Ricks Exploration, Inc. v. Cross Timbers Oil Co. , 25 F. App'x 690 ( 2001 )

F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
OCT 9 2001
TENTH CIRCUIT
PATRICK FISHER
Clerk
RICKS EXPLORATION, INC.,
Plaintiff-Appellant,
Nos. 99-6370 and 00-6075
v. (Western District of Oklahoma)
(D.C. No. 98-CV-1470)
CROSS TIMBERS OIL COMPANY,
Defendant-Appellee.
ORDER AND JUDGMENT *
Before LUCERO, McKAY, and MURPHY, Circuit Judges.
I. INTRODUCTION
Ricks Exploration, Inc. (“Ricks”) brought suit against Cross Timbers Oil
Co. (“Cross Timbers”) in district court asserting, inter alia, various claims
sounding in both contract and tort. The district court granted summary judgment
in favor of Cross Timbers on each of the contract and tort claims and also
awarded it costs as the prevailing party under Federal Rule of Civil Procedure
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
54(d)(1). Ricks appeals both orders. This court exercises jurisdiction over these
appeals pursuant to 28 U.S.C. § 1291 and Federal Rule of Civil Procedure 54(b) 1
and affirms.
II. BACKGROUND
A. Factual Background
Those facts necessary to provide context to this appeal, stated in the
manner most favorable to Ricks as the nonmoving party, are as follows. This
litigation centers upon the meaning of an Exploration Agreement entered into
between Ricks and Southland Royalty Co. (“Southland”). At the time of the
1
After Ricks filed its notice of appeal in No. 99-6370, this court noted a
potential jurisdictional issue and ordered the parties to file supplemental briefs
addressing this court’s jurisdiction. We noted the district court’s grant of
summary judgment did not resolve all claims set forth in Ricks’ first amended
complaint and that, instead, the parties jointly stipulated to the dismissal of the
remaining claims without prejudice. Parties may not confer appellate jurisdiction
on this court as to claims dismissed on the merits by voluntarily dismissing
remaining claims without prejudice. See Hennigh v. City of Shawnee, 155 F.3d
1249, 1252-53 (10th Cir. 1998); Heimann v. Snead, 133 F.3d 767, 769 (10th Cir.
1998). Both parties filed briefs noting that the district court’s Final Judgment and
Stipulation of Dismissal contained a Rule 54(b) certification directing entry of
final judgment as to the claims dismissed on the merits and finding that there was
no just reason for delaying entry of such final judgment. This court has reviewed
the record and finds that it fully supports the district court’s entry of a Rule 54(b)
certification. See McKibben v. Chubb, 840 F.2d 1525, 1528-29 (10th Cir. 1988).
Accordingly, this court has subject matter jurisdiction pursuant to 28 U.S.C. §
1291. See Matosantos Commercial Corp. v. Applebee’s Int’l, Inc., 245 F.3d 1203,
1205 (10th Cir. 2001).
-2-
execution of the Exploration Agreement, Southland owned unproven oil and gas
leasehold interests covering large tracts of land in Texas County, Oklahoma.
Upon learning of Southland’s interests in the leaseholds, Ricks approached
Southland about the possibility of establishing a drilling program whereby Ricks
would drill for gas or oil and, if successful, earn the rights to certain acreage
within Southland’s leaseholds. In return, depending on whether Southland chose
to participate in the drilling of any particular well and the extent of its
participation, Southland would retain a twenty percent overriding royalty interest,
a fifty percent interest in the well itself, or something in between. After lengthy
negotiations and the exchange of numerous drafts, Ricks and Southland reached
the agreement embodied in the Exploration Agreement.
The Exploration Agreement identified six different prospect areas,
denominated Prospect A through F, within which Ricks could initiate drilling
operations. The dispute in this case relates to the rights Ricks acquired based
upon its drilling operations in Prospect A. 2 Prospect A is comprised of sections
22, 26, 27, 34, and 35. 3 Under the Exploration Agreement, Ricks was to drill an
2
A pictorial depiction of Prospect A, along with sections 3 and 15, is
attached as an appendix to this opinion.
3
In Texas County, acreage is divided into 640 acre sections. Under the
terms of the Exploration Agreement, each section was further broken down into
spacing units of 80 acres for oil wells and 160 acres for gas wells.
-3-
Initial Test 4 in section 27. 5 If the Initial Test were capable of producing oil or gas
in commercial quantities and Southland did not participate in the drilling, Ricks
would earn a full interest in section 27 and an assignment of fifty percent of
Southland’s rights in eight adjacent spacing units. The Exploration Agreement
provided that the parties were to reach “mutual consent” as to which eight
adjacent spacing units Ricks would earn.
