Opinion ID: 2586675
Heading Depth: 1
Heading Rank: 16

Heading: Did the district court properly grant credit to the defendants for plaintiffs' settlement with Questar/Wexpro?

Text: [¶ 143] The district court entered judgment against all defendants, jointly and severally, for the NPI proceeds due from March 2006 through December 2006 $4,896,589. Prior to the trial, defendants Questar and Wexpro settled with the plaintiffs and part of the consideration for the settlement was Questar/Wexpro's agreement to release amounts they had escrowed over the years, $9,501,518.20. The district court credited the defendants 30% of the judgment, or approximately $1,468,976, to account for Questar's and Wexpro's settlement with plaintiffs. The district court explained that the 30% credit was based upon the allocation method set forth in the Supplemental Accounting Agreement executed by the First Parties. After the trial, the defendants filed a motion to alter and amend the judgment to credit the entire amount paid by Questar and Wexpro to the judgment against the remaining defendants, which would have resulted in a ruling that the defendants owed nothing to plaintiffs. The district court denied the defendant's motion to alter or amend. [¶ 144] The defendants argue on appeal that, in light of the district court's ruling that the defendants were jointly and severally liable for the entire amount, it violated the one satisfaction rule by failing to credit the defendants with the entire amount of Questar/Wexpro's settlement. The plaintiffs argue that the district court properly applied the allocation formula set out in the Supplemental Accounting Agreement. They also assert that the defendants are not entitled to a full set off of the Questar/Wexpro settlement amount because it included accrued net profits for the periods prior to and after the March through December 2006 period included in the judgment and consideration for other items including conversion of the NPI on Questar/Wexpro leases to an overriding royalty and potential WRPA penalties and interest. [¶ 145] Given that we ruled that the district court erred by making the judgment joint and several, much of the defendants' settlement credit argument is no longer applicable. Moreover, we note that credit for settlement is controlled by principles of equity. Cargill, Inc. v. Mountain Cement Co., 891 P.2d 57, 67 (Wyo.1995). The decision to allow a set off is a matter of discretion with the district court and rests in the equitable jurisdiction of the district court. Id. [¶ 146] Questar/Wexpro's settlement from the escrow account included amounts accrued before and after the period for which the district court entered judgment against the remaining defendants. In addition, the Questar/Wexpro settlement amount did not use the consolidated or basket accounting required by the Unit NPI Contract and upon which the judgment against the other defendants was based because Questar/Wexpro had only its individual net profit records when it calculated the net profits due and placed them in escrow. The settlement amount also included other consideration, such as conversion of the NPI to an overriding royalty and release of any potential WRPA claims (since Questar/Wexpro were operators). The judgment amount and settlement amount were not comparable. To use a colloquialism, comparing the settlement and judgment would be like comparing apples and oranges. Thus, the defendants were not entitled to a dollar for dollar credit for the Questar/Wexpro settlement. Nevertheless, it is clear that some of the settlement amount applied to the NPI during the same period covered by the judgment. The district court properly exercised its equitable jurisdiction and discretion by applying a set off in the amount Questar/Wexpro would have been responsible for under the proportionate accounting methods included in the Supplemental Accounting Agreement. [22] [¶ 147] Finally, the defendants argue the district court erred by adopting the plaintiffs' expert's method for determining what percentage Questar/Wexpro's settlement reflected of the NPI obligation. The plaintiffs' expert testified in the rebuttal portion of the trial that, under the Supplemental Accounting Agreement, the net profits payable by each First Party successor is determined by dividing that party's revenues by the total revenues attributable to the NPI leases. Applying those principles, the plaintiffs' expert testified that the percentage allocable to Questar/Wexpro was 30.17%. The district court adopted the plaintiffs' allocation method and granted the defendants a 30% credit against the judgment for Questar/Wexpro's settlement. [¶ 148] The defendants claim the allocation method did not reflect the Unit NPI Contract's basic concept of allocation on the basis of net profits actually realized by the First Parties rather than comparative revenues. While we agree that the Unit NPI Contract focuses on net profits, that does not change the fact that the First Parties agreed to use the Supplemental Accounting Agreement to allocate the NPI burden among themselves and the Supplemental Accounting Agreement allocates on the basis of revenues. The district court's decision to adopt the plaintiffs' expert's analysis was not clearly erroneous. Moreover, the court did not abuse its discretion by applying the 30% set off to the judgment for Questar/Wexpro's settlement. [23]

[¶ 149] The resolution of whether a party is a prevailing party in determining entitlement to attorney fees is one of law, which we review de novo. Veile v. Bryant, 2005 WY 150, ¶ 7, 123 P.3d 562, 564-65 (Wyo. 2005). The final attorney fee award is, however, reviewed for abuse of discretion. Mueller v. Zimmer, 2007 WY 195, ¶ 11, 173 P.3d 361, 364 (Wyo.2007). A court abuses its discretion only when it acts in a manner which exceeds the bounds of reason under the circumstances. The burden is placed upon the party who is attacking the trial court's ruling to establish an abuse of discretion, and the ultimate issue is whether the court could reasonably conclude as it did. We have said that [j]udicial discretion is a composite of many things, among which are conclusions drawn from objective criteria; it means a sound judgment exercised with regard to what is right under the circumstances and without doing so arbitrarily or capriciously. If the record includes sufficient evidence to support the district court's exercise of discretion, we uphold its decision. Id., quoting Hayzlett v. Hayzlett, 2007 WY 147, ¶ 7, 167 P.3d 639, 641-42 (Wyo.2007) (internal citations omitted).
