TXG Intrastate Pipeline Co v. Grossnickle, 94-CA-00507-SCT

• Decision Date: 16 October 1997
• Docket Number: No. 94-CA-00507-SCT,94-CA-00507-SCT
• Citation: 716 So.2d 991
• Parties: TXG INTRASTATE PIPELINE COMPANY v. Dean V. GROSSNICKLE, Liquidating Trustee for Xenerex Partners, Ltd. Dean V. GROSSNICKLE, Liquidating Trustee for Xenerex Partners, Ltd. v. SAN GABRIEL DEVELOPMENT CORPORATION, Enron Oil Trading and Transportation Company and TXG Intrastate Pipeline Company.
• Court: Mississippi Supreme Court

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716 So.2d 991 TXG INTRASTATE PIPELINE COMPANY
v.
Dean V. GROSSNICKLE, Liquidating Trustee for Xenerex Partners, Ltd.
Dean V. GROSSNICKLE, Liquidating Trustee for Xenerex Partners, Ltd.
v.
SAN GABRIEL DEVELOPMENT CORPORATION, Enron Oil Trading and
Transportation Company and TXG Intrastate Pipeline Company. No. 94-CA-00507-SCT. Supreme Court of Mississippi. Oct. 16, 1997.
Rehearing Denied June 18, 1998.

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Jefferson D. Stewart, J. Jeffrey Trotter, Adams & Reese, Jackson, for appellant.

Glenn Gates Taylor, C. Dale Shearer, Copeland Cook Taylor & Bush, Jackson, for appellees.

Before SULLIVAN, P.J., and McRAE and JAMES L. ROBERTS, Jr., JJ.

JAMES L. ROBERTS, Jr., Justice, for the Court:

STATEMENT OF THE CASE

¶1 This case was first tried in January 1993 to determine whether Xenerex Partners, Ltd. owned a 37.5% working interest in a gas well known as the Smith Well and approximately 5,000 acres of oil and gas leases, all located in Holmes County, Mississippi. In a March 24, 1993, "Judgment on Plaintiff's Claims of Ownership", the chancellor ruled that Xenerex did own equitable title to an undivided 37.5% working interest in those properties on the basis of resulting and constructive trusts and was entitled to full title thereto. However, he reserved for further consideration: Plaintiff's claims for an accounting and questions as to what extent the Limited Partnership's interest was subject to any costs or claimed liens.

¶2 The original suit was filed on May 20, 1988, by Dean V. Grossnickle, Liquidating Trustee for Xenerex. Named as defendants were the holder of record title to the Mississippi Property, San Gabriel Development Corporation, the Transportation Company (EOTT), and Mississippi Valley Gas Company, and other necessary parties who were asserting various liens and security interests on the Mississippi Property.

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p 3. On May 20, 1988, Grossnickle filed a lis pendens notice in the office of the Holmes County Chancery Clerk. The second amended complaint was filed on September 10, 1990, adding as defendants a later purchaser of production, TXG Intrastate Pipeline Company, and several other necessary parties who were asserting royalty interests in leases taken in an area referred to as the Thornton Field after this suit was filed.

¶4 By notice of trial setting filed October 14, 1993, the parties were given notice that the case was set for trial on January 24, 25, and 26, 1994. TXG filed its motion to amend and supplement its answer, and to assert a counter claim against Plaintiff on January 7, 1994. TXG also filed its Motion for Joinder and Substitution of Proper Parties Plaintiff in This Cause. The court denied these motions at the start of the trial on January 24, 1994. On April 12, 1994, the Final Judgment was entered, by which the court: (1) rendered judgment in the amount of $125,614.85 against San Gabriel for the Partnership's share of production through November 30, 1993, but without allowing any recovery for gas produced from 1985 to 1988; (2) imposed a lien on the other 62.5% interest in the Mississippi Property and on all future production proceeds attributable to that interest in order to satisfy the portion of the judgment against San Gabriel for production occurring from 1985 to 1988, and (3) ordered TXG and EOTT to account to and pay the Limited Partnership proceeds for production attributable to its interest that TXG and EOTT had purchased since December 1990.

