Case Title: Connaghan v. Eighty-Eight Oil Co.

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1988-03-08T00:00:00Z

Document:
Connaghan v. Eighty-Eight Oil Co.1988 WY 28750 P.2d 1321Case Number: 87-218Decided: 03/08/1988Supreme Court of Wyoming
ROBERT J. CONNAGHAN, 
APPELLANT (PLAINTIFF),

v.

EIGHTY-EIGHT OIL COMPANY, 
A WYOMING GENERAL PARTNERSHIP, WALTER GUION, AN INDIVIDUAL, WALTER GUION, D/B/A 
PREFERRED ENERGY PROPERTIES, BARBARA GUION, A MINOR, BY HER GUARDIAN IN FACT, 
WALTER GUION, D/B/A PREFERRED ENERGY PROPERTIES, APPELLEES 
(DEFENDANTS).

Appeal from the Superior 
Court, Seventh Judicial District, Natrona County, Dan Spangler, 
J.

E. James Burke 
and Rhonda Sigrist Woodard, of Hanes, Burke and Woodard, P.C., Cheyenne, for appellant.

John J. 
Blomstrom, Casper, for appellee 88 Oil Co.

William N. 
Heiss, Casper, for appellees Walter Guion, Preferred 
Energy Properties and Barbara Guion, and R. Stanley Lowe, Casper.

Before BROWN, C.J., and THOMAS, CARDINE, URBIGKIT 
and MACY, JJ.

BROWN, Chief 
Justice.

[¶1.]     This appeal involves an 
ownership dispute over an overriding royalty interest in an oil and gas lease. 
The trial court ordered summary judgment favoring appellees, Eighty-Eight Oil 
Company (88 Oil), Walter Guion individually, as Guardian for Barbara Guion 
(Guions) and d/b/a Preferred Energy Properties (Preferred), based solely on the 
doctrine of adverse possession. Appellant Robert J. Connaghan presents three 
issues:

"1. Did the trial court 
err in granting the Motion For Summary Judgment of Defendants, Walter Guion, 
Barbara Guion and Preferred Energy Properties and in finding they had proven a 
taking of Plaintiff's overriding royalty interest by adverse 
possession?

"2. Did the trial court 
err in failing to grant Plaintiff's Motion For Summary Judgment for payments due 
him pursuant to his 1 1/4% overriding royalty interest in the Oil and Gas Lease 
No. 0-14677-A?

"3. Is Plaintiff entitled 
to interest of 18% per annum on the payments due him and to attorney's fees 
under W.S. Section 30-5-303?"

[¶2.]     We reverse on the issue 
of adverse possession and remand the remaining issues for further 
proceedings.

[¶3.]     Appellant claims a 1 
1/4 percent overriding royalty interest in State Lease No. 0-14677A concerning 
the:

SE 1/4, SE 1/4, Section 
36-35N, 89W, 6th P.M., Natrona 
County, Wyoming, 
Raderville Field.

Appellant 
received the overriding royalty in a July 1, 1955, assignment from a Mr. Frank 
Gallivan. This assignment was never filed in the Natrona County Clerk's office, 
and, although it apparently was approved by the Wyoming Commissioner of Public 
Lands on December 9, 1955, is not presently on file in that office. Despite this 
lack of filings and/or records the origin of appellant's royalty interest has 
been traced using microfilm of the range cards in the Public Lands office and 
other records.

[¶4.]     Frank M. Gallivan was 
the original lessee on State Lease No. 0-12028 covering all of Section 36, 89W, 
6th P.M., issued on January 16, 1952. Gallivan assigned the lease to a Mr. 
Gerald T. Tresner on January 22, 1953, reserving a 2 1/2 percent overriding 
royalty. Tresner assigned the lease, subject to Gallivan's override, to the 
Chicago Corporation (Chicago) and the Republic Natural Gas Company (Republic) on 
January 28, 1953, reserving an additional 1 percent overriding royalty for 
himself. After other assignments not relevant to this case, State Lease No. 
0-12028 was reissued as State Lease No. 0-14677, effective January 28, 1953, 
with Chicago and Republic as lessees. On June 30, 1959, Chicago (now Champlin 
Oil and Refining Co.) and Republic assigned their interest in the SE 1/4, SE 
1/4, Section 36-35N, 89W, 6th P.M. to Red Hill Uranium Company (Red Hill). The 
assignment took place expressly subject to the 2 1/2 percent overriding royalty 
reserved by Gallivan in the January 22, 1953, assignment between Gallivan and 
Tresner. The State then segregated the remaining lands in lease No. 0-14677 and 
reissued Red Hill's lease as State Lease No. 0-14677A on June 30, 1959. The 
January 16, 1952-January 16, 1962, serial register page for lease No. 0-14677A 
lists appellant as the owner of a 1.25 percent overriding 
royalty.

