Thoroughbred Associates v. Kan. City Royalty Co.

• Citation: 45 Kan.App.2d 312,248 P.3d 758
• Decision Date: 11 February 2011
• Docket Number: No. 102,598.,102,598.
• Parties: THOROUGHBRED ASSOCIATES, L.L.C., et al., Appellants/Cross-appellees,v.KANSAS CITY ROYALTY COMPANY, L.L.C.; Robert E. Thomas Revocable Trust; and D.D.H., L.L.C., Appellees/Cross-appellants.
• Court: Court of Appeals of Kansas

45 Kan.App.2d 312

248 P.3d 758

THOROUGHBRED ASSOCIATES, L.L.C., et al., Appellants/Cross-appellees,

v.KANSAS CITY ROYALTY COMPANY, L.L.C.; Robert E. Thomas Revocable Trust; and D.D.H., L.L.C., Appellees/Cross-appellants.

No. 102,598.

Court of Appeals of Kansas.

Feb. 11, 2011.

[248 P.3d 761 , 45 Kan.App.2d 312]

Syllabus by the Court

1. A party seeking summary judgment has the obligation to show, based on appropriate evidentiary materials, that there are no disputed issues of material fact and that judgment may, therefore, be entered in its favor as a matter of law. In essence, the movant argues there is nothing for a jury or a trial judge sitting as factfinder to decide that would make any difference. The party opposing summary judgment must then point to evidence calling into question a material factual representation made in support of the motion. If the opposing party does so, the motion should be denied so a factfinder may resolve that dispute.

2. Even though parties file cross-motions seeking summary judgment on the same issue, the trial judge is neither obligated nor permitted to grant one or the other simply because each side had asked the court to do so. Rather, the court must independently consider each motion to determine if it should be granted or denied applying the usual standards of review.

3. Oil and gas leases are contractual in nature, and the general rules of contract law and interpretation apply to them.

4. Unambiguous written contracts should be enforced based on their plain language.

5. A court may apply the equitable remedy of reformation when a contract fails to set forth accurately the intentions and the true agreement of the parties.

6. The essence of contract law lies in regulating how parties may make legally enforceable agreements and in providing mechanisms for enforcing those agreements when disputes arise over the interlocking rights and obligations so created. Reformation is a well-accepted tool for accomplishing the goals underlying contract law.

7. A Pugh clause restricts the extent to which drilling a producing well within a unit perpetuates an oil and gas lease included in the unit. A Pugh clause can limit unitization vertically, horizontally, or both. A vertical Pugh clause commonly provides that if a portion of a lease is included in a unit, only that portion will be held by production from elsewhere in the unit. A horizontal Pugh clause holds a lease only to the stratum or level from which production has been secured in the unit during the primary term of the lease and, thus, frees the mineral interests below that depth absent additional development.

8. Oil or other hydrocarbons extracted as incidental byproducts should be treated as part of the production from a unit formed only for gas exploration. Proceeds from the sale of the byproducts should be paid on a ratable basis to the owners of the unitized interests.

9. Typically, a counterclaiming defendant bears the burden of proof on its counterclaim, since it stands in the posture of a plaintiff bringing suit with regard to that cause of action.

10. Typically, the party bearing the burden of proof on a claim in a civil action will present its evidence first.

11. A party may not affirmatively take or acquiesce in a position in the trial court and then urge that position as error on appeal. That is a form of invited error.

12. Under the prudent-operator rule, an owner of oil and gas interests claiming drainage must prove both the drainage and that the lessee with development rights has failed to take reasonable steps to prevent the drainage.

13. A lessee must take those steps a prudent operator would employ to develop the oil and gas interests for the common advantage of both the lessor and lessee. Given the often large expense in exploration and development, the lessee may be justified in exercising caution in satisfying that undertaking. An operator has a duty to take reasonable steps to protect against drainage from adjoining properties. Those steps will be shaped by the projected amount of oil or gas, anticipated market prices, development of nearby tracts and potential drainage, and the cost of drilling and operating a well. The prudent-operator rule applies to the development of both individual tracts and unitized leases.

14. An appellate court reviews a trial judge's findings of fact only to determine if they are supported by competent evidence and will not make credibility determinations or reweigh conflicting evidence.

15. The Interest On Proceeds From Production Act, K.S.A. 55–1614 et seq. , provides a make-whole remedy to owners of mineral interests from whom production revenue has been wrongfully withheld by shifting the cost of litigation to collect that revenue, including attorney fees, to the losing purchaser. Under the Act, the court may award attorney fees in its discretion.

