Title: Stetson v. Investors Oil, Inc.

State: north-dakota

Issuer: North Dakota Supreme Court

Document:

176 N.W.2d 643 (1970) D. E. STETSON, as Trustee in Bankruptcy of the Estate of Willard Odegaard, Bankrupt, Plaintiff and Respondent, v. INVESTORS OIL, INC., and Anchor Casualty Company, Defendants and Respondents, and Pan American Petroleum Corporation, Garnishee and Respondent. Roy H. PETERSON and Warde F. Wheaton, Plaintiffs and Appellants, v. LeRoy LUTZ, Sheriff of Williams County, and D. E. Stetson, as Trustee in Bankruptcy of the Estate of Willard Odegaard, Bankrupt, and Investors Oil, Inc., a foreign corporation, and William D. Walters, Defendants and Respondents, and Northwestern National Bank of Minneapolis, et al., Defendants and Appellants, and Pan American Petroleum Corporation, Intervening Defendant and Respondent. Civ. No. 8602. Supreme Court of North Dakota. April 22, 1970. Rehearing Denied May 15, 1970. *644 Rolfstad, Winkjer & Suess, Williston, for the appellants Roy H. Peterson, and others. Vogel, Bair & Graff, Mandan, for respondents LeRoy Lutz, Sheriff of Williams County, D. E. Stetson, as Trustee in Bankruptcy, and Anchor Casualty Co. McIntee, Whisenand & Calton, Williston, for respondent William D. Walters. Pearce, Engebretson, Anderson & Schmidt, Bismarck, for respondent Investors Oil, Inc. Bjella & Jestrab, Williston, for respondent Pan American Petroleum Corp. ERICKSTAD, Judge. In 1960 Willard Odegaard commenced an action against Investors Oil, Inc., known as Civil No. 9785 in the District Court of Williams County. Investors Oil had drilled an oil well within the area encompassed by the Garrison Reservoir. At about the time that the oil well was completed the water in the reservoir began to rise and would have covered the wellhead unless something was done to protect it. Under the terms of the contract entered into between Mr. Odegaard and Investors Oil, Mr. Odegaard was to construct a mound directly over the wellhead so that it would be protected from the rising water. The action initiated by Mr. Odegaard was to recover payment for the construction of the mound, and although he obtained a verdict of $97,338.97 upon which judgment was subsequently entered, this court on appeal by decision rendered August 17, 1962, reversed the judgment and granted a new trial. Odegaard v. Investors Oil, Inc., 118 N.W.2d 362 (N.D. 1962). On retrial or thereafter, D. E. Stetson, as trustee in bankruptcy of the estate of Willard Odegaard, was substituted as party plaintiff. This time the jury returned a verdict in favor of the plaintiff and against Investors Oil for $52,933.57. On appeal from the judgment entered on that verdict, this court affirmed the judgment on February 11, 1966. The amount of the judgment on remittitur was $68,521.94. Stetson v. Investors Oil, Inc., 140 N.W.2d 349 (N.D. 1966). A supersedeas bond on appeal in the amount of $40,000 was paid and there is now a balance due on the judgment of $28,521.94. In November of 1966 a garnishment in aid of execution was initiated in Civil No. 9785 to attempt collection of the balance due on the judgment from oil runs from the well over which Mr. Odegaard had constructed the mound. This brought Pan American Petroleum Corporation into Civil No. 9785 as garnishee. In a further effort to collect the judgment, an execution sale *645 of the leasehold interest was scheduled by Mr. LeRoy Lutz, the sheriff of Williams County. To prevent the oil runs from being garnished and the leasehold interests from being sold by the sheriff on execution sale, Roy H. Peterson and Warde F. Wheaton initiated a quiet title action in December of 1966, known as Civil No. 10791, in the District Court of Williams County. At the time that this action was commenced the court issued a restraining order preventing the garnishment and execution sale in Civil No. 9785 until the entire matter could be decided. The proceedings in Civil No. 9785 and the quiet title action in Civil No. 10791 were consolidated for trial and tried to the court in October of 1968. By judgment dated the 17th of January, 1969, the district court held that the leasehold interests of the plaintiffs, as well as all of the appellants in Civil No. 10791, were subject to the judgment in Civil No. 9785. In accordance therewith the court required the garnishee to pay to the sheriff of Williams County on behalf of the trustee in bankruptcy the net proceeds from the oil and gas purchased by the garnishee, Pan American Petroleum Corporation, attributable to the leasehold estates of the owners of participating units (subject to a certain royalty exception not pertinent here), in a sum not to exceed an amount sufficient to satisfy the judgment. In the event that that