Moncrief v. Harvey

Citation816 P.2d 97
Decision Date18 July 1991
Docket NumberNos. 90-122,s. 90-122
PartiesW.A. MONCRIEF, Jr.; Richard W. Moncrief and Charles B. Moncrief, Independent Executors of the Estate of W.A. Moncrief, deceased, Appellants (Defendants), v. M.J. HARVEY, Jr., Appellee (Plaintiff). M.J. HARVEY, Jr., Appellant (Plaintiff), v. TEXACO INC., Appellee (Defendant). TEXACO INC., Appellant (Defendant), v. M.J. HARVEY, Jr., Appellee (Plaintiff). M.J. HARVEY, Jr., Appellant (Plaintiff), v. W.A. MONCRIEF, Jr.; Richard W. Moncrief and Charles B. Moncrief, Independent Executors of the Estate of W.A. Moncrief, deceased; and Texaco Inc., Appellees (Defendants). to 90-125.
CourtUnited States State Supreme Court of Wyoming

Morris R. Massey of Brown & Drew, Casper, for W.A. Moncrief, Jr., Richard W. Moncrief, Charles B. Moncrief.

Robert Jerry Hand of Hand & Hand, Casper, Richard V. Gose, Las Cruces, N.M., Thomas J. Nance, David S. Steefel and Richard G. Wilkins of Holme Roberts & Owen, Denver, Colo., for M.J. Harvey, Jr.

Houston G. Williams of Williams, Porter, Day & Neville, Casper, and Marvin G. Twenhafel, Texaco Inc., Denver, Colo., for Texaco Inc.

Before URBIGKIT, C.J., and THOMAS, CARDINE, and MACY, JJ., and ROONEY, J. (Retired).

CARDINE, Justice.

This consolidated case of four appeals presents questions concerning the amount of liability for overriding royalty proceeds from a gas well in the Tepee Flats Unit, Natrona County, Wyoming. A series of summary judgment orders were entered in favor of M.J. Harvey, Jr. (Harvey) by the district court. In case number 90-122, the Moncrief executors (Moncriefs) appeal from the trial court's order determining royalty proceeds, statutory interest, and attorney fees. In case number 90-123, Harvey appeals an order favorable to Texaco upon joint and several liability and the application of proceeds to principal and interest due. In case 90-124, Texaco appeals from summary judgment entered against it. Case 90-125 is a cross-appeal by Harvey.

We affirm in part and reverse in part.

Moncriefs raise the following issues "1. Did the District Court err in holding that commitment of the leased lands to the Tepee Flats Unit Agreement as authorized by Section 3(c) of the lease was ineffective to subject Harvey's overriding royalty interest in the leased lands to the unit agreement?

"2. Are the provisions of W.S. §§ 30-5-301 et seq. applicable to a dispute over the amount of production proceeds payable as distinguished from a dispute over who should receive the proceeds?

"3. Is the District Court's determination that attorneys' fees aggregating $259,996.22 are reasonable in amount properly supported?"

M.J. Harvey, in his appeal, raises the following additional issues:

"1. Is Defendant Texaco jointly and severally liable to Harvey for the entire amount of the 5% overriding royalty interest owned by Harvey (the '5% Override')?

"2. Does Wyo.Stat. §§ 30-5-301 to -305 (1977) (the 'Royalty Payment Act') apply to Defendant Texaco so that Harvey is entitled to recover from Defendant Texaco penalty interest thereunder, together with all court costs and reasonable attorneys' fees incurred by Harvey in these proceedings?

"3. Should any partial payments that have been made by Defendants to Harvey be applied first to accrued interest due on the unpaid principal balance of the debt, and second to the unpaid principal balance itself, in accordance with the well-established 'United States' rule, or be applied in some other manner?

"4. Does penalty interest at the rate of 18% per year, under Section 30-5-303(a) of the Royalty Payment Act, commence to accrue on June 1, 1982, the effective date of the Royalty Payment Act, or six months thereafter?"

Texaco joins in Moncriefs' first issue, and raises the following additional issue:

"Is the judgment of the District Court contrary to the Wyoming Oil and Gas Conservation statutes?"

The issues raised in Harvey's cross-appeal, case number 90-125, are encompassed by the issues mentioned above and need not be mentioned separately.

On January 7, 1970, the State of Wyoming executed oil and gas lease number 70-806 to Judith Walker of Dallas, Texas covering the following described property:

SE 1/4 SE 1/4 of Section 8;

S 1/2 SW 1/4 of Section 9;

N 1/2 and N 1/2 of the SW 1/4 of Section 16;

NE 1/4 NE 1/4 of Section 17

all located in Township 37 N., Range 86 W. of the 6th P.M., Natrona County, Wyoming (hereinafter called the Harvey lease). The State reserved to itself a one-eighth, or 12 1/2 percent, royalty. Judith Walker assigned the lease on January 29, 1970, to M.J. Harvey, Jr. Harvey assigned the lease to Texaco on November 1, 1976, reserving to himself a five percent overriding royalty interest.

