Ultra Res. Inc. A Wyo. Corp. v. Doyle

226 P.3d 889

2010 WY 36

ULTRA RESOURCES, INC. a Wyoming corporation and Williams Production Rocky Mountain Co., a Delaware corporation, Appellants (Defendants),

v.Doyle and Margaret M. HARTMAN, John H. Hendrix Corporation, Michael L. Klein and Jeanne Klein, Ronnie H. Westbrook and Karen Westbrook, Appellees (Plaintiffs).

Arrowhead Resources (U.S.A.) Ltd., Appellant (Defendant),

v.Doyle and Margaret M. Hartman, John H. Hendrix Corporation, Michael L. Klein and Jeanne Klein, Ronnie H. Westbrook and Karen Westbrook, Appellees (Plaintiffs).

Lance Oil & Gas Company, a Delaware corporation, Appellant (Defendant),

v.Doyle and Margaret M. Hartman, John H. Hendrix Corporation Michael L. Klein and Jeanne Klein, Ronnie H. Westbrook and Karen Westbrook, Appellees (Plaintiffs).

Shell Rocky Mountain Production, LLC, a Delaware corporation and SWEPI, LP, a Delaware limited partnership, Appellants (Defendants),

v.Doyle and Margaret M. Hartman, John H. Hendrix Corporation, Michael L. Klein and Jeanne Klein, Ronnie H. Westbrook and Karen Westbrook, Appellees (Plaintiffs).

Doyle and Margaret M. Hartman, John H. Hendrix Corporation, Michael L. Klein and Jeanne Klein, Ronnie H. Westbrook and Karen Westbrook, Appellants (Plaintiffs),

v.Ultra Resources, Inc., a Wyoming corporation, Shell Rocky Mountain Production, LLC, a Delaware corporation, Lance Oil & Gas Company, a Delaware corporation, SWEPI, LP, a Delaware limited partnership, Williams Production Rocky Mountain Co., a Delaware corporation, and Arrowhead Resources (U.S.A.) Ltd., Appellees (Defendants).

Ultra Resources, Inc., a Wyoming corporation, Appellant (Defendant),

v.Doyle and Margaret M. Hartman, John H. Hendrix Corporation, Michael L. Klein and Jeanne Klein, Ronnie H. Westbrook and Karen Westbrook, Appellees (Plaintiffs).

Shell Rocky Mountain Production, LLC, a Delaware corporation, Appellant (Defendant),

v.Doyle and Margaret M. Hartman, John H. Hendrix Corporation, Michael L. Klein and Jeanne Klein, Ronnie H. Westbrook and Karen Westbrook, Appellees (Plaintiffs).

Nos. S-08-0258, S-08-0259, S-08-0260, S-08-0261, S-08-0262, S-08-0263, S-08-0264.

Supreme Court of Wyoming.

March 23, 2010.

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

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

Representing Arrowhead Resources (U.S.A.) Ltd.: Nancy D. Freudenthal of Davis & Cannon, LLP, Cheyenne, Wyoming; Rebecca Hitchcock Noecker of Beatty & Wozniak, P.C., Denver, Colorado. Argument by Ms. Freudenthal.

Representing Lance Oil & Gas Company, Inc.: Paul J. Hickey of Hickey & Evans, LLP, Cheyenne, Wyoming; David W. Stark and Ezekiel J. Williams of Faegre & Benson, LLP, Denver, Colorado. Argument by Mr. Hickey.

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

Before VOIGT, C.J., and GOLDEN, HILL, KITE, and BURKE, JJ.

KITE, Justice.

[¶ 1] This case encompasses seven appeals and cross-appeals and involves seven plaintiffs and six defendants.¹ 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.² We affirm in part and reverse and remand in part.

ISSUES

[¶ 2] The numerous briefs filed herein set forth dozens of issues, many of which are duplicative. We have identified the following separate issues:

Summary Judgment Issues

1. Were the plaintiffs entitled to summary judgment on the question of whether the NPI survived termination of the Pinedale Unit?

