PENNMARK RESOURCES v. Oklahoma Corp. Com'n
| Decision Date | 31 March 2000 |
| Docket Number | No. 92,559.,92,559. |
| Citation | 6 P.3d 1076,2000 OK CIV APP 63 |
| Parties | PENNMARK RESOURCES COMPANY, Appellant, v. The OKLAHOMA CORPORATION COMMISSION; Louis Dreyfus Natural Gas Corporation; and Stonewater Holding, Inc. Now LDNG Texas Holdings, Inc., Appellees. |
| Court | United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma |
Tim W. Green, Guthrie, Oklahoma, For Appellant. Charles L. Helm, Helm & Boone, Oklahoma City, Oklahoma for Appellee Louis Dreyfus Natural Gas Corporation.
Chanda R. Graham, Rachel Lawrence Mor, Oklahoma City, Oklahoma, For Appellee Oklahoma Corporation Commission.
Released for Publication by Order of the Court of Civil Appeals of Oklahoma, Division No. 3.
¶ 1 After Louis Dreyfus Natural Gas Corporation (hereinafter, LDNG) refused to turn over operations of a waterflood unit to Pennmark Resources Company (Pennmark), Pennmark asked the Oklahoma Corporation Commission (the Commission) to enforce the provisions of its order creating the Northwest Flats Unit by examining the procedures followed and the results recorded in a 1997 election concerning the unit operator. The validity of that election, and the extent of the Commission's authority concerning it are at the heart of this appeal.
¶ 2 In the late 1970's, the original working interest owners (predecessors in interest to some of the parties in this appeal) entered into a contract for management of production from the Morrow "A" Sand common source of supply underlying lands in Morton County, Kansas and Texas County, Oklahoma. The Commission ultimately incorporated this contract into a unitization order.1 The Unit Operating Agreement (the Unit Agreement) embodied in the Commission's order provided specific procedures for the selection and removal of the unit operator. Those provisions prohibit the current unit operator from voting in elections for the removal and replacement of a unit operator. The unit operator could be removed if 85 percent of the eligible working interest owners vote for replacement.
¶ 3 Stonewater Holding, Inc. (Stonewater) was incorporated on October 24, 1996. In early 1997, LDNG transferred 12 per cent of its ownership in the unit (out of the total of 39.18 per cent LDNG then held) to Stonewater. On December 8, 1997, documents were filed with the Oklahoma Secretary of State memorializing that in November of 1997 Stonewater had merged with LDNG Texas Holdings, Inc. (LTH). LTH is a limited partner with LDNG in a limited partnership. Following the merger, LTH, which is licensed to do business in both Oklahoma and Texas, owned interests in 12 flood water units and some 3,523 wells.
¶ 4 In December, 1997, Pennmark circulated ballots to interest owners for an election to determine if LDNG should be removed as operator and Pennmark should be selected as new operator. After the ballots were returned, Pennmark refused to include the ballot from LTH in the vote count, believing it was merely an alter ego of LDNG and could not be treated as a separate entity for voting purposes. When LDNG refused to surrender operations, Pennmark filed this proceeding. Pennmark's application asked the Commission to determine who was entitled under the Unit Agreement to vote on removal of the operator and selection of a new operator. The answer to that question determined who would be the operator of the unit. If LTH's votes should have been counted, then LDNG withstood the removal vote. If not, Pennmark had sufficient votes to oust LDNG as operator and take over operations.
¶ 5 Before the Commission, Pennmark contended the assignment from LDNG to Stonewater was improper, and LDNG and LTH could not be treated as separate owners. According to Pennmark, the transfer of ownership interests between LDNG and Stonewater was not at arms length, LTH was an alter ego of LDNG, and both entities should both fall under the prohibition against a current unit operator voting in elections for removal and replacement of the unit operator.
¶ 6 In its order denying Pennmark's application, the Commission concluded Pennmark failed to sustain its burden of proof for removal of LDNG as operator. The Commission specifically concluded:
The evidence presented by Pennmark did not establish that the parent/subsidiary corporations were so closely linked and so extricably [sic] entwined as to be effectively one entity. The showing of a common board of directors and unity of corporate purpose was insufficient to pierce the corporate veil. Warner v. Hillcrest Medical Center, 942[sic] P.2d 1060 (Okl.App. 1995). One must remember that the general rule is that a corporation is a distinct legal entity separate and apart from other legal entities or stockholders. Gulf Oil Corp. v. State, 360 P.2d 933 (Okl. 1961). Given the fact that Stonewater has interests in 12 other waterfloods and over 3,500 wells both in Oklahoma and Texas, tends to disprove that Stonewater was created so that its existence was a design or scheme to perpetuate fraud or to avoid the terms of the Unitization Order in this particular Unit. Thus, where the presumption is that the subsidiary is not an instrumentality or adjunct of the parent corporation; Pennmark has not prevailed.
