Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca10-88-02077/USCOURTS-ca10-88-02077-0/pdf.json

Parties Involved:
Dorothy Dann Collins
Appellant
John C. Oxley
Appellee

Document Text:

PUBLISH 

UNITED STATES COURT OF APPEALS 

TENTH CIRCUIT 

Nos. 88-1892, 88-2077, 88-2139 

DOROTHY DANN COLLINS, Independent ) 

Administratrix of the Estate of ) 

James M. Collins, Trustee, ) 

) 

Plaintiff-Appellant, ) 

Cross-Appellee, ) 

) 

v. ) 

) 

JOHN C. OXL~Y, d/b/a OXLEY ) 

PETROLEUM, ) 

) 

Defendant-Counterclaimant~ ) 

Appellee, Cross-Appellant. ) 

l?lL!il) 

Unitc-d S_t~tes Co~rt ~f Appeals 

! entb (J'."1;7!!t 

r:E Q 2. G 1990 

ROBERT L. HOECKER 

Clerk 

Appeal from the United States District Court 

for the Eastern District of Oklahoma 

(D.C. No. 87-390-C) 

Paul G. Smith, P.C., Norman, Oklahoma (Mike Turpen and Richard 

Mildren of Chapel, Wilkinson, Riggs & Abney, Oklahoma City, 

Oklahoma, with him on the brief), for Plaintiff-Appellant. 

J. David Jorgenson (George H. Lowrey, Tulsa, Oklahoma; of counsel: 

Conner & Winters, Tulsa, Oklahoma, with him on the brief), for 

Defendant-Appellee. 

Before*BALDOCK and McWILLIAMS, Circuit Judges, and KANE, District 

Judge. 

MCWILLIAMS, Circuit Judge. 

* Honorable John L. Kane, Jr., United States District Judge for 

the District of Colorado, sitting by designation. 

Appellate Case: 88-2077 Document: 010110191628 Date Filed: 02/26/1990 Page: 1 
No. 88-1892 

This diversity case involves the Oklahoma Surface Damage Act 

(the Act), Okla. Stat. tit. 52, § 318.2 (Supp. I 1987). The effective date of the Act was July 1, 1982. Prior to that date, 

under Oklahoma law the holder of an oil and gas lease had an 

implied right to enter upon the leased premises and make sqch use 

of the surface as was reasonably necessary to develop and produce 

oil and gas without liability to the surface owner for damage to 

the surface. He would, however, have been liable to the surface 

owner for damages resulting from unreasonable entry on the land or 

unreasonable use of the surface. Lone Star Producing Co. v. Jury, 

445 P.2d 284 (Okla. 1968); Wilcox Oil Co. v. Lainson, 341 P.2d 591 

(Okla. 1959); Cities Service Oil Co. v. Dacus, 325 P.2d 1035 

(Okla. 1958); Marland Oil Co. v. Hubbard~ 168 Okla. 518, 34 P.2d 

278 (1934). 

The Act purported to change the duty owed by the lessee to 

the surface owner to one of so-called strict liability whereby the 

lessee would be liable to the surface owner for any damage caused 

the surface by his drilli~g operation. The Act provided, inter 

a_lia, that the lessee give the surface owner notice of intent to 

drill before entering on the leased premises, thereafter, prior to 

entry, to negotiate in good faith with the surface owner to 

determine possible surface damage, to file, prior to any entry, an 

undertaking in the amount of $25,000 to be used for payment of 

surface damage caused by the drilling operation, and, if the 

negotiations were unsuccessful, to have appraisers appointed who 

would inspect the property and then file a written report with the 

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Appellate Case: 88-2077 Document: 010110191628 Date Filed: 02/26/1990 Page: 2 
court fixing the amount of compensation, if any, to be paid by the 

operator to the surface owner. 1 A further provision of the Act 

provided that either of the parties could take exception to the 

appraisers' report and demand trial by jury. 

