Oklahoma

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

BLUE BOOK CITATION FORM: 1994.OK.47

Released for Publication by Order of the Court of Appeals of Oklahoma, Division No. 1

Filed - February 1, 1994

Rehearing Denied - April 12, 1994

Certiorari Denied - June 15, 1994

THE COURT OF APPEALS OF THE STATE OF OKLAHOMA

Division I

OKLAHOMA OIL & GAS EXPLORATION ) DRILLING PROGRAM 1983-A, a Limited ) Partnership; PHILIP H. MYERS, ) Individually, and OKLAHOMA OIL & GAS ) EXPLORATION COMPANY, A Virginia ) Corporation, )
Appellants,

versus ) Case Number 80,828 ) Companion to ) Case Number 80,829
W.M.A. CORPORATION, )
Appellee. )

APPEAL FROM THE DISTRICT COURT OF GRANT COUNTY, OKLAHOMA
HONORABLE MICHAEL R. DAYTON, JUDGE

A F F I R M E D

Robert H. Mitchell, Johnny J. Akins, Oklahoma City, Oklahoma, For Appellants, Charles L. Helm, Oklahoma City, Oklahoma, For Appellee.

OPINION

Opinion by CAROL M. HANSEN, Judge:

Appellants, Oklahoma Oil & Gas Exploration Drilling Program 1983-A (the 1983 Program), Philip H. Myers and Oklahoma Oil & Gas Exploration Company seek review of the trial court's order which granted judgment in favor of Appellee, W.M.A. Corporation, (WMA).*fn1 This action involves the operation of several oil and gas wells in Grant County, Oklahoma. Appellants brought this action for an accounting, removal of the wells' operator, punitive damages by reason of WMA's bad faith, injunctive relief and judgment against W. Mike Adams personally as the alter ego of WMA. WMA counter-claimed, seeking recovery of past due operating expenses from Appellants. By partial summary judgment, the trial court determined W. Mike Adams is not the alter-ego of WMA for purposes of piercing WMA's corporate veil and dismissed Adams, and that Appellants are estopped to deny WMA's status as operator of the wells under the joint operating agreements (JOAs). After non-jury trial on the remaining issues, the trial court granted WMA judgment for Appellants' outstanding operating expenses, less certain credits, in the amount of $47,286.68.*fn2 WMA received its interest in 28 oil and gas wells in Grant County, Oklahoma, by virtue of an assignment of well leases and operations from Laura M. Good d/b/a Compass Resources, dated March 2, 1987, effective April 1, 1987.*fn3 In connection with the transfer, Vaughn Good, Laura Good, and other consenting sellers entered into a purchase agreement on February 5, 1987, with the buyer, WMA, to close the deal and transfer operations. Both the assignments and the purchase agreement provide the operations would be transferred "subject to [WMA's] obtaining a majority interest by purchase of the wells and leasehold or being elected the new operator for the wells all with the approval of the Corporation Commission of the State of Oklahoma, if required."*fn4 The assignment was further subject to all previous joint operating agreements (JOAs) affecting the wells and leasehold.

At the time of transfer, there were outstanding JOAs between Compass Resources and the other non-operating interest owners. The 1983 Program owns a non-operating working interest in four of the 28 wells. In April, 1987, WMA assumed operations of the wells. WMA never obtained JOAs in its name from the non-operating working interest owners.

On appeal, Appellants maintain the trial court erred in granting partial summary judgment. In our review of an order granting summary judgment, we must determine if the evidentiary matter supporting or opposing the motion reflect any substantial controversy as to any material fact. Flanders v. Crane Co., 693 P.2d 602 (Okla. 1984). Additionally, it must appear reasonable people exercising fair and impartial judgment could not reach differing conclusions upon the undisputed facts. Flanders, at 605.

