Tarrant v. Capstone Oil & Gas Co.

• Decision Date: 05 October 2007
• Docket Number: No. 102,375. Released for Publication by Order of the Court of Civil Appeals of Oklahoma, Division No, 1.,102,375. Released for Publication by Order of the Court of Civil Appeals of Oklahoma, Division No, 1.
• Citation: 2008 OK CIV APP 17,178 P.3d 866
• Parties: Tracy TARRANT, d/b/a Trace Oil; Paul E. Ellis; Keller J. Wiedey; Wendell J. Wiedey, Frederick E. Walta; Roberta Mae Walta; and Val Eugene Walta, Plaintiff/Appellees, and Alice E. Fisher, Douglas K. Fisher, Gary L. Fisher, Frankie Taylor, and Shirley Kramer, Plaintiffs, v. CAPSTONE OIL & GAS CO., Defendant/Appellant.
• Court: United States State Court of Criminal Appeals of Oklahoma. Court of Civil Appeals of Oklahoma

178 P.3d 866

2008 OK CIV APP 17

Tracy TARRANT, d/b/a Trace Oil; Paul E. Ellis; Keller J. Wiedey; Wendell J. Wiedey, Frederick E. Walta; Roberta Mae Walta; and Val Eugene Walta, Plaintiff/Appellees, and Alice E. Fisher, Douglas K. Fisher, Gary L. Fisher, Frankie Taylor, and Shirley Kramer, Plaintiffs, v. CAPSTONE OIL & GAS CO., Defendant/Appellant.

No. 102,375. Released for Publication by Order of the Court of Civil Appeals of Oklahoma, Division No, 1.

Court of Civil Appeals of Oklahoma, Division No. 1.

October 5, 2007.

Rehearing Denied November 30, 2007.

Certiorari Denied February 19, 2008.

Appeal from the District Court of Kingfisher County, Oklahoma; Honorable Susie M. Pritchett, Trial Judge.

AFFIRMED IN PART, REVERSED IN PART, AND REMANDED

Allen Wayne Campbell, Matthew L. Standard, Kirk & Chaney, Oklahoma City, OK, and Robert Samuel Glass, Brian L. Mitchell, R. Charles Wilkin, Glass Wilkin, P.C., Tulsa, OK, for Plaintiff/Appellees.

Doneen Douglas Jones, Mark Stonecipher, Jay Patrick Walters, Fellers, Snider, Blankenship, Bailey & Tippens, Oklahoma City, OK, for Defendant/Appellant.

CAROL M. HANSEN, Presiding Judge.

¶ 1 Defendant/Appellant, Capstone Oil & Gas Co. (Capstone), seeks review of the trial court's orders granting summary judgment against Capstone on certain liability issues, and judgment based on a jury verdict against it on the remaining issues, including damages. We affirm the summary judgment to the extent the trial court granted declaratory judgment finding Plaintiff/Appellee, Tracy Tarrant d/b/a Trace Oil (Trace), succeeded Capstone as operator. We otherwise reverse the summary judgment and judgment based on the jury verdict, and remand for new trial on Trace's claims against Capstone for breach of contract and fraud.

¶ 2 Trace, the remaining Plaintiff/Appellees (Royalty Owners), and other Plaintiffs, who dismissed their actions against Capstone and are not parties to this appeal, sued Capstone for claims arising from Capstone's workover of the Alice Fisher # 1-1 Well (Well) in Kingfisher County, Oklahoma. Capstone, as operator and owner of 45.16% of the working interest in the Well, and Trace, as owner of 45.22% of the working interest, were parties to a joint operating agreement (JOA),¹ dated March 11, 1984, governing operations of the Well. In 2000, Capstone proposed a workover of the well and served an authorization for expenditure (AFE) on the other working interest owners, estimating the cost at $110,227.00.

¶ 3 The JOA allows working interest owners to choose whether to consent to the AFE and participate in the proposed operation by paying their share of the costs. A working interest owner who chooses not to consent, called "going non-consent," relinquishes that owner's interest in the well and share of production to the consenting owners until 300% of the non-consenting owner's share of the costs is paid from production to the consenting owners. Trace consented to the original AFE, committing to pay its proportionate share in the amount of $49,845.67. Upon Capstone's demand for payment, Trace paid only 35,337.02.

¶ 4 Capstone's demand to consenting owners for payment for their share of the AFE stated, "All funds will be placed in escrow and copies of all bills will be provided to you when the work is completed." Capstone's business manager admitted the funds were placed in Capstone's general account rather than in escrow, and Capstone provided copies of the bills to some but not all of the working interest owners when the work was completed. He agreed Capstone did not place its own proportionate share of the costs in an escrow account.

