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~,++jbs and STEWART HOWELL, all d/b/aC-W SOlKl. VENTIJRE .,'... 

### .&+-. .-

,,, akia CAVALIER-WALLS JOIN VENTURE,

.4PPEQILFROM: District Coitrt ofthe Ninth Sodicial District, In and for the County of Toole, The Honorahlc Marc G.Buyske, Judge presiding. C;OU&jSELOF 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, SpecialAssislalitAttorney General, MontanaDepartment ofNatura1Res~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 21,2002

.aJustice Jim

### Rcgnicr deli\-eredthe 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 doingbusiness as 

### C:-W JointVenture, alsoknown as Cavalier-Walls Joint Venture, Respondcitt~~C:ross-~4ppellants 

### ("C-W"), in the Ninth Judicial District Court, -TooleCounty, to ler~nillate certain oil and gas leasesheld by C-W. Following trial, thejury rendered 

### a verdict in favor of C-W. Somont appeals thejudgment entered upon the jury .i-erdictand certain pre-trial and post-trial rulings issued 

### by the District Court. C-CV cross appealsthe District Court's award ofattorney feesto Somontbased on its determinationthat Sorncttithad 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 Somonthad 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 errwhen it allo\ved thejury to consider oil prices, econon~ic 

### considerations, and C-CV's financial conditioniri determining whether oil and gas leases had tenninatcd due to a 

### lack ofproduction? BA<:KCROUNl> qj5 111 

### 1001,C-&"v'urchasedanumber ofoil and gas lcases in the Kevin-Sunburst oil fieid in'I'oole County, Montana. Most oftheseleaseswere established 

### in the 

### 1920sfora specified numbct ofycars, 1.e 

### ,theptiniary term. Conseqrrcntly.theprimary terms onthese leaseshale

### long sltlcc exp~redliowcver. through barlous hahcndunl clauscs. tile conuactspro\ 

### idc tor 

### rlie leases' extension of aii

### iiiciefinitrsecondarytern. 

### Pursuant tothe

### 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 propertiespursuant tothe contingencies oftheliabendum 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,Somontinformed 

### C-Wthat 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 orderwhich 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 [thelessors]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 3lcased lands." C)n junc 12: 1908. Somont filcd 

### an tiinended cotnplaint referencing the assignn~cnts.Subscyueiltly, C-W cxecuted rcleases 

### on ttvcnty orits 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 interestin those leases. 

### C-W concededthat Somonthad standing to prosecute the remaining three becausc Son~orrt owned sonlc portion of those leases' mirreral estatc. The District Court del-ricdSornont'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 aj~tstificationfor 

### C-IV's lack of production. Further, Somont proposed ajury instruction which stated thcjury could not consider oil prices_ economic considerations, or C-W's financial condition in determining whether the lack ofproduction

wasjustifiable as a tcniporary cessatiorl. The District Court denicd Sornont's motion 

### in lirnine, in regard totltc oil and gas prices, and rejected its proposed jury instruction. On May 1:: 1099, the case proceeded to trial. 

## 7

I0 .-Ittrial. 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 ofproduction doctrine prevented the leases' 

### termination. C-W urcscnted evidence ofreduced oil prices, a deflated economy, and the company's financial prcssuscs as justification for the cessation. After presentation ofail oftlie evidence, the District Court denied Somont's motion forjudgment

as a matter of law and instructed thejury to consider "all surrounding circ~in~stanccs" in determining whether C-W's leases had tern~inated for lack ofproduction. 

### 71I 

### On May 14, 1999,

### the jury rendered a special verdict in favor of C-LV. 

### In so doing, thejury found that none ofthe eight leases terminated due to a 

### lack ofproduction. Thejury stlso 

### determined that Somont wrongfully intcrfercd with C-W's contractual and biisincss relationshipswith the lessorsand awardedC-W approxi~nately 

### S10,500in damages. On May 21, 1')99'),

### the District Court enteredjudgment 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-terred in allo\ving thejury to consider oil prices, economic considerations, and C-LV's financial condition indetermining whether the



### - 3subject leascsterniinated dueto alack ofproduction. i'hcreforc: Somonr appealsthe ilistrict Court'sjudgmcnr 

### on the

### jury vcrdict and nrdc: denying its motion forjrrcigmcnt 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 wlietlierthe court's inte~rctation ofthe law is correct. C(~~OII 

### C,'ounty v. 

### UnionKe.wrve 

### Ch(11 C.h. (19951, 271 Mont. 459, 469, 898 P.2d 680, 686. ql15 Ofthe eight leases contemplated herein, Solnontounsaportion ofthreeofthe leases' mineral estates. 

