats, Rose, Yale, Holm, Ryman, Houston, for appellees.
Before WALKER, C.J., and BURGESS and BROOKSHIRE 1, JJ.
Appellants, Tesoro Crude Oil Company (Tesoro) and Koch Oil Company (Koch), filed this appeal from a judgment in the amount of $125,488.36 against International Petroleum Corporation (International) and United Texas Petroleum Corporation (United) renamed Clamont Energy Corporation (Clamont), jointly and severally; $30,093.61 against Koch; $24,653.54 against Tesoro; and attorney's fees against all defendants in the trial court jointly and severally in the amount of $186,315.08, plus $25,000 if the matter is appealed to the Court of Appeals, $5,000 if a writ of error to the Supreme Court is sought, and an additional $5,000 if the writ is granted. It is from this judgment that Tesoro and Koch have filed their appeal. Trial was before the court. The trial court entered its findings of fact and conclusions of law on June 25, 1992. Additional findings of fact and conclusions of law pertaining to Koch and separate findings of fact and conclusions of law relating to Tesoro, were each filed on July 14, 1992.
On August 9, 1967, lessors, B.E. Wilber and wife Maxine Wilber, Helen A. Gephart, and Luella Gephart Myers, joined by her husband Charles S. Myers, executed an oil, gas and mineral lease on a 320 acre tract of land in Jefferson County, Texas, in favor of Walter Van Norman, D.M. Wallace and John F. Merrick. This lease contained a three year primary term and would continue as long thereafter as oil, gas, or other minerals were produced in paying quantities. B.E. Wilber subsequently assigned one-half ( 1/2) of his ownership interest in said lease to C.C. Wilber. By 1980, through various mesne assignments, lessors jointly conveyed royalty interests to 82 total royalty interest owners. These six named individuals, as plaintiffs, originally filed suit on October 8, 1986, against International and United.
In 1970, the lease was assigned by lessees to Goodale, Bertman & Company, Inc. On May 24, 1984, all the working interest in said lease was assigned to International. 2 At the time of this assignment, the Permian Corporation was the designated oil gatherer on the lease. International became the designated operator.
Shortly after International began operating the lease, International changed the lease name from "Helen Gephart" to "Sharon Renee" effective July 1, 1984, and identified Tesoro as the oil gatherer. Tesoro initially set their accounts to pay all interest owners directly.
On June 21, 1984, Tesoro requested International provide a Division Order Title Opinion which would identify the various royalty owners, but International failed to provide Tesoro with such title opinion. In response to International's request on September 14, 1984, Tesoro began making the total payment to the operator.
Tesoro gathered oil from the lease on four separate occasions: August 1984, October 1984, December 1984, and March 1985, and paid 100 percent of the proceeds to International for the August 1984 and October 1984 purchases.
Before Tesoro paid for any oil gathered from the lease, International executed an Indemnifying Oil and Liquid Hydrocarbon Division Order. By execution of this division order, International agreed to make accurate and timely distribution of proceeds to all interest owners and agreed to indemnify Tesoro from any liability for such distribution of proceeds. Testimony established that such division orders are typical in the oil industry.
On December 12, 1984, Attorney Charles Thanheiser demanded Tesoro suspend payments for oil from the lease, and stated in a letter:
Messrs. Van Norman and Wilber and others representing a majority of the royalties payable under captioned lease have elected not to have monies due them for the sale of oil and other liquids produced disbursed by or through International Petroleum Corporation and/or Mr. Lance Dreyer.
There have been no royalties received since the change of ownership some months ago and the apparent termination of the contract with the former purchaser, Permian.
We request that you suspend all payments off of this lease until the matter is resolved. Insofar as we are aware, this operator has no authority from any of the royalty owners to receipt for their funds.
Tesoro received Mr. Thanheiser's letter on December 18, 1984, and suspended the remaining payments for C.C. Wilber, Betty Wilber, Benny E. Wilber and Walter Van Norman (who subsequently settled his claim). All remaining funds were credited or paid to International. The record reflects that the original plaintiffs were aware as early as December 12, 1984, that no royalty payments were being received.
