Reynolds v. Amerada Hess Corp.

• Citation: 778 So.2d 759
• Decision Date: 28 September 2000
• Docket Number: No. 1999-CA-00585-SCT.,1999-CA-00585-SCT.
• Parties: Nollie F. REYNOLDS and Larry Reynolds v. AMERADA HESS CORPORATION and Denbury Management, Inc.
• Court: Mississippi Supreme Court

778 So.2d 759

Nollie F. REYNOLDS and Larry Reynolds v. AMERADA HESS CORPORATION and Denbury Management, Inc.

No. 1999-CA-00585-SCT.

Supreme Court of Mississippi.

September 28, 2000.

Rehearing Denied March 15, 2001.

Jay Boling, Marvin O. Oates, Jr., Bay Springs, Robert A. Pritchard, Pascagoula, Stanford Young, Attorneys for Appellants.

James L. Halford, Victoria W. Thomas, William F. Blair, Jackson, Jefferson D. Stewart, Attorneys for Appellees.

BEFORE PRATHER, C.J., MILLS AND COBB, JJ.

MILLS, Justice, for the Court:

¶ 1. This case arises from a controversy involving a surface lease agreement entered into between Buel O. Reynolds and Trans-State Oil Company, now Amerada Hess Corporation (Hess). Chancellor Frank C. McKenzie, Jr. granted the summary judgment motions of Hess and its successor, Denbury Management, Inc., and entered a final judgment and permanent injunction enjoining Nollie F. and Larry Reynolds, Buel's successors in title, from interfering with the operation of the equipment and facilities at issue and dismissing the Reynoldses' counterclaims. We affirm.

FACTS AND PROCEEDINGS BELOW

¶ 2. The facts in this case are undisputed. In 1940 the mineral owner of a large tract of land known as the Eucutta Field in Wayne County executed an oil and gas lease with Humble Oil Company, later known as Exxon. The lease granted Humble the following:

the right of operating for and producing therefrom oil, gas and/or other minerals, casinghead gas and casinghead gasoline, with right of way and easements for pipelines, telegraph and telephone lines, tanks, power houses, stations, gasoline plants and fixtures for producing, treating and caring for such products and any and all rights and privileges necessary, incident to or convenient for the economical operations of said land for oil, gas and/or other minerals, casinghead gas and casinghead gasoline.

This lease has been maintained by production of oil and gas to the present date.

¶ 3. On April 6, 1965, Buel Reynolds acquired title to the surface of approximately 300 acres in the heart of the Eucutta Field. This case concerns a 2.676 acre tract of this land. Reynolds acquired only the surface estate in the tract subject to the interest and rights of the mineral owners and the 1940 lease from the mineral owners to Humble.

¶ 4. In April, 1966, the Mississippi State Oil and Gas Board approved the East Eucutta Fieldwide Unit, naming Trans-State Oil Company (subsequently named Amerada Hess Corporation) the operator of the unit, under a Unitization Agreement and Unit Operating Agreement, to conduct secondary and pressure maintenance operations in the Eutaw Pool of the Eucutta Field. All mineral owners of the 2.676 acre tract ratified both the Unitization Agreement and Unit Operating Agreement (together the Fieldwide Unit Agreements). Additionally, Humble ratified the Fieldwide Unit Agreements, thus agreeing to the designation of Trans-State as operator of the Fieldwide Unit. The trial court found that as operator under the agreements Trans-State had authority from Humble to use the surface in the lands leased by Humble for the economical development, operation, and production of the fieldwide unit under the same rights and powers described above which Humble had received under the 1940 lease.

¶ 5. The 1940 lease appears to have authorized extensive use of the land in conducting oil and gas operations. It is unclear whether the minerals had been severed from the surface prior to execution of the oil, gas, and mineral lease. Nevertheless, Trans-State entered into a lease agreement with Buel and Nollie Reynolds on October 1, 1968, for the use of the surface of the 2.676 acre tract at issue in this case. This surface lease stated a ten-year term and authorized Trans-State to construct buildings; install tanks, pumps, engines, pipelines, pits, fuel lines, and gas lines; to dig water wells; produce water; and store equipment. The lease also granted any other rights incidental to these rights. Trans-State constructed surface facilities on the 2.676 acre tract and designated those facilities as Plant No. 6. These facilities consist primarily of tanks, pumps, motors, electrical panels and lines, and pipeline headers and connections which, according to the findings of the trial court, may all be removed without damage to the real property. Plant No. 6 is one of several locations in the Eucutta Field used to gather saltwater piped from wells producing out of the Eutaw Oil Pool in the Fieldwide Unit and then pump that water through pipelines to water injection wells located on other lands in the field.

