McDonald v. Grande Corp.

• Decision Date: 18 December 1962
• Docket Number: No. 646,646
• Citation: 148 So.2d 441
• Parties: J. B. McDONALD, Plaintiff-Appellant, v. The GRANDE CORPORATION et al., Defendants-Appellees.
• Court: Court of Appeal of Louisiana — District of US

Page 441

148 So.2d 441

J. B. McDONALD, Plaintiff-Appellant, v. The GRANDE CORPORATION et al., Defendants-Appellees.

No. 646.

Court of Appeal of Louisiana, Third Circuit.

Dec. 18, 1962.

Rehearing Denied Jan. 24, 1963.

Certiorari Denied March 15, 1963.

Duncan M. Smith, Jr., Lafayette, for plaintiff-appellant.

Landry, Watkins, Cousin & Bonin, By Jack J. Cousin, New Iberia, for defendants-appellees.

Before TATE, SAVOY, and HOOD, JJ.

TATE, Judge.

This is an action by a landowner to cancel a mineral lease. Made defendants are The Grande Corporation ('Grande') and its subsidiary, the Magna Oil Corporation, who acquired this lease by assignment and are the present owners of the lease working interest, and who hereinafter will sometimes be referred to as 'lessee'.

The District Court sustained the defendants' motion for a summary judgment. The plaintiff landowner appeals from the consequent summary judgment dismissing his suit.

Pursuant to voluntary pooling clauses in the leases granted by the landowners, Grande and lessees of adjacent tracts had formed a 160-acre unit, which included the plaintiff McDonald's 24-acre tract. Initially, an unsuccessful well was drilled on the tract of a third party also included within the unit. Subsequent to this 'dry hole', Grande then drilled a second well, this time on the McDonald tract. This second drilling successfully resulted in the completion of a producing gas well.

McDonald's demand for cancellation of the mineral lease is based upon Grande's alleged bad faith in refusing to pay him the entire royalty interest due from the production of this well. The plaintiff McDonald contends that he is entitled to receive all the royalties from this well drilled on his land and that the royalties from this second well should not be allocated pursuant to the previously formed 160-acre unit, because the drilling of the first well definitely proved that a portion of the acreage included within the former unit was non-productive. Also, the plaintiff contends, this second well was drilled after the unit had been terminated by the mineral lessees of all the tracts included within it.

I. Procedural context of our ruling.

At this point, we must emphasize that the sole issue raised before us by the plaintiff's appeal is whether a summary judgment of dismissal should have been granted on the basis of the pleadings and of the stipulations, affidavits, and copies of documents introduced for the limited purpose of trying the motion for summary judgment.

The motion for summary judgment is authorized by Articles 966 through 968 of the Louisiana Code of Civil Procedure of 1960. These provide that, upon motion and after hearing, a summary judgment 'shall be rendered forthwith if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to material fact, and that mover is entitled to judgment as a matter of law,' LSA-C.C.P. Art. 966.

However, summary judgment, which deprives a litigant of a trial on the merits, is not a substitute for such a trial; it is not to be made use of when there is a genuine issue of fact to be resolved; further, the mover for a summary judgment has the burden of clearly proving the absence of any genuine issue as to material fact, and all reasonable doubts must be resolved against the mover. Touchet v. Firemen's Insurance Co., La.App. 3 Cir., 146 So.2d 441; Walmsley v. Gilmore, La.App. 4 Cir., 144 So.2d 625; Jacobs v. Beck, La.App. 4 Cir., 141 So.2d 920; Snell v. Intercoastal Airways, Inc., La.App. 4 Cir., 139 So.2d 70.

The narrow issue before us is whether the movers for the summary judgment have sustained their burden of proving that they are clearly entitled to this summary remedy. We have reviewed the evidence in this record for the limited purpose of deciding this narrow issue. We have concluded that, viewed for this limited purpose only, the evidence does not so clearly exclude the plaintiff's right to the relief demanded by this suit, as to entitle the defendants to a summary judgment dismissing it.

II. Facts.

The following pertinent facts are shown by the documentary evidence produced for the trial of the motion for summary judgment:

In 1954, McDonald, the plaintiff lessor, granted a mineral lease convering his 24-acre tract. Grande subsequently acquired this lease.

This lease contained a voluntary pooling clause which gave the lessee, at its option, the right to pool, for purposes of mineral development and operation, any portion of the acreage covered by the lease with any other land in the vicinity, without securing any further approval of the landowner-lessor.

