Mullins v. Ward

1985 OK 109, 712 P.2d 55, 87 Oil & Gas Rep. 340, 1985 Okla. LEXIS 171
CourtSupreme Court of Oklahoma
DecidedDecember 24, 1985
Docket61785
StatusPublished
Cited by38 cases

This text of 1985 OK 109 (Mullins v. Ward) is published on Counsel Stack Legal Research, covering Supreme Court of Oklahoma primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Mullins v. Ward, 1985 OK 109, 712 P.2d 55, 87 Oil & Gas Rep. 340, 1985 Okla. LEXIS 171 (Okla. 1985).

Opinion

OPALA, Justice.

In this suit for accounting and cancellation of an oil-and-gas lease, four issues are tendered for our decision: [1] If a lessee enters and begins to drill a well with the acquiescence of some but not all cotenants in the mineral estate, is he liable to the nonacquiescing cotenants as a bad-faith trespasser? [2] Is the effective date of the Corporation Commission’s [Commission’s] despacing order dispositive on the issue whether the oil-and-gas leasehold in suit is subject to cancellation for want of production? [3] Did the trial court err in refusing to grant a jury trial and in depriving the mineral owners’ of an opportunity to secure an award of punitive damages? and [4] Did the regulatory orders of the Commission operate effectively to destroy the lessees’ right in property to protect their mineral lease by drilling? We answer all four questions in the negative.

The plaintiffs [owners] are cotenants of an undivided mineral estate in 72 acres of land that is included in a 160-acre oil-and-gas lease which was initially situated within a 640-acre drilling and spacing unit. With its primary term ending March 8, 1977, this lease was participating in production from a well located outside the leased premises but within the unit. In November 1976 the owners sought to change the spacing regime from a 640-acre unit to 80-acre units. Ladd Petroleum Corporation [Ladd or lessee], who also was the unit operator, opposed despacing because the proposed 80-acre unit that was to be formed in the area where the owners’ mineral estate was situated would then be left without a producing well. Following a contested hearing, the Commission’s trial examiner recommended, on March 16, 1977, that spacing be reduced to 80-acre units. Since this change, if adopted by the Commission, would cause the owners’ lease to terminate for want of production past the primary term, Ladd immediately applied to increase density in the then existing 640-acre unit by drilling forthwith another well within the proposed 80-acre unit that might be formed over the owners’ leased premises. The Commission acceded to this request. The lease was then “farmed out” to L.O. Ward [Ward or lessee] who, on April 7, 1977, commenced drilling a well [the Mullins well] on the owners’ mineral estate. The emergency order was later held to be invalid by an opinion of the Court of Appeals. 1

The Commission’s April 27, 1977 order (a) changed spacing to 80-acre units and (b) established December 3, 1976 as the effective date of the order. The latter date coincides with that originally set for hearing the owners’ despacing application. A “correction order,” subsequently issued, postponed the effective date of the despac-ing order from December 3, 1976 to April 27, 1977. On February 19, 1980, Ward secured from the Commission a well location exception which confirmed the Mullins well as the authorized well for the new 80-acre spacing unit. This order was given retroactive effect from April 27, 1977. 2 None of these orders was appealed.

In the wake of these events, the lessees, together with two of the cotenants, 3 took *59 the position that the lease continued in effect. The owners, on the other hand, regarded the lease as having expired. They brought this suit against lessees (a) to quiet their title to the mineral estate, (b) to secure an accounting for production obtained by the lessees, (c) to assess the damages caused by the lessees’ wrongful entry in trespass, and (d) to cancel the lease because of the lessees’ failure timely to drill a well within the primary term. The case came to trial upon stipulations. The critical issue, as framed and submitted by the parties, was the legal efficacy of the correction order that postponed the effective date of the despacing order. 4

The district court ruled that (a) the “correction order” was facially void because the Commission lacked jurisdiction to enter it, 5 (b) the lease had terminated at the end of its primary term on March 8, 1977, and (c) Ward and Ladd were bad-faith trespassers. The decree ordered an accounting for the owners’ pro rata share of the gross profits the lessees derived from the well. Lessees, who as bad-faith trespassers were denied credit for their drilling and operating costs, 6 brought this appeal. The owners counter-appealed. The latter complain of the trial court’s refusal to grant them a trial by jury and hence an opportunity to secure a punitive damages award.

I

THE IMPACT OF REGULATORY ORDERS AND PROCEEDINGS

In their district court suit, the owners tendered the regulatory orders of the Commission as dispositive of the controversy over the termination of the lease for want of production. The lessees, on the other hand, urged they were vigilant in protecting the lease by promptly drilling within the new 80-acre unit.

A. The Correction Order

The lessees sought by a nunc pro tunc order — entered by the Commission without application, mailed notice, or hearing — to correct the April 27, 1977 despac-ing order by changing its effective date from December 3, 1976, the date initially set for a hearing on despacing application, to April 27, 1977, the date the order was actually entered. The owners launched below a collateral attack on the correction order 7 as facially void because it undertook *60 adversely to affect their mineral estate without meeting the minimum standards of due process for adequate notice and adversary hearing.

When acting in its adjudicative capacity, an administrative agency is subject to due process requirements not dissimilar to those which apply to judicial bodies. 8 A nunc pro tunc order 9 that materially affects the rights of a party is ineffective if it was issued without prior notice and hearing. 10 We therefore hold that the ex parte correction order which sought to postpone the effective date of the agency’s prior despacing order is facially void. Insofar as Corporation Commission Rule 26(c) is relied upon broadly to justify a noticeless correction process, it suffices to say that the rule may not be invoked when the correction or change to be proposed in the order will adversely affect a party’s interests. 11

B. The Retroactive Despacing Order

The trial examiner’s March 16, 1977 report to the Commission recommended that the 640-acre unit be reduced to 80-acre units. Following this recommendation, the Commission entered its despacing order on April 27, 1977 and established December 3, 1976 as its effective date. This was the date initially set for a Commission hearing on the despacing application.

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Bluebook (online)
1985 OK 109, 712 P.2d 55, 87 Oil & Gas Rep. 340, 1985 Okla. LEXIS 171, Counsel Stack Legal Research, https://law.counselstack.com/opinion/mullins-v-ward-okla-1985.