Title: Krug v. Helmerich & Payne, Inc.

State: oklahoma

Issuer: Oklahoma Supreme Court

Document:

KRUG v. HELMERICH & PAYNE, INC.2013 OK 104Case Number: 106845Decided: 12/10/2013THE SUPREME COURT OF THE STATE OF OKLAHOMA
NOTICE: THIS OPINION HAS NOT BEEN RELEASED FOR PUBLICATION IN 
THE PERMANENT LAW REPORTS. UNTIL RELEASED, IT IS SUBJECT TO REVISION OR 
WITHDRAWAL. 

H.B. KRUG, KATHRYN KRUG, AND BOBBIE RUTH EUBANKS, on behalf of themselves and 
on behalf of a class of similarly situated owners, 
Plaintiffs/Appellees,v.HELMERICH & PAYNE, INC., a Delaware 
Corporation, Defendants/Appellant.
ON CERTIORARI TO THE COURT OF CIVIL APPEALS, DIV. I
¶0 The plaintiffs/appellees, royalty owners under oil and gas leases, brought 
a class action lawsuit against the defendant/appellant, Helmerich & Payne, 
Inc., the operator. The class alleged that the defendant breached contractual 
and fiduciary duties by allowing uncompensated drainage of natural gas to occur 
from the leases and that the defendant engaged in constructive fraud and was 
unjustly enriched by failing to pay royalty amounts that the class alleged were 
included in a settlement between the defendant and ANR Pipeline. The trial 
resulted in three alternative verdicts by the jury from which the trial court 
granted judgment against the defendant for unjust enrichment and disgorgement of 
profits, and awarding the total sum of $119,522,750. The Court of Civil Appeals 
affirmed in part, reversed in part and remanded the case.
CERTIORARI GRANTED;OPINION OF THE COURT OF CIVIL APPEALS 
VACATED;JUDGMENT OF THE DISTRICT COURT AFFIRMED IN PART AND REVERSED IN 
PART.
Terry J. Barker, Joseph C. Woltz, Gene G. Boerner, Robert N. Lawrence, 
PEZOLD, BARKER, & WOLTZ, Tulsa, Oklahoma, Allan DeVore, THE DEVORE LAW FIRM, 
P.C., Oklahoma City, Oklahoma, and Douglas E. Burns, Terry L. Stowers, Daniel 
Wayne Peyton, BURNS & STOWERS, P.C., Norman, Oklahoma, for Appellees.
John E. Dowdell, Ryan A. Ray, NORMAN, WOHLGEMUTH, CHANDLER, AND DOWDELL, 
Tulsa, Oklahoma, Clyde A. Muchmore, Mark S. Grossman, CROWE & DUNLEVY, 
Oklahoma City, Oklahoma, and Daniel M. Reilly, Eric Fisher, REILLY POZNER, LLP, 
Denver, Colorado, for Appellant.
Steven R. Welch, Justin E. Porter, Nathaniel S. Mattison, Oklahoma City, 
Oklahoma, for Amicus Curiae, Devon Energy Production Company, L.P.
John L. Randolph, Randall G. Vaughan, PRAY, WALKER, P.C., Tulsa, Oklahoma, 
for Amicus Curiae, Oklahoma Independent Petroleum Association.
WINCHESTER, J.
¶1 Helmerich & Payne, Inc. (H&P) appeals a judgment in favor of the 
plaintiffs, who are a class of oil and gas royalty owners. The jury returned 
verdicts on three alternative theories of recovery. The trial court judge 
granted judgment that included disgorgement of profits based on a sum the trial 
court found unjustly enriched H&P. On appeal, the Court of Civil Appeals 
affirmed in part and reversed in part, and remanded with instructions. We 
granted certiorari.
I. FACTS
¶2 The plaintiffs/appellees, H.B. Krug, Kathryn Krug, and Bobbie Ruth 
Eubanks, brought this class action against H&P. The class consists of the 
owners of minerals underlying two 640-acre sections of land, the Littauer and 
Copeland sections in Beckham County, Oklahoma. The plaintiffs leased the two 
sections to H&P, which operated natural gas wells on those sections from 
1978 to 1998, when H&P sold its interests to a third party. 
A. Defendant's Summary of Facts
¶3 The defendant's summary of the record includes the following. In the 1970s 
ANR Pipeline Company negotiated separate "take-or-pay" contracts1 with each working 
interest owner in the Littauer section to purchase and transport 100% of the gas 
produced in that section through interstate pipelines. In the Copeland section 
ANR entered into take-or-pay contracts with all the working interest owners 
except Conoco, which contracted to sell its 50% share to an intrastate pipeline 
owned by Oklahoma Natural Gas. The working interest owners appointed H&P as 
operator of the Littauer and Copeland wells, which began producing in the late 
1970s from the Hunton natural gas reservoir. 
¶4 Beginning in the early 1980s events including a national recession and a 
deregulation of the natural gas market resulted in an oversupply of natural gas. 
ANR's largest customer announced it would severely reduce its purchases. In May 
1985 ANR severely reduced its natural gas purchases and, relying on the force 
majeure clauses in its contracts, refused to either take or pay for agreed 
quantities of gas. In October H&P brought take-or-pay claims against ANR. 