### C-\V cotieedes that Sornontlias standing to compel its release ofthose 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 Sect101182-1-202(1), 

### MCA, prov~des: 

### Ifthe lessee or assignee thereof neglects orrefuses to execute a release as provided by this part, the owner ofthe leased premises may sue in any court ofcompetentjurisdiction to obtain the release, and in such action he also rnay recover from tlte lessee. 

### his successor. or assigns the sum of $100 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.

### Priorto triai, the iessors ofthetive 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 

### insiststhat since Son~ont is not the ownerqfrizele/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, eitherparty may generally make an assignment ofrights under the contract. Forsytht.

1.. 

### Elkins (l985),216 

### Llont. 108, 113,700P.2d 596,590-600. 

### Further, all that is required to consiituic a "rcal party in interest," forpu~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 (1979), 18

### 1 

### Mont. 442,440, 503 P.2d 1059, 1063. 1118 

### Each ofthe original leases in questionis a contractwhich 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 ofrights provisions vary somewhat in language, the prevailing effect is that "the privilege of assigning ['theestate] 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 ofthe leases in question.

### lSSIJE I'UO ci9 Did the District Court 

### err when it aliowed theji~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 ofproduction? 

### '20 A district court's dingon 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 ajury. 

### 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 particularjury instructionswere properly given orrefused,wemust considcrtheinstnictions intheir 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 thejury 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 ajustification 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, Somontsubrn~tted itsproposedjut4 mstructlonstotlze DlstrrctCourt 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 ofproduction. 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 thejury

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,nordoesitterminatethe instantproduction fallsbelow aprofitablelevel. 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 wasjustified 

### 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 subjccttothis iitigation contain ahabcndum ciause fixing theultimate durarlor?of

### the lessee's inrerest. 

### Oil and gashabendurn clauscs generallyconsist 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 theprimary term,the lease 

### ~111 automatteally terminate atthe end oftheprIma1;Lterm. 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 circumstancesmillprecipitateterminatton ofthelease uponthe cessationofproduetion. 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 otherjurisdictionstermination ofa 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,'ioizicjlCj58j,

### 134Moot, 

### 156. 152. 

### 328P.2d 

### 655; 65") Essentially, 

### this means oil and gas leases transfer to the icssee a kesitnplc determinable estate with the lessor retaining



### a pc>ssibility of reverter, 

### See k'lutqfiki 1,. 

### ,J'tcvctzsor~ (lWO)l80 Monr. 463. 476-77, 284 

### P. 553. 556. Therefore, upon tlte occurrence of a stated event? the lessee's interest auton~atically terminates. 

### SeeBerrlrelole I,

### Lr*. Oil Cu. ( 1933), 95Mont. 434, 447, 28 P.2d 87 I. Here, as in most oil and gas leases operating pursuant to the conditions of the seconilaryterm, the event triggering automatic termination is the cessation ofproduction in paying quantities. 

### See Rertlrelotc, 95 Mont. at 448, 

### 28 P.2d at 191. 727 This Court has defined paying quantities 

### as the amount ofproduction which v~ould pay a sinall profit over the cost of operation of the wcll, excluding from consideration the initial cost ofbringing 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/zv.,.4.,3. 

### Oil 

### C:orp. (1073), 161 Mont.420, 506P.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 inpaying 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 Mostjurisdictions1in determining whether a cessation ofproduction 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 onthe 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 significantlyon which causes contributing to thecessation may be considered in the tcrnporary cessation of production analysis, Those jurisdictions nhtch treat termmatloti as a canccllat~on or 

### forfeiture ~uequtty generallj hold that "the ledse 12continues in fbrcc unless tilcperiod ofccssatic~n. 

### vielved it1 thc 

### ligi~r ofuii 

### rile circ~m/.srcznc~cs, is tbr. 

### an ~ii-rreasiinable 

### ritnc.'' See, e.g.. Cbitrerv. ifiit-ml 

### (Okia. 1058), 330 

### P.2d 2 

### i 7:

### 2 19 (emphasisadded). 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 toproduct: 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 wasjustified 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 thejury 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). 155S. W.2d 

