Mills v. Damson Oil Corp.

• Decision Date: 21 May 1991
• Docket Number: No. 90-1418,90-1418
• Citation: 931 F.2d 346
• Parties: Henry G. MILLS, et al., Plaintiffs/Counter Defendants-Appellants, v. DAMSON OIL CORP., Defendant/Counter Plaintiff-Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 346

931 F.2d 346

Henry G. MILLS, et al., Plaintiffs/Counter Defendants-Appellants, v. DAMSON OIL CORP., Defendant/Counter Plaintiff-Appellee.

No. 90-1418.

United States Court of Appeals Fifth Circuit.

May 21, 1991.

Stanford Young, Waynesboro, Miss., Weyman W. McCranie, Jr., Robert P. Denniston, Alton R. Brown, Jr., Brown, Hudgens, Richardson, P.C., Mobile, Ala., for plaintiffs-counter defendants-appellants.

John E. Wade, Jr., E.L. Brunini, Jr., Brunini, Grantham, Grower & Hewes, Jackson, Miss., for defendant-counter plaintiff-appellee.

Appeal from the United States District Court for the Southern District of Mississippi.

Before RUBIN, POLITZ, and DUHE, Circuit Judges.

POLITZ, Circuit Judge:

We hear, for the third time, ¹ an appeal involving a 1/16 mineral interest in two oil wells in Mississippi. ² We affirm the summary judgment granted Damson Oil Corporation on plaintiffs' fraud and conversion claims, and its bench trial judgment for recovery of certain erroneously-made payments.

Background

In 1976 the Mississippi State Oil and Gas Board granted Damson a permit to drill an oil well denominated Sabine No. 2 in Wayne County, Mississippi. A simultaneously submitted request for Sabine No. 3 was approved in February 1977 when the Board force integrated the well. Integration, referred to as pooling or unitization in other jurisdictions, was required because Damson did not own all of the necessary mineral rights.

Sabine No. 2 reached payout in December 1978; Sabine No. 3 did likewise by October 1981. In the meantime a dispute had arisen as to the ownership of a 1/16 interest in each well. The facts underlying that controversy are detailed in Mills I; the final result of that litigation was to confirm in the appellants now at bar ownership of the disputed mineral interests. After each Owner had executed a division order authorizing Damson to market the production, Damson began making royalty payments and also began separately billing the Owners for a proportionate share of drilling expenses.

In 1986 the Owners brought suit in Mississippi state court alleging improprieties in the integration procedures and in the operation of Sabine Nos. 2 and 3. The complaint sought $10,000,000 in actual damages and a like sum in exemplary damages. Damson removed the cause to the Southern District of Mississippi and counterclaimed against Stanford Young ³ for a claimed erroneous royalty overpayment. Damson then moved for summary judgment on both the principal demand and counterclaim.

The summary judgment record contains affidavits filed by both sides regarding the manner in which the wells were operated and the proceeds divided. The Owners claimed improper commingling, shoddy measurement practices, and improper accounting procedures. Damson detailed its integration procedure and operational and record-keeping methodology.

Following multiple discovery deadline extensions and discovery disputes requiring resolution by the court, summary judgment was rendered in favor of Damson on all but the accounting dispute. A bench trial was held and a judgment was rendered in favor of Damson and against Young for $11,433.12. The Owners timely appealed.

Analysis

On appeal the Owners challenge entry of the adverse summary judgment, maintaining that the trial court overlooked a genuine issue of material fact which obviated the use of the summary judgment procedure. Our standard of review in such matters is well settled. Where the record, including affidavits, interrogatories, admissions, and depositions could not, as a whole, lead a rational trier-of-fact to find for the nonmoving party, there is no genuine issue for trial. Fed.R.Civ.P. 56(c); Washington v. Armstrong World Indus., Inc., 839 F.2d 1121 (5th Cir.1988). We apply the same standard as the trial court, viewing the facts in the light most favorable to the nonmoving party. Southmark Properties v. Charles House Corp., 742 F.2d 862 (5th Cir.1984); Nunez v. Superior Oil Co., 572 F.2d 1119 (5th Cir.1978).

The trial court correctly found the Owners' affidavits insufficient to raise a genuine, material factual issue.