H&P also sought a release from its take or pay contract with ANR for the 
Littauer and Copeland wells and drilled and bore 60% of the cost of a second 
well. It additionally constructed and paid nearly all costs of constructing a 
pipeline to connect the Littauer No. 1 well to an ONG pipeline at a neighboring 
well. In April 1988 H&P added new claims to its take-or-pay lawsuit, 
including a ratable take2 claim that ANR was causing uncompensated drainage by 
refusing to take gas from H&P in proportion to other working interest 
owners. In December 1988 H&P filed a response to ANR's discovery requests 
from an H&P geologist who estimated that uncompensated drainage was 
occurring from the Littauer and Copeland sections. Subsequently, during the 
trial an H&P senior vice president testified that after review, the 
geologist's estimates were unsupportable and speculative causing him and ANR to 
dismiss the drainage claim as having no value.
¶5 In October 1989 H&P settled its take-or-pay lawsuit with ANR covering 
98 wells for a net amount of $17,205,017. H&P calculated that the total 
damages for the take-or-pay and contract buyout of the Littauer and Copeland 
wells for H&P's 15.4% interest in the Littauer was $109,582.40 and for the 
Copeland the amount was $161,220.32. H&P asserts that it never calculated a 
monetary damage figure for the uncompensated drainage alleged in the lawsuit and 
it was never a part of the settlement discussions with ANR. As expressly stated 
in the take-or-pay settlement agreement, ANR's payment was in satisfaction of 
H&P's take-or-pay claims, contract price claims and as consideration for the 
termination of the contracts, not for uncompensated drainage.
B. Plaintiffs' Summary of Facts 
¶6 The plaintiffs alleged that H&P breached its duties to them by failing 
to act as a reasonably prudent operator and by allowing uncompensated drainage 
of natural gas to occur from these two sections beginning January 1, 1982, and 
ending December 31, 1989. The plaintiffs also alleged that H&P received 
payment for uncompensated drainage through the October 31, 1989, take-or-pay 
settlement with ANR, which was responsible for carrying the gas from the two 
sections leased to H&P. They also alleged that H&P concealed the 
settlement from the royalty interest owners and that the plaintiffs and the 
class are entitled to a share of that settlement, in addition to all profits 
H&P obtained from what should have been paid to the royalty owners. The 
plaintiffs further alleged that H&P's conduct involved fraud, that H&P 
has been unjustly enriched as a result, and that in addition to their actual 
damages, they should receive punitive damages.
C. Defendant's Response to Plaintiffs' Claims
¶7 H&P denied the allegations and asserted that it had paid all the 
royalty interest owners all they were entitled to receive. It also claims it had 
served as a reasonably prudent operator throughout the time period that the 
plaintiffs claim uncompensated drainage occurred. It denies that its take-or-pay 
settlement with ANR Pipeline included an amount for uncompensated drainage. 
Finally, it claimed that the plaintiffs were barred by the applicable statute of 
limitations.
D. Trial and Verdict
¶8 In alternative claims, the jury returned its verdict in favor of the 
plaintiff class, awarding $3,650,000 for breach of the implied duty to prevent 
uncompensated drainage, $4,055,000 breach of fiduciary duty for failure to 
prevent uncompensated drainage, and $6,845,000 for constructive fraud in the ANR 
settlement. The jury also found that H&P had been unjustly enriched. The 
jury verdict form stated that the jury did not "find by clear and convincing 
evidence that the Defendant acted in reckless disregard for the rights of 
others," and the jury did not "find by clear and convincing evidence that the 
Defendant acted intentionally and with malice toward others."
¶9 Regarding the $6,845,000 for constructive fraud in the ANR settlement, the 
trial court held a second-stage hearing for the jury to determine the amount of 
the gross profit H&P made on $6,845,000 that H&P had held since October 
31, 1989. In this disgorgement stage, the plaintiffs presented the annual 
reports and the files with the Securities Exchange Commission along with 
testimony to show how much the plaintiffs and the class would have made had they 
invested the amount in H&P. The amount the jury awarded for disgorgement of 
profits was $61,662,000. 
¶10 The trial court stated in its "Corrected Final Judgment Nunc Pro 
Tunc" of January 29, 2009, that it had previously ruled that the 
verdicts on the plaintiffs' claims for unjust enrichment and for disgorgement of 
profits would be treated as advisory. The court adopted the verdicts of the 
jury, independently agreeing with the verdicts and based on the same evidence 
and instructions of law considered by the jury. The court then found in favor of 
the plaintiffs on their claims, but found their award for disgorgement of 
profits should be increased to $112,677,750.3 To that amount, the court added the damages of 
$6,845,000 and set the total amount awarded against H&P as $119,522,750. The 
court also awarded interest on $6,845,000, at the rate provided for by law from 
the date of rendition of November 21, 2008, and interest on the remaining 
$112,677,750, at the rate provided for by law from the date of rendition of 
January 8, 2009, until paid in full. Finally, the court ordered that plaintiffs 
be awarded their costs and attorney fees.
II. DISCUSSION 
¶11 As described in the facts above, at the conclusion of the trial, the 
court instructed the jury on three alternative theories for recovery of damages 
by the plaintiffs, (1) a legal remedy based on the implied duty to protect 
against drainage, which is a contract theory; (2) a legal remedy based on 
fiduciary duty of a lessee toward the lessors; and (3) an equitable remedy based 
on constructive fraud and unjust enrichment. Juror Instruction No. 34 informed 
the jury that they were to consider each of the claims separately. Other 
instructions revealed that none of the three claims could exceed the amount of 
$10,969,217 for damages. Instruction No. 34 also informed the jury that damages 
were not to be apportioned between the different claims or reduced under one 
claim where the jury had awarded damages under another claim. The instruction 
continued that the court would decide the claim on which the judgment would be 
entered. Because the jury needed some clarification on these instructions, the 
trial court orally instructed the jurors that the claims would not be added 
together to reach a final judgment. The written instructions with the in-court 
clarification explained that only one judgment on damages would be entered. 
