ARMSTRONG v HIGH CREST OIL INC
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No. 12677 I N THE SUPREME COURT O THE STATE O M N A A F F OTN 1974 JOANN A M T O G and R. V. BOTTOMLY, R SR N P l a i n t i f f s and Respondents, -vs - HIGH CREST OILS, I N C . , a corporation, Defendant and A p p e l l a n t . Appeal from: D i s t r i c t Court of t h e Twelfth J u d i c i a l D i s t r i c t , Honorable R. D. MePhillips, Judge p r e s i d i n g . Counsel of Record : F o r Appellant: Crowley, Kilbourne, Haughey, Hanson and G a l l a g h e r , B i l l i n g s , Montana Cale Crowley argued, B i l l i n g s , Montana For Respondents : Hoyt and Bottomly, Great F a l l s , Montana John C. Hoyt argued, Great F a l l s , Montana Submitted: Decided : F i l e d :BPR - 2 1974 February 26, 1974 BPR - 8 1910 Mr. Justice Frank I. Haswell delivered the Opinion of the Court. This appeal is from an order of the district court of Hill County granting plaintiffs' motion to alter or amend the court's previous order granting summary judgment for defendant. From this special order after judgment,defendant appeals. Respondents, JoAnn Armstrong and R. V. Bottomly, are successors in interest to Lewis H. Armstrong as lessor in an oil and gas lease wherein appellant, High Crest Oils, Inc., is lessee. On November 24, 1972, pursuant to Montana's Oil and Gas Conservation Act, appellant applied for an order creating the Bullhook Gas Unit in Hill County, Montana. The lands described in the Armstrong lease were included in said unit area. mission conducted a public hearing on December 14, 1972. The ComJohn Hoyt, representing the respondent royalty owners, announced his presence at the hearing as a protestant to the proposed pooling unit. Subsequent to the hearing the Commission rendered its re- port, made findings of fact, conclusions of law, and issued its order creating the Bullhook Gas Unit effective as of the date of the hearing. On December 21, 1972, respondent Armstrong filed a petition for rehearing with the Commission. Said petition was denied by the Commission on January 29, 1973. On May 14, 1973, pursuant to section 60-135, R.C.M. 1947, respondent Armstrong filed a complaint in the district court of Lewis and Clark County for a judicial review of the order of the Montana Board of Oil and Gas Conservation Commission creating the Bullhook Gas Unit. Subsequently, on June 4, 1973, an amended complaint was filed by both respondents as parties in the action. On May 16, 1973, respondents filed the instant action in the district court of Hill County against appellant lessee. Re- spondents requested a decree cancelling the Armstrong lease and declaring that appellants had no claim of any kind upon the property c o v e r e d by t h e s u b j e c t o i l and g a s l e a s e and f o r a n a c c o u n t i n g o f a l l g a s produced and s o l d from t h e s u b j e c t l a n d l o c a t e d i n H i l l County, Montana. P a r a g r a p h s I V and V of t h e H i l l County c o m p l a i n t s e t f o r t h t h e e s s e n c e of r e s p o n d e n t s ' c o n t e n t i o n s : "That by t h e t e r m s of t h e l e a s e s e t f o r t h and marked a s E x h i b i t ' A ' e x e c u t e d by t h e p r e d e c e s s o r i n i n t e r e s t of p l a i n t i f f s and a s s i g n e d by t h e lessee t h e r e i n t o d e f e n d a n t h e r e i n t h e l e s s e e i s g r a n t e d t h e r i g h t and power t o p o o l and combine t h e a c r e a g e c o v e r e d by s a i d l e a s e w i t h o t h e r l a n d , lease o r l e a s e s i n t h e v i c i n i t y t h e r e o f a t any t i m e , when i n l e s s e e ' s judgment i t i s n e c e s s a r y o r a d v i s a b l e t o d o s o f o r t h e p r e v e n t i o n of w a s t e and t h e c o n s e r v a t i o n and g r e a t e s t u l t i m a t e r e c o v e r y of o i l o r g a s . Such p o o l i n g t o be i n a u n i t o r u n i t s n o t e x c e e d i n g i n a r e a t h e a c r e a g e p r e s c r i b e d o r r e q u i r e d i n any f e d e r a l o r s t a t e law o r d e r , r u l e o r r e g ~ l a t i o n . ~ . . a n d h e r o y a l t i e s t s h a l l a c c r u e and be p a i d t o l e s s o r on pooled s u b s t a n c e s produced from any u n i t i n t h e p r o p o r t i o n , b u t o n l y i n t h e proportion, t h a t l e s s o r ' s acreage i n t e r e s t i n t h e l a n d c o v e r e d hereby and p l a c e d i n t h e u n i t b e a r s t o t h e t o t a l acreage i n t h e land placed i n such u n i t . "That o v e r t h e o b j e c t i o n s and p r o t e s t a t i o n s of p l a i n t i f f s d e f e n d a n t made a p p l i c a t i o n t o t h e Montana O i l & Gas C o n s e r v a t i o n Commission f o r t h e c r e a t i o n of a p o o l