### 783,the lessee ofan oil aiidgas 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 

### ofproduction doctrine precluded termination ofthe lease. The Supreme Con11of 

### 'Texascoi~claded that to prevcnt termination ol'thc lease pursuant to the temporary cessation ofproduction doctrine,the cessationrllust bc "due to [a] sudden stoppageofthe well or some 13,, ~:ieclyanica] br~.akclovxn oftlic cqnipmcn?usid in connectiontherctvith, ortl~c like. R'~tsi~iz,



## ,-- i5 S.L$".2dat 

### 784. 'i'hcrcFare. the 

### courtheld that the lease had ter1ninali.d bccause the oil market did not prevent operation of the 

### well. kf~?lnisciiz; 

### 155 S.iV.2dat 784. 

### "3 Adopting Iexas's narroixj temporary cessation ofproduction test comports with the principles in Montana that: 

### (1) oil and gas leases are to be construed liberallyin favor ofthe lessor and strictly against the lessee: and 

### (2')while forfeitures are usually not favored in the law, ducto the peculiar nawrc ofoil and gas leases, forfeitures arehere favored.' 

### Clrrisricin, 101 Mont. at 

### 425. Further, Texas's temporary cessation of production standard properly balances tl~e interests oftlielessor and lessee. The diligentlessee whotakes immediate steps to rectify a stiddenhalt in production will not losehis orher 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\veverlthose very economic considerationsshould not factorinto the temporaryversus 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 wit11JusticeTrie\vciier's cl~aractcrization of

### ,Qimsori v. Tcrrf-iii~ (O!'i 

### Cir. I943), 

### 132F.2d 363. Itis true that, in 

### Stinzso/~, theXinth 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 firstprong ofthe 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 ofproducing in paying quarrtities. In otherwords, ifthere 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 laterreiterated in 

### C/2risric211, asalluded above. Our holding today ltas done nothing to disturb the principles discussed in 

### Stinzsort and 

### Cl~ristiml. The equitablenotions contcniplatedtherein remain valid considerations but apply onlyto the "producing in paying quantities" prong ofthetwo-part test. Onceit 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 evidencereferenced by Justice Cottermaintains norelevance to the inquiry implicated herein and thejury shollld not have been instructed to consider it.";6 .*tccordingly,

### wehold that the District 

### Courtabused its discretioil in allowing

### thejury

ro considernil prices. econon~ic ~rnsiderations; and 

### <'-W7s fillancia1condirion

### 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 tojudgmcnt 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 ofreview in appeals from a judgment notwithstanding the verdictmade pursuant to Rule 50(b), hZ.R.Civ.P., is the same as that for review ofa 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 tobe drawn therefrom. IiJ.iirz v. 

### Cify oJ'Nozemirn(lW")(t), 279 Mont. 507,510,028P.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-Whas 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 thejury verdict, the Ilistrict Court awarded attorncy fees in the amount of 330,867.50to Somont and 546,2212.5 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 inp;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 helsonDistrict Court Judge Richard .A. Sirnonton, sitting 

### in for Justice Jamcs 

### C. Ncisoni concurs. 

### 731 iconcur 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 belthe 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 soruewells for three years. In somecases electricmeters have been disconnected for two years. When production ceases so there is not even a question ofwhether there is production in paying quantities, the secondary term ofthe lease tcnninates as production is a condition precedent to thc continuation ofthc leasc. Sincelack ofproduction terminates thc secondaryterm, the only issue should then be whether the lack ofproduction is excusable. The teinporary cessation ofproduction doctrine was developed to provide that excuse. 

### 743 The dissents would include, as elements ofthat 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 dependentupon the efficiencyofthe operator. IfC-LtTwerehaving financial problems, and 

### ifproduction 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? 18744 The leases are prcparcd and printed by the producer. Often times the minerai owner 

### tvill malcc

### changes

### in ti3c 

### languliye

### ofthcprinted fomn~ 

### orattach an addendum rhat will bcpart 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 1agreethat anydoctrine oftemporarycessat~on ofproduction that precludes forfeiture ofthe secondaryterm ofthe least:shouldbe llmitedtoactsof Godandmechamcal problems, coupled with a diligent effort by the producer to remedy them. 