[¶ 150] The district court ordered the operator defendants to pay plaintiffs' attorney fees, but ruled that all other parties would bear their own costs and fees. Non-operators SWEPI, Williams, Arrowhead and Lance assert that the district court erred by failing to award them attorney fees as prevailing parties pursuant to the WRPA because the district court concluded they were not liable for interest and penalties under that act. [24] The plaintiffs respond that, even though their WRPA claim against the non-operators was unsuccessful, the non-operators were not the prevailing parties in the action and, consequently, were not entitled to an attorney fee award. [¶ 151] Wyoming follows the American Rule with regard to attorney fees. That rule states that each party is responsible for its own attorney fees unless there is an express contractual or statutory provision that allows for such an award. Stafford v. JHL, Inc., 2008 WY 128, ¶ 16, 194 P.3d 315, 318 (Wyo.2008). Section 30-5-303(b) of the WRPA includes the following attorney fees provision: (b) The district court for the county in which a well producing oil, gas or related hydrocarbons is located has jurisdiction over all proceedings brought pursuant to this article and the prevailing party in any proceedings brought pursuant to this article shall be entitled to recover all court costs and reasonable attorney's fees. Pursuant to this provision, the prevailing party in any proceedings brought under the WRPA is entitled to recover its costs and fees. [¶ 152] We have defined prevailing party for purposes of awarding costs of litigation as one who improves his or her position by the litigation. Schaub v. Wilson, 969 P.2d 552, 561 (Wyo.1998). Looking at the litigation as a whole, it is clear that the plaintiffs, rather than the non-operator defendants, were the prevailing parties. The plaintiffs secured a judgment for breach of contract against the non-operators and a declaration that the defendants' leases were burdened by the NPI. The non-operator defendants did not succeed in their bid to have the NPI interest terminated on the basis that the interest ended with the Pinedale Unit. There is simply no question that the plaintiffs improved their position by the litigation and the non-operator defendants did not. [¶ 153] The non-operator defendants assert, however, that they were the prevailing parties under the WRPA because the plaintiffs' WRPA claims against the non-operators were unsuccessful. Section 30-5-303(b) provides that the prevailing party in any proceedings brought pursuant to this article is entitled to a fee award. The plain meaning of the term proceedings is broad, especially when phrased in the plural. Black's Law Dictionary 1324 (9th ed.2009) defines proceeding as [t]he regular and orderly progression of a lawsuit, including all acts and events between the time of commencement and the entry of judgment. Similarly, Webster's Third New Int'l Dictionary 1807 (2002) defines proceeding in the context of law as [l]egal action; litigation. Consistent with these definitions, this Court broadly defined proceeding in the course of allowing attorney fees under the relevant worker's compensation statute. Graves v. Utah Power & Light, Co., 713 P.2d 187, 194 (Wyo.1986) (superseded on other grounds by statute). [¶ 154] A broad reading of the term proceedings is especially apt in the context of the WRPA where the right to bring an action under the act is contingent upon the existence of a pre-existing contractual obligation. In other words, the only way to bring a WRPA claim is in the course of bringing an action on the document which creates the right to the mineral royalty. See, e.g., Ferguson, 884 P.2d at 976 and 979. So, in this case, where the non-operator defendants were found liable under the Unit NPI Contract but not responsible for WRPA penalties and interest because they were not obligated to actually remit the payment to the plaintiffs, it is appropriate, as a matter of law, to conclude that the non-operators were not the prevailing parties in the proceedings. The district court did not err by failing to grant the non-operators attorney fees. See also, Moncrief, 816 P.2d at 109 (ruling that district court properly held the non-operator was not responsible for the plaintiff's attorney fees under the WRPA because it was not responsible for actually making payments to the plaintiff but giving no indication that the plaintiff had to pay the non-operators' attorney fees). [¶ 155] Furthermore, even if we were to accept the non-operators' argument that they were entitled to attorney fees because they prevailed on the WRPA claims, we would not conclude that the district court erred by denying them an attorney