Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-90-06340/USCOURTS-ca10-90-06340-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 

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ASHLAND 

v. 

ROBERT 

Guest, 

UNITED STATES COURT OF APPEALS 

FOR THE TENTH CIRCUIT 

EXPLORATION, INC., ) 

) 

Plaintiff-Appellee, ) 

) 

) 

) (D.C. 

E. GUEST, doing business as R.E. ) 

Oil Producer, ) 

) 

Defendant-Appellant. ) 

ORDER AND JUDGMENT* 

FILED 

U nlted States Court of Appeo.ls Tenth Circuit 

SEP O 5 1991 

ROBERT L. HOECKER 

Clerk 

No. 90-6340 

No. CIV-90-0156-R) 

(W .D. Okla.) 

Before LOGAN, MOORE, and BALDOCK, Circuit Judges. 

After examining the briefs and appellate record, this panel 

has determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. 

submitted without oral argument. 

The case is therefore ordered 

Defendant-appellant Robert Guest appeals the judgment entered 

on a jury verdict against him on plaintiff Ashland Exploration, 

Inc.'s claim for breach of contract. Plaintiff was the operator 

of several wells located on a group of oil and gas leases known as 

* This 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. 

Appellate Case: 90-6340 Document: 010110084282 Date Filed: 09/05/1991 Page: 1 
the Midway Unit in Henderson County, Kentucky. Defendant had a 

41% working interest in the unit. Plaintiff brought suit to 

collect 41% of the costs incurred in operating the wells and later 

plugging and abandoning them, which it alleged defendant owed 

pursuant to the unit operating agreement. 

On appeal, defendant first contends that the trial court 

erred in submitting plaintiff's claim to the jury because 

defendant was not personally obligated to pay the expenses. He 

argues that because he did not sign the unit operating agreement 

and only took his interest "subject to" the agreement, "only the 

property itself [i.e., defendant's working interest] stands liable 

for whatever obligation may exist." Appellant's Reply Brief at 3. 

In addition, defendant maintains that because he was not in 

privity of contract with plaintiff, he could be liable for the 

expenses only through privity of estate, and plaintiff failed to 

prove the latter. Defendant also contends that even if he were 

obligated to pay the expenses, his obligation ended when he 

conveyed his interest to a third party, and the trial court should 

have limited plaintiff's recovery accordingly. 

Defendant moved for a directed verdict at the end of 

plaintiff's evidence, arguing that he was not personally liable 

for the expenses. At the close of all the evidence, he again 

moved for a directed verdict, arguing both that he was not liable 

and that any liability terminated upon the sale of his interest. 

The trial court denied the motions and submitted the case to the 

jury with instructions on formation and interpretation of 

contract, breach of contract, novation, release, and conditions 

2 

Appellate Case: 90-6340 Document: 010110084282 Date Filed: 09/05/1991 Page: 2 
precedent. The jury returned a verdict for plaintiff on its 

breach of contract claim in the amount of $61,749.75. 

Thereafter, defendant moved for a judgment notwithstanding 

the verdict, or in the alternative, for remittitur. He advanced 

the same arguments he does on appeal, as well as others that he 

has not reasserted on appeal. He sought, at minimum, a remittitur 

of the jury's verdict to $11,174.01, the amount owing as of 

November 1, 1988, the day he notified plaintiff he had sold his 

interest at public auction. 

We review the trial court's rulings on the motions for a 

directed verdict and for a judgment notwithstanding the verdict 

under the same standard. Hurd v . .American Hoist & Derrick Co., 

734 F.2d 495, 498 (10th Cir. 1984). We apply the same standard as 

the trial court, Guilfoyle ex rel. Wild v. Missouri, Kan., & Tex. 

R.R., 812 F.2d 1290, 1292 (10th Cir. 1987), and may reverse only 

if, after construing the evidence and all reasonable inferences 

therefrom in the light most favorable to plaintiff, we conclude 

that the evidence points but one way, in favor of defendant. See 

Transpower Constructors v. Grand River Dam Auth., 905 F.2d 1413, 

1416 (10th Cir. 1990). 

We turn first to defendant's argument that he is not 

personally obligated to pay the expenses as a matter of law 

because he did not sign the operating agreement and only took his 

interest "subject to" that agreement. The cases upon which 

defendant relies for this argument all concern mortgages and 

similar encumbrances on real property, and, therefore, are 

distinguishable from the circumstances here. 

