McNeill v. RICE ENGINEERING & OPERATING, 22,295.

• Decision Date: 24 April 2003
• Docket Number: No. 22,295.,22,295.
• Citation: 2003 NMCA 78,133 N.M. 804,70 P.3d 794
• Parties: William F. McNEILL, Marilyn Cates, and The Black Trust, Plaintiffs-Appellants, v. RICE ENGINEERING AND OPERATING, INC., Rice Operating Company, Hobbs Salt Water Disposal System whose General Partner is Rice Operating Company, et al., Defendants-Appellees.
• Court: Court of Appeals of New Mexico

70 P.3d 794

133 N.M. 804

2003 NMCA 78

William F. McNEILL, Marilyn Cates, and The Black Trust, Plaintiffs-Appellants, v. RICE ENGINEERING AND OPERATING, INC., Rice Operating Company, Hobbs Salt Water Disposal System whose General Partner is Rice Operating Company, et al., Defendants-Appellees.

No. 22,295.

Court of Appeals of New Mexico.

April 24, 2003.

Certiorari Denied June 5, 2003.

James P. Lyle, Law Offices of James P. Lyle, P.C., Turner W. Branch, Branch Law Firm, Albuquerque, NM, Robert Trenchard, Royce Hoskins, Trenchard & Hoskins, L.L.P., Kermit, TX, for Appellants.

Steven L. Tucker, Tucker Law Firm, P.C., Santa Fe, NM, Franklin H. McCallum, Midland, TX, John M. Caraway, McCormick, Caraway, Tabor & Madrid, Carlsbad, NM, for Appellees.

Certiorari Denied, No. 28,070, June 5, 2003.

OPINION

BUSTAMANTE, Judge.

{1} Plaintiffs appeal from a partial summary judgment dismissing their claims of trespass and conversion and from the district court's ruling granting Defendants' motion for directed verdict on the issue of punitive damages. We reverse the grant of partial summary judgment and remand the case to the district court for further proceedings on these claims. We affirm the district court's refusal to instruct the jury on punitive damages.

FACTUAL BACKGROUND

{2} Plaintiffs William F. McNeill, Marilyn Cates, and the Black Trust are the owners of the "McNeill Ranch," a 110,000-acre property assertedly damaged by salt water disposal undertaken by Defendants over the last forty-plus years. Plaintiffs acquired the ranch by deed in 1995. Defendants are associated with Hobbs Salt Water Disposal System (Hobbs SWDS), which appears to be a partnership or joint venture of Rice Operating Company (Rice Company), and several oil and gas producers. Hobbs SWDS is located near the McNeill Ranch. References to "Rice" in this opinion, unless otherwise stated, refer to Defendants collectively.

{3} On May 29, 1957, the New Mexico Oil Conservation Commission granted Defendants' predecessor, Pan American Petroleum Corporation (Pan American), authority to drill a salt water disposal well on the McNeill Ranch. An area of approximately 2.75 acres, the well became known as Hobbs SWDS Well E-15 (Well E-15). Approximately one month after drilling was approved, Pan American negotiated a "Property Damage Release" (Release) for the site with Will Terry (Terry), Plaintiffs' predecessor and then owner of the McNeill Ranch. Construction and drilling of Well E-15 began after the Release was executed. About two months later, Rice negotiated a right-of-way with Terry for pipelines that would run "over and through" the ranch. These pipelines would eventually connect Well E-15 to the Hobbs SWDS. Three additional pipeline right-of-ways were later negotiated: one in 1960 with Terry and two in 1977 with his daughters, Plaintiffs' predecessors in interest, Ruth Furneaux and Muriel McNeill.

{4} A massive project constructed over a two-year period, Hobbs SWDS is a gravity-based disposal system comprised of approximately forty-three miles of underground gathering lines. The gathering lines connect to hundreds of producing oil and gas wells, and dispose of large volumes of salt water, a by-product of oil and gas drilling. The system consists of fourteen disposal systems with between one and five or more disposal wells in each system. Well E-15 is one well in one system, although there are other disposal wells on the McNeill Ranch.

{5} After Well E-15 was completed, concrete pipelines were laid on top of the ground on the negotiated right-of-ways. Extending beyond the boundaries of the McNeill Ranch and connecting the main line to Well E-15, the pipelines were later buried. Since the completion of the system in 1960, approximately 99% of the salt water disposed into Well E-15 has come from beyond the boundaries of the McNeill Ranch.

PROCEDURAL BACKGROUND

{6} Plaintiffs filed a complaint to recover damages against Defendants Rice Engineering and Operating, Inc., Rice Engineering, Inc., and Rice Company, along with a jury demand in October 1998. A second amended complaint added the remaining Defendants. Plaintiffs' claims are based on two types of alleged wrongful conduct: (1) Rice's unauthorized use of Well E-15 for the disposal of salt water produced outside the McNeill Ranch, and (2) Rice's alleged negligence in allowing the salt water disposal system to leak onto Plaintiffs' land.

