Pasternak v. Lear Petroleum Exploration, Inc.

• Decision Date: 08 May 1986
• Docket Number: No. 84-1237,84-1237
• Citation: 790 F.2d 828
• Parties: Irving PASTERNAK, d/b/a Shar-Alan Oil Company; Harvey Alpert; Leland Alpert; Ted Alpert; Babl Resources, Inc.; Ferrovanadium Corporation, N.L.; Steven Chotin; Robin Chotin; Steven Cohen; Jo Ellen Cohen; East Side Auto and Investment Company; Richard Helmick; Abraham Michelson; Chery Michelson; Kenneth Perry; Ricki Perry; Phillip Rand; Estate of Paul Rothman, by Doris Rothman, Personal Representative; Allen G. Pasternak; and Richard M. Wanger, Plaintiffs-Appellants, v. LEAR PETROLEUM EXPLORATION, INC., Texas Oil & Gas Corporation, Flag-Redfern Oil Company, and Universal Resources Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 828

790 F.2d 828

Irving PASTERNAK, d/b/a Shar-Alan Oil Company; Harvey

Alpert; Leland Alpert; Ted Alpert; Babl Resources, Inc.;

Ferrovanadium Corporation, N.L.; Steven Chotin; Robin

Chotin; Steven Cohen; Jo Ellen Cohen; East Side Auto and

Investment Company; Richard Helmick; Abraham Michelson;

Chery Michelson; Kenneth Perry; Ricki Perry; Phillip

Rand; Estate of Paul Rothman, by Doris Rothman, Personal Representative; Allen G. Pasternak; and Richard M. Wanger, Plaintiffs-Appellants, v. LEAR PETROLEUM EXPLORATION, INC., Texas Oil & Gas

Corporation, Flag-Redfern Oil Company, and

Universal Resources Corporation,

Defendants-Appellees.

No. 84-1237.

United States Court of Appeals, Tenth Circuit.

May 8, 1986.

Richard R. Helmick, Denver, Colo. (Dickson M. Saunders and James P. McCann of Doerner, Stuart, Saunders, Daniel & Anderson, Tulsa, Oklahoma, on briefs), for plaintiffs-appellants.

William D. Curlee of Lytle, Soule, Curlee, Harrington, Chandler & Van Dyke, Oklahoma City, Okl., for defendant-appellee Texas Oil & Gas Corp.

Joseph H. Bocock (Philip D. Hart, with him on brief), Oklahoma City, Okl., for defendant-appellee Flag-Redfern Oil Co.

Arlen E. Fielden of Crowe & Dunlevy, Oklahoma City, Okl., on brief, for defendant-appellee Lear Petroleum Exploration, Inc.

Kenneth N. McKinney and Larry S. Kaplan of McKinney, Stringer & Webster, P.C., Oklahoma City, Okl., on brief, for defendant-appellee Universal Resources Corp.

Before BARRETT, MOORE and ANDERSON, Circuit Judges.

JOHN P. MOORE, Circuit Judge.

Shar-Alan Oil Company (Shar-Alan) filed suit in Oklahoma state court to quiet title to two oil and gas wells in Major County, Oklahoma. The case was removed to the United States District Court for the Western District of Oklahoma by the defendants, Lear Petroleum Exploration, Inc. (Lear), Flag-Redfern Oil Company (Flag-Redfern), Texas Oil & Gas Corporation (Texas Oil & Gas), and Universal Resources Corporation (URC), who previously entered into a joint operating agreement covering the section of land upon which the wells were located. The companies claim an interest in the wells through a farmout agreement between Lear and Shar-Alan, which they contend is subject to their joint operating agreement. After determining there were no material facts in dispute and that Shar-Alan was bound by the specific terms of the farmout agreement making it subject to the joint operating agreement, the district court granted defendants' motion for summary judgment. The district court subsequently denied Shar-Alan's motion to alter, amend, or vacate its judgment, finding that it was not improperly denied the opportunity to conduct additional discovery and that Shar-Alan could not rely on mutual mistake to avoid the specific terms of the farmout agreement with Lear. Because we conclude the district court did not abuse its discretion in denying Shar-Alan additional opportunity to conduct discovery and did not err in determining that Shar-Alan could not rely on mutual mistake, we affirm the district court's orders. ¹

On October 7, 1976, the four defendant companies signed a joint operating agreement covering their interests in Section 23, Township 20 North, Range 13 West, in Major County, Oklahoma, which was previously designated as one drilling and spacing unit by the Oklahoma Corporation Commission. At that time, the defendants held the rights to drill for oil and gas in the entire section. By virtue of the joint operating agreement, the defendants agreed to participate, according to an agreed ratio of interests and for a specified period of time, in all oil and gas produced from Section 23. In December 1976, URC, as the operator, drilled and completed a producing well, known as Keck # 1, in the northeast corner of the southwest quarter of Section 23.