¶5 TXG's post-trial motion was denied by the court's order of May 2, 1994. TXG filed a notice of appeal on May 26, 1994. The partnership cross-appealed against TXG, San Gabriel, and EOTT by notice filed June 7, 1994.

¶6 TXG raises the following issues on appeal:

I. WHETHER REASONABLE COSTS ACTUALLY INCURRED BY TXG AND MILMAC TO RESTORE AND OPERATE THE SMITH WELL AFTER DECEMBER 1990 ARE A NECESSARY PART OF ANY ACCOUNTING INCIDENT TO THE PLAINTIFF'S 37.5% WORKING INTEREST IN THE SMITH WELL AND SHOULD BE SHARED BY THAT INTEREST.

II. WHETHER, IN THE ACCOUNTING ON XENEREX PARTNERS' 37.5% WORKING INTEREST, THE CHANCELLOR ERRED IN DENYING TXG'S MOTION TO FILE AN AMENDED AND SUPPLEMENTAL ANSWER AND EXCLUDING EVIDENCE PROFFERED BY TXG OF COSTS IT INCURRED TO RESTORE THE SMITH WELL BACK TO PRODUCTION.

III. WHETHER PLAINTIFF'S EVIDENCE OF VALUE FOR OIL PRODUCED FROM THE SMITH WELL BETWEEN 1985-1988 WAS COMPETENT OR SUFFICIENTLY RELIABLE TO SUPPORT A JUDGMENT AGAINST SAN GABRIEL FOR $97,216.

IV. WHETHER THE CHANCELLOR ABUSED HIS DISCRETION OR EVEN HAD AUTHORITY TO CREATE A JUDGMENT LIEN FOR THE DEBTS OF SAN GABRIEL ON THE OTHER 62.5% WORKING INTEREST AND FUTURE PRODUCTION PROCEEDS WHICH WERE OWNED BY ENTITIES NOT A PARTY TO THIS SUIT.

V. WHETHER THE CHANCELLOR ABUSED HIS DISCRETION OR EVEN HAD AUTHORITY TO MAKE THE JUDGMENT LIEN SUPERIOR TO THE PREVIOUSLY PERFECTED SECURITY INTEREST OF MILMAC AND TXG.

VI. WHETHER THE CHANCELLOR ABUSED HIS DISCRETION OR EVEN HAD AUTHORITY TO MAKE THE JUDGMENT LIEN SUPERIOR TO MILMAC'S RIGHT TO RECOVER FUTURE OPERATING COSTS.

VII. WHETHER THE CHANCELLOR PROPERLY DENIED TXG'S

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MOTION TO ALTER OR AMEND THE FINAL JUDGMENT TO PROVIDE THAT XENEREX PARTNERS' 37.5% WORKING INTEREST IN THE SMITH WELL BE SUBJECT TO ITS SHARE OF FUTURE OPERATING COSTS.

VIII. WHETHER THE CHANCELLOR PROPERLY DENIED TXG'S MOTION FOR JOINDER AND SUBSTITUTION OF PROPER PARTIES PLAINTIFF, ESPECIALLY EMPIRIC ENERGY, INC.

IX. WHETHER THE CHANCELLOR PROPERLY DENIED TXG'S REQUEST TO AMEND THE FINAL JUDGMENT TO REFLECT THE OWNERSHIP AND OBLIGATIONS OF EMPIRIC IN THE SMITH WELL AND LEASES.

X. WHETHER THE CHANCELLOR'S FAILURE AND/OR REFUSAL TO MAKE FINDINGS OF FACT AND CONCLUSIONS OF LAW ON ISSUES IV.--IX., ABOVE, IS REVERSIBLE ERROR.