2. Were the plaintiffs entitled to summary judgment on the question of whether they own the NPI and do the defendants have standing to contest plaintiffs' claim of ownership?

Rule 52(c) Rulings

3. Did the district court err 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 in Mr. Hartman's February 22, 2006, letter?

4. Did the district court err in granting the defendants' Rule 52(c) motion on the plaintiffs' claim for breach of the implied covenant of good faith and fair dealing?

5. Did the district court err in granting the non-operator defendants' Rule 52(c) motion on the plaintiffs' Wyoming Royalty Payment Act, Wyo. Stat. Ann. §§ 30-5-301 through 305 (LexisNexis 2009) (WRPA) claims?

Bench Trial Rulings

6. Did the district court correctly determine that the non-operating defendants breached the Unit NPI Contract by failing to pay the NPI?

7. Did the district court err 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?

8. Did the district court properly determine that State Lease 79-0645 was a “replacement lease” under the Unit NPI Contract?

9. Did the district court err by ruling that plaintiffs' claims were not time barred under either the statute of limitations or the equitable doctrine of laches?

10. Did the district court err by refusing to exclude certain expenses from the net profits calculation?

11. Did the district court err by holding all defendants jointly and severally liable for the entire judgment?

12. Did the district court properly grant credit to the defendants for plaintiffs' settlement with Questar/Wexpro?

Attorney Fees

13. Were the non-operators the prevailing parties and, therefore, entitled to an award of attorney fees under the WRPA?

14. Did the district court abuse its discretion by awarding plaintiffs over $3.9 million in attorney fees?

FACTS

[¶ 3] In the 1950s, First Parties sought to develop oil and gas interests in Sublette County, Wyoming. Because Novi controlled some leases that First Parties wanted to include in their development plans, First Parties and Novi entered into the “Agreement for Assignment of Novi Leases and for a Net Profits Interest Pinedale Unit Area Sublette County, Wyoming” (Assignment Agreement). The Assignment Agreement provided that Novi would assign three federal leases and one fee lease to the First Parties in exchange for “5% of the net profits realized from operations for oil and gas by First Parties under the leases shown on Exhibit A....” Exhibit A included a list of sixty-two leases, including the four Novi leases. The First Parties intended to unitize the leases identified in Exhibit A, except portions of two of the Novi leases that were not to be included in the unit at that time. The Assignment Agreement further stated that Novi was also to receive an NPI for the portions of the leases not included in the unit and identified those leases in Exhibit A-1. The Assignment Agreement provided that final execution of the NPI documents and lease assignments were conditioned upon the federal government's approval of the Pinedale Unit.

[¶ 4] In addition, the First Parties entered into an agreement among themselves, the Supplemental Accounting Agreement. As found by the district court, the purpose of the Supplemental Accounting Agreement was to “outline [ ] the manner in which the First Parties would account for and pay any profits from production.”

[¶ 5] In 1954, the Pinedale Unit was approved by the United States Geological Survey (USGS), and the Pinedale Unit Agreement (Unit Agreement) was executed between the operators, other working interest owners and Novi. Among other things, the Unit Agreement outlined the operators' responsibilities, included general unit accounting terms, and provided for contraction of the unit to eliminate non-producing properties at certain intervals.

[¶ 6] Consistent with the requirements of the Assignment Agreement, Novi and the First Parties entered into the Unit NPI Contract which pertained to the leases included in the Pinedale Unit and identified in Exhibit A. The Unit NPI Contract contains many of the terms and obligations that are presently at issue:

1. NET PROFITS INTEREST-

Subject to the conditions hereinafter set forth, First Parties agree to pay to Novi a sum or sums representing 5% of the net profits (as hereinafter defined), herein referred to as “said net profits interest,” resulting from operations for oil and gas by First Parties, or any of them, under those certain leases committed to that certain Unit Agreement for the Development and Operation of the Pinedale Unit Area and shown on Exhibit A attached hereto and made a part hereof, such leases being

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