WMA moved for summary judgment on two issues: whether Adams was the alter-ego of WMA and WMA's status as operator of the wells. In its summary judgment brief, WMA argued Appellants were estopped to deny WMA's status as operator of the wells, that Appellants "ratified" the outstanding JOAs or their conduct shows an "implied contract" thereby confirming WMA's status as operator or, if they didn't ratify them, the other non-operators "elected" WMA as operator under the election procedure of the JOA. The trial court found:

That based upon the Plaintiff's specific knowledge that Defendant, W.M.A. Corporation, was acting as the operator of the wells involved in this litigation since approximately April, 1987, that the Plaintiffs paid joint interest billing statement (JIBs) when submitted to them by the Defendant, W.M.A. Corporation, and further based upon the Plaintiff's affirmative acts in allowing Defendant to remain as operator of said wells, without timely objection, the Court finds that the Plaintiffs are hereby estopped from denying that the Defendant, W.M.A. Corporation is, as far as the parties to this litigation are concerned, determined to be the operator, under the operating agreements, of the wells at issue in this litigation.

We agree with the trial court that the facts are not in dispute as to how WMA gained operations of these wells. The only issue to be decided is whether WMA is the operator according to the JOAs and the assignments. The JOAs between WMA's predecessors and the other working interest owners provide specific procedures for the resignation of operators and the election of successor operators. A successor operator must be "selected by the parties owning an interest in the Contract Area". The record indicates there was no formal selection process prior to WMA's assumption of operations. However, WMA assumed operations and actually operated the wells without protest through much of 1987.

Appellants argue that the provision in the JOAs regarding the successor operator selection is a "condition precedent" to WMA's assumption of operations under the JOAs. Because this condition precedent was not met, they argue, operations of the wells and the parties' rights and obligations are not determined by the provisions of the JOAs.

A condition is an event, not certain to occur, which must occur, unless its non-occurrence is excused, before performance under a contract becomes due. Restatement, Second Contracts Section(s) 224 (1981). A condition precedent of a contract is one calling for the performance of some act or happening of some event after the contract is entered into, upon which its obligations are made to depend. Meacham v. Oklahoma Bank and Trust Company, 600 P.2d 868, 870 (Okla. App. 1979). Conditions are usually created with words such as "if", "provided that", "when", and "after".

There are no words of limitation, and Appellants have pointed to none, in the JOAs which indicate the selection of an operator is a condition precedent to WMA's right to operate the wells in question. The selection of successor operator provision simply provides a successor operator "shall be selected by the parties." The only words of condition regarding WMA's interest in the wells and operations are found in the first paragraph of the Assignment to it from Laura Good d/b/a Compass Resources. Therein Laura Good d/b/a Compass Resources assigned all right title and interest in and to the operations of the wells and operation "subject however to Assignee obtaining a majority interest by purchase of said wells and leasehold or being elected the new operator for said wells".*fn5 Any condition placed on WMA's assumption of operations is derived not from the JOAs, but from the Assignment, a contract to which Appellants are not a party. Since the uncontroverted facts show WMA owned a majority interest in the five wells in appeal No. 80,829, WMA met the condition set forth in the Assignment with regard to these wells. The uncontroverted facts do not establish whether the condition in the assignment was met with regard to the four wells which are the subject of this appeal. This issue, however, need not be determined by this Court since it was not presented to the trial court and Appellants argue the existence of a condition precedent in the JOA, not the assignments.

The trial court determined Appellants were estopped to deny WMA's status as operator under the JOAs.

Equitable estoppel is the effect of the voluntary conduct of a party whereby he is absolutely precluded, both at law and in equity, from asserting rights which might perhaps have otherwise existed, either of property, of contract, or of remedy, as against another person who has in good faith relied upon such conduct and has been led thereby to change his position for the worse, and who on his part acquires some corresponding right, either of property, of contract or of remedy.

