Olansen v. Texaco Inc.

• Citation: 587 P.2d 976,1978 OK 139
• Decision Date: 24 October 1978
• Docket Number: No. 48563,48563
• Parties: Daniel J. OLANSEN, Ruby Olansen, David A. Olansen, Lorene Olansen, Earl Broomhall, Barbara Broomhall, Appellees, and Cross-Appellants, Frances A. Bradley and John A. Hennage, Executor of the Estate of Mayme B. Hennage, Appellees, v. TEXACO INC. and Kerr-McGee Corporation, Appellants, and Cross-Appellees.
• Court: Supreme Court of Oklahoma

Page 976

587 P.2d 976

Daniel J. OLANSEN, Ruby Olansen, David A. Olansen, Lorene Olansen, Earl Broomhall, Barbara Broomhall, Appellees, and Cross-Appellants, Frances A. Bradley and John A Hennage, Executor of the Estate of Mayme B. Hennage, Appellees, v. TEXACO INC. and Kerr-McGee Corporation, Appellants, and Cross-Appellees.

No. 48563.

Supreme Court of Oklahoma.

Oct. 24, 1978.

Rehearing Denied Dec. 18, 1978.

Appeal from the District Court, Tulsa County; Jay Dalton, Trial Judge.

This appeal involves the improper payment of royalty by Texaco Inc. and Kerr-McGee Corp. (appellants and cross-appellees) attributable to a forty acre mineral interest included in a secondary recovery unit created pursuant to 52 O.S.1971, § 287.1 et seq. The royalty should have been paid to the Olansens and Broomhalls (appellees and cross-appellants) but was improperly paid to Bradley and Hennage (appellees). Judgment was rendered against Texaco Inc., and Kerr-McGee Corporation in favor of the Olansens and Broomhalls for the royalty they should have been paid and attorney fees. Texaco and Kerr-McGee jointly appealed. Texaco and Kerr-McGee also appealed from that part of the judgment which denied them recovery over against Bradley and Hennage for the royalty paid them for which they were not entitled to be paid. Olansens and Broomhalls filed a cross-petition in error and appealed from that part of the judgment against Texaco and Kerr-McGee awarding them attorney fees contending that the amount of fees awarded was grossly inadequate.

JUDGMENT AS BETWEEN APPELLANTS (Texaco and Kerr-McGee) IN FAVOR OF APPELLEES (Olansens and Broomhalls) AFFIRMED AS TO ROYALTY PAYMENTS NOT PAID TO THEM; JUDGMENT AS BETWEEN TEXACO AND OLANSENS AND BROOMHALLS AFFIRMED AS TO ATTORNEYS FEES; JUDGMENT AS BETWEEN KERR-MCGEE AND OLANSENS AND BROOMHALLS AS TO ATTORNEYS FEES REVERSED; JUDGMENT NOT GRANTING TEXACO AND KERR-MCGEE JUDGMENT AGAINST THE APPELLEES (Bradley and Hennage) FOR ROYALTY IMPROPERLY PAID TO THEM REVERSED AND REMANDED FOR NEW TRIAL; and CROSS-APPEAL OF OLANSENS AND BROOMHALLS CHALLENGING AMOUNT OF ATTORNEYS FEES AS BEING INADEQUATE, AFFIRMED.

John M. Imel and Steven A. Stecher, Martin, Logan, Moyers, Martin & Conway, Tulsa, for appellants, and cross-appellees.

W. L. Eagleton, James R. Eagleton, and George H. Bowen, Tulsa, for appellees, and cross-appellants.

Ralph R. Adkisson, Smith, Brown, Martin & Adkisson, Tulsa, for appellees.

IRWIN, Justice.

Texaco commenced unitization proceedings under the Unitized Management of Common Sources of Supply Act (52) O.S.1971, §§ 287.1 et seq.) in order to conduct secondary recovery operations by water flooding. Texaco was the sole lessee of all the minerals sought to be unitized. Pursuant to Texaco's application, the East Glenn Unit was created by order of the Oklahoma Corporation Commission, effective June 1, 1961, and Texaco was named the "unit operator". ¹

Certain appellees (Olansens and Broomhalls), referred to as the Olansens, owned a 40 acre mineral interest included in the unit and should have been entitled to the royalty attributable thereto under the plan of unitization. However, the Olansens were not named as owners, were not notified of the unitization proceedings, did not participate therein, and such royalty was not paid to them but was improperly paid to the other appellees (Bradley and Hennage), referred to as the Flanagan Heirs. Flanagan Heirs' predecessor in interest had previously owned the 40 acre tract and had conveyed it to the Suttons by warranty deed. Suttons conveyed it by warranty deed to the Olansens' predecessor in interest in 1927. The mix-up in royalty payments arose because Texaco's files reflected that the Flanagan Heirs still owned the 40 acre tract and Texaco determined the mineral ownership from its own files instead of the county records. Texaco not only conducted the unitization proceedings under the belief that the Flanagan Heirs owned the mineral interest but caused the royalty payments to be made on the same basis.