### 746 Theposition ofthe majority results in the development ofminerals for the benefit of both the lessor and the icssce and ultl~natcly for the benefit oftheconsumer. 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. NelsonJrtsllcc '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 

### 1dissent from the majority's conclusion that the District Court erred \+henit allowed thejury to consider oil prices, economic considerations, andC-W's financial condition when it detern~ined \+-hetherthe 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 thejury, 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 ofthesecondary tern? ofthe habendurn clauses ofthe leases 

### at issue. There are several standards elnployed 

### in the various jurisdictions around the country for determining .ivhethcrcessation istemporary and 

### reasonable orpermanent, '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.,thcplaintiffheld a leasehold estatein oil and gasunder 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 20rc produce, 

### hc brought an action to quiet titic to his ieasehoici interest. Plainiii'i'conicnded that since/l~c ~ssation iffpro13~1~1ion was telliporary~ 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 willjustify termination ofa lease aftertheprimary 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]-cwc 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 

### abrief period oftime. On the contrary, wc have reached the co~lclusion that the only fair andjust 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.' Thequotedntle seems to be the most 

### equitable one in such cases. One much more favorable tothe 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 ofproducing oil or gas in paying quantities; or that the lcssec, in closing down the wells, has done sowith the intention ofabandoning 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 ducto 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 thesame 

### 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 ofleaseca~icellation may be renderedwherethe record shows that the well in suit was not producing in paying quantities and there are no compelling equitable considerations tojustify 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 Coinerand elaborated on in ,!tevt:nrr and further reflect the approach takcn 

### in our prior case la\.;. Because the contract !anguage 

### is the same andthe effect on theparties 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 tothis date which attempted to summarizeMontana 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 

### inthat lease also provicicd that the lease 

### was to continue for as long after the primary iernm "as or1 or gas, or erther of them, ISproduced." Durlng the secondary term. the lesseeceased productio~i 

### thr a period 

### ofabout fourteen ~nonths for iaek of 

### a market. The lessor brought a s~tit 

### in cyriiiy for cancellation 

### ofthc 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 tomarket 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-thelessit 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,rjcverthelcsstheprincipleofequitable reliefgoverns~ 'andcourts should 

### in such acase seek to doequity as between theparties,' 103hlont. at page 534, 63 P.2d at page 1025.

In conclusion, the hlntli 

### C ircult In 

### Srrnztori held thatIn 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 ofthe 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 itsrevie\%- of Montana caselaw and the equitable considerations cited by the court,theNinth Circuit affirmed the federal districtcout-t'srefiisal to cancelthe 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 ofOi1und GasLntv, 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 factthat will dependupon the factsandcircumstancesofeach case. 

### Berthelore v.

### Loy Oil Co.?

### 95Mont. 434,28 

### P.2d 187. 

### '159 This Court in 

### C'lzristii~rr noted that what may be reasonable with regard to oil production nil1bi: different from \r hat is reasonable \c~th regard to gasproduction. 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 arbitraryand inequitable approachtaken 

### by the majoritybascd 

### on Texas decisional law and the distinction bet~vcen "forfcit~tre arid equity" and "ownership in place" exalts form over substance and deniesthe 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 ofthe 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 soughtto 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 thejudgment of the District Court.

Justice Patricia 

### 0.Cotterjoins 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 oftile evidence irrtroduced at trial which tl-ie jury considereci, and which 

### I believe was necessary to and uncierscored the correctness oftheir decision. 4:64 

### Thejury 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. Sornorlloffered no independent testimotiy lo 

### tlle contrary. 1165 

### Another matter upon which thejury heard evidence arose out ofthe counter-claim of 

### C. W. 

### against Sornont. 

### C. W, 

### introduced evidence at trial that after Somont's attempts to purchase the leases in 

### 1997were rebuffed by 

### C. 

### W., Somont started investigating 

### C. W.'s 

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

### C,W,? 

### and also 

### contacted other mineral ownersof 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 wasjustified as a temporary cessation. 766 ifClli.z.sriiln 1.. 

### A.A. 

### Oil 

### Cl~rp., is still good law, and this Court's reliance upotr it at

### 22 (ofits

### Opinion cedainly 

### suggestsrl~at 

### it is, I do not 

### see 

### how ajurycan 

### make 

### an infon~~ed hctuai 

### determinationofv;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 ofthe operator, and what other prddenr operator5 do under the same or similar circumstances. I thereforejoin in Justice Trieweiler's concurring and dissenting oplmon. I too ~vould affirm the judgment ofthe District Court

Justice