¶12 When the jury returned its verdicts on the alternative theories, the jury 
found (1) in favor of the plaintiffs on their contractual claim of a breach of 
the implied duty to prevent uncompensated drainage and set the damages at 
$3,650,000; (2) in favor of the plaintiffs on their claim of breach of fiduciary 
duty to prevent uncompensated drainage and set the damages at $4,055,000; and 
(3) in favor of the plaintiffs on their claim of constructive fraud in the ANR 
settlement and set the damages at $6,845,000. In the verdict form the jury also 
found in favor of the plaintiffs on their claim of breach of fiduciary duty; and 
found the defendant was enriched by retaining a portion of the ANR settlement. 
Regarding reckless disregard of the rights of others and acting intentionally 
and with malice towards others, the jury found in favor of the defendant. 
Accordingly, the jury did not award punitive damages. On a separate verdict form 
during the second stage of trial, the jury, having already found unjust 
enrichment, found in favor of the plaintiffs and awarded an amount for 
disgorgement of profits made by the defendant on the $6,845,000 previously 
awarded and awarded an additional sum of $61,662,000. Because this was a verdict 
based on equity, the court took the amount as advisory and added to that amount 
for a disgorgement award of $112,677,750. The damages plus the amount of unjust 
enrichment brought the total award to $119,522,750. 
A. Fiduciary Duty to Prevent Uncompensated Drainage
¶13 On the verdict form, Section 2, the trial court submitted the following 
option to the jury, "We the jury, duly empanelled and upon our oaths, find in 
favor of the Plaintiff [Class] on Plaintiff's claim of breach of fiduciary duty 
to prevent uncompensated drainage." The form has YES check marked and the jury 
foreperson signed it, indicating the jury unanimously agreed. Jury Instruction 
No. 20 is entitled "BREACH OF FIDUCIARY DUTY - EXISTENCE OF FIDUCIARY 
RELATIONSHIP" and it provides: 
"You must determine whether a fiduciary relationship existed in this case 
between the Plaintiff Class and the Defendant based upon their relationship and 
the other circumstances in this case. A fiduciary relationship exists whenever 
trust and confidence are reasonably placed by one person in the integrity and 
loyalty of another, and the other person knowingly accepts that trust and 
confidence and then undertakes to act on behalf of the person."
The instructions cite as authority Oklahoma Uniform Jury Instructions 26.2. 
The trial court used the third alternative found in the instruction. It 
provides: "The third alternative should be used where the existence of a 
fiduciary relationship is a jury question and the fiduciary relationship does 
not fit into a well-defined category, such as the relationship of a guardian and 
ward." The plaintiffs argue that because this is a factual issue it must be 
affirmed if supported by any competent evidence. 
¶14 The courts have generally refrained from defining the particular 
instances of fiduciary relationship to such a degree that new cases might be 
excluded. The expression "fiduciary or confidential relationship" has a broad 
meaning and includes technical relations and informal relations in which one 
person trusts and relies on another. Sellers v. Sellers, 1967 OK 34, ¶ 21, 428 P.2d 230, 236. That relationship may arise by 
kinship between the parties, or professional, business, or social relations that 
would reasonably lead an ordinary prudent person in the management of business 
affairs to repose a degree of confidence that largely results in the 
substitution of the will of the defendant for that of the plaintiff in the 
material matters involved in a transaction. Sellers, 1967 OK 34, ¶ 21, 428 P.2d  at 236. 
¶15 However, the law regarding fiduciary obligation to prevent drainage in 
Oklahoma oil and gas law is settled. Howell v. Texaco, Inc., 
2004 OK 92, ¶ 26, 112 P.3d 1154, 1161, reaffirmed that a producer's 
liability is purely a contractual one and in no sense fiduciary.4 A royalty lease alone 
does not create a fiduciary duty. Howell, 2004 OK 92, ¶ 28, 112 P.3d  at 1161. Leck v. 
Continental Oil Co., 1989 OK 173, ¶ 18, 800 P.2d 224, 229, recognizes an exception to this 
rule. A unit operator in a unitized section owes a fiduciary duty to the royalty 
owners and lessees who are parties to the unitization agreement or order 
creating the unit. The duty is not created by the lease agreement but rather by 
the unitization order and agreement.5 Unitization is not an issue in the class action lawsuit 
that is now before this Court. 
¶16 Howell included wells that were in voluntarily communized areas. 