McDowell v. Cagle, 205 Okla. 554, 240 P.2d 783 (1951). Detrimental reliance is an essential element of equitable estoppel. Fipps v. Stidham, 174 Okla. 473, 50 P.2d 680 (1935). Appellants maintain estoppel should not have applied because WMA failed to present evidence establishing detrimental reliance. We need not determine whether Appellee has shown detrimental reliance for estoppel purposes because the uncontroverted evidence is sufficient to establish Appellants waived their contractual right to formally "select" WMA as successor operator.*fn6 A waiver of a contract right is a voluntary and intentional renunciation of it and some positive act or some positive inaction inconsistent with the contract right is necessary to create the waiver. Insurance Co. of North America v. Renfro, 121 Okla. 124, 247 P.990 (1926). A waiver can be shown by conduct which warrants an inference of the relinquishment of such right. Whitmire v. Zolbe, 403 P.2d 445 (Okla. 1965). Words or conduct of a party may operate to estop him from exacting literal compliance with contract terms. Poteau State Bank v. Denwalt, 597 P.2d 756 (Okla. 1979).The evidentiary material supporting WMA's motion for summary judgment shows Appellants were knowledgeable in the area of oil and gas operations, were informed of WMA's takeover of operations on the wells in April, 1987, that they communicated with WMA regarding the amount of the JIBs, specifically requesting backup information on expenses, subsequently paid portions of the JIBs submitted by WMA, referred to WMA as operator of the wells to others and failed to object to WMA's operation until "late in 1987". Appellants' conduct is clearly inconsistent with their contention now that WMA is not the operator of these wells. Under these undisputed facts, Appellants waived their right under the JOAs to formally "select" WMA as operator of the wells.

Appellants maintain summary judgment was improper because disputed fact issues remain regarding whether W. Mike Adams was the alter ego of the corporation, WMA.*fn7 The general rule is that a corporation is a distinct legal entity separate and apart from other legal entities or stockholders. Gulf Oil Corporation v. State, 360 P.2d 933 (Okla. 1961). However, this friction may be avoided if it is established that the separate corporate existence is a design or scheme to perpetuate a fraud or where a corporation is so organized and controlled and its affairs so conducted that it is merely an instrumentality or adjunct of another. Wallace v. Tulsa Yellow Cab Taxi & Baggage Co., 178 Okla. 15, 61 P.2d 645 (1936).

To establish the "alter-ego" doctrine it must be shown that the stockholders' disregard of the corporate entity made it a mere instrumentality for the transaction of their own affairs; that there is such unity of interest and ownership that the separate personalities of the corporation and the owners no longer exist; and to adhere to the doctrine of corporate entity would promote injustice or protect fraud.

1 Fletcher Cyclopedia of the Laws of Private Corporations, Section(s) 41.10 (Rev. Vol. 1990).

Appellants presented facts establishing W. Mike Adams as the incorporator, sole shareholder, president and director of WMA. Although the evidence shows WMA had had trouble in the past meeting certain debts and that Adams loaned some money to WMA, there is no evidence WMA is undercapitalized or that Adams used the corporation to perpetuate a fraud. There are no disputed facts which justify a trial on this issue.

Next, Appellants challenge the trial court's award of interest on the November 24, 1992, judgment. The judgment provided it would bear interest at the contract rate of the prime rate plus 1% until paid. Appellants maintain the contract provision, Section(s) I(3)(B) of Exhibit C to the JOAs, doesn't authorize interest on the unpaid monthly expenses as it only pertains to advance billings.*fn8 That section provides:

3. Advances and Payments by Non-Operators

Unless otherwise provided for in the agreement, the Operator may require the Non-Operators to advance their share of estimated cash outlay for the succeeding month's operation. Operator shall adjust each monthly billing to reflect advances received from the Non-Operators.

Each non-Operator shall pay its proportion of all bills within fifteen (15) days after receipt. If payment is not made within such time, the unpaid balance shall bear interest monthly at the rate of twelve percent (12%) per annum or the maximum contract rate permitted by the applicable usury laws in the state in which the Joint Property is located, whichever is the lesser, plus attorney's fees, court costs, and other costs in connection with the collection of unpaid amounts.

Section 3 of Exhibit C must be read in conjunction with the other applicable provisions of Exhibit C and the JOA. Article VII (C) of the JOA provides:

C. Payments and Accounting Except as herein otherwise specifically provided, Operator shall promptly pay and discharge expenses incurred in the development and operation of the Contract Area pursuant to this agreement and shall charge each of the parties hereto with their respective proportionate shares upon the expense basis provided in the Accounting Procedure attached hereto as Exhibit "C". Operator shall keep an accurate record of the joint account hereunder, showing expenses incurred and charges and credits made and received.

