Opinion ID: 2612450
Heading Depth: 1
Heading Rank: 2

Heading: fiduciary duty to protect the lessor's correlative rights

Text: As we mentioned in Part I, Samson, supra, acknowledged the existence of a duty to protect against drainage by the lessee's other operations. This duty is inherent in and part of the lessee's implied covenant to develop the lease as a prudent operator. Samson further held that the status of unit operator confers a duty to operate the leasehold as a unit and to safeguard the correlative rights of the various interest holders. [7] Moreover, an interest holder in a unitized section has a right to enforce the unit operator's duty to conduct operations as a prudent operator. Id. Appellants claim that this duty, though not characterized as such, is fiduciary in nature because it is a higher duty than the duty created solely by the lease contract. The appellants rely on Reserve Oil, Inc. v. Dixon, 711 F.2d 951 (10th Cir.1983), and Young v. West Edmond Hunton Lime Unit [8] for support of their proposition. In Dixon, the Tenth Circuit Court of Appeals determined that under Oklahoma law, the operator of a unitized field stands in a position similar to that of a trustee with respect to those interested in the oil production, including the royalty owners. The Court in Dixon cited Young as support for this holding. We held in Young that a unit organization with its operator stands in this trustee-type position for all interested parties, be they lessees or royalty owners. The unit in Young sold oil to the unit operator and other oil purchasers at a price that was well below the market price. We reversed the trial court's judgment for the defendant unit and remanded for damages to be awarded to the plaintiff lessors to compensate them for lost royalties they would have received had the unit sold the oil at the market price. [9] In a subsequent appeal after remand, we noted, in West Edmond Hunton Lime Unit v. Young (Young II), Okl., 325 P.2d 1047, 1052 (1958), that the relationship between the unit and its operator (unit) and the royalty owners is fiduciary in nature. We discussed this holding in Olansen v. Texaco, Inc., Okl., 587 P.2d 976, 984 (1978), again expressing the accountability of the unit to the royalty owners due to the fiduciary relationship. Therefore, we have recognized the existence of a fiduciary duty owed by a unit to the royalty owners and lessees who are parties to the unitization agreement or subject to the order creating the unit. This is not a duty created by the lease agreement but rather by the unitization order and agreement. The appellants owned no minerals in the Section 20 (Wosika) unit, and thus, no fiduciary duty was owed them for operations within that unit. The only fiduciary duty owed the appellants was created by the unitization of Section 21. It is incumbent upon them to show what, if any, violation of the fiduciary duty occurred in that unit. Consequently, the district court has subject matter jurisdiction for an action on a unit's violation of the duty inherent in the operation of a unit. As we stated this duty is one owed by the unit organization with its operator, and under the facts of this case, the district court is the proper forum to determine whether a duty was violated. [10]