1

The named appellants represent a class of approximately 3000

lessors.

___________

No. 94-1353

___________

Bob Klein; Genevieve Klein; *

John Frank Pendergrass; Sam *

Thompson; Margaret Schaffer; *

Clymer Law; Donnie Hall; *

Wayne Franklin, Class * 

Representative; Glen Morris, *

Class Representative; Rowland *

Vernon, Class Representative, *

*

Appellants, *

* Appeal from the United States 

v. * District Court for the Western

* District of Arkansas.

Arkoma Production Company; *

Arkla, Inc.; Arkla Exploration *

Company; Jerral W. Jones; *

Michael V. McCoy, ** Appellees. * ___________

 Submitted: January 11, 1995

 Filed: January 9, 1996 ___________

Before BEAM, BRIGHT, and HANSEN, Circuit Judges. ___________

BEAM, Circuit Judge.

Jerral W. Jones and Michael V. McCoy were sole shareholders of

Arkoma, a natural gas production company which held leases with Bob

Klein and other royalty owners. Jones and McCoy sold Arkoma

(sometimes old Arkoma) to Arkla, an exploration and pipeline

company. Bob Klein and the royalty owners1 appeal the district

court's finding that they are not entitled to recover any portion
 2

Jones and McCoy, as individuals, also owned and controlled

property in the Arkoma basin through several tax partnerships.

These tax partnerships also leased mineral rights to Arkoma. This

factual scenario appears more complicated than it is because Jones

and McCoy wore many hats and because the transactions were

structured to maximize tax benefits to Jones and McCoy.

 3A take-or-pay provision is a clause in a gas contract that

requires the purchaser to either take delivery of or to pay for the

minimal contract volume of gas that the producer/seller has

available for delivery. Under such a clause, the purchaser usually

has the right to take gas paid for (but undelivered) in succeeding

years (make-up gas). Klein v. Jones, 980 F.2d 521, 523 n.1 (8th

Cir. 1992).

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of funds exchanged in the transaction. The district court,

contrary to our earlier mandate, determined that Jones and McCoy

had not settled the royalty owners' take-or-pay claims when Jones

and McCoy effected the sale of Arkoma to Arkla and further

determined that Arkoma had not breached any implied duties to the

lessors. We reverse. 

I. BACKGROUND

The facts of this case are set forth in our opinion in the

earlier appeal of this action and need only be briefly repeated

here. See Klein v. Jones, 980 F.2d 521, 523-25 (8th Cir. 1992)

(Klein I). Jones and McCoy were, as stated, sole shareholders of

Arkoma, a gas production company. Arkoma had leases with the

royalty owners (lessors) for mineral rights to property located in

the Arkoma basin in western Arkansas. Under the leases, the

royalty owners were entitled to one-eighth of the proceeds from gas

produced on the owners' land. Arkoma received seven-eighths of the

gas production proceeds for its "working interest."2 

Arkoma sold natural gas to Arkla. One of Arkoma's contracts

with Arkla (GPC 5239) had a take-or-pay provision.3 Because the

price of natural gas fell, Arkla was unable to "take" the gas at

the agreed price and was unwilling to "pay" for it. Accordingly,

Arkoma had claims against Arkla for the amounts due under the take-
 4

That sum can be broken down as follows. The parties

initially agreed that Arkla would pay at least $73 million for

Arkoma, including the stock owned by Jones and McCoy. This amount

was subject to an adjustment to account for the results of

additional drilling on land subject to the leases. Most of

Arkoma's interests in the wells were held in tax partnerships

involving Arkoma and others, including Jones and McCoy. Before

Arkla's purchase of Arkoma stock, Jones and McCoy acquired the tax

partnership interests from others and assigned them to Arkoma. For

the assignment of these interests to Arkoma, Jones and McCoy

received a $35 million promissory note which was paid the day it

was received. Jones and McCoy also received an agreement for Arkla

to provide a quantity of gas to Jones and McCoy which agreement was

secured by a promissory note for $24 million. Jones and McCoy sold

their Arkoma stock to Arkla for $14 million. Additionally, in

1989, pursuant to the 1986 agreement that the amount was subject to

an adjustment, Jones and McCoy received another $100 million for

the revaluation of gas reserves. 

The royalty owners contend that they are entitled to oneeighth of the $24 million payment for the gas purchase contract and

one-eighth of one-half of the $100 million payment.

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-or-pay provision of the contract. The claims amounted to

approximately $36 million by March 1986 and were accruing at the

rate of about $3 million per month. 

In an effort to resolve the dispute over these claims, Arkla

and old Arkoma embarked on a series of negotiations, ultimately

resulting in the sale of Arkoma to Arkla. Jones and McCoy received

$173 million as a result of the transaction.4 After the purchase

of Arkoma by Arkla, the disputed gas production contract (GPC 5239)

was reformed. Under the new contract, Arkla paid new Arkoma (now

wholly owned by Arkla) less for its gas, and consequently the

royalty owners received lower royalty payments. The royalty owners

were not aware of any of this until they received royalty checks at

a lower rate in March 1987. 

The royalty owners sued in district court for breach of the

duty of fair dealing arising from a fiduciary relationship, breach

of contract as third-party beneficiaries of the gas purchase

contract, tortious interference with a contract, unjust enrichment

and breach of implied covenant to market. The district court
 5

This equitable claim is against Jones and McCoy personally

and not against Arkoma as a corporation because it was Jones and

McCoy who received the benefit of the "premium" Arkla paid for the

opportunity to reform the contract.