Howell, 2004 OK 
92, ¶ 5, 112 P.3d  at 1157. Communitization agreements are distinguishable 
from unitization orders because they are contracts and, unlike unitization 
orders, do not impose any greater obligations on a lessee than a lease does; 
they do not create a fiduciary duty on the lessee. Howell, 
2004 OK 92, ¶ 25, 112 P.3d  at 1160. 

¶17 Howell adds that this Court had refused to find an operator owed a 
fiduciary duty to an overriding royalty interest owner based solely on the 
lease. Howell, 2004 OK 92, ¶ 27, 112 P.3d  at 1161, citing Goodall 
v. Trigg Drilling Co., 1997 OK 74, ¶ 11, 944 P.2d 292, 295. The concurring opinion in 
Goodall quotes Kuntz, The Law of Oil and Gas, § 48.3 in the 
context of discussing the lessee's duty of good faith in exercising its pooling 
power. Professor Kuntz asserts that the lessee is not a fiduciary; that 
standards applied to fiduciaries are entirely too strict. Kuntz reasons that 
this is true because the lessee is not managing and developing the property for 
the sole benefit of the lessor. He explains that the lessee has substantial 
interests which must be taken into account and the lessee should not be required 
to subordinate its own interests entirely to the interests of the lessor. Kuntz 
continues that the lessee's interests frequently conflict with those of the 
lessor. When exercising its power in fairness and in good faith, the lessee is 
entitled to take into account both its interests and that of the lessor. 
Goodall v. Trigg Drilling Co., 1997 OK 74, ¶ 6, 944 P.2d  at 296 (concurring 
opinion).
¶18 Because the law is long-standing and settled that a producer's liability 
is purely a contractual one and in no sense fiduciary, the trial court erred in 
presenting the jury with an instruction that permitted the jury to find that 
H&P owed a fiduciary duty to the plaintiffs to prevent uncompensated 
drainage. H&P's duty is contractual and based on its lease, and so the 
remedy should be based on the breach of contract.
"Where the lessee has breached an implied covenant to develop, to protect 
against drainage, to market, or to produce a well capable of production in 
paying quantities, the usual remedy is the recovery of damages for the breach. 
In most jurisdictions, damages are measured by royalties that the lessor would 
have received if the lessee had acted as a reasonable and prudent operator."6 [Footnotes 
omitted.]
¶19 H&P is entitled to separate its interest from that of the plaintiffs. 
H&P does not owe undivided loyalty; there is no special trust as a manager 
or agent. The duty required by the implied covenant to protect against drainage 
is that required of a reasonable and prudent operator, not that of an agent to a 
principal, nor of a partner to a partnership, nor of a trustee to a cestui 
que trust. Any former cases of this Court using terms suggesting a fiduciary 
duty of a lessee to its lessor should not be so construed.7 This conclusion 
eliminates the second alternative found in the jury's verdict.
B. Uncompensated Drainage and Net Flow of Gas
¶20 H&P asserts that the trial court erred in its instructions regarding 
uncompensated drainage, net flow of gas, and the reasonably prudent operator 
standard. H&P argues that the implied contractual covenant to prevent 
uncompensated drainage of gas from the leasehold must be proven by establishing 
two elements: (1) that substantial, uncompensated drainage of gas from the 
leasehold occurred; and (2) that the working interest owner failed to act as a 
reasonably prudent operator to prevent such drainage. H&P cites Fransen 
v. Conoco, Inc., 64 F.3d 1481, 1490-91 (10th Cir. 1995) and Rogers v. 
Heston Oil Co., 1984 OK 74, ¶ 20, 735 P.2d 542, 546. H&P claims that the royalty 
owner must prove that drainage is uncompensated by establishing that the outflow 
of natural gas was not compensated by the inflow of gas, that is, 
counter-drainage, and again cites Fransen, 64 F.3d  at 1490-91. 
¶21 The Fransen plaintiffs, the lessors in that case, owned mineral 
interests in a drilling and spacing unit for the production of gas, which was 
located in Oklahoma. They sued the defendants alleging that as lessees, they had 
failed to protect and develop the lessors' interests. More specifically the 
lessors claimed that the lessees breached their implied covenants under the 
leases to fully develop the leases and to protect the leases from drainage. The 
lessors alleged that the lessees breached their obligation to act as prudent 
operators by failing to drill an additional well on the leased property. 
However, the Oklahoma Corporation Commission had previously denied an 
application to drill an additional well in the leased section. Fransen, 
64 F.3d  at 1484-85. 
¶22 The Fransen court specifically refused to make the holding H&P 
asserts as the counter-drainage rule: "We need not decide whether Oklahoma would 
recognize as an abstract proposition that a party who has suffered drainage has 
been injured, regardless of whether the drainage has been compensated for by 
other drainage." Fransen, 64 F.3d  at 1491. The Oklahoma Corporation 
Commission found that an additional well in the section belonging to the 
plaintiffs was unwarranted and would violate the rights of owners in other 
sections of the common source of supply. Fransen, 64 F.3d  at 1485. The 
district court concluded the defendants' actions did not breach any implied 
covenant, and reasoned that the defendants could not be liable for failing to 
drill an additional well in a section where the OCC had determined that an 
additional well should not be drilled. Fransen, 64 F.3d  at 1485. The 
Tenth Circuit affirmed the district court's decision. Fransen, 64 F.3d  at 
1495. 
¶23 The Tenth Circuit in Watts v. Atlantic Richfield Co., 115 F.3d 785 
(10th Cir. 1997), cited Fransen and stated the 
holding of that case as "the lessor's drainage claim was barred because the OCC 
decision 'prevented compliance with any duty the defendants might otherwise have 
had to drill an offset well,' and because 'a prudent operator would not drill a 
well that was prohibited by law.'" Watts v. Atlantic Richfield Co., 115 F.3d  at 796. Fransen certainly does not support the counter-drainage rule 
that H&P would have this Court recognize as controlling in this matter. 
