Teel v. Public Service Co. of Oklahoma
Teel v. Public Service Co. of Oklahoma
Opinion of the Court
The questions presented are: whether Transok Pipeline Company and Public Service of Oklahoma (appellees/purchasers), must account for the fair market value of gas produced on leases in which Roy M. Teel, appellant, owned a working interest, and if so, the market value of the gas; whether the purchasers converted Teel’s gas; whether the purchasers were unjustly enriched by investment of the gas proceeds; whether the purchasers must account for interest; whether this appeal was properly and timely brought; and whether the right to appeal was waived by acceptance of funds held in suspense by the purchasers. We find the appeal was properly and timely brought, and that limited to the facts presented here a pipeline purchaser, who buys gas from a cotenant/operator is a converter after notice is received that the other cotenant has revoked the operator’s right to dispose of the gas.
Teel and his family have a working interest in five wells within a common source of supply located in Pittsburgh County, Oklahoma. The wells include the Bender Well (Sec. 33-T9N-R16E), the Presson Well (Sec. 31-T9N-R16E), the Smith Well (Sec. 5-T8N-R16E), the McDuff Well (Sec. 32-T9N-R16E) and the Katy Well (Sec. 28-T9N-R-16E). PSO and Transok bought gas from R.H. Siegfried, R.H. Siegfried, Inc., and George F. Collins, Jr., (operators).
The operators drilled and completed producing gas wells under the farm-out agreements and paid shut-in gas royalties from 1967 through 1974. On February 26, 1973, the operators contracted to sell gas to Transok for twenty years with price rede-termination to be made every three years designating a price redetermination area which included portions of Pittsburgh, Hughes and McIntosh Counties. Teel refused to join in the contract asserting that the terms were unfair and discriminatory. Before pay-out, Transok paid all production receipts to the operators and distributed payment to the royalty owners of royalty under the division order. After pay-out, at the direction of the operators, Transok placed payments due Teel in a special “suspense” account. Transok assigned its contract to PSO on June 25, 1977.
In .1978, Teel brought an action for an accounting and for determination of leasehold rights against the operators, Siegfried and Collins, and the purchasers, PSO and Transok. On August 9, 1979, the trial court ordered all proceeds, including $649,-474.17 in the suspense account attributable to Teel’s interest placed in an escrow account during the pending of litigation. The trial court also ordered an accounting to determine completion costs and to establish the pay-out dates. Teel accepted the accounting pay-out dates and settled the dispute with the operator which was approved by the trial court on October 22,1982. The operators are not parties to this appeal. Transok and PSO agreed that Teel’s settlement with the operators did not prejudice claims asserted against the purchasers.
On September 1, 1982, the trial court held that Teel could put on evidence to prove that the contract price was unreasonable however, on October 22, 1982, it reversed its ruling and refused to hold an evidentiary hearing on the relevant marketing area deciding that the fair market value and the market area were identical to the redetermination area and the contract price.
Subsequently, on September 20, 1983, the trial court determined that Teel was entitled to six percent interest from the date the proceeds were received until they were deposited in the escrow account. The trial court directed Teel to submit executed division orders to Transok indicating Teel’s interest in the production and ordered liquidation of the escrow account with all proceeds paid to Teel. Teel appeals from the finding that the fair market value was the price received by the operator. He also appeals from the refusal of the trial court to find that the purchasers converted his gas and that they were unjustly enriched by the sale thereof. The purchasers counter that the order issued on October 22, 1982, was a final order which determined all issues and that, therefore, the appeal was untimely. Teel contends that the final order was not issued until September 20, 1983, when the trial court awarded interest.
I
THIS APPEAL WAS PROPERLY AND TIMELY BROUGHT
Initially, Teel petitioned for a declaration of the rights of the parties, an order quieting title against claims of other parties, and an accounting. On March 28, 1979, Teel amended the petition, alleging conversion if the remaining gas were insufficient
A cause of action embodies all theories of recovery or damages which emanate from one occurrence or transaction.
