SOMON-f OIL COMPANY, [KC.; 

a Montana corporadon, 

,4ppellant,'Cross-Respondent, 

_dl #- r ,> 

A & G DRII.L.ING, [NC., CAVALIER PETROL.CU~I--,~~~~~~~~=?$~,~~~ &y4& .pl~:g;:& 

INC., i\. G. WALLS uW~' JOE W-ALLS, JOHN Vi'ALLZ .. . ., ~d@~~i~,+

and STEWART HOWELL, all d/b/a C-W SOlKl. VENTIJRE .,'... .&+-. .- ,,, 

akia CAVALIER-WALLS JOIN VENTURE, 

.4PPEQIL FROM: District Coitrt of the Ninth Sodicial District, 

In and for the County of Toole, 

The Honorahlc Marc G. Buyske, Judge presiding. 

C;OU&jSEL OF RECORD: 

For Appellant: 

Gregory J. Hatlcy, Davis, Hatley, Haffeman & Tighe, Great Palls, Montana 

For Respondeiits: 

Douglas C. Allen, Corder & r\llen, Great Falls, Montana 

Richard L. Beatty, Attorney at La~v, Shelby, Montaiia 

For i\niicus Cunae: 

Tommy t1. Butler, Special Assislalit Attorney General, Montana Department 

ofNatura1 Res~turces and Corrsewation. Helena: Montana 

Kcnip J. LVilson (pro se). Crobt-ley: Haughey: Haulson, 'Toole & Dietrich, 

Billings, Montana 

Filed. 

Argued: h4ay 17, 2001 

Submitted: May 17, 2001 

Decided: June 2 1, 2002 .a 
Justice Jim Rcgnicr deli\-ered the Opinion oi'thc Coui?. 

"1 Soraont Oil Company. lnc.? Appellant/Cross-Rci;pc~ndc11~~ filed suit agaiiist & G 

Drilling, Inc., Cavalier Pctrolcurn, Inc., i\.G. Ll-alls, also knowrr as Joe C!~alls, John 

and Stelvart Howell, all doing business as C:-W Joint Venture, also known as Cavalier- Walls 

Joint Venture, Respondcitt~~C:ross-~4ppellants ("C-W"), in the Ninth Judicial District Court, 

-Toole County, to ler~nillate certain oil and gas leases held by C-W. Following trial, the jury 

rendered a verdict in favor of C-W. Somont appeals the judgment entered upon the jury 

.i-erdict and certain pre-trial and post-trial rulings issued by the District Court. C-CV cross 

appeals the District Court's award of attorney fees to Somont based on its determination that 

Sorncttit had standing to prosecute this action. Ll'e affirru in part, rc\;esse in part, iind remand 

for further proceedings consistent with this opinion. 

?I2 The parties raise the following issues or1 appeal: 

(13 1. Did the District C:ourt err \%-hen it concluded that Somont had standing to compel 

C-W's release of certain oil and gas leases pursuant to $ 82-1-202(1), MCA? 

114 2. Did the District Court err when it allo\ved thejury to consider oil prices, econon~ic 

considerations, and C-CV's financial condition iri determining whether oil and gas leases had 

tenninatcd due to a lack of production? 

BA<:KCROUNl> 

qj5 111 1001, C-&"v'urchaseda number ofoil and gas lcases in the Kevin-Sunburst oil fieid 

in 'I'oole County, Montana. Most ofthese leases were established in the 1920s for a specified 

numbct ofycars, 1.e , the ptiniary term. Conseqrrcntly. the primary terms on these leases hale 
long sltlcc exp~red liowcver. through barlous hahcndunl clauscs. tile conuacts pro\ idc tor 

rlie leases' extension of aii iiiciefinitr secondary tern. Pursuant to the habcndum ciauscs, the 

lcsscc shall maintain a viable lcaseliold interest as long as the lessee produces oil and gas in 

paying quantities from said lanci. Therefore, following its 1991 purchase, C-W held its 

Kevin-Sunburst leasehold properties pursuant to the contingencies ofthe liabendum clauses. 

16 In late 1 ?97, Somont ofkred to purchase a number of C-W's Kevin-Sunburst leases. 

C:-\I: subsequently declined Sonlont's offer. Thereafter, on April 10,1998, Somont informed 

C-W that it had acquired new leases from the Kel~in-Sunburst lessors and that C'-W's leases 

had terminated due to a lack of production. Soniont demanded that C-W execute lcasc 

releases 011 the properties. C-W rcfused to execute the releases and on May 20, 1998, 

Somont filed stlit in the District Court to compel C-W's executio~i of the releases. The 

Ilisrriet Court issued a temporary restraining order which precluded C- W from commencing 

any operations on the leasehold properties prior to a show cause Ilearing set for May 28, 

1998. 

'7 Following the May 28, 1998; show cause hearing, the District Court determined that 

Somont had not acquired the lessors' right to challenge or terminate C:-Ws existing leases 

for failure of production. Thcrcrore; the Ilistrict Court denied Somont's request for a 

preliminary injunction and vacated the temporary restraining order. <?onscquently, Somont 

obtained from the lessors an assigntncnt of "any and all rights that [the lessors] may have to 

any and all claims and demands that any previews oil and gas lease on tlte subject property 

has exptred, tcrmtriated or othertc~sc forfeited due to the cessation of producttort from the 

3 
lcased lands." C)n junc 12: 1908. Somont filcd an tiinended cotnplaint referencing the 

assignn~cnts. Subscyueiltly, C-W cxecuted rcleases on ttvcnty or its leases brrt rcfuscd ro 

tenctcr rclcases or1 eight of the Kcvin-Sunburst leases. Thcrcfore, the parties proceeded to 

trial on ..vhethcr C-\V3s eight remaining leases had terminated due to a cessation of 

production. 

