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Nature of Suit Code: 290
Nature of Suit: Other Real Property Actions
Cause of Action: 

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PUBLISH 

FILED 

United States Coprt <?f Appeals Tenth C1rcU1t 

UNITED STATES COURT OF APPEALS SEP 1 8 1991 

TENTH CIRCUIT ROBERT L. HOECKER 

PAUL M. BARBY; PAUL M. BARBY, Trustee 

for the Celestine Barby Revocable 

Trust; LELAND D. BARBY; LELAND D. 

BARBY, Trustee for the Otto c. Barby 

#1703 Trust; LELAND D. BARBY, Trustee 

of the Otto C. Barby #1704 Trust; SMN 

VENTURE, an Oklahoma General 

Partnership; BARBY ENERGY CORP., 

Plaintiffs-Appellees, 

Clerk 

v. 

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No. 91-6087 

CABOT PETROLEUM CORPORATION, a Delaware ) 

Corp., ) 

Defendant-Appellant. 

) 

) 

APPEAL FROM THE UNITED STATES DISTRICT COURT 

FOR THE WESTERN DISTRICT OF OKLAHOMA 

(D.C. No. CIV-84-1840) 

Submitted on the briefs: 

Scott D. Boughton and Gordon F. Brown of Brown & Boughton, 

Oklahoma City, Oklahoma, for Plaintiffs-Appellees. 

Clyde A. Muchmore and L. Mark Walker of Crowe & Dunlevy, Oklahoma 

City, Oklahoma, for Defendant-Appellant. 

Before SEYMOUR, EBEL, Circuit Judges, and BABCOCK,** District 

Judge. 

**Honorable Lewis T. Babcock, District Judge, 

District Court for the District of Colorado, 

designation. 

United States 

sitting by 

Appellate Case: 91-6087 Document: 01019293467 Date Filed: 09/18/1991 Page: 1 
EBEL, Circuit Judge. 

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); lOth Cir. R. 34.1.9. The case is therefore ordered 

submitted without oral argument. 

Plaintiffs, the lessors, commenced this diversity action 

leases, asserting 

duty of further 

develop lower 

seeking to cancel portions of six oil and gas 

defendant, the lessee, breached its implied 

development under the leases by refusing to 

formations covered by the leases. The district court determined 

that defendant had breached its implied duty and ordered 

defendant, in twenty-four of the sections encompassed by the six 

leases, to drill to specified formations "within 180 days or the 

formations will be released." Plaintiffs appealed the district 

court's order, challenging the court's decision not to cancel the 

leases outright. Defendant cross-appealed and further sought, 

unsuccessfully in both the district court and this court, to 

obtain a stay of the judgment pursuant to Fed. R. Civ. P. 62(a) 

and Fed. R. App. P. 8. 

This court affirmed the district court's determination that 

defendant had breached its implied duty to further develop these 

tracts in fourteen of the sections, but reversed the district 

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Appellate Case: 91-6087 Document: 01019293467 Date Filed: 09/18/1991 Page: 2 
court's decision concerning the remaining ten sections. Cabot 

Petroleum Corp. v. Barby, Nos. 87-2454, 87-2460, slip op. at 22-23 

(lOth Cir. July 20, 1990). This court remanded this cause to the 

district court for consideration of a separate issue. Id. at 23. 

During these appeals, the parties did not raise the issue of the 

effect of the district court's order requiring defendant to drill 

the wells within 180 days from the district court's order or lose 

the leases, nor did this court address that issue in our 

order and judgment. 

previous 

Upon remand, defendant 

willing, and able to drill the 

court order, as modified 

notified plaintiffs it was ready, 

wells required by the district 

on appeal. Plaintiffs notified 

defendant, however, that it was their position that the 180 days 

provided by the district court order had expired and, therefore, 

defendant's lease interests had been released. Defendant then 

filed with the district court a motion to implement and enforce 

this court's mandate. The district court denied the motion, 

ruling that, because defendant failed to obtain a stay of the 

district court's order, the 180-day time frame defendant had to 

drill the wells had expired. 

Defendant appeals from that order, presenting a single issue: 

whether the district court's provision of 180 days in which 

defendant could drill the required wells and prevent cancellation 

of the lease interests expired prior to defendant's attempts to 

drill following remand of this cause to the district court after 

resolution of the cross-appeals. Reviewing the district court's 

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Appellate Case: 91-6087 Document: 01019293467 Date Filed: 09/18/1991 Page: 3 
legal determination de novo, see In re Ruti-Sweetwater. Inc., 836 

F.2d 1263, 1266 (lOth Cir. 1988), we reverse. 

Under Oklahoma law, a lessor's challenge to a lessee's rights 

under an oil and gas lease agreement suspends the lessee's 

obligation to perform under the lease until that challenge is 

resolved. French v. Tenneco Oil Co., 725 P.2d 275, 276 (Okla. 

1986). Litigation commenced by the lessor asserting the 

cancellation of a lease is certainly such a challenge and will 

result in the suspension of the lessee's duties under the lease. 

~, Spaeth v. Union Oil Co. of Cal., 710 F.2d 1455, 1458 (lOth 

Cir. 1983)(applying Oklahoma law); Hoyt v. Continental Oil Co., 

606 P.2d 560, 562 (Okla. 1980). This suspension of duties 

continues throughout the course of the litigation, until the 

challenge to the lessee's title is finally resolved. Elsey v. 