The material inquiry is whether all the issues were completely resolved in the October, 1982 proceedings. The trial court in the September 20, 1983 proceeding, ruled on the motion for summary judgment; the right to recover prejudgment interest, and on an accounting of the money earned by the purchasers on the production proceeds. The court also found Teel was entitled to recover six percent interest and directed execution of a division order. All the issues were not determined until the order of September 20, 1983, because the October 22, 1982, order did not decide the interest issue, and the matter was passed repeatedly at the request of the purchaser.
Before the enactment of the new pleading code, 12 O.S.Supp.1984 § 2008, issues were raised only by allegations of fact contained in the body of the pleading, and the prayer for relief was not considered part of the pleading. Here, Teel explicitly asserted recovery for interest on the escrow account as an element of his cause of action. The disposal of a segment of a cause of action is not a judgment but an interlocutory summary adjudication, a limitation on the issues to be tried, subject to alteration or modification by the trial court before final judgment. The trial court retains full power to make one complete judgment and dispose of all aspects of the action. An interlocutory summary adjudication does not form an appealable order.
II
ACCEPTANCE OF ESCROW FUNDS DID NOT WAIVE THE RIGHT TO APPEAL
The purchasers’ argue that Teel accepted the benefits of the trial court’s judgment thereby waiving his right to appeal. Teel contends that the only benefit he received was the amount paid into an escrow account in accordance with the settlement agreement with the operators, and that the settlement clearly provided that it was made without prejudicing his claims against Transok and PSO.
The general rule is that a party who voluntarily accepts benefits of a judg
Ill
A PIPELINE PURCHASER WHO BUYS GAS FROM A COTENANT/OPERATOR WITH NOTICE THAT THE OPERATOR LACKS AUTHORITY TO DISPOSE OF ALL THE GAS MAY BECOME A CONVERTER
The determinative issue is whether the purchasers are converters of Teel’s gas. The purchasers contend that Teel and the operator are cotenants and that each are entitled to produce the wells. They also argue that it is the operators’ responsibility to account to Teel. Teel asserts that the purchasers have taken without a purchase contract, with notice of his interest, and that they must account for the fair market value of the gas.
The owners of undivided interest in oil and gas rights are tenants in common. Each of the cotenants may develop the common property but not to the exclusion of the other cotenants.
A tenant in common may lease his/her interest in production without the consent of other cotenants, but in the absence of an express agreement, one coten-ant is not an agent of the other. A gas sales contract executed by a cotenant is limited to his/her interest. However, if cotenants name a cotenant as operator to exploit the cotenancy for their mutual profit, they become coadventurers in the enterprise and stand in a fiduciary relationship to one another.
“In the event any party shall fail to make the arrangements necessary to take in kind or separately dispose of its proportionate share of the oil and/or gas pro*397 duced from the joint property, Operator shall have the right, subject to revocation at will by the party owning it, but not the obligation to purchase such oil and/or gas or sell it to others for the time being, at not less than the price which Operator receives for its portion of the oil and/or gas produced from the joint property.”
Teel does not dispute that he has not taken his gas in kind or disposed of it in another manner. The agreement gave the operators the discretionary right to sell Teel’s interest until he revoked the authority on November 17, 1977. Teel also does not dispute that the purchasers took delivery of Teel’s gas which was produced by the operators. The trial court found that the operator had bought and sold Teel’s gas to Transok and PSO. Under the operating agreement, the operator had the right to do this until revocation. The operators were duty bound to act as a reasonable and prudent operator and police the production of the well because of its fiduciary relationship with Teel as a co-tenant.
A division order consists of an agreement between the working interests and the purchasers which provides a formula for payment of the purchaser’s price of gas. Its function is to protect the purchaser from liability.
