State v. BHP Petroleum Co., Inc., 90-40

• Decision Date: 14 January 1991
• Docket Number: No. 90-40,90-40
• Citation: 804 P.2d 671
• Parties: STATE of Wyoming and Howard M. Schrinar, State Commissioner of Public Lands, Appellants (Defendants), v. BHP PETROLEUM COMPANY, INC., a Delaware Corporation, Appellee (Plaintiff).
• Court: Wyoming Supreme Court

Page 671

804 P.2d 671

STATE of Wyoming and Howard M. Schrinar, State Commissioner of Public Lands, Appellants (Defendants), v. BHP PETROLEUM COMPANY, INC., a Delaware Corporation, Appellee (Plaintiff).

No. 90-40.

Supreme Court of Wyoming.

Jan. 14, 1991.

Joseph B. Meyer, Atty. Gen., and Vicci M. Colgan, Senior Asst. Atty. Gen., for appellants.

Harold E. Meier of Lonabaugh & Riggs, Sheridan, and Paul F. Hultin, Janet F. Kabili, and David A. Bailey, Denver, Colo., for appellee.

OPINION

Before URBIGKIT, C.J., and THOMAS, CARDINE, MACY and GOLDEN, JJ.

MACY, Justice.

Appellants State of Wyoming and Howard M. Schrinar, State Commissioner of Public Lands, (the State, collectively) appeal from a summary judgment in favor of Appellee BHP Petroleum Company, Inc., declaring that BHP did not owe interest to the State on underpaid gas royalties which were due to the State.

We affirm.

The State raises the following issue:

[Is the State] entitled, as a matter of law, to interest before the effective date of W.S. 30-5-301 et seq. for late royalty payments made by [BHP]?

The parties stipulated to the following facts. BHP has a working interest and the State has a royalty interest in a federal oil and gas unit located in Natrona and Fremont Counties. In January 1987, BHP tendered $428,567.50 in delayed royalty payments to the State for the period of October 1979 through June 1982. BHP also tendered $318,290.25 in interest for delayed payments dating from December 1, 1982, through January 15, 1987. The interest was calculated at the rate of eighteen percent, simple interest. The State accepted the tendered interest payment but objected to the method of calculation.

In addition, the parties acknowledged that the leases and unit operating agreement did not expressly provide for interest on late royalty payments. BHP's affidavits established that it discovered the inadvertent underpayments in the course of an independent audit conducted for a purpose unrelated to the discovery of the royalty underpayments. The State had not brought the underpayments to BHP's attention nor had it made any demands for payment of underpaid royalties.

Upon cross-motions for summary judgment, the district court determined that, pursuant to Wyo.Stat. §§ 30-5-301 and 30-5-303 (1977), ¹ the State was entitled to statutory interest for the period subsequent to June 1, 1982, and no issue is raised in this appeal regarding that decision. However, the district court also determined that the State was not entitled to interest on the underpayments for the period of time from the date the payments became overdue until June 1, 1982, and the State appeals that decision. ²

Since the facts in this case are not in dispute, we must decide whether the district court's decision is correct as a matter of law. Provence v. Hilltop National Bank, 780 P.2d 990 (Wyo.1989). The right to interest may emanate from an expressed or implied contract, from a statute, or by way of damages. 45 Am.Jur.2d, Interest and Usury § 34 (1969). Because the parties agree the terms of the leases did not provide for interest on late royalty payments and because the legislature did not enact a statute until 1982 granting the right to interest to the State on late royalty payments, the State premises its right to recovery upon the equitable doctrine of unjust enrichment. ³ We have addressed the doctrine of unjust enrichment many times. In Zitterkopf v. Bradbury, 783 P.2d 1142 (Wyo.1989), we reiterated that our standard of review in the unjust enrichment/quantum meruit cases places the burden of proof upon the party asserting that theory. Approximately one month before that decision was released, we repeated these tenets of the unjust enrichment doctrine:

"The phrase 'unjust enrichment' is used in law to characterize the result or effect of a failure to make restitution of, or for, property or benefits received under such circumstances as to give rise to a legal or equitable obligation to account therefor. It is a general principle, underlying various legal doctrines and remedies, that one person should not be permitted unjustly to enrich himself at the expense of another, but should be required to make restitution of or for property or benefits received, retained, or appropriated, where it is just and equitable that such restitution be made, and where such action involves no violation or frustration of law or opposition to public policy, either directly or indirectly."

R.O. Corporation v. John H. Bell Iron Mountain Ranch Company, 781 P.2d 910, 912 (Wyo.1989) (emphasis omitted) (quoting 66 Am.Jur.2d, Restitution and Implied Contracts § 3 at 945 (1973)).