 6This claim is essentially directed at old Arkoma. However,

new Arkoma is the same corporation with a new stockholder, Arkla.

Because Arkla owns Arkoma, Arkla may also be liable if Arkoma

cannot satisfy a judgment.

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dismissed all claims. The royalty owners appealed to this court

and we reversed the dismissal of the unjust enrichment claim and

the breach of implied covenant to market claim. Klein I, 980 F.2d

at 533.

 In Klein I, we determined as a matter of law that the

complicated transactions between Arkla, Arkoma, Jones and McCoy for

the purchase and sale of old Arkoma included some payment for the

"settlement" of the royalty owners' take-or-pay claims. Id. at

525. ("The difference in the fair market value of the reserves

[$.83 per mcf.] and the amount paid to Jones and McCoy [$1.62 per

mcf.] represented the value paid to Jones and McCoy to settle

Arkla's take or pay dispute under GPC 5239"). Noting that this

case "cr[ies] for equity," we adopted the so-called "Harrell rule."

Id. at 527, 531. Under that rule, oil and gas leases should be

construed in a manner so that the lessee and lessor split all

economic benefits arising from the land; a royalty should be due on

either take-or-pay payments or settlement. Id. at 533 (J. Bright,

concurring). We remanded to the district court for further

proceedings consistent with the opinion. 

On remand, the parties and the court agreed that the remaining

claims were the royalty owners' unjust enrichment claims against

Jones and McCoy5 and the royalty owners' breach of implied covenant

to market claim against Arkoma.6 Klein v. Arkoma, No. 90-2060,

Mem. Op. at 2-3 (W.D. Ark. Jan. 5, 1994). The district court found

the record fully developed on the implied covenant to market claim

but took further evidence on the unjust enrichment claim. Id. at

21. 
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After trial, the district court found:

[t]here was no direct proof in the previous record on the

question of whether Jones/McCoy had, in fact, settled a

take-or-pay claim. It was, rather, for this court on

remand to hear the proof and determine what the facts are

with regard to that issue. It is therefore unfortunate,

in this court's view, that both the majority and

concurring opinions in Klein v. Jones, assume that the

sale of Arkoma from Jones/McCoy to Arkla amounted to a

settlement of a take-or-pay claim existing between the

parties. With respect, it is noted that the facts found

by this court after a five day trial do not support that

assumption.

Id. at 29-30 (emphasis in original) (footnote omitted). The

district court found that the take-or-pay claim was not settled

until after the sale of Arkoma because GPC 5239 was not reformed

until after Arkoma (new Arkoma) was owned by Arkla. Id. at 30.

The district court concluded that "Jones and McCoy were legally

entitled to receive all they did receive from such sale. They had

the legal right to sell their interests in Arkoma (including the

[Arkoma] take-or-pay claim) and cannot be said to have been

unjustly enriched because they chose to exercise that legal right."

Id. at 35. On the breach of implied covenant to market claim, the

district court found that the amendment of GPC 5239 "was prudent

and reasonable and served to properly comply with the implied duty

to market gas which New Arkoma, as lessee under the leases, owed to

plaintiffs as lessors." Id. at 63. 

The royalty owners have again appealed and the issue, once

again, is whether the royalty owners are entitled to share in any

portion of the $173 million that Jones and Mccoy received from the

various transactions. The royalty owners first contend that the

district court failed to follow the mandate of this court on

remand. They assert error in the district court's finding that the

transaction at issue was not a settlement of the take-or-pay claim

and assert that they are entitled to judgment on that claim. They

also contend that the district court erred in determining that

Arkoma had not breached an implied covenant to market.
 7

Generally, parties must bring any perceived errors in a panel

opinion to the court's attention through a petition for rehearing.

Liberty Mut. Ins. Co. v. Elgin Warehouse & Equip., 4 F.3d 567, 571

n.6 (8th Cir. 1993). We note that no one disputed our

characterization of the transactions as a "settlement" in the

petitions for rehearing that were filed in the earlier appeal.

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II. DISCUSSION

A. "Settlement" Finding--Law of the Case

We agree with the royalty owners that the district court

failed to follow the mandate of this court. The district court

erred in determining that there had been no settlement of the takeor-pay claim. In Klein I, we ruled that the funds received by

Jones and McCoy included an amount that represented the value to

Arkla of its right to reform the take-or-pay contract. That amount

was characterized as a "settlement" of the take-or-pay claims. The

legal conclusion that Jones and McCoy settled the take-or-pay

claims is the law of the case and the district court was bound to

follow it.7

 

The law of the case doctrine prevents relitigation of a

settled issue in a case and requires that courts follow decisions

made in earlier proceedings to insure uniformity of decisions,

protect the expectations of the parties and promote judicial

economy. Bethea v. Levi Strauss & Co., 916 F.2d 453, 456-57 (8th

Cir. 1990). See also Liberty Mut. Ins. Co. v. Elgin Warehouse &

Equip., 4 F.3d 567, 570 (8th Cir. 1993). When a case has been

decided by this court on appeal and remanded to the district court,

every question which was before this court and disposed of by its

decree is finally settled and determined. Houghton v. McDonnell

Douglas Corp., 627 F.2d 858, 864 (8th Cir. 1980). The district

court is bound by the decree and must carry it into execution

according to the mandate. Id. It may not "`alter it, examine it

except for purposes of execution, or give any further or other

relief or review it for apparent error with respect to any question

decided on appeal.'" Id. (quoting Thornton v. Carter, 109 F.2d
 8

We note that the district court's rejection of our holding

was based mainly on the sequence of events. The district court did

not find that no settlement had ever taken place, but that the

settlement did not occur until Jones and McCoy were out of the

picture (when the gas purchase contract was reformed). The

district court is wrong for two reasons: a) we rejected this

argument in the first appeal; and b) finding that the actual

reformation of the gas purchase contract is the settlement does not

reflect economic reality. There was no consideration for the

reformation. The quid pro quo to enable Arkla to renegotiate the

contract was exchanged in December 1986 when Arkla bought Arkoma

from Jones and McCoy. In other words, Jones and McCoy received the

money, the "premium" to settle the take-or-pay claims. 

