NEW DOMINION, L.L.C. v. PARKS FAMILY COMPANY, L.L.C.

NEW DOMINION, L.L.C. v. PARKS FAMILY COMPANY, L.L.C.
2008 OK CIV APP 112
216 P.3d 292
Case Number: 105309
Decided: 09/18/2008
Mandate Issued: 12/31/2008
DIVISION III
THE COURT OF CIVIL APPEALS OF THE STATE OF OKLAHOMA, DIVISION III

NEW DOMINION, L.L.C., Applicant/Appellee,
v.
PARKS FAMILY COMPANY, L.L.C., Respondent/Appellant.

APPEAL FROM OKLAHOMA CORPORATION COMMISSION

AFFIRMED

J. Fred Gist, HALL, ESTILL, HARDWICK, GABLE, GOLDEN & NELSON, P.C., Oklahoma City, Oklahoma, and J. Kevin Hayes, Pamela S. Anderson, HALL, ESTILL, HARDWICK, GABLE, GOLDEN & NELSON, P.C., Tulsa, Oklahoma, for Applicant/Appellee,
Kandi Jepsen Pate, Mark A. Wolfe, PATE & WOLFE, Oklahoma City, Oklahoma, for Respondent/Appellant,
Benjamin B. Jackson, Office of the General Counsel, Michele Craig, Office of the General Counsel, Oklahoma Corporation Commission, Oklahoma City, Oklahoma, for the Oklahoma Corporation Commission.1

Kenneth L. Buettner, Presiding Judge:

¶1 On July 27, 2006, Applicant/Appellee New Dominion L.L.C. (New Dominion) filed an Application to Clarify Pooling Orders in the Oklahoma Corporation Commission (Commission) with respect to eleven pooling orders relating to completed and producing oil and/or gas wells in Pottawatomie, Lincoln, and Seminole Counties. New Dominion alleged that owners of the interests had failed to elect and were therefore deemed to have elected "$60 per acre, plus the normal 1/8 royalty interest as defined in 52 O.S. Section 87.1(e)(1977)". New Dominion specifically claimed that there was a controversy as to the requirement in the pooling orders of the payment and meaning of 1/8 royalty and requested clarification to reflect that New Dominion had complied with the pooling orders by payment of royalties upon the proceeds actually received. The Commission found it had jurisdiction and held that the phrase "1/8 royalty interest" permits deduction of post production costs. We affirm.

¶2 Respondent/Appellant Parks Family Company, L.L.C. (Parks Family) filed a Motion to Dismiss the Application for Clarification for Lack of Jurisdiction April 19, 2007, on the ground that the matter involved private rights and that New Dominion's Application was motivated as a litigation strategy because of its status as the defendant in pending litigation.

¶3 After hearing, the Report of the Administrative Law Judge was filed June 12, 2007. The ALJ concluded that the Commission had subject matter jurisdiction to determine the issue and exclusive jurisdiction to interpret, clarify, amend, and supplement its own orders. The ALJ further found that the Commission had jurisdiction to decide whether the royalty interest created by the pooling orders should bear post-production costs. Finding that the question arose from construction of the pooling order, the ALJ concluded that the Commission was the proper forum for resolution of the question. However, with respect to post-marketing costs, the ALJ found that the issue of whether the royalty interest created by the pooling orders should bear post-production costs was dependent on whether the lease terms, which established the fair market values for minerals in the pooling orders, contained such provisions. The ALJ then found that the remaining issues, viz., whether the lease royalty interests which were utilized to determine fair market value in the pooling orders required royalty interest owners to bear a proportionate part of post-production costs and what share of well proceeds they should receive, were properly pending before the district court. The ALJ concluded that delving into post-production costs "would require the Commission to delve into the Lease Agreements and possibly even the Gas Purchasing and Processing Agreement, which are private agreements." The ALJ then held that the district court had exclusive jurisdiction to determine what share of proceeds the royalty owners should receive from the well.

¶4 New Dominion appealed the ALJ's Report which resulted in the Commission's Referee's Report filed September 19, 2007. The Referee's Report was adopted by the Commission in its final order. The Referee found that the ALJ's Report should be affirmed with respect to the findings of jurisdiction, but "... reversed insofar as he recommended that the District Court determine whether or not the pooled royalty interest owners should bear their part of marketing and post-marketing production costs based upon a collateral attack of the prior pooling orders." The Referee found no merit in the argument that a statutory 1/8 royalty interest created by a pooling order results in a constructive oil and gas interest so as to apply an implied marketing provision to the pooling orders. The Referee found that implied covenants applied in oil and gas leases must arise from negotiated written contracts. He further stated that force-pooled royalty interests, as creatures of the police power of the State, will not have the same treatment in the lawsuit as private royalty interest owners.

¶5 "We have held that [

¶6 Title

A. The district courts within this state shall have the sole and exclusive jurisdiction to determine the entitlement of any owner in a well to:
1. Its share of proceeds from production; or
2. Damages, interest, court costs, attorneys' fees or allowable litigation expenses incurred as a result of the violation of this act.
B. Any rulemaking power granted to the Corporation Commission by the Production Revenue Standards Act [

¶7 With respect to reviewing orders of the Commission, "... absent an assertion of a violation of a constitutional right, our review is confined to a determination of whether the Commission exceeded its authority and whether the findings of the Commission are sustained by the law and by substantial evidence. Okla. Const. Art IX, §20, cl.3." Inexco Oil Company v. Oklahoma Corporation,

¶8 Parks Family contends that the Commission has exceeded its jurisdiction in three respects: (1) it abolished the implied covenant to market; (2) it erroneously relied upon Sanguine, an unpublished 1987 Commission order; and (3) the matter is a private dispute and the district court is the proper forum for resolution.

