Roda Drilling Co. v. Siegal

• Decision Date: 20 January 2009
• Docket Number: No. 08-5115.,08-5115.
• Citation: 552 F.3d 1203
• Parties: RODA DRILLING COMPANY; Roda, LLC; Roland Arnall; Dawn Arnall; The Roland and Dawn Arnall Living Trust, Plaintiffs-Counter-Defendants-Appellees, v. Richard SIEGAL, an individual; Bippy Siegal, an individual; Palace Operating Company, a corporation, Defendants-Appellants, and Palace Exploration Company, a corporation; B & R Exploration Co., Inc.; Bistate Oil Management Corporation; Oil and Gas Title Holding Corporation, Defendants-Counter-Claimants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

552 F.3d 1203

RODA DRILLING COMPANY; Roda, LLC; Roland Arnall; Dawn Arnall; The Roland and Dawn Arnall Living Trust, Plaintiffs-Counter-Defendants-Appellees, v. Richard SIEGAL, an individual; Bippy Siegal, an individual; Palace Operating Company, a corporation, Defendants-Appellants, and Palace Exploration Company, a corporation; B & R Exploration Co., Inc.; Bistate Oil Management Corporation; Oil and Gas Title Holding Corporation, Defendants-Counter-Claimants-Appellants.

No. 08-5115.

United States Court of Appeals, Tenth Circuit.

January 20, 2009.

Stanley Arkin (Michelle A. Rice, Sean R. O'Brien and Justin M. Sher of Arkin, Kaplan, Rice, L.L.P., New York, NY, and Curtis M. Long and Steven J. Adams of Fellers, Snider, Blakenship, Bailey & Tippens, P.C., Tulsa, OK, on the briefs), for Defendants-Appellants and Defendants-Counter-Claimants-Appellants.

Oliver S. Howard (M. Benjamin Singletary, Joseph W. Morris and Richard B. Noulles of Gable Gotwals, with him on the briefs), Tulsa, OK, for Plaintiffs-Counter-Defendants-Appellees.

Before KELLY, BALDOCK, and O'BRIEN, Circuit Judges.

PAUL KELLY, JR., Circuit Judge.

This is an appeal from the grant of a preliminary injunction by a magistrate judge exercising consent jurisdiction. 28 U.S.C. § 636(c); Fed.R.Civ.P. 73; see RoDa Drilling Co. v. Siegal, No. 07-CV-400-GKF-FHM, 2008 WL 4056229 (N.D.Okla. Aug. 11, 2008). Defendants-Appellants and Defendants-Counterclaimants-Appellants (collectively referred to as Defendant or Palace) argue that the magistrate judge incorrectly applied the preliminary injunction standard in granting Plaintiffs-Counter-Defendants-Appellees (collectively referred to as Plaintiff or RoDa) a preliminary injunction.

On July 19, 2007, Plaintiff RoDa filed a complaint against Defendant Palace, alleging fraud, breach of contract, and breach of fiduciary duty with respect to various oil and gas investments Palace made on RoDa's behalf, and seeking the transfer of record title to RoDa of these oil and gas properties, in addition to various other relief.¹ App. 43. On January 28, 2008, RoDa sought a preliminary injunction seeking record title to the various oil and gas investments. App. 584. The magistrate judge granted the injunction on July 23, 2008. RoDa Drilling Co. v. Siegal, No. 07-CV-400-GKF-FHM, 2008 WL 2891122 (N.D.Okla. July 23, 2008) (later corrected and superseded on August 11, 2008, RoDa Drilling Co., 2008 WL 4056229). Palace initially filed a motion to stay the injunction on July 30, 2008, arguing that it was improvidently granted. App. 2180. The magistrate judge denied the motion, RoDa Drilling Co. v. Siegal, No. 07-CV-400-GKF-FHM, 2008 WL 3560976 (N.D.Okla. Aug. 11, 2008), and Palace subsequently moved this court for a stay. On September 10, 2008, we granted the stay "[i]n light of the short time remaining" before the appeal came before the merits panel. RoDa Drilling Co. v. Siegal, No. 08-5115, at 2 (10th Cir. Sept. 10, 2008). After oral argument, this panel dissolved the stay. RoDa Drilling Co. v. Siegal, No. 08-5115, at 2 (10th Cir. Nov.20, 2008).

Our jurisdiction arises under 28 U.S.C. § 1292(a)(1), 28 U.S.C. § 636(c)(3), and Fed.R.Civ.P. 73(c), and we affirm the grant of the preliminary injunction.

Background

Roland² and Dawn Arnall created the general partnership RoDa Drilling Company in 2002. App. 1745, 2889-2901. RoDa, LLC, and The Roland and Dawn Arnall Living Trust are partners of RoDa.App. 45.

In April 2002, the Arnalls first met with Richard Siegal, a principal of Palace Exploration Company, Palace Operating Company, B & R Exploration Co., Inc., Bistate Oil Management Corp., and Oil and Gas Title Holding Corp.App. 45, 47, 1748. The purpose of the meeting was to investigate potential oil and gas investments, which would be managed by Mr. Siegal through Palace. App. 47-49; 1748-51. After several discussions, the Arnalls agreed to participate. RoDa Drilling, 2008 WL 4056229, at *1, ¶ 2.