-7-

316, 319-20 (8th Cir. 1940)). Under the law of the case doctrine,

a district court must follow our mandate, and we retain the

authority to decide whether the district court scrupulously and

fully carried out our mandate's terms. Jaramillo v. Burkhart, 59

F.3d 78, 80 (8th Cir. 1995).

The district court erroneously concluded that our holding was

a factual "assumption." It was not. It was a legal conclusion.

We found that, as a matter of law (regardless of how the parties

viewed the several agreements), the various transactions, including

the ultimate reformation of GPC 5239, amounted, at least in part,

to a "settlement" of the royalty owners' take-or-pay claims.8

Klein I, 980 F.2d at 531-32.

 

The interpretation of an unambiguous contract is a question of

law. W.S.A., Inc., v. Liberty Mut. Ins. Co., 7 F.3d 788, 791 (8th

Cir. 1993). The determination that a contract is, or is not,

ambiguous is also a legal determination and no deference is paid to

the trial court's decision on the issue. Maurice Sunderland

Architecture, Inc. v. Simon, 5 F.3d 334, 337 (8th Cir. 1993).

Also, in construing the contract, the court can consider both "the

Agreement as a whole" and the "undisputed context in which the

Agreement was concluded." Realex Chem. Corp. v. S.C. Johnson &

Son, Inc., 849 F.2d 299, 302 (8th Cir. 1988) (emphasis in

original). There was no dispute in the earlier litigation that the
 9

It is clear that the transactions amounted to a settlement of

the potential claim. See Appellants' Appendix at 136 (November 25,

1986, Letter from Alan M. Warren, President of Arkla Exploration

Co. offering to purchase Arkoma for $75 million dollars, including

settlement of take-or-pay claims); Appellants' Appendix at 141

(Handwritten notes headed "Details of Proposed Deal" indicating

"value to AEC [Arkla Exploration Co.] under lower pricing scenario

approximately 50 mm$--Jones won't settle for less than 75mm$--

portion of settlement must be take or pay . . . consultants have

indicated that $.80/mcf is a `reasonable' market value for reserves

in the ground--have backed into portion of settlement which must be

take or pay--24mm"); Appellants' Appendix at 152-157 (Arkla, Inc.,

Board of Directors' Meeting Minutes, December 17, 1986, containing

numerous references to "take-or-pay" and citing elimination of

take-or-pay obligation as a benefit of purchase); Appellants'

Appendix at 158-179 (Documents presented at December 17, 1986,

Board of Directors' Meeting entitled "Reformation of Arkoma

Contract and Purchase of Arkoma Production Company"). All of this

evidence was available to both the district court and to this court

in Klein I. See Klein v. Arkoma, No. 90-2060 (W. D. Ark. March 4-

12, 1991) (Trial Exhibits Nos. 51, 53, 58 and 72). 

-8-

transactions surrounding the sale of Arkoma were the vehicles by

which Arkla could reform GPC 5239. 

As indicated, we concluded as a matter of law that the sales

agreements and supporting documentation amounted to a settlement of

the take-or-pay claims. In consideration of this settlement, Jones

and McCoy received a premium, a price for the purported sale of

Arkoma which was over and above the market value of its gas

reserves and assets. Klein I, 980 F.2d at 531-32. Our legal

conclusion that the transaction was a settlement was based upon the

undisputed context of the negotiations leading up to the agreement:

the parties viewed the transactions as part and parcel of an

agreement to resolve the take-or-pay claims and the transactions

resulted from the negotiations to resolve the take-or-pay dispute.

We have again reviewed the record and remain convinced that our

conclusion is correct.9

 In any event, the district court was not

free to reject our legal conclusion.
 10Under Hillard v. Stephens, 637 S.W.2d 581, 584-85 (Ark.

1982), a lessor with a "market value" lease has a right to receive

from the lessee a percentage of all proceeds the lessee receives

from the sale of gas produced under a gas purchase contract. See

Klein I, 980 F.2d at 533-34 (the settlement can be viewed as

representing how much Arkla was willing to pay to either 1) be

released from the contract or 2) pay for gas it had already

received under the contract) (J. Bright, concurring). 

-9-

B. Unjust Enrichment 

The district court initially rejected the royalty owners'

unjust enrichment claim on the ground that the royalty owners had

a right to recover under their leases and therefore should not be

entitled to an equitable remedy. Klein v. Arkoma, No. 90-2060

Preliminary Conference at 13 (Transcript of Findings) (W.D. Ark.

March 4, 1991). We reversed that finding. Klein I, 980 F.2d at

533. Normally, when an express contract exists between the

parties, unjust enrichment is not available as a means of recovery.

