Reserve Oil, Inc. v. Dixon, 81-1375
| Decision Date | 22 September 1983 |
| Docket Number | 81-1376.,No. 81-1375,81-1375 |
| Citation | 711 F.2d 951 |
| Parties | RESERVE OIL, INC., an Oklahoma corporation, Plaintiff-Appellant, v. Frank A. DIXON and Bennett P. Blake, Defendants-Appellees. and PETROLEUM INVESTMENTS, LTD. 1976, Petroleum Investments, Ltd. 1976B and Petroleum Investments, Ltd. 1976S, Plaintiffs-Appellants, v. Bennett P. BLAKE and Frank A. Dixon, Jr., Defendants-Appellees. |
| Court | U.S. Court of Appeals — Tenth Circuit |
B.J. Rothbaum, Jr., Oklahoma City, Okl. (Drew Neville and James D. Thomas, Oklahoma City, Okl., on brief), of Linn, Helms, Kirk & Burkett, Oklahoma City, Okl., for plaintiffs-appellants.
William D. Watts, Oklahoma City, Okl. (Richard L. Bohanon, Oklahoma City, Okl., with him on brief), of Andrews, Davis, Legg, Bixler, Milsten & Murrah, Oklahoma City, Okl., for defendant-appellee Frank A. Dixon, Jr.
Before McWILLIAMS, BREITENSTEIN and McKAY, Circuit Judges.
As Amended on Denial of Rehearing and Rehearing En Banc September 22, 1983.
This appeal involves disputes over the operation of two Oklahoma oil and gas wells and arises from two cases consolidated at the trial level.
The plaintiff in the first case, Reserve Oil, Inc., an Oklahoma corporation, owns a working interest in an oil and gas well known as Beisel No. 1. Defendant Pengo Petroleum, Inc., a Nevada corporation with principal offices in Texas, was the operator of the well during the relevant period. Defendants Frank Dixon and Bennett Blake are officers of Pengo. Reserve alleges that Pengo, through Dixon and Blake, sold the well's production in which Reserve had an interest and failed to turn over to Reserve its share of the proceeds of the sale. Instead, Pengo used the money to pay operating expenses and the ownership shares of the other owners of interests in the well, including Blake, Dixon, other directors of Pengo, and their friends and relatives.
Reserve sued Pengo on theories of conversion, breach of contract, and breach of fiduciary duty. Pengo has since gone into bankruptcy, and all actions against it have been stayed. Reserve also sued Dixon and Blake personally for conversion and breach of fiduciary duty.
In the second case, three Oklahoma limited partnerships — Petroleum Investments, Ltd. 1976, Petroleum Investments, Ltd. 1976B, and Petroleum Investments, Ltd. 1976S — sued Pengo. The partnerships, which owned working interests in another oil and gas well operated by Pengo, alleged various acts of misconduct by Dixon and Blake in their capacity as officers of Pengo, apparently as a basis for piercing the corporate veil in order to hold Blake and Dixon personally liable for their acts.
After consolidation, the trial court dismissed the action, holding that the operating agreements did not create fiduciary relationships between the parties and that no conversion had occurred. In reaching the latter holding, the court defined conversion as taking property without the owner's consent and stated that money can be converted if the fund from which the money is taken is a specific chattel or if there is an obligation to return specific money, but not when indebtedness can be discharged by the payment of money generally. The court construed the parties' agreements as not creating an agency relationship or any obligation to return specific money. Instead, the court stated, the indebtedness could be discharged by payment of money generally, and Pengo had no duty to separate the plaintiffs' shares of the proceeds of the sale of the oil and gas from Pengo's share.1
The contract vests ownership of the oil and gas produced from the wells in the parties in the same percentage that they own interests in the well. Plaintiff's Exh. 1, § 4.2 The contract also grants the owners the right to dispose of their oil and gas as they see fit — that is, by taking it in kind or selling it themselves. Id. § 13. "In the event any party shall fail to make the arrangements necessary to ... dispose of its proportionate share of the oil and gas produced from the well, Operator shall have the right ..., but not the obligation, to purchase such oil and gas or sell it...." Id. The contract also provides for the sharing of the costs and expenses of operating the well. It authorizes the operator to bill the other parties in advance for their proportionate shares of the estimated costs to be incurred during the succeeding month and requires each party to pay its estimated share of costs within fifteen days from receipt of the estimate. Id. § 8. If any party fails to pay, the operator is granted a preferred lien in, inter alia, the delinquent party's oil and gas or the proceeds from its sale. The operator is also authorized to collect the delinquent party's...
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