*The Honorable Tom Stagg, United States District Judge for the Western District of

Louisiana, sitting by designation.

F I L E D

United States Court of Appeals

Tenth Circuit

JAN 6 2003

PATRICK FISHER

Clerk

PUBLISH

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

PALACE EXPLORATION COMPANY,

Plaintiff - Appellant,

v.

PETROLEUM DEVELOPMENT

COMPANY,

Defendant - Appellee.

No. 00-5118

Appeal from the United States District Court

for the Northern District of Oklahoma

(D.C. No. 98-CV-890-B)

Fred M. Buxton of Hall, Estill, Hardwick, Gable, Golden & Nelson, P.C., Tulsa,

Oklahoma, appearing for plaintiff - appellant.

Randall G. Vaughan (with J. Warren Jackman and John L. Randolph, Jr., on the brief) of

Pray, Walker, Jackman, Williamson & Marlar, Tulsa, Oklahoma, for the defendant -

appelee.

Before LUCERO and McWILLIAMS, Circuit Judges, and STAGG, District Judge.*

STAGG, District Judge. 
2

Plaintiff-appellant Palace Development Company (“Palace”), holder of a fifty

percent non-operating interest in an oil and gas prospect in Pittsburg County, Oklahoma,

brought this action seeking rescission of the exploration agreement and the joint operating

agreement that established its partnership in the well with defendant-appellee Petroleum

Development Company (“PDC”). Palace’s original complaint, filed in New York state

court and sounding entirely in equity, sought restitution and rescission based on two

theories: (1) fraud in the inducement relating to alleged misrepresentations of drilling

methods and costs, and (2) failure of contract based on defendant-appellee’s alleged

failure to competently investigate subsurface conditions and the resulting movement of

the well 1600 feet without notice. Approximately two weeks before trial commenced,

Palace asserted within an Amended Pretrial Order a legal claim for breach of contract

based on movement of the well without notice. The district court, however, refused to

hear evidence of gross negligence, the basis for this claim. Focusing entirely on the

rescission claims, the district court bifurcated the proceedings to try all rescission issues

first, using an advisory jury and, if necessary, then hear evidence irrelevant to rescission

for the purpose of adjusting the equities. The procedural path chosen by the court was

dictated by an Oklahoma statute governing equitable disputes. The district court adopted

the advisory jury’s findings in favor of the defendant-appellees. Additionally, the court

found that the jury’s findings relating to the alleged misrepresentations and well

movement foreclosed Palace’s breach of contract claim. Plaintiff-appellant appeals the
3

district court’s findings.

 I. BACKGROUND

PDC is an Oklahoma oil and gas exploration corporation, owned and managed by

Dennis Ingram (“Ingram”), that operates and owns interests in a variety of oil and gas

projects. In June of 1997, PDC developed plans to drill a well, the Rairdon No. 1-8 (“the

Rairdon”), in Pittsburg County, Oklahoma. After evaluating the prospect, PDC contacted

Palace, a New York-based oil and gas investor, about investing in the project. 

Additionally, PDC faxed Palace information on nearby wells, including two maps which

described the location of the Rairdon site and an authority for expenditure (“AFE”)

estimating the cost of the well at $280,000. PDC arrived at this estimate by formulating a

drilling plan analogous to one successfully implemented in drilling the Amoco-Henley

well–a well drilled “on air” approximately one-half mile from the proposed site for the

Rairdon. Air drilling is a technique by which compressed air forces drill cuttings from

the well bore. When confronted with ground water, however, the slower and more

expensive method involving the use of drilling mud must be implemented to remove the

cuttings.

Approving the prospect, Palace executed a letter agreement with PDC. Under the

terms of the agreement, each party took a fifty percent working interest in the

Rairdon–that is, PDC and Palace agreed to share equally in profits and losses and

cooperate in drilling the well. The letter agreement anticipated both an exploration
4

agreement and a joint operating agreement. 

