Latigo Oil & Gas, Inc. v. BP Am. Prod. Co.

549 P.3d 1252

2024 OK 35

LATIGO OIL & GAS, INC., an Oklahoma corporation, Plaintiff/Appellee,

v.BP AMERICA PRODUCTION COMPANY, a Delaware corporation, Defendant/Appellant.

No. 120,969

Supreme Court of Oklahoma.

Filed: May 21, 2024

As Corrected: June 7, 2024

ON CERTIORARI TO THE COURT OF CIVIL APPEALS, DIVISION I; HONORABLE JON K. PARSLEY, TRIAL JUDGE

¶0 Latigo Oil & Gas, Inc., filed a Petition for Specific Performance, Breach of Contract, and Injunctive Relief against BP America Production Company to enforce its preferential right to purchase certain mineral interests offered for sale as part of a package deal by BP to a third party. Prior to trial, Latigo filed an Application for Temporary Restraining Order and Preliminary Injunctive Relief requesting the trial court to enjoin BP from selling the burdened interests to the third-party buyer pending trial. The trial court granted Latigo’s request for preliminary injunctive relief. The Court of Civil Appeals reversed the trial court’s grant of preliminary injunctive relief finding the evidence did not show Latigo was likely to succeed on the merits. We granted certiorari and hold the trial court’s grant of injunctive relief was not an abuse of discretion.

CERTIORARI PREVIOUSLY GRANTED; COURT OF CIVIL APPEALS OPINION VACATED; TRIAL COURT AFFIRMED.

Eric C. Money, Dawson A. Brotemarkle, HALL, ESTILL, HARDWICK, GABLE, GOLDEN & NELSON, P.C., Oklahoma City, Oklahoma and Kyle Domnick, HODGDEN LAW FIRM, PLLC, Woodward, Oklahoma, for Plaintiff/Appellee,

Anton J. Rupert, Geren T. Steiner, R. Baxter Lewallen, RUPERT & STEINER, PLLC, Oklahoma City, Oklahoma, for Defendant/Appellant.

OPINION

ROWE, V.C.J.:

BACKGROUND

¶1 On February 27, 1957, then-operator Cabot Carbon Company ("Cabot") and lessee Sinclair Oil & Gas Company ("Sinclair") entered into an Operating Agreement covering certain mineral interests located in Section 35, Township 4 North, Range 27 ECM, Beaver County, Oklahoma ("Section 35 Agreement"). On March 28, 1958, Cabot and Sinclair entered into an Operating Agreement covering certain mineral interests located in Section 31, Township 4 North, Range 27 ECM, Beaver County, Oklahoma ("Section 31 Agreement"). The Section 35 and Section 31 Agreements contain identical preferential right to purchase clauses stating, in relevant part:

In the event any party desires to sell or otherwise dispose of all or any part of its or their interest subject to this Agreement, the other party or parties hereto shall have a preferential right to purchase or acquire the same. In such event the selling or disposing party shall promptly communicate to the other party or parties hereto the offer received for said interest from a prospective transferee ready, willing, and able to purchase or acquire the same, together with the name and address of such prospective transferee. Said party or parties as may agree shall thereupon have an option for a period of ten (10) days after the receipt of said notice to acquire such interest under the same or substantially the same terms offered by such prospective transferee for such interest; provided, that any interest so acquired by more than one party hereto shall be shared by the parties purchasing the same in the proportion that the individual interest hereunder of each such purchasing or acquiring party bears to the total interest hereunder of all such purchasing or acquiring parties.

¶2 On March 15, 1960, Cabot and Sinclair entered into an Operating Agreement covering certain mineral interests located in Section 1, Township 3 North, Range 26 ECM, Beaver County, Oklahoma ("Section 1 Agreement"). The Section 1 Agreement contains a preferential right to purchase clause stating, in relevant part:

Should any party desire to sell all or any part of its interests under this contract, or its rights and interests in the Unit Area, it shall promptly give written notice to the other parties, with full information concerning its proposed sale, which shall include the name and address of the prospective purchaser (who must be ready, willing and able to purchase), the purchase price, and all other terms of the offer. The other parties shall then have an optional prior right, for a period of ten (10) days after receipt of the notice, to purchase on the same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all purchasing parties. However, there shall be no preferential right to purchase in those cases where any party wishes to mortgage its interests, or to dispose of its interests by merger, reorganization, consolidation, or sale of all of its assets, or a sale or transfer of its interests to a subsidiary or parent company, or subsidiary of a parent company, or to any company in which any one party owns a majority of the stock.