The State principally relies upon the unjust enrichment analysis utilized in Rissler & McMurry Company v. Atlantic Richfield Company, 559 P.2d 25 (Wyo.1977). In that case, a statute granting the right to interest to the creditor on unpaid debts did not exist, and the contract between the parties was "silent with respect to interest." Id. at 31. Thus, this Court articulated a two-part test for determining the existence of a right to prejudgment interest under the doctrine of unjust enrichment. First, we held that prejudgment "interest is recoverable on liquidated but not on unliquidated claims and that a claim is considered liquidated when it is readily computable by simple mathematical computation." Id. Second, we stated that the "debtor must receive notice of the amount due before interest starts to run." Id. at 34. ⁴ The Rissler & McMurry Company court based its decision upon the principle that a debtor, who holds money which it should have yielded to a creditor, is unjustly enriched because the use of money has real economic value. Id.

While this case does not involve prejudgment interest, it does involve facts sufficiently analogous to those in Rissler & McMurry Company to trigger application of the Rissler & McMurry Company test. We hold that the State is not entitled to interest on the delayed royalty payments for the period of October 1979 through June 1982. The State concedes that BHP did not discover the deficiency in royalty payments until 1987 and that BHP promptly compensated the State for those underpayments. Although BHP may have been enriched by its failure to pay royalties when they became due, it was not unjustly enriched since it did not withhold payment after learning that the deficiency existed. Hence, interest did not start to run.

Affirmed.

URBIGKIT, C.J., and THOMAS, J., filed dissenting opinions.

URBIGKIT, Chief Justice, dissenting.

This appeal in essential components has simple parts. From 1979 to 1987, appellee BHP Petroleum Company, Inc., oil and gas lessee, failed to pay contractual royalty obligations for gas production to the State of Wyoming as lessor. Constitutional trust funds from school lands were involved under the provisions of Wyo.Const. art. 18. With an eight year delay in royalty payments due to the State of Wyoming finally satisfied by a January 1987 payment of $428,567.50, the debtor also recognized an interest payment obligation to the state under W.S. 30-5-301 through 30-5-303, first effective June 1, 1982, but no obligation for interest on the retained state land funds for two plus years prior to passage of the Stroock/Urbigkit Oil Royalties Non-Payment Act, Wyo.Sess.Laws ch. 27 (1982). ¹ The real issue presented is whether delayed contractual payment of state trust funds constituting oil and gas lease proceeds would have always remained interest free if the enforcement statute, W.S. 30-5-301 through 30-5-303, had never been enacted.

It is recognized that the state-phrased resistance to absolution of oil producers responsibility for retention and use of state funds speaks to an unjust enrichment concept. In particular, since we deal here with constitutionally obligated funds, I present the issue of right of a government as identical with private parties to collect statutory interest on debts due and unpaid as the price of retention where the contract makes no specific provision for a deficiency interest accrual. It is my conclusion that when the money is a liquidated sum, from the date due, interest is accrued equally for a governmental entity as would be for any private entity. It would then logically follow that the State's brief and the consequent discussion in this court's opinion is converted into a non-issue since government should equally be accorded the statutory right to interest on unpaid debts to it. Within that concept, neither a demand requirement nor unjust enrichment ideology has preclusive relevancy. ²

Realistically, resolution of this obligation of the oil producer which was delinquent in payment of the school land royalties to the state for the period before the penalty interest statute was enacted should have been determinable by answering three questions:

1. Does Wyoming have an interest statute which is applied to unpaid liquidated obligations?

2. Do governmental entities, including the state, share in the benefit of that interest rate statute?

3. Was the oil and gas leasehold obligation a liquidated amount in this case?

Ancillary to these questions is the suggestion derived from Rissler & McMurry Co. v. Atlantic Richfield Co., 559 P.2d 25 (Wyo.1977) that application of the interest statute is first dependent upon demand by the payee. See however Goodwin v. Upper Crust of Wyoming, Inc., 624 P.2d 1192, 1198 (Wyo.1981) and Northern Gas Co. v. Town of Sinclair, 592 P.2d 1138 (Wyo.1979).

Answering the first question requires reconstruction of Wyoming history since obviously there is a general interest statute, albeit emplaced within the Uniform Commercial Code as W.S. 40-14-106(e): "If there is no agreement or provision of law for a different rate, the interest of money shall be at the rate of seven percent (7%) per annum."

That section came into the Wyoming code by a provision in Wyo.Sess.Laws ch. 191, § 9-103 (1971) which provided:

(2) Section 13-477,...