¶24 The rule cited by H&P, as stated in Rogers v. Heston Oil Co., 
1984 OK 75, ¶ 20, 735 P.2d 542, 546, provides: 
"[T]he lessee has a duty to protect the land from drainage by adjoining wells 
so long as the drilling of a protection well or wells will, in the judgment of a 
reasonably prudent operator, be a profitable undertaking, . . . having due 
regard for the interests of both lessor and lessee." [Citation 
omitted.]
¶25 Like the Fransen case, Rogers was also a suit for breach of 
the implied covenant to protect from drainage, but unlike Fransen the 
lease had not been pooled with other leases owned by the defendants/lessees that 
were adjoining or adjacent to the plaintiff's lease. The defendants in the 
Rogers case completed a producing well on their adjacent lease 330 feet 
from the plaintiff's tract. The defendants subsequently drilled a dry hole on 
the plaintiff's tract, and later paid the plaintiff delay rental that was not 
yet due pursuant to the terms of the contract between the parties. About four 
months later, the plaintiff sued the defendants for breach of an implied 
covenant to drill a protective well against drainage from the adjacent lease. 
The trial court granted a motion for summary judgment in favor of the 
defendants.
¶26 The Rogers Court recognized the fundamental injustice of allowing 
the "prudent operator rule" to result in delay payments where the lessees 
operated an adjacent well and that existing well would draw oil from the 
lessor's tract without the lessees incurring the expense of a well to prevent 
drainage. Rogers, 1984 OK 75, ¶ 23, 735 P.2d  at 546. The Court 
accordingly held that the acceptance of delay rentals with the lessor's 
knowledge that oil and gas was being drained from the lessor's premises at the 
time payment does not constitute a waiver of the lessor's right to recover 
damages for such drainage. And in addition, where the lessee is the owner of an 
adjoining lease that is draining the lessor's tract, the prudent operator rule 
must be applied to determine whether the lessee would drill a protection well on 
the lessor's tract if the draining lease were owned by a third party. 
Rogers, 1984 OK 
75, ¶ 25-26, 735 P.2d  at 547. 
¶27 The Rogers Court quoted 38 Am.Jur.2d Gas and Oil, § 126, that the 
law concerning the implied covenant to protect the leasehold against drainage 
does not require the lessee to do more than would be done by a prudent operator 
acting under the same circumstances. There is no relation of special trust or 
confidence between the lessor and lessee in a gas and oil lease any more than 
there is in any other type of lease, so that a court of equity should not 
interfere in the determination of the necessity and propriety of sinking a well 
to prevent drainage where that question is a business judgment. The lessee 
should not be required to work unprofitably even for the profit of the lessor, 
so that the lessee is not required to sink wells to offset drainage from wells 
on adjoining premises where the production from the wells would be slight and 
will never return the cost of drilling. The lessee has no implied right to use 
proximately located wells to drain its lessor's tract. The lessee must take 
protective action by drilling the necessary number of offset wells as though the 
developed leasehold were being operated by a third party. Rogers, 
1984 OK 75, ¶ 30, 735 P.2d  at 
547-548. 
¶28 The facts of the matter now before this Court and admitted by H&P 
reveal that ANR Pipeline Company negotiated contracts with working interest 
owners in the Littauer and Copeland 640-acre sections in Beckham County. In May 
1985, ANR reduced its natural gas purchases, declared "force majeure" under its 
contracts and refused to take or pay for agreed quantities of gas. H&P 
characterizes its subsequent lawsuits as take-or-pay claims against ANR and in 
April 1988 H&P added new claims that ANR was causing uncompensated drainage 
by refusing to take gas from H&P in proportion to that being taken by other 
working interest owners. H&P settled for a net amount of $17,205,017. 
¶29 In Roye Realty & Developing v. Watson, 1996 OK 93, 2 P.3d 320, the Court considered whether royalty was 
owed a lessor when the lessee settled a take-or-pay lawsuit with the buyer of 
the gas. Like the case now before this Court, the settlement was confidential. 
The Roye Court observed that the lessors, pursuant to their lease 
agreement with the lessee, were entitled to royalties on gas produced and sold 
or used off the leased premises, or gas produced saved and sold from the 
premises. The Court relied on the lease agreement and held that under Oklahoma 
law the royalty owner was not entitled to share in take-or-pay settlements 
absent clear language to the contrary in the lease. Roye, 
1996 OK 93, ¶ 33, 2 P.3d 320, 329. To distinguish Roye from the 
case now before us, the plaintiffs in this case alleged that the settlement 
included payment for uncompensated drainage. 
¶30 H&P argues that Instruction Number 16 is erroneous. It instructed 
"Drainage occurs when an oil and gas unit is operated in such a way that oil or 
gas that would otherwise have been produced from that well is drained away by 
other wells." The second paragraph instructed "The drainage is uncompensated 
where the injured party does not receive offsetting income from an interest in 
the draining well." H&P and the amici briefs wish this Court to accept a 
rule that the jury should have considered "net flow" of gas; and that is whether 
the outflow of natural gas was not compensated for by counter-drainage, the 
inflow of gas. H&P asserts that because of the inflow of gas, the plaintiffs 
actually received more in royalties than the original estimates of gas 
underlying the leases. 