As contemplated by the Exploration Agreement, Ricks ultimately drilled its
Initial Test on Prospect A in section 27. Because the Initial Test produced gas in
commercial quantities and because Southland had not participated in the drilling
of the initial test, Ricks earned 100% of Southland’s rights in section 27. In
addition, Ricks earned a fifty percent interest in the following eight 160-acre
quarter-sections (i.e. gas well spacing units): the southwestern and southeastern
4
Paragraph 2 of the Exploration Agreement set forth the following
definitions:
A. Initial Test - The first well, or substitute therefor (as
hereinafter defined), drilled on a Prospect
B. Development Well - A well drilled on acreage earned by
[Ricks] by the completion of an Initial Test
C. Extension Well - A well drilled on [Southland] acreage that is
adjacent to acreage earned by [Ricks] pursuant to Paragraph
8. C. below
D. Discovery Well - A Development Well or Extension Well that
meets the criteria described in Paragraph 12. below
5
Prospect A is the only prospect in which the Exploration Agreement
specifically established where the Initial Test would be drilled.
-4-
quarter-sections of section 22, the northwestern and southwestern quarter-sections
of section 26, the northwestern and northeastern quarter-sections of section 34,
and the northwestern and northeastern quarter-sections of section 35. 6
The Exploration Agreement also contemplated that Ricks could earn
additional acreage by drilling Development Wells on land it earned through the
drilling of the Initial Test. 7 Under the provisions of the Exploration Agreement
relating to Development Wells, for every Development Well drilled which
produces the requisite amount of oil or gas, Ricks “shall have the right . . . to
extend the field beyond the limits of the acreage earned by the drilling of a
particular Initial Test, one drilling and spacing unit at a time (whether within or
outside the boundaries of a Prospect).” In 1997, after Cross Timbers succeeded to
Southland’s position in the Exploration Agreement, Ricks drilled or participated
in the drilling of conforming Development Wells in the northern half of Section
34 and the southern half of section 22. 8 Accordingly, pursuant to the terms of the
6
Section 27, along with each of these eight quarter-sections is shaded dark
grey in the pictorial representation of Prospect A attached to this opinion.
7
See supra note 4 (setting forth definition of Development Well).
8
These wells were conforming Development Wells because they were
drilled on lands earned by Ricks through the drilling of the Initial Test. They also
qualified as Discovery Wells because they produced the requisite amount of gas
during the first three months of production. See supra note 4 (defining Discovery
Wells).
-5-
Exploration Agreement, Cross Timbers conveyed to Ricks a fifty percent interest
in the northern half of section 22 and the southern half of section 34. 9
The trouble at the heart of this dispute began when Ricks asserted the right
to drill wells on section 3. Section 3 is outside of Prospect A, lying directly south
of Section 34. During a series of discussions in the fall of 1998, representatives
of Cross Timbers asserted that the Exploration Agreement prohibited the drilling
of wells on section 3 because any such well would not qualify as either a
Development Well or a Extension Well. 10 Cross Timbers further indicated that it
intended to drill its own well on section 3. For its part, Ricks asserted that
paragraph 12 of the Exploration Agreement, the paragraph relating to Extension
and Development Wells, gave it the absolute right to extend to the field to spacing
9
The acreage earned in sections 22 and 34 through the drilling of these
Development Wells is identified by the light grey shading in the pictorial
representation of Prospect A attached to this opinion.
10
Cross Timbers advanced the following interpretation of the Exploration
Agreement in support of its conclusion that Ricks was not entitled to drill on
section 3. The Exploration Agreement defines Development Well as “[a] well
drilled on acreage earned by [Ricks] by the completion of an Initial Test.”
Because none of the land in section 3 was earned by Ricks after the drilling of the
Initial Test, a well drilled on section 3 could not constitute a Development Well.
Furthermore, the Exploration Agreement defines Extension Well as “[a] well
drilled on [Cross Timbers] acreage that is adjacent to acreage earned by [Ricks]
pursuant to Paragraph 8. C. [i.e., those provisions of the Exploration Agreement
relating to the drilling of the Initial Test].” Cross Timbers asserted that wells
drilled on section 3 would not qualify as Extension Wells because no part of
section 3 was “adjacent” (i.e., contiguous) to any of the acreage Ricks earned
upon the drilling of the Initial Test.
-6-
units both inside and outside of Prospect A as necessary to fully develop any gas
or oil field discovered through its drilling operations. 11
B. Procedural Background
On October 20, 1998, Ricks filed a complaint in district court seeking the
following two forms of declaratory relief: (1) a declaration that the Exploration
Agreement gave it the right to drill a well on section 3; and (2) a declaration that
Cross Timbers had elected not to participate in the drilling of the well in section 3
proposed by Ricks. Two days later, Ricks filed a motion for a preliminary
injunction, asking the district court to enjoin Cross Timbers from drilling its own
proposed well in section 3. After the district court denied Ricks’ request for a
preliminary injunction, Ricks filed an amended complaint asserting, inter alia,
two contract claims and four tort claims. 12 In its contract-based causes of action,
11
Paragraph 12 of the Exploration Agreement provides, in relevant part, as
follows:
As to any Development Well or Extension Well (as defined below)
drilled pursuant hereto that averages 50 BOPD and/or 200 MCFPD
during the first three (3) months of production (a “Discovery Well”),
[Ricks] shall have the right, but not the obligation, to extend the field
beyond the limits of the acreage earned by the drilling of a particular
Initial Test, one drilling and spacing unit at a time (whether within or
outside the boundaries of a Prospect). [Southland] shall have the
right to participate in any well drilled on the extended acreage (an
“Extension Well”) with up to 50% of its interest in the extended
acreage. . . .