Soon after the letter agreement was executed, PDC determined that the initial

geological information depicted in one of the maps sent to Palace was inaccurate. As a

result, PDC decided to shift the well location approximately 1,600 feet in order to

maximize the chances of hitting the target sand. PDC did not notify Palace of the

relocation. 

In the meantime, Palace forwarded the prospect information to its consultant and

vice-president, Robert Zinke, for evaluation. Zinke advised Palace that, while the

prospect had good potential, he believed that drilling could be complicated and that

drilling mud would be required. In light of these potential complications and because

using drilling mud is more expensive than drilling “on air,” Zinke concluded that PDC

had probably underestimated the potential costs in its original AFE. Palace called Ingram

to discuss Zinke’s assessment. During this conversation, Ingram informed Palace that

PDC would drill the well “slow and straight,” a statement which Palace claims to have

interpreted as “drilling mud would not be required.”

Subsequently, Palace executed an exploration agreement (“EA”) and a joint

operating agreement (“JOA”) prepared by PDC. The JOA designated PDC as the

operator of the contract area and provided that PDC, as operator, “shall conduct all such

operations in a good and workmanlike manner, but it shall have no liability as [o]perator

to the other parties for losses sustained or liabilities incurred, except such as may result
5

from gross negligence or willful misconduct.” The EA provided that the initial test well

would be drilled “in the NW/4 of Section 8, Township 3 North, Range 16 East, Pittsburg

County.” The JOA provided that the well would be drilled “in a legal location in the W/2

of Section 8-T3N-R16E, Pittsburg County.” Neither agreement provided for a more

precise drilling location. 

After drilling commenced, PDC encountered a water zone, which required PDC to

abandon its plan to drill “on air.” To continue drilling, PDC would have to use drilling

mud, or “mud up.” The well reached its final depth on November 6, 1997. Palace

declined to participate in completion of the well. Palace’s total investment in the well

under the EA and the JOA was $378,057.93.

In December of 1997, Palace filed suit in the Supreme Court of New York, County

of New York, seeking rescission of the EA and the JOA. In its original complaint, Palace

asserted only two causes of action for rescission of these agreements. First, Palace

claimed that PDC knowingly made numerous false representations in relation to the

proposed AFE of $280,000 and that Palace relied on these representations. Second,

Palace contended that PDC breached the agreement made between the parties. In its

prayer, Palace requested that the court provide two forms of equitable relief. With regard

to the first cause of action, Palace prayed for rescission of the JOA, as well as

rescissionary damages. As to the second cause of action, the company sought to have the

JOA rescinded and declared null and void. Palace did not articulate any theory of
6

recovery whereby it could recover legal damages based on breach of contract, for the

above-referenced exculpatory clause limited PDC’s potential liability to willful acts or

acts that resulted from gross negligence. 

PDC removed this action to the United States District Court for the Southern

District of New York and moved to transfer venue to the United States District Court for

the Northern District of Oklahoma. On November 13, 1998, the Southern District of New

York transferred the matter to the Northern District of Oklahoma (“District Court”) over

Palace’s objection. After the transfer, PDC answered with a general denial of the claims

and asserted a counterclaim against Palace for breach of the exploration agreement. 

Palace generally denied PDC’s counterclaim, which was eventually dropped. 

Reflecting the complaint, an Agreed Pretrial Order was filed on September 9,

1999, in which Palace mapped out its intention to present claims for rescission. This

pretrial order specifically stated, “Palace seeks rescission of the agreements based on

alleged fraud in the inducement by PDC, and breach of the agreement by PDC.” As

remedies, Palace sought only a judgment rescinding the EA and JOA and providing

restitution of the $378,057.93 in funds paid under the agreements. Listed as a factual

issue to be litigated at trial was the following question: “Is Palace entitled to damages for

PDC’s breaches of contract and, if so, in what amount?” Palace also characterized the

question whether PDC breached its duty to act as a prudent operator as a factual issue to

be litigated at trial. Although both of these issues could be interpreted as a claim for legal
7

damages, the September 9th Agreed Pretrial Order did not clearly reference such a claim,

nor did it sufficiently discuss Palace’s entitlement to legal damages as a result of PDC’s

alleged gross negligence.

