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Morris v. CMS Oil and Gas Co.

March 25, 2010

JULIE MCCLAIN MORRIS, APPELLANT (PLAINTIFF),
v.
CMS OIL AND GAS COMPANY, APPELLEE (DEFENDANT).
CMS OIL AND GAS COMPANY, APPELLANT (DEFENDANT),
v.
JULIE MCCLAIN MORRIS, APPELLEE (PLAINTIFF).



Appeal from the District Court of Campbell County The Honorable John R. Perry, Judge.

The opinion of the court was delivered by: Kite, Justice.

Before VOIGT, C. J., and GOLDEN, HILL, KITE, and BURKE, JJ.

KITE, J., delivers the opinion of the Court; GOLDEN, J., files a dissenting opinion.

[¶1] Julie McClain Morris owns an overriding royalty interest in gas wells operated by CMS Oil and Gas Company (CMS). Believing CMS was not properly reporting production or paying her royalties, Ms. Morris brought suit under the Wyoming Royalty Payment Act (WRPA), Wyo. Stat. Ann. § 30-5-301 thru 30-5-305 (LexisNexis 2009). After a bench trial, the district court found that CMS ultimately had paid the royalties due Ms. Morris but in some instances had not complied with the WRPA, by either not timely paying them to her or placing them in escrow and by not reporting production as required. The district court imposed reporting penalties against CMS and awarded both parties attorney's fees.

[¶2] Ms. Morris appealed the district court judgment and CMS cross appealed. Ms. Morris asserts the district court erred in awarding CMS attorney's fees, applying the reporting penalty, finding that CMS had paid the royalties due and properly reported production and applying the WRPA escrow provision. CMS contends the district court erred in concluding it failed to properly report and awarding Ms. Morris attorney's fees. We affirm in part, reverse in part, and remand for further proceedings.

ISSUES

[¶3] In appeal No. S-08-0103, Ms. Morris presents the following issues:

A. Did the district court err in awarding attorney's fees and costs to the non-prevailing party?

B. Did the district court err in applying the $100.00 penalty set forth in Wyoming Statute § 30-5-303(c)?

C. Did the district court err in refusing to award damages to [Ms. Morris] for the non-payment of royalties?

D. Did the district court err in finding [CMS] properly reported production to [Ms. Morris]?

E. Did the district court err in its application of the safe-harbor provision found in the Act.

In appeal No. S-08-0104, CMS presents the following two issues:

1. Was the award of any reporting penalties under the Wyoming Royalty Payment Act (WYO. STAT. ANN. § 30-5-301, et seq.) improper?

2. Did [Ms. Morris] improve her position through litigation, so as to allow her to be a prevailing party for any portion of the case?

FACTS

[¶4] Ms. Morris owns overriding royalty interests in minerals located in northeastern Wyoming. From April of 1999 until May of 2002, CMS produced minerals and operated wells in which Ms. Morris had an overriding royalty interest. CMS first sold production from the wells in December of 1999. CMS obtained title opinions that listed Ms. Morris as a presumed holder of overriding royalty interests, but also reflected problems with her title. Because of the title problems, CMS did not consistently pay her or place the funds in escrow as required by the WRPA.

[¶5] In March of 2002, Ms. Morris filed a complaint in which she claimed that CMS had violated the WRPA by failing to timely pay her for production or, alternatively, pay the amounts due into an escrow account, and by failing to properly report production.*fn1 CMS answered the complaint generally denying the claims. The parties proceeded with discovery and, in September of 2005, CMS filed a motion for summary judgment.*fn2 In deciding the motion, the district court summarized the parties' respective positions as follows:

Succinctly put, despite the plethora of pleadings to date, the process has culminated with the parties unable to agree on substantive matters. [CMS's] argument . . . is a straightforward one: it argues that upon discovery of defects in [Ms. Morris's] title to certain leases it escrowed royalty payments and assisted [Ms. Morris] in curing such defects. Once defects in [Ms. Morris's] title were cured, it timely paid all sums owed to [her], and thus has no liability.

