Burnsed Oil Co Inc v. Grynberg

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
March 25, 2009
No. 08-60333 Charles R. Fulbruge III
Clerk
BURNSED OIL COMPANY INC.
Plaintiff-Counter Defendant-Appellee
v.
CELESTE C. GRYNBERG
Defendant-Counter Claimant-Appellant
Appeal from the United States District Court
for the Southern District of Mississippi, Jackson
USDC No. 3:03-CV-358
Before KING, BENAVIDES, and CLEMENT, Circuit Judges.
FORTUNATO P. BENAVIDES, Circuit Judge:*
In this diversity action over the calculation of oil royalties, appellant
Celeste Grynberg appeals from the district court’s grant of summary judgment
in favor of appellee Burnsed Oil Company, Inc. We affirm in part and reverse
in part.
I. Factual and Procedural Background
The United States Bureau of Land Management issued a federal mineral
lease (the “BLM lease”) covering 149.95 acres of land in Franklin County,
*
Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
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Mississippi, to Irving Deemar effective September 1, 1967. The lease includes
land within the production units for three wells (USA 29-14 #1 and Ezell USA
#1 and #1A) and provides the United States with a 12.5% royalty interest. On
September 13, 1967, Deemar assigned a 50% interest in the BLM lease to Jack
Grynberg, husband of defendant-counter claimant-appellant Celeste Grynberg
(“Grynberg”). On September 25, 1967, Deemar and Jack Grynberg executed an
“Assignment of Operating Rights and Designation of Operator” (the “AOR”)
assigning their interest and operating rights under the BLM lease to a group of
assignees, including Hellenic Oil & Gas Co. (“Hellenic”), with Hellenic receiving
a 75% interest and a designation as operator.
In the AOR, Deemar and Jack Grynberg reserved for themselves an
overriding royalty interest (“ORRI”) of 12.5% (6.25% each) of all oil and gas
produced and saved. The AOR provides that this ORRI “will be subject to the
provisions of Section 192.83, Title 43, Code of Federal Regulations.” Section
192.83 provided in relevant part:
An agreement creating overriding royalties or payments out
of production of oil which, when added to overriding royalties or
payments out of production of oil previously created and to the
royalties payable to the United States, aggregate in excess of 17½
percent shall be deemed a violation of the terms of the lease unless
such agreement expressly provides that the obligation to pay such
excess overriding royalty or payments out of production of oil shall
be suspended when the average production of oil per well per day
averaged on the monthly basis is 15 barrels or less.
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43 C.F.R. § 192.83 (1961).1 Jack Grynberg assigned his interest to Celeste
Grynberg in October 1995.
By 1989, production from all three wells had fallen below fifteen barrels
per day. In October 1992, the United States’ royalty on the wells was reduced
to 9.3% as a result of the Bureau of Land Management’s “stripper well royalty
reductions.” 43 C.F.R. § 3103.4-2. A “stripper well” is one which produces 15
barrels per day or less. Id. This program was discontinued as of February 1,
2006. 70 Fed. Reg. 42093 (July 21, 2005).
Plaintiff-counter defendant-appellee Burnsed Oil Company, Inc.
(“Burnsed”), became the successor operator to Hellenic, acquiring its interest on
December 1, 1999, and taking over operations January 1, 2000. At the time,
division orders signed by Grynberg and the then-purchaser of oil from the wells,
Scurlock Permian Corp., in 1997 were in effect, reflecting Grynberg’s 6.25%
ORRI in the USA 19-14 well and 3.9906% ORRI (adjusted for her pro rata share
in the unit) in the Ezell wells. In July 2000, Burnsed wrote the current
purchaser, Plains Marketing, L.P. (“Plains”), directing it to reduce Grynberg’s
ORRI to 2.5% and 1.59625% respectively (that is, by 60%), as it asserted it was
entitled to do under the terms of 43 C.F.R. § 192.83 (1961) (“§ 192.83”). Plains
thereafter sent Grynberg new division orders reflecting these figures; Grynberg
refused to sign these orders. Grynberg was paid at the reduced rate for August
and September 2000, after which Plains suspended payment for lack of signed
division orders. Burnsed received 75% of Grynberg’s reallocated interest, with
the rest allocated to other owners. In September 2002, Jack Grynberg
1
Section 192.83 was renumbered as 43 C.F.R. § 3125.4 in 1964 and as 43 C.F.R. §
3103.3-6 in 1970. The language remained the same.