12
For the first time in its amended complaint, Ricks asserted that an
identical dispute existed between the parties as to the rights to drill in section 15,
-7-
Ricks asserted as follows: (1) Cross Timbers had breached the Exploration
Agreement by refusing to recognize Ricks’ exclusive right to drill in sections 3
and 15; and (2) assuming the Exploration Agreement as drafted did not give Ricks
the exclusive right to drill in sections 3 and 15, the contract should be reformed
on the ground that it contained a mutual mistake. Ricks further alleged the
following four tort-based causes of action: (1) Cross Timbers had breached its
fiduciary duty to Ricks by hindering Ricks’ ability to earn additional acreage
under the Exploration Agreement; (2) Cross Timbers’ drilling activities in section
15 amounted to a bad faith trespass; (3) Cross Timbers’ conduct with regard to
sections 3 and 15 violated the implied covenant of good faith and fair dealing;
and (4) Cross Timbers had tortiously interfered with Ricks’ prospective economic
relationships.
After Ricks filed its amended complaint, both parties filed cross motions
for summary judgment. In their respective motions for summary judgment, each
party asserted that the Exploration Agreement was unambiguous. For its part,
Ricks asserted paragraph 12 of the Exploration Agreement established its own
definition of an Extension Well, independent of the definition set out in paragraph
2(c), and that the definition in paragraph 12 did not contain an adjacency
the section immediately to the north of section 22. In fact, at the time of the
filing of the amended complaint, Cross Timbers had already drilled two gas wells
in section 15.
-8-
limitation. Ricks further asserted that its reading of paragraph 12 was supported
by the circumstances surrounding the formation of the Exploration Agreement. In
any event, Ricks asserted that even assuming the adjacency limitation set out in
paragraph 2(c) did apply to paragraph 12, adjacent does not necessarily mean
contiguous or touching. 13 In its separate motion for summary judgment, Cross
Timbers asserted that unless the definition of Extension Well in paragraph 2(c) of
the Exploration Agreement applied to paragraph 12, it would not apply anywhere
in the agreement because paragraph 12 was the only portion of the Exploration
Agreement dealing with Extension Wells. Cross Timbers further asserted that the
four corners of the Exploration Agreement and the circumstances surrounding its
formation, considered either singly or in combination, demonstrated that the
adjacency requirement set out in paragraph 2(c) required that Extension Wells
only be drilled on land contiguous to acreage earned by the drilling of the Initial
Test. Finally, Cross Timbers asserted that Ricks’ mutual mistake claim failed
because the Exploration Agreement was unambiguous and that each of Ricks’ tort
claims failed because the agreement did not create a fiduciary relationship and did
not provide Ricks any rights in sections 3 and 15.
13
Although Ricks did assert in its summary judgment motion that the
Exploration Agreement was unambiguous, it did hedge that assertion in a footnote
where it stated as follows: “If the Court finds Cross Timbers’ interpretation
reasonable . . . then the agreement is ambiguous.”
-9-
Upon consideration of the parties’ submissions, the district court granted
summary judgment in favor of Cross Timbers. As to the contract claim, the
district court concluded that language of the Exploration Agreement, considered
in light of the circumstances surrounding its execution, unambiguously required
that Extension Wells be drilled on lands contiguous to lands earned through the
drilling of the Initial Test. Because it concluded that the Exploration Agreement
was unambiguous, the district court concluded that the doctrine of mutual mistake
was inapplicable as a matter of law. Finally, as to Ricks’ four tort-based causes
of action, the district court concluded as follows: (1) Ricks’ claims of breach of
fiduciary duty failed because the Exploration Agreement did not create a joint
venture so as to give rise to any fiduciary duties on the part of Cross Timbers;
(2) Ricks’ trespass claim failed because Ricks had no rights to sections 3 and 15
under the Exploration Agreement; (3) Ricks’ claim regarding the covenant of
good faith and fair dealing failed because Oklahoma courts would not extend the
duty of good faith to commercial contracts and, in any event, the conduct at issue
here amounted to no more than a simple breach of contract insufficient to support
to support a claim for breach of the implied covenant 14; and (4) Ricks’ claim of
14
In so concluding, the district court noted that its ruling did not preclude
Ricks from pursuing a “breach of contract claim arising from these asserted facts;
the Court’s decision in connection with Claim Five is limited solely to Ricks’ tort
claim for breach of the implied covenant of good faith and fair dealing.”