'18 Prior to trial, the parties raised two issues which ultimately &a\-e rise to this appcal. 

First, in opposing Son~ont's motion for summaryjudgn~ent, C-LV insisted that Somont lacked 

standing to compel a rcleasc on five of the eight leases because Somont maintained no 

ownership interest in those leases. C-W conceded that Somont had standing to prosecute the 

remaining three becausc Son~orrt owned sonlc portion of those leases' mirreral estatc. The 

District Court del-ricd Sornont's motion for surnrnary judgment but concluded that Somolrt 

did have standing to challenge all eight leases. 

79 Second, Somont filed a motion in limine with the District Court to exclude evidence 

of oil and gas prices as a j~tstification for C-IV's lack of production. Further, Somont 

proposed a jury instruction which stated thc jury could not consider oil prices_ economic 

considerations, or C-W's financial condition in determining whether the lack of production 

was justifiable as a tcniporary cessatiorl. The District Court denicd Sornont's motion in 

lirnine, in regard to tltc oil and gas prices, and rejected its proposed jury instruction. On May 

1:: 1099, the case proceeded to trial. 

7 I0 .-It trial. Somont presented evidence indicating a lack ofproduction from the eight oil 

and gas leases d~rring a specified period of time. the accounting period, prescribed by ihc 

4 
District Court. C-W' argued that the lack of production was jusritkd as a temporary 

cessation. Thcrcforc, C-W inaintaincd that the temporary cessation of production doctrine 

prevented the leases' termination. C-W urcscnted evidence of reduced oil prices, a deflated 

economy, and the company's financial prcssuscs as justification for the cessation. After 

presentation of ail of tlie evidence, the District Court denied Somont's motion for judgment 

as a matter of law and instructed the jury to consider "all surrounding circ~in~stanccs" in

determining whether C-W's leases had tern~inated for lack of production. 

71 I On May 14, 1999, the jury rendered a special verdict in favor of C-LV. In so doing, 

the jury found that none of the eight leases terminated due to a lack of production. The jury 

stlso determined that Somont wrongfully intcrfercd with C-W's contractual and biisincss 

relationships with the lessors and awarded C-W approxi~nately S10,500 in damages. On May 

21, 1')99'), the District Court entered judgment on the jury verdict and ordered that a hearing 

be held on June 4, 1999, to consider sortie remaining issues. On June 2, 1999, Somont 

renewed its motion for judgment as a matter of law and, in the alternative, moved for a new 

trial. The District Court denied both requests. On September 2; 1999; in its final order and 

judgment on the miscellaneous issues; the District Court ordered C-W to pay $30,867.50 in 

attorney fecs which Somont incurred in contesting C-lV's standing challenge on the twenty 

conceded lcascs. The District Court also ordered Somont to pay $40,221.25 in attorney fees 

incuned by C-W in defending the action as it pertained to the eight leases. 

12 On appeal, Somont argues the District Cour-t erred in allo\ving the jury to consider oil 

prices, economic considerations, and C-LV's financial condition in determining whether the 

- 

3 
subject leascs terniinated due to a lack of production. i'hcreforc: Somonr appeals the ilistrict 

Court's judgmcnr on the jury vcrdict and nrdc: denying its motion for jrrcigmcnt as a nlattcr 

of lam. C-5%' cross-appeals on the lssue of attorney fees, clatming Sornont lacked standrng 

to prosecute ahis action 

'113 Did the Distrlct Court err when it concluded that Sotnont had stand~ng to compel 

C-LV's release of ccrta~n 011 and gas lcases pursuant to 5 82-1-202(1), MCA? 

14 A district court's ruling on standing is a conclusion of law. Kiemarz 1,. .4nder-.son 

(1997), 282 Mont. 139. 144, 035 P.2d 1122, 1125. The standard of revrcw of a district 

court's conclr~sions of law is wlietlier the court's inte~rctation of the law is correct. C(~~OII 

C,'ounty v. Union Ke.wrve Ch(11 C.h. (19951, 271 Mont. 459, 469, 898 P.2d 680, 686. 

ql15 Of the eight leases contemplated herein, Solnont ouns aportion ofthree of the leases' 

mineral estates. C-\V cotieedes that Sornont lias standing to compel its release of those three 

oil and gas leases pursuant to 5 82-1-202, MCA. tlowever, C-W argues that Sornont lacks 

itanding to compel C-W's release on the remaining fi~ e leases 

*I 16 Sect1011 82-1 -202(1), MCA, prov~des: 

If the lessee or assignee thereof neglects or refuses to execute a release 

as provided by this part, the owner of the leased premises may sue in any court 

of competent jurisdiction to obtain the release, and in such action he also rnay 

recover from tlte lessee. his successor. or assigns the sum of $1 00 as damages, 

all costs, together with a reasonable attorncy's fee for preparing and 

prosecuting the suit, and any additional damages that the evidence in the case 

\varrants. 
Prior to triai, the iessors ofthe tive leases m which Son~ont owns no niinerai eslate assigned 

to Sornnnt thc right to sue C-lk- to ccn~pcl C-W's relcase of its oil and gas lcases. C-iV 

insists that since Son~ont is not the ownerqfrize le/iserlp/-enzises, Somoiit lacks the requisite 

standing to compel C-!&'s release pursuant to 8 82-1-202, MC.4. 