However, the purchaser must exhibit bad faith or have knowledge that the gas purchased exceeds the ultimate share allotted to the working interest. If so, the purchaser is assessed damages based on the contract price of the under-produced working interest. Otherwise, the purchaser is liable only to the extent that the working interests have been paid under the sales contract. The purchaser may pursue each working interest under the imdemnification clause contained in the gas sales contract. In this case, Teel did not sign the division order until he was ordered to do so by the trial court in September, 1983. The purchasers were aware of Teel’s interest because they attempted to reach an agreement with him several times and were in receipt of a copy of his letter revoking the operators’ right to deliver his gas to the purchasers.
IV
IN AN ACTION FOR CONVERSION OF PROPERTY, THE MEASURE OF DAMAGES IS THE FAIR MARKET VALUE OF THE PROPERTY
Teel contends that because the purchasers have taken his gas, they are liable for the statutory damages for conversion. In an action for the conversion of property, the measure of damages is the fair market value of the property at the time of conversion and interest thereon — if the party pursues the suit with diligence. An election may be made to take the highest fair market value of the property with interest at any time between the conversion and the verdict.
The pipeline purchasers submit that Tara Petroleum Corp. v. Hughey, 630 P.2d 1269, 1273 (Okla. 1981), is determinative. In Tara, the lessor sued the lessee to establish market value for gas sold under a royalty provision in the lease. A royalty interest is an interest in production where property is under an oil and gas lease.
The purchasers and the operator were jointly liable for Teel’s gas,
V
BEFORE LITIGANTS MAY RECOVER FOR UNJUST ENRICHMENT, THERE MUST BE ENRICHMENT COUPLED WITH A RESULTING INJUSTICE
Insofar as the argument of unjust enrichment is concerned, before a party may recover unjust enrichment, there must be enrichment to another coupled with a resulting injustice.
Title 52 O.S.1981 § 540 is inapplicable because it became effective July 1, 1980, after the suit was filed, (1978) and after the court had ordered the funds es-crowed (August 9, 1979). Generally, statutes are presumed to operate prospectively. A clear expression of legislative purpose is required to justify a retroactive application, and in the case of doubt, the doubt must be resolved against a retroactive effect.
AFFIRMED IN PART.
REVERSED IN PART AND REMANDED.
. Insofar as Teel announces a rule of conversion, it is confined to the peculiar scenario found herein.
. Mann v. State Farm Mut. Auto Ins. Co., 669 P.2d 768, 772 (Okla. 1983); Retherford v. Halliburton Co., 572 P.2d 966, 968 (Okla. 1978).
. Anderson v. Falcon Drilling Co., 695 P.2d 521, 523 (Okla. 1985); Mann v. State Farm Mut. Auto Ins. Co., see note 2 supra.
. United Engines, Inc. v. McConnell Const., Inc., 641 P.2d 1101, 1105 (Okla. 1981); Tara Oil Company v. Kennedy & Mitchell, Inc., 622 P.2d 1076-77 (Okla. 1981); Bras v. Gibson, 529 P.2d 982-83 (Okla. 1974).
. United Engines, Inc. v. McConnell Const. Inc., see note 3 supra; Berry v. Empire Indem. Ins. Co., 634 P.2d 718, 720 (Okla. 1981); Marshall v. Marshall, 364 P.2d 891, 895 (Okla. 1961).
. Bras v. Gibson, see note 4, supra is distinguishable. In Bras, the appellant accepted the judgment from his adversary and then appealed the judgment. In this case, Teel accepted the escrow account from the operator not the purchasers. He did not include the operator in this appeal. He is appealing the judgment which concerns the purchasers. See also Unterkircher v. Adams, 714 P.2d 193 (Okla. 1985).