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threatened litigation against Burnsed if past, full rate royalties were not paid
and regular payments resumed. On October 15, 2002, Grynberg received a check
from Plains for $9,826.79, the total of Grynberg’s suspended payments at the
reduced rate, without interest. On December 3, 2002, Grynberg filed suit
against Burnsed and Plains in the District Court of Araphoe County, Colorado.
Burnsed was ultimately dismissed from that suit for lack of personal
jurisdiction.
On January 23, 2003, Burnsed filed the present action in the Chancery
Court of Franklin, County, Mississippi, seeking a declaratory judgment that it
correctly reduced Grynberg’s ORRI and recoupment of royalties paid at the
higher rate. On March 5, 2003, Grynberg removed the case to federal court and
subsequently filed a counterclaim asserting, as amended, breach of contract,
breach of the implied covenant of good faith and fair dealing, and conversion.
On October 29, 2003, Burnsed filed a motion for summary judgment on its claim
for a declaration that it correctly reduced Grynberg’s ORRI, and on September
4, 2004, the district court denied the motion in a one page order. In the same
order, the court set the case for trial on May 9, 2005. On February 25, 2005,
Grynberg filed a motion for summary judgment. On April 19, 2005, the court
issued an order removing the case from the trial docket and ordering briefing on
the application of § 192.83. On March 31, 2008, the district court issued a
memorandum opinion and order denying Grynberg’s motion and granting
Burnsed’s motion “seeking summary judgment that Burnsed Oil properly
reduced overriding royalty payments under [§ 192.83] and is entitled to recoup
overpayments of overriding royalties from December, 1999, to August of 2000.”
Grynberg timely appealed.
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II. Standard of Review and Applicable Law
This Court reviews a district court’s grant of summary judgment de novo,
applying the same standards as the district court. Chichakli v. Szubin, 546 F.3d
315, 316 (5th Cir. 2008). Summary judgment is proper when “the pleadings, the
discovery and disclosure materials on file, and any affidavits show that there is
no genuine issue as to any material fact and that the movant is entitled to
judgment as a matter of law.” Fed. R. Civ. P. 56(c). “A genuine issue of material
fact exists if the summary judgment evidence is such that a reasonable jury
could return a verdict for the non-movant.” Stover v. Hattiesburg Pub. Sch.
Dist., 549 F.3d 985, 991 (5th Cir. 2008). “The evidence and inferences from the
summary judgment record are viewed in the light most favorable to the
nonmovant.” Minter v. Great Am. Ins. Co. of N.Y., 423 F.3d 460, 465 (5th Cir.
2005). We apply Mississippi law in this diversity action. See Krieser v. Hobbs,
166 F.3d 736, 739 (5th Cir. 1999).
III. Discussion
A. The Effect of Section 192.83
The district court held that the § 192.83 provision in the AOR allowed
Burnsed to reduce Grynberg’s ORRI when production is below fifteen barrels per
day. Grynberg first argues that this clause does not apply because § 192.83 was
altered in 1983 to make the suspension of royalties in excess of 17.5% optional
at the Government’s discretion, 43 C.F.R. § 3103.3-3 (1983), and then abrogated
completely in 1988, 53 Fed. Reg. 17340, 17344 (May 16, 1988). See USPCI of
Miss. v. State ex rel. McGowan, 688 So. 2d 783, 787 (Miss. 1997) (“[T]he effect of
a repealing statute is to abrogate the repealed statute as completely as if it had
never been passed.”). Therefore, Grynberg argues, only the AOR could give
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Burnsed the right to reduce Grynberg’s ORRI, and the AOR says only that
Grynberg’s ORRI “will be subject to the provisions of Section 192.83,” which no
longer exists.
