Richardson v. Phillips Petroleum Co., 85-1033

• Decision Date: 25 August 1986
• Docket Number: No. 85-1033,85-1033
• Citation: 791 F.2d 641
• Parties: Sam RICHARDSON, Jr., J.S. Beebe, J.S. Beebe, Jr., Joe R. May, Berg, Laney and Brown, Appellants, and Jack Washington. v. PHILLIPS PETROLEUM COMPANY, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 641

791 F.2d 641

Sam RICHARDSON, Jr., J.S. Beebe, J.S. Beebe, Jr., Joe R.

May, Berg, Laney and Brown, Appellants, and Jack Washington. v. PHILLIPS PETROLEUM COMPANY, Appellee.

No. 85-1033.

United States Court of Appeals,

Eighth Circuit.

Submitted Oct. 18, 1985.

Decided May 23, 1986.

Rehearing and Rehearing En Banc Denied Aug. 25, 1986.

Robert C. Compton, El Dorado, Ark., for appellants.

Robert K. Walsh, Little Rock, Ark., for appellee.

Before LAY, Chief Judge, ARNOLD and FAGG, Circuit Judges.

LAY, Chief Judge.

Six independent oil and gas contractors appeal from the district court's order dismissing with prejudice their amended complaint. The district court found that the facts and issues as determined in prior proceedings before the Arkansas Oil and Gas Commission barred litigation of the facts and issues raised in the complaint. We reverse, and remand to the district court for a plenary trial.

Background

Sam Richardson and five other individuals ("the Richardson group") hold oil leases and operate wells on a tract of land in Union County, Arkansas which is adjacent to a tract on which Phillips Petroleum Company ("Phillips") holds oil leases and operates wells. In 1970, Phillips was authorized by the Arkansas Oil and Gas Commission ("the Commission") to establish and operate the Smackover Nacatoch Sand 985 Acre Unit ("the Smackover Unit") with the express purpose of implementing an experimental secondary recovery steam, air, and water injection process. The Commission's 1970 unit authorization was conditioned on Phillips' operations being conducted in such a manner as not to endanger the production of nearby operations. However, contending that Phillips' Smackover Unit injections migrated from that unit and damaged the productivity of the Richardson group's adjacent wells, the Richardson group twice instituted adjudicatory proceedings before the Commission challenging Phillips' operation and seeking injunctive relief. In 1976, some members of the Richardson group joined in an application for an order from the Commission requiring that Phillips discontinue its air injections on the Smackover Unit. After a full administrative hearing, their request that Phillips' 1970 authorization be revoked was denied without prejudice to the filing of a new application upon the production of new evidence. The Commission concluded, in pertinent part:

1. That the applicants have failed to prove that they have experienced increasing and irreparable damage to their offset wells producing from the Nacatoch Sand as a result of the operations of Phillips Petroleum Company in operating its 985 acre Smackover Nacatoch Sand Unit and * * *

2. That the applicants have failed to prove that unit operations of the Smackover Nacatoch Sand 985 acre unit is [sic] in violation of any of the Orders of the Arkansas Oil and Gas Commission and to the contrary, Phillips Petroleum Company has proven that its operation of its Smackover Nacatoch Sand 985 acre unit is not in violation of any of its Orders.

The Commission's 1976 order was not appealed. In 1979, the entire Richardson group now before this court filed another application with the Commission, which was treated by the Commission as a request to amend the 1970 order to set forth additional protections for nearby operators and to suspend, if necessary, its authorization of Phillips' Smackover Unit operation until the unit's operations conformed to that amended order. After a full hearing, the Commission found in pertinent part:

7. That the total evidence presented at said hearing is insufficient to establish that the production of such off-set or nearby operators has been endangered or otherwise damaged as the consequence of the conduct of the operations in carrying out the development of the unitization.

8. That the application as filed and which is the subject matter hereof should be denied; provided, however, that the staff of the Commission should be directed to investigate and determine a testing procedure * * * for purposes of monitoring the movement of fluid and/or gas materials within the Nacatoch Formation.

The Richardson group sought review of the Commission's 1979 denial of its application in Arkansas state district court. In December 1982, the state court issued an order affirming the Commission's findings. In that order, the state court stated that "[the Richardson group's] rights to proceed against [Phillips] for any perceived damages to their property rights are not affected by the action of the Commission." Neither party appealed the state court's order.

