Thomas Max Nygaard v. Getty Oil Company

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2004-CA-01614-SCT
CONSOLIDATED WITH
NO. 2003-CA-01605-SCT
THOMAS MAX NYGAARD
v.
GETTY OIL COMPANY, CHEVRON TEXACO
CORPORATION f/k/a TEXACO U.S. AND J.R.
POUNDS, INC.
DATE OF JUDGMENT: 07/30/2004
TRIAL JUDGE: HON. MICHAEL R. EUBANKS
COURT FROM WHICH APPEALED: MARION COUNTY CIRCUIT COURT
ATTORNEY FOR APPELLANT: BEN F. GALLOWAY
ATTORNEYS FOR APPELLEE: DAVID L. MARTINDALE
FOREST M. DANTIN
NATURE OF THE CASE: CIVIL - CONTRACT
DISPOSITION: AFFIRMED - 06/30/2005
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
BEFORE SMITH, C.J., CARLSON AND DICKINSON, JJ.
DICKINSON, JUSTICE, FOR THE COURT:
¶1. Nine years following notice of the claim, Thomas Max Nygaard, as trustee for the Daisy
Keith Trust, filed this lawsuit to recover underpaid oil and gas royalties. The central question
on appeal is whether accrued mineral royalties are an interest in personalty with a three-year
statute of limitations or an interest in land with a ten-year statute of limitations. Finding that
the trial court was correct in applying the three-year statute of limitations, we affirm.
BACKGROUND FACTS AND PROCEEDINGS
¶2. Nygaard alleges that, by an instrument dated September 27, 1972, the Daisy Keith Trust
(of which he was trustee) obtained title to an overriding royalty interest in certain oil and gas
wells in the Greens Creek Field in Marion County, Mississippi. Sometime in the early 1980s,
Getty Oil Company began oil and gas production1 from wells located in Marion County.
Chevron Texaco Corporation2 later became a successor in interest to Getty and, in March,
1992, Texaco conveyed its interests in the subject wells to J.R. Pounds., Inc.
¶3. On September 16, 1993, Nygaard received a letter from Texaco informing him that the
production from two wells in Greens Creek Field had yielded royalties which were due to the
Daisy Keith Trust and that the royalties had been held “in suspense”3 by Getty. The letter also
informed Nygaard that Texaco had sold its interest in the Greens Creek Field wells to Pounds.
After providing documentation requested in the letter, Nygaard received a check for the amount
Texaco claimed was due.
¶4. In July 1996, Nygaard contacted Texaco claiming additional royalties were due. The
claim was supported by an “independent study.” Texaco responded by sending Ronnie Martin
and Daniel P. Loughry to meet with Nygaard and his agents in Dallas, Texas, on December 3,
1998. No agreement was reached.
1
It appears that, as of the filing of the case sub judice, the two wells in Marion County currently
in dispute were still producing oil and gas.
2
The defendant, Chevron Texaco Corporation, was formerly Texaco U.S. All Texaco-related
entities will be referred to herein as “Texaco.”
3
The royalties had been held “in suspense” because Getty Oil was missing a copy of the trust
instrument evidencing Nygaard’s authority to sign on behalf of the Trust.
2
¶5. On June 4, 2002, Nygaard, in his capacity as trustee, filed suit against Getty, Texaco,
and Pounds for unpaid royalties on production from the Rogers 28-11 and Sipp 20-9 wells in
Marion County. The suit alleged causes of action for fraud and deceit and conversion.
¶6. The defendants filed motions for summary judgment, asserting that the statute of
limitations barred Nygaard’s claims. On June 24, 2003, the trial court granted summary
judgment to Getty and Texaco, and partial summary judgment to Pounds.4
¶7. The original appeal was dismissed because of matters which were then still pending in
the trial court, and the parties did not request the trial court to certify the judgment as “final,”
in accordance with M.R.C.P. 54(b). Nygaard v. Getty Oil Co., 877 So. 2d 559, 560 (Miss. Ct.
App. 2004).