i n g u n i t which i n c l u d e d p l a i n t i f f s l a n d known a s t h e B u l l Hook Gas U n i t and t h r o u g h a h i g h powered, h a s t y p r e s e n t a t i o n induced t h e Commission t o c r e a t e s u c h u n i t even though t h e g a s u n i t r e q u e s t e d by def e n d a n t v i o l a t e d t h e e x p r e s s terms of i t s o i l and g a s lease w i t h p l a i n t i f f s by p r o v i d i n g t h a t r o y a l t i e s t h e r e a f t e r a c c r u i n g t o p l a i n t i f f s s h o u l d be p a i d t o them a s l e s s o r s n o t i n t h e p r o p o r t i o n t h a t l e s s o r s acreage i n t h e land placed i n t h e gas u n i t bears t o t h e t o t a l a c r e a g e of t h e l a n d p l a c e d i n such u n i t b u t on t h e c o n t r a r y d e f e n d a n t p l a c e d t h o u s a n d s o f a c r e s of u n p r o d u c t i v e l a n d i n s a i d g a s u n i t and h a s and i s c o n v e r t i n g p l a i n t i f f s s h a r e o f t h e g a s produced t o i t s e l f and o t h e r p e r s o n s a l l i n a n u n l a w f u l and f r a u d u l e n t manner under t h e g u i s e of a ' g a s i n p l a c e ' formula d i r e c t l y c o n t r a r y t o t h e e x p r e s s t e r m s and c o n d i t i o n s of t h e a t t a c h e d O i l and Gas Lease a s s e t f o r t h i n p a r a g r a p h I V above." The o r d e r of Montana's O i l and Gas C o n s e r v a t i o n Commiss i o n c r e a t i n g t h e B u l l Hook Gas U n i t and t h e c o m p l a i n t s f o r j u d i c i a l review of t h i s o r d e r f i l e d i n Lewis and C l a r k County p u r s u a n t to section 60-135, R.C.M. 1947, are included in the Hill County court record. On August 22, 1973, appellant filed a motion for summary judgment in the Hill County action. fore the district court. This motion was argued be- One month after the hearing on the motion the court granted the summary judgment. Said order of summary judgment was filed on November 15, 1973. After the order for summary judgment was entered the following actions transpired: November 16, 1973, respondents1 motion to alter or amend the judgment was served on the appellant together with supporting brief. November 19, 1973, notice of entry of summary judgment was mailed by appellant to respondent. November 28, 1973, appellantls brief in opposition to the motion to alter or amend judgment was served by mail. December 3, 1973, the district court issued its order granting respondents1 motion and revoking the courtlsprevious order granting appellant's summary judgment. This special order after judgment was filed December 10, 1973. No notice calling the motion to alter or amend judgment up for hearing was ever served or filed; no order setting the motion for hearing was ever made, served or filed; no order continuing the date for hearing the motion was ever made; no hearing on the motion was ever held. Eighteen days after summary judg- ment was filed the district court granted the motion to alter or amend judgment. From this special order after judgment, this appeal arises. Two issues are presented for review: (1) Should the summary judgment granted to appellant by the district court be reinstated? ( 2 ) Is t h e o r d e r g r a n t i n g r e s p o n d e n t s ' motion t o a l t e r o r amend judgment n u l l and v o i d f o r f a i l u r e o f t h e d i s t r i c t c o u r t t o h o l d a h e a r i n g w i t h i n t e n d a y s a f t e r s a i d motion i s s e r v e d a s r e q u i r e d by Rule 59, M.R.Civ.P? On t h e f i r s t i s s u e r e s p o n d e n t s ' a r g u e t h a t t h e h e a r i n g i n t h e d i s t r i c t c o u r t of Lewis and C l a r k County t o r e v i e w t h e f i n d i n g s and c o n c l u s i o n s of t h e O i l and Gas Commission w i l l n o t d e t e r m i n e t h e q u e s t i o n of whether t h e r e h a s been a v i o l a t i o n of t h e t e r m s of t h e o i l and g a s l e a s e which i s t h e s u b j e c t m a t t e r of t h e i n s t a n t a c t i o n . Respondents c o n t e n d t h a t t h e s u i t a g a i n s t t h e O i l and G a s Commission h a s n o t h i n g t o d o w i t h whether o r n o t t h e l e a s e between Armstrong and High C r e s t h a s been v i o l a t e d s o a s t o c a u s e a f o r f e i t u r e of t h e l e a s e h o l d i n t e r e s t i n t h a t l e a s e by High C r e s t . W a g r e e w i t h r e s p o n d e n t s ' argument t h a t t h e c a n c e l l a t i o n e of t h e o i l and g a s l e a s e may be a s e p a r a t e i s s u e upon which a n o t h e r c o u r t may have j u r i s d i c t i o n . I n t h e c a s e b e f o r e u s , however, we c a n n o t s u b s c r i b e t o r e s p o n d e n t s ' d i s t i n c t i o n of t h e i s s u