Wagner, 183 P.2d 829, 829-30 (Okla. 1946); see also Chapman v. 

Bowers, 67 P.2d 788, 789 (Okla. 1937)(lessee's duty to perform 

under lease suspended, not only during pendency of lessor's 

litigation seeking cancellation of lease, but also after 

completion of litigation, where lessor continued to challenge 

lessee's title and eventually commenced second legal action 

challenging lessee's title). 

Cases in which lessees are 

sued while in the process of drilling or reworking a 

well . . . present several compelling equitable reasons 

for temporarily suspending certain duties during the 

term of litigation. . . . [The] lessee should not be 

required to invest in drilling a well when his legal 

right to drill is in serious legal jeopardy. A contrary 

rule would inevitably lead to vexatious litigation and 

create a dilemma for the operator - should he continue 

drilling operations under the cloud of litigation which, 

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Appellate Case: 91-6087 Document: 01019293467 Date Filed: 09/18/1991 Page: 4 
if it went against him, would cost him the investment; 

or, on the other hand, should he wait on the outcome of 

the suit in which case the lease may be lost for sure by 

the mere passage of time while the litigation paces 

through court? 

Duerson v. Mills, 648 P.2d 1276, 1278 (Okla. Ct. App. 1982). In 

such cases, litigation will suspend a lessee's obligation to 

perform under the terms of the lease "as long as [the lessee] 

could not safely drill under [the] lease." Elsey, 183 P.2d at 

830. 

Plaintiffs' commencement of this action seeking cancellation 

of the six leases, therefore, suspended defendant's duty to 

perform under the leases. The district court entered its 

alternative decree giving defendant 180 days to drill specified 

wells or lose those portions of the leases. Plaintiffs and 

defendant each appealed. Because plaintiffs continued to assert 

in their appeal that these leases should be cancelled, the 

defendant's right to drill on those leases remained in jeopardy 

and, consequently, under Oklahoma law, the defendant's obligation 

to drill on those leases remained in suspension. 

Relying upon federal procedural rules, plaintiffs argue that, 

because defendant failed to obtain a stay of the district court's 

order, the time frame in which defendant had to meet the district 

court's drilling requirement expired 180 days after the district 

court's alternative decree. We disagree for several reasons. 

First, we must ask what was the legal effect of the district 

court's alternative decree giving defendant an additional 180 days 

to drill to the specified formations in certain tracts in order to 

prevent cancellation of these lease interests. That decision did 

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Appellate Case: 91-6087 Document: 01019293467 Date Filed: 09/18/1991 Page: 5 
not become final until this court resolved the parties' 

cross-appeals and the district court resolved the issue remanded 

to it for consideration following those appeals. 

Because defendant failed to obtain a stay of the district 

court's initial order, plaintiffs could have executed on that 

judgment during the pendency of the cross-appeals. See Garrick v. 

Weaver, 888 F.2d 687, 695 (lOth Cir. 1989). A stay and an appeal 

bond would have prevented execution on the judgment while the 

appeals were pending. Plaintiffs, however, did not elect to 

execute on the judgment and, therefore, the fact that defendant 

failed to obtain a stay order is of no concern here. Plaintiffs' 

inaction was as effective as if defendant had obtained a stay of 

the district court's decision. 

The obvious purpose of the district court's inclusion of the 

equitable provision giving defendant an additional 180 days to 

drill was to accommodate Oklahoma substantive law, which suspends 

the lessee's duty to perform under the lease while the lessor is 

challenging the lessee's rights under that lease until that 

challenge is finally resolved. The logical interpretation of the 

180-day provision in the district court's order is that defendant 

had 180 days from the final determination of its rights under the 

lease to meet the district court's drilling requirements. That 

interpretation is entirely consistent with Oklahoma substantive 

law. 

Although the parties did not assert this issue during the 

prior appeals, that would have been this court's interpretation of 

the district court's order. Even if that interpretation is 

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Appellate Case: 91-6087 Document: 01019293467 Date Filed: 09/18/1991 Page: 6 
incorrect, had it been raised in the previous appeals, we would 

have exercised our inherent powers in equity to accommodate 

Oklahoma substantive law, just as the district court did, by 

giving defendant an additional 180 days from the district court's 

decision following remand to drill the wells required by the 

district court's decision, as modified by our appellate order and 

judgment. See Renner v. Monsanto Chern. Co., 354 P.2d 326, 338 

(Kan. 1960). 

This case involves a great deal of money. Rather than 

obligate defendant to undertake piecemeal compliance with drilling 

rights which had not yet been conclusively established and, 

therefore, were subject to further modification, we determine that 

defendant was not obligated to meet the district court drilling 

requirements until those drilling rights were finally resolved. 

Defendant, therefore, had 180 days from the entry of the district 

court's order following remand to drill the specified wells. 

Plaintiffs' assertion, however, that defendant had failed to 

comply in a timely manner with the district court's order again 

challenged defendant's rights under the leases and, thus, again 

suspended defendant's drilling obligations. See Allen v. Palmer, 

209 P.2d 502, 503, 504-06 (Okla. 1948). 

The district court order is REVERSED. Defendant will have 

180 days from the date of the issuance of the mandate in this case 

to comply with the district court drilling requirements, as 

modified by our previous decision. 

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