We agree with Grynberg that, because the BLM lease specifically states
that it is subject to “all reasonable regulations of the Secretary of the Interior
now or hereafter in force” (emphasis added), the repeal of § 192.83 applies to that
lease. See Ariz. Silica Sand Co., 148 IBLA 236, 238 (1999) (“[The Department
of the Interior] has long held that the intent of the language ‘now or hereafter
in force’ is to incorporate future regulations into existing permit terms when
they become effective, even though such future regulations may place additional
obligations or burdens on a permittee.”). However, the relationship between
Grynberg and Burnsed is governed by the AOR, which, unlike the BLM lease,
contains no clear indication that its terms were to vary with future changes to
§ 192.83—it says only that Grynberg’s ORRI “will be subject to the provisions of
Section 192.83.” The general rule is that “changes in the law subsequent to the
execution of a contract are not deemed to become part of agreement unless its
language clearly indicates such to have been intention of parties.” 11 Richard
A. Lord, Williston on Contracts § 30:23 (4th ed. 2004); see also Fla. E. Coast Ry.
Co. v. CSX Transp., Inc., 42 F.3d 1125, 1130 (7th Cir. 1994) (“Whereas the law
in effect at the time of execution sheds light on the parties[’] intent, subsequent
changes in the law that are not anticipated in the contract generally have no
bearing on the terms of their agreement.”); Carter v. Cox, 44 Miss. 148, 156
(1870) (“One of the most familiar principles to the profession, and one that may
be accepted as an axiom, is that contracts are made with reference to the law at
the time of their execution.”). We see no reason to depart from this rule here,
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and Grynberg does not dispute that, by its plain terms, the AOR would authorize
Burnsed to reduce the total royalty burden to 17.5% on wells producing fewer
than 15 barrels of oil per day if § 192.83 were still effective.
B. Course of Performance and Waiver
Grynberg next argues that even if the AOR would otherwise allow Burnsed
to reduce her ORRI, because Hellenic, Burnsed’s predecessor in interest, never
reduced Grynberg’s ORRI although production on the three wells fell below 15
barrels per day beginning in 1983, 1984, and 1989, respectively, this “course of
dealing or performance” should establish the meaning or supplement the terms
of the AOR. Similarly, Grynberg argues that Hellenic waived its right to enforce
the § 192.83 provision of the AOR by failing to do so for years after the wells’
production first dropped below 15 barrels per day, and that Burnsed is bound by
this waiver. See Sentinel Indus. Contracting Corp. v. Kimmins Indus. Serv.
Corp., 743 So. 2d 954, 964 (Miss. 1999) (“Waiver is voluntary surrender or
relinquishment of some known right, benefit or advantage.” (quotation
omitted)). The district court rejected these arguments, holding that Hellenic’s
conduct was irrelevant to the contract between Burnsed and Grynberg.
Course of dealing involves parties’ conduct prior to a transaction and is not
relevant here. See Restatement (Second) of Contracts § 223 (1981).2 Further,
2
Although the parties repeatedly cite to the Mississippi UCC and UCC cases, the cited
portions of the UCC apply to goods and not to real estate transactions. Miss. Code § 75-2-102
(“Unless the context otherwise requires, this chapter applies to transactions in goods.”). An
oil and gas lease or royalty is an interest in real estate until the minerals are actually
produced. Nygaard v. Getty Oil Co., 918 So. 2d 1237, 1240 (Miss. 2005) (“[I]t is well settled
by the great weight of authority from other jurisdictions that until brought to the surface and
reduced to possession, oil or gas constitute an interest in real estate and not personal
property. . . . [However,] royalty proceeds, once paid, are personal property and no longer
considered an interest in land.” (quotations omitted)); see also Fletcher v. Ricks Exploration,
905 F.2d 890, 892 (5th Cir. 1990) (applying Texas law) (“The contract to which Fletcher wishes
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even assuming, arguendo, that the AOR’s § 192.83 provision could reasonably
be interpreted to accord with the course of performance between the Grynbergs
and Hellenic, under our understanding of Mississippi law, that course of
performance is not relevant to a dispute with Burnsed. In UHS-Qualicare, Inc.
v. Gulf Coast Community Hospital, Inc., 525 So. 2d 746 (Miss. 1987), UHS-
Qualicare bought out the interest of one of two owners of a hospital and
succeeded to its predecessor’s contractual position as manager of the hospital.