Consistent with the September 9th Agreed Pretrial Order is Palace’s first trial

brief, filed on September 20, 1999. Throughout the trial brief, Palace argued the merits of

many of the issues raised in the Agreed Pretrial Order, but it did not expound upon PDC’s

failure to act as a reasonably prudent operator. Again, Palace did not raise the issue of

gross negligence. In footnote 7 contained in the trial brief, Palace attempted to explain

the applicable Oklahoma rescission law, Okla. Stat. tit. 15 § 233B (“Section 233B”). 

Section 233B allows the court to “grant damages or any other relief to which the party

may be entitled, whether or not such relief is sought in the pleadings.” Interpreting this

section to preclude claims for legal damages, Palace argued to the trial court that “[n]o

instruction on damages should be given, however, because, under Section 233B, the

Court is to adjust the equities.”

On September 24, 1999, PDC filed a motion for continuance and to reopen

discovery based on Palace’s failure to timely produce certain documents during

discovery. That day, the district court ordered a continuance and reopened discovery. As

a result, on November 19, 1999, a second pretrial conference was held to prepare for the

trial scheduled to begin on December 6, 1999. At that pretrial conference, PDC

expressed concern that Palace’s claims were not acutely defined. PDC’s concern was
8

likely attributable to the fact that Palace’s expert had recently concluded that PDC was

grossly negligent. Palace claimed in response that it alerted PDC to the existence of a

gross negligence theory as early as December of 1997. Palace, however, never clearly

articulated such a theory until the pretrial conference on November 19th. In fact, Palace

did not obtain the expert testimony needed to support a gross negligence claim until

discovery was reopened in late September of 1999. At the end of the conference, the trial

court instructed the parties to outline the gross negligence issue in trial briefs.

On November 24, 1999, Palace filed several pleadings that altered its theories of

recovery, as the November 19th pretrial conference had foreshadowed. In an amended

trial brief, the company stated that it sought damages for breach of contract, based on

PDC’s alleged gross negligence, under Section 233B and in the alternative to the already

familiar rescission claims. Also on November 24th, the parties filed an amended pretrial

order, in which Palace, over objection by PDC, expounded on the gross negligence theory

by stating that PDC breached the agreements as follows: 

1. That PDC was grossly negligent in planning the drilling of the Rairdon Well

by:

 (a) preparing an Estimate of Costs and AFE for the drilling of the Rairdon

Well 

to casing point in the amount of $280,000; and

 (b) moving the well location without informing Palace; and
9

2. That PDC failed to deliver all documents PDC was required to furnish to

nonconsenting parties under the JOA as described in paragraph VI(B)(2) of the 

JOA. 

A third pleading was filed on November 24th–PDC’s motion to strike the breach of

contract claim for legal damages. Palace responded on November 29, 1999,

characterizing the motion as an attempt by PDC to deprive Palace of its right to a jury

trial. 

A final pretrial conference was held on December 3, 1999, just three days before 

the trial began. Without specifically ruling on PDC’s motion to strike, the district court

determined that Palace did not allege a breach of contract action at law; rather, it asserted

only equitable claims for rescission, based on fraud in the inducement and failure of

consideration. In reaching this conclusion, the court focused solely on the original

complaint, effectively ignoring the pretrial conference held on November 19th, the

pretrial order dated November 24th, and Palace’s amended trial brief filed on November

24th. After framing the issues for trial, the district court next turned to the manner in

which those issues would be presented. Specifically, the court interpreted the last

sentence of Section 233B to require a bifurcation of the proceedings. Pursuant to the

court’s bifurcation plan, an advisory jury was to hear all of Palace’s rescission claims. If

the jury decided in favor of PDC, the court would then reopen the record to hear evidence

not relevant to any of the rescission theories. Throughout both phases, the court was to sit
10

as a court of equity; thus, Palace’s claims for legal damages based on gross negligence

were excluded. Evidence of gross negligence would only be heard in phase two if the

court deemed it relevant to an adjustment of the equities.

