Tidewater Oil Company v. Jackson, 6944.

• Decision Date: 18 July 1963
• Docket Number: No. 6944.,6944.
• Citation: 320 F.2d 157
• Parties: TIDEWATER OIL COMPANY, Appellant, v. George E. JACKSON and Karl B. Jackson, doing business in partnership as Jackson Brothers, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

320 F.2d 157 (1963)

TIDEWATER OIL COMPANY, Appellant, v. George E. JACKSON and Karl B. Jackson, doing business in partnership as Jackson Brothers, Appellees.

No. 6944.

United States Court of Appeals Tenth Circuit.

June 21, 1963.

Rehearing Denied July 18, 1963.

James P. Hart, Austin, Tex., and Richard Jones, Wichita, Kan., for appellant.

Robert Martin, Wichita, Kan., for appellees.

Before MURRAH, Chief Judge, and PICKETT and LEWIS, Circuit Judges.

MURRAH, Chief Judge.

This is an appeal from a judgment for the plaintiff in a diversity suit for damages, brought by a Kansas oil and gas leaseholder against an adjoining leaseholder, for the wrongful water flooding of his lease. Water flooding is a legally and scientifically accepted method of producing oil and gas by the introduction of foreign water into an oil bearing formation, usually after primary production methods are no longer profitable. Generally, the method involves the interjection of water, under pressure, into strategically located input wells, for the purpose of generating a water drive, which pushes residual oil forward for recovery through output wells.¹

Applicable Kansas law provides that the owner or operator of any producing oil or gas well, from any sand or producing formation, "shall be permitted, in the interest of oil and gas conservation, to introduce and inject * * * water * * * under pressure upon such sand * * * or formation, for the purpose of recovering the oil and gas contained therein," provided that such owner "shall make a written application to the state corporation commission for authority so to do, and written approval has been granted * * *." And provided further "that the operation shall be done under the rules and regulations of the commission." Kansas General Statutes, 1949, 55-133 and 55-134.

The Blankenship-Sallyard oil field in Butler and Greenwood Counties, Kansas, was discovered in 1917; was fully developed in the 1920's and early 1930's; and most, if not all, of the producing wells were fully depleted for primary recovery in 1948. The appellant, Tidewater, is the owner of a number of leases in the field, on which it drilled about 90 producing wells. Some of these leases adjoined on the south and east, the non-productive and undeveloped Barrier tract, on which appellee, Jackson Brothers, later acquired the lease in suit. Secondary recovery operations in the northeast part of the pool were first started in 1946. Tidewater's water flood operations were commenced on its leases on the southwest edge of the pool (about two and one-half miles from the Barrier tract) in 1949. The "five spot pattern"² operation apparently contemplated a general plan of developing about 100 acres per year, as the flood front progressed, i. e., the water drive would proceed in stages of about 100 acres per year, northeasterly along the trend of the pool, and toward what is now the Jackson-Barrier lease. Tidewater apparently first made application to the Kansas Corporation Commission in 1953, for authority to repressure and water flood the producing sand formation under its leases in eleven sections (about 2,000 acres of leases) in Greenwood and Butler Counties, including leases immediately adjoining the then non-productive Jackson-Barrier lease.

The Jacksons had obtained a lease on the Barrier land about a year previously, and had commenced the drilling of a well (the Barrier No. 1), 48 feet from the east boundary and 61 feet from the south boundary of its lease, adjoining Tidewater's leases. The well was abandoned without production, and the lease was terminated. In 1954, however, the Jacksons obtained another lease on the same land and completed the first producing well on the original location during that year. During the period 1954 through 1956, the Jacksons drilled nine producing wells along the south and east boundaries of the Barrier lease. The wells were located on a three acre spacing pattern; they were heavily fractured; and, each of them produced oil in paying quantities, by primary recovery methods. By mid-1956, the wells had produced approximately 100,000 barrels of oil. About this time, Tidewater notified Jackson Brothers of their intention to water flood their properties adjacent to the Barrier lease, and proposed a co-operative water flood project, the cost to be shared proportionately, according to acreage ownership in the project. The Jacksons declined to join the venture, for the expressed reason that their wells were then producing in paying quantities. Tidewater thereupon drilled three input wells, about 12 feet east of their western boundary, and converted three other wells for water injection, on Tidewater's northern lease boundary, off-setting and very close to six of the Jacksons' producing wells.

