Q.E.R., Inc. v. Hickerson

• Decision Date: 25 July 1989
• Docket Number: No. 87-1970,87-1970
• Citation: 880 F.2d 1178
• Parties: Q.E.R., INC., a Delaware corporation, Plaintiff-Appellant, v. Alva J. HICKERSON, Defendant-Appellee.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1178

880 F.2d 1178

Q.E.R., INC., a Delaware corporation, Plaintiff-Appellant, v. Alva J. HICKERSON, Defendant-Appellee.

No. 87-1970.

United States Court of Appeals Tenth Circuit.

July 25, 1989.

Steve A. Miller and David E. Graven (with him on the brief), Denver, Colo., for plaintiff-appellant.

Charles F. Brega and Penny Rodeen Bertelsen (with him on the brief), Roath & Brega, Denver, Colo., for defendant-appellee.

Before SEYMOUR, BARRETT, and BALDOCK, Circuit Judges.

PER CURIAM.

Plaintiff Q.E.R., Inc. appeals the district court's entry of a directed verdict in favor of defendant Al Hickerson, director of Hickerson Energy Company (HEC). Q.E.R. brought this action alleging that Mr. Hickerson aided and abetted HEC's breach of its fiduciary duty to Q.E.R., and that he intentionally interfered with Q.E.R.'s contractual relations with HEC. Q.E.R. contends that there is sufficient evidence to defeat a motion for directed verdict. We reverse.

I

A motion for directed verdict is reviewed under the same standard as that applied in the district court. Wild ex rel. Guilfoyle v. Missouri, Kan., and Tex. R. Co., 812 F.2d 1290, 1292 (10th Cir.1987). The court may grant a directed verdict only if the evidence points but one way and is susceptible to no reasonable inferences which may support the opposing party's position. Anderson v. Phillips Petroleum Co., 861 F.2d 631, 634 (10th Cir.1988) (citation omitted). The evidence and inferences must be construed in a light most favorable to the nonmoving party. Hurd v. American Hoist & Derrick Co., 734 F.2d 495, 498 (10th Cir.1984). A review of the evidence in this light reflects the following facts.

In the fall of 1981, HEC entered into an Operating Agreement with Simasko Production, Inc., as operator, to develop and drill nine exploratory oil and gas wells on certain properties in Oklahoma (the nine well program). Under the agreement, HEC received a fifty percent interest in the production of the nine well program and was obligated to pay fifty percent of certain costs of operations, including approximately $944,000 for the drilling costs and approximately $244,000 for oil and gas leases covering the relevent tracts of land. HEC agreed to pay the drilling costs for the project by December, 1981. Mr. Hickerson personally paid the $244,000 for the oil and gas leasehold interests in the nine well program and Simasko Production assigned the leases to HEC.

In November, 1981, HEC entered into the 1981 Hickerson-Quartet Partnership agreement with Q.E.R., a wholly-owned subsidiary of Quartet Energy Resources, Ltd., a Canadian corporation. The partnership was to engage in the exploration, drilling, and development of oil and gas prospects. Under the terms of the agreement, each party assumed certain responsibilities for specific costs of initiating and operating oil and gas projects and in return would receive a specified percentage of the production or profits from any project the partnership undertook.

Mr. Hickerson negotiated with Q.E.R. to include the nine well program as a prospect for partnership activity. Under the partnership agreement, HEC was required to raise 1.5 million dollars by December 30, 1981, to cover the drilling costs in the nine well program. HEC agreed to do so by obtaining investors to purchase limited partnership interests. In turn, Q.E.R. was required to pay the cost of the oil and gas leases and in fact did pay Mr. Hickerson approximately $251,000, the amount Hickerson paid for the nine well leases plus interest. HEC thereafter assigned the oil and gas leases to the partnership but never recorded the assignment, contrary to its stated intentions. Simasko Production had no knowledge of and did not consent to this assignment.

By late December, HEC had not been able to raise the drilling funds through offerings of limited partnership interests in the Hickerson-Quartet partnership. ¹ Mr. Hickerson separately negotiated within both Simasko Production and Q.E.R. to obtain an extension of time to raise the drilling funds. Simasko Production agreed to give HEC until March 31, 1982, to pay for the drilling costs after Mr. Hickerson personally paid Simasko Production $37,000 for its cost in setting up the drilling rig. In addition, Q.E.R. agreed to amend the partnership agreement to extend the deadline by which HEC was contractually obligated to raise the drilling funds to March 31, 1982. Q.E.R. also secured from HEC a separate "letter agreement" under which HEC agreed to refund the $251,000 plus interest paid by Q.E.R. for the oil and gas leases if the limited partnership money was not raised by the new deadline. Thereafter, HEC failed to meet the March deadline and again requested that the deadline be extended under the partnership agreement. Q.E.R. agreed to the extension but also demanded certain concessions from HEC, including that Q.E.R. be excused for one year from any financial obligations for future oil and gas prospects under the partnership agreement.

