Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-87-01672/USCOURTS-ca10-87-01672-0/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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FI LED 

U11tred Stl\tc:!l Court of Appeals 

Tenth Circuit 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

SEP 2 0 1990 

ROBERT L. HOECKER 

Clerk IN RE: ) 

) 

KENNETH E. TUREAUD, also known as ) 

Kenneth E. Tureaud, doing business as ) 

Saket Petroleum Company, also known as ) 

Kenneth E. Tureaud, doing business as ) 

Kesat, also known as Saket Petroleum ) 

Company, also known as Kenneth E. ) 

Tureaud, doing business as Saket ) 

Development Company, doing business as ) 

Linda Vesta Corporation, doing business ) 

as Saket Development Company, also ) 

known as Deer Park, Inc., doing ) 

business as Saket Realty, Inc., doing ) 

business as Southern Lakes Development ) 

Corporation, doing business as River ) 

Ridge Development Corporation, ) 

Debtor. 

JAMES P. JOHNSON, Receiver for Chilcott 

Commodities, Chilcott Portfolio 

Management, Inc., Thomas D. Chilcott 

and Thomas D. Chilcott, doing business 

as Chilcott Futures Fund, 

Appellant, 

v. 

R. DOBIE LANGENKAMP, Trustee for 

Kenneth E. Tureaud, also known as 

Kenneth E. Tureaud, doing business as 

Saket Petroleum Company, also known as 

Kenneth E. Tureaud, doing business as 

Kesat, also known as Saket Petroleum 

Company, also known as Kenneth E. 

Tureaud, doing business as Saket 

Development Company, doing business as 

Linda Vesta Corporation, doing business 

as Saket Development Company, also 

known as Deer Park, Inc., doing 

business as Saket Realty, Inc., doing 

business as Southern Lakes Development 

Corporation, doing business as River 

Ridge Development Corporation, 

Appellee. 

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No. 87-1672 

(D.C. No. 86-C-319-E) 

(N.D. Okla.) 

Appellate Case: 87-1672 Document: 010110042232 Date Filed: 09/20/1990 Page: 1 
• 

ORDER AND JUDGMENT1 

Before McKAY and BARRETT, Circuit Judges, and JENKINS, 2 Chief 

District Judge. 

This is an appeal from an order of the district court 

affirming the bankruptcy court's upholding of an accounting. We 

reverse. 

In March, 1981, Thomas D. Chilcott and Kenneth E. Tureaud, 

doing business as Saket Petroleum Co., entered into an agreement 

whereby Saket would develop oil and gas properties in which 

Chilcott owned an interest and Chilcott would pay his share of the 

expenses. The agreement provided, inter alia, 

3. You agree to pay your pro-rata share of the 

costs borne by your working interests within ten (10) 

days after your receipt of written notice of such costs 

by registered mail, or at the option of SAKET, you will 

forfeit your right to participate in any future wells 

drilled by SAKET in any oil and gas property of SAKET. 

If Chilcott failed to pay his share of the expenses within ten 

days after receipt of notice of the expenses, Saket had the option 

to terminate Chilcott's rights to participate in any future wells 

drilled by Saket. On May 26, 1981, Saket sent three letters to 

1This order and judgment has no precedential value and shall not 

be cited, or used by any court within the Tenth Circuit, except 

for purposes of establishing the doctrines of the law of the case, 

res judicata, or collateral estoppel. 10th Cir. R. 36.3. 

2Honorable Bruce s. Jenkins, Chief Judge for the United States 

District Court for the District of Utah, sitting by designation. 

2 

Appellate Case: 87-1672 Document: 010110042232 Date Filed: 09/20/1990 Page: 2 
.., 

Chilcott demanding payment of expenses expected to be incurred in 

drilling future wells. Chilcott did not pay. Fourteen wells were 

drilled after Chilcott refused to pay. These wells are referred 

to as the "suspense wells." 

On June 19, 1981, Saket commenced an action in state court 

seeking a declaration that Chilcott's right to participate in 

future wells, the "suspense wells," had been terminated because 

Chilcott had failed to contribute his share of the expenses. In 

the petition, Saket indicated that it had previously elected to 

terminate Chilcott's interest. 

On June 24, 1981, appellant James P. Johnson was appointed 

Receiver for Chilcott and his various enterprises. The Receiver 

commenced an action in the United States District Court in 

Colorado seeking an accounting and an order enjoining Saket from 

forfeiting any interest of Chilcott. The Receiver stated in the 

complaint that Chilcott had paid Saket more than his pro rata 

share of expenses. Thereafter, the Receiver did not contest the 

termination suit and Saket stopped sending billings to Chilcott 

for the costs of drilling. 