In accordance with the bifurcation plan established at the final pretrial conference,

the case proceeded to trial before an advisory jury on December 6-8, 1999. At the

conclusion of the evidence, Palace asserted a Rule 50 motion for judgment as a matter of

law, which was denied. Thereafter, the advisory jury returned a verdict for PDC. On

December 9, 1999, the trial judge entered an Order and Judgment adopting the jury’s

verdict in favor of PDC and directed the parties to brief the remaining contractual issues. 

On February 14, 2000, the district court denied both a motion for summary

judgment by PDC and another Rule 50 motion asserted by Palace. At a status conference

on April 12, 2000, the district court held that, as a matter of law, the jury’s determination

of the well location issue necessarily decided the same issue in relation to the breach of

the JOA. Palace moved for reconsideration of this decision and on May 17, 2000, the

court denied this motion, finding that Palace had made an untimely request to allege a

breach of contract action, which was not granted by the court except in the context of

Section 233B. The parties filed a stipulation of dismissal with prejudice of Palace’s

remaining claims of breach of contract, and the court entered its final Order and Judgment

on May 26, 2000. On June 6, 2000, Palace filed a notice of appeal. The specific issues in

this appeal are discussed below.
11

II. DISCUSSION

Palace first argues that the district court abused its discretion in denying Palace

the opportunity to raise a breach of contract claim for gross negligence on the eve of

trial, except in the context provided for in the last sentence of Section 233B. The district

court effectively ruled that Palace was not entitled to present its legal breach of contract

claims, for they were not pled in the original complaint. Under Federal Rule of Civil

Procedure 8(a)(2), a complaint is sufficient if it gives the defendant fair notice of the

claims against him. Palace argues that PDC was placed on notice of the possibility that it

would raise a theory at trial under which it could recover legal damages. Palace asserts

that this notice was provided by the existence of a breach of contract element to its

rescission claim and by the allegation in the initial Pretrial Order that PDC had not

conducted itself as a prudent operator. We disagree with Palace’s contention that its

complaint was sufficient to give PDC fair notice of the gross negligence claims against it. 

We conclude, however, that the pretrial order filed on November 24, 1999, was sufficient

to raise Palace’s gross negligence claims, in light of Federal Rule of Civil Procedure

16(e) and our recent decision in Davey v. Lockheed Martin Corp., 301 F.3d 1204 (10th

Cir. 2002).

Palace correctly points out that “[a]s a general rule, a plaintiff should not be

prevented from pursuing a valid claim just because she did not set forth in the complaint a

theory on which she could recover, ‘provided always that a late shift in the thrust of the
1

 Although the district court entered the November 24 pretrial order, it impliedly

denied the amendment contained therein when it looked only to the original complaint in

assessing whether Palace sought legal damages for breach of contract.

12

case will not prejudice the other party in maintaining his defense upon the merits.’” 

Evans v. McDonald's Corp., 936 F.2d 1087, 1090-91 (10thCir. 1991) (quoting 5 C.

Wright & A. Miller, Federal Practice & Procedure § 1219 at 194 (1990)). Consistent with

this general rule is Federal Rule of Civil Procedure 16(e), which provides that a pretrial

order controls “the subsequent course of the action unless modified by a subsequent

order.” Rule 16's purpose, however, is “to avoid surprise, not foment it.” Wilson v.

