Withrow v. Red Eagle Oil Co.

• Decision Date: 23 February 1988
• Docket Number: 63491 and 63632,Nos. 62382,s. 62382
• Parties: Jon R. WITHROW, Richard D. Darnell, Herbert H. Holmes, David A. Bash, Jr., Sundance Oil Company, Darnell Oil Corporation, Ann Caylor, James W. Caylor, and Susan Holmes, Appellees, v. RED EAGLE OIL COMPANY, and Harry C. Johnson, Appellants.
• Court: Oklahoma Supreme Court

Page 622

755 P.2d 622

1988 OK 16

Jon R. WITHROW, Richard D. Darnell, Herbert H. Holmes, David

A. Bash, Jr., Sundance Oil Company, Darnell Oil

Corporation, Ann Caylor, James W.

Caylor, and Susan Holmes, Appellees, v. RED EAGLE OIL COMPANY, and Harry C. Johnson, Appellants.

Nos. 62382, 63491 and 63632.

Supreme Court of Oklahoma.

Feb. 23, 1988.

As Corrected March 2, 1988.

Rehearing Denied May 24, 1988.

Certiorari to the Court of Appeals, Division No. 1.

Co-owners brought suit against operator Red Eagle Oil Company and its president, Johnson, to remove Red Eagle as operator and for actual and punitive damages alleged to be attributable to mislocation of the well and a commingling operation. Verdict and judgment of the District Court of Major County was entered in favor of co-owners insofar as actual damages were awarded for loss of use of income, permanent loss of production due to well damage and reimbursement for their share of the costs of the commingling operation. Co-owners were also awarded costs and attorney's fees against Red Eagle only. The trial court did not find Johnson liable and awarded him costs and attorney's fees. The trial court denied co-owners' request for removal of Red Eagle. Red Eagle and Johnson appealed and co-owners cross-appealed to the Supreme Court, which assigned the cause to the Court of Appeals, Division No. 1. The Court of Appeals affirmed the judgment of the trial court in an unpublished opinion and denied petition for rehearing. Both appellants and appellees have sought certiorari. We have previously granted appellants' request for certiorari for the limited purposes of reviewing the award for loss of use of income.

CERTIORARI PREVIOUSLY GRANTED FOR LIMITED PURPOSES; OPINION OF COURT OF APPEALS AFFIRMED IN PART AND VACATED IN PART AND JUDGMENT OF TRIAL

COURT AFFIRMED IN PART AND REVERSED IN PART.

Mahaffey & Gore, P.C. by Gregory L. Mahaffey and J. Jayne Jarnigan, Oklahoma City, for appellees.

Watson & McKenzie by H.B. Watson, Jr. and Sharon Taylor Thomas, Oklahoma City, for appellants.

HODGES, Justice.

Appellants Red Eagle Oil Company (Red Eagle) and Harry C. Johnson (Johnson) seek vacation of an unpublished opinion by the Court of Appeals, Division No. 1, affirming a judgment of the district court on a jury's verdict awarding appellees Jon R. Withrow, Herbert H. Holmes, David A. Bash, Jr., Darnell Oil Corporation, Ann Caylor, James W. Caylor, Susan M. Holmes and Sundance Oil Company (co-owners) $360,940 in damages for permanent loss of production due to well damage from an oil and gas well operated by Red Eagle, $669,575 in damages for loss of use of money, and $4,300.65 as reimbursement for appellees' share of the costs of the commingling operation. Appellees were additionally awarded $2,008.34 in costs and $177,420 in attorney's fees against Red Eagle only. Johnson, president of Red Eagle, was granted judgment against appellees and was awarded $1,770.88 in costs and $57,895.75 in attorney's fees against appellees. Appellees co-owners also petition for certiorari challenging the award of attorney's fees in Johnson's favor.