¶31 From the facts presented by H&P, its settlement was based on a time 
period where there would not have been an outflow of gas because ANR was not 
taking gas at that time. The authorities cited by H&P as supporting its view 
are factually dissimilar and therefore distinguishable. The plaintiffs' claims 
included what they alleged to be their contractual share of the royalties from 
the settlement between H&P and ANR. The jury determined the plaintiffs' 
share and awarded that amount. Instruction Number 16 cites Feely v. 
Davis, 1989 OK 
163, 784 P.2d 1066 as its authority and we agree that the instruction fairly represents the 
law as stated in Feely. Net flow of gas is not a proper consideration 
given the facts of this case.
C.Plaintiffs' Alternative, Equitable Claims
¶32 The plaintiffs alternatively recast their contractual claim as equitable, 
quasi-contract claims for constructive fraud and unjust enrichment seeking 
disgorgement of profits. Constructive fraud is defined by statute, 
15 O.S.2011, § 59.8 Jury instruction number 
23 provided that "Constructive fraud consists of any breach of duty which, 
without an actually fraudulent intent, gained Defendant an advantage by 
misleading the plaintiff representatives to their prejudice." Jury instruction 
number 31 covers reckless disregard of another's rights and instructed in part: 
"In order for the conduct to be in reckless disregard of another's rights, it 
must have been unreasonable under the circumstances, and also there must have 
been a high probability that the conduct would cause serious harm to another 
person." The jury found in favor of the defendant. Jury instruction Number 31 
also defined malice: "Malice involves either hatred, spite or ill-will, or else 
the doing of a wrongful act intentionally without just cause or excuse." The 
jury again found in favor of the defendant. We may conclude from this verdict 
form that the jury was not persuaded H&P's conduct was in reckless disregard 
of the plaintiffs' rights, nor was it caused by hatred, spite, ill-will or 
intentionally wrongful.
¶33 In Anderson v. Copeland, 1963 OK 34, 378 P.2d 1006, the plaintiff sued to recover for the 
rental value of a tractor owned by the plaintiff and which had been in 
possession of the defendant for two weeks. The defendant had contracted to buy 
the tractor but was unable to finance it and returned it to the plaintiff. The 
defendant argued that an express contract and an implied contract between the 
same parties covering the same subject matter cannot exist. The Court explained 
that such statement of law was not applicable because the subject matter of the 
express contract was a sale, whereas the subject matter of the contract implied 
in law was a rental. Anderson v. Copeland, 1963 OK 34, ¶ 7, 378 P.2d  at 1007. This case illustrates 
how equitable remedies are intended to provide justice where no legal remedies 
exist. 
¶34 The long-standing rule in Oklahoma is that a plaintiff may not pursue an 
equitable remedy when the plaintiff has an adequate remedy at law. Harvell v. 
Goodyear Tire & Rubber Co., 2006 OK 24, ¶ 18, 164 P.3d 1028, 1035. "[W]here the plaintiff has a plain, 
speedy and adequate remedy at law, equity will not intervene in his behalf." 
Robertson v. Maney, 1946 OK 59, ¶ 7, 166 P.2d 106, 108. A claim for breach of contract 
provides such a remedy. 
¶35 Parties initiate contracts to provide a degree of certainty in their 
business transactions. The courts cannot make a better contract for the parties 
than they executed themselves. Roye Realty & Developing, Inc. v. Watson, 
1996 OK 
93, ¶ 33, 2 P.3d 320, 329. The essential principle of contract law is the consensual 
formation of relationships with bargained-for duties. The obvious corollary is 
bargained-for liabilities for failure to perform those duties. "Important to the 
vitality of contract is the capacity voluntarily to define the consequences of 
the breach of a duty before assuming the duty." Isler v. Texas Oil & Gas 
Corp., 749 F.2d 22, 23 (10th Cir. 1984). 
¶36 In this case, the plaintiffs relied upon, enforced and were awarded 
damages in the amount of $3,650,000 based on a breach of valid lease contracts 
they held with H&P. The plaintiffs claimed that a part of the take-or-pay 
settlement was for the implied contractual duty to protect against drainage. 

"An implied covenant must rest entirely on the presumed intention of the 
parties as gathered from the terms as actually expressed in the written 
instrument itself, and it must appear that it was so clearly within the 
contemplation of the parties that they deemed it unnecessary to express it, and 
therefore omitted to do so, or it must appear that it is necessary to infer such 
a covenant in order to effectuate the full purpose of the contract as a whole as 
gathered from the written instrument."
Danciger Oil & Refining Co. of Texas v. Powell, 154 S.W.2d 632, 
635.
"[A]ll implied lease covenants stem from a single duty of the lessee to act 
in good faith as a reasonable and prudent operator. . . ."9 The implied covenant to 
protect against drainage has long been recognized as fitting within this 
category.10
¶37 The jury's award for the breach of that implied contractual duty 
satisfies that claim. That award afforded the plaintiffs an adequate remedy at 
law and, as such, the plaintiffs' alternative, equitable claims cannot be 
recognized.
D. Statute of Limitations
¶38 H&P argues that the implied covenant to protect against drainage is 
barred by the five-year statute for actions on a written contract. 
12 O.S.2011, § 95(A)(1). Jury Instruction 
No. 27, entitled "STATUTE OF LIMITATIONS - BREACH OF THE IMPLIED DUTY TO PREVENT 
UNCOMPENSATED DRAINAGE, informed the jury that the date the plaintiffs filed 
this claim was December 22, 1998, and that the statute of limitations required 
that it be filed within five years of December 31, 1989. The instruction 
continued that if the plaintiff class did not file its claim within five years 
of December 31, 1989, the jury must find that the claim was barred by the 
statute unless it was tolled by the concealment exception stated in Instruction 
32.