¶9 Parks Family's first assertion relates to the Commission's order at paragraphs 14 and 15:

14. There is no merit to Parks' argument that the Commission should treat the statutory royalty interest so as to apply an implied duty to market. Covenants implied in oil and gas leases arise from a negotiated written contract. Indian Territory Illumination Oil Co. v. Rosamond,

15. There is no merit to Parks' argument that its force-pooled interest should be treated as if it were a royalty interest under a private lease. A force-pooled royalty interest is very different from a lease royalty interest. The former is created by operation of law through police power of the state, the latter by private contract. Ward v. Corporation Commission,

¶10 Parks Family claims that these findings are erroneous in light of

¶11 New Dominion counters that the sole question posed to the Commission was to advise it of what the Commission meant when it provided for payment to Parks Family of the "normal 1/8 royalty interest as defined in 52 O.S. Section 87.1(e)(1977)." In other words, the Application for Clarification of its own order did not require the Commission to perform any statutory construction. We agree.

¶12 The Commission stayed within its bounds in defining its order. It clarified for the parties its intent - the phrase "normal 1/8 royalty interest as defined by 52 O.S. Section 87.1(e)(1977)" permits deduction of post-production costs; specifically, under the pooling orders at issue, New Dominion may deduct transportation, treatment, and onsite compression after production to the surface in calculating any royalty owed to Parks Family or other royalty owners in the other wells.

¶13 Unless the facts show that its order was not sustained by substantial evidence, this court must affirm the order. Samson Resources Company v. Oklahoma Corporation Commission,

¶14 Parks Family also argues that the matter is a private dispute and thus the district court is the proper forum. It is black-letter law that the Commission, when acting in its adjudicatory role, is a court of record, with limited jurisdiction, and any action it takes must be authorized by statute. Its jurisdiction is limited to resolution of public rights. Tenneco Oil Company v. El Paso Natural Gas Company,

¶15 The question of whether Parks Family, as a force-pooled royalty interest, should be treated as a royalty interest owner under a private lease has been answered by the Commission, which has exclusive jurisdiction to define and describe the rights of a forced-pooled royalty owner. Neither the district court nor this court has authority to modify the Commission's order to include implied covenants or other obligations. The clarification of its order is within the authority of the Commission, and is sustained by law.

¶16 AFFIRMED.

MITCHELL, V.C.J., and BELL, J., concur.

FOOTNOTES

1 Supreme Court Rule 1.90(b) states: A copy of all instruments and briefs filed in this Court shall be mailed to the Attorney General and to the Corporation Commission. The Oklahoma Corporation Commission filed an Answer Brief in support of its Order.

2 Rec. 481. Parks Family Company, L.L.C.,. individually and on behalf of all others similarly situated, Plaintiff, vs. New Dominion, L.L.C., Defendant, District Court of Okfuskee County, Oklahoma, Case No. CJ-06-128.

3 52 O.S.2001 §112, in part: Any person affected by any legislative or administrative order of the Commission shall have the right at any time to apply to the Commission to repeal, amend, modify, or supplement the same.

4 "When dealing with forced-pooled orders under Oklahoma law, the courts 'have jurisdiction to enforce the Commissions's orders and to resolve the 'private rights' of the parties.' [Citations omitted.] The Commission, on the other hand, has been granted exclusive jurisdiction by the Oklahoma legislature 'to interpret, clarify, amend and supplement its own orders,' and 'to regulate the conservation of oil and gas and the drilling and operation of oil and gas wells.' [Citations omitted.] This exclusive jurisdiction includes determining whether a party has elected to participate in a forced-pooling order and whether the well drilling costs allocated to participants of a forced-pooled unit are proper and reasonable." GHK Exploration Company v. Tenneco Oil Company, 857 F.2d 1388, 1389.

5 The Commission ordered: 1. The phrase "normal 1/8 royalty interest as defined in 52 O.S. Section 87.1(e)(1977)" should be clarified as set forth above to permit deduction of post-production costs. Specifically, under the pooling orders at issue, New Dominion may deduct the costs of transportation, treatment, and onsite compression after production to the surface in calculating any royalty owed to Parks or any other royalty interest owner in the wells at issue. 2. Subsequent to issuance of this Order, the district court may apply its sole and exclusive jurisdiction to determine the entitlement of any owner in any well involved in this action to (1) its share of proceeds from production, and/or (2) damages, interest, court costs, attorneys' fees or litigation costs as allowed by 52 O.S. §570 et seq., as well as any other matters falling within its jurisdiction.

6 There are amendments to this section subsequent to 1977, but this particular sentence is the same, except for comma placement.

7 "When reviewing the sufficiency of the evidence supporting the Corporation Commission's findings of fact, this Court's review is restricted to determining whether the Commission's findings and conclusions are sustained by the law and substantial evidence. Okla. Const. Art. 9, §20. Such a review does not include weighing the evidence on appeal, but only determining whether the supporting evidence possesses substance and relevance. [Citations omitted.] This process does not entail comparing the evidence of parties, but includes determining if the evidence supporting the order furnishes a substantial basis of facts from which the issue could be reasonably resolved. [Citation omitted.]" Samson Resources Company v. Oklahoma Corporation Commission, 1987 OK 73, ¶11, 742 P.2d 1114, 1116.