Opinion ID: 153890
Heading Depth: 1
Heading Rank: 1

Heading: facts

Text: 2 Although complicated in their detail, the facts of this case are, in all material respects, straightforward and undisputed. They are well set out in the pertinent decisions of the district court, which guide our reference to them here. As explained by the district court, the Rhodes Field produces oil and gas primarily from the Mississippian formation approximately 4,450 feet below ground level in Barber County, Kansas. It is a common source of oil supply subject to numerous leases. Morsey owns a lease on the Rhodes Field covering Section 20, Township 33 South, Range 20 West (Section 20). At the time he acquired his lease, Defendant-Appellee Chevron, USA, Inc. (Chevron) owned several neighboring leases. 3 Section 20 was first developed by Conoco in the 1950's. By 1955, Conoco had drilled at least seventeen producing wells on it and had obtained an average production of about 14,000 barrels of oil per month. Production increased to over 17,000 barrels of oil per month by 1957, but then decreased sharply in subsequent years. By 1963, the average monthly production of oil on Section 20 was only about 3,700 barrels. As of 1957, Conoco had produced 1.1 million barrels of oil from the lease, which it estimated as approximately 70% of Section 20's primary recovery, and in 1958, it conducted a pilot water flood project on the lease to test secondary recovery prospects. 4 During the same period, other operators, including Barbara Oil Company (Barbara), Sinclair Oil & Gas Company (Sinclair), and Gulf Oil Corporation (Gulf), developed surrounding leases in Sections 16, 17, and 21 of the Rhodes Field (collectively the Rhodes Unit). Primary production on the Rhodes Unit peaked in 1955 at about 36,000 barrels of oil per month. Thereafter, production decreased sharply, and by 1962, it averaged approximately 6,000 barrels per month. 5 In response to declining bottom hole pressures and a corresponding decline in the rate of production, Conoco, Barbara, Gulf, Sinclair, and other operators agreed to undertake a cooperative water flood project of the Rhodes Field in 1963. Under the project, water was injected through pipes into the field to raise the pressure and make recoverable otherwise unrecoverable reserves. After initiation of the project, which was operated with the approval of the Kansas Corporation Commission (KCC), the rate of production on Section 20 increased in 1964 and 1965 and reached a high of about 8,000 barrels per month in 1966. It then began to decline again, decreasing to 4,000 barrels per month in 1968. By 1972, production was 1,400 barrels per month. Similarly, production on the Rhodes Unit increased to 20,000 barrels per month in 1966 before declining to 13,000 barrels per month by 1968. 6 In 1966, Conoco sold Section 20 to Clinton Oil Company (Clinton). By the end of 1966, a cumulative total of 5.9 million barrels of water had been injected into the lease since the initiation of water flooding. Clinton continued operation of the water flood for several more years, and by 1971 a total of 9.5 million barrels of water had been injected into Section 20. Meanwhile, production of oil on the field continued to decline from an average of about 5,700 barrels per month in 1967 to 1,400 barrels per month in 1972. By that time, Clinton had plugged and abandoned nine producing and injection wells, as well as several water supply wells. In March of that year, it considered the producing wells to be depleted and ceased all injection efforts on Section 20. 7 Although Clinton ceased flooding Section 20 in 1972, the operators of the Rhodes Unit continued their secondary efforts after 1972, as permitted by the cooperative water flood agreement. By January 1973, the cumulative water injected into the Rhodes Unit since the inception of the project was in excess of fifty million barrels. Taking account of water recovered through production, thirty-seven million barrels were unaccounted for. 8 Clinton sold Section 20 to another operator in 1975; that operator held that lease until 1987. During that period, production declined from an average of about 700 barrels a month to about 300 barrels a month. In 1987, the lease was sold to Brito Oil Company, Inc. (Brito). During 1988, Section 20 produced approximately 280 barrels per month. By then, the lease had produced a cumulative total of approximately 1.5 million barrels of oil. On January 9, 1989, Brito sold Section 20 to Morsey for $70,000, the approximate salvage value of the equipment on the lease. Subsequently, Morsey spent between $150,000 and $200,000 reworking that equipment. 9 Thereafter, Kewanee Oil Company, and then Gulf, acquired and operated the leases previously owned by Barbara and Sinclair. When Gulf merged with Chevron in 1984, Chevron acquired the Rhodes Unit leases and continued to flood them until 1989. 10 Sometime after Morsey purchased Section 20 in 1989, Richard Armer, who was employed by him to supervise the lease, complained to the KCC that Chevron was watering out the producing zone in Section 20 because every time their injection pumps go down the fluid level drops very dramatically in my wells and my production increases drastically. A tracer test was undertaken to determine if there was communication of water from the Rhodes Unit to Morsey's lease, and the test revealed some communication between them. In October of 1989, Chevron ceased all fresh water injections and then sold the Rhodes Unit in 1992. 