Western Natural Gas Co. v. Cities Service Gas Co.

• Decision Date: 09 May 1972
• Docket Number: No. 43624,43624
• Citation: 507 P.2d 1236
• Parties: WESTERN NATURAL GAS COMPANY, a Dissolved Delaware Corporation, and Henry O. Weaver, Trustee in Dissolution of Western Natural Gas Company, Appellees, v. CITIES SERVICE GAS COMPANY, Appellant.
• Court: Oklahoma Supreme Court

Page 1236

507 P.2d 1236

WESTERN NATURAL GAS COMPANY, a Dissolved Delaware Corporation, and Henry O. Weaver, Trustee in Dissolution of Western Natural Gas Company, Appellees, v. CITIES SERVICE GAS COMPANY, Appellant.

No. 43624.

Supreme Court of Oklahoma.

May 9, 1972.

Appeal Dismissed and Certiorari Denied Dec. 11, 1972. See 93 S.Ct. 559.

Rehearing Denied July 18, 1972.

V. P. Crowe, L. E. Stringer, Clyde A. Muchmore, of Crowe, Dunlevy, Thweatt, Swinford, Johnson & Burdick, Oklahoma City, John C. Dawson, Houston, Tex., for appellees.

Jack W. Wertz, Daniel R. Hopkins, Joseph H. Crosby, Coleman Hayes, Harvey L. Harmon, Oklahoma City, for appellants; Monnet, Hayes, Bullis, Grubb & Thompson, Franklin, Harmon & Satterfield, Oklahoma City, of counsel.

Gordon Gooch, Gen. Counsel, Peter H. Schiff, Sol., Robert C. McDiarmid, Asst. Gen. Counsel, Washington, D.C., for the Federal Power Comm., amicus curiae.

DAVISON, Vice Chief Justice.

This appeal by Cities Service Gas Company (Cities) seeks reversal of a judgment based upon a jury verdict against Cities in favor of Western Natural Gas Company, a dissolved Delaware Corporation, and Henry O. Weaver, Trustee in dissolution of Western Natural Gas Company (Western) in the sum of $5,026,626 with interest thereon at 10% Per annum from May 8, 1969, until paid. Cities also ask that we render judgment in its favor and against Western. The action was instituted on November 28, 1966, in the District Court of Oklahoma County by Western against Cities in which Western claimed that Cities had breached implied obligations in a contract covering the sale of natural gas from Western to Cities resulting in damages to Western.

As we relate the story of this litigation in relevant parts, in addition to references made to Cities and Western, references by the indicated symbols may be made to El Paso Natural Gas Company (El Paso), the Federal Power Commission (FPC), Southern California Gas Company and Southern Counties Gas Company of California (California Companies), Sinclair Oil and Gas Company (Sinclair), Pan American Petroleum Corporation (Pan American), Kansas Power and Light Company (KPL), Transwestern Pipe Line Company (Transwestern), and Cities Service Helex, Inc. (Helex).

Western's petition, as amended, after identifying the parties and the nature of their operations, allege Western's acquisition of oil and gas leasehold estates covering 35,000 acres of land in Grant and Stanton Counties, Kansas, in the Kansas-Hugeton Field and the production and marketing therefrom of the natural gas at 8cents per mcf under a contract dated September 29, 1949, between Western as seller and Cities as buyer for a term of 10 years from April 1, 1950, the date of the first delivery of gas thereunder.

The petition as amended states the following additional facts: The Contract of September 29, 1949, was subject to an antecedently executed contract dated May 1, 1947, between Western, as seller, and El Paso as buyer, whereunder El Paso acquired the preferential right, exercisable at any time within thirty years from May 1, 1947, to purchase gas which might be produced from Western's Oil and Gas Leasehold estates. At the time the Contract of September 29, 1949, was entered into Western, Cities and El Paso made an agreement whereby El Paso agreed to forego its preferential right to purchase gas during the term of the (1949) Contract.

The petition as amended alleged additionally that by reason of the execution of the contracts hereinabove mentioned, Cities had a continuing express and implied contractual obligation to Western to carry out the termination provisions of said contracts and to convey to Western or its order the gathering lines and facilities on the expiration of the contract and such obligations on the part of Cities Service included the obligation to cooperate with Western in the obtaining of any necessary governmental authority required in order for it to obtain such release of such gas and the conveyance and delivery to it or its order of such gathering lines and facilities.