We grant appellants' petition for certiorari solely on the issue concerning the award of damages for loss of use of money. In all other respects review by certiorari is denied. The dispositive issue is whether co-owners are entitled to recover for loss of use of money as an element of their actual damages measured by interest, at prime rate compounded every six months, on the amount of money they allege they would have received from sales of oil and gas from the W.O.R. No. 1 Well but for appellants' alleged gross negligence. For the reasons that follow we vacate the opinion of the Court of Appeals and reverse the judgment of the trial court with respect to the damages awarded for loss of use of money.

Co-owners complained of certain actions of Red Eagle which amounted to a breach of duties as unit operator. Red Eagle mislocated the well drilled under a location exception order of the Oklahoma Corporation Commission which resulted in two penalties placed on production from October 1979 through October 1981. The first penalty on production was not followed by Red Eagle which resulted in the imposition of the second penalty. Appellees also alleged gross negligence and intentional misconduct in Red Eagle's commingling operation of the Red Fork and Mississippi Solid formations which was performed in August 1980. Co-owners assert if Red Eagle had not breached the joint operating agreement, they would have had use of the income on their share of production valued at over $1,000,000 which they would have received between January 1980 through December 1982. They contend the $669,575 award for loss of use of money merely compensates them for the delay in receiving that income. The Court of Appeals stated:

"The damages awarded by the jury for loss of use of income is the measure of Appellees' lost profits computed by discounting the present value of the production which would have been obtained but for Red Eagle's conduct. Appellees did not seek nor have they recovered pre-judgment interest but rather sought and recovered damages proximately caused by Red Eagle's breach of the contract which were within the contemplation of the parties at the time the contract was entered into. Such damages can only be valued in relation to the time value of money, commonly referred to as 'interest'."

In affirming the trial court's computation of loss of use of money, which was interest on the value of lost production at prime rate, compounded from the date of loss to the date of trial in September 1984, the Court of Appeals ruled:

"In the present case, the awarded damages arising from Appellants' actions must make the Appellees whole and therefore the rate of interest to be considered in computing present value must be compounded to achieve making the Appellees whole, i.e., Plaintiffs could have expected compounded interest on a safe investment in this locality."

Appellants' petition for certiorari challenges these conclusions. They assert the Court of Appeals mischaracterized the loss of use damages as "damages for the time value of the income they would have received but for Red Eagle's breach of contract." Appellants' principal contention is that appellees' award of loss of use damages constitutes an impermissible award of prejudgment interest in derogation of 23 O.S.1981 § 6. Section 6 provides:

"Any person who is entitled to recover damages certain, or capable of being made certain by calculation, and the right to recover which is vested in him upon a particular day, is entitled also to recover interest thereon from that day, except during such time as the debtor is prevented by law, or by the act of the creditor from paying the debt."

Co-owners in opposition argue that § 6 does not prohibit the computation of the actual damage sustained by reference to an interest rate as distinguished from prejudgment interest which applies interest to the damage award itself. They point to the distinction between interest allowed by statute or agreement as compensation for use or detention of money and interest as an element of damages necessary to compensate a plaintiff for all the detriment proximately caused by a defendant's actions. Co-owners seek to uphold the trial court's award upon the authority of 23 O.S.1981 § 21, ¹ Groendyke Transport, Inc. v. Merchant, 380 P.2d 682 (Okla.1963); Gallaspy v. Warner, 324 P.2d 848 (Okla.1958) and Cavnar v. Quality Control Parking, Inc., 696 S.W.2d 549 (Tex.1985). They contend the award of loss of use of income damages was an award for the actual damage resulting from Red Eagle's breach of the operating agreement, not an award of prejudgment interest upon damages. We are unpersuaded by co-owners' arguments.

As the United States Supreme Court said in Library of Congress v. Shaw, 478 U.S. 310, 321, 106 S.Ct. 2957, 2965, 92 L.Ed.2d 250, 262 (1986):

"In the alternative, respondent argues that the no-interest rule does not prohibit the award of compensation for delay. But the force of the no-interest rule cannot be avoided simply by devising a new name for an old institution:

'The character or nature of 'interest' cannot be changed by calling it 'damages', 'loss', 'earned increment', 'just compensation', 'discount', 'offset', or 'penalty', or any other term,...