Of primary importance to this case are interests held by some of the defendant companies in the northeast quarter of Section 23. On January 1, 1979, the Oklahoma Corporation Commission despaced Section 23 from one 640-acre drilling and spacing unit to eight 80-acre drilling and spacing units. At that time, Lear was lessee to 60 acres, and Flag-Redfern owned the mineral interest in another 20 acres in the northeast quarter. Both interests were acquired prior to the execution of the joint operating agreement. By 1979, the defendants had apparently divested themselves of other leasehold interests originally held in the remaining acreage in the northeast quarter. On July 31, 1979, Flag-Redfern leased its 20 acres to Western Products Corporation (WPC), who was lessee to an additional 80 mineral acres in the northeast quarter. Shar-Alan then purchased the leases covering 100 acres from WPC. Shar-Alan subsequently became the assignee to the remaining 60 acres in the northeast quarter through the farmout agreement with Lear.

Shar-Alan drilled the first well in the northeast quarter of Section 23 prior to the execution of its farmout agreement with Lear. Shar-Alan contends it subsequently completed that well and a second well before it received any notification of defendants' claimed interest in the wells. Defendants based their claim on the contention that paragraph X(4) of the farmout agreement made that agreement expressly subject to the existing joint operating agreement. ² Shar-Alan consistently refused to recognize the "subject to" provision of the farmout agreement.

Shar-Alan filed suit in Oklahoma district court on February 16, 1982. Defendants promptly removed the case to the United States District Court. Thereafter, discovery was undertaken by both sides. Based upon depositions, URC filed a motion for summary judgment on February 3, 1983, in which it contended that Shar-Alan could not avoid specific language in the farmout agreement permitting defendants to participate in the two wells drilled by Shar-Alan. Lear, Flag-Redfern, and Texas Oil & Gas joined in the motion. Discovery continued while the motion for summary judgment was pending. Shar-Alan scheduled depositions of defendants' officers for August 15-17, 1983, and defendants agreed to deliver material to Shar-Alan on August 10, 1983, in response to Shar-Alan's request for production of documents.

On August 8, 1983, the district court granted summary judgment in favor of defendants, upholding their claim of an interest in the two wells drilled by Shar-Alan on the ground the farmout agreement was subject to the joint operating agreement. The district court relied on paragraph X(4) of the farmout agreement which provides:

Shar-Alan agrees to observe, perform and comply with all of the conditions and covenants, express or implied, of the oil and gas leases subject to this agreement and of any unitization agreement, joint operating agreement, unit operating agreement or other instrument to which said leases are subject.

After concluding the provision was unambiguous and that Shar-Alan had not disputed defendants' statement of the facts presented in their motion, the district court rejected Shar-Alan's argument that it should not be bound by paragraph X(4) because it was unaware of the inclusion of the provision in the farmout agreement, as well as the existence of the joint operating agreement. The court found that while Shar-Alan lacked actual knowledge of the joint operating agreement to which Lear was a party, it "had sufficient facts and/or sufficient opportunity to ascertain additional facts" to put it on notice of the existence of the agreement. The court also determined that the failure of Shar-Alan personnel involved in negotiations with Lear to read the farmout agreement before signing it did not alter the binding effect of paragraph X(4).

Shar-Alan moved, pursuant to Fed.R.Civ.P. 59(e), to alter, vacate, or amend the district court's order, contending that summary judgment was improper because there were material facts in dispute regarding the parties' intent with respect to paragraph X(4) and regarding the possibility of a mutually mistaken belief that no agreement adversely affecting Shar-Alan's rights existed. Shar-Alan also argued that the court's order granting summary judgment was premature because Shar-Alan was not permitted to conduct previously scheduled discovery.

The district court denied Shar-Alan's motion. It found that the scheduled discovery did not justify setting aside the court's order granting summary judgment because Shar-Alan failed to notify the court that additional discovery was needed pursuant to Fed.R.Civ.P. 56(f). The district court rejected Shar-Alan's contention that questions of fact remained with respect to the parties' intent in executing the farmout agreement. After reiterating its previous findings that paragraph X(4) was unambiguous, that Shar-Alan personnel failed to read the farmout agreement, and that Shar-Alan had constructive notice of the existence of the joint operating agreement, the court concluded that Shar-Alan could not rely on mutual mistake to avoid the terms of the farmout agreement. Shar-Alan appealed.

I.

Shar-Alan contends the district court abused its discretion in refusing to reconsider and vacate its grant of summary judgment in order to permit additional discovery to take place. While Shar-Alan admits it did not notify the court of the necessity for additional discovery in compliance with Rule 56(f), it argues the cooperation of the parties in conducting and scheduling discovery while the motion was pending, along with Shar-Alan's brief in opposition to the motion for summary judgment, sufficiently informed the district court that counsel for all of the parties did not consider the summary judgment motion effectively submitted. Shar-Alan concedes that filing an affidavit pursuant to Fed.R.Civ.P. 56(f) is the preferred method for delaying disposition of a summary judgment motion in order to obtain additional discovery, but it argues that strict compliance with the rule is not always mandated where the court is otherwise apprised of the need for...