Producers Oil Co. v. Gore

• Decision Date: 30 September 1977
• Docket Number: No. 77-35-C.,77-35-C.
• Parties: PRODUCERS OIL COMPANY, an Oklahoma Corporation, Plaintiff, v. Theodore GORE and Shirley K. Bernstein, Defendants.
• Court: U.S. District Court — Eastern District of Oklahoma

437 F. Supp. 737

PRODUCERS OIL COMPANY, an Oklahoma Corporation, Plaintiff, v. Theodore GORE and Shirley K. Bernstein, Defendants.

No. 77-35-C.

United States District Court, E. D. Oklahoma.

September 30, 1977.

Gail R. Runnels, Frederic Dorwart, J. Michael Medina, Holliman, Langholz, Runnels & Dorwart, Tulsa, Okl., for plaintiff.

John S. Athens, J. Denny Moffett, Conner, Winters, Ballaine, Barry & McGowen, Tulsa, Okl., for defendants.

ORDER DISMISSING ACTION

MORRIS, Chief Judge.

This action is before the court on defendants' motion to dismiss the complaint for failure to state a claim upon which relief can be granted. Rule 12(b)(6) Federal Rules of Civil Procedure. In connection with the motion the parties have filed several briefs setting forth their respective positions.

Plaintiff, as a successor in interest to the operator under four operating agreements dated October 1, 1956, seeks specific performance of a preemptive option clause contained in those agreements. Three of the agreements are attached to the complaint as Exhibits A, B and C. The fourth agreement, allegedly identical to the other three, is said to be missing. The clause plaintiff seeks to enforce provides as follows:

15. Should any Non-Operator desire to sell the interest, or any part thereof, owned by such Non-Operator in the oil and gas lease, or leases, hereinabove described, such Non-Operator shall promptly give written notice to Operator with full information concerning such proposed sale, including the name and address of the prospective purchaser (who must be ready, willing and able to purchase), the purchase price and all other terms of the offer. Operator shall then have an optional prior right for a period of ten days after receipt of the notice to purchase on the same terms and conditions, the interest which such Non-Operator proposes to sell. However, there shall be no preferential right to purchase in those cases where any Non-Operator wishes to mortgage its interest or to dispose of its interest by merger, reorganization, consolidation, sale of all of its assets, or sale or transfer of its interest to any company in which such party owns a majority of the stock, or to a trust or trusts created by such party. Nothing herein contained shall be construed as relieving the party offering such assignment or transfer of any obligations or liability which may have attached or accrued prior to the effective date of such assignment or which may be accruing on the effective date of any such transfer or assignment.

Defendants contend that the complaint fails to state a claim because (1) the agreements are unenforceable as violative of the rule against perpetuities; (2) the agreements are terminable at will; (3) the agreements are nonassignable since they created nondelegable personal duties on the part of the operator; and (4) plaintiff has failed to allege facts showing that it succeeded to the rights of the operator named in the agreements.

Since the agreements are attached to the complaint and incorporated by reference therein they are a part thereof for all purposes, Rule 10(c) Federal Rules of Civil Procedure, and can be considered on a motion to dismiss for failure to state a claim. O'Brien v. Di Grazia, 544 F.2d 543, 545 n. 1 (1st Cir. 1976), cert. denied, 431 U.S. 914, 97 S.Ct. 2173, 53 L.Ed.2d 223 (1977); Schnell v. City of Chicago, 407 F.2d 1084, 1085 (7th Cir. 1969); Mengel Co. v. Nashville Paper Products & Specialty Workers Union, No. 513, 221 F.2d 644, 647 (6th Cir. 1955); Ford v. Jones, 372 F.Supp. 1187, 1188 (E.D.Ky.1974); Framlau Corp. v. Dembling, 360 F.Supp. 806, 809 n. 1 (E.D.Pa.1973); cf. Olpin v. Ideal National Insurance Co., 419 F.2d 1250, 1255 (10th Cir. 1969), cert. denied, 397 U.S. 1074, 90 S.Ct. 1522, 25 L.Ed.2d 809 (1970). Since these exhibits do not constitute extraneous material under Rule 12(b) the court will consider them for purposes of ruling on the motion to dismiss, and conversion of the motion to dismiss into one for summary judgment under Rule 56 is therefore not mandated under Rule 12(b). See Torres v. First State Bank, 550 F.2d 1255, 1257 (10th Cir. 1977); Adams v. Campbell County School District, 483 F.2d 1351, 1353 (10th Cir. 1973); 5 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 1366, at 679-80 & ns. 66, 67 (1969).