Operator, at its election, shall have the right from time to time to demand and receive from the other parties payment in advance of their respective shares of the estimated amount of the expense to be incurred in operations hereunder during the net succeeding month, which right may be exercised only by submission to each such party of an itemized statement of such estimated expense, together with an invoice for its share thereof. Each such statement and invoice for the payment in advance of estimated expense shall be submitted on or before the 20th day of the next preceding month. Each party shall pay to Operator its proportionate share of such estimate within fifteen (15) days after such estimated and invoice is received. If any party fails to pay its share of said estimate within said time, the amount due shall bear interest as provided in Exhibit "C" until paid. Proper adjustment shall be made monthly between advances and actual expense to the end that each party shall bear and pay its proportionate share of actual expenses incurred, and no more.

Section 2 of Exhibit C provides:

2. Statement and Billings Operator shall bill Non-Operators on or before the last day of each month for their proportionate share of the Joint Account for the preceding month. Such bills will be accompanied by statements which identify the authority for expenditure, lease or facility, and all charges and credits, summarized by appropriate classification of investment and expense except that items of Controllable Material and unusual charges and credits shall be separately identified and fully described in detail.

Under the JOA and Exhibit C, an operator has the option to require non-operators to pay monthly estimated operating expenses in advance. Art. VII(C) specifically provides a non-operator's failure to pay estimated expenses is subject to the interest described in Exhibit C. Paragraph 3 of Exhibit C, however, is not limited to advance billings. The provision applies to "Advances and Payments by Non-Operators", and specifically requires each non-operator to pay its proportion of all bills within 15 days after receipt. Thus, interest is chargeable on all outstanding, unpaid balances, whether the balance is due from failure to pay an estimate (advance) or from a prior month's operating expenses. The trial court did not err in awarding WMA interest under the contract.*fn9 Appellants attack the trial court's judgment of January 13, 1993, which awarded attorney fees and costs to WMA, in several aspects. They argue they are the "prevailing party" under the accounting cause of action and are entitled to attorney fees and costs, that WMA is not entitled to attorney fees on "open account", 12 O.S. 1991, Section(s) 936, that the trial court did not follow the requirements of State ex rel. Burk v. City of Oklahoma City, 598 P.2d 659 (Okla. 1979) in calculating attorney fees, and that Appellants should not have been assessed with the costs of the Special Master.
On its own motion, the trial court appointed a Special Master pursuant to 12 O.S. 1991, Section(s) 613, to conduct an accounting of the obligations between the parties relating to the operation of the wells. Appellants maintain that because their first and second causes of action requested an accounting from WMA, the trial court's appointment of a Special Master to conduct an accounting makes them the "prevailing party" for purposes of attorney fees. The record shows WMA objected to the request for accounting and desired Appellants to follow the procedures for an accounting under the JOA. The trial court found Appellants did not prevail on their equitable claim for an accounting, but that such accounting was conducted through the Special Master as an aid to the Court.

The prevailing party is the party who has affirmative judgment rendered in his or her favor at the conclusion of the action. Quapaw Company v. Varnell, 566 P.2d 164, 167 (Okla. App. 1977). The trial court found Appellants have owed WMA for operating expenses at all times since WMA assumed operations. Judgment was rendered in favor of WMA for $47,286.68 for unpaid operating expenses. The trial court's appointment of a Special Master to conduct an accounting does not constitute a judgment in favor of Appellants on their accounting causes of action. The trial court properly determined Appellants were not the "prevailing party" on the accounting causes of action.