Considering an appeal of a suit alleging breach of the managerial contract, the
Mississippi Supreme Court noted that “the construction which the parties
themselves have given to a contract in the course of their life together under
it . . . is of little benefit here, for UHS-Qualicare did not become a successor party
to the contract until April 29, 1983, less than two months prior to the date on
which it is said to have breached the contract.” UHS-Qualicare, Inc., 525 So. 2d
at 754. Thus, an assignor’s course of performance does not appear to be relevant
in a contract dispute with an assignee under Mississippi law.
Course of performance is not merely an aid in interpretation, though: it
can also be evidence of waiver. See Restatement (Second) of Contracts § 150 cmt.
e (“A waiver under this Section may be found in a course of performance. Where
there are repeated occasions for performance by one party and the other has
knowledge of the nature of the performance and opportunity to object, a course
of performance accepted or not objected to may be relevant to show the meaning
of the contract, or a modification of it, or a waiver.”); see also Exxon Corp. v.
Crosby-Mississippi Res., Ltd., 40 F.3d 1474, 1492 (5th Cir. 1995) (applying
to make himself a party is not a sales contract, it is a ‘drilling’ contract. The district court did
not err in failing to apply [the] U.C.C.”).
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Mississippi UCC) (“In sum, we conclude that even though the parties’ attempted
modification was ineffective as such, the oral agreement to modify, coupled with
the course of performance, demonstrates that CMR waived enforcement of the
floor provision.”). Because UHS-Qualicare involved the construction of a
contract rather than modification or waiver, it may not bar the use of course of
performance with a predecessor in interest to establish waiver. It is not
necessary to decide this question, however. Grynberg argues that there is a fact
question as to whether Burnsed is bound by Hellenic’s waiver (if any) because
Burnsed has not shown that it was a bona fide purchaser not bound by such a
waiver.3 However, the only authority provided by Grynberg, both before the
district court and on appeal, for the proposition that Burnsed should be bound
by Hellenic’s alleged waiver is Stanley’s Cafeteria, Inc. v. Abramson, 306 S.E.2d
870, 873 (Va. 1983), in which the Virginia Supreme Court stated that “all
successors in interest with knowledge of [a modification by conduct] may be
bound thereby unless they agree otherwise.” Assuming for the purposes of this
appeal that Stanley’s Cafeteria applies here, Grynberg has not presented
evidence that Burnsed had knowledge of Hellenic’s failure to exercise its rights
under the § 192.83 provision of the AOR. While Grynberg asserts that Burnsed
3
Grynberg has also failed to provide either this Court or the district court with any
authority on the application of the bona fide purchaser doctrine in the oil and gas context. At
least one Texas court has refused to grant equitable relief against a purchaser of an oil lease
absent proof that the purchase was not bona fide, which Grynberg has not presented. See
Newport Oil Co. v. Lamb, 352 S.W.2d 861 (Tex. Civ. App.—Eastland 1962, no writ)
(“Respondent is not entitled to equitable relief against a bona fide purchaser, however, and he
has the burden of showing that petitioner does not enjoy that status.”); see also Williamson v.
Elf Aquitaine, Inc., 138 F.3d 546, 550 (5th Cir. 1998) (quoting Phillips Petroleum Co. v.
Millette, 72 So. 2d 176, 182 (Miss. 1954)) (“[F]or oil and gas issues of first impression, the
Mississippi Supreme Court has long held that it will typically follow decisions of the Texas
courts, depending, of course, on ‘the soundness of the reasoning by which they are
supported.’”).
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was obligated to examine all conveyances in Hellenic’s title and is charged with
notice of all facts that would have been revealed by a careful investigation of the
facts in those conveyances, Grynberg fails to explain how—or even directly
assert that—such an investigation would have revealed the purported waiver.
Under these circumstances, the district court did not err in granting summary
judgment for Burnsed on the waiver issue.
C. The Calculation of the ORRI Reduction under Section 192.83
Grynberg next argues that even if the § 192.83 clause in the AOR applies,
Burnsed has reduced her ORRI by more than would be allowed by that
provision.4 We agree.