{7} Plaintiffs alleged that in 1995, they discovered Rice had been injecting off-site salt water into Well E-15 since 1958, and this disposal was without authorization or compensation, thereby constituting a continuing trespass. Plaintiffs further claimed that since 1958, Rice had converted the money which participants in the salt water disposal system paid Rice. Plaintiffs initially alleged Rice had converted the use of the well and the money but later conceded there is no claim for the conversion of real property. Bowman v. Butler, 98 N.M. 357, 360, 648 P.2d 815, 818 (Ct.App.1982) (defining conversion as "the unlawful exercise of dominion and control over personal property") (emphasis added); see Harrell v. Hayes, 1998-NMCA-122, ¶ 16, 125 N.M. 814, 965 P.2d 933. Hence, the claim in this appeal refers to the conversion of money due Plaintiffs for the disposal of off-site salt water into Well E-15.

{8} The complaint also charged Rice with negligence in allowing a salt water spill from the system on the McNeill Ranch, at a point referred to as the "I-9 spill site." Compensatory and punitive damages were sought on the trespass, conversion, and negligence claims.

{9} Prior to trial, Rice filed a Motion for Partial Summary Judgment to dismiss the trespass and conversion claims on several grounds, including that (1) Rice had obtained a prescriptive easement or easement by implication for its disposal into Well E-15, (2) the Release authorized Rice to dispose offsite salt water into Well E-15, (3) Plaintiffs' claims were limited to the time during which they were in actual possession of the ranch, and (4) a statute of limitations theory. The district court granted summary judgment in favor of Rice on the limited ground that the Release unambiguously granted Rice the right to dispose of off-site salt water produced into Well E-15. The district court's summary judgment applied equally to the conversion claim as to the trespass claim, and Rice defends the judgment solely on the ground relied upon by the district court-that the Release was unambiguous and allowed the disposal of salt water. We limit our opinion to the issues raised by the parties and ruled on by the district court, and nothing herein is intended to express any opinion on the validity or invalidity of the conversion claim or the defenses raised by Rice in its motion other than release.

{10} The case proceeded to trial by jury on the negligence claim. The district court directed a verdict in Rice's favor on Plaintiffs' punitive damages claim. The jury awarded Plaintiffs $70,000 for compensatory damages.

DISCUSSION

Partial Summary Judgment on Claims of Trespass and Conversion

{11} The issue before this Court is whether there exists a genuine issue of disputed fact as to the meaning of the Release. Before we address the merits of that issue, we dispose of Rice's claim of lack of preservation. Rice claimed that Plaintiffs' theory about the Release had broadened on appeal to deny the right to dispose of any salt water into the well. Our understanding of Plaintiffs' theory, however, is that the Release may have authorized disposal of salt water produced on the ranch, but did not authorize disposal of salt water produced off-site. We next turn to the merits.

{12} An appeal from a grant of summary judgment presents a question of law that is reviewed de novo. Bartlett v. Mirabal, 2000-NMCA-036, ¶ 4, 128 N.M. 830, 999 P.2d 1062. Summary judgment is a drastic remedy that courts must apply with caution. Rummel v. St. Paul Surplus Lines Ins. Co., 1997-NMSC-042, ¶ 9, 123 N.M. 767, 945 P.2d 985. Consequently, a reviewing court must "examine the whole record for any evidence that places a genuine issue of material fact in dispute, and we view the facts in a light most favorable to the party opposing the motion and draw all reasonable inferences in support of a trial on the merits." Handmaker v. Henney, 1999-NMSC-043, ¶ 18, 128 N.M. 328, 992 P.2d 879 (internal quotation marks and citation omitted). In the end, the question raised on a motion for summary judgment is whether "from the facts presented, [only] one reasonable conclusion can be drawn, ... [or] if a fair minded factfinder... could return a verdict for [the nonmovant]." Goradia v. Hahn Co., 111 N.M. 779, 782, 810 P.2d 798, 801 (1991) (internal quotation marks and citation omitted). Summary judgment should be denied where the facts support "equally logical but conflicting inferences." Johnston v. Sunwest Bank, 116 N.M. 422, 425, 863 P.2d 1043, 1046 (1993).

{13} Here, the district court granted summary judgment on the ground that the Release was unambiguous in its terms and barred Plaintiffs' claims. Releases are contractual in nature and thus are governed by traditional principles of contract law. Ratzlaff v. Seven Bar Flying Serv., Inc., 98 N.M. 159, 162, 646 P.2d 586, 589 (Ct.App. 1982); see Sitterly v. Matthews, 2000-NMCA-037, ¶ 15, 129 N.M. 134, 2 P.3d 871. "Whether a contractual provision is ambiguous is a question of law, which we review de novo." Id.; see Mark V, Inc. v. Mellekas, 114 N.M. 778, 781-82, 845 P.2d 1232, 1235-36 (1993). The standard to be applied in determining whether a contract is subject to equally logical but conflicting interpretations is the same standard applied in a motion for summary judgment. "If the evidence presented is so plain that no reasonable person could hold any way but one, then the court may interpret the meaning as a matter of law," id., and summary judgment would be proper. On the other hand, "[i]f the court...