TI7 Montana has long recognized the rule that rights arising from contracts between 

private individuals are assignable, and that non-assignability is the exception. PVh~s1o1.t~ 11. 

L>undorrl (1912); 46 Mont. 71, 82, 125 P. 136, 130. In the absence of a non-assignable 

clause, either party may generally make an assignment of rights under the contract. Forsytht. 

1.. Elkins (l985), 21 6 Llont. 108, 113,700 P.2d 596,590-600. Further, all that is required to 

consiituic a "rcal party in interest," for pu~yoscs of Rule 17(a), M.R.Civ.P., is that the paity 

be vcsted with legal title. Mol~tillri~ Ass '11 of C/*etl'it iWi~ircrgenlent 1:. liergert (1 979), 18 1 

Mont. 442,440, 503 P.2d 1059, 1063. 

111 8 Each of the original leases in question is a contract which provides for the assignment 

of rights. One of the rights associated with the oil and gas leases is the right to compel 

termination of a lessee's interest. While the assignment of rights provisions vary somewhat 

in language, the prevailing effect is that "the privilege of assigning ['the estate] in whole or 

in part is expressly allo~ed.~ As rights arising from contracts are freely assignable and the 

assignment xrcsted legal title in Somontl we hold that the District Court did not err in 

determining that Somont had standing to compel C:-LV's release of the leases in question. 
lSSIJE I'UO 

ci9 Did the District Court err when it aliowed the ji~y to considcr oil prices, economic 

considerations. and C'- W's financial condition in determining whether oil and gas leases had 

terniinated due to a lack of production? 

'20 A district court's ding on a motion in limine is an evidcntiary ruling. Spi~rler v. 

Allen, 1999 MT 160, 7 29, 295 hlont. 139,lI 29; 983 P.2d 348, Ti 29, A district co~~rt has

broad discretion in determining whether evidence is relevant and admissible and we ~vill not 

overturn its determination absent an abuse of that discretion. Spiwler, ij 29. 

121 Further, a district court has broad discretion regarding the inst~xlctions it gives or 

refuses to give to a jury. Schtcinntiter 1). S'ieplreizs, 1998 MT 58,121,288 Mont. 115,721, 

056 P.2d 76,1/ 21. Il'e will not reverse a district coi~rt on the basis of its instn~ctions absent 

an abuse of that discretiotl. Sc/~ur~znclier, ij 21. When we examine whether particular jury 

instructions were properly given or refused, we must considcrthe instnictions in their entirety 

and in connection with the other instructions given and with the evidence introduced at trial. 

Scl~urr~acher, 7 22. The party assigning error to the trial court's instructions must show 

prejudice in order to prevail. Schuir~ucl~er, 71 22. Prejudice will not be found if the jury 

instructions in their cntircty state the applicable law of the case. Scl1~~11c7cfier~ '1 22. 

722 Prior to trial; Somont filed a niotion in limine seeking to exclude evidence of oil and 

gas prices as a justification for C-W's cessation of production. Tlre District Court denied 

Somont's motiott ill limine as it pertained to oil anti gas prices. Soon thereafter, Somont 
subrn~tted its proposedjut 4 mstructlons to tlze Dlstrrct Court hoinont~s proposed rnstrucirons 

contained thc fo!lowing direciiiw: 

18. The fact that oil prices may be lokv; the cessation of production is for 

economic reasons or because the operators are in poor tlnancia,l condition 

cannot form the basis for a justifiable temporary cessation of production. 

9. Poor conditio~i of the oil market and/or low quality of oil although 

rendering the .~vell unprofitable to operate does not prevent an automatic 

termination of the lease when productio~i ceases. 

The District Court rejected the above proposed instructions and instead instructed the jury 

as follows: 

16. A lease continues in existence so long as interruption of production in 

paying quantities does not extend for a period longer than reasonable or 

justifiable in light of a11 tile circurustances involved. 

17. 4 lease is not terminated for failure to produce the moment production 

stops, nor does it terminate the instant production falls below aprofitable level. 

All surrounding circ~rn~stances must be taken into consideration before 

cancellation may be decreed. 

71'hereforc, the jury was allowed to consider testimony regarding fluctuations in oil prices. 

economic concerns, and C-tt"s financial instability in detemiining mhether C-LV's lack of 

production was justified 

723 Somont argucs that the Distrrct Court abused its discretion when it denled Somont's 

motion rn lrmtne and fa~led to eucludc 011 and gas prices. economle factors, and C-ti-'s 

financial cond~iion froin the jury's considerat~on Sornont contends that this abuse in 

discretion sufficiently prcjudiccd Solnont to warrant a reversal of the District Court's 

judgn~cnt upon thejul) verd~ct. Lie agree 
"2.1 All ol'the oil and gas leases subjcct to this iitigation contain a habcndum ciause fixing 

the ultimate durarlor? of the lessee's inrerest. Oil and gas habendurn clauscs generally consist 

of two parts. the primary term, which establishes a definite period, and the secondary tel-m 

which is of indefinite duration. Robert E. Sullivan, Hurldbook of Oil arid Gas Lcrrr 6 40 

(1955) The clause obligates the lessee to maintatn product~on on the prcnltses and pay a 

royalty to the lessor. The clause also provides that if the lessee fails to produce oil and gas 

\>1th111 the primary term, the lease ~111 automatteally terminate at the end of the prIma1;L term. 

If the lessee matntalns production throughout the prtmary term, the lease ~111 terminate 

thereafter upon the cessatioll of production. See XfcCulloltg-12 Oil, Irzc I. Kezek (W. Va. 

