Minex Resources, Inc. v. Morland

• Decision Date: 15 June 1994
• Docket Number: Nos. 930099,930107,s. 930099
• Citation: 518 N.W.2d 682
• Parties: MINEX RESOURCES, INC., Plaintiff and Appellee, v. Robert MORLAND, as Special Administrator of the Estate of Kathleen O'Connell, Defendant, Third-Party Plaintiff and Appellee, v. PATRICK PETROLEUM CORPORATION OF MICHIGAN, a foreign corporation, Third-Party Defendant and Appellant, and Petrotech, Inc., a foreign corporation, Third-Party Defendant and Appellee. MINEX RESOURCES, INC., Plaintiff and Appellee, v. Robert MORLAND, as Special Administrator of the Estate of Kathleen O'Connell, Defendant, Third-Party Plaintiff and Appellant, v. PATRICK PETROLEUM CORPORATION OF MICHIGAN, a foreign corporation, and Petrotech, Inc., a foreign corporation, Third-Party Defendants and Appellees. Civ.
• Court: North Dakota Supreme Court

Page 682

518 N.W.2d 682

MINEX RESOURCES, INC., Plaintiff and Appellee, v. Robert MORLAND, as Special Administrator of the Estate of Kathleen O'Connell, Defendant, Third-Party Plaintiff and Appellee, v. PATRICK PETROLEUM CORPORATION OF MICHIGAN, a foreign

corporation, Third-Party Defendant and Appellant,

and

Petrotech, Inc., a foreign corporation, Third-Party

Defendant and Appellee.

MINEX RESOURCES, INC., Plaintiff and Appellee, v. Robert MORLAND, as Special Administrator of the Estate of Kathleen O'Connell, Defendant, Third-Party Plaintiff and Appellant, v. PATRICK PETROLEUM CORPORATION OF MICHIGAN, a foreign

corporation, and Petrotech, Inc., a foreign

corporation, Third-Party Defendants and Appellees.

Civ. Nos. 930099, 930107.

Supreme Court of North Dakota.

June 15, 1994.

Michael J. Maus of Howe, Hardy, Galloway & Maus, PC, Dickinson, for plaintiff and appellee Minex Resources, Inc.

David F. Senn of Baird & Senn, Dickinson, for third-party defendant and appellee Petrotech, Inc.

James D. Geyer of Mackoff, Kellogg, Kirby & Kloster, PC, Dickinson, for defendant, third-party plaintiff, appellee and appellant Robert Morland.

Eugene F. Buresh of Reichert, Buresh, Herauf & Ficek, PC, Dickinson, for third-party defendant, appellant and appellee Patrick Petroleum Corp.

VANDE WALLE, Chief Justice.

Robert Morland, as special administrator of the Estate of Kathleen O'Connell [the Estate], appealed from a judgment ordering the Estate to indemnify Minex Resources, Inc. [Minex] for operating expenses on an oil and gas well. Patrick Petroleum Corporation of Michigan [Patrick] appealed from a judgment ordering it to indemnify the Estate for the expenses owed to Minex, and ordering it to indemnify Petrotech, Inc., for attorney's fees and costs incurred in this litigation. We affirm.

On August 7, 1978, Kathleen O'Connell leased her mineral interests in two sections of land in Billings County to Patrick and retained a landowner's royalty. Patrick and Kathleen also entered into a letter agreement on that date, whereby Patrick agreed to assign to Kathleen a working interest equal to one-fourth of her mineral interest. The agreement further provided:

"All operations on the Lease shall be conducted pursuant to the terms of the Joint Operating Agreement except that, notwithstanding anything in the Joint Operating Agreement to the contrary, Patrick shall be responsible for and pay all costs associated with drilling and abandoning or completing the first oil and gas well drilled on the lands covered by the Lease. The costs so payable by Patrick will include, but not be limited to, those required to plug, abandon and reclaim a dry hole and those required to render it capable of production, including installation of storage tanks, in the case of a producing well."

On November 16, 1978, Patrick and Kathleen executed an operating agreement and on January 9, 1979, Patrick made the assignment of the working interest as required by the letter agreement.

On April 12, 1979, the first producing well on the property was completed. Patrick paid all expenses attributable to Kathleen's working interest through and after that date.

Kathleen died on March 15, 1983, and Allan Rustan was appointed personal representative of the Estate. To raise needed funds, Rustan decided to sell the Estate's working interests in six wells, including Mosser 1-26. The prospectus offering these interests for sale listed "expenses paid" on Mosser 1-26.

On August 23, 1983, Rustan executed a personal representative's deed conveying the interests to Minex. The deed provided, in pertinent part:

"NOW, THEREFORE, Grantor ... does hereby

grant, convey, transfer and sell to grantee

all of the right, title and interest of said

decedent and said estate in and to the

following described real property situate in

the County of Billings, State of North

Dakota, to-wit: Grantor's working interest,

from the surface of the earth to 100 feet

below the stratigraphic equivalent of the

total depth reached in the Mosser 1-26 well,

in six producing oil and gas wells located

in Sections 25 and 26, Township 141 North,

Range 101 West, 5th P.M., described as

follows:

"Well Name Operator Net Working

Revenue

Interest Interest

* * * * * *

"Mosser 1-26 Jerry 1.904295% -0-*

Chambers

Exp.