e s bef o r e t h e two c o u r t s . out a difference. T h e i r arguments p r e s e n t a d i s t i n c t i o n w i t h - The r e a s o n s advanced b e f o r e t h e H i l l County d i s t r i c t c o u r t f o r t h e a l l e g e d b r e a c h of lease are t h e a l l e g e d i l l e g a l i t i e s i n a p p l y i n g f o r , and t h e wrongful c r e a t i o n o f , t h e B u l l Hook Gas U n i t , c o u p l e d w i t h t h e a l l e g e d wrongful a c t of i n c l u d i n g t h e l e a s e of r e s p o n d e n t s w i t h i n t h e B u l l Hook Gas U n i t . These a r e t h e same r e a s o n s g i v e n t o t h e Lewis and C l a r k County d i s t r i c t c o u r t f o r r e v e r s a l of t h e o r d e r c r e a t i n g t h e u n i t , and t h e s a m e f a c t u a l arguments i n t h e b r i e f o f r e s p o n d e n t s i n t h i s c a s e a r e a l s o t h e same p r e s e n t e d t o t h e ~ e w i s and C l a r k County d i s t r i c t court. The r e s p o n d e n t s ' arguments h e r e a r e p r e d i c a t e d upon t h e i n v a l i d i t y of t h e C o m i s s i o n k o r d e r . The c o u r t h a v i n g j u r i s d i c t i o n over that question is the district court in Lewis and Clark County where the challenge to the Commission's order was first filed. Any consideration by the Hill County district court of these same reasons, arguments and facts is a collateral attack upon that judicial review provided in section 60-135, R.C.M. 1947. Oil and gas conservation laws and the rules, regulations, and orderspromulgated thereunder, have the effect of modifying the provisions of existing leases in many respects. This stat- utory and administrative action is an exercise of the police power, and the fact that in some instances the lease may have been procured prior to the legislative or administrative pronunciation is immaterial. p. 431. Sullivan, Handbook of Oil and Gas Law, In the present case the terms and provisions of the Oil and Gas Conservation Act are in fact incorporated in the lease to provide pooling of the land in question in accordance with any federal or state law, order, rule or regulation. Respondent's predicate their argument on violation of that provision of the lease which grants to lessee the right to pool said leased lands with other land in the vicinity subject to certain limitations. This provision of the lease, however, is related to one-well pooling as contemplated by section 60-130, R.C.M. 1947. It is entirely different from the unitization of all leases and all wells in an entire reservoir such as the Bull Hook Gas Unit provided in the Board order pursuant to section 60-131.1, R.C.M. 1947. The difference between one-well pooling authorized under section 60-130, R.C.M. 1947 and in respondents' lease, and the unitization of an entire reservoir under section 60-131.1, R.C.M. 1947, is illustrated in the following language in Sullivan's Handbook of Oil and Gas Law, at p. 308: "Under a system of minimum acreage spacing or specified drilling units the small tract that cannot meet the requirements of the spacing rule is denied a well. In order to prevent confiscation of the recoverable oil beneath such tracts and to give each owner the opportunity to produce his fair share thereof, spacing statutes and regulations provide for pooling. Pooling is the uniting of separately owned, small, or irregularly shaped tracts for the purpose of integrating the minimum acreage necessary for a drilling unit. It is to be distinguished from unitization or unit operations, which is the consolidation of all interests in an entire pool, or a large part thereof, for the purpose of operating the reservoir as a single producing mechanism." (Emphasis added.) Application by the appellant to the Montana Oil and Gas Conservation Commission for the unitization of a reservoir under section 60-131.1, R.C.M. 1947, does not constitute a breach of the one-well pooling provision in the lease. Such unitization of an extensive reservoir containing multi-leased lands, multiproducing wells, multi-pools, and multi-spacing or drilling units is different from the lease provision relating to pooling. The presumption in this state is that compliance with the Commission's order constitutes fulfillment of lease or contract obligations. Section 60-131.8, R.C.M. 1947, provides in part: " * * * Operations conducted pursuant to an order of the commission providing for unit operations shall constitute a fulfillment of all the express or implied obligations of each lease or contract covering lands in the unit area to the extent that such obligations cannot be performed because of the order of the commission." Section 60-131.3, R.C.M. 1947, sets forth the terms, conditions, and requirements of