¶8. On July 30, 2004, the trial court made final the summary judgment and partial summary
judgment in accordance with Rule 54(b). Nygaard now appeals to this Court both the summary
judgment and the partial summary judgment, alleging that the trial court applied an incorrect
statute of limitations or, in the alternative, that the defendants’ fraudulent concealment served
to toll the running of the statute of limitations.
ANALYSIS
¶9. When a trial court grants summary judgment, our review is de novo. Leffler v. Sharp,
891 So. 2d 152, 156 (Miss. 2004). Further,
4
Pounds was not completely dismissed from the lawsuit since the statute of limitations had not
lapsed on the claim of underpaid royalties for the three years next preceding the filing of the suit.
3
[t]he evidence must be viewed in the light most favorable to the party against
whom the motion has been made. A motion for summary judgment lies only
when there is no genuine issue of material fact, and the moving party is entitled
to a judgment as a matter of law. M.R.C.P. 56(c). This Court does not try issues
on a Rule 56 motion; it only determines whether there are issues to be tried.
The presence of fact issues in the record does not per se entitle a party to avoid
summary judgment. "The court must be convinced that the factual issue is a
material one, one that matters in an outcome determinative sense .... the
existence of a hundred contested issues of fact will not thwart summary
judgment where there is no genuine dispute regarding the material issues of
fact."
891 So. 2d at 156 (citation omitted) We also review issues of law (such as the applicable
statute of limitations) de novo. Andrus v. Ellis, 887 So. 2d 175, 179 (Miss. 2004).
Statute of limitations
¶10. For certain causes of action, the Legislature has set a specific time limitation for
bringing suit. For instance, a lawsuit claiming libel or slander must be brought within one year
after the cause of action accrued. Miss. Code Ann. § 15-1-35 (Rev. 2003). Furthermore,
“[t]he completion of the period of limitation prescribed to bar any action, shall defeat and
extinguish the right as well as the remedy. . . .” Miss. Code Ann. § 15-1-3 (Rev. 2003). Causes
of action for which no specific limitation period is prescribed are governed by Mississippi’s
general three-year statute of limitations, which reads: “All actions for which no other period
of limitation is prescribed shall be commenced within three (3) years next after the cause of
such action accrued, and not after.” Miss. Code Ann. § 15-1-49(1) (Rev. 2003).
¶11. Mississippi has no specific statute of limitations for claims of unpaid royalties. Thus,
the defendants argue that the general three-year statute of limitations applies. However,
Nygaard says his claim for unpaid royalties equates to a claim for recovery of an interest in
4
land. If so, then Nygaard’s claim would be governed by Miss. Code Ann. §§ 15-1-7 and/or 15-
1-9 (Rev. 2003), both of which prescribe a ten-year limitation period.
¶12. In Merrill Engineering Co. v. Capital National Bank of Jackson, 192 Miss. 378, 5
So. 2d 666 (1942), this Court held that “it 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.” Id. at 670 (citations omitted)
(emphasis added).
¶13. In Palmer v. Crews, 35 So. 2d 430 (Miss. 1948), this Court stated that “the distinction
is to be kept clearly in mind between the thing itself, that is to say, minerals in place, and the
proceeds thereof.” Id. at 435.
¶14. In Estate of Haynes v. Steele, 699 So. 2d 918 (Miss. 1997), this Court held that,
“although the right to receive royalty payments in the future from underlying mineral deposits
is considered an interest in land, royalty proceeds, once paid, are personal property and no
longer considered an interest in land.” Id. at 925 (emphasis added) (citing Dougherty v.
Greene, 218 Miss. 250, 67 So. 2d 297 (1953)).
¶15. Nygaard says we should consider the application of Texas law in Kelly Oil Co. v. Svetlik,
975 S.W.2d 762 (Tex. Ct. App. 1998), which, according to Nygaard, held that “a royalty
interest in an oil and gas lease is an interest in real property and is held to have the same
attributes as the real property itself. Id. at 674, citing Texas Law (citations omitted).”5 Kelly
Oil, however, involved a dispute over the validity of an assignment of an “overriding royalty
5
The quotation is from Nygaard’s brief.