¶ 5 Capstone later issued a supplemental AFE for the workover in the amount of $260,456.35, which included the original $110,227.00. Trace applied for a loan from First Capital Bank (Bank), which already held a security interest in Trace's interest in the Well. Bank presented Trace with a document titled "Supplemental Agreement to Operating Agreement Covering the Alice Fisher 1-1" (Supplemental Agreement), the parties to which were Trace's principal, Tracy Tarrant, and Capstone. The agreement provided for Trace to pay the balance of its share of the costs on the original AFE and to go non-consent on the supplemental AFE. Tarrant stated Bank prepared the Supplemental Agreement in consultation with Capstone without input by Trace, while Capstone's principal stated the terms of the agreement had not been discussed with him before Bank presented it to him for his signature. Tarrant stated Capstone had already signed the agreement when it was presented to him, and Capstone's principal stated Tarrant had already signed the agreement when it was presented to him. Tarrant said Bank's representative told him the loan would not be approved unless he signed the Supplemental Agreement. He signed it, and Trace paid the balance of its share of the costs on the original AFE and went non-consent on the supplemental AFE.

¶ 6 Capstone repaired the Well using related entities. Capstone's business manager stated the charges of the related entities were usual and ordinary and were at the average commercial rates prevailing in the area of the Well for independent contractors doing work of the same or similar nature. Trace's auditor stated the charges were excessive and incurred in violation of Council of Petroleum Accountant Societies (COPAS) standards for the use of services of related entities. Trace's accountant stated Capstone still owed its related entities substantial amounts on the workover.

¶ 7 After Capstone restored the Well to production in 2001, it submitted a statement to Trace calculating Trace's 300% penalty based on total expenses for the workover of $623,069.23, while calculating the penalty of other non-consenting owners based on $260,456.35, the workover cost set forth in the supplemental AFE. Capstone's business manager stated he did so on advice of counsel. He also said Capstone filed a lien on Trace's interest in the Well.

¶ 8 Capstone admitted it did not timely pay royalties on gas production to Royalty Owners, but asserted it paid back royalties, as well as the 12% interest penalty provided by the Oklahoma Production Revenue Standards Act (PRSA), 52 O.S.2001 § 570.1 et seq., in May and June 2004, soon after the present suit was filed. The non-appealing Plaintiffs dismissed their claims, and Royalty Owners maintained their claim for damages, attorney fees, and costs arising from nonpayment of royalties.

¶ 9 In 2004, 51% of the working interest owners, including Trace, voted to remove Capstone as operator, selecting Trace as successor operator. Those so voting were all non-consenting working interest owners. Trace placed locks on the well site, but Capstone cut the locks and re-entered the well site. Capstone's business manager asserted it did so on advice of counsel.

¶ 10 The trial court granted summary judgment in favor of Trace and Royalty Owners. It ruled Capstone had breached its fiduciary duty as operator, perpetrated fraud against the plaintiffs, and breached the JOA. It granted declaratory judgment finding Capstone was removed as operator of the Well and Trace was the legitimate operator. It granted Royalty Owners "partial summary judgment . . . by reason of [Capstone's] failure to implement timely royalty distribution and accounting procedures," but denied summary judgment and set for trial the claims for violation of the Production Revenue Standards Act, unjust enrichment and slander of title. It also set for trial the issues of damages, attorney fees, costs, and all other relief.

¶ 11 At trial, the trial court informed the jury it had found for Trace on Trace's claims for breach of contract, fraud, and breach of fiduciary duty, and the jury was to decide damages. It instructed the jury, "Plaintiff Royalty Owners each have one claim upon which the Court has not ruled, a claim for conversion. You will be asked to decide whether Capstone is liable for those claims." The jury rendered its verdict setting Trace's damages for breach of fiduciary duty at $1,500,000.00, for breach of contract at $569,287.65, and, for fraud at $742,516.50. On Royalty Owners' claims, it awarded $16,533.38 to Paul E. Ellis, $8,268.69 to Keller J. Wiedey, $8,268.69 to Wendell J. Wiedey, $3,099.90 to Frederick E. Walta, $2,409.14 to Roberta Mae Walta, and $11,025.10 to Val Eugene Walta. It found Capstone acted with reckless disregard of the plaintiffs' rights and intentionally and with malice toward them, and awarded punitive damages to Trace of $3,000,000.00 for breach of fiduciary duty and $1,485,033.00 for fraud. It awarded punitive damages of $50,833.33 to each of the Royalty Owners. The trial court entered judgment based on the jury verdict. Capstone appeals.

¶ 12 We will review the trial court's summary judgment under a de novo standard. Carmichael v. Better, 1996 OK 48, 914 P.2d 1051, 1053. Summary judgment is appropriate only when there is no substantial controversy as to any material fact and one of the parties is entitled' to judgment as a matter of law. 12 O.S.Supp.2002, Ch. 2, App. 1, Rule 13. The trial court may not weigh the evidence on a motion for summary judgment. Stuckey v. Young Exploration Co., 1978 OK 128, 586 P.2d 726, 730. Rather, it must view all inferences and conclusions to be drawn from the evidentiary materials in the light most favorable to the party opposing the motion. Northrip v. Montgomery Ward & Co., 1974 OK 142, 529 P.2d 489, 497. The focus in summary process is on whether the evidentiary materials as a whole show undisputed material facts that will support but a single inference in favor of the movant's quest for relief. It is a method for identifying and isolating non-triable fact issues, not for defeating the opponent's right to trial by jury. Gray v. Holman, 1995 OK 118, 909 P.2d 776, 781.

I

¶ 13 The trial court's summary judgment correctly resolved one issue that was strictly a question of law, namely,...