-10-
tortious interference with prospective economic advantage failed because it did
not come forward with any evidence of actual loss of economic opportunities and
because Cross Timbers merely engaged in conduct to further its own legitimate
business and financial interests.
III. STANDARD OF REVIEW
This court reviews a grant of summary judgment de novo, applying the
same legal standard utilized by the district court. See Commercial Union Ins. Co.
v. Sea Harvest Seafood Co., 251 F.3d 1294, 1297-98 (10th Cir. 2001). We also
review de novo the district court’s interpretation of the law of Texas, which
governs Ricks’ contract claims, and the law of Oklahoma, which governs Ricks’
tort claims. See Salve Regina Coll. v. Russell, 499 U.S. 225, 231 (1991) (“[A]
court of appeals should review de novo a district court’s determination of state
law.”). Summary judgment is appropriate “if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact and that the moving
party is entitled to a judgment as a matter of law.” Fed. R. Civ. P. 56(c). This
standard requires that we view the evidence and draw all reasonable inferences
therefrom in the light most favorable to the nonmoving party. See Commercial
Union, 251 F.3d at 1298.
-11-
IV. DISCUSSION
A. Contract Claims 15
1. Contract Interpretation
On appeal, Ricks presents a two-pronged attack on the district court’s grant
of summary judgment in favor of Cross Timbers on the question of whether the
adjacency requirement in paragraph 2(c) applied to paragraph 12. 16 First, Ricks
asserts that paragraph 12 of the Exploration Agreement incorporates its own
definition of Extension Well, wholly independent of the definition of Extension
Well in paragraph 2(c), and that the definition of Extension Well in paragraph 12
does not contain an adjacency limitation. According to Ricks, its interpretation of
the Exploration Agreement is borne out by an analysis of the circumstances
surrounding the formation of the Exploration Agreement, particularly the
numerous draft agreements and letter of intent exchanged by the parties before the
Exploration Agreement was finally executed. Second, Ricks asserts that to the
15
The Exploration Agreement contains a clause providing that it “shall be
governed by and construed in accordance with the laws of the State of Texas.” In
light of this provisions, the parties have agreed throughout this litigation that
Texas law governs the resolution of the contract claims.
16
Ricks does not contend on appeal that the district court erred in setting
forth the relevant Texas law with regard to the construction of contracts. In fact,
throughout this litigation, the parties have agreed in all material respects as to the
contours of the law of Texas but have simply disagreed as to the proper
interpretation of the Exploration Agreement in light of applicable Texas law.
-12-
extent that its interpretation of the Exploration Agreement is not the only
reasonable interpretation, the Exploration Agreement is ambiguous. 17
Upon conducting a de novo review of the district court’s order, the parties’
briefs and contentions, and the entire record on appeal, we are in substantial
agreement with the district court’s analysis of the Exploration Agreement and see
no need to repeat that analysis. Accordingly, this court affirms the district court’s
grant of summary judgment in favor of Cross Timbers on the contract
interpretation claim for substantially those reasons set out in the district court’s
order. In so doing, we specifically note that the Exploration Agreement cannot
reasonably be read as setting forth two separate definitions of Extension Well.
Like the district court, this court concludes that Ricks’ interpretation of paragraph
12 reads paragraph 2(c) out of the Exploration Agreement. Finally, the
circumstances surrounding the formation of the Exploration Agreement, including
17
Before the district court, Ricks’ ambiguity argument took the following
two forms: (1) Ricks’ primary argument was that its interpretation of the
Exploration Agreement as setting forth two complementary definitions of
Extension Well was a reasonable interpretation and that, assuming Cross Timbers’
contrary interpretation of the Exploration Agreement was also reasonable, the
agreement was ambiguous; and (2) secondarily, Ricks asserted that the meaning
of the term “adjacent” in paragraph 2(c) was ambiguous in that it could mean
either “contiguous” or “near to.” Ricks did not, however, reassert the second
ambiguity argument in its brief on appeal. Furthermore, during oral argument
Ricks’ counsel conceded that the extrinsic evidence in this case indicates that the
parties viewed the term “adjacent” as meaning “contiguous” or “abutting.”
Accordingly, we do not consider this second aspect of Ricks’s ambiguity
argument in resolving this appeal.
-13-
the numerous drafts exchanged by the parties, do not alter our conclusion that the
definition of Extension Well set out in paragraph 2(c) applies to paragraph 12.
2. Mutual Mistake
The district court rejected Ricks’ claim of mutual mistake, ruling as a
matter of Texas law that the doctrine of mutual mistake is unavailable when the
agreement at issue is unambiguous. In reaching that conclusion, the district court
relied on the opinion of the Court of Appeals of Texas in Baldwin v. New, 736
S.W.2d 148, 153 (Tex. App. 1987) (“[W]hen an agreement is unambiguous, the
defense of mutual mistake as to the meaning of the terms used is unavailable as a
matter of law.”). On appeal, Ricks argues that the district court erred in relying
on Baldwin because Baldwin is contrary to the subsequent decision of the Texas
Supreme Court in Williams v. Glash, 789 S.W.2d 261 (Tex. 1990).