In addition to his interest in the "suspense wells," on 

May 28, 1981, Chilcott purchased Morris Burk's working interest in 

the oil and gas leases owned by Saket. This interest is referred 

to as the "Burk wells." 

On October 15, 1982, an involuntary bankruptcy petition was 

filed against Tureaud and his various companies, including Saket. 

Appellee R. Dobie Langenkamp was appointed Trustee of the estate. 

The Trustee assumed control of the oil and gas properties owned 

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Appellate Case: 87-1672 Document: 010110042232 Date Filed: 09/20/1990 Page: 3 
and operated by Tureaud and his various companies. On December 2, 

1985, the Trustee submitted the "Trustee's Accounting and 

Application for Order Approving 

Funds Regarding Operation of 

Accounting and Distribution of 

Oil and Gas Properties" to the 

bankruptcy court. The accounting set forth revenues and expenses 

attributable to the interest owners. The accounting proposed, in 

part, to collect from Chilcott the net amount due from oil and gas 

operations. 

The Receiver for Chilcott objected to the accounting on two 

grounds. First, the Receiver objected to expenses being charged 

and revenues being credited to Chilcott for the "suspense wells." 

Second, the Receiver objected to the accounting on the ground that 

the accounting improperly charged Chilcott with expenses and 

credited him with revenues relating to the "Burk wells." 

The bankruptcy court held an evidentiary hearing on the 

accounting. Neither Chilcott nor Tureaud testified. The evidence 

established that Chilcott had a surplus of over a million dollars 

with Saket at the time Chilcott received the demand letters. No 

evidence established that Chilcott was aware of the surplus at the 

time demand was made. At the end of the hearing, the bankruptcy 

judge approved the accounting. With respect to the "suspense 

wells," the court found that Chilcott had prepaid sufficient money 

so that the state lawsuit was without a basis and Saket could not 

terminate Chilcott's interest. Because Chilcott purchased Burk's 

interest, the bankruptcy court reasoned that Chilcott was 

responsible for the expenses as well as the benefits associated 

with the "Burk wells." The Receiver appealed. 

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Appellate Case: 87-1672 Document: 010110042232 Date Filed: 09/20/1990 Page: 4 
The Receiver raised the same contentions in the district 

court that he asserted in the bankruptcy court. The district 

court affirmed. The Receiver then appealed to this court. 

We review the findings of the bankruptcy court in a core 

bankruptcy proceeding pursuant to the clearly erroneous standard. 

In re Mullet, 817 F.2d 677, 678 (10th Cir. 1987); Farmers Co-Op. 

Ass'n v. Strunk, 671 F.2d 391, 395 (10th Cir. 1982). We apply a 

de novo standard of review for legal determinations. See, ~, 

Bartmann v. Maverick Tube Corp., 853 F.2d 1540, 1543 (10th Cir. 

1988). 

I. 

On appeal, the Receiver continues to argue that the trustee's 

accounting improperly charges Chilcott with expenses and gives him 

credit for revenues for the "suspense wells." The Receiver's 

argument has two parts: (1) Chilcott voluntarily forfeited his 

interest in the "suspense wells" and (2) the Trustee should be 

estopped from denying the validity of Saket's termination of 

Chilcott's interest in the "suspense wells." 

Because Chilcott failed to pay his share of the costs within 

ten days as demanded by Saket, the Receiver contends Chilcott 

voluntarily forfeited his right to participate in any future wells 

drilled by Saket. Also, the Receiver submits that Saket elected 

to terminate Chilcott's future rights as permitted by the March 

agreement and formalized such election by seeking a judicial 

declaration that Chilcott's rights were terminated. 

The March agreement permitted Saket to terminate Chilcott's 

right to participate in any future wells drilled by Saket. Okla. 

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Appellate Case: 87-1672 Document: 010110042232 Date Filed: 09/20/1990 Page: 5 
Stat. tit. 15, § 154 provides that the language of the contract 

governs its interpretation if the language is clear and explicit. 

See also Ollie v. Rainbolt, 669 P.2d 275, 279 (Okla. 1983). 

We believe the March contract was clear; if Chilcott failed 

to tender payment of his share of the expenses at the time demand 

was made, he forfeited his interest in the "suspense wells." In 

this case, Saket voluntarily elected to terminate Chilcott's 

rights when no payment was made in response to a demand. The 

record is devoid of any evidence showing that at the time Saket 

elected to terminate, Chilcott had tendered the surplus as a means 

of paying the bills tendered. An actual surplus later discovered 

by a subsequent audit does not change the fact that Chilcott never 

paid the bills directly or tendered the later discovered surplus 

to pay the bills. The March agreement does not provide exception 

for a situation in which Chilcott previously paid a surplus. 

