Mitchell Energy Corp v. Samson Resources Co ( 1996 )

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 95-40204
MITCHELL ENERGY CORPORATION,
Plaintiff-Appellee,
MAURICE SHERMAN BLISS, ET AL.,
Intervenor Plaintiff-
Appellee,
versus
SAMSON RESOURCES COMPANY,
Defendant-Appellant.
Appeal from the United States District Court
for the Eastern District of Texas
(9:93-CV-83)
January 11, 1996
Before WIENER, EMILIO M. GARZA, and BENAVIDES, Circuit Judges.
WIENER, Circuit Judge:*
In the action underlying this appeal, a jury found Defendant-
Appellant Samson Resources Company (Samson), the lessee/operator of
a gas well (the Well), liable for conversion and fraud for its
failure to disclose and pay amounts owed to the Appellees as a
*
Pursuant to Local Rule 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in Local Rule 47.5.4.
result of gas production from the Well. Plaintiff-Appellee
Mitchell Energy Corporation (Mitchell) is Samson's unleased
cotenant1 in the mineral interests involved in this case;
Intervenors-Appellees Maurice Bliss, et al. (Intervenors), lessors
of oil and gas leases now owned by Samson, were treated as unleased
cotenants based on the jury's finding that Samson had repudiated
these leases. The total actual and punitive damages awarded were
approximately $3 million and $50 million, respectively. Concluding
that Texas law does not support a tort action for conversion or
fraud under the instant circumstances, we REVERSE the judgment of
the district court in part, MODIFY that judgment in part, and as
modified RENDER the judgment in favor of Mitchell and Intervenors.
I
FACTS AND PROCEEDINGS
Samson is lessee and operator of the Well by virtue of several
oil and gas leases covering lands within the Samson Trammel Trust
Gas Unit #1 (the Unit). The Unit covers 704 acres of the William
Johns Survey A-39 in Polk County, Texas.
Beginning in 1980, Samson acquired oil and gas leases from
Exxon, Republic National Bank, Trustee, and the Intervenors,
covering most of the mineral interests that would eventually
1
As explained more fully below, Samson and Mitchell are
cotenants in the mineral interests constituting the Samson Trammel
Trust Gas Unit #1. The term "unleased cotenant" has been used by
the parties and is used in this opinion to denote the fact that
Mitchell did not execute an oil and gas lease with Samson, the
lessee/operator who drilled the Well.
2
constitute the Unit.2 Samson drilled the Well and began producing
it in 1981. As permitted by the pooling clauses in the leases,
Samson established the Unit by filing a Unit Designation in the
public records of Polk County on February 27, 1984.
It turned out, however, that Samson had failed to obtain oil
and gas leases covering approximately five percent of the mineral
interests comprising the Unit. Beginning in 1989, Mitchell
obtained leases covering these unleased mineral interests while
acquiring other leases in the course of doing title work in and
around the Unit area for the purposes of its own drilling. That is
how Mitchell came to own an unleased mineral interest in the Unit.
As stipulated at trial, ownership of the Unit is as follows3:
Mitchell Energy Corporation 4.93323%
Intervenors 5.55961%
Republic National Bank, Trustee 82.94986%
Exxon 5.20014%
From 1981 to 1994, the Unit produced gross revenue of over $15
million.4 Although Exxon and Republic National Bank, Trustee were
paid royalties pursuant to their leases, the Intervenors were not
paid royalties, and Mitchell was not paid its share of profits
(gross production less expenses) as an unleased cotenant. Samson
2
In many cases, the Intervenors are heirs of the original
lessors. In addition, two of the Intervenors' leases were obtained
in 1973 by Highland Resources, Inc and later assigned to Samson.
Samson obtained ratification of these leases in 1980.
3
These ownership percentages total to only 98.64284%. The
owners of the remaining 1.35716% remain unknown.
4
The Railroad Commission records reflecting the volume of
gas produced from this well are available to the public.
3
neither notified Mitchell or Intervenors of the well production nor
sent division orders to Intervenors for execution.