The trial court found WMA is entitled to attorney fees incurred in connection with its counterclaim for operating expenses on Appellants' "open account" and under 12 O.S. 1991, Section(s) 940, for successfully defending the issues relating to property damage. Although WMA is not entitled to recover attorney fees in connection with its counterclaim under 12 O.S. 1991, Section(s) 936, it is contractually entitled to recover attorney fees incurred in relation thereto under paragraphs I(3) and II(9) of Exhibit C of the JOAs.*fn10 The trial court correctly determined attorney fees could be assessed against Appellants.
The trial court granted WMA attorney fees in the amount of $47,796.25.*fn11 Appellants argue the requirements of Burk were not met because WMA's attorney fees were billed at one rate for all attorneys, $125.00/hour, and that WMA's attorney could not specifically identify the hours spent working on case no. C-88-49 and on the other consolidated cases. The trial court's findings in the judgment will be affirmed unless clearly contrary to the weight of the evidence. Burdick v. Independent School District, 702 P.2d 48, 55 (Okla. 1985). Our review of the transcript indicates WMA presented evidence to the trial court in compliance with Burk which supports the trial court's award of fees.

Appellants maintain the trial court erred in assessing against them the Special Master's compensation and certain costs related thereto. The trial court granted WMA judgment against Appellants for $6,788.98 for the Special Master's compensation and $3,310.00 for the cost of copies provided to the Special Master. Compensation of Special Masters shall be taxed as costs. 12 O.S. 1991, Section(s) 619. Under 12 O.S. 1991, Section(s) 930, the trial court may award and tax costs, and apportion the same between the parties, as in its discretion it may think right and equitable.

Appellant sought an accounting in district court, although it had a right to audit WMA's accounts under the JOA. WMA resisted the appointment of a Special Master. Contrary to Appellants' assertions that the Special Master found WMA uncooperative, the Special Master testified WMA was cooperative and courteous. Appellants have not shown the trial court abused its discretion in taxing the compensation of the Special Master against Appellants. Nor have Appellants demonstrated error by the trial court is assessing the $3,310.00 in costs against them.

Next, Appellants argue the judgment should be reversed because the trial court denied them a jury trial. Appellants acknowledge two of their causes of action, for an accounting, are equitable. However, they argue the presence of other legal claims entitle them to trial by jury.

In Oklahoma, a party's right to a jury trial is determined by the character of the action and of the issues framed by the pleadings. Cheatham v. Bynum, 568 P.2d 649, 650 (Okla. App. 1977). In an equitable action, trial by jury is not a matter of right. Butcher v. McGinn, 706 P.2d 878 (Okla. 1985). The presence of joined legal and equitable issues does not require a jury trial if the equitable issues are paramount or the legal issues incidental to or dependent upon the equitable issues. Id., at 880. In such a case, the issues are treated as equitable for trial purposes. Id.; Russell v. Freeman, 202 Okla. 421, 214 P.2d 443,444 (1949).
Appellants' petition alleged seven causes of action. The first two, for an accounting, are clearly equitable. The third, for removal as operator, is based upon allegations of fact supporting the requests for an accounting. The fourth, for damages for WMA's bad faith in operation of the wells, similarly stems from allegations concerning Appellants' accounting claims. The fifth cause of action is for injunctive relief, an equitable issue. And in the sixth cause of action, Appellants sought judgment against W. Mike Adams personally. Our review of the pleadings indicates the equitable issues are paramount in this action and Appellants have not been denied a right to a jury trial.

Finally, Appellants argue the trial court erred in assessing a portion of certain saltwater booster charges to the four wells in which they own an interest. They maintain there is no evidence to support charging such wells for such services and want a credit of $1,496.86. The uncontroverted evidence shows the booster system serviced seven wells, four of which were Appellants' wells. Appellants' request for a credit would mean that Appellants would not pay their proportionate costs for the booster system on their four wells. The trial court's assessment against Appellants' interests for these charges is not clearly against the weight of the evidence. Wetzel v. Johnson, 468 P.2d 479 (Okla. 1970).

The judgment of the trial court is AFFIRMED.

JONES, P.J. and ADAMS, J. concur.

***** BEGIN FOOTNOTE(S) HERE *****

*fn1 Appellants Myers and Oklahoma Oil and Gas Exploration Company are general partners of the 1983-A Program.