In Williams, the Texas Supreme Court held that a litigant could seek to
rescind a personal injury release on the ground of mutual mistake, despite the
unequivocal and unambiguous nature of the release. See id. at 264-65.
According to the Williams court,
When mutual mistake is alleged, the task of the court is not to
interpret the language contained in the release, but to determine
whether or not the release itself is valid. We overrule [one of our
own decisions] and disapprove [a decision of the court of appeals] to
the extent that they give controlling weight to the language of the
release to defeat a claim of mutual mistake.
-14-
Id. at 265. The Williams court was careful, however, to note the very narrow
nature of the doctrine of mutual mistake:
The doctrine of mutual mistake must not routinely be available to
avoid the results of an unhappy bargain. Parties should be able to
rely on the finality of freely bargained agreements. However, in
narrow circumstances a party may raise a fact issue for the trier of
fact to set aside a release under the doctrine of mutual mistake.
Id. at 265; see also Matlock v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA., 925
F. Supp. 468, 474 n.4 (E.D. Tex. 1996) (noting that, following the decision in
Williams, Texas courts have applied the doctrine of mutual mistake narrowly).
Furthermore, “[t]he question of mutual mistake is determined not by self-serving
subjective statements of the parties’ intent, which would necessitate trial to a jury
in all such cases” but, instead, by objective manifestations of the parties’ intent.
Id. at 264, 265. 18
18
In that regard, the facts of the case are particularly telling.
Margaret Williams (“Williams”) was a passenger in her family
car when it was struck from behind by a car driven by . . . Stephen
Glash. While damage to [Williams’] car was apparent at the time of
the accident, there were no observable injuries. Williams
immediately contacted State Farm Mutual Automobile Insurance
Company, Glash’s insurer, who advised Williams to bring the car to
its local office for an appraisal of the property damage claims. State
Farm estimated the cost of repairs at $889.46 and provided Williams
a check payable for that precise amount.
At the State Farm office, Williams was asked to complete a
claim form containing a question as to whether anyone had been
injured by the accident. She checked “No” in response. There was
no negotiating or bargaining for release of a personal injury claim;
only property damage to the car was discussed. Nonetheless, the
-15-
On appeal, Cross Timbers asserts that the decision in Williams is
inapplicable to this case because Williams involved an attempt to rescind a
contract, while in this case Ricks attempts to reform a narrow term of the
Exploration Agreement in a manner consistent with its litigation position. This
court concludes that it need not decide whether Williams applies outside of the
recision context because, even assuming it does apply, the district court’s grant of
summary judgment in favor of Cross Timbers on Ricks’ mutual mistake claim is
still proper. See Mallinson-Montague v. Pocrnick, 224 F.3d 1224, 1233 (10th Cir.
2000) (“[T]his court can affirm the district court for any reason that finds support
in the record.”).
back of the check contained language purporting to release personal
injury claims, providing that:
The undersigned payee accepts the amount of this
payment in full settlement of all claims for damages to
property and for bodily injury whether known or
unknown . . . .
This release language was never explained to nor discussed
with Williams or her husband. The face of the check contained a
State Farm code, “200-1,” denoting the settlement of a property
claim, rather than a separate code used by the insurer for personal
injury claims. [Williams] subsequently endorsed the check over to
the garage that repaired [her] car.
Williams was later diagnosed as having temporomandibular
joint syndrome (“TMJ”), causing head and neck pain, as a result of
the accident. Both the trial court and the court of appeals found that
suit for this injury was barred by execution of the release.
Williams v. Glash, 789 S.W.2d 261, 263 (Tex. 1990).
-16-
In support of its claim of mutual mistake, Ricks relies on testimony it
adduced from the negotiators of the Exploration Agreement as well as the various
proposals exchanged by the parties and the letter of intent. The opinion in
Williams makes clear, however, that “subjective statements of the parties’ intent”
will not be considered by the court in determining whether sufficient evidence of
mutual mistake exists to send the case to a jury. 789 S.W.2d at 264.
Accordingly, the only relevant evidence identified by Ricks is the various
proposals and the letter of intent exchanged by the parties. This court has closely
reviewed the contents of the various proposals and the letter of intent and
concludes that evidence is not sufficient to send the case to a jury under Texas’
“narrow” doctrine of mutual mistake. Williams, 789 S.W.2d at 265. Unlike the
situation in Williams, where there had not been any discussion at all as to the
question of personal injuries, the various proposals exchanged by the parties here
demonstrate ongoing negotiations over the breadth of Ricks’ right to drill.