Moeller v. Theis Realty, Inc., 683 S.W.2d 239, 240 (Ark. Ct. App.

1985). However, when an express contract does not fully address a

subject, a court of equity may impose a remedy to further the ends

of justice. See, e.g., Roberson Enters., Inc. v. Miller Land &

Lumber Co., 700 S.W.2d 57, 59 (Ark. 1985) (imposing conditional

cancellation). The leases in this case do not address whether a

take-or-pay settlement fits within the definition of the "market

value" of gas produced and sold under the leases.10 Moreover, Jones

and McCoy were not parties to the leases. For those reasons, we

adopted the Harrell rule, and cited Henry v. Ballard & Cordell

Corp., 418 So. 2d 1334, 1338 (La. 1982) for the proposition that

courts should construe transactions in such a way that the lessee

and lessor split all economic benefits from the land. Klein I, 980

F.2d at 531-32. 

A claim for unjust enrichment is an equitable claim. In

matters of equity, the court is one of conscience which should be

ever diligent to grant relief against inequitable conduct, however

ingenious or unique the form may be. Holland v. Walls, 621 S.W.2d
 11In this connection, we note that the only part of the monies

exchanged in the transaction that flowed through Arkoma to Jones

and McCoy was the $35 million to pay off the promissory note for

the assignment of Jones's and McCoy's interests as lessors. All

the other sums were paid directly to Jones and McCoy. The royalty

owners do not claim entitlement to the $35 million payment.

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496, 497 (Ark. Ct. App. 1981). A court of equity may fashion any

reasonable remedy that is justified by proof. Mid-State Trust II

v. Jackson, 854 S.W.2d 734, 738 (Ark. Ct. App. 1993). 

Under Arkansas law, a party is unjustly enriched when he has

received something of value that belongs to another. Dews v.

Halliburton Indus., Inc., 708 S.W.2d 67, 69 (Ark. 1986). The

measure of damages for unjust enrichment is the amount of unfair

gain received by those unjustly enriched.11 See, e.g., Holland, 621

S.W.2d at 499. Here, the evidence shows that Jones and McCoy

received a "premium" from Arkla to enable Arkla to reform the gas

purchase contract to the detriment of the royalty owners. The

royalty owners never received any of the premium that Jones and

McCoy received for the settlement of the take-or-pay claims.

Accordingly, because the evidence establishes as a matter of

law that Jones and McCoy settled the take-or-pay claims, and

because the Harrell rule entitles lessors to share in all proceeds

from the land, we hold that the royalty owners are entitled to

recover from Jones and McCoy on their unjust enrichment claim. We

have reviewed the voluminous record in this case and can find no

evidence that the royalty owners' rights or interests were

separately considered in the negotiations between Jones and McCoy

and the Arkla defendants. We thus conclude that the royalty

owners' interest is subsumed within the "premium" that Jones and

McCoy received as part of the sale.

We must next determine what part of the funds received by

Jones and McCoy in the transactions represented the "premium" paid

to enable Arkla to reform the contract. After review of the

record, we find that the $24 million "gas contract" payment
 12The evidence shows that the "gas contract" was actually an

illusory contract. McCoy testified that "[t]here was actually no

gas. There was no meter. There was no one selling and no one

buying." Trial transcript at 714. This portion of the deal was

apparently structured this way so that Arkla could pay in

installments. Id. at 711-12. Jones and McCoy received monthly

checks from Arkla for non-operational wells. Id. at 712-13. 

 13At oral argument, counsel for the royalty owners stated that

the certified class in this case consists of only the Arkansas

royalty owners. The Arkansas royalty owners comprise approximately

seventy percent of the royalty owners entitled to share in the

proceeds. Accordingly, the royalty owners in this litigation are

entitled to approximately seventy percent of the award. The

district court on remand shall also determine the proper amount to

be awarded to these plaintiffs.

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(secured by a promissory note) represented part of the "premium."12

The royalty owners are entitled to a one-eighth share of that $24

million. In addition, pursuant to the 1986 agreement, Jones and

McCoy received, in 1989, an additional $100 million for revaluation

of wells. The evidence shows that the 1989 payment was premised on

the 1986 agreement and it also includes part of the premium. The

$100 million payment consists of payment of $1.62 for reserves in

the ground which were worth $.83 on the spot market. This

difference represents the "premium" Arkla paid to reform GPC 5239.

Accordingly, the royalty owners are entitled to one-eighth of

approximately half ($.83/$1.62) of $100 million. On remand, the

district court shall determine the amount with specificity and

shall enter judgment against Jones and McCoy in that amount.13 

C. Breach of Implied Covenant to Market

The district court found that evidence showed the actions of

Arkoma in reforming the contract were prudent and reasonable.

Klein v. Arkoma, No. 90-2060, Mem. Op. at 46 (W.D. Ark. Jan. 5,

1994). Although that finding may be correct, that is not the

issue. We find that the implied covenant to market under a lease

necessarily encompasses not only the duty to make prudent and

reasonable business decisions, but the duty to share the proceeds

of those decisions with the lessors. The breach in this case is
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neither the decision to settle, nor the decision to reform the

contract, but the failure to share the benefits of the settlement

with the beneficial owners of those proceeds. 

This result is also mandated by our decision in Klein I. In

adopting the Harrell rule, we held that the economic benefits of

the land must be proportionally split between lessees and lessors

of an oil and gas lease. Here, we determined that a "premium" was

paid to enable Arkla to reform the contract. As noted earlier, the

royalty owners received no share of the premium. 