Mitchell made its first demand for an accounting on February
5, 1991. After Samson refused this demand, Mitchell filed an
action in Texas state court for an accounting, as well as damages
for conversion and "fraudulent taking." This action was later
removed to federal district court by Samson on grounds of
diversity. Upon learning of the Well from Mitchell, Intervenors
joined the suit and asserted that Samson had breached their leases
and committed fraud and conversion. Prior to their joining the
suit, Intervenors had made no demand on Samson.
The two sides paint diametrically opposed pictures of Samson's
motives and conduct. Samson presented evidence at trial, including
several title opinions, indicating that the reason Mitchell and
Intervenors had not been paid was because the ownership of those
mineral estates was not clear and royalties attributable to the
questionable estates were being held "in suspense" until Samson was
certain of the true ownerships. Mitchell and Intervenors countered
with expert testimony that there was no title dispute in 1980, the
year in which Samson began work on the Well, and that Samson had
sufficient information to determine the correct ownership of these
minerals.
The money due the allegedly unknown owners was not segregated
or placed in an escrow account by Samson. Instead, Samson used
these funds in its own business, a practice which Samson insists is
common in the industry. Some of these funds were distributed by
4
Samson to other working interest owners of the well who were
affiliates of Samson. Neither did Samson make accounting entries
on its books to reflect the suspension of these funds. Samson
describes this bookkeeping omission as a failure of communication
among its employees; the Appellees describe it as intentional
obfuscation.
The jury found against Samson on both the conversion and fraud
claims and assessed actual damages of $1,354,752.11 for Mitchell
and $1,664,222.80 for the Intervenors. The jury also found that
Samson had repudiated the Intervenors' leases. Accordingly, the
actual damages for the Intervenors were calculated as if they were
unleased cotenants rather than lessors under the lease agreements.
Punitive damages in the amounts of $10 million and $40 million were
awarded to Mitchell and the Intervenors, respectively. In
addition, the judgment of the district court enjoins Samson to pay
Mitchell and Intervenors 100 percent of their mineral percentages
in the future, without deduction for expenses, and awards Mitchell
attorneys' fees of $65,718.75 pursuant to the Eastern District
Civil Justice and Delay Reduction Plan.
Samson filed a Motion for Judgment as a Matter of Law and a
Motion for a New Trial, both of which were denied. Samson now
appeals.
II
ANALYSIS
A. STANDARD OF REVIEW
A jury's findings of fact will not be overturned unless the
5
facts and inferences point so strongly and overwhelmingly in favor
of one party that the court believes that reasonable jurors could
not arrive at a contrary verdict.5 We review a district court's
application of state law de novo.6 Most of the relevant facts in
this case are uncontested, and this opinion focuses primarily on
the district court's determination and application of Texas law.
B. THE LEGAL RELATIONSHIPS BETWEEN THE PARTIES
Mitchell's predecessors had not leased their mineral interests
in the Unit to Samson or anyone else. Thus, as the owner of
undivided mineral interests in the Unit, Mitchell is Samson's
unleased cotenant and was properly treated as such by the district
court.
The Intervenors, on the other hand, had leased their mineral
interests in the Unit to Samson. The jury found, however, that
Samson had repudiated these leases.7 Thus, the district court
treated the Intervenors as unleased cotenants, rather than as
lessors under the lease agreements, which Samson contends was
error. We agree.
In Texas, an oil and gas lease conveys an estate in real
property to the lessee, namely, a fee simple determinable in the
5
Vero Group v. ISS-International Serv. Sys., 971 F.2d 1178,
1181 (5th Cir. 1992).
6
Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.
Ct. 1217, 1221, 113 L. Ed. 2d 190 (1991).
7
Interrogatory No. 3 defined "repudiation" to mean "when a
party indicates by its words or actions that it is not going to
perform its obligations under an agreement or lease and shows a
fixed intention to abandon, renounce and refuse to perform the
agreement or lease without just excuse."
6
mineral estate.8 Samson thus retains title to the minerals under
its leases for as long as production in paying quantities
continues. Absent a specific lease clause to the contrary,
nonpayment of royalty does not terminate an oil and gas lease; the
lessee's sole remedy lies in an action for damages based on breach
of covenant.9
The leases in the instant case contain no clause providing for
termination upon the failure to pay royalty. Moreover, all
conditions necessary for Samson to retain the fee (i.e., production
in paying quantities) have been satisfied. Therefore, even
assuming that Samson's failure to pay royalties to the Intervenors
was intentional, as a matter of law this conduct could not result
in Samson's mineral estate terminating and reverting back to the
Intervenors.