Muckala, 303 F.3d 1207, 1216 (10th Cir. 2002). Claims raised for the first time in a

pretrial order must be very carefully considered, to avoid deprivation of fair notice and to

avoid “abuse by those who employ a sporting theory of justice.” Id. at 1215. Therefore,

we very cautiously examine whether the district court properly excluded evidence relating

to Palace’s claim for legal damages. 

We review a district court’s decision to deny an amendment to a pretrial order for

an abuse of discretion.1

 See Koch v. Koch Indus., Inc., 203 F.3d 1202, 1222 (10thCir.

2000). We consider the following issues when faced with a challenge to a district court’s

exclusion of an issue: “(1) prejudice or surprise to the party opposing trial of the issue; (2)

the ability of that party to cure any prejudice; (3) disruption to the orderly and efficient

trial of the case by inclusion of the new issue; and (4) bad faith by the party seeking to

modify the order.” Id. (citing Roberts v. Roadway Express, Inc., 149 F.3d 1098, 1108
13

(10th Cir.1998); Smith v. Ford Motor Co., 626 F.2d 784, 797 (10th Cir.1980)). This court

also considers whether an amendment to the pretrial order was formally and timely

requested. See id.

Turning to the first factor, any surprise or prejudice to PDC resulting from the new

theory developed in the November 24 pretrial order would have been minimal. We

recently explained that “the timing of the motion in relation to the commencement of trial

is an important element in analyzing whether the amendment would cause prejudice or

surprise.” Davey, 301 F.3d at 1210-11. In Davey, the defendant sought an amendment to

a pretrial order. The trial court disallowed the amendment, and we noted that trial could

not have been disrupted, for the amended pretrial order was filed on the Friday before

trial was to begin the following Monday. See id. at 1211. Allowing the amendment

would have given PDC even more time to prepare for trial than existed in Davey. The

amended pretrial order was filed approximately two weeks before trial was set to begin on

December 6th. In addition, PDC was not first apprized of the gross negligence claims on

November 24th. In the November 19th pretrial conference, PDC expressed concerns that

Palace’s gross negligence claims, having surfaced recently as a result of new expert

testimony acquired when the district court reopened discovery, were not acutely defined. 

Thus, PDC had at least seventeen days of notice regarding the gross negligence claim. 

Under the Northern District of Oklahoma’s Local Rule 16.1(b)(1)(b), a final

pretrial order must be filed with the court seven days before the pretrial conference. To
14

the extent Palace sought an amendment by filing the November 24th pretrial order, this

amended pretrial order was timely. November 24th was the date on which the final

pretrial order was due, pursuant to the district court’s instructions. Furthermore, the

November 24th pretrial order was filed more than seven days in advance of the final

pretrial conference, which was held on December 3, 1999. 

Our inquiry, however, does not end here. Looking at the second factor, PDC had

ample ability to cure any potential prejudice. The Davey court noted that “Davey easily

could have cured any prejudice or surprise by moving to continue the trial.” Davey, 301

F.3d at 1211. Similarly, PDC complained at the November 19th pretrial conference that

Palace had not acutely defined its gross negligence claim. It could have moved for a

continuance at that time or at any time in the seventeen days that passed before the trial

began. 

Considering the third factor, inclusion of the gross negligence issue would not

have disrupted the orderly and efficient trial of the case. Favorable to Palace is the

Davey decision, in which this court explained that “if the motion to amend is made prior

to trial, no disruption of an ongoing trial is threatened.” Davey, 301 F.2d at 1212. 

Similarly, Palace amended the pretrial order almost two weeks prior to commencement of

trial. Disruption of the trial did not occur. Furthermore, the claim for legal damages

based on breach of contract arose from the same facts as the claims already alleged; thus

any disruption to the trial preparation process was minimal.
15

The fourth and final factor under Koch is whether the party seeking to modify the

pretrial order acted in bad faith. This court acknowledges that Palace waited until late in

the litigation process to formally raise its breach of contract claim. The record indicates

that Palace, as well as PDC, changed counsel during the pretrial period. It concludes,

moreover, that Palace did not act in bad faith.

