No. 04-547 IN THE SUPREME COURT OF THE STATE OF MONTANA 2007 MT 162N

CARTER STEWART, Plaintiff and Appellant,

v. JOHN S. HAUPTMAN and INTERMOUNTAIN LEASING, INC., Defendants and Respondents.

APPEAL FROM: The District Court of the Thirteenth Judicial District, In and For the County of Yellowstone, Cause No. DV 2002-766, Honorable Russell C. Fagg, Presiding Judge

COUNSEL OF RECORD: For Appellant: Mark T. Errebo, Attorney at Law, Billings, Montana For Respondents: James P. Healow, Attorney at Law, Billings, Montana

Submitted on Briefs: February 23, 2005

Decided: July 10, 2007 Filed:

__________________________________________ ClerkJustice James C. Nelson delivered the Opinion of the Court. ¶1 Pursuant to Section I, Paragraph 3(c ), Montana Supreme Court 1996 Internal Operating Rules, as amended in 2003, the following decision shall not be cited as precedent. It shall be filed as a public document with the Clerk of the Supreme Court and its case title, Supreme Court cause number a nd disposition shall be included in this Court's quarterly list of noncitable cases pub lished in the Pacific Reporter and Montana Reports. ¶2 Carter Stewart appeals a Judgment of the Di strict Court for the Thirteenth Judicial District, Yellowstone County, finding in favor of John Hauptman and Intermountain Leasing, Inc., (jointly “Intermountain”) rega rding certain oil and gas leases in Roosevelt County, Montana. Stewart al so appeals the court’s Order and Decision denying Stewart’s

Motion for New Trial. ¶3 Stewart raises the following issues on appeal: ¶4 1. Did the District Court err in holdin g that Stewart is required to offer all subsequently acquired oil and gas leases to Intermountain under the “Area of Mutual Interest” provision of the Par ticipation/Farmout Agreement? ¶5 2. Did the District Court err in requir ing Stewart to specifically perform the March 13, 1995 Agreement between the parties? ¶6 3. Did the District Court err in de nying Stewart’s motion to take additional testimony with regard to newly discovered evidence pursuant to M. R. Civ. P. 52(b) and 59(a)? Factual and Procedural Background

2¶7 In early 1995, Stewart, a geologist, a pproached Hauptman, a petroleum landman, about an oil and gas prospect in Roosevelt County. Stewart aske d Hauptman to put up some of the money for the leas es. Hauptman obtained the le ases from the mineral owners under the name Intermountain. Subseque ntly, Dennis Rue and Neal LaFever also contributed money for the leases. ¶8 Stewart, Intermountain, Rue and LaFever en tered into an Agreement regarding the ownership of the oil and gas leases in the North Shotgun Creek Pr ospect in Roosevelt County on March 13, 1995. This Agreemen t provided that the four would own the leasehold interests already acquired and “any oil and gas leases and leasehold estates which may be subsequently ac quired.” Three wells were eventually drilled on these

leases. ¶9 On August 15, 1995, Intermountain, as operator of the wells, prepared and executed a Participation/Fa rmout Agreement (P/FA). 1 Although Stewart did not sign the P/FA, Intermountain claimed that Stewart was bound by its terms because Intermountain, as holder of the leases, had executed the P/FA as Stewart’s agent and trustee. The P/FA included an “Area of Mutual Interest” (AMI) provision which required each party to offer any subsequently acquired leases in the North Shotgun Creek Pr ospect to the other parties at acquisition cost. Intermountain claimed th at the interests of the parties under the original March 13, 1995 Agreement were transferred, redefined and refined by the P/FA. ¶10 In 1998, Intermountain reacquired a number of the North Shotgun Creek Prospect