Intervenors, insisting that Texas law permits an oil and gas
lease to be repudiated in these circumstances, erroneously rely on
cases discussing the doctrine of repudiation.10 That doctrine
provides that a lessor may be estopped from asserting that a lease
has terminated as a result of the lessee's nonperformance when the
lessor has directly contributed to that nonperformance.11 Thus,
8
Jupiter Oil Co. v. Snow, 819 S.W.2d 466, 468 (Tex. 1991).
9
Moriss v. First Nat'l Bank, 249 S.W.2d 269, 279 (Tex. Civ.
App.SQSan Antonio 1952, writ ref'd n.r.e.); 1 E. Smith & J. Weaver,
TEXAS LAW OF OIL AND GAS § 4.6D at 195-0 (1994).
10
E.g., Cheyenne Resources, Inc. v. Criswell, 714 S.W.2d 103,
105 (Tex. App.SQEastland 1986, no writ).
11
1 E. Smith & J. Weaver, TEXAS LAW OF OIL AND GAS § 4.5F at 191
(1994).
7
this doctrine relieves a lessee from any obligation to conduct
operations which are necessary to maintain the lease while a
judicial resolution of the controversy between the lessee and
lessor over the validity of the lease is pending.12 The doctrine
of repudiation, however, provides no support for Intervenors'
position that Samson, the lessee, has repudiated these leases.
Furthermore, the other cases relied on by Intervenors involve the
rescission of ordinary bilateral contractsSQas opposed to oil and
gas leases, which convey estates in realtySQand are therefore
inapposite. Thus, we conclude as a matter of law that Samson's oil
and gas leasesSQmineral estatesSQhave not terminated by repudiation
or otherwise, so that Intervenors must be treated as lessors under
oil and gas leases, not as unleased cotenants.
C. CONVERSION
Under Texas law, a party commits conversion if it exercises
wrongful dominion and control over personal property belonging to
another.13 The right to payment for minerals already severed from
the ground is considered personal property, not realty.14 Mitchell
and Intervenors thus argue that the jury properly found Samson
liable for the tort of conversion for failing to pay them the
amounts they were owed. We disagree, concluding that Texas law
12
Exploracion de la Estrella Soloataria Inc. v. Birdwell, 858
S.W.2d 549, 554 (Tex. App.SQEastland 1993, no writ).
13
Waisath v. Lack's Stores, Inc., 474 S.W.2d 444, 446 (Tex.
1971).
14
Phillips Petroleum Co. v. Adams, 513 F.2d 355, 363 (5th
Cir.), cert. denied, 423 U.S. 930 (1975).
8
does not support a tort action for conversion of the proceeds of
mineral production under these circumstances.
As for Mitchell, it and Samson are cotenants in the mineral
interests within the Unit. A unique legal relationship exists
between cotenants. Unlike one who is not a party to the cotenancy,
any cotenant has the right to extract minerals from the common
property without consent or participation of the other cotenants.15
This right is subject only to a duty to account for the other
cotenants' proportionate part of the value of the oil and gas
produced, less their proportionate part of the drilling and
operating expenses.16 Thus, the parties do agree that Samson did
not convert gas by producing it and selling it.17 Instead, the
issue is whether a tort action lies against Samson for converting
the proceeds of the gas sales when it failed to pay Mitchell. We
conclude that no conversion action lies.
Mitchell has not cited, and we have not found, a Texas case
that has held one cotenant liable for the tort of conversion for
failing to pay another cotenant the profits to which that other
cotenant is entitled. The law, of course, provides the
15
Byrom v. Pendley, 717 S.W.2d 602, 605 (Tex. 1986).
16
Id.
17
Samson argues that Mitchell's concession on this point is
fatal because Interrogatory No. 1 asked whether Samson
"intentionally converted property or revenues." Samson thus
essentially contends that this interrogatory was based on two
theories, the first of which (i.e., conversion of real property)
was not legally sound. We find this argument unpersuasive in that
we do not interpret this interrogatory to be based upon two legal
theories.