¶39 Instruction No. 32 informed the jury that the concealment exception 
defense applied if the plaintiffs were unable to file any claim because the 
defendant misled the plaintiffs by concealing facts. The instruction added that 
if the jury found by the greater weight of the evidence that the defendant 
engaged in false, fraudulent or misleading conduct or some affirmative act of 
concealment to exclude suspicion and preclude inquiry, which prevented the 
plaintiffs from timely bringing a claim, the claim was not barred by the statute 
of limitations. As authority, the trial court cited Jarvis v. City of 
Stillwater, 1987 OK 
5, 
¶ 4, [732 P.2d 470, 473].
¶40 Jarvis recognizes that a defendant is estopped from interposing 
the defense of a time bar when the defendant's conduct has induced the plaintiff 
to refrain from timely bringing an action because of the defendant's false, 
fraudulent or misleading conduct or some act that induces the plaintiff to 
refrain from timely bringing the action. This is a fact question. Jarvis, 
1987 OK 5, ¶ 4, 732 P.2d  at 
472-473. The plaintiffs had provided evidence to prove that H&P never 
disclosed to the royalty owners the drainage or payments from ANR, and that 
H&P concealed these facts by a settlement agreement that was kept secret 
from its own employees. The plaintiffs also alleged that the reason given by 
H&P for keeping the terms secret was to prevent royalty owners from bringing 
a lawsuit. 
¶41 Plaintiff's Exhibit 117 is an inquiry to H&P, dated October 1, 1996, 
on behalf of royalty owners asking H&P for copies of any and all gas 
purchase contracts and any settlements involving resolution of any claims 
H&P sought against the purchaser of gas for the two wells at issue. 
Plaintiff's Exhibit 118 reveals that on October 25, 1996, H&P responded it 
was their policy not to make available copies of gas purchase contracts and that 
the company was unaware of any applicable law that would required release of 
that type of information to their firm, Royalty Auditing Inc. On October 2, 
1997, Plaintiff's Exhibit 185, a law firm representing the named plaintiffs, 
Krug and Eubanks, demanded, among other things, an accounting regarding drainage 
of gas, and asked for all documents regarding settlement of any drainage claims. 
H&P's attorney responded that it "has never received any settlement from its 
gas purchasers relating to any alleged drainage of gas reserves from the above 
described wells." Plaintiff's Exhibit 187. These exhibits were thoroughly 
addressed in testimony during the trial. The jury had this evidence before it 
and it could reasonably conclude that uncompensated drainage occurred. "[T]he 
sufficiency of the evidence to sustain a judgment in a law action will be 
determined in the light of the evidence tending to support the same, together 
with every reasonable inference deducible therefrom, rejecting all evidence 
adduced by the adverse party which conflicts with it." Smith v. Davis, 
1967 OK 161, ¶ 6, 430 P.2d 799, 800-801. The concealment does not have to 
have been fraudulent to be false and misleading. There is ample evidence in this 
case to sustain a judgment. 
III. CONCLUSION
¶42 H&P asserts four reasons this Court should grant certiorari. The 
first claimed incorrect jury instructions for uncompensated drainage that barred 
consideration of counterdrainage. We have answered that the jury based its 
verdict on the implied covenant to protect against drainage, which is a claim 
based on the lease agreement. Even though H&P argues that no drainage 
occurred, the jury verdict concluded that drainage occurred during the time 
H&P operated the wells and it was uncompensated. The jury set an amount for 
that claim. We do not find reversible error in the jury instructions. The jury 
set the damages at $3,650,000, and we will not reverse the jury's verdict.
¶43 The second reason for granting certiorari was that the Court of Civil 
Appeals allowed a breach of contract claim to be recast as an equitable unjust 
enrichment claim. We have answered that a plaintiff may not pursue an equitable 
remedy when the plaintiff has an adequate remedy at law. The jury found that the 
plaintiffs did not prove by clear and convincing evidence that H&P acted in 
reckless disregard for the rights of others, nor that H&P acted 
intentionally and with malice toward others. We have held that the lessee's duty 
to the plaintiffs/lessors, which is well recognized in the law of oil and gas, 
is to act in good faith as a reasonable and prudent operator. Breach of the duty 
to prevent uncompensated drainage is a breach of contract based on the 
reasonable and prudent operator rule, not a breach of a fiduciary duty. The 
award of $4,055,000 is reversed. In addition, the breach of the implied 
contractual duty is a legal remedy and an award for constructive fraud and for 
disgorgement is unavailable because the legal remedy for breach is an adequate 
remedy. With any other result, remedies for breaches of contract would be 
swallowed by equitable claims such as this one for constructive fraud and 
disgorgement. The judgment against H&P for $119,522,750 is reversed. 
¶44 The third reason for granting certiorari was that the Court of Civil 
Appeals had affirmed a mathematically impossible jury verdict on the plaintiffs' 
constructive fraud claim. As we have reversed the judgment based on equity, this 
third reason for granting certiorari is answered. However, within that question 
is an implication that the maximum possible recovery was $2,683,982. Our 
affirmed judgment is on the implied covenant to prevent drainage. It is not 
limited to a percentage of what H&P has characterized as the $17.2 million 
take-or-pay settlement. 
