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HARDING & SHELTON, INC. v. THE PROSPECTIVE INVESTMENT AND TRADING COMPANY, LTD.
2005 OK CIV APP 88
123 P.3d 56
Case Number: 100424 (consol. w/ No. 100959)
Decided: 09/20/2005
Mandate Issued: 11/10/2005
A, DIVISION IV
IN THE COURT OF CIVIL APPEALS OF THE STATE OF OKLAHOMA, DIVISION IV

AFFIRMED IN PART, REVERSED IN PART,
AND REMANDED WITH INSTRUCTIONS 

Gregory L. Mahaffey, Lee D. Groeneveld, MAHAFFEY & GORE, P.C., Oklahoma City, Oklahoma, for Plaintiff/Appellee/Counter-Appellant Harding & Shelton, Inc., and Third-Party Defendant/Appellee/Counter-Appellant Consolidated American Resources, L.L.C.
Frank D. Spiegelberg, John L. Randolph, Jr., PRAY WALKER JACKMAN WILLIAMSON & MARLAR, Tulsa, Oklahoma, for Defendant/Third-PartyPlaintiff/Appellant/Counter-Appellee The Prospective Investment and Trading Company, Ltd. 

RONALD J. STUBBLEFIELD, JUDGE: 

¶1 These are multiple appeals from judgments in the third of a series of lawsuits dealing with ownership of a leasehold interest and resulting liability. Defendant and Third-Party Plaintiff Prospective Investment and Trading Company, Ltd. (PITCO), appeals from the Trial Court's money judgment in favor of Plaintiff Harding & Shelton, Inc. (Harding & Shelton) and Third-Party Defendant Consolidated American Resources, L.L.C. (Consolidated or, jointly, Operators). Operators appeal from the Trial Court's post-judgment order severely limiting their recovery of attorney fees and costs. 1 Based on our review of the record and applicable law, we affirm the principal judgment in favor of Operators, reverse the Trial Court's order on attorney fees and remand with instructions. 

FACTS AND PROCEDURAL HISTORY 

¶2 PITCO acquired an interest in mineral leases covering the Metzler and Holcomb properties (the Metzler leases) in 1996. The leases contained one well, the Metzler No. 1-13, and production from that well ceased in 1997. Harding & Shelton became the operator of the Metzler leases on January 1, 1999, and Consolidated purchased "top leases" from the mineral owners on March 25, 1999. 2 The interplay between PITCO's interest in the "base leases," Consolidated's interest in the "top leases" and Harding & Shelton's interest as operator has led to the three lawsuits. 

¶3 The mineral interest owners, with Operators' backing, filed a lawsuit (Lawsuit #1) against PITCO and other lease holders to have the base leases declared terminated for lack of production. While Lawsuit #1 was pending, Consolidated filed a pooling application with the Oklahoma Corporation Commission to conduct a workover of the Metzler well. While both Lawsuit #1 and the Commission proceedings were pending, PITCO filed another lawsuit to force Operators to offer it an interest in the top leases on the grounds they were renewals of the base leases (Lawsuit #2). 

¶4 The Commission entered a forced pooling order on February 20, 2001, for the workover, by deepening and recompletion of the Metzler well, naming Harding & Shelton operator. The order required interest owners to elect to participate in the workover, by paying their proportionate share of the estimated costs, or alternatively by accepting a royalty interest. It did not address the uncertain status of PITCO's interest. 

¶5 Thereafter, PITCO filed a motion to reopen and correct the pooling order to allow for "deferred payment of cost for formations currently behind pipe in the Metzler . . . well." PITCO wanted to participate in the "recompletion" of the Metzler well into producing formations at depths it already reached, but not in the "deepening" of the well into other formations. PITCO withdrew its request when it reached an agreement with Operators. The letter agreement, dated April 4, 2001, allowed PITCO to defer prepayment until Operators were ready to recomplete the well into the shallower zones and provided that PITCO's prepayment would be placed in an escrow account "dedicated to re-completion" of the Metzler well. The letter agreement stipulated that Operators did not admit the validity of PITCO's interest. 

¶6 Lawsuit #1 resulted in a judgment declaring the base leases cancelled for lack of production. The judgment did not determine the effective date of the cancellation. PITCO continued to pursue Lawsuit #2, unsuccessfully seeking a partial summary adjudication to fix the termination date of the base leases to support its argument that the top leases were renewals of the base leases. 

¶7 On May 29, 2001, PITCO tendered its share of the estimated recompletion costs, $44,375.54, to Operators with a letter attempting to place a condition on its participation: 

As [Operators] are also claiming the interest shown above and per the terms of the OCC order as amended by letter agreement dated April 4, 2001, we expect one of these companies to match these funds in the escrow account. Evidence supporting the deposit of like funds by [Operators] should be included in the escrow account information provided to PITCO. Should the dispute regarding ownership in the Metzler be dismissed by action of the court or by PITCO the funds submitted herewith shall be returned to PITCO within forty-eight (48) hours of written notice . . . . 

Operators refused to accept PITCO's condition and, in a response letter dated May 29, 2001, stated: 

[W]e can only accept your prepayment under the terms of the above Order and the April 4, 2001, Letter Agreement. We cannot accept your prepayment under any caveat of PITCO's disputed ownership . . . . If you do not wish to submit this prepayment under the terms of the above Order and the Letter Agreement as it currently exists, notify us within 48 hours and we will return the check to you. Otherwise we will consider your prepayment as being submitted under the terms provided under OCC Order No. 449256 and the April 4, 2001, Letter Agreement as they currently exist and none other. Also, to reiterate, there should be no inference in our acceptance of your funds that we in any way recognize any ownership you may claim. 

PITCO does not deny receiving the letter, but did not request the return of its prepayment. 

¶8 It became apparent in early 2002 that the workover had yielded disappointing results at a higher than estimated cost. Operators capitulated to PITCO's demand on April 22, 2002, and offered it an interest in the Metzler leases upon payment of its share of the excess costs and $75 per acre. Without responding to the offer, PITCO dismissed Lawsuit #2 with prejudice, and demanded the return of its "conditional" prepayment, which Operators refused. 

¶9 Harding & Shelton filed this lawsuit (Lawsuit #3) on May 10, 2002, seeking a judgment for $10,934.11 for PITCO's share of the excess expenses, and also seeking foreclosure of its statutory lien (42 O.S.2001 § 145) against PITCO's interest in the Metzler leases. PITCO denied liability and filed a counterclaim for the prepayment. 3 PITCO then filed an amended answer, counterclaim and third-party petition against Consolidated on the same claim it had stated against Harding & Shelton. 

¶10 The Trial Court conducted a bench trial and later issued judgment in favor of Operators on all claims. It granted Harding & Shelton a judgment for $8,265.49 and foreclosed the lien on PITCO's interest in the Metzler leases. Although the judgment does not specify the basis for the holding, the Trial Judge stated his reasoning in an earlier hearing: "PITCO elected to participate and as such obligated themselves for certain expenses." Thereafter, the Trial Court awarded Operators attorney fees and costs of $1,056.44, although they had sought an award of $39,803.72. 

¶11 PITCO appeals from the Trial Court's judgment. Operators appeal from the amount of the order awarding attorney fees.

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