The district court erred when it conflated the cause of action

for breach of lease obligations with that of breach of the gas

purchase contract. The claim for breach of implied covenant to

market arises under the lease. Klein I, 980 F.2d at 526. The

district court, discussing the breach of implied covenant claim,

states:

As has been said by both the Court of Appeals and by this

court, plaintiffs were incidental beneficiaries with

respect to GPC 5239. Thus, these benefits incidentally

acquired by plaintiffs when GPC 5239 came into being were

in like manner incidentally lost when New Arkoma and

Arkla, for prudent reasons, amended GPC 5239. 

Klein, No. 90-2060, mem. op. at 44-45. The court further states

that "[n]o authority has been cited to the Court to support the

notion that the loss of such incidental benefits amounts to a

violation of the implied covenant to market which attends a mineral

lease." Id. at 60. After first noting that there is no express

covenant to sue to enforce take-or-pay obligations under GPC 5239,

the district court further states:

Arkansas law does not recognize any implied covenant on

the part of a lessee under an oil and gas lease to file

suit to enforce the terms of a gas purchase contract, to

which lessee is a party, for the benefit of the lessor

under the said lease who is neither a party nor a third

party beneficiary with respect to the said gas purchase

contract. 
 14To that end, there was much testimony about the value and

prospect of success of the potential claim. That evidence is

irrelevant because the value has already been determined by the

amount Arkla was willing to pay to settle the potential claim. The

prospect of success is likewise irrelevant since the claim was

settled, not litigated. 

-13-

Id. 

In Klein I, we affirmed the holding that the landowners could

not maintain a suit for breach of the GPC 5239 contract. Klein I,

980 F.2d at 527. However, the question of breach of implied

covenant to market is a completely different issue. The implied

covenant arises in and from the leases and is not premised upon GPC

5239, except that GPC 5239 may be evidence that defines the extent

of the duty or that measures damages flowing from its breach. 

To affirm the district court's holding would mean that the

royalty owners' status as incidental beneficiaries of GPC 5239

precludes their claim to enforce an implied covenant to market

under the leases. That result would effectively negate our earlier

finding that there is such an implied covenant. 

The flaw in the district court's implied covenant analysis is

that it assumes that the only way to satisfy the implied covenant

would have been to sue to enforce the GPC 5239 take-or-pay

obligations.14 To the contrary, it may have been reasonable for

Arkoma to forego suing Arkla on the take-or-pay claims for a

premium reflected, as in this case, in the monies paid in the

transactions involving the sale of the corporation. However, in

order to fulfill its obligations to its lessors, Arkoma needed to

ensure that the landowners received a portion of the funds paid by

Arkla as a premium. 
-14-

We hold that Arkoma breached a duty under the implied covenant

to market owed to the lessors under the leases. This breach

occurred when Arkoma failed to retain and pay over to the royalty

owners a proportionate share of the premium paid by Arkla to settle

the take-or-pay claims. Accordingly, the class is entitled to

judgment against Arkoma under the implied covenant to market. 

The liability here is primary as to Jones and McCoy and

secondary against Arkoma. After all, Jones and McCoy actually

received the monies rightfully belonging to the Arkansas royalty

owners. See supra at 10 n.11.

The dissent charges the court with three errors and then

concludes that Jones and McCoy are entitled to $173 million while

the owners of the land from which the gas is extracted are due zero

dollars. The court disagrees and responds briefly to each concern.

The dissent first insists that we commit a factual error when

we speak of the royalty owners take-or-pay claims, asserting that

the claims belong only to Arkoma. Infra at 17-18. The

significance of Klein I and its adoption of the Harrell rule is

that the royalty owners are entitled, by virtue of the leases, to

a proportionate share of Arkoma's take-or-pay claims. Klein I, 980

F.2d at 531-32. Also, the dissent, like the district court,

confuses the royalty owners' contract rights under the leases with

those under GPC 5239. Supra at 12-13.

Next, the dissent challenges both the fact of and the

correctness of this court's finding in Klein I that a settlement

had been reached. Infra at 18-20. That we found as a matter of

law that the contracting parties had settled the take-or-pay claims

is beyond dispute. Both the parties and the district court

recognized this result on remand. Klein v. Arkoma, No. 90-2060,

Mem. Op. at 30 (W.D. Ark. Jan. 5, 1994). In challenging the

correctness of the decision, the dissent charges us with appellate

court factfinding under the guise of deciding a question of law.
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Infra at 21. In doing so, the dissent disregards the trial court

record and also misapprehends Arkansas law.

We strongly disagree that any appellate court findings of fact

were made in either Klein I or in this decision. The dissent

quotes statements by the district court in Klein I to show that

settlement of the take-or-pay claims was in dispute. The dissent

then turns the district court's legal observation that "I don't

think the plaintiffs [royalty owners] have a right to any portion

of the proceeds of a settlement of a take or pay obligation," into

a "recognized . . . genuine factual dispute." Infra at 19. The

basis for this legal/factual metamorphosis is difficult to

perceive.