After acquiring the Harvey lease and other oil and gas leases in the vicinity, Texaco formed the Tepee Flats Unit. All owners of interests in the unit area were invited to join the unit, including Harvey. Harvey refused to join the unit.

The State of Wyoming joined the unit by instrument entitled "Approval-Certification-Determination" dated December 6, 1979. This instrument provided

"[t]hat the said unit agreement shall become effective only as to those state lands now or hereafter included within the limits of the unit area and as to which the respective lessees and the then approved working and royalty interests shall subscribe to said agreement."

On September 11, 1979, Texaco and W.A. Moncrief entered into a Farmout Agreement which included the Harvey lease and other leases held by Texaco. The agreement required Moncriefs to commence the actual drilling of a test well within section 16 on or before December 30, 1979. (The unitization agreement for the Tepee Flats Unit required the drilling of a test well within six months of its effective date.) Upon diligent completion of the well, Texaco was to assign to Moncriefs 100 percent of its interest in the subject lease within the initial participating area, 50 percent of the remainder of the subject lease outside of the initial participating area, and 50 percent of the remainder of the Harvey lease lands and other leases Texaco owned. Moncriefs were to reassign 50 percent of the working interest in the drill site tract to Texaco on payout of the test well.

The Tepee Flats 16-1 well was completed in section 16 on January 13, 1981. Texaco assigned the portion of the lease located in section 16 to the W.A. Moncrief on July 8, 1982. This assignment was expressly made subject to Harvey's previously reserved overriding royalty interest. By another assignment dated July 8, 1982, Texaco assigned 50 percent of the remainder of the Harvey lease lands to Moncriefs. The well produced until December 1985, when it was shut in.

By a decision dated June 29, 1982, the USGS established a participating area of 1,440 acres for the 16-1 well. This area included the lands covered by the Harvey lease. The State took an administrative appeal from the USGS order.

The State of Wyoming and Harvey next filed suit in state district court claiming that they were entitled to 12.5 percent and five percent, respectively, of all production of the 16-1 well, rather than to the share of production allocated to the Harvey lease lands under the unitization agreement. The State and Harvey argued that the Tepee Flats Unit Agreement was not effective as to the Harvey lease lands because Harvey never signed the unit agreement.

Moncriefs and Texaco successfully petitioned for removal of the case to federal district court. The State settled its claims with Moncriefs in April of 1986. The State withdrew its administrative appeal, and this case was remanded to state court for determination of the remainder of the issues.

By decision letter filed December 4, 1989, the trial court granted summary judgment in favor of Harvey, holding that his interest had not been committed to the Tepee Flats Unit Agreement. In subsequent proceedings, the court held that Harvey was entitled to receive from Moncriefs five percent of all proceeds from the sale of all oil and gas from the well since first production. The court also ordered Moncriefs to pay Harvey interest on wrongfully withheld proceeds at 18 percent per annum commencing six months from the time that the Royalty Payment Act, W.S. 30-5-301, et seq., became operative and at seven percent per annum prior to that time since the date of first production.

The parties stipulated to the amount of production from the well, the sales credited to Texaco and Moncriefs, and the payments by Moncriefs to Harvey. On April 2, 1990, the court entered judgment against Moncriefs in favor of Harvey in the amount of $1,462,117.79, of which $641,545.89 represented the principal amount due and $820,571.90 represented accrued interest. The court entered a separate order of summary judgment against Texaco for the difference in royalties paid to Harvey on behalf of Texaco after April 1985 and five percent of the proceeds of the 16-1 well credited to Texaco since that time, plus interest thereon of seven percent. The parties stipulated to the calculation of principal and interest due Harvey from Texaco. The judgment against Texaco was in the amount of $26,266.90, representing principal of $20,393.90 and interest of $5,873.00. The judgment against Moncriefs provided that any payment of the judgment against Texaco would reduce the amount owed by Moncriefs.

The court rejected the "United States rule" requiring application of sums paid first to interest and then to principal. After a hearing on attorney fees, the court ordered Moncriefs to pay Harvey's attorney fees in the amount of $259,996.22, together with court costs of $25.

(A note on nomenclature: W.A. Moncrief died during the pendency of this litigation. W.A. Moncrief, Jr., Richard W. Moncrief, and Charles B. Moncrief are the independent executors of his estate and present parties to this appeal. For simplicity's sake, where action in this litigation was undertaken by either W.A. Moncrief or his executors, we...

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