Furthermore, when Southland proposed adding the adjacency limitation set out in
paragraph 2(c) of the Exploration Agreement, it specifically brought the
definitions to the attention of Ricks’ and asked Ricks’ negotiator to look over the
definitions and determine whether they accurately reflected the parties’
agreement. Without any objection from Ricks, the adjacency limitation was
incorporated into the executed Exploration Agreement. Finally, it is clear and
-17-
undisputed from the record that the negotiations between the parties were
extensive and that the Exploration Agreement was not reached in haste. See
Williams, 789 S.W.2d at 264 (noting that the extent of negotiations and the haste
or lack thereof in reaching the agreement are among the objective factors to be
considered in determining whether a claim of mutual mistake should proceed to
trial).
Because Ricks has not come forward with any objective evidence indicating
that the adjacency requirement was added to the Exploration Agreement by the
mutual mistake of the parties, the district court correctly granted summary
judgment to Cross Timbers on this claim.
B. Tort Claims 19
1. Trespass
In its first amended complaint, Ricks alleged that under the Exploration
Agreement it had the exclusive right to drill wells in Sections 3 and 15. It further
alleged that by drilling its own wells in those two section, Cross Timbers had
engaged in a tortious, bad faith trespass. In granting summary judgment in favor
of Cross Timbers on this claim, the district court concluded that because the
In contrast to the contract claims discussed above, Ricks’ tort claims are
19
governed by Oklahoma law.
-18-
Exploration Agreement did not bestow on Ricks any right to drill in Sections 3
and 15, Ricks’ trespass claim must necessarily fail.
On appeal, Ricks asserts that “the district court simply failed to recognize
that, under the Exploration Agreement, only Ricks had the right to drill wells.”
Accordingly, Ricks asserts that if this court reverses the district court’s resolution
of its contract claims, we should also reverse the district court’s grant of summary
judgment in favor of Cross Timbers on the trespass claim. As this court has
affirmed the district court’s resolution of Ricks’ contract claims, we likewise
affirm the district court’s resolution of Ricks’ trespass claim.
2. Fiduciary Duty
Paragraphs 44 and 45 of Ricks’ first amended complaint provide as follows:
44. By virtue of the special relationship between the parties
arising from their joint venture, their [co-tenancy] and/or their
operator/non-operator relationship, Cross Timbers owed Ricks
fiduciary duties to cooperate with Ricks in its efforts to drill wells
and earn acreage under the Exploration Agreement.
45. By its intentional and malicious actions designed to limit
Ricks’ ability to earn further acreage, Cross Timbers has damaged
Ricks and is liable to Ricks for all actual damages caused by Cross
Timbers’ breach of fiduciary duty, and for punitive damages.
In granting summary judgment in favor of Cross Timbers on this claim, the
district court first noted that the explicit language of both the Exploration
Agreement and the Model Form Operating Agreement, attached to and made a
part of the Exploration Agreement, specifically negated the existence of a joint
-19-
venture. Citing controlling Oklahoma law, the district court further concluded
that neither the parties’ status as co-tenants as to certain leases nor Cross
Timbers’ status as operator of certain wells on sections 3, 15, and 22 imposed
upon Cross Timbers a fiduciary duty to help Ricks drill as many wells as possible
under the Exploration Agreement, the only breach of fiduciary duty claim set
forth in the first amended complaint. See Uptegraft v. Dome Petroleum Corp.,
764 P.2d 1350, 1353 (Okla. 1988) (recognizing that although joint tenants cannot
actively mislead each other regarding matters relating to the joint estate, the
relationship between joint tenants is not fiduciary); Leck v. Cont’l Oil Co., 800
P.2d 224, 228-29 (Okla. 1989) (recognizing the existence of a fiduciary-type
relationship between unit operators on the one hand and royalty owners and
lessees on the other hand, but noting that the fiduciary obligation of the unit
operator was limited to the duty to conduct operations in a prudent manner).
In light of this court’s conclusion that the Exploration Agreement did not
grant Ricks the right to drill additional extension wells on lands that did not abut
lands earned through the drilling of the Initial Test, Ricks’ claim that Cross
Timbers was under a fiduciary duty to help it drill wells on sections 3 and 15
necessarily fails. Ricks nevertheless argues on appeal that the district court erred
“in apparently concluding that Ricks’ claim did not involve correlative rights and
prudent operations, the limited fiduciary duties Oklahoma law imposes upon
-20-
operators.” Cf. Leck, 800 P.2d at 228-29. We disagree and conclude that the
district court properly avoided resolution of such claim because it is not set forth
in Ricks’ first amended complaint.
It is quite true that Ricks’ first amended complaint does contain numerous
allegations relating to Cross Timbers’ operation of two wells in the southwest
quarter section of section 22. All of those allegations, however, related to Ricks’
claim that Cross Timbers had manipulated production from the wells it operated
in section 22 in an effort to prevent Ricks from learning that the Tarrant 2-22 well
was a Discovery Well, thereby entitling Ricks to extend the field into section 15. 20
20
Paragraphs 17 and 23 through 30 of the first amended complaint allege as
follows:
17. Since filing the original Complaint, Ricks has learned that
Cross Timbers has been and is intentionally and maliciously
undertaking numerous improper and unprivileged efforts directed
toward the internally-admitted purposes of [a] forcing Ricks to
modify the Exploration Agreement and [b] delaying Ricks’
development efforts in order to limit Ricks’ ability to earn acreage
under the Exploration Agreement.