From about 1965 to 1975 John C. Oxley, d/b/a Oxley Petroleum 

Company, acquired six oil and gas leases on land located in 

Latimer and Pittsburg Counties in Oklahoma, from W. Erle and Emma 

M. White. On December 26, 1985, James M. Collins bought the land 

in question from the Whites for $2,700,000. From and after 

December 24, 1985, to and through December, 1987, Oxley drilled 

six oil and gas wells on the leases which he held on the so-called 

Collins' ranch. 

On July 30, 1987, Collins, a resident of Texas, brought suit 

in the United States District Court for the Eastern Di~trict of 

Oklahoma against Oxley, a resident of Oklahoma, charging that 

Oxley in drilling five wells violated the Act. Jurisdiction was 

based on diversity. 28 u.s.c. § 1332. Oxley later filed suit in 

a state court of Oklahoma in connection with the sixth well which 

he drilled on the Collins' ranch. The state court proceeding was 

removed to the federal district court and consolidated with the 

proceeding instituted by Collins in the United States District 

Court for the Eastern District of Oklahoma. 

Oxley filed a motion for summary judgment, arguing, inter 

alia, that the Act did not apply to him since his leases predated 

the effective date of the Act, application of the Act to him would 

violate the Constitution, and, further, that Collins no longer was 

1 Under· the Act, once a lessee petitions for appointment of ap-

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Appellate Case: 88-2077 Document: 010110191628 Date Filed: 02/26/1990 Page: 3 
the real party in interest inasmuch as on March 4, 1~88, he had 

conveyed his surface interest in the Collins' ranch to the 

Oklahoma Wildlife Department for $2,100,000. The district court 

granted that motion and entered judgment dismissing Collins' 

claims against Oxley based on the Act. 2 Collins appeals the judgment. 

In i t-s order granting Oxley' s motion for summary judgment, 

the trial court declared that since Oxley's leases predated the 

effective date of the Act, Oxley, under Oklahoma law, had a vested 

property right to enter on the leased premises and make such use 

of the surface a~ was reasonably necessary to develop and produce 

oil and gas without liability to the surface owner. Because of 

such vested property right, the district court held that the Act 

by its own terms did not apply to Oxley, citing Okla. Stat. tit. 

52, § 318.7 '(Supp. I 1987), which provides as follows: 

to 

"Nothing herein contained shall be construed 

to impair existing contractual rights nor 

shall it prohibit parties from contracting to 

establish correlative rights on the subject 

matter contained in this Act (emphasis 

added)." 

Having concluded that the Act by its own terms did not apply 

Oxley, the district court did not rule on Oxley's 

constitutional challenge to the Act. However, the district court 

gave as an "additional reason" for granting summary judgment the 

praisers, he may enter the site to drill. 

2 Collins had also asserted claims against Oxley based on 

unreasonable use, nuisance and trespass. The district court 

denied Oxley's motion for summary judgment on those claims. 

However, those so-called "common law" claims were dismissed by 

agreement between the parties. Hence, the present appeal is from 

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Appellate Case: 88-2077 Document: 010110191628 Date Filed: 02/26/1990 Page: 4 
fact that Collins, after instituting a suit under the Act, 

conveyed his interest in the ranch to the Oklahoma Wildlife 

Department. Because of such conveyance, the district court 

concluded that even if the Act had application, the Oklahoma 

Wildlife Department, and not Collins, was the real party in interest. 