¶45 The fourth reason for granting certiorari was that the Court of Civil 
Appeals had affirmed the constructive fraud damage award notwithstanding that no 
fraud claim was ever certified. Having reversed the constructive fraud damage 
award, we hold that this issue is moot.
¶46 This trial court found that costs, interest, and attorney fees were due. 
The court should revisit that order to determine these items in a manner 
consistent with this opinion. If the court finds that prejudgment interest is 
due pursuant to a judgment for a breach of the implied duty in an oil and gas 
lease to protect against drainage, the court is directed to determine and award 
the appropriate interest rate or rates. 
CERTIORARI GRANTED;OPINION OF THE COURT OF CIVIL APPEALS 
VACATED;JUDGMENT OF THE DISTRICT COURT AFFIRMED IN PART AND REVERSED IN 
PART.
CONCUR: REIF, V.C.J., KAUGER, WINCHESTER, TAYLOR, COMBS, JJ.
CONCUR IN PART; DISSENT IN PART: COLBERT, C.J. and WATT, J.
DISQUALIFIED: EDMONDSON and GURICH, JJ. 
FOOTNOTES
1 A take-or-pay contract 
with a gas purchaser obligates the purchaser to take and pay for a minimum 
amount of gas for a contractual period. If that quantity of gas is not taken 
from the well, the purchaser nevertheless contracts to pay for that minimum 
amount of gas (a deficiency payment). Amounts of gas not taken but paid for may 
be taken from the well free of additional payment at any subsequent time within 
the contractual period. The seller must repay the buyer for all gas paid for but 
not taken at the time the contract terminates or the gas reserves are depleted. 
Golsen v. ONG Western, Inc., 1988 OK 26, ¶ 2, 756 P.2d 1209, 1210. 
2 "[R]atable taking is defined as the proportion which 
the natural flow of gas from the wells of one producer bears to the amount of 
the natural flow from the wells of the owners producing from the same common 
source of supply or common reservoir." Anderson v. Dyco Petroleum 
Corp.,1989 OK 
132, ¶ 16, 782 P.2d 1367, 1376. Title 52 O.S.2011, § 233 provides: "Any person, 
firm or corporation, taking gas from a gas field, except for purposes of 
developing a gas or oil field, and operating oil wells, and for the purpose of 
his own domestic use, shall take ratably from each owner of the gas in 
proportion to his interest in said gas, upon such terms as may be agreed upon 
between said owners and the party taking such, or in case they cannot agree at 
such a price and upon such terms as may be fixed by the Corporation Commission 
after notice and hearing; provided, that each owner shall be required to deliver 
his gas to a common point of delivery on or adjacent to the surface overlying 
such gas." 
3 The plaintiffs' financial expert testified that H&P 
would have profited $112,677,000 on the $6,845,000 found by the jury to be 
damages on the unjust enrichment claim. That amount was calculated from the date 
of the ANR settlement to the date of the expert's testimony, November 25, 2008. 
(Tr. 2857) 
4 Citing Bunger v. Rogers, 1941 OK 117, ¶ 5, 188 Okla. 620, 112 P.2d 361, 363. That Court observed: "The defendants 
were merely lessees under an oil and gas mining lease and were under no 
obligation to the plaintiff other than to pay the rent and royalty provided in 
said lease, and if they breached this duty, then their liability was purely a 
contractual one and in no sense fiduciary." 
5 Leck cites Young v. West Edmond Hunton Lime 
Unit, 1954 OK 
195, ¶ 19, 275 P.2d 304, 309, : "The unit organization with its operator stands in a position 
similar to that of a trustee for all who are interested in the oil production 
either as lessees or royalty owners. The law applicable to this unitization 
required no notice to royalty owners, and afforded them no voice in the 
organization or management of the unit or in the selection of the unit 
operator." 
6 Owen L. Anderson et al., Hemingway Oil and Gas Law 
and Taxation 440-441 (4th ed. 2004). 
7 Cases that are distinguishable on their facts have used 
terms such as "agent," "trustee," or "fiduciary," but these should not be cited 
for the general proposition that Oklahoma recognizes a fiduciary duty between 
lessors and lessees in oil and gas law. Cf. Probst v. Hughes, 
1930 OK 57, 286 P. 875; Hivick v. Urschel, 
1935 OK 71, 40 P.2d 1077; and Imes v. Globe Oil & 
Refining, 1938 OK 
601, 84 P.2d 1106. 
8 "Constructive fraud consists:
"1. In any breach of duty which, without an actually fraudulent intent, gains 
an advantage to the person in fault, or any one claiming under him, by 
misleading another to his prejudice, or to the prejudice of any one claiming 
under him; or,
"2. In any such act or omission as the law specially declares to be 
fraudulent, without respect to actual fraud."
9 Owen L. Anderson et al., Hemingway Oil and Gas Law 
and Taxation 402 (4th ed. 2004). 
10 Richard W. Hemingway, The Law of Oil and Gas 411 
(2d ed. 1983), 

WATT, J. concurring in part and dissenting in part:
¶1 I concur in the majority opinion's treatment of Roye Realty 
& Developing, Inc. v. Watson, 1996 OK 93, 940 P.2d 1208 [republished at 2 P.3d 320]. However, because I agree with the Court 
of Civil Appeal's handling of the constructive fraud issue, I dissent to the 
majority's departure therefrom.