Gill v. Gipson, et al.
| Docket Number: | 2006-CA-00166-COA Linked Case(s): 2006-CA-00166-COA ; 2006-CT-00166-COA |
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| Court of Appeals: |
Opinion Link Opinion Date: 08-14-2007 Opinion Author: GRIFFIS, J. Holding: Affirmed |
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| Additional Case Information: |
Topic: Contract - Oil & gas lease - Assignment - Prejudgment interest - M.R.C.P. 15(c) - Punitive damages - Attorney’s fees - Rule against perpetuities Judge(s) Concurring: KING, C.J., LEE AND MYERS, P.JJ., IRVING, CHANDLER, BARNES, ISHEE, ROBERTS AND CARLTON, JJ. Procedural History: Bench Trial Nature of the Case: CIVIL - CONTRACT |
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| Trial Court: |
Date of Trial Judgment: 01-19-2006 Appealed from: PEARL RIVER COUNTY CHANCERY COURT Judge: James H.C. Thomas, Jr. Disposition: PLAINTIFFS AWARDED A JUDGMENT FOR PAST OIL ROYALTIES, PAST GAS ROYALTIES, PUNITIVE DAMAGES, AND ATTORNEY’S FEES. DEFENDANTS ALSO ORDERED TO PAY FUTURE ROYALTIES TO PLAINTIFFS. Case Number: 01-359GN-TH |
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| Party Name: | Attorney Name: | |||
| Appellant: | PRESTON O. GILL |
R. ANDREW FOXWORTH |
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| Appellee: | BRENDA ROYALS GIPSON, JUDY ROYALS MCINNIS, CATHERINE ROYALS JONES, DEBORAH ROYALS NORTON AND CHRISTY RENEE ROYALS | LAWRENCE C. GUNN, JR. |
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| Topic: | Contract - Oil & gas lease - Assignment - Prejudgment interest - M.R.C.P. 15(c) - Punitive damages - Attorney’s fees - Rule against perpetuities |
| Summary of the Facts: | Wessie Mae Lowe executed an oil, gas and mineral lease in favor of D. L. Royals. The lease contained a clause that if there was no oil or gas production for a period of sixty consecutive days the lease would automatically terminate. After the death of D. L. Royals, his daughter, Brenda Gipson, operated the well. His interest in the lease passed to his heirs. The Royals were approached by John M. Dubose, Sr. about acquiring the lease and were informed that Preston Gill would contact them about the proposal. Gill and Dubose then presented the Royals an offer to purchase the lease. The offer was presented by Gill, on behalf of L & M Oil, Inc., and Dubose, on behalf of Blue Diamond, Inc. Gill had no ownership of either company. The offer was rejected by the Royals. Gill was asked to present an offer on behalf of PRP, Inc. PRP, Inc. was a new corporation solely owned by John Dubose, Jr. After Gill presented PRP, Inc.’s offer to the Royals, the Royals assigned their interest in the Lease to PRP, Inc. Less than two months later, PRP, Inc. assigned Gill a 2.5% carried working interest and a 1.875% net revenue interest in the lease. Three years later, PRP, Inc. assigned its interest in the lease to Trinity Oil & Gas Development, Inc. Then, Trinity assigned its interest to Gill. A year later, Gill ceased production of oil and gas from the well. Gill then called Donald Wayne Lowe and asked him what did he want to do. At that time, Lowe was the current owner of the land and all mineral interests since, as Gill claimed, the lease was terminated. Lowe told Gill that he wanted a new lease. Lowe executed an oil, gas and mineral lease to Preston O. Gill Operating Company. The lease was prepared by Gill. Gill, individually and not on behalf of Preston O. Gill Operating Company, assigned a ten percent working interest and ten percent net revenue interest in the lease to Lowe. After Gill ceased production, the Royals received no more royalties under the lease. They were never informed that the well was to be shut down. The Royals filed a complaint to confirm title to overriding royalty interest in oil, gas, and minerals, to recover monies erroneously paid and for attorney’s fees. The chancellor rendered a memorandum opinion that found that Preston Gill was an agent of PRP, Inc. and had breached a duty of good faith and fair dealing with the Royals. The chancellor then entered a final judgment that awarded the Royals $42,734.62 for oil royalties and $29,469.72 for gas royalties. The chancellor also awarded the Royals prejudgment interest in the amounts of $11,236.27 and $7,474,71 for the oil and gas royalties due. In addition, the chancellor awarded the Royals $10,000 in punitive damages and $10,000 in attorney’s fees. Gill appeals. |