The petition as amended also alleged that on February 16, 1959, El Paso notified Western of the exercise of its preferential right under the contract of May 1, 1947, to take Western's gas then being sold to Cities under the Contract of September 29, 1949, which, subject to the jurisdiction of the Federal Power Commission, terminated April 1, 1960; that on May 29, 1959, Western filed an application before FPC to abandon service to Cities under the Contract of September 29, 1949, and on June 26, 1962, Western amended its application to make reference to a more favorable contract as to price Western had made with El Paso on January 30, 1962; that Cities had a continuing implied obligation under the Contract of September 29, 1949, to cooperate with Western in its efforts to obtain release of its gas and to comply with and enjoy the benefits of the prior agreement of May 1, 1947; that Cities was thereby obligated to cooperate in the required abandonment proceeding before FPC in the full and fair presentation of the facts, which Cities failed and refused to do. Cities failed and refused to cooperate with the lawful assertion of rights of Western in said proceeding and in violation of its obligations to Western it intervened in Western's abandonment proceedings and presented objections to Western's abandonment of service to it, after the term of the Contract of September i9, 1949, had expired, without a substantial basis in fact and contrary to the facts, said acts being done for the private corporate purposes of Cities and in bad faith; that due to the bad faith conduct of Cities, Western abandoned its application to discontinue service to Cities due to the delay caused by Cities with the result that the market arranged for in the contract of January 30, 1962, between Western and El Paso was lost.

On the basis of the foregoing allegations Western alleged resulting damages in value to its natural gas reserves in the sum of $7,397,772.

Cities' general demurrer to Western's petition, as amended, was overruled by the trial court.

In reference to issues relevant to this appeal, defendants' first amended answer denied the existence of any express or implied contractual obligations, alleged to have existed by virtue of the Contract of September 29, 1949, to cooperate with Western in any proceedings before the FPC but if any such obligations had contractually existed the same would be void, invalid and unenforceable as against public policy. The amended answer further denied that Western had any 'rights' or favorable opportunity for Western to obtain an FPC order abandonment of service to Cities; that such abandonment was not in the public interest; that Cities caused no delay in FPC proceedings respecting Western abandonment application and any delay was caused solely by acts of Western.

Cities denied that it acted in bad faith and for its own corporate purpose in connection with Western's abandonment application before FPC and asserts that Western acted in bad faith by failure to negotiate with Cities for the renewal or extension of its contract with Cities and by its entering into private arrangements with its corporate affiliate which were not in the public interest. Cities says further that when Western in 1954 applied for and received under the Natural Gas Act a certificate of public convenience and necessity for the continued service to Cities, Western lost its right to maintain this action.

Cities alleges additionally in its first amended answer that all its contacts with the FPC are privileged; that Western's cause of action is barred by the three year limitations, Sections 12--301(7) of the District of Columbia Code, made applicable by Oklahoma's 'borrowing statute' 12 O.S.1961, §§ 104--108 (Supp.1965) and if Western's cause of action accrued in the State of Kansas such cause of action, having accrued prior to the alleged expiration of the Contract, April 1, 1960, was barred by the Kansas 5 year limitation statute, K.S.A. 60--510, 60--511, applicable to any 'action upon agreement, contract or promise in writing' or if the obligation is implied in the written contract the Kansas 3 year Statute of Limitation applies, K.S.A. 60--512(1) or the 3 year Oklahoma limitation statute may apply, 12 O.S.1961, § 95. This last 'limitation' defense was abandoned by Cities. Cities also pleads the Oklahoma 5 year limitation statute as a bar, 12 O.S.1961, § 95, First.

The reply of Western did not change the issues as they were made by Western's petition as amended and Cities amended answer.

As a basis for the solution fo the questions presented by this appeal we deem it necessary to advert to certain conclusions of law or fact or law and fact concerning which both parties, Western and Cities agree, but with which we disagree.

Western, in paragraph 8 of its petition as amended, says in effect and cities, in paragraph 3 of its first amended answer, 'admits' that the Contract expired April 1, 1960. Cities says in its brief 'The Western-Cities 1949 Contract terminated April 1, 1960 * * *.' On page 26 of Western's answer brief, Western says: 'Western's position in the court below, and here, is that Cities' contract right to purchase Western's gas terminated April 1, 1960 * * *.' FPC in its amicus brief studiously avoids saying that the 1949 Contract terminated April 1, 1960, but rather on page 3 of its brief, FPC says, in referring to the 1949 Contract, 'As a rate schedule for a jurisdictional sale of the gas, the contract in question created quite different rights and obligations than it had done as a supposedly private contract. If it had been a private contract, then the parties' obligations thereunder would have come to an end on April 1, 1960, and it could have been renegotiated at any time.'

The views there expressed by FPC, as we understand them, comport with Oklahoma law. We have held: 'that the existing applicable...