Admittedly, the settlement issue was hotly contested, but it

was the legal question of whether and upon what terms a settlement

was reached, rather than the facts surrounding the events of

December 1986, that was in dispute. Resolution of the issue did

not, and does not, involve deciding issues of fact. Whether a

contract (here, the settlement agreement) is formed is a question

of law. For example, if it is undisputed that party one says "I

will give you ten dollars if you won't sue me" and party two says

"okay", this court, or any court, is free to determine, as a matter

of law, that the transaction constitutes a settlement calling for

a payment of $10 to party two. That is exactly what this court did

in Klein I. The court considered and relied upon undisputed

documentary evidence that had been presented to the district court

and found that the transaction amounted to a settlement. Supra at

8 n.9. We merely construed unambiguous contracts in the context of

undisputed facts, all the while viewing the evidence most favorably

to the nonmoving parties. Within this context we applied the

Harrell rule to determine who would receive portions of the agreed

upon amounts.

Building on its misapprehension of the factual/legal

situation, the dissent cites Rowland v. Worthen Bank & Trust Co.,
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680 S.W.2d 726, 728 (Ark. Ct. App. 1984) as support for the

proposition that "[u]nder applicable Arkansas law, whether or not

a settlement was made is an issue of fact for the trier of fact."

Infra at 20-21. The Rowland case simply does not stand for that

proposition. The issue in Rowland was whether a lawyer, as a

matter of law, may bind a client to an agreement [by the lawyer] to

settle a claim. Rowland, 680 S.W.2d at 727. The trial court said

no. Id. The Arkansas Court of Appeals reversed, holding that the

settlement was, indeed, binding as a matter of law. Id. at 728.

The court conceded that the extent of the authority a client may

grant to his lawyer may be a question of fact. Id. However, in

Rowland, as here, when the context within which the settlement is

achieved is not in dispute, whether a settlement was reached and

the interpretation of the terms and conditions of such settlement

are questions of law for the court. These questions are precisely

what this court was entitled to answer and did answer in Klein I.

These legal conclusions were binding upon the district court on

remand.

The dissent's claims of appellate court factfinding appear to

be bottomed on the posture of the appeal in Klein I as an appeal

from a motion for summary judgment. Infra at 18. Notably, in

Klein I, the district court had granted summary judgment in favor

of Jones and McCoy on all claims except the breach of implied

covenant to market claim. Klein I, 980 F.2d at 526. That claim

was fully tried. Id. The evidence with respect to the threshold

issue of whether the take-or-pay claims had been settled is the

same with respect to all claims. As noted, all of the facts on

which this court relied had been presented to the district court.

Supra at 8, n.9. 

Finally, the dissent's objection to the court's covenant to

market holding is incorrect as well. The dissent construes the

various agreements and states, "I disagree with the court's basic

conclusion that Jones and McCoy were paid anything as individuals

to settle the take-or-pay dispute between the two corporations, but
-17-

instead were paid only for the value of Arkoma itself." Infra at

22. However, when you cut through the form and get to the

substance of this dispute, as outlined supra at 3 n.4 and 8 n.9,

you find, under the dissent's approach, that Jones and McCoy would

have been paid $173 million for all of the stock in a $14 million

company. Every dollar beyond the $14 million paid for the Arkoma

stock represented payment for either the oil reserves owned by

Jones and McCoy or the take-or-pay interests held by Jones and

McCoy, as individuals, and by the royalty owners. If Jones and

Mccoy were entitled to direct or indirect compensation for their

take-or-pay claims, so were the royalty owners. Thus, all of the

maneuvering by Jones and McCoy to the contrary, the undisputed

record simply fails to establish that the royalty owners had no

lawful right to part of the settlement reached with Arkla.

 

III. CONCLUSION

For the reasons set forth above, the judgment of the district

court is reversed and this action is remanded to the district court

for entry of judgment against Jones, McCoy and Arkoma in an amount

to be determined by the district court, together with interest as

provided by law.

HANSEN, Circuit Judge, dissenting.

I respectfully dissent. 

First, the court errs factually when it speaks of the "royalty

owners' take-or-pay claims". Supra, at 2, 4. The only "take-orpay claims" that existed in this case were those held by Arkoma

against Arkla arising out of Arkla's refusal to either take or pay

pursuant to one or more of eight gas purchase contracts (the most

notable of which is GPC 5239) between the two corporations. The

take-or-pay claims against Arkla were always contract rights and

nothing more. The take-or-pay claim in GPC 5239 was not held by

the plaintiffs, and most certainly not by Jones and McCoy as
 1

Contrary to the criticism made by my brothers, supra, at 14,

17, in my view the royalty owners are entitled to everything their

leases entitle them by applying the "Harrell Rule" to let them

share in the settlement of the take or pay contracts. As outlined

herein, my dispute is with the court's adamant insistence that the

first appeal decided as a matter of law that the take or pay

contracts were settled by payments to Jones and McCoy and the terms

of such a settlement.

-18-

individuals, but solely by the plaintiffs' lessee, Arkoma. It was

always a corporate asset of Arkoma's, a receivable, if you will, of

disputed and doubtful value heavily laden with litigation risks.

In the first appeal we held that the plaintiff royalty owners were

not even third party beneficiaries of GPC 5239, holding them to be

"at the most, incidental beneficiaries." Klein v. Jones, 980 F.2d

521, 527 (8th Cir. 1992) (Klein I). Their claims, if any, must be

bottomed on their leases with Arkoma, and as I understand it, their

unjust enrichment claims in this lawsuit are that Jones and McCoy

failed to share with them some of the monies Jones and McCoy

received when Jones and McCoy sold their individual interests in

Arkoma to Arkla's wholly-owned subsidiary, Arkla Exploration

Company. Or as the plaintiffs' counsel put it at oral argument,

"They got theirs--we didn't get ours."1

Second, I most respectfully disagree with our court's first

and basic premise that this court concluded as a matter of law in

the first appeal that an identifiable and discrete part of the

money Jones and McCoy received from the sale of Arkoma represented

a "settlement" of the take-or-pay dispute between Arkla and Arkoma.