9
nonconsenting cotenant a remedySQthe right to an accounting.18
Moreover, a Texas statute also allows, at least in some
circumstances, the recovery of interest and attorneys' fees when
recovering these amounts due.19 This right to an accounting for the
profits of production, however, is not a tort remedy for which
punitive damages are available.
Similarly, the authorities relied on by Mitchell fail to
support the contention that conversion is a proper remedy.
Although it is certainly true that the Texas courts have found that
the proceeds from the sale of oil and gas can be the subject of
conversion, each case in which the courts of Texas have so held
involved a trespasser or other person with no legal right in and to
the minerals.20 As discussed above, however, a cotenant has the
legal right to extract and sell minerals from the common property.
Thus, this line of cases lacks relevance to the issue before us.
Similarly, the Gardner Machinery case, which involved the
conversion of sale proceeds by an agent selling particular items of
machinery owned by its principal, is also inapposite.21
Texas law does recognize that one cotenant may have an action
for conversion against another cotenant in certain limited
circumstances. Thus, "a suit for conversion may be maintained by
18
E.g., Cox v. Davison, 397 S.W.2d 200 (Tex. 1965).
19
See Tex. Nat. Res. Code Ann. §§ 91.401-91.406.
20
E.g., W.B. Johnson Drilling Co. v. Lacy, 336 S.W.2d 230
(Tex.Civ.App.SQEastland 1960, no writ).
21
Gardner Machinery Corp. v. U.C. Leasing, Inc., 561 S.W.2d
897 (Tex.Civ.App.SQBeaumont 1978, writ dism'd).
10
one tenant in common against another tenant in common who
appropriates the entire property owned in common between them."22
We note that in Grabes the property owned in common was machinery;
profits from real property were not involved. The rule announced
in that case is inapplicable to the situation at hand. The most
that can be said for the instant case is that only proceeds of
production have been "appropriated," not the entire mineral estate
owned by the cotenants. Therefore, the unique situation under
which one cotenant may have an action for conversion against
another cotenant is not present.
Mitchell, Intervenors, and Samson all argue that the line of
cases involving money as the subject of conversion supports their
respective positions on this issue. Texas jurisprudence holds that
money can be the subject of conversion, but only when it is in the
form of specific chattel, such as old coins, or when "the money
delivered is to another party for safekeeping, the keeper claims no
title, and the money is required and intended to be segregated,
either substantially in the form in which it was received or as an
intact fund."23 An obligation to pay money generally, however, is
treated differently under Texas law. "Where money is involved, it
is subject to conversion only when it can be described or
identified as a specific chattel, but not where an indebtedness may
22
Grabes v. Fawcett, 307 S.W.2d 311, 315 (Tex.Civ.App.SQ
Texarkana 1957, no writ) (citing Friemel v. Crouch, 189 S.W.2d 764
(Tex. Civ. App.SQAmarillo 1945, writ ref'd w.o.m.)) (emphasis
added).
23
Dixon v. State, 808 S.W.2d 721, 723 (Tex. App.SQAustin
1991, writ dism'd w.o.j.).
11
be discharged by the payment of money generally."24
We first note that none of these "money conversion" cases
involves the right of a cotenant with respect to profits from the
common property. Thus, these cases are not truly on point.
Although Mitchell does have a right to a percentage of the profits
of production, this does not give Mitchell a right to a specific
and identifiable portion of the proceeds received that could be
considered specific chattel. Rather, Mitchell's right is to an
amount equal to its proportionate share of the value of gas
produced, which is not necessarily the same as the amount of the
sale proceeds less reasonable drilling and operating expenses.
Therefore, regardless of the extent to which this line of cases may
be relevant, we are satisfied that the obligation owed to Mitchell
under the law of cotenancy is more analogous to an obligation to
pay money generally than to return or deliver money as specific
chattel. Moreover, this conclusion comports with the fact that the
law of cotenancy provides no remedy for conversion under these
circumstances.
Mitchell further argues that Texas Property Code section
75.102 supports a conversion action against a cotenant. That
section provides that "[a] holder of abandoned property shall
preserve that property and may not by any procedure, including a
24
Crenshaw v. Swenson, 611 S.W.2d 886, 891
(Tex.Civ.App.SQAustin 1980, writ ref'd n.r.e.). See Gronberg v.