1 The parties occasionally refer to this as the September 15, 1995 P/FA, however, it is actually dated August 15, 1995.

3leases which had expired, and assigned interests in those leas es pursuant to the P/FA. In February 2000, Stewart reacquired seven leases in the North Shotgun Creek Prospect and indicated his intent to share interests in those leases with Rue and LaFever, but not with Intermountain. To that end, Stewart wrote a letter to Rue and LaFe ver with the salutation “Dear Partners.” A well was subsequently drilled on these leases. ¶11 Intermountain filed an affidavit with the Clerk and Recorder of Roosevelt County on May 1, 2002, in which Intermountain claime d an interest in the oil and gas leases acquired by Stewart. Stewart alleged that, as a result of the filing of the affidavit, title to the well was clouded and the producer refused to pay Stewart his share of the proceeds of

the well. ¶12 On October 15, 2002, Stewart filed an Amended Complaint and Jury Demand against Intermountain alleging th at he was damaged by Intermountain’s actions in filing the affidavit. Stewart sought an order requiring Intermountain to rescind the affidavit and thereby remove the cloud from the title so th at Stewart could receive his share of the proceeds from the well. Stewart also sought damages for deceit, libel and interference

with contract. ¶13 In its Amended Answer, Intermountain claimed that Stewart was bound by the P/FA because: (1) Intermountain had executed it on Stewart’s behalf pursuant to their joint venture in the North Shotgun Creek Pr ospect in Roosevelt County; (2) Stewart accepted the benefits of the P/FA; and (3) by accepting assignments of the 1998 leases from Intermountain, Stewart impliedly c onsented to be bound by the P/FA.

Intermountain further claimed that St ewart was bound by the AMI provision which

4required Stewart to allow Interm ountain to participate in St ewart’s oil and gas leases. Intermountain sought a judgment declaring that the AMI provision was applicable to Stewart’s leases and that Stewart was requi red to specifically perform his obligations under the AMI provision. ¶14 The case was tried before the District C ourt without a jury on September 22 and 23, 2003. On October 7, 2003, the court issu ed its Findings of Fact and Conclusions of

Law wherein the court determined that Inte rmountain owns a 1/6 interest in the seven leases acquired by Stewart. The court al so determined that Stewart was entitled to reimbursement for his time and costs in procuring said leases. ¶15 On October 23, 2003, Stewart moved for a new trial on the grounds that he had discovered new evidence. Sp ecifically, he contended that he discovered a letter from Hauptman dated March 8, 2000, which is in “direct contravention of defendant Hauptman’s testimony at trial a nd paragraph 16 of the Findin gs of Fact issued by the Court on October 7, 2003.” In an Orde r and Decision entered December 1, 2003, the

District Court denied Stewar t’s Motion for New Trial on the basis that the evidence was not “newly discovered” as Stewart claimed a nd the evidence did not directly contravene Hauptman’s testimony or the co urt’s Finding of Fact No. 16. ¶16 On March 23, 2004, the court entered Ju dgment for Intermountain and against Stewart declaring that the P/FA dated Au gust 15, 1995, and particularly the AMI provision, was applicable to any leases acquired by Stewart with in the North Shotgun Creek Prospect for so long as any of the oil and gas leases subject to the P/FA continued in effect, whether by production, extension or otherwise. The court also ordered that

5Stewart specifically perform the provisions u nder the March 13, 1995 Agreement, as well as the P/FA, and allow Intermountain to participate under those agreements after Intermountain has paid its share of expens es incurred in procuring the leases. ¶17 Stewart appeals. Intermountain did not file a response brief until more than a year after the time for filing such brief had expired. Stewart moved to disregard Intermountain’s untimely brief an d this Court so ordered.

Issue 1. ¶18 Did the District Court err in holding that Stewart is required to offer all subsequently acquired oil and gas leases to Interm ountain under the AMI provision of the P/FA? ¶19 Stewart maintains on appeal that he is not bound by the P/FA because he did not sign it and, even if it is determ ined that he was bound by th e P/FA, he was not required to offer the subsequently acquired leases to In termountain pursuant to the AMI provision of the P/FA because the Operati ng Agreement attached to the P/FA states that leases acquired more than six months after the expira tion of an existing lease are not subject to

the P/FA. ¶20 In construing an oil and gas lease, courts will generally apply the rules of contract interpretation. Sandtana, Inc. v. Wallin Ranch Co. , 2003 MT 329, ¶ 26, 318 Mont. 369, ¶ 26, 80 P.3d 1224, ¶ 26. The construction a nd interpretation of a contract is a question

of law for the court to decide. Ophus v. Fritz , 2000 MT 251, ¶ 19, 301 Mont. 447, ¶ 19, 11 P.3d 1192, ¶ 19 (citing Schwend v. Schwend , 1999 MT 194, ¶ 36, 295 Mont. 384, ¶ 36, 983 P.2d 988, ¶ 36; Stutzman v. Safeco Ins. Co. of America , 284 Mont. 372, 376, 945 P.2d 32, 34 (1997)). We will re view a district court’s conclu sions of law for correctness.