sum was not sufficient to satisfy the judgment the sheriff was further authorized to proceed with additional garnishments in aid of execution, execution sale, and such other remedies as were provided by law. It is from this part of the judgment that appeal is taken. Who are the appellants and what do they contend in this lawsuit? To answer that question some general background information is essential. Investors Oil, Inc., is a Minnesota corporation formed for the purpose of engaging in oil and gas exploratory drilling and is owned by Mr. Robert E. Hanson and Mr. William D. Walters and their respective wives. Incorporated in 1956, Investors Oil ultimately proposed a plan which became known as McGregor Field, Program IIIA, to drill oil and gas wells in Williams County, North Dakota. Thirty-six participating units in the program were sold as securities in the state of Minnesota to approximately twenty-five different owners, who are the appellants or their predecessors in interest in this appeal. These interests were not disclosed to Mr. Odegaard at the time he entered into the contract with Investors Oil to construct the mound. It should be noted that during the first trial of Civil No. 9785 a counterclaim was filed by Investors Oil making a claim against Mr. Odegaard's bond and interpleading Mr. Odegaard's bonding company for Mr. Odegaard's alleged failure to substantially complete the mound. In the first trial of Civil No. 9785, as well as in the second, the counterclaim of Investors Oil was dismissed by the jury. The appellants place great significance upon the fact that during the course of the first trial, Mr. Walters and Mr. Hanson both testified that approximately twenty-five people had purchased a total of thirty-six units in the program and that Investors Oil acted as a mere nominee of the owners of the units. It is important to note, however, that Investors Oil was the original owner of record of the leasehold interests and that it remained the only record owner of the leasehold interests from the time the leasehold interests were obtained until quitclaim assignments were made to the participating owners on February 21, 1966, ten days after our court affirmed the judgment in the second appeal in Civil No. 9785. The appellants, or in some instances their predecessors in interest, as owners of undivided working interests in the oil and gas lease pertinent to this litigation, entered into agreements with Investors Oil on January 1, 1959. Under those agreements, Investors Oil was designated the first party, and the owners of the undivided working interests were designated the second party. *646 The pertinent parts of the agreement follow: It was under this agreement with each of the owners of participating units that Investors Oil drilled the well and entered into the contract with Mr. Odegaard for the construction of the mound to protect the well, and it is the leasehold interest in the oil produced from this well that is sought to be garnished. It is basically the contention of the appellants that inasmuch as this agreement designates Investors Oil as an "agent," which it does in one of the introductory "Whereas" clauses, and because it later designates Investors Oil as "nominee," Investors Oil is a mere agent and that therefore *648 under agency-principal law, when Mr. Odegaard learned during the progress of the first trial in Civil No. 9785 that that was the legal situation, Mr. Odegaard should have brought the appellants into the lawsuit as defendants, and that in failing to do so he elected to hold only the agent; and as the agent merely held bare legal title to the property, the judgment which was obtained against Investors Oil does not constitute a lien on the interests of the participating owners, they through Paragraph XI of the agreement having demanded and secured an assignment of the participating units to themselves prior to any attempt at garnishment or execution sale. The trial court in ruling as it did found, notwithstanding the language of the agreement, that the agreement in fact created a trustee-beneficiary relationship between Investors Oil and the owners of the participating units. In so doing it relied on Anderson v. Elliott, 1 Ill.App.2d 448, 117 N.E.2d 876 (1954). The pertinent part of that decision follows: It was the view of the trial court in the instant case that under the circumstances of this case the interests of the beneficiaries, namely the owners of the participating units, were affected by the action *649 and by the resultant judgment, notwithstanding they were not named parties in the action. The owners of the participating units contend, however, that Anderson may be distinguished from this case because in Anderson an