The district court entered its order granting Oxley's motion 

for summary judgment on June 1, 1988. On November 18, 198~, the 

Oklahoma Supreme Court in Davis Oil Company v. Cloud held that 

although under Oklahoma law the holder of an oil and gas lease 

predating the Act had an implied right to enter on the surface to 

develop and produce oil and gas, he did not have any vested right 

to be liable to the surface owner for surface damage for unreasonable use only. 3 In that case, the parties voluntarily entered 

into negotiations regarding surface damages in accordance with the 

Act, but were unable to agree to terms. The surface owner took 

exceptions to the appraiser's report and a jury trial ensued. The 

jury assessed the surface owner's damages at $15,000. Davis appealed. On appeal, Davis contended that the appropriate standard 

for assessing surface damages was the standard in effect prior to 

the passage of the Act. The court, in Davis, held that the new 

strict liability standard under the Act modified the standard for 

assessing surface damage under old leases, and held that the Act 

did apply to leases entered into before the effective date of the 

Act where the drilling operation occurred after the effective date 

of the Act. In so doing, the Oklahoma Supreme Court construed 

a final judgment disposing of all claims. 

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Appellate Case: 88-2077 Document: 010110191628 Date Filed: 02/26/1990 Page: 5 
Okla. Stat. tit. 52, § 318.7 (Supp. I 1987) ''as only applying to 

contracts in which damage provision standards are specifically set 

forth in the contract." (See footnote 11 in the Davis opinion.) 

At the time of its order, the district court was fully apprised of Davis Oil Company v. Cloud, which now appears at 766 

P.2d 1347 (Okla. 1986). However, when the district court entered 

its order in the instant case, a petition for rehearing was pending in Davis Oil Co. v. _Cloud, supra. Such being the case, the 

district court reasoned that it was not bound to follow Davis Oil 

Co. v. Cloud, supra, and elected to follow unpublished decisions 

by a federal district court in the Northern District of Oklahoma 

and another federal district court in the Western District of 

Oklahoma, both of which apparently predated Davis Oil Co. v. 

Cloud, supra. 

On January 17, 1989, the Oklahoma Supreme Court denied the 

petition for rehearing in Davis Oil Co. v. Cloud, supra, and basically adhered to its earlier opinion. However, the earlier 

opinion was on a 7-1 vote, whereas on rehearing the vote was 5-4. 

On rehearing, there was a written dissent which paralleled the 

order of the district court in the instant case, i.e., prior to 

the Act a holder of an oil and gas lease, under Oklahoma law, had 

a vested right to enter onto the leased premises and develop and 

produce oil and gas without liability to the surface owner except 

for unreasonable entry or use and, accordingly, under Okla. Stat. 

tit. 52, § 318.7, the Act did not apply to a lease predating the 

Act. However, the majority in Davis Oil Co. v. Cloud, supra, 

continued to hold that under Oklahoma law as it existed before the 

3 Justice Opala dissented, but wrote no dissenting opinion. 

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Appellate Case: 88-2077 Document: 010110191628 Date Filed: 02/26/1990 Page: 6 
Act the holder of an oil and gas lease only had an implied right 

to enter onto the surface and conduct drilling operations and did 

not have an implied right to be free of liability to the surface 

owner except for damages caused by unreasonable entry and use, and 

that, accordingly, the Act did apply to leases predating the Act. 

Certainly at this point in time we are bound by Davis Oil Co. 

v. Cloud, supra. The primary reason given by the district court 

for granting Oxley summary judgment was that since his leases 

predated the Act, Oxley had an implied, but vested, right to enter 

onto the Collins ranch and drill without liability to Collins, 

except for unreasonable entry or use. That line of reasoning has 

now been finally rejected by a majority of the Oklahoma Supreme 

Court in Davis Oil Co. v. Cloud, supra. 

As above mentioned, as an additional and alternative reason 

for granting Oxley summary judgment, the district court concluded 

that since Collins conveyed his ranch to the Oklahoma Wildlife 

Department on March 4, 1988, for $2,100,000, he no longer could 

maintain an action against Oxley (and presumably could no longer 

defend the action brought by Oxley against him), because he was 

not the real party in interest. In this regard, the district 

court opined that the purpose behind the Act was to reimburse the 

surface owner for damage done the surface by the driller, and that 

the surface ·owner would then use the monies to restore the damaged 

surface to its original condition, and that since Collins had sold 

the property he would not be in a position to do any restoration. 

We are not persuaded by this reasoning. 