6Ophus , ¶ 19 ( Schwend , ¶ 36; Carbon County v. Union Reserve Coal Co., Inc. , 271 Mont. 459, 469, 898 P.2d 680, 686 (1995)). ¶21 Here, the March 13, 1995 Agreement “set forth the understanding and agreement by and among” Intermountain, Stewart, LaFever, and Rue “regarding the North Shotgun Creek Prospect in Roosevelt Co unty, Montana” and was signed by all four parties. This Agreement stated: WHEREAS, it is the desire of th e parties hereto to define and stipulate the proportionate interest ow ned by each in the oil and gas leases and leasehold estates described in Ex hibit “A” and provid e for the sharing [of] all prospect fees, revenues, cost s, expenses and liabilities attributable thereto and any oil and gas leases and le asehold estates which may be subsequently acquired. [Emphasis added.] ¶22 In 1998, Intermountain reacquired a number of the North Shotgun Creek leases which had expired, and assigned interests in those leases. The District Court determined that by virtue of the P/FA, Stewart received the benefit of an assignment of those leases and that, having accepted the benefits of the ag reement, Stewart is d eemed to have given his implied consent to the P/FA . Moreover, subsequent to execution of th e agreement, Stewart accepted at least five different assignments from Intermountain: three assignments of royalty; an assignment of the original oil and gas leases; and an assignment of the 1998 reacqui red leases. These various assignments each included provisions expressly making the a ssignments subject to the P/FA. ¶23 The “Assignment of Overriding Royalty” executed by Hauptman as President of Intermountain Leasing, Inc., on May 1, 1 998, “but effective De cember 10, 1995,” assigned 25% royalties to all four participan ts in the North Shot gun Creek Prospect:

7Stewart, Rue, LaFever and Haup tman. This document stated: This assignment is subject to th e terms and conditions of the oil and gas leases and is expressly made subject to the following : A. That certain Participation/Fa rmout Agreement (“Agreement”) effective August 15, 1995 , covering the Oil and Ga s Leases described in Exhibit “A” by and among Intermount ain Leasing, Inc., . . . Stewart Geological, Inc., Dennis J. Rue, N eal LaFever . . . , the terms and conditions of which shall be applicable , whether or not specifically recited herein. [Emphasis added.] ¶24 Two other “Assignment[s] of Overriding Royalt[ies]” were also executed on May 1, 1998, one indicating an effective date of December 10, 1995, and the other indicating an effective date of December 10, 1996. Both a ssignments contained the same information quoted abov e regarding the applicability of the P/FA. ¶25 In addition, a document entitled “Assi gnment of Oil and Gas Leases” was executed by Hauptman as President of In termountain Leasing Inc., on May 30, 1997, “but effective as of December 1, 1995.” This document assigned to Rue, LaFever and Stewart their respective interests in the le ases specified therein, and contained the information quoted abov e regarding the P/FA. ¶26 Stewart admitted on cross examination th at he was not a re cord owner of the

leaseholds until he received an assignment from Intermountain. He also admitted that during the time prior to the assignment, Inte rmountain held Stewart’s interests for his

benefit. ¶27 Based on the foregoing, we hold that by accepting the benefit of the assignments under the P/FA, Stewart bound himself to the P/FA. Section 28-2-503(2), MCA (“A voluntary acceptance of th e benefit of a transac tion is equivalent to a consent to all the