725 Once the lease transitions into the seeondar)i tern?, jurisdictions vary as to what 

circumstances mill precipitate terminatton ofthe lease upon the cessation ofproduetion. This 

jurisdictional dichoto~iiy has been described as follows: 

In a number of the producing states the co~irts treat termination of a 

lease as involving a cancellation or forfeiture in equity. In these states where 

production has ceased or is no longer deemed to be in paying quantities, 

cancellation of the lease will not be decreed where, in view of relevant 

circumstances. such decree \vould be unreasonable. 

In 'Tcxas and several otherjurisdictions termination of a lease under the 

habendum clause is treated as a determinable limitation on the lessee's estatc. 

j\ cessation of production results in automatic termination except in those 

cases where the cessation is deemed 'temporary.' 

Richard W. f-lemiiig~vay, Lair ~fOil iirzli Cns C; 6.4(0) (3d ed. !991) 
4120 Montana is an ownership-in-piacc state wit11 regard ro oil, gas and other n~inerais. 

-, Pc~~~iic v. i,'ioizic jlCj58j, 134 Moot, 156. 152. 328 P.2d 655; 65") Essentially, this means oil 

and gas leases transfer to the icssee a ke sitnplc determinable estate with the lessor retaining 

a pc>ssibility of reverter, See k'lutqfiki 1,. ,J'tcvctzsor~ (lWO)l 80 Monr. 463. 476-77, 284 P. 

553. 556. Therefore, upon tlte occurrence of a stated event? the lessee's interest 

auton~atically terminates. See Berrlrelole I, Lr*. Oil Cu. ( 1933), 95 Mont. 434, 447, 28 P.2d 

87 I. Here, as in most oil and gas leases operating pursuant to the conditions of the 

seconilary term, the event triggering automatic termination is the cessation of production in 

paying quantities. See Rertlrelotc, 95 Mont. at 448, 28 P.2d at 191. 

727 This Court has defined paying quantities as the amount of production which v~ould 

pay a sinall profit over the cost of operation of the wcll, excluding from consideration the 

initial cost of bringing the wcll into production. Ber-rlrelore, 95 :Mont. at 448,28 P.d at 191. 

Therefore, by paying quantities' very definition, the finder of fact must necessarily consider 

income generated from the property and the expenses incurred in its operation, thus 

iniplicating economic influences. See Eugene K~~ntz, Oil nflrl C;cls 4 26.7(d) (1987). In 

C.'lzr.irtiu/z v. ,.4.,3. Oil C:orp. (1073), 161 Mont. 420, 506 P.2d 1369)1 this C'ourt articulated the 

tcsr to determine v-hethe; production in paying quantities has ceased. We stated: 

- ~ I lie test for determining whether there was suf3icient production or 

whether the lessee was acting wit11 reasonable diligence in producing and 

~~larketing the gas from the leased lands is the diligence which would be 

exercised by the ordinary pr~~den~ operator having regard to the interests of 

both lessor and lessee. I'his is a y~restion of fact that will depend upon the 

facts and circurtistances of each case. 
Ci2ri.sticm, 161 Vont. at 427-28. 506 P.2d at 1373 (citarions oniitted). 7'11~s. an oil and gas 

Icrasc which ijiis to prod:icc in paying cirtantities terminates ripon cessation. 

'28 tIowcveri in an effort to rtiitigate against the harshness of the automatic ternlination 

rule, courts developed the temporary cessation of production doctrine. Pursuant to this 

cioctrine, once a plaintiff establishes that an oil and gas lease has halted production, the 

burden shifts to the defendant to prove that the cessation was temporary and not pemlancnt. 

,See Eiclrnlclr1 v. Leilvell Kcsot~rces Cotp. (Kan. C:t. App. 1994), 875 P.2d 171, 174. A 

temporary cessation in production will not trigger an automatic termination of the lease as 

contemplated in the habendum clause. Kuntx, Cj 20.8(d). 'There is some dispute between 

Somont, C-W, and Amicus Curiae as to whether Montana has adopted the tcmporary 

cessation of production doctrine, and? if so, to what extent. Therefore: to clarify any 

ambiguity, Lye hereby adopt the temporary cessation of production doctrine as it applies to 

the oil and gas arena. 

(129 Most jurisdictions1 in determining whether a cessation of production is temporary or 

permanent, consider the cause of the cessation, the time reasonably required to restore 

production, and the diligence exercised by the lessee in restoring production. Kuntz, 3 

26.8(e). What constitutes a reasonable time and diligence will depend on the particular facts 

presented. See Cobh v. ~Vatztl-(21 Gi1.s I'i,~clit~e Ch. qf',,ltiz. (jth Cis. I990), 807 F.2d 1307. 

1309. EIowcvcr,jurisdictions vary significantly on which causes contributing to the cessation 

may be considered in the tcrnporary cessation of production analysis, Those jurisdictions 

nhtch treat termmatloti as a canccllat~on or forfeiture ~u equtty generallj hold that "the ledse 

12 
continues in fbrcc unless tilc period of ccssatic~n. vielved it1 thc ligi~r ofuii rile circ~m/.srcznc~cs, 

is tbr. an ~ii-rreasiinable ritnc.'' See, e.g.. Cbitrer v. ifiit-ml (Okia. 1058), 330 P.2d 2 i 7: 2 19 

(emphasis added). Conversely. ownership-in-place jurisdictions generally lirnit temporary 

cessations to rnecbktnical or production breakdowns. See Henlingway, 3 6.4(B). 