York, 568 S.W.2d 139, 144 (Tex.Civ.App.SQTyler 1978, writ ref'd
n.r.e.) (holding that an employee could not recover against his
employer on the theory of conversion when he did not seek return of
specific money but was only seeking repayment of money generally
which he alleged was wrongfully withheld from his commissions).
12
deduction for service, maintenance, or other charge, transfer,
convert, or reduce the property to the profits or assets of the
holder."25 This unclaimed property statute has no application to
the rights and remedies of cotenants. Neither does the mere use of
the word "convert" in an illustrative list somehow create a cause
of action in tort where none exists independently. Therefore, this
argument by Mitchell fails.
At oral argument, Mitchell conceded that normally the only
remedy available in this type of situation is an action for an
accounting. Mitchell insists, however, that this case is different
because Samson neither made a bookkeeping entry to reflect that
these funds were held in suspense nor placed them in escrow. We
are not convinced that the omission of these actsSQwhich are not
expressly required by lawSQcan somehow transform a right to an
accounting into the tort of conversion. Accordingly, we conclude
that Mitchell has no action in conversion against its cotenant,
Samson, to recover its share of profits in the mineral estate.
We reach the same conclusion as to Intervenors. As discussed
above, they are properly treated as Samson's lessors under the oil
and gas leases, not as Samson's cotenants. Their causes of action
sound only in contract, and not in tort.26 Thus, Intervenors too
have no claim for conversion.
25
TEX. PROP. CODE ANN. § 75.102 (Vernon 1995) (emphasis added).
26
See Harrison v. Bass Enter. Prod. Co., 888 S.W.2d 532, 536
(Tex. App.SQCorpus Christi 1994, no writ).
13
D. FRAUD
The jury also found that Samson had committed fraud. This
finding was based on Samson's failure to disclose material facts
(i.e., that money was owed to Mitchell and Intervenors as a result
of gas production from the Well), which it purportedly had a duty
to disclose pursuant to an asserted fiduciary relationship. Samson
contends that such a position is not supported under Texas lawSQand
we agree.
Absent a fiduciary or confidential relationship, the failure
to disclose information is not actionable as fraud.27 Under Texas
law neither a cotenancy nor a lessor/lessee relationship imports a
fiduciary relationship.28 Although a confidential relationship can
arise not only from technical fiduciary relationships but from
partnerships, joint ventures, and some informal relationships,29
there is no evidence in this case to suggest the existence of some
other relationship between Samson on the one hand and either
Mitchell or Intervenors on the other that could support such a
finding by the jury.
27
Tempco Tamers, Inc. v. Grow-Houston Four, Ltd., 715 S.W.2d
658, 669 (Tex. App.SQDallas 1986, writ ref'd n.r.e.).
28
Matter of Fender, 12 F.3d 480, 486 (5th Cir. 1994) (holding
that under Texas law cotenancy law "there is no fiduciary or agency
relationship (which might create such a duty) between the cotenants
unless they create it by agreement."); see Hurd Enter. v. Bruni,
828 S.W.2d 101, 111-12 (Tex. App.SQSan Antonio 1992, writ denied);
Cambridge Oil Co. v. Huggins, 765 S.W.2d 540, 544 (Tex. App.SQ
Corpus Christi 1989, no writ) (holding that no confidential or
fiduciary relationship existed between oil and gas lessee and
lessor).
29
See Monnig's Dep't Store, Inc. v. Azasd Oriental Rugs,
Inc., 929 F.2d 197 (5th Cir. 1991).
14
Mitchell contends that Samson had a fiduciary duty of
disclosure as a matter of law, arguing that the duty to account, by
its very nature, includes the duty to disclose. No authority is
cited for this contention, and we have found none through our own
research. Mitchell's argument does not withstand scrutiny: It
emerges as simply an attempt to bootstrap a cotenant's right to an
accounting into the tort of fraud based on failure to render an
accounting.
Mitchell further contends that Samson was a trustee of that
portion of the proceeds of production from the Well to which
Mitchell was entitled. Mitchell relies on a single phrase from a
single Texas case in which it is stated that "rents and profits
received by one cotenant are held by him in trust for his
cotenants."30 That case then goes on to state that for the cotenant
to acquire title to these funds as a result of the running of the
statute of limitations, the cotenant must have repudiated the
trust.