11 In August 1989, shortly before Chevron ceased injecting water into the Rhodes Field, Morsey began this action, charging that the water flood operated by Chevron and its predecessors-in-interest interfered with and damaged the oil producing capabilities of his lease. On April 16, 1991, he filed an amended complaint asserting causes of action for trespass, conversion, private nuisance, breach of contract, breach of duties owed to owners of a common pool, and strict liability. His Amended Complaint alleges and seeks recovery for both permanent and temporary damages, as well as punitive damages and prejudgment interest. 12 As set out in the Pretrial Order, Morsey maintained that he was damaged by Chevron's water flood in two ways. First, he contended that it caused more than 1.2 million barrels of oil, valued at approximately $16,000,000, to become unrecoverable. Second, he urged that the water flood caused permanent damage to the formation and the environment in the Rhodes Field. Although he acquired his interest in Section 20 in 1989, Morsey submitted that his predecessors-in-interest assigned all of their rights to him and that he was therefore entitled to recover for damage done to the leasehold before as well as after he acquired it. 13 Chevron moved for summary judgment. First, it argued that Morsey's tort claims were barred by the limitations on actions in Kan. Stat. Ann. § 60-513. Second, it argued that Morsey could not recover for damage done to the leasehold before he acquired it because he was not the real-party-in-interest as to those injuries. Third, Chevron argued that he was precluded from recovering punitive damages by this Court's decision in Tidewater Oil Co. v. Jackson, 320 F.2d 157 (10th Cir.), cert. denied, 375 U.S. 942, 84 S.Ct. 347, 11 L.Ed.2d 273 (1963). Finally, it argued that Morsey was not entitled to prejudgment interest because his claim was unliquidated. 14 The district court granted the motion in part and denied it in part. It first narrowed Morsey's claim for damages. The court held that Chevron was entitled to summary judgment on Morsey's entire claim for permanent damages on grounds that they were barred by the statute of repose in Kan. Stat. Ann. § 60-513(b). The court held that the statute of limitations in Kan. Stat. Ann. § 60-513(a) barred any claim for temporary damages inflicted more than two years before the filing of the complaint; however, it did not bar his claim for temporary damages done within two years of or after the filing of the complaint. 15 Second, the court held that Morsey was not entitled to recover for damages inflicted on the leasehold before he acquired it. It so reasoned on alternative grounds. First, it indicated that Morsey failed to show that the tort claims of his predecessors had been assigned to him. Second, it held that Kansas law prohibits the assignment of tort claims. 16 Next, the court entered summary judgment against Morsey on his claim for breach of the cooperative water injection agreement under which the operators agreed to flood the Rhodes Field. It held that Morsey could not assert a claim for breach of the agreement because when his predecessor Clinton ceased its injection efforts on Section 20 the agreement terminated as to Clinton, taking it out of position to bring an action against the other parties to the agreement for their failure to perform according to its terms. As Clinton's assignee, the court indicated, Morsey stood in no better position. Alternatively, the court concluded that the claim was barred by the five-year statute of limitations in Kan. Stat. Ann. § 60-511. 17 Finally, the court held that Chevron was entitled to summary judgment on Morsey's claim for punitive damages but not on his request for prejudgment interest. According to the court, his claim for punitive damages was barred by this Court's decision in Tidewater. An award of prejudgment interest was within the discretion of the trier of fact, the court said, and thus inappropriate for resolution on summary judgment. 18 The case proceeded to trial before a jury on Morsey's remaining claims--those for temporary damages inflicted on Section 20 after he acquired it. At the close of his case-in-chief, Chevron moved for a judgment as a matter of law on grounds that Morsey had failed to adduce sufficient evidence of temporary damages and that his claims were barred by the statute of limitations. The court took the motion under submission, pending presentation of Chevron's case. After hearing all the evidence, the court orally (and later in writing) granted the motion and entered judgment for Chevron as a matter of law. The court concluded that Morsey failed to adduce adequate evidence of temporary damages: he failed to prove that it was economically feasible to remove sufficient water from the leasehold to permit recovery of the oil allegedly trapped in it. The evidence showed only permanent damages, the court held, which were barred by its ruling on summary judgment. 19 Morsey timely appealed.