¶3 Plaintiff/Appellee Latigo Oil & Gas, Inc. ("Latigo") and Defendant/Appellant BP America Production Company ("BP") are successors-in-interest, respectively, to the three oil and gas Joint Operating Agreements originally entered into by Cabot and Sinclair. The current dispute revolves around the clause in each operating agreement granting Latigo, as successor-in-interest to the Cabot-Sinclair agreements, a preferential right to purchase.

¶4 On or around March 8, 2022, BP entered into a Purchase and Sale Agreement with VR4-Moriah, LP ("VR4") for the sale of several mineral interests nationwide owned by BP. The Purchase and Sale Agreement included BP’s mineral interests in Section 35, Section 31, and Section 1 in Beaver County ("Subject Interests"), each of which is subject to a preferential right to purchase in favor of Latigo as successor-in-interest to the Cabot-Sinclair agreements. The VR4 Purchase and Sale Agreement involved a package-deal sale of multiple interests owned by BP, most of which were not covered by the Operating Agreements. The expected closing date of the Purchase and Sale Agreement was May 31, 2022, at which time BP intended to transfer its interests to VR4.

¶5 On April 6, 2022, BP provided Latigo with three Notices of Sale by certified mail conveying its intention to sell the Subject Interests to VR4. Latigo received the Notices on April 11, 2022. Each Notice recognized that the Operating Agreements gave Latigo a preferential right to purchase the Subject Interests. Additionally, BP attached a redacted copy of the VR4 Purchase and Sale Agreement which included a definition of Good Faith Allocations. BP maintains that VR4 allocated an amount of $60,000 for each interest burdened by a preferential right to purchase. Although the Subject Interests in this case vary in size from 20 net acres to nearly 180 net acres, each Notice allocated $60,000 as the sale price to each Subject Interest.¹ BP claims that these allocations were made in good faith while Latigo argues the allocations are in excess of the Subject Interests’ market value as a means of discouraging Latigo from exercising its preferential rights. BP asserts that it did not calculate the allocations for each Subject Interest itself, but instead relied on allocations provided by VR4.

¶6 On or around April 13, 2022, Latigo informed BP that BP failed to comply with its Notice obligations under the Operating Agreements. Latigo maintained that BP failed to provide accurate Good Faith Allocations for the Subject Interests and thus, the Notice provided by BP failed to comply with its obligations in the Operating Agreement. Accordingly, Latigo expressed a demand for accurate Good Faith Allocations for each Subject Interest and additional preferential right Notices, stating that its deadline to exercise its preferential rights should be extended for the amount of time necessary for BP to meet its demands. Latigo informed BP that if its demands were not met within ten days, it intended to take legal action including but not limited to seeking injunctive relief.

¶7 On April 20, 2022, nine days after Latigo received BP’s Notices, BP sent an email to Latigo stating that the allocations were determined in good faith. The following day, Latigo responded via email demanding strict proof that the allocations were made in good faith, reiterating that BP had not complied with its obligation in the Operating Agreements. On April 26, 2022, Latigo notified BP that it wished to exercise its preferential right to purchase all three Subject Interests at an allocated value of $5.² Despite Latigo’s offer, BP claimed that Latigo had forfeited its preferential right to purchase the Subject Interests by not exercising its right to purchase within the ten-day period set forth in the Operating Agreements.

¶8 Latigo filed suit in Beaver County seeking claims for Specific Performance, Breach of Contract, and Injunctive Relief. Additionally, Latigo filed an Application for Temporary Restraining Order and Preliminary Injunctive Relief asking the trial court to enjoin BP from assigning the Subject Interests to VR4 until Latigo was provided with the opportunity to exercise its preferential rights.

In Latigo’s Application and Brief in Support, Latigo claimed it was likely to win on the merits because BP’s Notices did not comply with the Operating Agreements by failing to provide a good faith allocation of the amounts to be paid for the Subject Interests.³ Additionally, Latigo claimed it would suffer irreparable harm absent injunctive relief because the Subject Interests are " ‘unique real estate interests’ whereby damages ‘would not be capable of precise measurement.’ "⁴

¶9 The trial court held a hearing on the Temporary Restraining Order in May 2022. After hearing the parties’ arguments, the trial court granted Latigo’s temporary restraining order until a final hearing on preliminary injunctive relief could be heard, finding that Latigo would suffer irreparable harm because the Subject Interests at issue...