If it was anything, our prior comment that "[t]he difference in the

fair market value of the reserves and the amount paid to Jones and

McCoy represented the value paid to Jones and McCoy to settle

Arkla's take or pay dispute under GPC 5239," id. at 525, was an

unnecessary and exceptionally inappropriate appellate court factfinding, and we should candidly recognize it as such. It must be

remembered that this case first came to us on a grant of summary

judgment by the district court (Morris S. Arnold, J.) purely on a

question of law. Whether the take-or-pay claim held by Arkoma
 2

The court's majority misreads this dissent. Supra, at 15.

As stated above, the genuine factual disputes recognized by the

first district judge were "whether or when this take or pay

contract was settled." The only metamorphosis which occurs is when

the majority takes those recognized and existing factual disputes

as to "whether and upon what terms a settlement was reached,"

supra, at 15, and now says they were really questions of law

decided by the first appeal. The real question of law involved in

the first appeal was whether the first district judge was right

when he said that royalty owners had no right to any portion of the

proceeds of a settlement of a take or pay contract. We said that

the district court was wrong, and that royalty owners, under the

"Harrell Rule," have a right to share in the settlement of a take

or pay contract between their lessee and a pipeline company. I do

not disagree with that legal conclusion. 

-19-

against Arkla had in fact been settled by any of the payments made

to Jones and McCoy was hotly contested in the summary judgment

papers filed with the trial court. The district judge acknowledged

the disputes of fact about the "settlement" of the take-or-pay

claim that existed at the time of the submission of the summary

judgment motion:

The briefs are full of a lot of argument about

whether or when this take or pay contract was

settled, whether it was settled when Arkoma

was sold and Mr. Jones and Mr. McCoy got money

for their stock and some other things, or

whether it was settled when in fact Arkoma

entered into a new agreement with the Arkla

companies.

(JM App. at 2-3.) Having recognized the genuine factual disputes

before him about "whether or when this take or pay contract was

settled," the district judge went on to say:

But I don't think it matters, at least not on

this level, when or if the contract was

settled, because I don't think the plaintiffs

have a right to any portion of the proceeds of

a settlement of a take or pay obligation.

(Id. at 3.)2 It was on that issue of law that we reversed the

district court's grant of summary judgment to Jones and McCoy and
-20-

adopted the "Harrell Rule." For our court to say today that "[o]ur

legal conclusion that the transaction was a settlement was based

upon the undisputed context of the negotiations leading up to the

agreement . . .", supra, at 8 (emphasis added), is directly

contrary to the record before the district court at the time it

granted summary judgment and cannot be correct. Like the district

court, it was not necessary "on this level" for this court to

decide in Klein I "whether or when this take or pay contract was

settled" (let alone what was paid to settle it, which is also what

the court now says the first opinion did and what it is now trying

to enforce). All we had to decide in Klein I was whether royalty

owners had a legal entitlement to share in the settlement of a take

or pay contract and leave to the district court on remand to

determine the factual issues of what, when, whether, and how

settlement occurred.

 We consistently reverse district judges who decide disputed

issues of fact in determining summary judgment motions. See

Teleconnect v. Ensrud, 55 F.3d 357, 360 (8th Cir. 1995) ("The

summary judgment mechanism is not designed to forecast the work of

the finder of fact."); Oldham v. West, 47 F.3d 985, 989 (8th Cir.

1995). We should be willing to take the same medicine we dose out

and recognize our own errors when we make them. We are not

allowed on appeal to weigh the evidence and resolve disputed

questions of fact. McCurry v. Tesch, 824 F.2d 638, 640 (8th Cir.

1987) ("The trial court is the place for the facts to be found.

Appellate courts should not find the facts . . . ."). Rather, on

appeal from a grant of summary judgment as in Klein I, we are only

authorized to view the evidence in the light most favorable to the

nonmovant (not to determine what disputed facts that evidence

proves) and then to decide whether the movant has "established its

right to a judgment with such clarity as to leave no room for

controversy . . . ." Kegel v. Runnels, 793 F.2d 924, 927 (8th Cir.

1986). Under applicable Arkansas law, whether or not a settlement

was made is an issue of fact for the trier of fact. Rowland v.

Worthen Bank & Trust Co., N.A., 680 S.W.2d 726, 728 (Ark. App.
 3

Contrary to the majority's criticism, supra, at 15-16,

Rowland is directly on point. In Rowland, as it was in this case

with respect to the first appeal, only a question of law was before

the appellate court. It was precisely because the Arkansas trial

court had made no findings of fact about "whether, under the facts

of this case, a settlement in fact had been made. . ." (680 S.W.2d

at 728) (emphasis added) that the Arkansas appellate court remanded

to determine if a settlement had in fact been made. At the risk of

repetition, then District Judge Arnold, just like the state trial

judge in Rowland, made no fact-finding about "when or if the

contract was settled" (JM App. at 3), because, just like the state

trial judge in Rowland, he decided the case on a question of law.

The difference between our court and the Arkansas Court of Appeals

is that the state appellate court correctly declined the

opportunity to look at the facts in the record as they existed

before the trial court and make the factual determinations that a

settlement had, in fact, been made (and also its terms) as our

court erroneously does.