130 Mere, Somont established at trial that the leases failed to product: in paying quantities 

during the accounting period prescribed by the District Court. At that point the C.'hrisficln 

analysis, iinplicating economic factors, concluded. In turn. C-LL7 asserted that the failure to 

produce in paying quantities was justified as a temporary cessation. The parties argued to 

the District Court the circumstallces which the linder of fact may consider in evaluating 

whether thc cessatioii was tc~iipot-aiy. TIie District Court agreed with C-W that the jury 

should co~~sider "all surrounding circun~stances," which, in this case, included oil prices, 

economic concerns, and C-W's financial condition. Sornont insists the District Court erred 

in its ruling and urges this Court to follouz other om-nership-in-pIace.j~irisdictions' treatment 

of the temporary cessation of production doctrine. Texas is one such o~vnership-in-place 

jurisdiction and we arc inclinect to follow its lead on this issue. 

'3 1 in kVui.sotr v. lioc.l~irril1 (Tex. 1941). 155 S. W.2d 783, the lessee of an oil aiid gas lease 

ceased oil production due to the dcpressed marked for low gravity oil. The lessor filed suit 

for a judgment declaring the lease terminated. The lcssee insisted that the temporary 

cessation of production doctrine precluded termination of the lease. The Supreme Con11 of 

'Texas coi~claded that to prevcnt termination ol'thc lease pursuant to the temporary cessation 

of production doctrine, the cessation rllust bc "due to [a] sudden stoppage of the well or some 

13 
,, ~:ieclyanica] br~.akclovxn of tlic cqnipmcn? usid in connection therctvith, or tl~c like. R'~tsi~iz, 

, -- i5 S.L$".2d at 784. 'i'hcrcFare. the court held that the lease had ter1ninali.d bccause the oil 

market did not prevent operation of the well. kf~?lnisciiz; 155 S.iV.2d at 784. 

"3 Adopting Iexas's narroixj temporary cessation of production test comports with the 

principles in Montana that: (1) oil and gas leases are to be construed liberally in favor of the 

lessor and strictly against the lessee: and (2') while forfeitures are usually not favored in the 

law, duc to the peculiar nawrc of oil and gas leases, forfeitures are here favored.' Clrrisricin, 

101 Mont. at 425. Further, Texas's temporary cessation of production standard properly 

balances tl~e interests oftlie lessor and lessee. The diligent lessee who takes immediate steps 

to rectify a stidden halt in production will not lose his or her investment. Similarly, a lessee's 

self-serving voluntary cessation \vill not subordinate the lessor's interest in generating 

income via production. See Bruce M. Kramer, Tlze Tetnpot.a~y (i.ssillion L)oc,tri~re: A 

I'rczciiccll Ke,~p(onse ro (in ideologiciil l~ilenznzn, 43 Baylor I.. Rev. 5 10, 545, (1991). 

533 in summary, actions comtnenced to terminate oil and gas leases invoke tivo distinct 

inquiries: (1) Is the lease producing in paying quantities'?; and (2) If not. was the cessation 

in production pcrniailent or temporary? As to produeti011 in paying quantities, econon~ic 

consideratioiis arc absolutely relevant. Flo\veverl those very economic considerations should 

not factor into the temporary versus pernlancnt cessation analysis. A cessation in production 

While the "forfeiture" terminctlogy is semantically incorrect for ownersliip-inplace jurisdictions, the principle espoused in the statement remains soulid in Montana 

jurisprudence. 
will only be deemed temporary when it is caused by a sudden stoppage of thc well or a 

mechanical br~akdotvr: of the equipment used in connection with the well, or the like, 

!34 We disagree wit11 Justice Trie\vciier's cl~aractcrization of ,Qimsori v. Tcrrf-iii~ (O!'i Cir. 

I943), 132 F.2d 363. It is true that, in Stinzso/~, the Xinth Circuit declined to terminate an oil 

lease when the well ceased production due to the lack of market. Notvever, the analysis in 

Sri~rlson focused solely on the first prong of the two-part test articulated above. In effect, the 

n'inth Circuit held that a genuiiic lack of market will not compel termination of an oil lease 

~vhen the well is fully capable of producing in paying quarrtities. In other words, if there is 

a lack of market; if the lease is capable of producing in paying quantities; and if the lessee 

is using reasonable diligence to market the product, Montana law will deem the lease as one 

which is "producing in paying quantities" and never reach the temporargr cessation of 

production issue. 

'/3 5 7'hc concepts discussed in Sfit?zson were later reiterated in C/2risric211, as alluded above. 

Our holding today ltas done nothing to disturb the principles discussed in Stinzsort and 

Cl~ristiml. The equitable notions contcniplated therein remain valid considerations but apply 

only to the "producing in paying quantities" prong ofthe two-part test. Once it is determined 

that a lease is not producing in paying quantities, the analysis shifts to the temporary 

ccssatioii of production prong where thc equitable principles no longer hctor into the 

equation. As such, the specific evidence referenced by Justice Cotter maintains no relevance 

to the inquiry implicated herein and the jury shollld not have been instructed to consider it. 
";6 .*tccordingly, we hold that the District Court abused its discretioil in allowing the jury 

ro consider nil prices. econon~ic~rnsiderations; and <'-W7s fillancia1 condirion in determining 

whcti~er C-W's cessation was justified as temporary. Fuilher. the District Court's abuse in 

discretion sufficiently prejudiced So~nont to warrant a new trial. 