Section 192.83’s limit on royalties is 17.5%, including “royalties payable
to the United States.” However, in applying this limit, Burnsed did not account
for the fact that as a result of the Bureau of Land Management’s “stripper well
royalty reductions,” the United States’ royalty on the wells was reduced from
12.5% to 9.3% from October 1992 to February 1, 2006. 43 C.F.R. § 3103.4-2(royalty reduction); 70 Fed. Reg. 42093 (July 21, 2005) (notice of cancellation of
reduction program). Thus, Burnsed directed Plains to reduce the total royalty
burden to 14.3% rather than 17.5%, depriving Grynberg of an additional 1.6%
interest (her half-interest in the ORRI reserved in the AOR).
While Burnsed stresses that these reductions were temporary and did not
affect the United States’ right to receive its full royalty once the program ended,
this argument is contrary to the plain language of the relevant regulations.
Section 192.83 states that “overriding royalties or payments out of production
of oil which, when added to overriding royalties or payments out of production
4
The district court did not address this argument.
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of oil previously created and to the royalties payable to the United States,
aggregate in excess of 17½ percent shall be deemed a violation of the terms of
the lease.” (emphasis added). And under the terms of the stripper well royalty
reduction program, the United States’ “royalty rate” was reduced. See 43 C.F.R.
§ 3103.4-2(b)(3)(ii) (“The formula-calculated royalty rate shall apply to all oil
production (except condensate) from the property for the first 12 months. . . . If
the production rate is 15 barrels or greater, the royalty rate will be the rate in
the lease terms.”). The royalty rate calculated under the royalty reduction
program was clearly the royalty “payable to the United States” and should have
been used in adjusting Grynberg’s royalty to fit the 17.5% cap.5 As a matter of
law, Grynberg is entitled to recover these improperly withheld royalties, and the
district court therefore erred in granting summary judgment for Burnsed on
Burnsed’s declaratory judgment claim and Grynberg’s breach of contract claim.
D. Conversion and Breach of the Covenant of Good Faith and Fair
Dealing
Grynberg next argues that the district court erred in granting summary
judgment for Burnsed on her claims for conversion and breach of the covenant
of good faith and fair dealing. She asserts 6 that Burnsed breached that covenant
5
We are not dissuaded from this position by Burnsed’s argument that it would be
contrary to the public purpose behind the royalty reduction program, which was to encourage
production on marginal wells. As discussed above, although the § 192.83 clause in the AOR
remains applicable, section 192.83 itself, which had a purpose similar to that of the royalty
reduction program, had been abrogated by the time that program was introduced. The fact
that Burnsed would benefit even more if we were to disregard the plain terms of the § 192.83
provision and the royalty reduction program does not convince us to do so.
6
Grynberg also argues that Burnsed’s failure to continue paying her unreduced royalty
was a breach of the covenant of good faith and fair dealing. Because we have already
addressed this claim above, we do not do so again here.
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by excessively reducing her ORRI and not paying even her undisputed royalty
payments for a period of two years, and that Burnsed’s two-year failure to pay
was also a conversion.
We need not engage in a protracted discussion to affirm the district court’s
judgment on these claims. “All contracts contain an implied covenant of good
faith and fair dealing in performance and enforcement.” Cenac v. Murry, 609 So.
2d 1257, 1272 (Miss. 1992). The Mississippi Supreme Court has characterized
bad faith as “conduct which violates standards of decency, fairness or
reasonableness.” Id. Bad faith is more than bad judgment or negligence: it is
“a neglect or refusal to fulfill some duty or some contractual obligation, not
prompted by an honest mistake as to one’s rights or duties, but by some
interested or sinister motive” and “implies the conscious doing of a wrong
because of dishonest purpose or moral obliquity.” Bailey v. Bailey, 724 So. 2d
335, 338 (Miss. 1998) (emphasis omitted) (quoting Black’s Law Dictionary 139
(6th ed. 1990)). A conversion, under Mississippi law, “occurs when a person
exercises an unauthorized act of dominion or ownership over the personal
property of another.” Cycles, Ltd. v. W.J. Digby, Inc., 889 F.2d 612, 619 (5th Cir.
1989).
Although, as discussed above, Burnsed’s reduction of Grynberg’s ORRI was
not wholly authorized by the AOR, its asserted justification is not so implausible
as to give rise to a suggestion of conscious wrongdoing. The same may be said
of the withholding of Grynberg’s royalties, even if we assume that it was
improper and that Burnsed was responsible.7
7
In her briefing to this Court, Grynberg does not argue that the withholding of her
ORRI payments was a breach of contract, and we express no opinion on the subject.