3 

Appellate Case: 90-6340 Document: 010110084282 Date Filed: 09/05/1991 Page: 3 
By contrast, in a case in which the assignee of a working 

interest owner took its interest "'expressly subject to the terms, 

provisions, and conditions'" of an agreement between the assignor 

and the plaintiffs to develop the wells, the Kentucky Court of 

Appeals (then the highest state court) ruled that the assignee 

"clearly assumed the obligations" under the agreement and was 

liable for its breach. King v. Holly Oil & Gas Corp., 402 S.W.2d 

851, 852 (Ky. 1966); see also Mobil Exploration & Producing N. 

Am., Inc. v. Graham Royalty, Ltd., 910 F.2d 504, 507 (8th Cir. 

1990)(assignee of working interest owner who took interest 

"subject to" joint operating agreement was liable for damages for 

breach of joint operating agreement); Transworld Drilling Co. v. 

Texas Gen. Petroleum Co., 524 So.2d 215, 218 (La. Ct. App. 

1988)(whether operator's assignee who took interest "subject to" 

operating agreement intended to assume operator's debt to working 

interest owner that arose out of joint operating agreement was 

question of fact). We therefore reject defendant's argument that 

as a matter of law, he could not be personally obligated to pay 

the expenses at issue. 

We turn next to defendant's argument that the trial court 

should have directed a verdict in his favor or granted his motion 

for judgment notwithstanding the verdict because plaintiff failed 

to prove either privity of contract or privity of estate. 

Defendant testified that he owed plaintiff money for operating 

expenses, and the evidence also showed that defendant attempted to 

exercise rights under the operating agreement. From this 

evidence, the jury reasonably could have inferred that defendant 

4 

Appellate Case: 90-6340 Document: 010110084282 Date Filed: 09/05/1991 Page: 4 
intended to be bound by the unit operating agreement. If 

defendant intended to be bound, then it does not matter whether 

plaintiff proved either privity of contract or privity of estate. 

See Great W. Oil & Gas Co. v. Mitchell, 326 P.2d 794, 799 (Okla. 

1958)(working interest owner who knew terms of operating agreement 

and by his words and actions acquiesced in it, was bound thereby 

even though he did not sign the agreement). Therefore, the trial 

court did not err in refusing to grant either of defendant's 

motions based on plaintiff's failure to prove privity of contract 

or privity of estate. 

Finally, we address defendant's argument that any damages he 

owes should be cut off as of November 1, 1988, the day he sent 

plaintiff notice that he had sold his interest at public auction 

to Panhandle Oil & Gas Co. We review the trial court's decision 

not to grant defendant a remittitur under an abuse of discretion 

standard. Royal College Shop, Inc. v. Northern Ins. Co. of N.Y., 

895 F.2d 670, 677 (10th Cir. 1990). A remittitur is appropriate 

when the jury has made a clear error in computation and the 

correction is only mechanical and does not require resolution of a 

question of fact. United States Potash Co. v. McNutt, 70 F.2d 

126, 132 (10th Cir. 1934); Big John, B.V. v. Indian Head Grain 

Co., 718 F.2d 143, 150 (5th Cir. 1983). 

Plaintiff contends that the sale of defendant's interest did 

not terminate his liability under the operating agreement because 

the sale was not made in accordance with the provisions of the 

unit operating agreement. The evidence shows that defendant did 

not comply exactly with the terms of Article XXVI of the unit 

5 

Appellate Case: 90-6340 Document: 010110084282 Date Filed: 09/05/1991 Page: 5 
operating agreement because he did not notify the other working 

interest owners of his intent to sell before he actually sold his 

interest, and did not give them thirty days in which to exercise 

their preferential purchase rights. Likewise, defendant may or 

may not have complied with the terms of Article XIV of the 

unitization agreement, which is incorporated by reference into the 

unit operating agreement. 

Whether defendant properly transferred his interest and, if 

so, when that transfer became effective under the unitization and 

unit operating agreements were questions of fact for the jury to 

resolve. The evidence shows that plaintiff did not stop billing 

defendant and start billing Panhandle until March of 1989. By 

that time, the expenses incurred exceeded the amount of the jury's 

award to plaintiff. Under the circumstances, the trial court 

properly refused defendant's request for a remittitur. The jury 

could have found that defendant's liability did not terminate 

until sometime after November 1, 1988, and have awarded damages 

accordingly. 

Based upon our review of the record before us, we conclude 

that the trial court properly submitted the issue of defendant's 

liability to the jury, and did not abuse its discretion in denying 

the requested remittitur. Therefore, finding no reversible error, 

6 

Appellate Case: 90-6340 Document: 010110084282 Date Filed: 09/05/1991 Page: 6 
we AFFIRM the judgment of the United States District Court for the 

Western District of Oklahoma. 

Entered for the Court 

Bobby R. Baldock 

Circuit Judge 

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