8obligations arising from it, so far as the fa cts are known or ought to be known to the person accepting.”) ¶28 Nevertheless, Stewart maintains that even if he is bound by the P/FA, he was not required to offer the subsequently acquired leases to Interm ountain pursuant to the P/FA. Stewart hinges his argument on Article VIII.B . of the Model Form Operating Agreement (Operating Agreement). The Operating Agreem ent is attached to the P/FA as Exhibit “C” and provides as follows: Any renewal or replacemen t Lease taken before the expiration of its predecessor Lease, or taken or contract ed for or becoming effective within six (6) months after the expiration of th e existing Lease, shall be subject to this provision so long as this agreemen t is in effect at the time of such acquisition or at the time the rene wal or replacement Lease becomes effective; but any Lease taken or contracted for more than six (6) months after the expiration of an existing Leas e shall not be deemed a renewal or replacement Lease and shall not be su bject to the provisions of this agreement . [Emphasis added.] ¶29 The District Court determined , and we agree, that the AMI overrides the language of Article VIII.B. of the Operating Agreement because of the conflict between the two. The P/FA states at ¶ 8: “In the event of a conflict between the te rms of this agreement and those of the Operating Agre ement, this Agreement shall prevail.” Moreover, Stewart himself acted as though the si x-month provision of Article VIII.B. of the Operating Agreement did not apply to his newly acquired leases when he execut ed and delivered to all of the North Shotgun Creek Prospect par ticipants, except Intermountain, assignments of those leases in their previous percentages via a letter with the salutation “Dear

Partners.” ¶30 The AMI, which is set forth in ¶ 10 of th e P/FA, provides: “The parties hereto

9create between themselves, for so long as any of the oil an d gas leases subject hereto are continued in force as to any part, whether by productio n, extension or otherwise, an Area of Mutual Interest covering lands in Rooseve lt County, Montana . . . .” This paragraph further provides: “It being understood and agreed that a ny subsequently acquired lease (hereinafter “AMI” Interest) acquired by any of the parties hereto sh all be offered to all such parties at the actual acquisition costs of th e offering party . . . .” In February 2000, when Stewart acquired the leases at issue here, there were at least eleven other leases in the North Shotgun Creek Prospe ct still “in force,” hence Stewart was contractually and legally required to offer the l eases to Intermountain as well as the other participants in the North Shotgun Creek Prospect. ¶31 Accordingly, we hold that the District Court did not err in holding that Stewart was required to offer all subsequently acquire d oil and gas leases to Intermountain under the AMI provision of the P/FA.

Issue 2. ¶32 Did the District Court err in requiring Stewart to specifically perform the March 13, 1995 Agreemen t between the parties? ¶33 In its March 23, 2004 Ju dgment, the District Court ordered that Stewart specifically perform the provisions under the March 13, 1995 Agreem ent, as well as the P/FA, and allow Intermountain to participate under those agreements after Intermountain has paid its share of expenses to be able to participate. ¶34 Stewart contends on appeal that the District Court e rred in ordering that he specifically perform the March 13, 1995 Agreement because that issue was never pled

10and there was never any evidence supporting that claim offered at trial. Although

Stewart is correct that Intermountain did no t plead specific performan ce of the March 13, 1995 Agreement in it s Amended Answer, the Pretrial Or der, signed by counsel for both parties, set forth the fo llowing Issues of Fact: 9. Whether [Intermountain is] entitle d to a judgment declaring that the March 13, 1995 Agreement applies to Stewart’s subsequently acquired leasehold. 10. Whether [Intermountain is] entitled to specific performance of the AMI language of the Participation/Farmout Agreement and/or the March 13, 1995 Agreement . [Emphasis added.] ¶35 M. R. Civ. P. 16(e) provides that a pretrial order controls the subsequent course of the action unless modified by a subsequent order. “The purpose of pretrial orders is to prevent surprise, simplify the issues and permit counsel to prepare thei r case for trial on the basis of the pretrial order.” Zimmerman v. Robertson , 259 Mont. 105, 111, 854 P.2d 338, 342 (1993) (citing Workman v. McIntyre Const. Co. , 190 Mont. 5, 617 P.2d 1281 (1980)). This Court has often he ld that parties may not asse rt issues or other matters which were not included in the pretrial order. Travelers Indem. Co. v. Andersen , 1999 MT 201, ¶ 34, 295 Mont. 438, ¶ 34, 983 P.2d 999, ¶ 34 (citations omitted). ¶36 In the case sub judice , not only was the issue of specific performance of the March 13, 1995 Agreement incl uded in the Pretrial Order, but that order itself declared:

