No. 12677 IN

### THE SUPREME COURT OF THE STATE OF MONTANA 19 

### 74

JOANN ARMSTRONG and R. V. BOTTOMLY, Plaintiffs and Respondents,

-vs

# - HIGH CREST OILS, INC., a corporation, Defendant and Appellant.

Appeal from: District Court of the Twelfth Judicial District, Honorable R. D. MePhillips, Judge presiding. Counsel of Record : ForAppellant: Crowley, Kilbourne, Haughey, Hanson and Gallagher,

Billings, Montana Cale Crowley argued, Billings, Montana For Respondents: Hoyt and Bottomly, Great Falls, Montana John C. Hoyt argued, Great Falls, Montana

Submitted: February 

### 26, 1974 Decided

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## 1910 Filed: 

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# -21974Mr. Justice Frank I. Haswell delivered the Opinion of the Court. This appeal is from an order of the district court of Hill County granting plaintiffs' motion to alter or amend the court's previous order granting summary judgment for defendant. From this special order after judgment,defendant appeals. Respondents, JoAnnArmstrong and R. 

### V. Bottomly, are successors in interest to Lewis H. Armstrong as lessor in an oil and gas lease wherein appellant, High Crest Oils, Inc., is lessee. On November 24, 1972,pursuant to Montana's Oil and Gas Conservation Act, appellant applied for an order creating the Bullhook Gas Unit in Hill County,Montana. The lands described in the Armstrong lease were included in said unit area. The Commission conducted a public hearing on December 14, 1972. John Hoyt, representing the respondent royalty owners,announced his presence at the hearing as a protestant to the proposed pooling unit. Subsequent to the hearing the Commission rendered its report,made findings of fact, conclusions of law, and issued its order creating the Bullhook Gas Unit effective as of the date of the hearing. On December 21, 1972, respondentArmstrong filed a petition for rehearing with the Commission. Said petition was denied by the Commission on January 29, 1973. On May 14, 1973,pursuant to section 60-135,R.C.M. 1947, respondentArmstrong filed a complaint in the district court of Lewis and Clark County for a judicial review of the order of the Montana Board of Oil and Gas Conservation Commission creating the Bullhook Gas Unit. Subsequently,on June 4, 1973, an amended complaint was filed by both respondentsas parties in the action. On May 16, 1973, respondents filed the instant action in the district court of Hill County against appellant lessee. Respondents requested a decree cancelling the Armstrong lease and declaring that appellants had no claim of any kind upon the propertycovered by the subject oiland gas lease and for an accounting of allgas produced and sold from the subject land located in HillCounty, Montana. Paragraphs IVand V of the HillCounty complaint set forth the essence of respondents' contentions:

"That by the termsof the lease set forthand marked asExhibit 'A' executed by thepredecessor in interest of plaintiffs and assigned by the lessee therein to defendant herein the lessee is granted the right and power topool and combine the acreage covered by said leasewith other land, lease or leases inthe vicinity thereof atany time, when in lessee's judgment it isnecessary or advisable todo so for the prevention of waste and the conservation and greatest ultimate recovery of oilorgas. Such pooling to be ina unit or units not exceeding inarea the acreage prescribed or required inany federal or state law order, rule orreg~lation.~..and the royalties shallaccrue and be paid tolessor on pooled substances produced from any unit inthe proportion, but only in the proportion, that lessor's acreage interest inthe land covered hereby and placed inthe unit bears to the totalacreage inthe land placed in such unit.

"That over the objections and protestations of plaintiffsdefendant made application totheMontana Oil & Gas Conservation Commission forthe creation of a pooling unit which included plaintiffs land known as the Bull Hook Gas Unit and through a high powered, hasty presentation induced theCommission tocreate suchunit even though the gas unit requested by defendant violated the express terms of its oiland gas lease with plaintiffs by providing that royalties thereafter accruing toplaintiffs should be paid to them aslessorsnot intheproportion that lessors acreage in the land placed inthe gas unit bears to the total acreage of the land placed in such unit but on the contrarydefendant placed thousands of acres of unproductive land in said gas unit and has and is convertingplaintiffs share of the gas produced to itself and other persons allinan unlawful and fraudulent manner under the guise of a 'gas in place' formula directlycontrary tothe express terms and conditions of the attached Oiland Gas Lease as setforth inparagraph IV above." The order of Montana's Oiland Gas Conservation Commission creating the Bull Hook Gas Unit and the complaints forjudicialreview of thisorder filed inLewis and Clark County pursuantto section 60-135,R.C.M. 1947,are included in the Hill County court record. On August 22, 1973, appellant filed a motion for summary judgment in the Hill County action. This motion was argued before the district court. One month after the hearing on the motion the court granted the summary judgment. Said order of summary judgmentwas filed on November 15, 1973. After the order for summary judgment was entered the following actions transpired: November 16, 1973, respondents1motion to alter or amend the judgment was served on the appellant together with supporting brief. November 19, 1973,notice of entry of summary judgment