[¶5.]     Lease No. 0-14677A was 
then assigned by Red Hill to a Mr. Stanley Stringham on January 30, 1960. 
Stringham assigned the lease to New Era Oil & Gas Company (New Era) on July 
28, 1960. New Era assigned the lease to Dynamic Industries, Inc. on January 22, 
1967. All of these assignments expressly excepted any outstanding royalty 
interests.

[¶6.]     Dynamic was sued in 
1976, and after judgment was entered the lease was placed into receivership. The 
receiver published notice to creditors of Dynamic and New Era in the Casper 
Star-Tribune, requesting submission of claims. Appellant did not file a claim 
pursuant to this notice.

[¶7.]     The well on the lease 
was shut-in from 1977 through 1981 by order of the Wyoming Oil and Gas 
Conservation Commission. The present owners of the lease, the Guions and 
Preferred, took their interest by an assignment from the receiver dated November 
30, 1981.

[¶8.]     88 Oil has been the 
purchaser of production from the lease since July 1, 1982, succeeding to the 
rights of the Permian Corporation of Texas under a March 1, 1983, Division Order. 
88 Oil has made all payments under the Division Order to 
Preferred.

[¶9.]     The record indicates 
that appellant received one royalty check for $79.79 in January of 1958 for 
production from 1955 and 1956. Other than that payment, however, appellant does 
not appear to have received any return on the royalty. Also of interest in the 
record is a 1971 letter written by Mr. Gallivan on behalf of himself and 
appellant to Dynamic, acknowledging appellant's knowledge that the lease was 
producing, and requesting an accounting.

[¶10.]  The next action taken by appellant was 
this lawsuit. On November 21, 1986, he filed a complaint in district court 
alleging ownership of the 1 1/4 percent overriding royalty and praying for an 
accounting, payment and interest and attorney's fees. 88 Oil answered and 
counterclaimed for interpleader and indicated that it had suspended payment 
attributable to a 1 1/4 percent royalty until the matter was settled. The Guions 
and Preferred answered denying the allegations and alleging defenses of statute 
of limitations (see, e.g., Young v. Young, Wyo., 709 P.2d 1254 (1985)), adverse 
possession, laches, application of recording statutes, collateral estoppel, 
waiver and/or res judicata under the earlier civil action involving 
Dynamic.

[¶11.]  The Guions and Preferred moved for 
summary judgment stressing adverse possession, statute of limitations, res 
judicata and laches as potential bases for their motion. Appellant also moved 
for summary judgment alleging ownership of the royalty. Both motions were 
submitted with affidavits and accompanying documentation.

[¶12.]  Hearing on the motions took place on May 
22, 1987. On June 4, 1987, the trial court filed a decision letter granting 
summary judgment in favor of the Guions, Preferred and 88 Oil. The sole basis 
given for summary judgment was the doctrine of adverse possession. Judgment was 
entered on July 23, 1987, and this appeal followed.

[¶13.]  We review an order of summary judgment 
using the same evidence and in the same light as the trial court. 
England v. Simmons, Wyo., 728 P.2d 1137, 1141 (1986). A motion for 
summary judgment places an initial burden on the movant to make a prima facie 
showing that no genuine issue of material fact exists and that summary judgment 
should be granted as a matter of law. Rule 56(c), Wyoming Rules of Civil 
Procedure; England v. Simmons, supra. Once a 
prima facie showing is made, the burden shifts to the party opposing the motion 
to present specific facts showing that a genuine issue of material fact does 
exist. Challenges to a summary judgment order are analyzed in a light most 
favorable to the party opposing the motion giving him all favorable inferences 
that can be drawn from the facts. England v. Simmons, 
supra.