16. The purpose of a petition or a counterclaim is to put the party against whom relief is sought on notice of the nature of the claim. The pleading should not be an elaborate recitation of detailed factual allegations and typically need not contain citations to cases or statutory authority supporting the claim asserted or relief sought.

17. The Interest On Proceeds From Production Act, K.S.A. 55–1614 et seq. , does not require the losing party to have acted in bad faith to permit an award of attorney fees to the prevailing party.

18. In determining the amount of a statutory award of attorney fees, a trial court should consider the eight criteria set forth in Rule 1.5(a) (2010 Kan. Ct. R. Annot. 458) of the Kansas Rules of Professional Conduct used to determine if a given fee is reasonable and, therefore, ethically proper. No single criterion is controlling.

19. A court should award statutory attorney fees based only on the time spent on the successful claim permitting the fees and not on other claims, whether or not successful. A party seeking attorney fees must provide the court with an adequate basis to segregate the work for which fees may be allowed from the rest of the time billed to the client. If the party can satisfactorily show that some work was essential to and intertwined with both claims that allow a fee and those that don't, a court may include the time for such tasks in an award.

20. The amount of a statutory award of attorney fees rests in the trial court's sound discretion. Based on experience and knowledge of the legal profession, a trial judge is deemed to be an expert on attorney fees and may draw on that expertise in rendering an award in a particular case. In light of a trial judge's familiarity with a given case and the time and effort expended by counsel in the development and disposition of the litigation, the trial judge typically is better positioned to make a well-informed determination on a fee request than is a reviewing appellate court.

21. Appellate courts do not entertain arguments that attempt to submit facts about the case that are not otherwise in or cited to the record and, thus, were not offered to the trial court. A party may not slip new facts into an appeal in the guise of argument.

David J. Rebein, of Rebein Bangerter, P.A., of Dodge City, and Jeff Kennedy and Marcia A. Wood, of Martin, Pringle, Oliver, Wallace & Bauer, L.L.P., of Wichita, for appellants/cross-appellees.William J. Skepnek, of Skepnek Fagan & Davis, P.A., of Lawrence, and David E. Pepper and Michael J. Novotny, of Hartzog Conger Cason & Neville, of Oklahoma City, Oklahoma, for appellees/cross-appellants.Before McANANY, P.J., ATCHESON, J., and LARSON, S.J.ATCHESON, J.

This appeal arises out of the development of an oil and gas lease in Comanche County and began life as a petition filed more than 8 years ago. In its lifetime, this case has experienced several rounds of summary judgment motions, an interlocutory appeal to this court turned aside without briefing, and a bench trial. The case is back here—this time for a full airing of the issues on cross-appeals.

Summary of the case

Thoroughbred Associates, L.L.C., the lead plaintiff below, acquired and developed the lease at the center of the legal dispute and leases on several nearby tracts. The other plaintiffs hold various oil and gas interests in the same tract as Defendant Kansas City Royalty Company, L.L.C., and the other defendants. Those defendants own a one-third interest in the oil and gas rights in the land covered by the lease litigated here. They acquired that ownership interest from OXY, USA, Inc. The parties commonly refer to the lease as the OXY lease, and we will do likewise. We refer to the plaintiffs collectively as Thoroughbred and to the defendants collectively as Kansas City, for we see nothing in the issues that requires us to distinguish among the individual constituents in either group.

In short, Thoroughbred contends the OXY lease was erroneously included in a production unit contrary to the terms of the lease and seeks recoupment from Kansas City for production revenue it says was improperly paid according to terms of the lease and the unitization agreement. The trial judge entered summary judgment against Thoroughbred on that issue. Kansas City counterclaimed for additional revenue, contending Thoroughbred had both extracted unleased hydrocarbons owned by Kansas City without authorization and wrongfully withheld revenue due from the production unit once this litigation began. Kansas City further claimed Thoroughbred drained the tract covered by the OXY lease from wells it drilled on the adjacent land. The trial court granted summary judgment to Kansas City on its revenue claims but entered judgment against Kansas City following a bench trial on the drainage claim. The parties ultimately stipulated to the amount due on the revenue claim. Kansas City sought prejudgment interest and attorney fees under the Interest On Proceeds From Production Act, K.S.A. 55–1614 et seq. The trial court awarded Kansas City prejudgment interest...