5
interest in oil and gas leases.” The Kelly Oil court provided no discussion of whether a claim
for unpaid royalties after production of the oil and gas would constitute an interest in realty
or personalty. Indeed, we find Texas law on this point to be completely consistent with our
holding today. In Phillips Petroleum Co. v. Adams, 513 F.2d 355, 363 (5th Cir. 1975), the
United States Court of Appeals for the Fifth Circuit, applying Texas law, held that “accrued
royalty interests are personal property . . . as is the right to payment for severed minerals.” Id.
at 363 (citations omitted). In another Texas case, the Texas Court of Civil Appeals held that
“[a] right to a future royalty payment is an interest in land. However, once minerals have been
severed from the reservoir or strata wherein they were originally contained, such minerals,
including royalties thereon, become personalty.” Sabine Prod. Co. v. Frost Nat’l. Bank of
San Antonio, 596 S.W.2d 271, 276 (Tex. Civ. App. 1980).
¶16. Nygaard cites no authority from any jurisdiction for the proposition that unpaid or
accrued royalties for post-production oil or gas should be classified as an interest in land,
rather than personalty. We find no merit in Nygaard’s claim on this point.
¶17. Since accrued royalties are personal property and not an interest in land, Miss. Code
Ann. §15-1-7 is inapplicable. There being no applicable specific statute of limitations for
actions seeking recovery of accrued royalties, the general, three-year statute must be applied.
Miss. Code Ann. § 15-1-49(1) required Nygaard to bring the action “within three (3) years next
after the cause of such action accrued.”
Constructive trust
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¶18. Nygaard also claims that the defendants are holding the unpaid royalties in a
“constructive trust,” bringing into play Miss. Code Ann. § 15-1-39 (Rev. 2003), which provides
in pertinent part:
Bills for relief, in the case of the existence of a trust not cognizable by the
courts of common law and in all other cases not herein provided for, shall be
filed within ten years after the cause thereof shall accrue and not after . . . .
¶19. Defendants respond to Nygaard’s claim of a constructive trust by first pointing out that
he did not raise the claim in his complaint and, therefore, should not be heard to raise it now.
Indeed, prior to Nygaard’s brief, we find no mention of a constructive trust in the record. We
therefore shall not consider it as an issue on appeal.
¶20. The relationship between Nygaard and the defendants is governed by written contracts.
There is no allegation or fact suggesting that any defendant assumed or agreed to a trust
relationship. Nygaard relies on Allred v. Fairchild, 785 So. 2d 1064 (Miss. 2001), in which
this Court, upon finding that a confidential relationship existed between Allred and Fairchild,
imposed a constructive trust. A careful review of the facts of Allred reveals that the business
relationship between Allred and Fairchild was a partnership. In describing the relationship, this
Court stated, “Allred generally would secure mineral or other interests, and Fairchild would
finance the ventures.” Id. at 1067. The relationship between Nygaard and the defendants, by
contrast, was not a “venture.” Rather, it was purely contractual.
Fraudulent Concealment
¶21. Nygaard alleges that even if the general three-year statute of limitations applies, it was
tolled by Miss. Code Ann. § 15-1-67 (Rev. 2003), which provides:
7
If a person liable to any personal action shall fraudulently conceal the cause of
action from the knowledge of the person entitled thereto, the cause of action
shall be deemed to have first accrued at, and not before, the time at which such
fraud shall be, or with reasonable diligence might have been, first known or
discovered.
¶22. In 2000, this Court recognized that “[i]n order to establish fraudulent concealment,
‘there must be shown some act or conduct of an affirmative nature designed to prevent and
which does prevent discovery of the claim.’” Robinson v. Cobb, 763 So. 2d 883, 887
(Miss.2000) (citing Reich v. Jesco, Inc., 526 So. 2d 550, 552 (Miss. 1998)). In other words,
to toll a statute of limitations, a plaintiff must prove that (1) that the defendant "engaged in
affirmative acts of concealment," and (2) despite investigating with due diligence, the plaintiff
was unable to discover the claim. See also Ross v. Citifinancial, Inc., 344 F.3d 458, 463
(C.A.5 (Miss.) 2003) and Queen v. Am. Gen. Fin., Inc., 289 F. Supp. 2d 782, 785 (S.D. Miss.