Mitchell's reliance on this isolated phrase is misplaced.
True, the "in trust" language of the case makes clear that the one
cotenant does not own the proceeds allocable to the other cotenant,
and describes the implications for the statute of limitations.
Nevertheless, this isolated and imprecise use of the word "trust"
does not justify the stretch that would be required to approbate
Mitchell's assertion that a cotenant's failure to disclose
30
Eddings v. Black, 602 S.W.2d 353, 358 (Tex. Civ. App.SQEl
Paso 1980, writ ref'd n.r.e.) (emphasis added).
15
information regarding an accounting results in a breach of a
fiduciary duty which in turn can serve as the basis for the tort
remedy of fraud. Other Texas cases that involve an accounting owed
by a cotenant do not mention a fiduciary duty.
We conclude that Samson had no confidential or fiduciary duty
vis-à-vis Mitchell or Intervenors. It follows that no actionable
fraud could arise from Samson's failure to disclose information
about production from the Well or to pay them their respective
shares of the proceeds thereof.
E. MODIFICATION OF JUDGMENT
Samson concedes that, as a cotenant, Mitchell is entitled to
an accounting for its share of the net proceeds of production, and
that Intervenors are entitled to royalty payments in accordance
with their lease agreements. Moreover, the parties have stipulated
to minimum payments due based on evidence presented to the district
court. As the record evidence available to us is sufficient to
permit a determination of the payments to which Mitchell and
Intervenors are entitled on the basis of our holding, we need not
remand this case to the district court for the calculation of
various amounts due and entry of judgment therefor.
1. Actual Damages for Mitchell
In calculating the actual damages for Mitchell, the district
court awarded an amount equal to Mitchell's ownership percentage of
the gross revenues produced by the Well. The court did not deduct
Mitchell's share of expenses and taxes from the gross amount of the
actual damages. This was error. Under Texas law, a producing
16
cotenant must account to nonproducing cotenants "on the basis of
the value of any minerals taken, less the necessary and reasonable
costs of production and marketing."31 Thus, Mitchell's actual
damages must take into consideration Mitchell's share of the
operating expenses.
Citing Mayfield v. de Benavides,32 Mitchell argues that Samson
is a willful and deliberate converter who should not be able to
recover costs of production. Mayfield, however, holds that a bad
faith trespasser's measure of damages does not include the recovery
of drilling and operating costs.33 In addition to the fact that no
finding was made that Samson was a bad faith trespasser, Samson's
valid leases with Exxon and Republic National Bank, Trustee, would
preclude such a finding as a matter of law. Thus, the district
court's damage calculation for Mitchell is wrong and must be
reduced by Mitchell's share of drilling and operating costs, taxes,
and the like.
Based on the evidence in the record (and before taking into
account prejudgment interest), the amount of actual damages payable
to Mitchell, calculated through September 30, 1994, is $424,999.82.
2. Actual Damages for the Intervenors
The district court awarded actual damages to the Intervenors
as though they were unleased cotenants, rather than royalty owners,
31
Byrom, 717 S.W.2d at 605 (emphasis added).
32
693 S.W.2d 500 (Tex. App.SQSan Antonio 1985, writ ref'd
n.r.e.).
33
Mayfield, 693 S.W.2d at 506.
17
based on the jury's finding that Samson repudiated the Intervenors'
leases. As with Mitchell, this calculation was not reduced by the
Intervenors' share of expenses.
That is immaterial as to Intervenors, though, because as a
matter of law the nonpayment of royalty cannot support a finding
that Samson repudiated their leases. Accordingly, the Intervenors'
damages must equate with their royalty interests under their
leases, not with the share of gross proceeds attributable to their
fee ownerships, regardless whether or not the latter is reduced by
costs and expenses of production.
In light of the evidence in the record (and before taking into
account prejudgment interest), the amount of royalty payments due
and owing to Intervenors, through September 30, 1994, is
$109,035.17.34
3. Prejudgment Interest
The district court's judgment calculation included a Treasury
bill (T-bill) rate of interest applied to the actual damages. On
top of that, prejudgment interest at a rate of 10 percent per annum
was added to the damages, which already included interest, clearly
34
These actual damages are allocated among the Intervenors
as follows:
Bliss Interest $ 3,336.60
Mayo Interest 5,735.31
Hair Interest 7,647.04
McCracken Interest 33,367.01
Gullick Interest 7,647.04
Nance Interest 25,025.43
Rowlan Interest 25,025.43
Cannon Interest 1,251.31
Total $109,035.17
18
constituting a double interest award.