the commission order. Subsection (1) and (3) provide that the commission order shall include: "(1) A description of the pool or pools or parts thereof to be so operated, termed the unit area, but only so much of a pool as has reasonably been defined and determined by drilling operations to be productive of oil or gas may be included within the unit area. in "(3) A plan for allocating to each tract/the unit area its fair share of the oil and gas produced from the unit area and not required or consumed in the conduct of the operation of the unit area or unavoidably lost. No such plan shall be approved by the commission until the commission has considered the relative value that such share of production bears to the relative value of all of the separately owned tracts in the unit area, exclusive of physical equipment utilized in unit operations. In so considering such relative value, the commission shall weigh thesonomic value of the gas to all persons affected as compared to the economic value of the oil to all persons affected." The Commission's order determining "productive" lands and the allocation of oil and gas as provided in subsections (1) and (3) respecting respondents' lands within the unit area is the crux of the argument in both actions. To permit respondents to bring this second action would permit them to circumvent the statutes. The order of the Commission to create the Bull Hook Gas Unit is res judicata except in the appropriate district court in Montana on judicial review as provided in section 60-135, R.C.M. 1947. See St. John's Lutheran Hosp., Inc. v. State Bd. of Health, 161 Mont. 406, 506 P.2d 1378, 30 St.Rep. 249; Polson v. Public Service Commission, 155 Mont. 464, 473 P.2d 508. On May 14, 1973, respondents properly filed a complaint in the district court in Lewis and Clark County for a review of the Commission's order. The second action filed two days later in Hill County involves the same subject matter, the same lessor, the same lease, and the same land. It is nothing more than a collateral attack precluded by the first action filed in Lewis and Clark County. With respect to the second issue we agree with appellant that there was a failure on the part of both the respondents and district court to comply with the time limitations of Rule 59, M.R.Civ.P. Rule 59(f) entitled "Motion to Alter or Amend a Judg- ment", provides in part: " * * * This motion shall be heard and determined within the time provided hereinabove with respect to a motion for a new trial." With respect to the time for hearing on a motion for a new trial, Rule 59 (d) provides: "Hearing on t h e motion s h a l l be had w i t h i n 10 d a y s a f t e r i t h a s been s e r v e d * * * e x c e p t t h a t a t any t i m e a f t e r t h e n o t i c e of h e a r i n g on t h e motion h a s been s e r v e d t h e c o u r t may i s s u e an o r d e r c o n t i n u i n g t h e h e a r i n g f o r n o t t o exceed 30 d a y s * * *. " I f t h e motion i s n o t n o t i c e d up f o r h e a r i n g and no h e a r i n g i s h e l d t h e r e o n , it s h a l l be deemed denied a s of t h e e x p i r a t i o n of t h e period of t i m e w i t h i n which h e a r i n g i s r e q u i r e d t o be h e l d under t h i s Rule 59." The t i m e and p r o c e d u r a l l i m i t a t i o n s f o r motions s u b s e q u e n t t o judgment s e t o u t i n Rule 59, M.R.Civ.P., S e i b e l v . Y u r i c k , 136 Mont. 39, 344 P.2d 1 2 9 . by t h i s C o u r t , 30 St.Rep. a r e mandatory. In recent decisions G i n v . H a r r i n g t o n , 161 Mont. 401, 506 P.2d 1375, 245; and L e i t h e i s e r v . Montana S t a t e P r i s o n , 1 6 1 Mont. 343, 5 0 5 P.2d 1203, 30 St.Rep. 183, w e have r e i t e r a t e d t h e need t o make f i n a l t h e judgments of t h e d i s t r i c t c o u r t s u b j e c t t o a p p e a l t h a t would n o t u n n e c e s s a r i l y l e n g t h e n l i t i g a t i o n . and L e i t h e i s e r w e s t r i c t l y a p p l i e d Rule 59, M.K.Civ.P., I n Cain i n order t o p u t t o a n end t h e l i t i g a t i o n of t h o s e a c t i o n s . W e s e e no r e a s o n i n t h i s c a s e t o p r o l o n g t h e a c t i o n and add t h e e x p e n s e of a second a p p e a l . Thus we have answered b o t h i s s u e s before t h i s Court. For t h e r e a s o n s s e t f o r t h above, t h e o r d e r g r a n t i n g surnmary judgment on November 1 4 , 1973, i s r e i n s t a t e d , and t h e purp o r t e d o r d e r of December 3, 1973, a l t e r i n g and denying t h e p r i o r summary judgment, i s r e v e r s e d . Justice W e concur: . 4 T c---i-'--,;&+--;r2- -----Chief us tide . * - A- ~ ,+-, ;-- /Justices - -- b \ - -
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