was mailed by appellant to respondent. November 28, 1973, appellantlsbrief in opposition to the motion to alter or amend judgment was served by mail. December 3, 1973, the district court issued its order granting respondents1motion and revoking the courtls previous order granting appellant's summary judgment. This special order after judgment was filed December 10, 1973. No notice calling the motion to alter or amend judgment up for hearing was ever served or filed; no order setting the motion for hearing was ever made, served or filed; no order continuing the date for hearing the motion was ever made; no hearing on themotion was ever held. Eighteen days after summary judgment was filed the district court granted the motion to alter or amend judgment. From this special order after judgment, this appeal arises. Two issues are presented for review:

(1) Should the summary judgment granted to appellant by the district court be reinstated?(2) Is the order granting respondents' motion toalter

or amend judgment null and void for failure of the district court tohold a hearing within ten days after saidmotion is served asrequired by Rule 59, M.R.Civ.P? On the firstissuerespondents' argue that the hearing inthe districtcourt of Lewis and Clark County toreview the findings and conclusions of the Oiland Gas Commission willnot determine the question of whether there has been a violation of the termsof the oiland gas lease which isthe subject matter of the instant action. Respondents contend that the suitagainst the Oiland GasCommission has nothing todo with whether or not the leasebetween Armstrong and High Cresthas been violated so

astocause a forfeiture of the leasehold interest inthat lease by High Crest. We agreewith respondents' argument that the cancellation of the oiland gas leasemay be a separate issueupon which another courtmay have jurisdiction. In the casebefore us, however, we cannot subscribe torespondents' distinction of the issuesbefore the two courts. Their arguments present a distinctionwithout a difference. The reasons advanced before the HillCounty districtcourt for the alleged breach of lease are the alleged illegalitiesinapplying for, and thewrongful creation of, the Bull Hook Gas Unit, coupled with the alleged wrongful act of including the lease of respondents within the Bull Hook Gas Unit. These arethe same reasons given tothe Lewis and Clark County districtcourt forreversal of the order creating the unit, and the same factual arguments inthe brief of respondents inthis

case are alsothe same presented tothe ~ewis and Clark County districtcourt. The respondents' arguments here arepredicated upon the invalidity of the Comissionk order. The court having jurisdictionover that question is the district court in Lewis and Clark County where the challenge to the Commission's order was first filed. Any consideration by the Hill County district court of these same reasons, arguments and facts is a collateral attack upon that judicial reviewprovided in section 60-135,R.C.M. 1947. Oil and gas conservation laws and the rules,regulations, and orderspromulgated thereunder, have the effect of modifying the provisions of existing leases in many respects. This statutory and administrative action is an exercise of the police power, and the fact that in some instances the leasemay have been procured prior to the legislative or administrative pronunciation is immaterial. Sullivan,Handbook of Oil and Gas Law, p. 431. In the present case the terms and provisions of the Oil and Gas ConservationAct are in fact incorporated in the lease to provide pooling of the land in question in accordance with any federal or state law, order, rule or regulation. Respondent's predicate their argument on violation of that provision of the lease which grants to lessee the right to pool said leased lands with other land in the vicinity subject to certain limitations. This provision of the lease, however, is related to one-well pooling as contemplated by section 60-130, R.C.M. 1947. It is entirely different from the unitization of all leases and all wells in an entire reservoir such as the Bull Hook Gas Unit provided in the Board order pursuant to section 60-131.1, R.C.M. 1947. The difference between one-well pooling authorized under section 60-130,R.C.M. 1947 and in respondents' lease, and the unitization of an entire reservoir under section 60-131.1, R.C.M. 1947, is illustrated in the following language in Sullivan's Handbook of Oil and Gas Law, at p. 308: "Under a system of minimum acreage spacing or specified drilling units the small tract that cannotmeet the requirements of the spacingrule is denied a well. In order to prevent confiscation of the recoverable oil beneath such tracts and to give each owner the opportunity to produce his fair share thereof, spacing statutes and regulationsprovide for pooling. Pooling is the uniting of separately owned, small, or irregularly shaped tracts for the purpose of integrating the minimum acreage necessary for a drilling unit. It is to be distinguished from unitization or unit operations,which is the consolidation of all interests in an entire pool, or a large part thereof, for the purpose of operating the reservoir as a single producing mechanism." (Emphasisadded.) Application by the appellant to the Montana Oil and Gas Conservation Commission for the unitization of a reservoir under section 60-131.1, R.C.M. 1947,does not constitute a breach of the one-wellpooling provision in the lease. Such unitization of an extensive reservoir containingmulti-leased lands, multiproducing wells, multi-pools, and multi-spacing or drilling units is different from the lease provision relating to pooling. The presumption in this state is that compliance with the Commission's order constitutes fulfillment of lease or contract obligations. Section 60-131.8, R.C.M. 1947,provides in part: 