State law governs the award of prejudgment interest in
diversity cases.35 Under Tex. Rev. Civ. Stat. Ann. art. 5069-1.05,
the proper rate of prejudgment interest is 10 percent per annum,
not a T-bill rate of interest. Moreover, the district court erred
in awarding a double recovery for the time value of money.36 As
Mitchell and Intervenors all but concede, the damage award should
include only one recovery for the time value of money, and that one
recovery should be calculated using the statutory 10 percent per
annum rate for prejudgment interest.37 Therefore, taking into
account the correct rate of prejudgment interest through February
2, 1995, the day before the district court's judgment was signed,
the judgment for actual damages through September 30, 1994 is
modified as follows:
Appellee Actual Damages
Mitchell $ 766,719.00
Bliss Interest $ 6,308.94
Mayo Interest 10,844.50
Hair Interest 14,459.25
McCracken Interest 63,091.35
Gullick Interest 14,459.25
Nance Interest 47,318.84
Rowlan Interest 47,318.84
Cannon Interest 2,366.01
35
Harris v. Mickel, 15 F.3d 428, 429 (5th Cir. 1994).
36
Texas Farmers Ins. Co. v. Soriano, 844 S.W.2d 808, 830-31
(Tex. App.SQSan Antonio 1992), rev'd on other grounds, 881 S.W.2d
312 (Tex. 1994).
37
The damages awarded by the district court reflect an
interest rate of less than 10 percent.
19
Total For Intervenors 206,167.00
Total Actual Damages $ 972,886.00
Post-judgment interest on money judgments recovered in federal
district court is governed by 28 U.S.C. § 1961, even in diversity
cases.38 As the district court's judgment provided, this entire
judgment, which Mitchell and the Intervenors shall have and recover
against Samson in the amount of $977,886, plus costs of court,
shall earn interest at the rate of 7.03%, compounded annually,
beginning on February 3, 1995, the day the district court's
judgment was signed, in accordance with 28 U.S.C. § 1961.39
4. Punitive Damages
Texas law requires the existence of an independent tort to
support an award of punitive damages.40 In this case, the
independent torts of conversion and fraud are not supported by
Texas law. The remedies to which Mitchell and Intervenors are
entitled, flowing as they do from actions for an accounting and for
breach of contractSQand not from tortSQdo not supply a basis for
punitive damages.41 Therefore, the judgment with respect to the
award of punitive damages is reversed and vacated.
38
Nissho-Iwai Co. v. Occidental Crude Sales, 848 F.2d 613,
622 (5th Cir. 1988).
39
See Fuchs v. Lifetime Doors, Inc., 939 F.2d 1275, 1280 (5th
Cir. 1991) (awarding post-judgment interest on the entire amount of
the judgment, including prejudgment interest).
40
See Jim Walter Homes, Inc. v. Reed, 711 S.W.2d 617, 618
(Tex. 1986).
41
See id.
20
5. Additional Relief
Under the heading "Additional Relief Granted," the district
court "Orders that Samson Resources Company pay to Mitchell Energy
Corporation 100% of its mineral interests and Intervenors 100% of
their mineral interests based on future production after September,
1994 for such time as the well in question produces in paying
quantities, without allowance for deduction of expenses."
The amounts ordered to be paid in this "additional relief"
portion of the district court's judgment are incorrect. Instead,
as we have noted, Mitchell's future right is to receive timely its
proportionate part of the proceeds of production less reasonable
operating expenses; and Intervenors' future right is to receive
royalty payments timely, pursuant to the terms of their respective
lease agreements. In light of our reversal of the judgment that
was premised on the theories of conversion and fraud and the fact
that the parties have an adequate remedy at law, we see no need to
remand this "additional relief" aspect of the district court's
judgment for disposition by that court. Accordingly, the judgment
with respect to the "additional relief" is reversed and vacated.
