Norman v. Apache Corp.
| Decision Date | 29 April 1994 |
| Docket Number | No. 93-7194,93-7194 |
| Citation | 19 F.3d 1017 |
| Parties | Horace NORMAN, et al., Plaintiffs-Appellants, v. APACHE CORPORATION, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Fifth Circuit |
Douglas S. Johnston, Houston, TX, for appellant.
Roxanne Armstrong, Apache Corp., Janet Donvas Chafin, Richard T. Nelson, Jackson & Walker, Houston, TX, for appellee.
Appeal from the United States District Court for the Southern District of Texas.
Before POLITZ, Chief Judge, KING and DAVIS, Circuit Judges.
The working interest owners of oil and gas leases in Brazoria County, Texas, brought suit against Apache Corporation, with whom they had contracted to operate these leases, claiming breach of contract and breach of fiduciary duty. The district court entered summary judgment for Apache Corporation, and the working interest owners appeal. We affirm in part and reverse in part the judgment of the district court.
In 1976, owners of interests in oil and gas leases in Brazoria County, Texas, entered into a joint operating agreement with Dow Chemical Company (Dow) to conduct joint oil and gas operations on those leases. Under the operating agreement, Dow was named the operator and was given exclusive control of oil and gas operations. The parties who held interests in these leases (collectively "the owners") were working interest owners.
In 1977, Dow drilled and successfully completed the Dwight and Sue Brothers No. 1 Well (the Brothers well) on the Brazoria County leases. All of these leases contained clauses which authorized the leased acreage, or parts thereof, to be pooled with other leased acreage. Acting pursuant to this authorization, the owners entered into an agreement with working interest owners of other leases to pool the leased acreage. These pooled leases were then unitized into two production units, the Brothers Gas Unit and the Christian Gas Unit. Certain of these leases were included within the boundaries of the Brothers Gas Unit, and under their own terms, they remained in effect past the primary term so long as oil and gas was being produced on the unit. Further, some of these leases required that if production on the unit ceased, additional operations had to commence within sixty days in order to keep the leases in effect; others provided for a ninety-day period. Because the Brothers well was the only well on the Brothers Gas Unit, these leases were held only by production from the Brothers well. Dow continued to operate both the Brothers Gas Unit and the Christian Gas Unit.
In October 1982, Apache Corporation (Apache) succeeded Dow as the operator for the production units, with all parties still subject to the original 1976 operating agreement. Thus, Apache now had the exclusive right and responsibility to conduct oil and gas operations on the leases for each unit. Apache also had the authority to bill the owners on a monthly basis for expenses incurred in operating the properties and to charge the owners a monthly "administrative overhead charge" for each well Apache operated during the month.
On or about July 13, 1990, Apache decided to cease production of the Brothers well. On July 18, 1990, Apache's district supervisor responsible for the Brothers well, Bryan Chambless, prepared an internal "change of status report" for the well in which he reported that the well had last produced on July 13 and that the reason production had been stopped was "well shut-in uneconomical to produce." The next day, David Tirey, Apache's production engineer, sent an internal memorandum concerning the Brothers well to Apache's managers for drilling and production in the exploration and land department. In this memo, he stated:
On September 18, 1990, Apache filed a notice of intention to plug and abandon the Brothers well with the Texas Railroad Commission. In late December 1990, Linda Sebesta, a land assistant for Apache, sent a letter to the owners, stating that the Brothers well "has become uneconomical to produce" and recommended that the well be plugged and abandoned. The owners responded by requesting that Apache continue to operate the well, but then learned that Apache had ceased operations on the well, that the sixty- or ninety-day periods for commencing additional operations had since passed, and that the leases had been lost.