The parties agreed that RoDa would provide funding to Palace for the purchase of oil and gas properties. Id. Palace would hold the properties in its own name (so the parties might benefit from Palace's alleged reputation in the marketplace), managing and developing the properties on behalf of the Arnalls, and paying RoDa revenues from the properties. Id.; App. 1764-65, 1767. Under the agreement, RoDa could request transfer of record title to the properties at any time. App. 1765, 1767, 1872. In addition to capital investment funds, RoDa was to undertake deferred payment obligations to Palace ("promissory note obligations") as compensation to Palace and as part of the intangible drilling costs of the properties. App. 1754-55, 1765-66, 1870-71. RoDa was to pay these additional promissory note obligations out of any returns on the properties. App. 1754-55, 1761, 1765-66, 1870-71. These full-recourse notes ostensibly supported RoDa's tax deductions for intangible drilling costs, App. 1754-57, 1833, 1870; however, the Internal Revenue Service has since indicated that it may challenge these deductions based on RoDa's lack of record title to the properties, App. 955-59; see also RoDa Drilling, 2008 WL 4056229, at *3, ¶¶ 16, 17.

In May 2002, RoDa provided Palace $25 million as its initial capital contribution. App. 1760-61, 1829. Throughout 2002, RoDa invested $125 million, and over the next four years RoDa invested many more millions of dollars in various properties, all of which were held in the name of Palace. App. 1767-69, 1776-77, 1790-91, 1829. From 2002 through 2004, RoDa invested $875 million in cash, and orally agreed to invest an additional $1.05 billion in notes. App. 1755-57, 1767-69, 1776-77, 1790-91, 1793. RoDa has invested nearly $1 billion in cash since 2004 to preserve the value of its properties, for an overall total investment of nearly $1.9 billion. App. 845-46, 2536.

Remarkably, no writing was ever executed by both parties on either the capital investments or the promissory note payments. App. 877-78, 947, 1777-78, 1828. However, Palace did attempt to memorialize the agreement terms on at least two occasions. In 2004, Palace delivered to RoDa a proposed Prospect Agreement, which explicitly required Palace to transfer record title to the RoDa properties within thirty days of a written request. App. 2281-87, at 2, ¶ 5. Palace executed this agreement, but RoDa did not. App. 880-82, 923-25. In addition, Palace delivered to RoDa a Turnkey Drilling Contract. App. 2279-80; see Aplee. Br. at 19. RoDa declined to sign this contract, stating that the parties had not reached a "full meeting of the minds on all the terms of the deal." App. 923; see also App. 880. Over the years, the parties have maintained their relationship; however, on two occasions, RoDa has requested transfer of record title to its properties, but due to administrative issues the transfers, while attempted, were never completed. App. 808-14; see also RoDa Drilling, 2008 WL 4056229, at *2, ¶ 12. The parties dispute whether Palace holds a security interest in the RoDa properties or whether the transfer of title is conditioned on RoDa's satisfaction of the promissory note agreement. App. 847-48, 1765, 1767, 1798, 1873; Aplt. Br. at 8-11; Aplee. Br. at 11.

In approximately 2005, the Arnalls became concerned about their investments with Palace, App. 1779-84, and retained consultants to assist them with the oil and gas investments. App. 1783-84, 1877-83, 1902-08. As a result of the consultants' findings, RoDa requested transfer of title to the properties in late 2006 so it could effectively manage them and implement its own business and investment decisions. App. 476, 1885-89. At that point, Palace linked the transfer of title to RoDa's satisfaction of its outstanding "obligations" to Mr. Siegal and Palace, including requests for additional capital and promissory note payments. App. 476, 847-48, 1767. Since June 2007, RoDa has been working directly with Mr. Robert Zinke, the manager of the largest firm operating many of the properties. App. 1061-62, 1238, 1910-11, 1914-16. During 2006 and 2007, RoDa met with Palace several times in an effort to resolve the dispute, including in September 2007. App. 1788-90. Thus far, the parties have not been able to resolve their issues, and Palace has refused to transfer record title to any of the oil and gas properties despite RoDa's requests. App. 1788-89, 1886-88.

After an evidentiary hearing, the magistrate judge ordered transfer of record title to RoDa of all interests, properties, and assets beneficially held by Palace. RoDa Drilling, 2008 WL 4056229, at *9. Palace claims the magistrate erred in (1) failing to apply the heightened standards applicable when granting a "mandatory" preliminary injunction that alters the status quo; (2) finding that RoDa will sustain irreparable injury sufficient to warrant such an injunction; (3) concluding that RoDa has demonstrated a substantial likelihood of success on the merits in its breach of contract and fiduciary duty claims; (4) holding that RoDa made a strong showing that the balance of harms weighs in its favor; and (5) failing to require that RoDa post a bond or otherwise ensure satisfaction of its alleged $1 billion in outstanding obligations to Palace. Aplt. Br. at 2-3.

Discussion

We review the grant of a preliminary injunction for abuse of discretion. O Centro Espirita Beneficiente Uniao Do Vegetal v. Ashcroft, 342 F.3d 1170, 1176-77 (10th Cir.2003), affirmed en banc, 389 F.3d 973 (10th Cir.2004) (per curiam), affirmed, 546 U.S. 418, 126 S.Ct. 1211, 163 L.Ed.2d 1017 (2006); Dominion Video Satellite, Inc. v. EchoStar Satellite Corp., 269 F.3d 1149, 1153 (10th Cir.2001). "A district court abuses its discretion if it commits an error of law, or is clearly erroneous in its preliminary factual findings." Dominion Video, 269 F.3d at 1153 (internal quotation marks omitted). In our previous cases, we have characterized an abuse of discretion as "an arbitrary, capricious,...