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Appellate Case: 88-2077 Document: 010110191628 Date Filed: 02/26/1990 Page: 7 
In his brief to this court, Collins points out that Okla. 

Stat. tit. 52, § 318.SF (Supp. I 1987) provides that "[T]he trial 

shall be conducted and judgment entered in the same manner as 

railroad condemnation actions in the courts," and, according to 

counsel, it is well established in Oklahoma that the owner of the 

land has the, right to damages caused by a railroad's taking of his 

land, or a part thereof, and that such right does not pass to a 

grantee of .the land under a deed made subsequent to the taking 

unless expressly conveyed thereunder, citing Cox Enterprises, Ltd. 

v. Phillips Petroleum Company, 550 P.2d 1324 (Okla. 1976) and 

Peckham v. Atchinson, Topeka & Santa Fe Railway Company, 212 P. 

427 (Okla. 1923). In connection. therewith, counsel points out 

that Collins was the record owner of the ranch when the wells were 

drilled and the damage incurred, was the record owner when the 

present litigation was instituted, and that his contract to sell 

with the Oklahoma Wildlife Department expressly reserved his 

rights against Oxley. All things considered, summary judgment for 

Oxley on the ground that the Oklahoma Wildlife Department was the 

real party in interest, not Collins, was imp~oper. 4 

No. 88-2077 

This appeal concerns the district court's order regarding the 

fees to be paid the appraisers. The Act provides that ''[t]he 

4 In this court, Oxley challenges the applicability of the Act on 

other grounds, some of which were not raised in the district 

court, and, in any event, were not the basis for the district 

court's granting of summary judgment. We are here considering 

only the validity of the reasons given by the district court for 

granting summary judgment. 

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Appellate Case: 88-2077 Document: 010110191628 Date Filed: 02/26/1990 Page: 8 
operator and the surface owner shall share equally in the payment 

of the appraisers' fees and court costs." Okla. Stat. tit. 52, S 

318.SC (Supp. I 1987). As to two of the three appraisers, the 

district court followed the statute and directed Collins and Oxley 

to share equally in the fees .. However, as to the third appraiser, 

Mr. Ward, the district court set his fee at $3,952.80 and 

ultimately ordered Collins to pay that fee in its entirety. Apparently, Collins had himself made a "prepayment" to Ward of the 

sum of $3,100, and the district court voiced the opinion that such 

payment by one of the parties gave an appearance of "tainting the 

appraisal process." Counsel for Collins in his brief denies such 

suggestion and states that the "prepayment" was "subject to the 

court's subsequent determination of a reasonable fee for Ward." 

Be all that as it may, the record before us does not justify the 

district court's departure from the plain language of the Act that 

the appraisers' fee be shared equally. 

No. 88-2139 

When Oxley filed his motion for summary judgment he also 

asked for sanctions against Collins and his counsel. The district 

court denied this request, apparently believing that Davis Oil Co. 

v. Cloud, supra, gave Collins some basis for instituting the action. Oxley's request for sanctions was bas~d, in part, on the 

fact that Collins bought the ranch for $2,700,000, sued Oxley for 

compensatory damages in the amount of $14,000,000, and additionally asked for punitive damages in the sum of $52,000,000, and 

that the appraisers later fixed total damages at around $15,000. 

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Appellate Case: 88-2077 Document: 010110191628 Date Filed: 02/26/1990 Page: 9 
The e~orbitant claim for damages, according to counsel, 

demonstrates that the suit was not instituted in good faith. 

Be this as it may, the district court did not err in denying 

sanctions. Further, in view of our determination that the reasons 

advanced by the district court for granting Oxley summary judgment 

are invalid, any extended discussion of sanctions at this time is 

premature. 

No. 88-1892. Judgment reversed and case remanded for further 

proceedings. 

No. 88-2077. Judgment reversed and case remanded for further 

proceedings. 

No. 88-2139. Judgment affirmed. 

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