Octagon Gas Systems, Inc. v. Rimmer

• Decision Date: 27 May 1993
• Docket Number: No. 92-6065,92-6065
• Citation: 995 F.2d 948
• Parties: Bankr. L. Rep. P 75,288, 20 UCC Rep.Serv.2d 1330 OCTAGON GAS SYSTEMS, INC., Appellant, v. Roy T. RIMMER, Appellee, In re MERIDIAN RESERVE, INC., Debtor.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 948

995 F.2d 948

Bankr. L. Rep. P 75,288, 20 UCC Rep.Serv.2d 1330

OCTAGON GAS SYSTEMS, INC., Appellant, v. Roy T. RIMMER, Appellee In re MERIDIAN RESERVE, INC., Debtor.

No. 92-6065.

United States Court of Appeals Tenth Circuit.

May 27, 1993.

Thomas J. Moore (Christian C. Onsager, Adrienne O. McNamara, with him on the brief), of Faegre & Benson, Denver, CO, for appellant.

John C. Platt (Joe E. Edwards, Joel W. Harmon, with him on the brief), of Edwards, Sonders & Propester, Oklahoma City, OK, for appellee.

Before TACHA, SETH, and BALDOCK, Circuit Judges.

BALDOCK, Circuit Judge.

Octagon Gas Systems, Inc. ("Octagon") appeals from the decision of the United States District Court for the Western District of Oklahoma affirming the bankruptcy court's order granting Appellee Roy T. Rimmer's motion for summary judgment. We have jurisdiction under 28 U.S.C. § 158(d).

Poll Gas, Inc. ("Poll") was in the business of gathering and selling natural gas in Oklahoma. As part of its business, Poll owned and operated a gas gathering system ("the System"). Prior to 1976, Amcole Energy Corporation ("Amcole") owned ten percent of the Poll stock and four other shareholders owned the remainder of the stock. In May 1976, Amcole entered into an agreement with Poll's remaining four shareholders to purchase all of their shares. Pursuant to the terms of the purchase agreement ("the 1976 Agreement") between Amcole and the other shareholders, the selling shareholders agreed to sell Amcole their 90% of the Poll stock and certain other assets. In exchange, Amcole transferred to each shareholder a proportionate "overriding royalty interest" in the gross proceeds received by Amcole from gas sold through the Poll System. As a result of the 1976 Agreement, Amcole became Poll's sole remaining shareholder. Approximately one-half of Rimmer's "overriding royalty interest" originates from the 1976 Agreement.

On May 31, 1982, Poll, assigned to SINA 79/80 Limited ("SINA") an "overriding royalty interest" in the gross proceeds derived from the Poll System. The remaining half of Rimmer's "overriding royalty interest" arises from the 1982 Assignment.

In 1983 and 1984, Rimmer purchased, from the original assignees, a portion of the "overriding royalty interests" created by the 1976 Agreement and the 1982 Assignment. Subsequently, on January 28, 1987, Amcole, Poll, and Rimmer executed an agreement entitled Assignment of Overriding Royalty Interest ("1987 Assignment"). See infra note 3. Pursuant to the parties' various cross-transfers, the 1987 Assignment provided that "... Rimmer will own from this date forward a full Five Percent (5%) perpetual overriding royalty interest on all proceeds payable to [Poll] under the [System]...." Appellant's App. at 83-86.

In 1988, Poll commenced this Chapter 11 bankruptcy case. Prior to filing the petition in bankruptcy, Poll, pursuant to the 1987 Assignment, paid Rimmer five percent of its proceeds from the sale of gas through the System. During the pendency of the bankruptcy estate, the bankruptcy trustee continued to pay this five percent interest to Rimmer.

In January 1990, the bankruptcy court confirmed the trustee's reorganization plan. Under the plan, the Poll System ¹ was conveyed to Norwest Bank Minnesota ("Norwest") or its designee, in satisfaction of Norwest's secured claim. The Plan provided that the Poll System would be transferred to Norwest "free and clear of liens, claims, interests, and encumbrances." Appellant's App. at 130. Thereafter, Norwest conveyed the System to Octagon. After assuming control of the System, Octagon refused to recognize any interest held by Rimmer in the System gas sale proceeds and failed to make any payments to Rimmer. Consequently, this action was commenced by a creditor of Rimmer, Bonnet Resources Corporation, alleging it is secured by Rimmer's interest in the System's gas sale proceeds. Rimmer subsequently brought a motion for intervention. The bankruptcy court granted Rimmer's motion and exercised jurisdiction to determine whether the Plan effectuated a transfer of Rimmer's five percent interest to Octagon, or whether Rimmer's interest survives as personal property owned by Rimmer.

On cross motions for summary judgement, the bankruptcy court held that Rimmer owned a five percent interest in the proceeds of gas sold through the Poll System which was not affected by the Plan or the transfer of the Poll System to Octagon. The court, rejecting Octagon's argument that Article 9 of the Uniform Commercial Code ("U.C.C.") applied, reasoned that Rimmer's partial interest in the proceeds from the sale of gas was a "good" and amounted to a proportionate ownership right. The court found that Rimmer's interest was not property of Poll's bankruptcy estate and therefore could not be transferred by the estate to Octagon. The bankruptcy court granted summary judgment in favor of Rimmer, and the district court summarily affirmed.