¶ 6. The surface lease provided a renewal option for an additional ten-year term and a ninety-day period, following termination, for the lessee to remove its equipment and materials from the site. In 1978 Trans-State, by this time known as Amerada Hess Corporation, exercised the renewal option. The surface lease expired by its terms on October 1, 1988. On or about that date, Buel Reynolds, claiming that Amerada Hess had no further right to use the surface of his property, shut down the facilities at Plant No. 6.

¶ 7. On October 4, 1988, Hess filed a complaint in the Chancery Court of Wayne County against Buel O. Reynolds, and his wife, Nollie F. Reynolds, seeking an injunction to prohibit the Reynoldses' interference with Hess's operations of the equipment and facilities referred to as Plant No. 6 on the 2.676 acre tract of the Reynoldses' surface lands. An agreed order granting a preliminary injunction was approved by the court on November 8, 1988, and, subject to Hess's posting of a $10,000 bond, restrained the Reynoldses from interfering with the operation of Plant No. 6. This agreed order reserved all rights and defenses of the parties.

¶ 8. The case lay dormant until February 28, 1996, when the Reynoldses filed a counter-complaint alleging breach of contract and conversion and seeking an award of actual and punitive damages. On August 15, 1996, Hess posted the $10,000 bond ordered in the 1988 agreed order. Upon the death of Buel Reynolds in 1998, the suit was revived in the name of his estate and surviving heirs, Nollie F. and Larry Reynolds. Subsequent proceedings led to the summary judgment in favor of Denbury and Hess whereby the trial court entered final judgment and a permanent injunction enjoining the Reynoldses from interfering with Plant No. 6 and dismissing their counterclaims. The Reynoldses timely perfected this appeal.

STANDARD OF REVIEW

¶ 9. This Court conducts de novo review of a trial court's grant of summary judgment. Merrimack Mut. Fire Ins. Co. v. McDill, 674 So.2d 4, 7 (Miss.1996); Short v. Columbus Rubber & Gasket Co., Inc., 535 So.2d 61, 63 (Miss.1988). Thus, the standard that the trial court initially employed under Rule 56(c) is applied here. 10 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice & Procedure § 2716 (1983 & Supp.1988). The Court must review all evidentiary matters before it in the record: affidavits, depositions, admissions, interrogatories, etc. The evidence must be viewed in the light most favorable to the nonmoving party, and that party is to be given the benefit of every reasonable doubt. Smith v. Sanders, 485 So.2d 1051, 1054 (Miss.1986); Dennis v. Searle, 457 So.2d 941, 944 (Miss. 1984). The burden of demonstrating that no genuine issue of fact exists is on the moving party. Short, 535 So.2d at 63-64. However, this burden is one of production and persuasion, not of proof. Fruchter v. Lynch Oil Co., 522 So.2d 195, 198 (Miss. 1988). A motion for summary judgment lies only when there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. Miss. R. Civ. P. 56(c). This Court does not try issues on a Rule 56 motion, it only determines whether there are issues to be tried. Comment, Miss. R. Civ. P. 56.

ANALYSIS

I. WHETHER THE LOWER COURT WAS CORRECT IN GRANTING SUMMARY JUDGMENT TO APPELLEES, RULING

THAT THE CONTRACT PREPARED BY THE APPELLEES' PREDECESSOR IN TITLE, IN EXISTENCE BETWEEN THE PARTIES AND RECOGNIZED BY THEM AS VALID FOR TWENTY YEARS NOTWITHSTANDING, WAS BARRED AS A MATTER OF LAW.

¶ 10. The Reynoldses assert that Trans-State, with the apparent authority of Humble, contracted in the surface lease of 1968 to alter the mineral lessee's surface rights created by the 1940 mineral lease. While they acknowledge that an implicit right to use the surface as reasonably necessary exists in mineral lease contracts, the Reynoldses argue that such a right can be bargained away. They contend that precisely such a bargaining occurred in the case at bar. Hess and Denbury, on the other hand, point to the undisputed fact that the Reynoldses purchased the surface rights subject to the previously severed rights of the mineral owner and mineral lessee to make reasonable use of the surface in mineral exploration and production. Hess argues that its predecessor, Trans-State, under the Fieldwide Unit Agreements, was denied the authority to modify the rights of Humble and that, as a result, the 1968 surface lease cannot supersede the 1940 mineral lease.

¶ 11. Long-established law in Mississippi provides that the severed mineral owner or lessee has the right to use the surface of the lands for all reasonable purposes to explore and drill for oil and gas and may use as much of the surface as is reasonably necessary to exercise its rights, but it cannot intentionally or negligently damage or use more of the land surface than is reasonably necessary in its mining operation. Charles F. Hayes & Assocs., Inc. v. Blue, 233 So.2d 127, 128 (Miss.1970) (collecting authorities). It is undisputed in this case that these rights were granted to Humble in the 1940 lease and that Trans-State (Hess) was later given the same rights while serving as operator of the Eucutta Fieldwide Unit.

¶ 12. The Reynoldses' assertion that the surface lease supersedes the existing mineral lease has...