-21-

1984) ("The Court of Appeals cannot act as a factfinder. We must

therefore reverse and remand this matter to the trial court so that

a further hearing may be held to determine whether a settlement had

been made . . . ." (citation omitted)).3 We committed fundamental

error in Klein I when we included in the "FACTS" portion of the

opinion the resolution of what everyone in the district court knew

were hotly disputed fact issues -- "whether or when this take or

pay contract was settled." Because Jones and McCoy had no

opportunity in the summary judgment setting to obtain a ruling from

the district judge on the disputed issues of fact before the first

appeal, they were not and should not be bound on remand by our

court's statements on the factual issues. See International Union,

UAW v. Mack Trucks, Inc., 917 F.2d 107, 110-11 (3d Cir. 1990),

cert. denied, 499 U.S. 921 (1991).

Nor are we now correct, and in truth we compound our error,

when we take what was an unwarranted appellate court fact-finding,

call it a "conclusion of law," and then use it as "the law of the

case" to reverse carefully considered detailed findings of fact

made by the district judge after hearing all of the evidence in a

five-day trial. Our gratuitous finding (or "assumption" as the

district judge more politely characterized it on remand) was not

only unwarranted, ill-advised, and inappropriate, it was, as the
-22-

district judge's meticulous fact-findings on remand demonstrate,

clearly wrong.

We can still correct rather than compound our previous error

by now treating our prior finding not as either established fact or

as the law of the case, but as what it should have been -- a

recitation of the evidence as viewed in the light most favorable to

the nonmoving plaintiffs at the time the trial court granted

summary judgment against them. Then we are free to do that which

the law requires us to do now -- review the findings of fact made

by the district court on remand for clear error. Having done so,

I would affirm the district court on the unjust enrichment claims

made by the plaintiffs against Jones and McCoy.

I also dissent from the court's opinion with respect to the

implied covenant-to-market claim made against the Arkla defendants.

The court pegs its conclusion of liability on a determination that

"Arkoma failed to retain and pay over to the royalty owners a

proportionate share of the premium paid by Arkla to settle the

take-or-pay claims." Supra, at 14. The "premium" the court is

talking about is the "premium" the court erroneously finds Jones

and McCoy were paid as individuals to settle the take-or-pay

dispute pursuant to the terms of the December 31, 1986,

transactions. Supra, at 10-11. Because I disagree with the

court's basic conclusion that Jones and McCoy were paid anything as

individuals to settle the take-or-pay dispute between the two

corporations, but instead were paid only for the value of Arkoma

itself, which included whatever present contingent asset value the

take-or-pay dispute with Arkla may have had to Arkoma, I cannot

concur with the court's conclusion about Arkoma's responsibility to

retain some of the monies paid by Arkla for the plaintiffs'

benefit. In addition, any monies paid by Arkla went directly to

Jones and McCoy without passing through Arkoma. There was nothing

for Arkoma to "retain." In my view, the implied covenant-to-market

claim only reaches the actions of New Arkoma in renegotiating its

contract rights in GPC 5239. (The reader must remember that the
 4

The majority again errs in its reading of this dissent.

Under the district court's judgment, which should be affirmed, the

royalty owners received the benefit of the above market prices

contained in the renegotiated take or pay contract which reopened

their wells. For the first time since the take or pay dispute

arose, they began receiving real dollars, not "zero dollars." They

were receiving zero dollars, i.e., nothing, all the while the

unresolved take or pay contract dispute between Arkoma and Arkla

caused their gas to remain shut in and no production occurred. 

-23-

plaintiffs had no legally enforceable rights in the contract and

were only incidental beneficiaries thereof.) With respect to that

issue, I agree with the district court that there was no violation

of any such implied covenant. The actions taken by New Arkoma in

negotiating an end to the stalemate were similar to those taken by

many other producers with disputed take-or-pay contracts, and

resulted in the movement of the plaintiffs' gas out of the ground

at better than existing market prices with royalties being paid.4

Its actions in renegotiating GPC 5239 meet the test we set out in

Klein I -- "The test of compliance with an implied covenant is that

of a reasonable developer." Klein I, 980 F.2d at 532. In fact,

given the market conditions then existing, it probably would have

been imprudent not to have renegotiated the contract. See Frey v.

Amoco Prod. Co., 603 So.2d 166, 176 (La. 1992) (While making a long

term contract containing a take-or-pay provision with pipeline

company was originally prudent, producer "would also likely be

deemed to have acted imprudently" if it failed to renegotiate in

face of pipeline's financial inability to fully perform take or pay

given market conditions.). Although the following quotation may be

subject to the criticisms made herein, this court said as much in

Klein I:

In this case the take-or-pay elements in the developers

[sic] contracts with the pipeline/marketer were, because

of Federal Energy Regulatory Commission intervention,

literally bankrupting the pipeline, and those facts must

be considered in evaluating the reasonableness of

defendants' actions. We find it reasonable for the

defendants to make some effort to liquidate the take-orpay obligations of AEC.
-24-

Klein I, 980 F.2d at 526. Plaintiffs have failed to show that the

district court's fact-findings on this claim are clearly erroneous;

the evidence fully supports the trial court's determination that no

violation of the implied covenant to market gas in a reasonable and

prudent manner occurred, and I would affirm its judgment in all

respects.

Accordingly, I respectfully dissent.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.