express trust existed, whereas in this case no trust existed either express or implied. Mr. Stetson asserts that the trial court properly relied on Anderson as a basis for its decision and strongly argues that if it should be found that a trust relationship was not created by the agreement that nevertheless the trial court was correct in its conclusion that the judgment constitutes a lien on the participating interests. He asserts that Rule 17(a) of the North Dakota Rules of Civil Procedure is relevant here: It is his view that in asserting the counterclaims in both of the trials in Civil No. 9785, Investors Oil was preserving the interests of the owners of the participating units, who were the real parties in interest. He further refers us to 50 C.J.S. Judgements § 771, page 300, which reads: Another reference is: In support of their position the appellants have referred us to Comments c, d, e, and h of Section 8 of Restatement of the Law, Trusts 2d. We have not found these references to be of appreciable help; however, we do note that the third paragraph under Comment h infers that a relationship consisting of both agency and trust may exist at one time and that an "agent-trustee" can in his capacity as agent subject his principal to liabilities in contract or tort. That paragraph reads: The appellants further rely on decisions cited in their brief, including Hugener v. Greider's Wooden Shoe, Inc., 108 Ill.App. 2d 98, 246 N.E.2d 323 (1969); and Kaisershot v. Gamble-Skogmo, Inc., 96 N.W.2d 666 (N.D.1959). We have studied these decisions, especially the preceding two, upon which the appellants seem to rely most heavily, and find them distinguishable upon the facts. We think it is especially pertinent that in the instant case title was allowed to remain in Investors Oil until after the judgment was affirmed by our court and the rights of the parties had become final. It is also important to note the extent of the participation by the owners of the units in the first two trials and appeals *650 to our court in Civil No. 9785. In fact, this participation is conceded, but the appellants attempt to explain it away as in no way binding them, it having been only in the form of advice from a principal to an agent. Exhibit 7 of the stipulation of facts contains copies of correspondence between Investors Oil and the owners of the participating interests obtained through interrogatories. On October 6, 1960, a notice was sent to the owners of the participating interests that a meeting would be held in the office of Investors Oil, "to discuss the impending lawsuit with Mr. Odegaard relative to his failure to complete our mound. A majority in interest will decide the various routes your management will pursue." A form of ballot was contained with the notice asking for approval of one of two alternate plans, the first to attempt to settle with Mr. Odegaard, and the second to pursue the lawsuit to a conclusion. On November 4, 1960, Investors Oil sent a letter to all the owners of the participating units advising them of the outcome of the first trial, informing them regarding post-trial motions, and stating that an appeal would be taken to the supreme court of North Dakota if the post-trial motions were not granted. The owners of the participating units were informed that prior to any new trial it would be advisable to have additional test borings and that they would be advised of the cost of the proposed borings as soon as the cost was known. On December 5, 1961, Investors Oil informed the owners of the participating units of the appeal to the supreme court of North Dakota and the supersedeas bond required. The owners of the participating units were further informed that in order to pay for additional boring costs and related studies, the production run checks normally paid in November and December would be withheld. The owners of the participating units apparently signed the indemnity agreements regarding the supersedeas bond on the first appeal, as Mr. Hanson informed them on August 16, 1963, that it was a pleasure for him to be able to return the indemnity agreements held as security by the Northwest National Bank of Minneapolis because the first judgment had been reversed by the supreme court of North Dakota. It can also be concluded that the ballot taken before the first trial favored Plan Two, to pursue the lawsuit to a conclusion, as the letter of August 16, 1963, in the last paragraph states: On August 30, 1963, Mr. Hanson sent a notice of a meeting to the owners of the participating units and informed them of the time of the second trial. In the notice they were informed that counsel for Investors Oil "has suggested we have a figure in which we are willing to settle the