¶ 7 Initially in response to Pennmark's application, LDNG contended the Commission lacked jurisdiction over what it said was a private rights dispute. The Commission rejected this argument, and neither party raised this issue in their briefs. However, because this Court has an obligation to examine its subject matter jurisdiction and the subject matter jurisdiction of the lower tribunal, sua sponte, we directed the parties to address the jurisdictional question.2
¶ 8 LDNG again argues this was a private rights dispute and that jurisdiction was in the district courts, not at the Commission. According to LDNG, allowing the Commission to determine this controversy violates 52 O.S.1991 § 287.4, which specifies that the Commission shall not designate the unit operator. Pennmark argues the issue is not whether the Commission could select the operator but whether the procedures employed complied with the order of the Commission for the unit. The Commission determined that it had authority to construe and clarify its order and that what was before it was a question involving a clarification of the process used when electing an operator, not the designation of the operator. We agree that clarification of an order was the issue presented and the one that the Commission addressed.
¶ 9 The Commission has authority, which is continuous in nature and which flows from entry of the initial order, to clarify its own orders. Nilsen v. Ports of Call Oil Company, 1985 OK 104, 711 P.2d 98; 52 O.S.1991 § 139 and § 287.2. This is precisely the relief requested by Pennmark in its application.3 The operator must be elected as provided for in the Unit Agreement. To accomplish that end, the parties needed to know who was eligible to vote according to the order of the Commission, and that determination required clarification of an order of the Commission, an action within the power and authority of the Commission.
¶ 10 This matter is distinguishable from the problem posed in Atlantic Richfield Company v. Tomlinson, 1993 OK 106, ¶ 28, 859 P.2d 1088, 1096, wherein the Court noted that "the instant case involves a dispute over ownership of certain oil and gas interests, not a dispute over rights and equities of interest owners within a drilling and spacing unit," (emphasis in original), and reiterated that where title is at issue, jurisdiction over controversies lies with the district court. While perhaps inartfully stated at times,4 Pennmark's challenge does not attack LTH's ownership interest, but only whether that interest, given LTH's alleged domination by LDNG, should be allowed to vote on the removal of its parent corporation as unit operator. The Commission had jurisdiction of Pennmark's application.
¶ 11 Our review of Commission orders is generally restricted to determining whether the findings and conclusions are sustained by law and substantial evidence. Samson Resources Company v. Oklahoma Corporation Commission, 1987 OK 73, 742 P.2d 1114 ( Okla. Const. Art. 9, § 20). When performing such a review, the Court does not weigh the evidence on appeal, but only determines whether the supporting evidence possesses substance and relevance. Currey v. Corporation Commission, 1979 OK 89, 617 P.2d 177. This process does not entail comparing the evidence of the parties, but includes determining if the evidence supporting the order furnishes a substantial basis of facts from which the issue could be reasonably resolved. Substantial evidence is something more than a scintilla and means evidence possessing something of substance and of relevant consequence such as carries with it a fitness to induce conviction, even though it may be evidence about which reasonable men may fairly differ on the point of establishing the case. Union Texas Petroleum, A Div. of Allied Chemical Corp. v. Corporation Commission, 1981 OK 86, 651 P.2d 652. The determination of substantial evidentiary support requires measurement of the supportive points to determine whether the criterion of substantiality is present, not the weighing of the evidence. Central Oklahoma Freight Lines v. Corporation Commission, 1971 OK 57, 484 P.2d 877.
¶ 12 The designation of an operator is required to be "by a vote of the lessees in the unit in a manner provided in the plan of unitization and not by the Commission." 52 O.S.Supp.1995 § 287.4(a). This text has existed in the law of Oklahoma since enactment effective May 26, 1951. Pennmark argues that LTH is an alter ego or instrumentality of LDNG and that the two should be treated as one entity for voting purposes.
¶ 13 Pennmark cites several cases for the proposition that separate corporate existence may be disregarded where that separate existence is used in a...
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