. De Mik v. Cargill, 485 P.2d 229, 233 (Okla. 1971); Dilworth v. Fortier, 405 P.2d 38, 49 (Okla. 1964); Harper v. Ford, 317 P.2d 210, 214 (Okla. 1957); Coal Oil and Gas Company v. Styron, 303 P.2d 965, 969 (Okla. 1956); Mershon v. Essley, 204 Okl. 660, 233 P.2d 293, 297 (1951); Earp v. Mid-Continent Petroleum Corp., 167 Okl. 86, 27 P.2d 855, 858, 91 A.L.R. 188 (1933).
. Essley v. Mershon, 262 P.2d 417, 420 (Okla. 1953); Earp v. Mid-Continent Petroleum Corp., see note 7 supra. See also, Reynolds, “Co-ownership of Property in Oklahoma,” 27 Okla.L.Rev. 585, 605 (1974).
. Britton v. Green, 325 F.2d 377, 383 (10th Cir. 1963); Eagle-Picker Co. v. Mid-Continent Lead & Zinc Co., 209 F.2d 917, 919 (10th Cir. 1954); Taylor v. Brindley, 164 F.2d 235, 240 (10th Cir. 1947). Young v. West Edmond Hunton Lime Unit, 275 P.2d 304, 309 (Okla. 1954); See also 6 Williams and Meyers, "Oil and Gas Law”, p. 868-69, § 990 (1984).
. Ellis, "The Production of Gas from Joint Interest Properties," 21st Southwestern Legal Foundation on Oil and Gas Law and Taxation, p. 47, 80 (1970); Note, "Oil and Gas: Production Imbalance in Split Stream Gas Wells — Getting Your Fair Share,” 30 Okl.L.Rev. 955, 966 (1977). See also Beren v. Harper Oil Co., 546 P.2d 1356, 1358 (Okl.App. 1975).
. 4 Williams and Meyers, see note 9, supra; at p. 571-72 § 701 Note, "Oil and Gas Production Imbalance in Split Stream Gas Wells — Getting Your Fair Share”, see note 10, supra; Hemingway, "The Law of Oil and Gas,” p. 3632-63, § 7.5 (2nd Ed. 1983).
. Masterson, "Division Order Problems Created by Apportionment of Royalty’, 10 OklaX.Rev. 289 (1957).
. 4 Williams and Meyers, see note 11, supra.
. See 1 Kuntz, "Oil and Gas”, p. 242-43, § 11.2 (1962), which states:
"Although independent contractors or agents engaging in various phases of the drilling and completion of the well, but who do not engage in nor participate in the full operation, would undoubtedly be liable as trespassers for the physical damage which they produced, it is submitted that their liability should not extend to the value of the oil or gas produced unless they actually engaged in the production operation as distinguished from engaging in isolated phases of the operation such as cementing, perforating, and clearing. The pipeline or other purchaser who purchased production from one not entitled thereto would be a converter and liable to the true owner.”
. With this knowledge PSO continued to purchase the gas and was not a purchaser in good faith. Texas Co. v. Pettitt, 107 Okla. 243, 220 P. 956, 959 (1923). PSO’s purchases, coupled with its knowledge, amounts to bad faith and constitutes an action in tort. Stizel-Weller Distillery v. Norman, 39 F.Supp. 182, 187 (W.D.Ky. 1941). The distinguishing factor between Moody v.
. See note 14, supra.
. Damages are provided in 23 O.S.1981 § 64: "The detriment caused by the wrongful conversion of personal property is presumed to be:
1. The value of the property at the time of the conversion with the interest from that time; or,
2. Where the action has been prosecuted with reasonable diligence, the highest market value of the property at any time between the conversion and the verdict, without interest, at the option of the injured party; and,
3. A fair compensation for the time and money properly expended in pursuit of the property."
See also, Edwards v. Lachman, 534 P.2d 670, 677 (Okla. 1975); Hamco Oil and Drilling Co. v. Ervin, 354 P.2d 442, 445 (Okla. 1960).
. Neither party complains of the trial court’s denial of trial by jury in the conversion action. On remand, a waiver of trial by jury is not binding on the subsequent trial, if the right to trial by jury is otherwise applicable. Seymour v. Swart, 695 P.2d 509, 512 (Okla. 1985).