case. This is a similar thing we did prior to the first trial." On September 10, 1963, a report was sent to the owners of the participating units informing them that the meeting of September 4, 1963, had been held and what had taken place. A part of the report reads: "The prime issue before us was then discussed, i. e. what figure would we be willing to settle the case with the bonding company, Anchor Casualty Company of St. Paul. Their maximum liability is $70,000. After everyone had a chance to express his views, a motion was made, seconded and unanimously carried to offer settlement of $50,000 payable to us. This amount has been communicated to our attorneys in Bismarck, should pretrial negotiations discover an urge to settle the case." *651 In September, 1963, during the course of the new trial, Mr. Odegaard's attorneys offered to settle his claim for $30,000 and a release of all claims against his bond. This offer was rejected. The attorneys for Investors Oil offered to settle the claim of Investors Oil for $50,000. On October 7, 1963, Investors Oil notified the owners of the participating units of the judgment in the second trial and stated that a meeting would be held to determine if the participants should accept the judgment or appeal to the supreme court of North Dakota. A supersedeas bond on the second appeal was required in an amount of $40,000 and all of the owners of the participating units executed a personal indemnity with respect to the bond under date of June 17, 1963. On March 2, 1966, Mr. Hanson informed the owners of the participating units that the second appeal had been lost and that it was now necessary to make an assessment against them of $1,150 per unit to pay the bond. This amount was paid per unit to satisfy the bond. Another factor which we consider important in this case is that no new consideration passed between Investors Oil and the owners of the participating units when assignment was requested to be made and actually was made after the judgment in the second appeal was affirmed. Without determining whether an agency-principal relationship or a trustee-beneficiary relationship existed between Investors Oil and the owners of the participating units, we conclude that the owners of the participating units are bound by the judgment obtained against Investors Oil in Civil No. 9785 on the basis of the doctrine of res judicata. It is our view that privity existed between Investors Oil and the owners of the participating units and that accordingly the owners of the participating units are bound by the judgment against Investors Oil. As this action lies in equity, we must attempt to do equity. It is our opinion that the contrary view, which holds that Mr. Odegaard or the trustee of his estate in bankruptcy must lose in this case because in bringing the action against Investors Oil there was an election of remedies, would, if followed, give the owners of the participating units the benefit of the mound, i. e. the oil from the well, while at the same time excuse them from paying for it. Such a result could under no reasonable view of the situation be considered equitable. In so concluding, we take special cognizance of the general philosophy expressed in 46 Am.Jur.2d Judgments, Section 535: There is one other matter that we shall briefly discuss before we conclude this opinion and that is the motion made by Pan American Petroleum Corporation as garnishee in Civil No. 9785 and as intervening defendant in Civil No. 10791 for reasonable attorney fees and for such other and further relief as to the court may seem meet in the premises. As brought out in oral argument before our court and as disclosed in the affidavit of counsel for Pan American Petroleum Corporation, a similar motion was made before the trial court and denied. The order denying that motion was entered by the trial court on November 18, 1968, and there has been no appeal therefrom. That being the case, we are in no position to consider that issue at this time. Should it be contended that a new issue as to attorney fees has arisen for services required on appeal to this court, for which there was no opportunity to appear before the district court to make the proper request, we conclude that Pan American Petroleum Corporation is not entitled to attorney fees for the employment of attorneys in this court, attorney fees being in this state purely statutory. In this instance we are governed by Section 28-26-01, N.D.C.C., which reads as follows: Under that section we see no basis for granting the motion made by Pan American Petroleum Corporation. For reasons stated in this opinion, the judgment of the trial court is affirmed. TEIGEN, C. J., and PAULSON, KNUDSON and STRUTZ, JJ., concur.