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## * * * Operations conducted pursuant to an order of the commission providing for unit operations shall constitute a fulfillment of all the express or implied obligations of each lease or contract covering lands in the unit area to the extent that such obligations cannot be performed because of the order of the commission." Section 60-131.3, R.C.M. 1947, sets forth the terms, conditions, and requirements of the commission order. Subsection (1) and (3) provide that the commission order shall include: "(1)A description of the pool or pools or parts thereof to be so operated, termed the unit area, but only so much of a pool as has reasonably been defined and determined by drilling operations to be productive of oil or gas may be included within the unit area. in "(3) A plan for allocating to each tract/the unit area its fair share of the oil and gas produced from the unit area and not required or consumed in the conduct of the operation of the unit area orunavoidably lost. No such plan shall be approved by the commissionuntil the commission has considered the relativevalue that such share of production bears to the relativevalue of all of the separately owned tracts in the unit area, exclusive of physical equipment utilized in unit operations. In so considering such relative value, the commission shallweigh thesonomic value of the gas to all persons affected as compared to the economic value of the oil to all persons affected." The Commission's order determining "productive"lands and the allocation of oil and gas as provided in subsections (1)and (3) respecting respondents' lands within the unit area is the crux of the argument in both actions. To permit respondents to bring this second action would permit them to circumvent the statutes. The order of the Commission to create the Bull Hook Gas Unit is res judicata except in the appropriate district court in Montana on judicial review as provided in section 60-135,R.C.M. 1947. See St. John's Lutheran Hosp., Inc. v. State Bd. of Health, 161Mont. 406, 506 P.2d 1378, 30 St.Rep. 249; Polson v. Public Service Commission, 155 Mont. 464, 473 P.2d 508. On May 14, 1973, respondents properly filed a complaint in the district court in Lewis and Clark County for a review of the Commission's order. The second action filed two days later in Hill County involves the same subject matter, the same lessor, the same lease, and the same land. It is nothing more than a collateral attack precluded by the first action filed in Lewis and Clark County. With respect to the second issue we agree with appellant that there was a failure on the part of both the respondents and district court to comply with the time limitations of Rule 59, M.R.Civ.P. Rule 59(f) entitled "Motion toAlter or Amend a Judgment", provides in part: 

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## * * Thismotion shall be heard and determined within the time provided hereinabove with respect to a motion for a new trial." With respect to the time for hearing on a motion for a new trial, Rule 59(d) provides:"Hearing on themotion shallbe had within 10 days after it has been served

## * * * except that atany timeafter the notice of hearing on the motion has been served the court may issue an order continuing the hearing fornot toexceed 30 days

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## *. "If themotion is not noticed up for hearing and no hearing isheld thereon, it shallbe deemed denied asof the expiration of theperiod of time within which hearing isrequired tobe held under thisRule 59." The time and procedural limitations formotions subsequent tojudgment set out in Rule 59, M.R.Civ.P., aremandatory. Seibelv. Yurick, 136 Mont. 39, 344 P.2d 129. In recent decisions by thisCourt, Ginv. Harrington, 161Mont. 401, 506 P.2d 1375, 30 St.Rep. 245; and Leitheiser v. Montana StatePrison, 161Mont. 343, 505 P.2d 1203, 30 St.Rep. 183, we have reiterated the need tomake finalthejudgments of the districtcourt subject to appeal thatwould not unnecessarily lengthen litigation. In Cain and Leitheiser we strictlyapplied Rule 59, M.K.Civ.P., in order toput toan end the litigationof those actions. We see no reason in thiscase toprolong the action and add the expense of a second appeal. Thus we have answered both issuesbefore this Court. For thereasons setforth above, the order granting surnmary judgment on November 14, 1973, is reinstated, and thepurported order of December 3, 1973, altering and denying the prior summary judgment, isreversed.

Justice Weconcur:



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