On October 1, 1959, pursuant to this lease authorization, Grande, together with mineral lessees of adjoining acreage, executed a unit declaration pooling 160 acres in order to obtain the greatest ultimate recovery of gas and gas condensate. This declared unit embraced 24.07 acres of McDonald's land and 135.93 acres of land in five immediately adjacent tracts covered by leases owned by other lessees. (See Exhibit I below.)

NOTE: OPINION CONTAINS TABLE OR OTHER DATA THAT IS NOT VIEWABLE

Grande and these other lessees entered into a joint operating agreement, naming one of the lessees (Pan American) as operator. Pursuant to this agreement, Pan American drilled a well in search of gas. It was abandoned as a dry hole on December 20, 1959. This well, disignated as Landry No. 1, was located within the unitized area. It was not, however, on the McDonald tract. (See Exhibit I).

On March 7, 1960, the lessee terminated the joint operating agreement, and all of them assigned to the Grande Corporation any interest in the McDonald lease which they had acquired by virtue of the pooling agreement.

On or after March 8, 1960 (the day following the termination of the joint operating agreement), the defendant Grande commenced drilling a gas and gas condensate well. On September 20, 1960, Grande formally placed this gas well on production. (According to the briefs, the well was successfully completed on or about May 29, 1960.) This well is denoted as J. B. McDonald No. 1. (See Exhibit I.)

Basically, the position of the plaintiff landowner is that this successful well, J. B. McDonald No. 1, was drilled on his tract by the mineral lessee after the original 160-acre unit was terminated, either by the abandonment of Landry No. 1 as a dry hole, or by the joint agreement of the mineral lessees who had initially created the 160-acre unit. The plaintiff contends that, therefore, the royalty owners of the McDonald tract are entitled to receive all the mineral royalties due because of production on the McDonald tract--that is, that McDonald No. 1 was a 'lease well' ¹, as distinguished from a 'unit well'. ²

The plaintiff McDonald bases his demand for cancellation upon the circumstance that Grande actively violated the lease by refusing to pay him royalty from McDonald No. 1 on a 'lease well' basis, despite his formal demand for payment upon such basis. The facts upon which this claim of active violation is based are as follows:

On November 7, 1960, Grande commenced to circulate division orders showing the royalties payable to the royalty owners on all the tracts within the unit on the basis that McDonald No. 1 was a 'unit well', not a 'lease well'. These same division orders show, however, that Grande and its subsidiary were to receive the entire working interest, just as if J. B. McDonald No. 1 was a 'lease well'--that is, the production allocable to the working interest was entirely allocated to Grande and its subsidiary, without being divided among the mineral lessees of the other tracts formerly included within the 160-acre unit.

On November 17, 1960, the plaintiff, through his attorney, wrote Grande formally notifying this lessee that its failure to acknowledge that the unit of October 1, 1959 had terminated would place its lease in jeopardy. The attorney noted that, since the unsuccessful drilling of Landry No. 1 had proved a large portion of the declared unit to be non-productive, such unit could not be used as the basis for the payment of royalties.

The attorney further stated that 'all of the working interest credited to this well is retained by you and those holding under you. It is impossible for you to contend that the unit declared in October, 1959, is still effective for the purpose of making royalty payments, but it is not effective for the purpose of making working interest payments.'

Grande did not reply to this letter. Accordingly, on December 9, 1960, the plaintiff instituted this suit demanding cancellation of the lease, alleging that the defendants had actively breached and violated the terms of the lease granted to them by the plaintiff McDonald by refusing to pay him the full one-eighth of the market value of the gas sold from the well (the required royalty rental under the terms of the lease). ³

In dismissing the present suit, the trial court agreed with the defendants' contention that, even if the circulation of the division order contains an erroneous allocation of the landowners' royalties (which lessee denies), such action does not constitute a violation such as would entitle the lessor to cancellation of the lease. The trial court concluded that Grande was not arbitrary and was acting in good faith, even though it should ultimately be held that the plaintiff was entitled to receive royalties on a 'lease well' rather than a 'unit well' basis, because the opposing contentions of the parties stem from an as yet unsettled question of law, namely, whether a declared unit is terminated when the first unit well drilled is unsuccessful and definitely proves that part of the acreage included within the unit is unsuccessful.

III. Termination or dissolution of the unit.

The plaintiff lessor contends that the unit created unilaterally by the lessees terminated as soon as the purposes fell for which it was formed, which...