The principal issues presented are (1) the Olansens' right to recover from Texaco the royalty they should have been entitled to receive under the plan of unitization, (2) Texaco's right to recover against the Flanagan Heirs for the royalty payments improperly made to them, and (3) the amount of attorney fees.

In 1972, the Olansens commenced proceedings to quiet title to the surface and all the minerals underlying the 40 acre tract and for an accounting of all the royalties attributable to the 40 acre mineral interest. Texaco and the Flanagan Heirs were joined as co-defendants. Subsequently, Kerr-McGee was made an additional party defendant because it purchased the unit production. Texaco and Kerr-McGee filed a cross-petition against the Flanagan Heirs alleging that if they were required to account to the Olansens for the royalty attributable to the 40 acre tract, then in turn, they should be entitled to a judgment over against the Flanagan Heirs because such royalty had been improperly paid to them.

Early in the litigation the trial court quieted the Olansens' title to the surface of the 40 acre tract. This judgment was not appealed and is not in issue here. A separate trial was had on Olansen's quiet title action relating to the minerals and the accounting phase. The trial court quieted Olansens' title to the 40 acre mineral interest and also granted the Olansens a judgment against Texaco and Kerr-McGee for all the royalties accruing between 1961 and 1972 ² with interest and attorney fees. The trial court also refused to grant Texaco and Kerr-McGee a judgment over against the Flanagan Heirs for the royalty improperly paid to them on the grounds that their action was barred by laches.

Texaco and Kerr-McGee appealed from that part of the judgment in favor of the Olansens relating to the royalty payments and attorney fees and from that part of the judgment which refused them recovery against the Flanagan Heirs for the royalty improperly paid to them. Olansens cross-appealed as to the amount of attorney fees awarded them and contend such fees were grossly inadequate.

The 40 acre mineral interest involved here is the NE1/4 of a 160 acre tract. Texaco's predecessors obtained an oil and gas lease on the entire 160 acres in 1919 and the lease, prior to the unitization, had been held by production from the West 1/2 of the 160 acres. The lease did not have an entirety clause and prior to unitization only the mineral owners under the W1/2 were entitled to the production. The Olansens had never been entitled to any royalty payments until the creation of the unit in 1961.

The Morrison family owned the 160 acre tract in 1919 and executed the oil and gas lease. The lease contained a "notification to lessee of change in ownership" clause. ³ In 1921 the Morrison family conveyed the 160 acre tract to J. P. Flanagan. This deed was filed for record and Texaco was notified of the change in ownership pursuant to the lease requirement. In 1927, Anthony Olansen obtained title to the 40 acre tract in question by warranty deed. This deed was filed for record but Texaco was not notified of the change in ownership. Anthony Olansen died in 1929 and the 40 acres were inherited by his wife, Annie, and his two sons, David and Daniel. Annie died in 1947 and the entire 40 acres were then owned by David and Daniel. The estates of Anthony and Annie were not probated. However, since 1927, Anthony Olansen, his heirs and their assigns have been in exclusive and absolute possession of the 40 acre tract.

Texaco's files never reflected the Olansens' ownership of the minerals. Texaco relied upon its own files instead of the county records to determine the mineral ownership and who should participate in the unitization proceedings and royalty payments. Since Texaco's files did not reflect that the Olansens had an interest in the minerals unitized, Texaco did not give them notice of the unitization proceedings and the Olansens did not participate in such proceedings.

Two omissions one on the part of Texaco and the other on the part of the Olansens, created the background for this controversy. Texaco did not search the county records prior to instituting unitization proceedings, acting instead in reliance upon its files to ascertain ownership of the minerals, and Olansens' failure to notify Texaco of their ownership of the 40 acre mineral interest. Texaco's failure to give actual notice to the Olansens is defended on two theories, (1) Olansens were not entitled to notice because they were not "owners" for the purposes of the unitization proceedings in that they failed to comply with the "change in ownership" clause of the lease, and (2) Texaco fully complied with the laws relating to notice in unitization proceedings whether Olansens are or are not considered to be owners of the minerals.

The unitization proceedings were commenced when Texaco filed its application for the creation of the East Glenn Unit. Hearing was then set by the Corporation Commission and Notice of Hearing was published as required by law. No notice was served on the Olansens of Texaco's Application or of the hearing. The record supports the trial court's finding that the Olansens did not have knowledge that the 40 acre mineral interest was included in the East Glenn Unit until 1972, the year they commenced this action.

The trial court found that Texaco committed actual or constructive fraud upon the Olansens and the Corporation Commission when it represented in the unitization proceedings that all the owners had signed and ratified the plan for the East Glenn Unit. It is conceded that the Olansens, who were owners, had not signed or ratified the plan.

Texaco contends the trial court erred in finding that it was negligent and guilty of fraud in not determining that the Olansens owned the 40 acre mineral interest and notifying them of the unitization proceedings. As Texaco points out, it is admitted that...