Plaintiffs' charge of fraudulent misrepresentation by Damson as to the amount of oil, gas and water produced from the two wells cannot stand. It is well settled under Mississippi law that a cause of action for fraud requires proof of, inter alia, an intent to deceive. Such proof is "indispensable." Franklin v. Lovitt Equipment Co., Inc., 420 So.2d 1370, 1373 (Miss.1982). Even were the court to assume that Damson has, as plaintiffs allege, failed or refused to install, maintain and keep in good working order production meters and gauges on the two wells, that alone is not proof of and does not give rise to any inference of an intent to deceive the plaintiffs. At most, such conduct, if proven, would constitute negligence. Moreover, in the court's opinion, plaintiffs have failed to sufficiently demonstrate the existence of a factual dispute such as would necessitate a trial on this issue.

... These affidavits establish only that certain meters were out of calibration or were not always in good working order and were required to be repaired a number of times.

The Owners argue that the district court overstated the predicates necessary for a finding of scienter under Mississippi law given that the longstanding elements of fraud contemplate "the speaker's knowledge of its falsity or ignorance of its truth. " Whittington v. Whittington, 535 So.2d 573, 585 (Miss.1988) (emphasis supplied). We disagree. While the trial court may have attributed incorrectly the "indispensable" language regarding proof of intent to deceive, it correctly stated the law. Anderson Dunham, Inc. v. Aiken, 241 Miss. 756, 761, 133 So.2d 527, 529 (1961).

In Anderson Dunham, the Mississippi Supreme Court held that proof of an intent that the falsity be acted on by the victim, in the manner reasonably contemplated, is indispensable to a fraud action. Such proof must satisfy the clear and convincing standard. Franklin v. Lovitt Equipment Co., 420 So.2d 1370 (Miss.1982). The element the Anderson Dunham court refers to is separate from the issue of the speaker's knowledge of the falsity or his ignorance of the truth. Even were the Owners to prove that Damson was ignorant of the correct amounts of oil in question, they offer nothing beyond bare allegations to carry the indispensable burden of showing Damson's intent to deceive regarding the supposed misstatements. Moreover, at oral argument Owners' counsel was unable to point to any evidence that the claimed erroneous gauging actually worked to the Owners' disadvantage.

The trial court's holding that the Owners' offerings do not create a genuine material issue of fact is fully supported by the summary judgment record. The Owners' affidavits speak of a relatively short period of time and reflect the statements of persons unskilled in the oil business, or of relief workers whose duties did not include repair and maintenance of the gauges in question. Mindful that "fraud is essentially a question of fact," Whittington, 535 So.2d at 585 (citation omitted), we find no genuine factual issue on the fraud claim.

The conversion claim is based on much of the same evidence as the fraud claim, but it also includes vague conclusionary charges that Damson committed "an unauthorized act of dominion ... over plaintiffs' proportionate share of the oil from their land...." In its disposition of this contention the district court discussed Mississippi Code Section 53-3-7, the integration statute, and noted that as section 53-3-7 was adhered to by Damson there is no question that "Damson had and has the right to produce the wells, on condition that it account to the plaintiffs for their proportionate shares of production from the units less development and production expenses." We perceive no error in that finding.

The Owners' principal claims in the trial court related to lack of notice; on appeal they turn their sights toward the maintenance of the measuring equipment. Either way their arguments are unpersuasive. The lack of notice at the time of integration resulted from the absence of a recorded interest in the mineral rights in the name of the Owners. As the trial court noted, notice by publication, which was properly effected, was sufficient with respect to the Owners as of 1977. Once we confirmed their property rights, Mills II, the Owners became de facto cotenants of Damson. As such, their situation paralleled that in the case relied on by Damson and the district court, Martin v. Humble Oil and Refining Co., 199 F.Supp. 648 (S.D.Miss.1960), aff'd and remanded on other grounds, 298 F.2d 163 (5th Cir.1961), cert. denied, 371 U.S. 825, 83 S.Ct. 45, 9 L.Ed.2d 64 (1962).

In Martin the remainderman of a 1/30 interest in the mineral rights of a plantation brought suit alleging that the trustees of the intervening life estate wrongfully leased oil rights, thereby committing waste. The Martin trial court stated:

[T]here can be no question but what the Humble Oil and Refining Company had the right to go into the land and explore, drill, produce and take the oil and gas therefrom. It, in effect, became a co-tenant of the Plaintiff herein, but when one co-tenant develops oil and gas, he is under the duty to account to the others who do not join with him from their pro rata share of the minerals taken from the soil, after deducting the cost of production. There was certainly no active bad faith on the part of the Defendant, nor was the Defendant guilty of any trespass, but it must account to the Plaintiff for the value of the minerals taken, less the cost of production.

Id. at 653. The record before us presents a similar situation. Damson was lawfully permitted to drill the two wells in question, becoming liable to the Owners only after their claims were adjudicated. While Damson owed the Owners an...