| Summary of Opinion Analysis: | Issue 1: Assignment Gill argues that he was not bound by the Royals’ assignment to PRP, Inc., because the assignment is not binding on any employees, agents or representatives of PRP, Inc.; the assignment is a personal covenant and does not run with the land; the measuring date whether Gill was an agent of PRP, Inc., is the date of the new oil and gas lease; and Gill was never an agent or employee of PRP, Inc. The original lease included an automatic termination provision. The lease was to automatically terminate if the well did not produce for a period of more than sixty days. Aware of this automatic termination provision, the Royals assigned the lease to PRP, Inc. and included a provision creating an implied covenant upon PRP, Inc., then Trinity, and then Gill, to continue production of the well to prevent the lease from terminating. Gill was bound by the standard of conduct known as the “prudent operator” which required that Gill’s conduct be whatever, in the circumstances, would be reasonably expected of operators of ordinary prudence, having regard to the interests of both lessor and lessee, is what is required. After Gill had received ownership in the working interest of the well, he maintained production for fourteen months. Then, he ceased production for what he called cost overruns. While he ceased production, Gill never plugged the well. Gill’s conduct allowed the underlying lease to terminate due to non-production. Gill then renegotiated a new lease with the land owner. The new lease was renegotiated and signed only four months after the previous lease and the Royals’ interests had terminated. Having received a new lease, Gill then put the well back into production. The conduct and the timing of his actions support the chancellor’s finding. Issue 2: Prejudgment interest Gill argues that the chancellor erred in finding that the Royals were entitled to prejudgment interest, because the Royals failed to request such relief in their pleadings. Although the Royals’ pleadings do not reveal a request for prejudgment interest, M.R.C.P. 15© provides that when issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings. Gill and the Royals entered stipulated evidence on the amount in dispute and the date that it was due. The stipulation served to satisfy the requirements for an award of prejudgment interest. Therefore, the chancellor did not abuse his discretion when he granted prejudgment interest. Issue 3: Punitive damages Gill argues that the Royals failed to prove they were entitled to punitive damages by clear and convincing evidence. The chancellor had sufficient evidence to support his finding that Gill acted in reckless disregard of the rights of the Royals. With knowledge that the automatic termination provision would take effect upon nonproduction of the well for sixty days, Gill stopped production. After only a few months had passed, contrary to the interest of the lease and the Royals’ interest, Gill contacted the landowner to negotiate and obtain a new lease for the well. Thereafter, upon the execution of a new lease, Gill resumed production from the well. Gill also argues that because punitive damages are not appropriate in this case neither are attorney’s fees. Since the record supports an award of punitive damages, an award of attorney’s fees was also appropriate. Issue 4: Rule against perpetuities Gill argues that the lease should not be enforced because it would violate the rule against perpetuities. The rule against perpetuities requires that an interest must either definitely vest or definitely fail to vest within twenty-one years of some life in being at the time of the instrument. If the chancellor did base his opinion on Gill’s status as an agent of PRP, Inc., then the provision actually took effect within the time allowed by the rule. The provision granting the Royals an interest in the new lease actually took effect a mere eight years after the original instrument was created. Therefore, the provision in the assignment did not violate the rule against perpetuities in this case. |
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