In September 1991, the owners 1 filed suit against Apache in state district court in Brazoria County, Texas. They asserted that [i]n July 1990 when Apache shut in the Brothers Well and abandoned efforts to produce it, Apache knew that Plaintiffs believed that there was substantial hydrocarbon reserves to be recovered from the Brothers Gas Unit. In July 1990 Apache knew that Plaintiffs wanted Apache to continue to operate the Brothers Well in order to obtain revenues from current operations and in order to hold the Brothers Unit leases. Nonetheless, Apache failed to disclose to the Plaintiffs Apache's decision to abandon the Brothers Well. Instead, during the period July-December 1990, Apache continued to send monthly billing statements to Plaintiffs representing that Apache was continuing to operate the Brothers Well.
The owners alleged that Apache had breached its contractual and fiduciary duties under the joint operating agreement to operate the Brothers well, to give them advance notice of its decision to abandon the Brothers well, to take reasonable actions to prevent the lapse of the Brothers Unit leases, to notify them of the cessation of production from the Brothers well, and to refrain from falsely representing to them that it continued to operate the Brothers well after July 1990. They also alleged that Apache's breach of its fiduciary duties was accompanied by its "knowing and wilful disregard for the rights and interests" of the plaintiffs, thereby entitling them to punitive damages. Apache then removed the case to federal district court on the basis of diversity jurisdiction.
During a scheduling conference conducted by the district court on April 2, 1992, the owners requested leave of court to file an amended complaint. Their counsel offered to have the amended complaint filed within thirty days, and the court orally granted their request for leave to amend with the instruction that the amended complaint be filed as soon as possible.
The owners filed an amended complaint on September 15, 1992. On October 14, 1992, Apache filed a motion for summary judgment based on the owners' original complaint. In its motion, Apache stated that the amended complaint was not properly before the court. Apache contended that the amended complaint was not properly filed because the owners neither had sought leave of court in writing, as required by the local rules, nor had sought Apache's consent. Apache thus asserted that because the owners' original complaint was the only active pleading in the case, two new causes of action set forth in the amended complaint--fraud and the recovery of excessive operating costs--had not been properly pleaded.
After a pre-trial hearing on October 27, 1992, the magistrate ordered that the amended complaint be stricken. In reviewing the tape recording of the scheduling conference at which the owners had requested and orally received leave to amend their complaint, the magistrate found that counsel for the owners had stated that he anticipated the possibility of needing to file an amended complaint and that if an amended complaint were needed, he would file it within thirty days. The magistrate determined that although the owners had been given, in open court, leave to amend their complaint, the amendment--ultimately filed more than five months after leave was granted and approximately thirty days before the discovery deadline--was untimely. The owners then simultaneously filed a motion for reconsideration and a motion for leave to amend their complaint.
On November 16, 1992, the district court denied Apache's motion for summary judgment. In its order denying Apache's motion, the district court recognized that the owners had set forth various causes of action, including the two new causes of action set forth in the amended complaint. The court also stated that it was "perturbed" that Apache had addressed only those causes of action set forth in the original complaint in its motion for summary judgment and that thus "the issues in this case are so ill-suited for summary judgment as to raise serious questions in the Court's mind as to whether this motion was filed for the sole purpose of harassing the plaintiffs."
Apache then filed a motion for rehearing and for clarification on November 20, 1992. In its motion, Apache explained that the owners' original complaint concerned only claims predicated on breach of contract and breach of fiduciary duty and that the additional causes of action referenced by the court were contained in their amended complaint, which had been stricken by the magistrate.
The case remained on the district court's "trailing docket" from November 1992 through February 1993, awaiting trial assignment on short notice. On March 11, 1993, the district court sua sponte reconsidered its previous denial of Apache's motion for summary judgment and granted the motion. The court indicated that its first order concerning Apache's summary judgment motion had been based upon "the Court's inadvertent reference to the causes of action set out in the Amended Complaint." The court also clarified that its ruling granting summary judgment for Apache was based exclusively on allegations contained in the owners' original complaint and "specifically affirm[ed] the Magistrate-Judge's Order in all respects," which included the striking of the amended complaint. The owners then filed a timely...
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