Defendants' contention that the complaint fails to state a claim because it does not allege facts in support of plaintiff's allegation that it is the successor in interest to Producers Pipe & Supply Company is without merit. Under Rule 8(a) Federal Rules of Civil Procedure evidentiary facts need not be alleged in the complaint. Dry Creek Lodge, Inc. v. United States, 515 F.2d 926, 931 (10th Cir. 1975); Templeton v. Atchison, T. & S. F. Ry., 7 F.R.D. 116, 117 (W.D.Mo.1946). Since with respect to the successor in interest allegation the court cannot say that "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief," Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957); Henderson v. Secretary of Corrections, 518 F.2d 694, 695 (10th Cir. 1975), defendants' motion must be denied insofar as it is based on that ground.

Defendants' contention that the agreements imposed personal nondelegable duties upon the operator and are therefore not assignable is equally without merit. An examination of the agreements, see 15 O.S. §§ 152-55 (1971), reveals that it was the contracting parties' intention that the contracts be assignable. Paragraphs 15 and 16 grant a right of first refusal or a preemptive option in case of sale of any interest in the oil and gas leases on the part of the operator and nonoperator. Paragraph 17 makes the agreement binding "upon the parties hereto, their respective heirs, personal representatives, successors and assigns." As a general rule, the use in a contract of the latter terms "`indicates that it was the intention of the parties that the contract should be assignable.'" Earth Products Co. v. Oklahoma City, 441 P.2d 399, 405 (Okl.1968). Here, as in Earth Products, the duties to be performed "do not involve that degree of trust and confidence which is singularly personal to Producers Pipe & Supply Company, as might be the selection of an artist or author whose skills and talents are unique." Id. at 404. The motion is denied insofar as it is based on this ground.

Defendants next contend that the agreements are terminable at will since they contain no provision regarding duration or termination. Ordinarily, operating agreements contain a provision concerning the duration of the agreement, which may provide for a term of years or, customarily, for a fee simple determinable. 6 H. Williams & C. Meyers, Oil and Gas Law § 921.16 (1975).

If no period of duration is specified in a contract, and none can be inferred from its nature and subject matter, the law infers that the parties intended such agreement to be terminable at the pleasure of either party upon reasonable notice. If, however, a period of duration can be fairly implied from the nature of the contract, its subject matter, and the relationship of the parties, the contract is not terminable at the pleasure of either party and the court will give effect to the manifest intent of the parties.

Miller v. Miller, 134 F.2d 583, 588 (10th Cir.), cert. denied, 320 U.S. 744, 64 S.Ct. 46, 88 L.Ed. 441 (1943). It certainly cannot be said that the identity of the subject matter of the agreements was left for future determination. Although not explicitly stated, it is clearly inferred that the duration or term of the operating agreements was for the life of the oil and gas leases which were the subject of the agreements. Arkansas Valley Town & Land Co. v. Atchison, T. & S. F. Ry., 49 Okl. 282, 299, 151 P. 1028, 1033 (1915) is therefore not controlling here. It follows that the motion must be denied insofar as it is based on the ground that the agreements were terminable at will.

Defendants' final contention is that the right of first refusal or preemptive option clause violates the rule against perpetuities and is therefore void and unenforceable. Familiar to all law students, and especially to those in the Future Interests classroom, is the classic statement of the rule by John Chipman Gray: "No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest." 191 Gray, The Rule Against Perpetuities (4th ed. 1942). The Supreme Court of Oklahoma applied the rule in Melcher v. Camp, 435 P.2d 107 (Okl.1967). In that case the lessors executed an oil and gas lease to lessee covering the minerals down to a depth of 5500 feet. They also entered into a separate recorded agreement relating to the lease and to the minerals below the 5500 foot level. It provided in part as follows:

The parties further mutually agree that in the event first parties shall at any time have an opportunity to lease the oil, gas and other minerals and mineral rights below 5500 feet, second party is to be given a five day option of acquiring such lease himself on the same terms and conditions offered to first parties.

435 P.2d at 109. The Supreme Court of Oklahoma found that the provision violated the rule against perpetuities and was therefore void. The court reasoned:

We hold that a contract for an ordinary oil and gas lease to vest in futuro creates such an interest in real property as is sufficient to invoke the rule against perpetuities as a rule of property.

Our independent research causes us to pause here to consider the option feature of the questioned provision. We have held that an option to purchase real property conveys no interest in the real property. Anthis v. Sandlin, 149 Okl. 126, 299 P. 458; and Bowen v. Vance, 203 Okl. 136, 218 P.2d 628. As our analysis has already caused us to observe, the option contained in the questioned provision is really more

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