In January 1981 the Richardson group filed a civil tort action for trespass, nuisance, and negligence in Arkansas state court, seeking compensatory and punitive damages from Phillips for alleged damage to their property's productivity due to Phillips' secondary recovery operation. On Phillips' motion, the suit was removed to federal district court. Phillips then moved the district court for dismissal of the action on collateral estoppel grounds, arguing that the Commission's prior administrative findings barred litigation of the facts and issues raised in the Richardson group's tort action. The district court ¹ denied Phillips' motion to dismiss, finding that the Richardson group's tort action sought money damages, which the Commission is not authorized to grant. The district court's denial was also based on its finding that the issue before the Commission was whether its prior order authorizing Phillips' secondary recovery operation should be modified or revoked, a question different from the breach of duty issues pleaded in the Richardson group's tort complaint.

Phillips next moved for summary judgment, partial summary judgment, and a declaration that the findings made by the Commission in its prior proceedings are established and binding between the parties in the tort action by virtue of collateral estoppel. In December 1984, the district court, with a different judge presiding, ² denied Phillips' motion for summary judgment, reaffirming the prior district court finding that the Richardson group was not barred from bringing its action for money damages on res judicata grounds. However, finding "that the Commission acted in a judicial, or quasi-judicial, capacity when it conducted the prior hearings and rendered its findings of fact and conclusions of law", the district court did grant partial summary judgment on behalf of Phillips. The district court stated that even if the Commission's 1979 order did not in itself preclude litigation of the facts and issues raised in the complaint, the state court's December 1982 order affirming the Commission's 1979 order would have collateral estoppel effect. The district court concluded:

Even though the prior adjudications before the Oil and Gas Commission did not involve a claim for damages, at least the findings of fact and issues necessarily decided must be given collateral estoppel effect in the instant lawsuit.

* * *

* * *

Plaintiffs are directed to file an amended complaint within 20 days of the entry of this order alleging with specificity any issues which are not barred by the preclusive effect of the collateral estoppel ruling in this order.

In amending its pleadings as directed by the district court, the Richardson group stated that it was "unable to allege with specificity any issues which are not barred by the preclusive effect of the collateral estoppel ruling in the Court's Order." The district court dismissed the amended complaint. This appeal followed.

Discussion

The issue on appeal is whether the Richardson group's state tort action is barred because the essential facts to be litigated in that action were necessarily decided by the Commission so that the Commission's findings, affirmed by the state court, should be given collateral estoppel effect.

Collateral estoppel is an issue of substantive law requiring the application of state law in diversity actions. Kuehn v Garcia, 608 F.2d 1143, 1147 (8th Cir.1979), cert. denied, 445 U.S. 943, 100 S.Ct. 1340, 63 L.Ed.2d 777 (1980). Arkansas courts have applied collateral estoppel in the context of certain state administrative adjudications to preclude the litigation of identical fact issues in a subsequent judicial proceeding. Following the Supreme Court's statement in United States v. Utah Construction and Mining Co., 384 U.S. 394, 86 S.Ct. 1545, 16 L.Ed.2d 642 (1966), the Arkansas Supreme Court has recognized that:

When an administrative agency is acting in a judicial capacity and resolves disputed issues of fact properly before it which the parties have had an adequate opportunity to litigate, the courts have not hesitated to apply res judicata to enforce repose.

Rainbolt v. Everett, 6 Ark.App. 204, 639 S.W.2d 532, 534 (1982) (quoting Utah Construction, 384 U.S. at 422, 86 S.Ct. at 1560.

Arkansas law instructs that Phillips, as the party seeking to invoke collateral estoppel or "issue preclusion," a doctrine related to but distinct from questions involving claim extinguishment, see, e.g., Smith v. Roane, 284 Ark. 568, 683 S.W.2d 935, 936 (Ark.1985), has the burden to demonstrate that the precise issue on which it claims that the court and other parties are bound and which is precluded from being litigated was decided in the previous proceeding. Smith, 683 S.W.2d at 936 (citing JeToCo Corp. v. Hailey Sales Co., 268 Ark. 340, 596 S.W.2d 703, 706 (Ark.1980)). In JeToCo, the Arkansas Supreme Court explained that "the true test of whether a particular point, question or right has been concluded by a former suit and judgment is whether such point, question or right was distinctly put in issue, or should have been put in issue, and was directly determined by such former suit and judgment." JeToCo, 596 S.W.2d at 706. After reviewing the record and applicable Arkansas law, we find that the district court erred in failing to conclude that there is not a sufficient identity of issues between...