IT IS HEREBY ORDERED that this pre-trial [sic] order shall supersede the pleadings and govern the course of the trial of this cause , unless modified to preven t manifest injustice. IT IS HEREBY ORDERED that all pleadings herein shall be amended to conform to this pretrial order . [Emphasis added.] Moreover, the March 13, 1995 Ag reement was admitted as an ex hibit in the trial in this

11matter, and counsel for both parties spen t a considerable amount of time eliciting testimony as to the significance of that Agreement. ¶37 Consequently, pursuant to both the terms of the Pretrial Order and Zimmerman, the issue of specific performan ce of the March 13, 1995 Agr eement was properly before

the District Court at trial a nd before this Court on appeal. ¶38 Accordingly, we hold that the District Court did not err in requiring Stewart to specifically perform the March 13, 19 95 Agreement between the parties.

Issue 3. ¶39 Did the District Court err in denying Stew art’s motion to take additional testimony with regard to newly discovered evidence pu rsuant to M. R. Civ. P. 52(b) and 59(a)? ¶40 Shortly after trial and before the Distri ct Court entered judgment in this case, Stewart moved for a new trial pursuant to M. R. Civ. P. 59(a) a nd § 25-11-103, MCA, claiming that he had newly discovered evidence. This evidence was a letter from Hauptman which Stewart claime d directly contravened Hauptm an’s testimony at trial and the District Court’s Finding of Fact No. 16. In addition, in reply to Hauptman’s brief in opposition to the Motion for Ne w Trial, Stewart requested that, rather than granting an entirely new trial, the court reopen the case under M. R. Civ. P. 52(b) for the limited purpose of admitting and consider ing the letter prior to renderi ng judgment. The District

Court denied Stewart’s motio n on the grounds that the evidence was not newly discovered, nor did it directly contravene Hauptman’s testim ony or the court’s Finding of

Fact No. 16. ¶41 We review a district court’s decision to grant or deny a new trial based upon

12newly discovered evidence for a ma nifest abuse of discretion. Groves v. Clark , 1999 MT 117, ¶ 32, 294 Mont. 417, ¶ 32, 982 P.2d 446, ¶ 32 (citing Fjelstad v. State, Through Dept. of Highways , 267 Mont. 211, 220, 883 P.2d 106, 111 (1 994)). We stated in

Groves , that [a] party moving for a new trial on the basis of newly discovered evidence must show that: (1) this evidence came to the pa rty’s knowledge since the trial; (2) it was not through want of diligence that the evidence was not discovered earlier; (3) the evidence is so material that it would probably produce a different result upon retria l; (4) the evidence is not merely cumulative; and (5) the evidence does not tend only to impeach the character or credit of a witness.

Groves , ¶ 33 (citing In re Marriage of Neal , 267 Mont. 455, 461-62, 884 P.2d 789, 793-94 (1994)). ¶42 Stewart attested in his a ffidavit accompanying his Mo tion for New Trial that he found the letter amongst his own papers and that it had been in his possession for 31⁄2 years. Hence, although Stewar t had forgotten about the letter, he has not shown that it only came to his knowledge since the trial, nor has he shown that he could not have

“discovered” the letter a nd produced it at trial w ith reasonable diligence. “Where the moving party in a motion for new trial on the ground of ‘newly discovered’ evidence has had the b ooks and documents in his possession, from which he later ‘discovers’ the ‘new evidence,’ th e motion will be denied, even though the evidence itself ma y be material.” In re Marriage of Burner , 246 Mont. 394, 39 6, 803 P.2d 1099, 1 100 (1991) (quoting

Kartes v. Kartes , 175 Mont. 210, 215, 573 P.2d 191, 194 (1977)). ¶43 We conclude that the letter in question was not “newly discovered” evidence. Therefore, we hold that th e District Court did not abuse its discretion in denying

13Stewart’s Motion for New Trial. ¶44 Affirmed.

/S/ JAMES C. NELSON

We Concur:

/S/ KARLA M. GRAY /S/ BRIAN MORRIS /S/ W. WILLIAM LEAPHART /S/ JOHN WARNER /S/ PATRICIA COTTER /S/ JIM RICE

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