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Nor was the withholding of Grynberg’s royalties a conversion. Under the
AOR, Burnsed had the right to take the oil, and, as we have previously held, the
failure to pay royalties in this situation is not a conversion under Mississippi
law. See Piney Woods Country Life Sch. v. Shell Oil Co., 726 F.2d 225, 242 (5th
Cir. 1984) (applying Mississippi law) (“Shell neither intended to exercise nor
exercised any control inconsistent with the lessors’ rights. It had every right to
take the gas; it simply failed to pay royalties according to the proper measure.
This is breach of contract but it is not conversion.”).
E. Burnsed’s Recoupment Claim
Finally, Grynberg challenges the district court’s judgment that Burnsed
is entitled to recoup the excess royalties it paid at the higher rate subsequent to
succeeding Hellenic but before directing Plains to reduce Grynberg’s ORRI.
Grynberg argues that the district court did not “actually enter a legal judgment
on Burnsed[’s] monetary claim for recoupment” because the district court’s
memorandum opinion and order, which is incorporated in the judgment, states
that “judgment should be entered in favor of [Burnsed on its] motion . . . seeking
summary judgment declaring that Burnsed . . . is entitled to recoup
overpayments of overriding royalties,”—whereas Burnsed sought monetary
damages in its recoupment claim, not a declaration. Grynberg also argues that
Burnsed did not put on any evidence of its claimed damages in the district court,
and that recoupment is barred by the voluntary payment rule.
We need not address the deficiencies in the district court’s judgment
because we agree that the voluntary payment rule bars recovery. The Court
recently summarized the Mississippi voluntary payment rule in Chris Albritton
Construction Co. v. Pitney Bowes Inc.:
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A voluntary payment is “a payment made, without compulsion or
fraud, and without any mistake of fact, of a demand which the payor
does not owe, and which is not enforceable against him, instead of
invoking the remedy or defense which the law affords against such
demand, and when there has been no agreement between the
parties at the time of payment, that any excess will be repaid.”
McLean v. Love, 172 Miss. 168, 157 So. 361, 362 (1934) (citation
omitted). . . . If the Plaintiffs voluntarily paid for something they
did not owe, the voluntary payments cannot be recovered. Id. “The
general principle is that, where the party with full knowledge,
actual or imputed, of the facts, there being no duress, fraud or
extortion, voluntarily pays money on a demand, although not
enforceable against him, he cannot recover it back.” Graham
McNeil Co. v. Scarborough, 135 Miss. 59, 99 So. 502, 503 (Miss.
1924).
304 F.3d 527, 531 (5th Cir. 2002). Further, “the voluntary payment doctrine
precludes courts from extending relief to those who have neglected to take care
of their interests and are ‘in predicaments which ordinary care would have
avoided.’” Id. at 532 (quoting McLean, 157 So. at 362). Here, Burnsed continued
to paid Grynberg her full royalty for approximately six months after acquiring
its interest. In Pitney Bowes, we upheld a summary judgment for the defendants
in a breach of contract claim involving an alleged failure to request proof of the
plaintiff’s own insurance before charging the plaintiffs for insurance on certain
leased equipment, stating:
Plaintiffs are presumed to have known under the contract that they
should not be charged for a risk management program without
having been first asked to provide proof of insurance. . . . When, as
here, the party paying “knows or ought to know the facts” and does
not avail himself of the means which the law affords him to resist
the demand, he has not taken due care.
Id. The same analysis applies here. The basis for reducing Grynberg’s ORRI is
in the AOR, and Burnsed is presumed to have known of it. Further, as the
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operator, Burnsed knew or should have known that production on the wells was
less than fifteen barrels per day. Based on the summary judgment evidence, the
district court erred as a matter of law in not entering judgment for Grynberg on
Burnsed’s recoupment claim.8
F. Prejudgment Interest
Grynberg requests 8% prejudgment interest on unpaid royalties from the
date payment was due. “In diversity cases, issues of prejudgment interest are
governed by state law.” Liberty Mut. Fire Ins. Co. v. Canal Ins. Co., 177 F.3d
326, 339 (5th Cir. 1999). “An award of prejudgment interest rests in the
discretion of the awarding judge. Under Mississippi law, prejudgment interest
may be allowed in cases where the amount due is liquidated when the claim is
originally made.” Upchurch Plumbing, Inc. v. Greenwood Utils. Comm’n, 964 So.