*fn2 This action, C-88-49, was consolidated for trial with three other actions brought by Appellants: C-88-14, C-88-43, and C-88-44. These other actions have been appealed in a companion case, No. 80,829.

*fn3 Laura Good received her interest in the leases and operations by assignment from Vaughn Good d/b/a Vaughn Good Oil Company, dated April 1, 1987, effective June 1, 1986.

*fn4 The assignments provide WMA was required to obtain a majority interest in the wells and leasehold or be elected the new operator. The trial court did not specifically determine whether WMA satisfied this provision in the assignments. In its statement of material facts as to which there is no controversy, W.M.A. asserts it is the majority interest owner in the subject wells. Appellants do not controvert this assertion of "majority interest owner" but do list the owners' interests in the wells. The list indicates W.M.A. owned in excess of 60% of the working interest in the five wells which are the subject of companion appeal No. 80,829. The evidence does not show, however, that WMA owned a majority interest in the four wells which are the subject of this appeal.

*fn5 See also paragraph 2 of the Purchase Agreement which provides:

At the time of Closing, Laura Good d/b/a Compass Resources, the operator of the existing wells upon the Interests, will transfer all her interest in the operations to the Buyer, if the Buyer obtains a majority interest from its purchase or is elected the new operator for the wells located upon the interests and has the approval of the Corporation Commission of the State of Oklahoma, if required. In the event that the Buyer does not obtain a majority interest from its purchase or is not elected the operator for the existing wells located upon the Interests or does not obtain the approval of the Corporation Commission of the State of Oklahoma, if required, then Buyer agrees to execute a Model Form Operating Agreement (A.A.P.L. Form 610-1977) appointing Laura Good d/b/a Compass Resources as operator of the existing wells located upon the Interests.

*fn6 If legally correct, the trial court's ruling will not be reversed on appeal even if based on faulty reasoning or an erroneous finding of fact. Hurt v. Noble, 817 P.2d 744 (Okla. App. 1991).

*fn7 The trial court found that there was no evidence presented that would suggest that WMA is undercapitalized, that there is any kind of fraud being perpetrated by W. Mike Adams against his creditors or that he is using the corporation as a shield against his creditors.

*fn8 Exhibit C to the JOAs is commonly referred to as a COPAS (Council of Petroleum Accountants Societies) form entitled "Accounting Procedure Joint Operations".

*fn9 Appellants maintain that even if the contract provides for interest, they shouldn't be required to pay interest because their failure to pay the expenses was caused by WMA's nonperformance of a condition precedent: providing "back-up" information with each JIB. Stated another way, Appellants maintain WMA's right to a non-operator's proportionate costs (and the interest thereon) is contingent on WMA supplying the non-operator with back-up. Although paragraph 2 of Exhibit C to the JOA requires the operator to substantiate JIBs with certain information, we do not find, and Appellants have not shown, how this requirement gives a non-operator the right to refuse to pay his proportionate expenses. In fact, paragraph 4 of Exhibit C provides: "Payment of any such bills shall not prejudice the right of any Non-Operator to protest or question the correctness thereof...." Further, Appellants have not established that WMA failed to supply the required back-up information. The trial court determined WMA did not engage in any bad faith conduct as operator and that at all times, WMA acted as a reasonably prudent operator.

*fn10 See LPCX Corporation v. Faulkner, 818 P.2d 431 (Okla. 1991). Statute allowing for recovery of attorney fees in civil actions to recover on an open account, 12 O.S. 1991, Section(s) 936, did not apply to allow recovery of attorney fees by nonoperating working interest owner under a joint operating agreement. "Open account" is defined as an unsettled debt arising from items of work and labor, goods sold and delivered, and other open transactions not reduced to writing and subject to future settlement and adjustment. Nicholson v. Thixton, 448 P.2d 454, 455 (Okla. 1968). Although the JOA contemplates ongoing dealings between the parties, no term of the contract remained subject to future adjustment.

*fn11 The trial court specifically denied WMA's request for attorney fees incurred in connection with the prudent operator/removal of operator issues, a total of 5% of the time billed.

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