The water injected into the Tidewater input wells soon flooded eight of the Jacksons' wells, and they complained to the Kansas Corporation Commission, alleging that Tidewater had unlawfully flooded their wells, causing irreparable harm. The Commission was asked to enter a cease and desist order, and to permanently prevent the escape of salt water into the oil bearing formation underlying the complainant's lease. The Commission entered its cease and desist order and the water flooding was abated, pending a hearing before the Commission on the merits. After a full hearing, the Commission promulgated its memorandum opinion, in which it defined the issues within its province as being statutorily limited to (1) matters involving the prevention of waste; and (2) the protection of correlative rights of interested parties in a common source of supply. It then proceeded to consider whether the water flood project was within the permissive order of the Commission, and noting the absence of any claim that Tidewater's operations exceeded the authority granted, and the absence of any evidence of unlawful operation, the Commission concluded that no waste was being committed within the meaning of the conservation laws of the State of Kansas. In that respect, the Commission observed that, by its very nature, the water flood project contemplated the eventual flooding of every producing well in the reservoir, "but the oil is not lost; it is pushed forward by the injected water, which displaces the oil in the reservoir." And, that the placing of line injection wells along the lease boundary is the accepted method of preventing the movement of the oil from lease to lease. On the question of the correlative rights of the parties, as defined by its Rule 82-2-101,³ the Commission stated that correlative rights related only to the ratable withdrawal of oil and gas from a common reservoir, and since no question of ratable taking was presented, there was nothing for the Commission to decide. See also: Correlative Rights In Oil And Gas, by Eugene Kuntz, 30 Miss.Law Journal, Dec. 1958, pp. 1-9. It thus concluded that "no waste of natural resources nor injury to correlative rights having been shown, it appears that the instant proceedings presents no justiciable matter for action by the Commission." It was furthermore careful to point out that "an action for damages for the flooding of producing wells may be available to the owners of such wells, but the forum for such a damage action is in the courts, not this Commission."

On judicial review to the appropriate state district court and the Supreme Court of Kansas, the Commission's memorandum and order was affirmed, as in accordance with applicable law and based upon substantial and competent evidence. See: Jackson v. State Corporation Commission, 183 Kan. 246, 326 P.2d 280, 186 Kan. 6, 348 P.2d 613. This suit was commenced and came to issue in the federal court, during the state court litigation and came on for trial a few days after the order of the Commission was affirmed by the Kansas Supreme Court.

In this federal court action, the Jacksons alleged the ownership and location of the leases, and the complete flooding of their producing wells, as a direct result of Tidewater's water flood project. They alleged that Tidewater's acts were deliberately done, with full knowledge of the consequences of such acts, and with wanton disregard of the plaintiffs' property rights. They alleged the permanent loss of oil and the necessity of drilling additional wells in an effort to capture and produce oil, which could have otherwise been produced through the existing wells, to their detriment in the amount of $800,000.00 and asked for exemplary damages in the sum of $250,000.00.

Tidewater affirmatively pleaded estoppel to litigate the issues raised in the complaint, on the grounds that all such issues had been previously litigated between the parties before the Kansas Corporation Commission, and finally affirmed in the Supreme Court of the State of Kansas. It moved for summary judgment, apparently on the ground that no triable issue survived the state court litigation and it was, therefore, entitled to a judgment as a matter of law. Throughout the trial and until final disposition, estoppel was one of the paramount issues in the case. The point is urged on appeal, and if valid, is dispositive of the lawsuit.

Kansas adheres to the salutary rule which plainly forbids a suitor to twice litigate matters against the same party, even on a different cause of action. See: Freeman On Judgments, 5th Ed., Vol. II, §§ 624, 625 and 670. An early Kansas case stated the "true" rule to be that "where a second action between the same parties is upon a different claim or demand, the judgment in the prior action operates as an estoppel only as to those matters in issue upon the determination of which the finding was made or the judgment rendered * * *." Stroup v. Pepper, 69 Kan. 241, 76 P. 825; and see: Smith v. Russ, 184 Kan. 773, 339 P.2d 286; Security Insurance Co. of New Haven v. Johnson, 10 Cir., 276 F.2d 182.

The Jacksons first take the position that the doctrine is wholly inapplicable to determinations of an...