[¶14.]  Title to real property can be acquired by 
adverse possession when a claimant carries his burden to 
prove

"`* * * actual, open, 
notorious, exclusive and continuous possession of another's real property for 
the statutory period, which possession must be hostile, and under a claim of 
right or color of title. [Citation.]' Rutar Farms and Livestock, Inc., v. Fuss, 
Wyo., 651 P.2d 1129, 1132 (1982)." Miller v. Stovall, Wyo., 
717 P.2d 798, 804 (1986).

The statutory 
period in Wyoming is ten years. § 1-3-103, W.S. 
1977.

[¶15.]  At the heart of every claim based on 
adverse possession lies the claimant's assertion of ownership of an interest in 
real property through actual 
possession. Miller v. Stovall, supra. A person can only undertake actual 
possession of an interest in real property if the interest is possessory or 
related to the land in such a way that it can be actually possessed. See 1 E. 
Kuntz, Oil & Gas Law, § 10.5, p. 276 (1987); and Koontz v. Town of Superior, Wyo., 746 P.2d 1264, 1267 (1987). A possessory 
interest in real property is defined as an interest giving its 
owner:

"(a) a physical relation 
to the land of a kind which gives a certain degree of physical control over the 
land, and an intent so to exercise such control as to exclude other members of 
society in general from any present occupation of the land; 
or

"(b) interests in the 
land which are substantially identical with those arising when the elements 
stated in Clause (a) exist." Restatement of Property § 7, p. 19 
(1936).

 

[¶16.]  The interest allegedly possessed 
adversely in this case is an overriding royalty carved out of the lessee's 
working interest in an oil and gas lease. We defined this type of interest in 
Cities Service Oil Company v. Pubco Petroleum Corporation, Wyo., 497 P.2d 1368, 
1372 (1972), when we said:

"The term `overriding 
royalty' has been defined in numerous judicial opinions as an interest in oil 
and gas production at the surface, free of the expense of production, and in 
addition to the usual land owner's royalty reserved to the lessor in an oil and 
gas lease. As stated in 2 Williams and Meyers, Oil and Gas Law, § 418.1, p. 341: 
An overriding royalty is, first and foremost, a `royalty 
interest.'"

See also Picard 
v. Richards, Wyo., 366 P.2d 119, 122 (1961). We have long 
held an overriding royalty to be an interest in real property. McGinnis v. 
McGinnis, Wyo., 391 P.2d 927, 929 (1964); Dame v. Mileski, 80 Wyo. 156, 340 P.2d 205, 208-209 (1959); Denver Joint Stock Land Bank of Denver v. Dixon, 57 Wyo. 
523, 122 P.2d 842, 849, 140 A.L.R. 1270 (1942). Cf. Cosgrove v. Young, 230 
Kan. 705, 642 P.2d 75, 87 (1982).

[¶17.]  The remaining question in this case then, 
is whether an overriding royalty is a possessory interest subject to the 
doctrine of adverse possession. We hold that it is not.

[¶18.]  In Picard v. Richards, supra, at 122, we 
cited language from Arnold v. Ashbel Smith Land 
Company, Tex.Civ.App., 307 S.W.2d 818, 825 (1957), in which the Texas court described a 
nonparticipating (noncost sharing) royalty interest as

"`* * * nonpossessory in that it does not 
entitle the owner to produce the minerals himself, or permit him to join in 
leases of the mineral estate to which the royalty is appurtenant * * *. It 
merely entitles the owner to a share of production under [the] lease free of 
expense of exploration and production * * *.'" (Emphasis 
added.)

We adopt that 
language in this case and also look to 2 H. Williams and C. Meyers, Oil and Gas 
Law, § 418.1, p. 346 (1986), where the authors describe an overriding royalty by 
stating:

"Although an interest in 
land, it is clearly nonpossessory, 
and hence the owner is not entitled to possessory remedies * * *." (Emphasis 
added.)

The overriding 
royalty interest in this case is no different. It is a nonpossessory right 
arising out of the lessee's working interest in the lease. It cannot be 
possessed adversely. Portwood v. Buckalew, Tex.Civ. App., 521 S.W.2d 904, 919 
(1975); Saunders v. Hornsby, Tex.Civ.App., 173 S.W.2d 795, 797 (1943); 1 H. 
Williams and C. Meyers, Oil and Gas Law, § 224.2, p. 358 
(1986).

[¶19.]  Summary judgment in this case was 
improper as a matter of law. Reversed and remanded for further proceedings 
consistent with this opinion.