On appeal Octagon raises numerous issues, among them: (1) whether the bankruptcy court erred in finding that Rimmer had an interest in the Poll System gas sale proceeds, and (2) whether the bankruptcy court erred in determining that Article 9 of the U.C.C. was inapplicable to Rimmer's interest. Because we remand in order for the court to apply Article 9, we do not address Octagon's remaining issues.

We review a court's order granting summary judgment de novo. Applied Genetics Int'l, Inc. v. First Affiliated Sec., Inc., 912 F.2d 1238, 1241 (10th Cir.1990). We examine the record to determine whether any genuine issue of material fact exists, and, if not, whether the substantive law was applied correctly. Hokansen v. United States, 868 F.2d 372, 374 (10th Cir.1989) (citation omitted).

I.

Octagon argues that Rimmer had no enforceable interest in the Poll System gas sales proceeds. Octagon's only argument concerning this issue that merits extensive discussion pertains to the 1976 Agreement. ² 2] Octagon contends that because Poll was not a party to the 1976 Agreement, the portion of Rimmer's interest that derives from the 1976 Agreement is not an enforceable interest in the Poll System gas sale proceeds; rather it is only an enforceable interest against Amcole in the amount Amcole received from Poll. ³

Whether or not Rimmer has an enforceable interest in the Poll System proceeds and the characterization of that claimed interest are matters of state law. See Paul v. Monts, 906 F.2d 1468, 1475 (10th Cir.1990). In construing the meaning of a written contract, the intent of the parties controls. Founders Bank & Trust Co. v. Upsher, 830 P.2d 1355, 1361 (Okla.1992) (citing Okla.Stat.Ann. tit. 15, §§ 151-153 (West 1981)). Where the language of the contract alone does not clearly set forth the intent of the parties, the court may look to extrinsic evidence. See Panhandle Coop. Royalty Co. v. Cunningham, 495 P.2d 108, 112-113 (Okla.1971); Pollock Stores Co. v. Draper, 202 Okl. 546, 215 P.2d 843 (1950).

Although Poll was not a party to the 1976 Agreement, the portion of Rimmer's interest that derives from the 1976 Agreement is an enforceable interest in the Poll System's gas sale proceeds. First, we hold that the intention of the parties is not clearly ascertainable from the writing alone. ⁴ As a result, we look to the parties' course of dealing and the undisputed affidavit of one of the parties--Frank Cole, president of Amcole in 1976--which clearly indicate that the intent of the parties was to create enforceable interests in the Poll System's gas sale proceeds, not interests in proceeds Amcole received from Poll. Throughout the nearly fourteen years following the execution of the 1976 Agreement, Poll itself, not Amcole, paid the owners of the interests conveyed in the 1976 Agreement their proportionate share of Poll's proceeds. According to Cole, the parties' intent was that Amcole's sole obligation with respect to the payment of the created interests arose from its status, following the 1976 Agreement, as Poll's sole shareholder. The parties intended that the created interests were in Poll's proceeds, not in Poll proceeds received by Amcole.

Of course, the 1976 Agreement could not have created interests in the Poll System gas sale proceeds unless the parties to the 1976 Agreement had the capacity to bind Poll to the Agreement and sell interests in Poll's proceeds, or unless Poll subsequently ratified the Agreement. Contracts involving all of a corporation's shareholders are binding on the corporation, 12B William M. Fletcher, Fletcher's Cyclopedia of the Law of Private Corporations, § 5743 (perm. ed. rev. vol. 1984), and under Oklahoma law in effect in 1976, shareholders had the right to authorize the disposition of corporate assets, Okla.Stat.Ann. tit. 18, § 1.164(b) (West 1971) (repealed 1986). Additionally, a corporation, by subsequent action, may ratify a contract entered in its behalf. East Ctr. Okla. Elec. Coop., Inc. v. Oklahoma Gas & Electric Co., 505 P.2d 1324, 1329 (Okla.1973). We hold that under either theory, the 1976 Agreement created an enforceable interest in Poll's proceeds.

All of Poll's shareholders and directors were parties to the 1976 Agreement. This being the case, the shareholders had the capacity to dispose of Poll's assets and bind Poll to the Agreement. Because this was the intent of the parties, the effect of the 1976 Agreement was to create enforceable interests in Poll's proceeds. Alternatively, Poll's continuous payment of the interests over nearly fourteen years evidences its ratification of the 1976 Agreement. See Blunt v. Blunt, 198 Okl. 138, 176 P.2d 471, 472 (1947). Because we hold that the 1976 Agreement, in addition to the 1982 Assignment and the 1987 Assignment, created an enforceable interest in the Poll System gas sale proceeds, we uphold the bankruptcy court's determination that Rimmer had an interest in the Poll System's gas sale proceeds.

II.

Throughout this litigation, Octagon has maintained that...