On January 18, 1985, an analyst from Tesoro called Mr. Dreyer at International and informed him about the communications with Mr. Thanheiser. On January 22, 1985, Mr. Dreyer signed an affidavit in which he swore that he possessed signed division orders from persons who owned royalty interests. Tesoro discovered later that this affidavit was false.
On March 8, 1985, Tesoro sent an amended division order to Mr. Thanheiser for C.C. Wilber, Betty Wilber and Bennie E. Wilber to execute. B.E. (Benny) Wilber refused to sign the order because it did not include and specify the interests of his ex-wife Maxine Wilber, Mr. and Mrs. Charles Myers, and Helen Gephart.
On March 19, 1985, Mrs. Maxine Wilber, Benny Wilber's ex-wife, mailed a letter to Tesoro and informed them that she had not signed division orders from International. On March 25, 1985, LeRoy McCall, Jr., informed Tesoro by letter that he had not signed a division order with International. A notation on this letter dated March 29, 1985, shows that the Tesoro analyst agreed to suspend International's proceeds and to request a title opinion. On March 25, 1985, Luella Gephart Myers, Charles S. Myers, and Helen A. Gephart notified Tesoro that they had not signed a division order from International nor did they intend to do so. During March 1985, Tesoro gathered its last shipment of oil from the lease. On April 9, 1985, Tesoro informed International they were suspending payment to International because of complaint letters from interest owners. All proceeds for the March 1985 gathering were suspended by Tesoro. Tesoro then requested a title opinion from International so that Tesoro could circulate division orders to the appropriate interest owners, but none was forthcoming.
While International was the operator, Koch contracted with United to buy oil from several leases, including the Gephart/Sharon Renee lease. On May 6, 1985, United executed and delivered a Division Order to Koch. In that document, United guaranteed and warranted that it was the legal owner of all the oil produced from the United Texas Petroleum Company Sharon Renee Farm. During this period of time, and until April 1, 1986, International owned the working interest in, and operated the lease.
On May 7, 1985, Koch entered into a purchase agreement with United effective April 1, 1985 to May 1, 1985, and continuing month to month and thereafter until cancelled by either party with 30 days notice. Koch purchased all the crude oil produced from the subject lease from May of 1985 through August of 1986. By this agreement Koch was required to pay United 100 percent of the purchase price for all oil. The "Special Provisions" section of the agreement states that "Koch Oil Company will be the second purchaser at the lease."
On April 1, 1986, United became operator. Although these two companies (United and International) produced oil from the lease, they never paid the interest owners the royalties owed from that production.
A division order also contained United's acknowledgment that United, not Koch, was the "First Purchaser" of oil from the lease. This dovetailed with the Purchase Agreement which noted that Koch was the "Second Purchaser", but there was no "hold harmless" clause nor any indemnification language in either instrument. The warranty clause was directed to "first purchaser."
Koch made ten (10) separate purchases of oil from United between May 1985 and August 1986. It is undisputed that Koch paid United one hundred percent (100%) of the purchase price for every barrel of oil it bought. Koch never undertook to make payments to any royalty interest owners.
On September 2, 1987, United changed its name to United Texas Company, and then on January 7, 1988, from United Texas Corporation to Clamont Energy Corporation. After April 1987, Ada Crude Oil Company (a settling co-defendant) purchased the oil production from the subject lease.
The original lessors filed suit on October 8, 1986, alleging a failure by International and United to pay royalties for oil produced from the lease. Tesoro and Koch, purchasers from International and United, respectively, were joined as Defendants by Plaintiffs' Second Amended Petition filed on March 14, 1989.
Plaintiffs alleged their right to recovery under theories of express and quasi-contract and under TEX.NAT.RES.CODE ANN. § 91.401-91.406 (Vernon 1987). Plaintiffs' Petition further requested a declaratory judgment and asserted their alleged right to a security interest in the oil and its proceeds pursuant to TEX.BUS. & COM.CODE § 9.319 (Vernon 1991).
On February 12, 1990, Plaintiffs filed a suggestion of bankruptcy of Def...
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