Eve-of-trial amendments that alter the course of litigation and, in this case,

introduce a range of remedies not previously contemplated are, at times, not justifiable. 

Yet, in this case, the district court reopened discovery approximately two months before

trial was scheduled to commence. The scope of this new discovery phase as defined by

the court, moreover, was virtually unlimited, and it embraced the possibility of new issues

surfacing. That the final pretrial order might contain a new or different legal theory was

certainly foreseeable to the district court as early as September 24, 1999. It is surprising

to us that the district court would allow new discovery to pursue additional issues but

then, once such discovery was completed, deny the litigant the opportunity to litigate

those additional issues. 

Palace next argues that the district court abuse its discretion in severing its

rescission claims from its breach of contract for gross negligence claim pursuant to the

above-mentioned portion of Section 233B. This court will not overturn the district

court’s bifurcation of the issues unless its decision constituted an abuse of discretion. See

Anaeme v. Diagnostek, Inc., 164 F.3d 1275, 1285 (10thCir. 1999). Bifurcation of issues
16

is sanctioned by Federal Rule of Civil Procedure 42(b) “in furtherance of convenience or

to avoid prejudice, or when separate trials will be conducive to expedition and economy.” 

“Bifurcation is not an abuse of discretion if such interests favor separation of issues and

the issues are clearly separable.” Angelo v. Armstrong World Indus., Inc., 11 F.3d 957,

964 (10thCir. 1993) (citing O'Dell v. Hercules Inc., 904 F.2d 1194, 1202 (8th

Cir.1990)). We find that the district court’s interpretation of Section 233B was correct,

and that the bifurcation plan was appropriate to give effect to Section 233B. 

 Section 233B applies to claims for rescission of a contract; it does not apply to

claims for legal damages based on breach of contract. As discussed above, the last

sentence of Section 233B provides, “[i]f the court determines that the contract may not be

rescinded, it may grant damages or any other relief to which the party may be entitled,

whether or not such relief is sought in the pleadings.” This sentence gives effect to the

statute’s mandate that “the court shall adjust the equities between the parties.” As stated

by the Supreme Court of Oklahoma in Commercial Communications, Inc. v. Okla. Bd. of

Pub. Affairs, 613 P.2d 473, 476 (Okla. 1980), “[t]he purpose for this rule is to leave

nothing for future litigation which can be dispensed with by the court in the exercise of its

equitable powers” (emphasis added). As a method of disposing of the equitable

rescission claims in the case, the court’s bifurcation plan was sound.

Section 233B, however, cannot be so applied when a claim for legal damages has

been properly raised, as in the case presently before this court, namely because it contains
17

no provision for the adjudication of the legal claims by a jury. Thus, Palace contends that

the district court’s handling of the breach of contract for gross negligence claim deprived

it of its jury trial and due process rights. As we have previously applied the Supreme

Court’s seminal decisions in Dairy Queen, Inc. v. Wood, 369 U.S. 469, 82 S. Ct. 894

(1962) and Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 79 S. Ct. 948 (1959):

The Seventh Amendment protects a party's right to a jury trial by ensuring

that factual determinations made by a jury are not thereafter set aside by the

court, except as permitted under common law. . . . Thus, under the Seventh

Amendment, the court may not substitute its judgment of the facts for that

of the jury; it may only grant a new trial if it concludes that the jury's verdict

was so against the weight of the evidence as to be unsupportable.

The strictures of the Seventh Amendment are particularly applicable in a

case where, due to the presence of both equitable and legal issues, trial is

both to the jury and to the court. In such a situation, when a case involves

both a jury trial and a bench trial, any essential factual issues which are

central to both must be first tried to the jury, so that the litigants’ Seventh

Amendment jury trial rights are not foreclosed on common factual issues.

Moreover, the court is bound by the jury's determination of factual issues

common to both the legal and equitable claims. 