fees award. The district court has discretion to award suitable fees. If the non-operators were entitled to be awarded fees, it would only be for the fees attributable to their defense of the WRPA claim. Although we have not been directed to any evidence in the record regarding the amount of fees the non-operator defendants paid in defense of the WRPA claim, we are confident that the amount would represent a relatively small percentage of their total attorney fees. The WRPA issue involved a question of law that did not require factual discovery or analysis, and the appellate record on that issue represents a very small portion of an extremely voluminous record. Thus, the district court could have, as a matter of discretion, appropriately denied the non-operators' request for fees on the WRPA claim.
[¶ 156] The operator defendants, Shell and Ultra, claim the district court erred when it granted the plaintiffs' request for over $3.9 million dollars in attorney fees. [25] They claim the plaintiffs failed to properly segregate their recoverable fees from the non-recoverable fees, including those pertaining to: the non-operator defendants; the plaintiffs' fall-back claims including breach of the duty of good faith and fair dealing, conversion, slander of title, punitive damages, equitable relief and rescission; the settling defendants Questar and Wexpro; and claims and motions that were resolved in favor of the defendants. The operator defendants also assert that the district court abused its discretion by allowing fees based, in part, on an unreasonable hourly rate of $400. [¶ 157] We start with the operator defendants' argument regarding segregation of fees among claims and parties. [S]egregation of fees between multiple clients and/or multiple claims is required when it is possible. Cline v. Rocky Mountain, Inc., 998 P.2d 946, 952 (Wyo.2000). However, as we stated above, the attorney fees provision of the WRPA is broad and allows for fees to the party who improves his position as a result of the litigation in any proceedings under the act. To the extent that the operator defendants claim that the plaintiffs were only entitled to fees for the discrete WRPA claims, we reject that argument. Many of the claims that the defendants argue should have been segregated were intertwined with the WRPA claims and the breach of contract claim that had to be litigated in order to recover under the WRPA. For example, the plaintiffs' conversion, rescission, slander of title, etc., causes of action were all based upon the underlying issue of whether the NPI continued to burden the leases. Similarly, the breach of the covenant of good faith and fair dealing claim was inextricably intertwined with the breach of contract claim, which was the primary claim upon which the entire litigation was based. See, Hladky, ¶ 110, 196 P.3d at 212. [¶ 158] The fact that plaintiffs may not have been successful on individual motions, etc., does not change the fact that they were the prevailing parties in the litigation as a whole. The defendants' argument that the attorney fees for those matters should have been segregated reveals a misunderstanding of the scope of the WRPA attorney fees provision and the definition of prevailing party. It is also noteworthy that, while the defendants assert that the fees attributable to various claims should be segregated and not allowed in the fee award, they do not provide a comprehensive analysis of why those fees are not allowable. Although the party seeking attorney fees has the burden of proving its entitlement before the district court, the party challenging the order on appeal on the basis that the fees should have been segregated, has the burden of showing that the district court abused its discretion. Hladky, ¶ 110, 196 P.2d at 212-13. The defendants have failed to establish that the district court abused its discretion by refusing to require the plaintiffs to allocate fees to specific claims. [¶ 159] With regard to the settling defendants Questar and Wexpro, the defendants are correct that the plaintiffs and settling defendants each agreed to bear their own attorney fees. Thus, the remaining defendants should not be responsible for the attorney fees plaintiffs incurred in prosecuting their claims against those specific defendants. Questar and Wexpro did not, however, settle with plaintiffs until just a couple of months before the bench trial. Prior to that, many of Questar and Wexpro's claims and defenses mirrored those of the other defendants. [¶ 160] The plaintiffs' submission evidenced that it took steps to remove many items pertaining to Questar and Wexpro, especially when those matters did not pertain to the other defendants. For example, they