*37 Somont insists it is entitled to judgmcnt as a matter of law. Somont urges this Court 

to remand the matter to the District Court for an entry ofjudgment in favor of Somont. \lTe 

decline to do so. 

'38 The sta~ldard of review in appeals from a judgment notwithstanding the verdict made 

pursuant to Rule 50(b), hZ.R.Civ.P., is the same as that for review of a motion for a directed 

verdict, and a directed verdict may be granted only where it appears as a matter of law that 

a party could not prcvail upon any view of the evidence including the legitimate inferences 

to be drawn therefrom. IiJ.iirz v. Cify oJ'Nozemirn (lW")(t), 279 Mont. 507,510,028 P.2d 228, 

220. An implicit precursor to the "any view of the evidence" language is the requisite 

presentation of evidence. Here, C-W presented its evidence under a misinformed standard. 

C-W has not yet had an opportunity to present its evidence in accordance with the temporary 

cessation of production factors adopted herein. It would be premature to say that C-W 

cannot prevail on any view of the evidence. Therefore, we decline Somont's invitation to 

remand this case hr an cntry ofjudgment in its favor. 

T30 Finally, following the jury verdict, the Ilistrict Court awarded attorncy fees in the 

amount of 330,867.50 to Somont and 546,221 2.5 to C-LV purstiant to 5 82-1-202(1): LICA. 

Section 82-1 -202(1). 'LlCA. does permit the prevailing party to recover reasonable attorney 
fees incurred in p;oscculiag i.;r &fcltding il;c action. ilwve;, il: light of our holding, the 

I)isiric- ~aafi wit! ha.;c; ti.; reconsider tke attorney fce issuc fo!lowing the disposition ofthis 

v4 Reversed and rernandcd for a new trial. 

LVe C,'oncur: 

District Court Judge Richard Sinionton 

s~ttnig in for Just~ce helson 
District Court Judge Richard .A. Sirnonton, sitting in for Justice Jamcs C. Ncisoni concurs. 

731 i concur iri tile C'outt's Opinion. Furthcmmorc, I would like to respond to the disscnls 

because I think tlrcir positions change what I understand has been traditionally, and should 

bel the law in Montana regarding oil and gas development. 

942 If our goal is the encouragement of oil and gas production rather than speculation, 

allowing the retention of leases without working them is contrary to that goal. 1n this casel 

there has been no production from sorue wells for three years. In some cases electric meters 

have been disconnected for two years. When production ceases so there is not even a 

question of whether there is production in paying quantities, the secondary term of the lease 

tcnninates as production is a condition precedent to thc continuation of thc leasc. Since lack 

of production terminates thc secondary term, the only issue should then be whether the lack 

of production is excusable. The teinporary cessation of production doctrine was developed 

to provide that excuse. 

743 The dissents would include, as elements of that doctrine, variables such as oil prices, 

!he oil markat, and production costs of the operator. Equity, or a justifiable excuse to stop 

production, should 11ot be dependent upon the efficiency of the operator. If C-LtTwere having 

financial problems, and if production was not profitahlc for it, it should have cvelcomcd the 

opportunity to walk away from the lease and give another operator the chance to produce at 

a profit for itself and tl~e mineral owner. Ifow equitable is it to the mineral owncr who is at 

the mercy of the operator or producer to decide unilaterally what is profitable and whether 

to continue production? 

18 
744 The leases are prcparcd and printed by the producer. Often times the minerai owner 

tvill malcc changes in ti3c languliye of thc printed fomn~ or attach an addendum rhat will bc part 

of the lease. If the producer wsnts factors sucli as market price, cost of production. and 

market availability to be factors in the secondary term of the lease, it can include that 

language as a part of the lcase and make it contractual. 

115 1 agree that any doctrine oftemporary cessat~on ofproduction that precludes forfeiture 

of the secondary term of the least: should be llmited to acts of God and mechamcal problems, 

coupled with a diligent effort by the producer to remedy them. 

746 The position of the majority results in the development of minerals for the benefit of 

both the lessor and the icssce and ultl~natcly for the benefit ofthe consumer. The test for a 

temporary shut-down IS fairly clear and eonsistei~t u~th development. 

~istrict C'ourt-~ud~e Richard A. S~monton 

Sitting in for Justice James C. Nelson 
Jrtsllcc 'l'erry N, 'lricweiler concurring and dissenting. 

~3- 1 ;tincur -..- with the rni~jixritf's conclusion that the rights associated wit11 the oil and gas 

!cases at issue in this cilsc were assignable and that pursuant to their assignment, Somont Oil 

Company, Inc., had standing to bring this action in the ilistrict Court. 

738 1 dissent from the majority's conclusion that the District Court erred \+hen it allowed 

the jury to consider oil prices, economic considerations, and C-W's financial condition when 

it detern~ined \+-hether the oil and gas leases at issue had been termitlated due to lack of 

production. I would conclude that the District Court's evidentiary nlling, as well as its 

instructio~ls to the jury, reflect the more reasoilable approach to termination of oil and gas 

ieases for failure to produce and was 111ore consistent with previous interpretations of 

Montana law on this subject. 

749 The issuc in this case was simply whether production had ceased pennanently within 

the meanlng ofthe secondary tern? of the habendurn clauses of the leases at issue. There are 

several standards elnployed in the various jurisdictions around the country for determining 

.ivhethcr cessation is temporary and reasonable or permanent, 'Phey are hest sumtnarired by 

tltc Oklahoma Supretne Court in Cbtrlo. v. IYiirl.ei~ (Okla. lc)58), 330 P.2d 217. 