On April 5, 1982, Simasko Production sent HEC a letter threatening to sue HEC for failure to pay the $950,000 drilling costs and indicated that it would name Mr. Hickerson and Mr. Martin, president of HEC, personally for misrepresentation of HEC's ability to raise the drilling funds. As an alternative to litigation, Simasko Production suggested HEC place its oil and gas leases into escrow and Simasko Production would thereafter help HEC find substitute buyers to purchase the leases and to assume the other obligations under the operating agreement. Under this arrangement, HEC would remain liable for the drilling costs until the individual leases were sold, but HEC would also receive full payment for the leases. HEC rejected this escrow agreement and instead, chose to assign all of the oil and gas leases back to Simasko Production without compensation, thereby forfeiting the $244,000 payment for the leases as liquidated damages. In return for the assignment, Simasko Production issued releases to HEC, Mr. Hickerson, and Mr. Martin for any liability under the operating agreement. Through this action, HEC disposed of all the partnership property without compensation and obtained releases only for HEC, the general partner, and its officers. Q.E.R. was never notified of HEC's transaction with Simasko Production, as required by the partnership agreement, until after the leases were surrendered.

Q.E.R. brought an action against Mr. Hickerson, as director of HEC, claiming he was personally liable for aiding and abetting in HEC's breach of its fiduciary duty owed as general partner to Q.E.R., ² and for intentionally interfering with HEC's partnership contract with Q.E.R. Q.E.R. contends the district court improperly granted a directed verdict on these two claims.

II

The district court granted a directed verdict for three reasons. First, on the morning of trial, defendant raised for the first time the issue of whether Q.E.R., as a dissolved corporation, was the real party in interest. Q.E.R. had been dissolved by its parent corporation, Quartet Energy Resources, almost two months before the filing of the complaint. Defendant was aware that Q.E.R. had been dissolved long before the trial date, yet never raised the issue in the pretrial order or otherwise. The trial court held that Q.E.R. had the obligation to amend the complaint to name the proper party in interest, and because it failed to do so, a directed verdict was proper for this reason alone. We disagree.

Q.E.R. was incorporated under Delaware law. Delaware law provides that a corporation is a recognized entity for the purpose of maintaining legal actions if the action is brought within three years of its dissolution. Del.Code Ann. tit. 8, Sec. 278 (1983). This action was filed within a few months of Q.E.R.'s dissolution. A dissolved corporation may maintain a federal suit when it has been given the requisite power by state law. National Indep. Theatre Exhibitors, Inc. v. Buena Vista Distrib. Co., 748 F.2d 602, 610 (11th Cir.1984). On this basis alone, the directed verdict was incorrect. In addition, the district court abused its discretion in permitting defendant to raise this issue on the first day of trial where he was repeatedly made aware throughout discovery that Q.E.R. had been dissolved. Defendant had more than a sufficient opportunity to contest Q.E.R.'s status as the real party in interest, and in fact admitted in the pretrial order that jurisdiction was proper. See Trujillo v. Uniroyal Corp., 608 F.2d 815, 817 (10th Cir.1979) (pretrial order should reflect all of a party's contentions and should be "adhered to in the absence of some good and sufficient reason"). Q.E.R. should not be penalized for failing to adequately respond to this issue initially raised on the first day of trial. At the very least, it should have been granted a continuance to address the issue. 33 Federal Procedure, L.Ed. Sec. 77:38 (Law. Co-op.1985); cf. Conway v. Chemical Leaman Tank Lines, Inc., 687 F.2d 108, 112 (5th Cir.1982) (noting that a continuance is preferable to a new trial).

As a second basis for directing a verdict, the district court found that there was not a breach of a fiduciary duty because "in [its] view Q.E.R. itself had an exposure to liability in the event that the leases hadn't been surrendered." The record contains very little evidence which indicates that Q.E.R. was liable under the operating agreement. The operating agreement itself does not directly impose liability on an assignee of the leases. ³ On its face, the operating agreement binds only HEC. In addition, Simasko Production threatened to sue only HEC and Mr. Martin and Mr. Hickerson personally, and never looked to Q.E.R. or the partnership for payment of the drilling costs.

Based on this evidence, a jury could reasonably find Q.E.R. was not obligated under the operating agreement for the drilling costs, and that these costs were solely HEC's responsibility. Contrary to the...