....
23. Under the Exploration Agreement, if one of the wells
drilled under the Exploration Agreement - the Tarrant 2-22 well -
qualified as a discovery well, then Ricks would earn the right to drill
in acreage including Section 15, Township 6N, Range 15E, Texas
County, Oklahoma (“Section 15”).
24. As operator of the Tarrant 2-22 well, a “Development
Well” under the Exploration Agreement, Cross Timbers refused to
timely commingle production from two formations in the well so that
the well’s status as a “Discovery Well” would not be apparent.
25. At the same time, Cross Timbers also failed to give Ricks
-21-
Both the district court and this court have resolved this claim by concluding that
because the Exploration Agreement did not give Ricks any rights to section 15,
Cross Timbers was under no fiduciary obligation to help Ricks’ drill in that
complete production information from the Tarrant 2-22 well so that
Ricks was unaware that the well qualified as a Discovery Well. The
incomplete information given Ricks by Cross Timbers’ affiliate made
it appear that the Tarrant 2-22 well was not a Discovery Well.
26. Before Ricks discovered that the Tarrant 2-22 well was a
“Discovery Well,” Cross Timbers drilled two wells in Section 15
without seeking Ricks’ consent to drill the wells and without offering
Ricks an opportunity to participate in the wells.
27. Before first drilling in Section 15, Cross Timbers falsely
reported that its targeted depth was a depth in which Ricks had no
interest under the Exploration Agreement.
28. The Tarrant 2-22 well’s status as a “Discovery Well” gave
Ricks’ rights to drill and earn acreage in particular formations,
including the Council Grove, in certain sections including Section
15.
29. Discovery has revealed that, long before reporting the
false depth in Section 15, and contemporaneously with learning that
the Council Grove formation was promising in the Tarrant 2-22,
Cross Timbers decided to drill to the Council Grove formation in
Section 15 without recognizing Ricks’ rights in the unit.
30. Also in relation to the Tarrant 2-22 well drilled in the
SW/4 of Section 22, Cross Timbers proposed and drilled a second
gas well in the same quarter section. Cross Timbers decided not to
pursue the natural development into the N/2 of Section 22
intentionally, imprudently and maliciously in an effort to preserve an
argument that its tortured construction of the Exploration Agreement
would allow it to claim that Ricks still had no rights in Section 15
even if this increased density well was a “Discovery Well.”
When these allegations are read in concert with paragraphs 44 and 45 set forth in
the text of this opinion, it becomes absolutely clear that the first amended
complaint does not set forth a claim of breach of fiduciary duties flowing from
Cross Timbers’ failure to protect Ricks’ correlative rights in section 22.
-22-
section. Although Ricks’ motion and brief in opposition to Cross Timbers’
motion for summary judgment do appear to hint at the possible existence of
fiduciary duty claim of the type discussed in Leck, Ricks cannot rightfully
complain that the district court failed to resolve a claim never set forth in the first
amended complaint.
3. Implied Covenant of Good Faith
Relying on many of the same allegations set out above with regard to its
fiduciary duty claim, Ricks alleged in its first amended complaint that “Cross
Timbers’ actions to limit Ricks’ right to earn acreage under the Exploration
Agreement have been undertaken intentionally, maliciously[,] and in reckless and
wanton disregard of” Cross Timbers’ duty of good faith and fair dealing. In
resolving this claim, the district court first expressed doubt as to whether the
Oklahoma courts would extend the duty of good faith and fair dealing to these
types of contractual relationships. See Dist. Ct. Order at 17 (citing Davis v. TXO
Prod. Corp., 929 F.2d 1515, 1519 (10th Cir. 1991) (refusing to impose non-
contract-based duty of good faith and fair dealing upon co-tenants of an oil and
gas lease)). Even assuming the duty would extend to the circumstances present in
this case, the district court concluded that the actions complained of here
amounted to nothing more than alleged breaches of the Exploration Agreement
-23-
and that something more was necessary to support a claim of tortious breach of
the implied covenant.
On appeal, Ricks asserts that the Oklahoma Supreme Court recently
extended the reach of the tort to cover all contractual breaches that are malicious,
intentional, or grossly negligent. See Beshara v. S. Nat’l Bank, 928 P.2d 280, 288
(Okla. 1996). It further alleged that it had come forward with sufficient evidence
to create a question of fact as to whether Cross Timbers had acted intentionally
and maliciously to deny Ricks the fruits of the Exploration Agreement. We need
not, however, resolve the scope of the duty of good faith and fair dealing in
Oklahoma. This claim is premised on many of the same allegations as the breach
of fiduciary duty claim and suffers from the same infirmities. We therefore
affirm the district court’s grant of summary judgment for the same reasons set out
above in resolving Ricks’ fiduciary duty claim.