Ag Services of America, Inc. v. Nielsen, 231 F.3d 726, 730 (10thCir. 2000) (quoting

Skinner v. Total Petroleum, Inc., 859 F.2d 1439, 1442-43 (10th Cir.1988)). In relation to

Palace’s due process rights, it is well settled that a litigant is entitled to a fair trial, albeit

not a perfect one. See Skaggs v. Otis Elevator Co., 164 F.3d 511, 515 (10thCir. 1998)

(citing McDonough Power Equip., Inc. v. Greenwood, 464 U.S. 548, 553, 104 S. Ct. 845

(1984)).

 We find that, in this case, Palace was deprived of its jury trial and due process
18

rights. Although the advisory jury heard ample evidence on the well relocation and

certain misrepresentation issues–the issues underlying Palace’s claim of breach of

contract for gross negligence–an advisory jury is not the equivalent of a Seventh

Amendment jury. See Fischer Imaging Corp. v. Gen. Elec. Co., 187 F.3d 1165, 1174

(10th Cir. 2001); see also Parkland Hosiery Co. v. Shore, 439 U.S. 322, 337 (1979). The

issues underlying Palace’s breach of contract for gross negligence claim were not litigated

in accordance with the Seventh Amendment; therefore, we reverse and remand for a jury

trial on Palace’s legal breach of contract claim only. 

Palace also contends that the district court erred by denying its motion for

judgment as a matter of law. The trial court’s denial of a Rule 50 motion for judgment as

a matter of law is reviewed de novo. See Deters v. Equifax Credit Info. Servs., Inc., 202

F.3d 1262, 1268 (10thCir. 2000). Judgment as a matter of law is appropriate “where the

evidence and all inferences to be drawn therefrom are so clear that reasonable minds

could not differ in the conclusion.” Greene v. Safeway Stores, Inc., 98 F.3d 554, 557

(10thCir. 1996).

At trial Palace asserted that it should be allowed to rescind its agreement with PDC

based on allegations of fraud and failure of consideration. Palace’s fraud claim is based

on its argument that PDC committed constructive fraud by failing to disclose the change

in the well location. Under Oklahoma law, a party may rescind a contract if that party’s

consent was secured by fraud. See Okla. Stat. tit. 15, § 233. Constructive fraud exists:
19

(1) [i]n any breach of duty which, without an actual 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 anyone claiming under him, or

(2) [i]n any such act or omission as the law specifically declares fraudulent,

without respect to actual fraud. 

 

Okla. Stat. tit. 15, § 59. 

Palace asserts that the letter agreement executed between it and PDC established a

fiduciary relationship between the parties and, as a result, PDC had a duty to inform

Palace of the change in well location and to not misrepresent how it would go about

drilling the well. While there is some question as to the nature of PDC’s duty to Palace

because of the letter agreement, the fundamental issue before the court is whether there

was any misrepresentation on PDC’s part. As discussed supra, the jury found in favor of

PDC on both the well location issue and the AFE calculation issue, and the trial court

ratified the jury’s determination. Of note, the jury heard the testimony of expert Dobie

Langenkamp, an oil and gas consultant who, among other things, has served off and on as

a Deputy Assistant Secretary of the United States Department of Energy. Langenkamp

testified that, as Deputy Assistant Secretary, he was recently involved in the privatization

of the Naval Petroleum Reserve, specifically the sale of a significant reserve in Elk Hills

California. Langenkamp also testified that at one time he served as a professor at

University of Tulsa, where he taught a class entitled “oil and gas,” which he described as

“basically oil and gas leasing.” Langenkamp testified that “the triangle [designating the

planned location of the well on the structure map] is, for want of a better description, sort
20

of the initial starting point estimate of what the bottom hole location might be.” 