eliminated, entirely, fees incurred in the settlement with Questar/Wexpro and in an associated lawsuit between Questar/Wexpro and plaintiffs. The plaintiffs also reduced the fees requested in association with the court-ordered mediation by 30% to reflect the time pertaining to Questar and Wexpro. [¶ 161] As a practical matter, much of the plaintiffs' work pertained to all of the defendants' claim that the NPI no longer existed, making it impossible, and ultimately unnecessary, to separate the fees applicable to their claims against Questar and Wexpro and the non-operator defendants. In addition, because the Unit NPI Contract called for consolidated accounting, revenues and expenses of all the defendants had to be figured into the net profit calculation. The district court accepted the plaintiffs' efforts to segregate the non-applicable Questar/Wexpro fees. On appeal, the defendants have not convinced us that the district court abused its discretion. [¶ 162] Finally, we consider the defendants' argument that the fee award, as a whole, was unreasonable. Wyoming has adopted the two-factor federal lodestar test to determine the reasonableness of attorney fee awards. This test requires a determination of whether: 1) the fee charged represents the product of reasonable hours times a reasonable rate; and 2) other factors of discretionary application should be considered to adjust the fee upward or downward. Hladky, ¶ 112, 196 P.3d at 213. The factors to be considered in awarding fees are set forth in Wyo. Stat. Ann. § 1-14-126(b) (LexisNexis 2009): (b) In civil actions for which an award of attorney's fees is authorized, the court in its discretion may award reasonable attorney's fees to the prevailing party without requiring expert testimony. In exercising its discretion the court may consider the following factors: (i) The time and labor required, the novelty and difficulty of the questions involved, and the skill requisite to perform the legal service properly; (ii) The likelihood that the acceptance of the particular employment precluded other employment by the lawyer; (iii) The fee customarily charged in the locality for similar legal services; (iv) The amount involved and the results obtained; (v) The time limitations imposed by the client or by the circumstances; (vi) The nature and length of the professional relationship with the client; (vii) The experience, reputation and ability of the lawyer or lawyers performing the services; and (viii) Whether the fee is fixed or contingent. [¶ 163] The plaintiffs' fee request was very detailed and included the affidavits of counsel and hundreds of pages of supporting documentation. The submissions established that, although the plaintiffs' attorneys had actually charged their clients over $5 million in fees, they limited their request for an attorney fees award to just over $3.9 million. One of the defendants' primary claims that the fee request was unreasonable involves the $400 per hour fee charged by some of the plaintiffs' attorneys. They indicate that the fees exceed those charged by Wyoming attorneys, which should be capped at $300 per hour. [¶ 164] While on its face that hourly fee may seem high, it was not charged by all of the plaintiffs' attorneys or even throughout the litigation by the attorneys who did charge that hourly fee. The defendants' argument that the highest reasonable fee for Wyoming attorneys is $250 per hour (although they would not dispute hourly rates of $300 per hour) is not borne out by the record. Michael J. Sullivan is, unquestionably, a Wyoming attorney and charged and was paid $350 per hour throughout the litigation. He also stated in his affidavit that billing rates of $400.00 per hour for senior attorneys and $300.00 per hour for experienced oil and gas litigation attorneys are appropriate in Wyoming. The various filings and affidavits of plaintiffs' attorneys established that this case involved unique and extremely complicated matters of oil and gas litigation and accounting. In addition, the claims involved matters of obviously significant value. We can confirm that the file in this case was massive and the issues were complex. After carefully reviewing the plaintiffs' submissions and the defendants' responses, the district court concluded: The Court finds that the plaintiffs' request for attorneys' fees is fair and reasonable under the circumstances of this case given the nature, extent, status of, and defendants' opposition to, these proceedings. Having dealt with this case for a very long period of time, the district court was in the best position to analyze the attorneys' efforts and time. The defendants have not persuaded us that the district court abused its discretion in doing so.