4. Interference With Prospective Economic Advantage
In its first amended complaint, Ricks alleged that “[b]y its intentional and
malicious interference with Ricks’ prospective contracts to sell gas produced from
extended acreage, Cross Timbers has damaged Ricks.” In an effort to resist Cross
Timbers’ motion for summary judgment on this claim, Ricks cited to paragraph
seventeen of the affidavit of Art Swanson, Ricks’ president, for the proposition
that it had adduced evidence creating a material issue of fact as to whether the
-24-
actions of Cross Timbers had caused it to lose the opportunity to sell gas to its gas
purchaser. The cited portion of Swanson’s affidavit reads as follows:
17. Had Cross Timbers allowed Ricks to participate in the
three wells now producing from the Council Grove formation in
Sections 15 and 3, Ricks would be selling a substantial amount of gas
from these wells to its gas purchaser. Ricks has lost the profit it
would be earning on these gas contracts as a result of Cross Timbers’
actions. By not allowing Ricks to develop acreage it rightfully owns
under the Exploration Agreement, Cross Timbers’ actions have
reduced the volume of gas flowing through Ricks’ system, thus
diminishing the economic return to Ricks for the costs it has incurred
for exploration activities, line expenses, compression and treating
facilities.
The district court concluded that this evidence was insufficient to carry
Ricks’ burden of coming forward with evidence sufficient to create a material
issue of fact as to whether Cross Timbers tortiously interfered with Ricks’
prospective economic relations. According to the district court,
Ricks’ claim of commercial interference is mere speculation.
Ricks does not provide the details of the gas purchase arrangement
with which it claims Cross Timbers interfered and has not provided
the information necessary to compute any damages. Further, Ricks
has failed to connect Cross Timbers’ conduct to any interference.
The law allows a contracting party to engage in conduct to further its
own legitimate business or financial interests. Haynes v. South
Community Hosp. Mgmt., Inc., 793 P.2d 303, 307 (Okla. App. 1990).
The Court has examined Cross Timbers’ conduct and finds in this
case, this is exactly what occurred.
Ricks challenges on appeal the district court’s grant of summary judgment
in favor of Cross Timbers and asserts that “it is certain” that it was damaged
when Cross Timbers refused to allow it to participate in the wells drilled in
-25-
sections 3 and 15. Unfortunately, there is not a single citation to the record in
this section of Ricks’ brief to support its assertion that material issues of fact
exist precluding summary judgment on this claim. This failure is reason enough
to affirm the district court. See Fed. R. App. P. 28(a)(9)(A) (providing that an
appellant’s opening brief “must contain[] appellant’s contentions and the reasons
for them, with citations to the . . . parts of the record on which appellant relies”);
Koch v. Koch Indus., Inc., 203 F.3d 1202, 1213 (10th Cir. 2000).
In it reply brief, however, Ricks for the first time on appeal cites to
paragraph 17 of Swanson’s affidavit as the sole support for its contention that
material issues of fact exist as to whether it was damaged by Cross Timbers’
conduct with regard to sections 3 and 15. In light of this court’s conclusion
above that the Exploration Agreement provided Ricks with no rights to drill in
sections 3 or 15, it is clear that Ricks cannot prove that it was damaged by Cross
Timbers’ refusal to allow it to participate in the drilling activities as regards those
two sections. See generally Gaylord v. Entm’t Co. v.
-26-
Thompson, 958 P.2d 128, 149-150 nn.96-97 (Okla. 1998) (citing with approval to
Michigan cases which set out the elements of tort of intentional interference with
prospective economic relations; those cases hold that damages resulting from the
allegedly unfair or unlawful activity is one such element); see also Koch, 203
F.3d at 1212 (“This court has held that failure of proof of an essential element
renders all other facts immaterial.”). Accordingly, the district court properly
granted summary judgment in favor of Cross Timbers on Ricks’ claim of
intentional interference with prospective economic advantage.
C. Costs
In appeal number 00-6075, Ricks notes that Cross Timbers was awarded
costs as a prevailing party under Federal Rule of Civil Procedure 54(b). Ricks
further asserts that if this court were to reverse the district court in appeal number
99-6370, the order taxing costs must also be reversed because Cross Timbers will
no longer be the prevailing party. As this court has affirmed the district court’s
grant of summary judgment in favor of Cross Timbers in the underlying appeal,
the district court’s order taxing costs is also affirmed.
-27-
V. CONCLUSION
For the reasons stated above, the district court’s orders granting summary
judgment in favor of Cross Timbers and awarding it costs as a prevailing party are
hereby AFFIRMED.
ENTERED FOR THE COURT
Michael R. Murphy
Circuit Judge
-28-
15
22
27 26
34 35
3
-29-