7'50 in C'otrlet., thc plaintiffheld a leasehold estate in oil and gas under lands ov-necl by the 

defendants. The tcrril of'thc lease was for onc ycar "and as long thereafter as oil and gas or 

either of them, is produced from said land by the lessee." Plaintiff suspended productio~l 

during a dispute with co-tenants b~tt resumed production six months later when ownership 

rights had bccn clarified. When defendants sotight to remove him kom the land titr fhilurc 

20 
rc produce, hc brought an action to quiet titic to his ieasehoici interest. Plainiii'i'conicnded 

that since /l~c~ssation iffpro13~1~1ion wastelliporary~ and for good rcason. he had not ceased 

production aithln tlrc meaning of thc seco~~dar> clause. The d~strtct court agrccd 

'51 On appca!, the Oltlahorna Supreme Cuurt, in a case of first Impression, noted that 

other courts in the country hiid taken various approaches in their determination of what 

circumstances will justify termination of a lease after the primary term. It suni~iiarired those 

approaches as follows: 

The Kentucky court. in the case of Lanih v. I;ilt~syclile, 205 Ky. 597, 

266 S.W. 253, 254, had before it a factual situation much the same as here 

involved. In that opinion it was said, 

'XOI. a]-c wc uilling to adopt the rule that a lcasc ih~liich is to 

continue for a definite pcriod, and so long as oil or gas is 

produced ill paying quantities, ipso facto terminates whenever 

production or development ceases for a brief period oftime. On 

the contrary, wc have reached the co~lclusion that the only fair 

and just rule is to hold that !he lease continues in force un!ess 

the period of cessation, viewed in the light of all the 

circumstances is for an unreasonable time.' 

The quoted ntle seems to be the most equitable one in such cases. One 

much more favorable to the lessee is followed in Louisiana where, 'in order to 

cancel the lease, there must be some evidence that the wells thereon are no 

longer capable of producing oil or gas in paying quantities; or that the lcssec, 

in closing down the wells, has done so with the intention of abandoning satne.' 

Gsorl v. S~lrf'Oil Ci).; 195 La. 248> 106 So. 330, 341. In Tcxas, the rule is 

much Inore favorable for the lessor although, there, it 'has been niodified 

vvheii there is only a temporary cessation ofproduction duc to sudden stoppage 

of the \\ell or some mechanical breakdown of the equipment used in 

connection therewith, or the like.' hVat.sotz v. l~oc~l~t~zill, 137 Tcx. 565, 155 

S.W.2d 753.784. 

Aftcr- thorough dclibcration, we coiiclude that the rule quoted above 

from the Lunzb v. 1'rir~syc.klc. case is the soundest and most equitable and the 
same is adopted. l,h~der that rule, the controili~ig factual finding is whether or 

not the tcmporary stoppage in productio~i was for an unreasonable length of 

lirnc. 

",i2 In Steti~ar-r Y. AI>Z(<~-(ZO~CI H~SS <,'oljrl. (Okla. 1979); 604 P.2d 854. 858? the Oklahoma 

Supreme Court clarified that: 

A decree of lease ca~icellation may be rendered where the record shows 

that the well in suit was not producing in paying quantities and there are no 

compelling equitable considerations to justify continued production from the 

unprofitable well operations. 

753 In Strt+!n/-t, the court concluded that whether or not the period of suspensiori is 

reasonable depe~ids on "all sursounding circumstances." 604 P.2d at 855. The Ilistrict 

Court's instructions to the jury were consistent with the rule adopted by the Oklahoma 

Supreme Court in Coiner and elaborated on in ,!tevt:nrr and further reflect the approach takcn 

in our prior case la\.;. Because the contract !anguage is the same and the effect on the parties 

is the same, I would apply thc equitable principle in the same fashion. 

754 In Stitt~sori v. T~z/*rcurt (9th Cir. 1942j, 132 F.2d 363, the Ninth Circuit Court of 

Appeals. in the only decision to this date which attempted to summarize Montana law on the 

subject at issue, reflected an approach similar to that adopted by the Oklahoma Supreme 

Court. In Stimsotz, the question was whether an oil and gas lease automatically terminated 

upon temporary cessation of production of oil based on a lack of market. The secondary 

claiise in that lease also provicicd that the lease was to continue for as long after the primary 

iernm "as or1 or gas, or erther of them, IS produced." Durlng the secondary term. the lessee 
ceased productio~i thr a period of about fourteen ~nonths for iaek of a market. The lessor 

brought a s~tit in cyriiiy for cancellation of thc lease. tiowc.evcr9 rhc district court found that 

the lessee had exercised reasonable diligence in attempting to find a marlct a~id denied the 

relief sought by the plaintiff. 

$55 I, - 011 appeal, the Ninth Circuit noted that although Montana law controlled, therc was 

no rtported Montana ease d~rectly on pornt. Therefore, tt d~seussed se\eral Montana cases 

including Rerrlzelote v. Loy Oil Lh. (1933), 05 Mont. 434, 28 P.2d 187 (relied on in tlie 

majority opinion) which interpreted similar lease pro~isions. It characterized this Court's 

decision in Wertlielote as follows: 

As a whole, it is to bc gathered from the opinion that if tlre lessee uses 

reasonable diligence to market the gas and is unable to do so, the lease remains 

in effect. it difficulty with the opinion as authority here is that the court does 

not clearly relate its discussion to the 'thereafter' clause. Nevct-theless it does 

appear to assimilate that clause with the implied covenant to use reasonable 

diligence to market. 