Langenkamp also stated that “the diamond that’s put on there is usually sort of very

tentative and the ultimate location is a real head-scratcher, and . . . it’s one of the last

things done in a deal of this sort.” Langenkamp explained that under oil and gas industry

standards, while an operator is obligated to keep the nonoperator informed of material

changes, “[i]n the final phase of fine-tuning a location, locations are almost always

changed at the last minute and usually the nonoperator is not notified.” Furthermore, he

stated that the information that prompted the move was actually good news as it led to

initializing the drill closer to the target sand. 

Langenkamp also testified that he taught a course called “financing energy

development.” In relation to this course, he stated that “AFE’s are always part of any

petroleum development proposal.” Regarding the AFE in question, he stated, “it was

very consistent with practice. I thought it was good practice.” On cross-examination, he

stated that, while Palace’s geology expert, Robert W. Von Rhee, had done an impressive

regional study in relation to his testimony that PDC should have planned better, such a

study exceeded the practice of ordinary operators “by a factor of many times.” 

Langenkamp explained that “a regional study like Mr. Von Rhee’s is generally interesting

and so forth, but anybody that I know that would have drilled this well would have spent

more time [looking at nearby wells].” Based on the evidence presented at trial, including

the testimony of Langenkamp, the jury’s conclusion was reasonable.
21

Palace’s rescission claim for failure of consideration is based on the well location

question. In Huffman v. Saul Holdings Ltd. P’ship,194 F.3d 1072 (10thCir. 1999), we

recognized that, under Oklahoma law: 

a party to a contract may rescind the same if through the fault of the party as

to whom he rescinds, the consideration for his obligation fails in whole or

in part.... [P]artial failure of performance is ground for the rescission of a

contract, when such failure defeats the object of the contract, or when it

concerns a matter of such importance that the contract would not have been

made if default in that particular had been expected or contemplated. 

Id. at 1080-81 (quoting Berland's, Inc. of Tulsa v. Northside Village Shopping Ctr., Inc.,

378 P.2d 860, 865 (Okla.1963) and Davis v. Gwaltney, 291 P.2d 820, 823 (Okla.1955)). 

Specifically, Palace argues that the initial geological maps were incorporated into the later

agreements and that failure to abide strictly by these maps constituted a failure of

performance. It is irrelevant whether or not this assertion is accurate. As stated above,

Langenkamp testified that triangulation on initial geological maps is only an estimate as

to where a well will ultimately be located. Therefore, the court properly denied Palace’s

Rule 50 motion on failure of consideration grounds. 

Palace also argues that the district court abused its discretion by failing to

retransfer this matter to New York. This court will not overturn such a decision unless it

was a clear abuse of discretion. See Trierweiler v. Croxton and Trench Holding Corp., 90

F.3d 1523, 1543 (10thCir. 1996). Title 28 United States Code section 1404(a) states,

“[f]or the convenience of parties and witnesses, in the interest of justice, a district court

may transfer any civil action to any other district or division where it might have been
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brought.” Although a few of the witnesses who testified at trial were located either in or

near New York City, located in the Southern District of New York, most of the witnesses

were located in or near Oklahoma. For instance, Palace’s expert witness, Robert W. Von

Rhee, has a business address in Tulsa, Oklahoma; PDC’s drilling engineer, Robert J.

Wurtzbacher, has a business address in Pocola, Oklahoma; Palace’s vice-president and

consultant Robert M. Zinke, of Zinke & Trumbo, Ltd., operates out of Tulsa; PDC’s

expert witness, Dobie Langenkamp, lives in Tulsa; and, although they testified by

deposition, John Weber and Kevin Sayre both live in Fort Smith, Arkansas, which is

located near the border of Oklahoma and Arkansas. Furthermore, as noted above, PDC is

an Oklahoma corporation. From these facts, it would appear that the Northern District of

Oklahoma in Tulsa was a more convenient venue than the Southern District of New York 

for the majority of the witnesses that testified at trial. As a result, the district court’s

denial of Palace’s request to retransfer was not an abuse of discretion.

REVERSED AND REMANDED.