2d 1100, 1117 (Miss. 2007) (quotation omitted); see also Sentinel Indus. Contr.
Corp., 743 So. 2d at 971 (“Mississippi has long held that the prevailing party in
a breach of contract suit is entitled to have added legal interest on the sum
recovered computed from the date of the breach of the contract to the date of the
decree.”) (quotation omitted)). “Generally, if prejudgment interest is to be
awarded, it dates from the breach of contract.” Estate of Baxter v. Shaw Assocs.,
Inc., 797 So. 2d 396, 403 (Miss. Ct. App. 2001). As discussed below, because this
case has been lingering for some time, the parties have agreed to submit a joint
statement of damages in lieu of remand for calculation thereof. Therefore,
although it is typically initially a matter for the district court, we will consider
8
Burnsed argues that the Scurlock Permian division order signed by Grynberg contains
a provision in which the payee “agrees to reimburse Payor any amount attributable to an
interest in which the undersigned is not entitled.” This provision is not applicable, however,
because Scurlock Permian—and not Burnsed—is the payor in the division order.
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the issue of prejudgment interest in the first instance. The contract damages
here were liquidated, and we think 8% prejudgment interest compounded
annually from the date of each underpayment 9 to the date of this opinion is
appropriate. See Miss. Code § 75-17-7; Upchurch Plumbing, 964 So. 2d at 1119;
Estate of Baxter, 797 So. 2d at 402–07 (discussing appropriate methods of
calculating prejudgment interest).
IV. Conclusion
For the reasons discussed above, we agree with the district court that the
§ 192.83 provision in the AOR entitles Burnsed to reduce Grynberg’s ORRI when
production is below fifteen barrels per day. Because Burnsed failed to account
for reductions in the royalties payable to the United States under the stripper
well royalty reduction program, however, the district court erred both in holding
that Burnsed reduced Grynberg’s ORRI by the proper amount and in failing to
grant summary judgment for Grynberg on that portion of her breach of contract
claim. And while summary judgment was properly granted for Burnsed on
Grynberg’s claims for conversion and breach of the covenant of good faith and
fair dealing, it should have been granted for Grynberg on Burnsed’s recoupment
claim.
This case has been pending in federal court for more than six years, and
we are hesitant to add to that total by remanding for the calculation of damages.
9
Because, as discussed above, the withholding of Grynberg’s ORRI payments between
September 2000 and October 2002 was not a conversion or breach of the covenant of good faith
and fair dealing (and Grynberg does not argue on appeal that it was a breach of contract), no
interest is due on the undisputed arrearages paid on October 15, 2002. Interest on the
underpayments resulting from Burnsed’s failure to properly account for the stripper well
royalty reductions during this period, however, should be calculated from the day the
payments would have been made in the absence of a dispute.
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Counsel for both parties collegially agreed at oral argument that they would be
able to determine, on the basis of the record, the appropriate amount of damages
once informed of our decision.10 Both parties are therefore directed to file a joint
statement as to the amount of damages within thirty days, after which this
opinion will be amended to render judgment in that amount. See C&B Sales &
Serv. Inc. v. McDonald, 177 F.3d 384, 389 (5th Cir. 1999) (“We render rather
than remand for reasons of judicial economy and because undisputed data in the
trial record indicate the appropriate damage award.” (footnote omitted) ). These
damages should include 8% prejudgment interest from the date of each
underpayment, compounded annually. Post-judgment interest at the federal
rate will accrue from the date of this opinion. See 28 U.S.C. § 1961; Boston Old
Colony Ins. Co. v. Tiner Assocs., Inc., 288 F.3d 222, 233 (5th Cir. 2002) (“Under
28 U.S.C. § 1961(a), in diversity cases, post-judgment interest is calculated at
the federal rate, while pre-judgment interest is calculated under state law.”).
AFFIRMED IN PART, REVERSED IN PART.
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This agreement in no way prejudices their right to seek rehearing or other relief.
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