. Hays v. Phoenix Mutual Life Ins. Co., 391 P.2d 214, 216 (Okla. 1964); Doss Oil Royalty Co. v. Lahman, 302 P.2d 157, 161 (Okla. 1956); Elliott v. Berry, 206 Okl. 594, 245 P.2d 726, 729 (1952).
. Probst v. Bearman, 76 Okla. 71, 183 P. 886, 888 (1919).
. Efco Importers v. Halsobrunn, 500 F.Supp. 152, 157 (E.D.Pa. 1980); Sachs v. Continental Oil Co., 454 F.Supp. 614, 619 (E.D.Pa. 1978).
. See note 14, supra.
.Title 52 O.S.1981 § 540 provides in pertinent part:
“A. The proceeds derived from the sale of oil or gas production from any oil or gas well shall be paid to persons legally entitled thereto, commencing no later than six (6) months after the date of first sale, and thereafter no later than sixty (60) days after the end of the calendar month within which subsequent production is sold....
Provided, however, that in those instances where such proceeds cannot be paid because the title thereto is not marketable, the purchasers of such production shall cause all proceeds due such interest to earn interest at the rate of six percent (6%) per annum, until such time as the title to such interest has been perfected....
B. Any said first purchasers or owner of the right to drill and produce substituted for the first purchaser as provided herein that violates this act shall be liable to the persons legally entitled to the proceeds from production for the unpaid amount of such proceeds with interest thereon at the rate of twelve percent (12%) per annum, as the penalty...."
This statute was amended in 4 Okla.Sess.Laws ch. 141, pp. 390-91 (1985). However the amendment only changed subsection (B) which now provides:
"B. Any said first purchasers or owner of the right to drill and produce substituted for the first purchaser as provided herein that violates this act shall be liable to the persons legally entitled to the proceeds from production for the unpaid amount of such proceeds with interest thereon at the rate of twelve percent (12%) per annum, calculated from date of first sale.”
. Hammons v. Muskogee Medical Center Authority, 697 P.2d 539, 542 (Okla. 1985); Trinity Broadcasting Corp. v. Leeco Oil Co., 692 P.2d 1364, 1366 (Okla. 1984); Wickham v. Gulf Oil Corp., 623 P.2d 613, 615 (Okla. 1981); Wilson v. State ex rel. Okla. Tax Com’n, 594 P.2d 1210, 1212 (Okla. 1979).
. Wickham v. Gulf Oil Corp., see note 24, supra; Oklahoma Water Res. Bd. v. Central Okla.M.C. Dist., 464 P.2d 748, 755 (Okla. 1969); Washabaugh v. Bartlett Collins Glass Co., 177 Okla. 159, 57 P.2d 1162, 1164 (1936). See also Anderson v. Dewey, 82 Idaho 173, 350 P.2d 734, 738 (1960); Lake v. Bonynge, 161 Cal. 120, 118 P. 535, 540 (1911).
Dissenting Opinion
dissenting:
I respectfully dissent from the court’s election to impose the law of conversion upon controversies of this nature. I would permit Teel to recover by way of “balancing” under the doctrine of restitution. Beren v. Harper Oil Co., 546 P.2d 1356 (Okla.App. 1975); Earp v. Mid-Continent Petroleum Corp., 167 Okl. 86, 27 P.2d 855 (1933); Moody v. Wagner, 167 Okl. 99, 23 P.2d 633 (1933).
I am authorized to state that LAVENDER and SIMMS, JJ., join in the views expressed herein,
Reference
- Full Case Name
- Roy M. TEEL, Arlie D. Teel, Roy M. Teel Company, Inc., and SJM, Inc. Appellants, v. PUBLIC SERVICE COMPANY OF OKLAHOMA, Transok Pipeline Company, Appellees
- Cited By
- 55 cases
- Status
- Published