Summary 2010 WY 36

Summary of Decision issued March 23, 2010

Summaries are prepared by Law Librarians and are not official statements of the Wyoming Supreme Court

Case Name: Ultra Resources, Inc. v. Hartman

Citation: 2010 WY 36

Docket Numbers: S-08-0258, S-08-0259, S-08-0260, S-08-0261, S-08-0262, S-08-0263, & S-08-0264

Appeal from the District Court of Sublette County, the Honorable Norman E. Young, Judge.

Representing Appellant Ultra Resources, Inc. and Williams Production Rocky Mountain Co. (Defendant): Douglas J. Mason of Mason & Mason, Pinedale, Wyoming; George W. Mueller of Burns, Wall, Smith and Mueller, P.C., Denver, Colorado.

Representing Appellant Arrowhead Resources (U.S.A.) LTD (Defendant): Nancy D. Freudenthal of Davis & Cannon, Cheyenne, Wyoming; Rebecca Hitchcock Noecker of Beatty & Wozniak, Denver, Colorado.

Representing Appellant Lance Oil & Gas Company, Inc. (Defendant): Paul J. Hickey of Hickey & Evans, Cheyenne, Wyoming; David W. Stark and Ezekiel J. Williams of Faegre & Benson, Denver, Colorado.

Representing Appellants Shell Rocky Mountain Production, LLC and SWEPI, LP (Defendants): David B. Hooper of Hooper Law Offices, Riverton, Wyoming; Phillip D. Barber of Phillip D. Barber, P.C., Denver, Colorado.

Representing Appellees Doyle and Margaret M. Hartman, John H. Hendrix Corporation, Michael L. Klein and Jeanne Klein, Ronnie H. Westbrook and Karen Westbrook (Plaintiffs): Michael J. Sullivan and John A. Masterson of Rothgerber, Johnson & Lyons, Casper, Wyoming; James M. Lyons and D. Elizabeth Wills of Rothgerber, Johnson & Lyons, Denver, Colorado; J.E. Gallegos and Michael J. Condon of Gallegos Law Firm, Santa Fe, New Mexico.

Facts: This case encompasses seven appeals and cross-appeals and involves seven plaintiffs and six defendants. The contest is over a net profits interest (NPI) granted by Malco Refineries, Inc., El Paso Natural Gas Company, and Continental Oil Company (referred to in the documents as “First Parties”) to Novi Oil Company (Novi) in the 1950s. The NPI was consideration for Novi’s assignment of certain oil and gas leases to First Parties. Generally, the district court concluded that the NPI continues to exist and is owned by the plaintiffs, who are successors to Novi, and the defendants, as successors to First Parties, are obligated to pay net profits to them. The district court also awarded statutory penalties, interest and attorney fees to the plaintiffs.

Issues: Whether the plaintiffs were entitled to summary judgment on the question of whether the NPI survived termination of the Pinedale Unit. Whether the plaintiffs were entitled to summary judgment on the question of whether they own the NPI and whether the defendants have standing to contest plaintiffs’ claim of ownership. Whether the district court erred by granting the defendants’ Rule 52(c) motion regarding the plaintiffs’ duty to provide proof of their ownership of the NPI under Section 5 of the Pinedale Unit Area Net Profits Contract (Unit NPI Contract) or by determining that the plaintiffs gave sufficient notice of their ownership. Whether the district court erred in granting the defendants’ Rule 52(c) motion on the plaintiffs’ claim for breach of the implied covenant of good faith and fair dealing. Whether the district court erred in granting the non-operator defendants’ Rule 52(c) motion on the plaintiffs’ Wyoming Royalty Payment Act, Wyo. Stat. §§ 30-5-301 through 305 (2009) (WRPA) claims. Whether the district court correctly determined that the non-operating defendants breached the Unit NPI Contract by failing to pay the NPI. Whether the district court erred by ruling that plaintiffs were entitled to be awarded WRPA interest and penalties against the operating defendants Shell and Ultra when the Unit NPI Contract provided that they could withhold payment of net profits, without interest, during the pendency of any dispute regarding ownership of the NPI. Whether the district court properly determined that State Lease 79-0645 was a “replacement lease” under the Unit NPI Contract. Whether the district court erred by ruling that plaintiffs’ claims were not time barred under either the statute of limitations or the equitable doctrine of laches. Whether the district court erred by refusing to exclude certain expenses from the net profits calculation. Whether the district court erred by holding all defendants jointly and severally liable for the entire judgment. Whether the district court properly granted credit to the defendants for plaintiffs’ settlement with Questar/Wexpro. Whether the non-operators were the prevailing parties and, therefore, entitled to an award of attorney fees under the WRPA. Whether the district court abused its discretion by awarding plaintiffs over $3.9 million in attorney fees.


Holdings: The district court properly granted summary judgment on the plaintiffs’ claim that the NPI continued to encumber the relevant leases after termination of the Pinedale Unit. To the extent that the district court’s second summary judgment order stated that the plaintiffs had provided a sufficient showing of their ownership of the NPI to entitle them to payment from the defendants, the decision is affirmed. However, to the extent that it was intended to quiet title in the plaintiffs against any claims by others who are not parties to this action, there was no justiciable controversy and the decision is reversed.

The district court properly granted the defendants’ Rule 52(c) motion regarding the plaintiffs’ obligation to give notice under Section 5 of the Unit Net Profits Contract and correctly ruled that plaintiffs’ letter was sufficient notice under the contract to obligate the defendants to start paying the NPI in March 2006. The district court also properly granted the defendants’ Rule 52(c) motion on the plaintiffs’ claim for breach of the implied covenant of good faith and fair dealing and the non-operator defendants’ Rule 52(c) motion on the plaintiffs’ WRPA claims.

After the bench trial, the district court correctly concluded that the non-operating defendants breached the Unit NPI Contract, although they did not violate the WRPA. Operating defendants Shell and Ultra were rightly found liable under the WRPA for interest and penalties for failing to pay or escrow the NPI payments after the plaintiffs’ gave notice of their ownership of the NPI. The district court also properly determined that State Lease 79-0645 is a “replacement lease” under the Unit NPI Contract and, therefore, burdened by the plaintiffs’ NPI and the plaintiffs’ claims were not time barred under either the statute of limitations or laches.

The district court, however, made some errors in its damages award. Although it properly interpreted the overhead expense provisions of the First Parties’ and Novi’s agreement, it incorrectly concluded that produced gas used on the lease was to be included as revenue for the net profits calculation. This aspect of the judgment is reversed and remanded for recalculation of the damages. The district court also erred by making the non-operators jointly and severally liable for the entire judgment, and the district court’s ruling is reversed in that regard. The district court properly granted credit to the defendants for plaintiffs’ settlements with Questar/Wexpro.

Finally, we conclude the district court properly determined that plaintiffs were the prevailing parties in this litigation and did not abuse it discretion in making its attorney fees award.

Affirmed in part; reversed and remanded in part.

J. Kite delivered the opinion for the court.

Link: http://tinyurl.com/ykawvn6 .

C.J. Voigt dissented: The state of the record is not such that the plaintiffs have given the defendants sufficient notice of their ownership of the NPI, if it exists at all, to require the plaintiffs to pay them millions of dollars to satisfy the NPI. Summary judgment should not have been granted to the plaintiffs on the ownership issue.

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