2003).
¶23. The undisputed facts of the case before us require that Nygaard’s claim of fraudulent
concealment must fail since his own actions indicate knowledge of a potential claim. Nygaard
admits receiving a letter dated September 16, 1993, informing him of royalties due the Trust
from the oil and gas production from two wells owned by the Trust. This letter was the first
indication that the Trust was due any royalties from these wells. In July 1996, Nygaard sent
Texaco a study he had commissioned which indicated the proper amount of royalties he
claimed was due the Trust. In December 1998, Nygaard met with Texaco representatives to
discuss the inadequacies of the royalties.
¶24. It is certainly possible that, until September 1993, Getty Oil and Texaco engaged in
fraudulent concealment. However, even if they did, Texaco mailed Nygaard a letter and a check
8
for past-due royalties in 1993. Nygaard was thus put on notice that royalties had been withheld
from the trust. He had a duty to investigate, and the statute began to run. Since no suit was
filed by September, 1996, the statute of limitations ran, and Nygaard may not now bring the
suit.
¶25. M.R.C.P. 56(e) states:
When a motion for summary judgment is made and supported as provided in this
rule, an adverse party may not rest upon the mere allegations or denials of his
pleadings, but his response, by affidavits or as otherwise provided in this
rule, must set forth specific facts showing that there is a genuine issue for
trial. If he does not so respond, summary judgment, if appropriate, shall be
entered against him.
M. R.C. P. 56(e) (emphasis added). In order to comply with this rule and succeed on a claim
of fraudulent concealment against Pounds, Nygaard must allege with specificity that Pounds
engaged in affirmative acts of concealment.
¶26. Pounds’s acquired his interest in the wells in 1992. In 1993, Nygaard learned that
Pounds’ predecessor in interest, Chevron Texaco, had not fully paid the royalties due the Trust
from the subject wells. Nygaard filed this suit in 2002 and offered the following answer in
discovery:
RESPONSE: Admitted, that Pounds was served with process on August 26,
2002 as stated. Plaintiff would admit that he had not made any
prior demand on Pounds for additional payments, but Plaintiff
has not had an opportunity to review necessary records which
address the issues of whether proper royalties have been paid
the Plaintiff.
¶27. Nygaard alleged no specific affirmative act by Pounds to conceal the true amount of
royalties owed the Trust. Thus, Nygaard’s claim of fraudulent concealment against Pounds has
9
no merit, and we affirm the trial court’s grant of summary judgment as to any allegations of
underpayment of royalties by Pounds prior to June 4, 1999.
CONCLUSION
¶28. The trial court did not err in applying the general three-year statute of limitations to the
case sub judice since accrued royalties for post-production oil and gas are an interest in
personal property and not an interest in land. After applying the three-year statute of
limitations, the trial court granted summary judgment to Getty Oil and Chevron Texaco, since
their interests in the subject wells were conveyed to Pounds more than three years prior to the
filing of this lawsuit and granted partial summary judgment to Pounds for any claims arising
before three years prior to the filing of the lawsuit. Further, the claim of fraudulent
concealment has no merit since Texaco informed Nygaard of accrued royalties that were owed
the Trust and since Nygaard has failed to allege any affirmative act by Pounds to conceal the
true amount of royalties owed the Trust. We therefore affirm the trial court’s grant of
summary judgment to Getty and Texaco and the trial court’s grant of partial summary judgment
to Pounds.
¶29. AFFIRMED.
SMITH, C.J., WALLER AND COBB, P.JJ., EASLEY, CARLSON, GRAVES AND
RANDOLPH, JJ., CONCUR. DIAZ, J., NOT PARTICIPATING.
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