6. Attorneys' Fees
The district court's judgment also awards Mitchell attorneys'
fees in the amount of $65,718.75 pursuant to the Eastern District
of Texas Civil Justice and Delay Reduction Plan (Eastern District
Plan).42 The sole foundation for Mitchell's attorneys' fees claim
42
The relevant portion of the Eastern District of Texas Civil
Justice and Delay Reduction Plan reads as follows:
21
is its letter of November 15, 1993. Mitchell contends that this
letter constitutes an "offer of judgment" within the meaning of the
Eastern District Plan. Samson counters that Mitchell's letter is
not sufficient, that it is merely a settlement proposal. We agree
with Samson.
The letter in question states Mitchell's belief that it is
"entitled to receive in settlement of the matter the sum of
$246,093.06 for past production plus $143,921.13 as pre-judgment
interest at the rate of 10%." The next sentence in the letter
contains an offer to settle the case by having Mitchell sell its
working interest to Samson for approximately $91,000, with
conditions on the royalty interest. And the sentence after that
proposes, as an alternative to sale, that the parties enter into an
Article Six. Miscellaneous Matters
(9) Offer of Judgment. At the Management Conference or
anytime thereafter, a party may make a written offer of
judgment. If the offer of judgment is not accepted and the
final in the case is of more benefit to the party who made the
offer by 10%, then the party who rejected the offer must pay
the litigation costs incurred after the offer was rejected.
In personal injury and civil rights cases involving contingent
attorneys' fees, the award of litigation costs shall not
exceed the amount of the final judgment. The Court may, in
its discretion, reduce the award of litigation costs in order
to prevent undue hardship to a party.
"Litigation costs" means those costs which are directly
related to preparing the case for trial and actual trial
expenses, including but not limited to reasonable attorneys'
fees, deposition costs and fees for expert witnesses.
The party who makes an offer of judgment shall set forth
the deadline by which the offer must be accepted. The
deadline must be reasonable. If the offer is not accepted in
writing by the deadline, the offer is deemed rejected on that
day.
22
operating agreement.
More significant than what Mitchell's letter says is what it
does not say: It makes no reference to offering a "judgment"; it
appears to contemplate future negotiations; and it is also unclear
whether this settlement offer is conditioned on entering a sale or
an operating agreement. Additionally, although the Eastern
District Plan does not specify a format or require any "magic
words" for an offer of judgment, it does provide that the offer
must specify a deadline. The closest thing to a deadline in
Mitchell's letter is the closing sentence which states, "I look
forward to hearing from you this week." It would be too great a
stretch to call this imprecise languageSQwhich appears to be little
more than a courteous salutationSQa deadline, particularly given
the other shortcomings of Mitchell's letter.
These observations lead us to conclude that Mitchell's letter
does not rise to the level of an "offer of judgment" within the
contemplation of the Eastern District Plan. Accordingly, the award
of attorneys' fees for Mitchell is vacated.
III
CONCLUSION
Samson failed to disclose or pay the amounts owed to Mitchell
and Intervenors as a result of gas production from the Well. As
Samson's cotenant, Mitchell's remedy is an action for an accounting
of its proportionate share of the Well's profits, i.e., the value
of the gas produced less drilling and operating expenses. As
Samson's lessors, Intervenors' remedy is a breach of contract claim
23
against Samson for the royalty payments owed to them pursuant to
the terms of their respective lease agreements. Under Texas law,
Samson retains the mineral estate conveyed to it by the oil and gas
leases entered into with the Intervenors. Neither Mitchell nor the
Intervenors can maintain an action in tort against Samson for
conversion or fraud under these circumstances, and absent an
independent tort, punitive damages do not lie. As the evidence
before the court is sufficient to enable us to calculate the
damages for which Samson is liable based on our holdings, the
judgment of the district court is reversed and vacated in part,
modified in part, and, as modified, rendered, as follows: Samson
to pay Mitchell $ 766,719, plus costs of court, plus post-judgment
interest from February 3, 1995, until paid in full, at the rate of
7.03% per annum; and Samson to pay Intervenors $ 206,167, plus
costs of court, plus post-judgment interest from February 3, 1995,
until paid in full, at the rate of 7.03% per annum.
REVERSED and VACATED in part; MODIFIED in part; and, as modified,
RENDERED.
24