1156 Characterizing this Court's prior decision in Se:evcr.solz v. Nr~rsto~v (1936), 103 Mont. 

526, 63 P.2d 1022, the Ninth Circuit stated that: 

The court thought that while tlie statutory action for cancellation is an action 

at law, rjcverthelcss the principle ofequitable reliefgoverns~ 'andcourts should 

in such a case seek to do equity as between the parties,' 103 hlont. at page 534, 

63 P.2d at page 1025. 

In conclusion, the hlntli C ircult In Srrnztori held that 
In the situation beibrc us tlie enforced ciosing doiin ofthe weiis involved 110 

loss from drainage. There was no intention to abandon the lease. And the 

storage of the oil underground was as effective as its storage in surface tanks, 

and obi-iously more economical. What the lessee did mas in the muruai 

interest of the parties. 

557 Based on its revie\%- of Montana case law and the equitable considerations cited by the 

court, the Ninth Circuit affirmed the federal district cout-t's refiisal to cancel the parties' lease. 

'rhere was no discussion of a hreakdomn of equipment nor suggestion that ilontana mould 

follow the harsh Texas rule in that ease 

758 Finally, this Court in C%r-isiiun Y. A.A. Oil Corp. (1973), 101 Plont. 420,427-28,506 

P.23 1369, 1373, in sp~te of its obsercation that forfe~turcs are favored in oil and gas leaser, 

held that: 

The test for determining lqhether there was sufficient production or 

whether the lessee was acting with reasonable diligence in producing and 

marketing the gas from the leased lands is the diligence which would be 

exercised by the ordinary prudent operator having regard to the interests of 

both lessor and lessee. Sullivani t_lr2r1dliook ofOi1 und Gas Lntv, s 91, p. 173, 

2 Brown, Oil mr~d (;(IS Lei~ses, 2d ed., s 16.02, pp. 16-49. This is a question of 

fact that will depend upon the facts and circumstances of each case. Berthelore 

v. Loy Oil Co.? 95 Mont. 434,28 P.2d 187. 

'159 This Court in C'lzristii~rr noted that what may be reasonable with regard to oil 

production nil1 bi: different from \r hat is reasonable \c~th regard to gas production. Lye did 

not elaborate on how the rule \&ould be dlffct-ent for 011 and gas productton. Homever. I 

would conclude that tl:osc itre simply cire~irnstancer to be taken into consideration by the 

finder of fact iihen dctenn~n~i~g whether temporary cessat~on mas reasonable 
..', qj60 r o foiiow the more arbitrary and inequitable approachtaken by the majority bascd on 

Texas decisional law and the distinction bet~vcen "forfcit~tre arid equity" and "ownership in 

place" exalts form over substance and denies the fact finder in tliis case and future cases the 

opportun~ty to cousldcr many reler ant c~~cumstances regard~ng the temporary suspension of 

production. 

?iOl Furthermore, while in the authorities relied on by the majority there is substantial 

discussion about the rights of the lessor, it is worth noting that the lessor in this case did not 

feel sufficiently aggrieved by C-W's conduct to cancel the leases in question. Only Somont, 

nhlch sought to interfere w~th C-Ll"s contractual relattonsh~ps for its oun benefit, brought 

this action 

.i62 For these reasons, I dissent from the majority opinion. I would affirm the judgment 

of the District Court. 

Justice Patricia 0. Cotter joins in the foregoing concurrence and dissent. 

i-1 

i i i i 

Justice 
Just~cc i%arricia 0. Cotter concurs and dissents. 

#:63 1 concur in Justice 7riei.i'eiler3s concurring and disset~tiilg Opinion. i write scparaicij 

to set hrth some of tile evidence irrtroduced at trial which tl-ie jury considereci, and which I 

believe was necessary to and uncierscored the correctness of their decision. 

4:64 The jury heard evidence that other producers, including Somont, often simply walked 

away from \veils and ~vaited until spring, when faced with frozen wells requiring repair. The 

jury also heard evidence that when the price of oil is low, wells are often shut down. In 

addition, they heard testimony from a Long-time operator in the Kevin-Sunburst area, R. D. 

McPhillips, to the effect that C. W. acted as a prudent operator in light of all [he 

circumstances. Sornorll offered no independent testimotiy lo tlle contrary. 

1165 Another matter upon which the jury heard evidence arose out of the counter-claim of 

C. W. against Sornont. C. W, introduced evidence at trial that after Somont's attempts to 

purchase the leases in 1997 were rebuffed by C. W., Somont started investigating C. W.'s 

finances. It contacted the president of a bank to disc~~ss the potential of the hank breclosing 

against C, W,? and also contacted other mineral owners of C. W.'s leases; asking them to give 

Sornont new leases. C. W. therefore argued that part of its cessation of production resulted 

from Somont's interference with its financing. The jury had every right to take this 

information into account in determining whether C. LV.'s failure to produce in paying 

q~~antities was justified as a temporary cessation. 

766 if Clli.z.sriiln 1.. A.A. Oil Cl~rp., is still good law, and this Court's reliance upotr it at 
22 (ofits Opinion cedainly suggests rl~at it is, I do not see how ajury can make an infon~~ed 

hctuai determination ofv;heiher the icssee has exercised the diligence of an ordinary prudeill 

operator. witbout iakiiig into accourrr all r-eleva~it factors. including oil prices, pour cor:ditions 

on tl~c oil market, financial conditions of the operator, and what other prddenr operator5 do 

under the same or similar circumstances. I therefore join in Justice Trieweiler's concurring 

and dissenting oplmon. I too ~vould affirm the judgment of the District Court 

Justice