* * * * * *

" *Grantor's share of costs on Mosser 1-26 are paid by the operator.

"Grantor warrants to Grantee all of said property against every person lawfully

claiming the same."

On August 8, 1983, Patrick had assigned its interest in the lease to Petrotech. Mosser 1-26 was being operated by Jerry Chambers Exploration [Chambers], and accounting and billing on the well was being handled by Axem Resources Incorporated [Axem].

Axem billed the Estate for operating expenses on Mosser 1-26 for August, September, and October, 1983. Rustan complained, and Axem, relying upon information from Patrick that it was obligated to pay the Estate's share, changed the billing to Patrick's assignee, Petrotech. A file memo dated November 11, 1983, by the Axem employee responsible for billing Mosser 1-26 indicates:

"I spoke with Jim Kofakis at Patrick Petroleum this morning and he advised me that our APO billing interest to Kathleen O'Connell and Trinity Oil & Gas is not correct. The agreement Patrick had with them was to carry them on this well regardless of payout."

Axem subsequently revised the billing, with no part of the Mosser 1-26 expenses charged to the Estate or Minex. Petrotech paid the expenses until April 4, 1984, when it advised Chambers that all future expenses should be charged to Minex. Until that date, the expenses attributable to the working interest in question had at all times been paid by Patrick or Petrotech.

In September 1986 Chambers sued Minex and Petrotech to determine who was responsible for the disputed expenses. Minex unsuccessfully attempted to bring a third-party action against the Estate. On April 11, 1988, summary judgment was entered holding that Minex was responsible for all expenses incurred after the well was completed to productive status. Judgment was entered ordering Minex to pay $14,533.64, representing the share of operating expenses through trial, and further ordering Minex to pay all future expenses attributable to the working interest.

Minex brought this action against the Estate for $14,533.64 and indemnity of the future expenses it was ordered to pay in the prior judgment. The Estate brought third-party actions against Patrick and Petrotech for indemnification if Minex prevailed against the Estate. Patrick counterclaimed against the Estate for expenses allegedly paid by mistake after completion of the well. Petrotech cross-claimed against Patrick for indemnity and attorney's fees based upon a hold-harmless clause in their agreement.

The case was tried to the court without a jury. The court admitted extrinsic evidence as to the meaning of the personal representative's deed from Rustan to Minex, but later determined that the deed was unambiguous and that the parol evidence rule barred consideration of the extrinsic evidence. The court concluded that the deed conveyed the Estate's working interest, including expenses, to Minex, and that the Estate had not breached any warranty. The court therefore dismissed Minex's claim against the Estate and dismissed all other claims by all parties. All parties appealed.

While the appeal was pending, Rustan died. Morland was appointed special administrator of the Estate and substituted as party to this litigation.

On appeal, we concluded that the trial court had erred in holding the deed unambiguous and in disregarding the extrinsic evidence. We reversed and remanded for further proceedings. Minex Resources, Inc. v. Morland, 467 N.W.2d 691 (N.D.1991).

On remand, before a different judge, the parties stipulated that no additional evidence would be offered. The district court issued findings of fact and conclusions of law based upon the record compiled at the original trial. The court found that the deed was ambiguous and that the Estate had conveyed only a net revenue interest, and not a working interest, in Mosser 1-26 to Minex. The court also found that the Estate had warranted title. The court therefore concluded that the Estate was liable to Minex for the expenses Minex had been ordered to pay Chambers, including future expenses.

On the Estate's third-party claims, the court held that Patrick and Petrotech were equitably estopped from denying that Patrick had agreed to pay Kathleen's share of operating expenses on Mosser 1-26 after completion of the well. Accordingly, the court ordered that the Estate was entitled to indemnification for all expenses, current and prospective, it owed to Minex. ¹ Patrick's counterclaim against the Estate for expenses paid by mistake, based upon Patrick's assertion that it was not responsible for expenses, was dismissed. On Petrotech's cross-claim against Patrick, the court held that Petrotech was entitled to indemnification for any sums it owed to the Estate and ordered Patrick to reimburse Petrotech's costs and attorney's fees in this litigation.

The Estate and Patrick appealed, raising numerous issues.

Minex v. The Estate

The dispute between Minex and the Estate centers upon what interest in Mosser 1-26 was conveyed in the personal representative's deed. The parties agree that the characterization of their respective positions on this issue in Justice Meschke's opinion for the Court in Minex, supra, 467 N.W.2d at 696-697, is accurate:

"The Estate argues that, by transferring to Minex all of 'Grantor's working interest' in the six wells on the leasehold, including the Mosser 1-26, the Estate conveyed everything Kathleen owned including her working interest. The Estate reasons that 'net revenue interest' is the lessee's share of production after subtracting all overriding royalty, oil payments, and other nonoperating interests, so that the term includes the lessee's...