Because there was no tender in response to the demand and Saket 

elected to terminate Chilcott's rights, the surpluses were 

irrelevant. We therefore conclude the bankruptcy court clearly 

erred when it attributed the subsequently discovered surpluses as 

payment for the demands. 

The Receiver further argues that the bankruptcy court 

permitted Saket to benefit from its own wrongdoing by determining 

Saket's termination was ineffective. He believes Saket's actions 

breached the trustee-type duty owed by an operator of a well to 

the nonoperators established in Reserve Oil, Inc. v. Dixon, 711 

F.2d 951 (10th Cir. 1983), and In re Mahan & Rowsey, Inc., 817 

F.2d 682 (10th Cir. 1987). Specifically, he asserts Saket 

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Appellate Case: 87-1672 Document: 010110042232 Date Filed: 09/20/1990 Page: 6 
.. 

fiduciary duty or fraud. That Saket continued to bill Chilcott 

even after Chilcott had a surplus also does not prove a breach of 

fiduciary duty or fraud. At best, it merely shows Saket had a 

poor accounting system. 

Furthermore, the record does not support a claim that 

Chilcott's failure to tender payment directly or by way of the 

surplus was in any way caused by Saket's overbilling in prior 

matters. There was no assertion at the time Chilcott defaulted 

that a retention of excess funds was the cause of the default. 

Accordingly, we reject this fraud argument. 

The Receiver next argues the Trustee should be estopped from 

denying the validity of Saket's termination of Chilcott's interest 

in the "suspense wells." Because Saket previously filed a lawsuit 

seeking to terminate Chilcott's rights, the Receiver maintains the 

Trustee may not take a contrary position now. In light of the 

above discussion, we need not reach this argument. 

The bankruptcy court's conclusion that the accounting 

properly charged Chilcott with expenses and credited him with 

revenues from the "suspense wells" was clearly erroneous. 

II. 

The Receiver also argues the accounting improperly charged 

Chilcott with expenses and credited him with revenues for the 

"Burk wells." Because there was no specific agreement between 

Chilcott and Saket 

maintains Chilcott 

"Burk wells." The 

regarding the "Burk wells," the Receiver 

is not responsible for the expenses of the 

Receiver believes Saket and Chilcott were 

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Appellate Case: 87-1672 Document: 010110042232 Date Filed: 09/20/1990 Page: 7 
merely cotenants operating without an agreement with regard to the 

"Burk wells" and Saket could drill wells but could not charge 

Chilcott with expenses for unprofitable wells. The Receiver 

states that the March agreement does not apply, because the March 

agreement makes no mention of interests subsequently acquired by 

Chilcott, other than one interest which is specifically mentioned. 

The Trustee's argument that the March agreement and the 

conduct of Chilcott and Saket do establish Chilcott's obligation 

to pay the proportion of expenses incurred by the "Burk wells" is 

supported by substantial evidence. All interest holders 

participated in all wells. Chilcott, who acquired the interests 

of several investors, treated those acquired interests as part of 

his property. The March agreement also treated those interests as 

part of Chilcott's property and subject to payment of advance 

costs. When Chilcott purchased the Burk interests, he agreed, 

according to the agreement of sale, to pay the costs associated 

with the wells on the Saket property. Accordingly, under the 

March agreement, Chilcott was responsible for the expenses 

associated with the "Burk wells." 

Because the March agreement applied to the "Burk wells," 

Saket's termination of Chilcott's rights to participate in future 

wells applied to the "Burk wells." The "Burk wells" included a 

fractional interest in the "suspense wells." Therefore, 

Chilcott's position with regard to the "Burk wells" was legally 

the same as with the "suspense wells." The bankruptcy court was 

not clearly erroneous when it held that Chilcott's interest in the 

"Burk wells" was subject to the same rights and obligations as the 

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Appellate Case: 87-1672 Document: 010110042232 Date Filed: 09/20/1990 Page: 8 
.. "suspense wells." The bankruptcy court, however, erroneously 

failed to recognize the termination and upheld the accounting with 

respect to the "Burk wells." 

The bankruptcy court's conclusion that the accounting 

properly charged expenses and credited revenues to the "Burk 

wells" and the "suspense wells" was clearly erroneous. The 

bankruptcy court incorrectly approved the accounting. 

The judgment of the United States District Court for the 

Northern District of Oklahoma is REVERSED. 

The mandate shall issue forthwith. 

ENTERED FOR THE COURT 

PER CURIAM 

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