¶7 Grossnickle cross-appealed to this Court on the following issue:

I. WHETHER THE LOWER COURT ABUSED ITS DISCRETION BY EXCLUDING PLAINTIFF'S EVIDENCE OF THE VALUE OF THE NATURAL GAS PRODUCED AND SOLD FROM THE GAS WELL AT ISSUE DURING THE PERIOD FROM 1985 UNTIL 1988, AND DENYING PLAINTIFF A JUDGMENT FOR THAT AMOUNT OF MONEY.

STATEMENT OF FACTS

¶8 There is no appeal as to the judgment reached by the chancellor on March 1, 1993. It is the alleged errors that occurred at the subsequent hearing on the accounting that have been brought before this Court. However, in order for there to be a full understanding of this appeal, a recitation of facts that led to the 1993 judgment is necessary. This case began in May of 1988 as a dispute between some of the investors in Xenerex, who owned an undivided 37.5% working interest in the Smith Well and some 5,000 acres of leases surrounding that well in Holmes County. Xenerex Partners' claim was based on the fact they had paid $1.5 million in 1984 to San Gabriel's predecessor, Matrix Energy, Inc., to purchase the 37.5% interest.

¶9 In August 1983, Xenerex Corporation was a Delaware corporation in the oil and gas business. Matrix Energy, Inc., formerly known as Magna Matrix Energy, Inc., was a subsidiary of Xenerex. James J. Ling was the Chairman of Xenerex, and James A. Myers was its President. Ling and Myers also held those positions with Matrix. In November 1980, Matrix obtained title to approximately 5,000 acres of oil and gas leases in the Thornton Field in Holmes County. On or about September 3, 1981, Xenerex, through its subsidiary Matrix, executed a promissory note for $1,200,000 to Bank de l'Union Europeene (BUE), and purported to give BUE a security interest in property, which included fixtures and other interests pertaining to the Smith Well and the oil and gas leases owned by Matrix in the Thornton Field. A UCC financing statement was filed in the Holmes County records, but no deed of trust was ever filed securing the note and apparently none ever existed.

¶10 In August of 1983, Ling distributed copies of a memorandum proposing a $5,000,000 private placement on behalf of Xenerex. Such copies were reviewed by Grossnickle, Albert Susman, and other individuals. Ling and Myers caused Xenerex to prepare a formal "Confidential Private Placement Memorandum" dated September 26, 1983, which offered shares in a Texas limited partnership to be known as "Xenerex Partners, Ltd.," with Xenerex Corporation as the general partner. The proposal was agreed to by Xenerex Corporation, as the General Partner, and by five limited partners, Grossnickle, Susman, A.D. Martin Properties, Inc., Hal R. Pettigrew, and Andrew F. Stasio. The Limited Partnership was then formed and registered in accord with Texas law, and the

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Limited Partners paid a total of $1,500,000 to Xenerex, for a combination of Xenerex stock and Limited Partnership interests (totaling 99%) in the Limited Partnership.

¶11 Under the private Placement Memorandum, Xenerex agreed to have its subsidiary, Matrix, transfer to the Limited Partnership various oil and gas properties and interests, including an undivided 37.5% share of the 100% working interest to which Matrix held record title in the Mississippi Property. During 1984 and early 1985, Grossnickle inquired of Myers, the President of Xenerex and Matrix, whether the various oil and gas interests, which were to be assigned to the Limited Partnership, had in fact been assigned. Myers told Grossnickle that the assignments had been made, and he would provide Grossnickle with copies of the assignments.

¶12 On September 16, 1985, Xenerex and Matrix filed a Chapter 11 bankruptcy petition in Oklahoma. Although Myers represented to Grossnickle that the assignments of the Mississippi Property had been made by Matrix to the Limited Partnership, no assignment had been made at the time Xenerex and Matrix filed for bankruptcy. Therefore, legal title to the Mississippi Property remained in Matrix when Matrix went into bankruptcy.

¶13 Soon after the bankruptcy petition was filed, Ling and Myers initiated their plan to have San Gabriel, their new company, acquire the Mississippi Property. On October 10, 1985, Ling prepared a memorandum...