[Ms. Morris's] response is that after three years of legal wrangling [CMS] still owes her $9,367.64 in royalties and late payment interest, plus court costs and attorney's fees, plus reporting penalties which -- according to her method of calculation -- total millions of dollars.

After considering the parties' briefs, supporting documents and arguments, the district court determined questions of fact existed as to whether CMS owed Ms. Morris royalty payments and violated the WRPA and it denied the motion.

[¶6] The district court convened a three day bench trial. The district court subsequently issued a decision finding that Ms. Morris had failed to prove that CMS owed her additional royalty payments and, although a preponderance of the evidence tended to show that CMS did not fully comply with the WRPA prior to escrowing funds in April of 2002, a preponderance of the evidence also showed that CMS had actually overpaid her by the time of trial. The district court concluded that CMS violated the WRPA prior to paying the funds into escrow and Ms. Morris would not have been paid had she not brought legal action, however CMS had paid her in full as of November 25, 2002-the date of the last escrow payment. The district court also found that CMS did not submit the reports required by the WRPA and imposed the statutory penalty for failure to report. For reasons that will be explained in subsequent paragraphs, the district court awarded Ms. Morris attorney's fees up to the date that CMS had paid her the royalty amounts due in full, and awarded CMS attorney's fees from that point through trial.

DISCUSSION

1. Royalty Payments

[¶7] Ms. Morris asserts CMS did not properly pay her royalties and the district court's finding that it did is incorrect. Consideration of this issue, as well as the other issues presented, requires an understanding of the WRPA. The provisions of the WRPA governing payment for production state in pertinent part as follows:

§ 30-5-301. Payment for production; time for payment; payor.

(a) The proceeds derived from the sale of production from any well producing oil, gas or related hydrocarbons in the state of Wyoming shall be paid to all persons legally entitled thereto, except as hereinafter provided, commencing not later than six (6) months after the first day of the month following the date of first sale and thereafter not later than sixty (60) days after the end of the calendar month within which subsequent production is sold, unless other periods or arrangements for the first and subsequent payments are provided for in a valid contract with the person or persons entitled to such proceeds. Payments shall be made directly to the person or persons entitled thereto by the lessee or operator or by any party who assumes such payment obligation under any legal arrangement.

§ 30-5-302. Payment for production; interest on late payments.

Any delay in determining any person legally entitled to an interest in the proceeds from production shall not affect payments to all other persons entitled to payment. In instances where payment cannot be made for any reason within the time limits specified in W.S. 30-5-301(a), the lessee or operator; purchaser or other party legally responsible for payment shall deposit all proceeds credited to the eventual interest owner to an escrow account in a federally insured bank or savings and loan institution in Wyoming . . . . Payment of principal and accrued interest from such accounts shall be paid by the escrow agent to all persons legally entitled thereto within thirty (30) days from the date of receipt by the escrow agent of final legal determination of entitlement thereto. . . .

§ 30-5-303. Payment for production; penalty for violation; jurisdiction; costs and fees.

(a) Any lessee or operator, purchaser or other party legally responsible for payment who violates the provisions of this article is liable to the person or persons legally entitled to proceeds from production for the unpaid amount of such proceeds, plus interest at the rate or eighteen percent (18%) per annum on the unpaid principal balance from the due date specified in W.S. 30-5-301(a).

(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.

[¶8] Pursuant to these provisions, CMS was required to pay the proceeds from the sale of production to those legally entitled within six months after the first day of the month following the date of first sale and thereafter not later than sixty days from the end of the calendar month in which subsequent production was sold. Section 30-5-301(a). In the event it could not determine who was legally entitled to these proceeds, CMS was required to deposit the proceeds into an approved escrow account and, failing that, was required to pay a penalty of 18% interest on the unpaid balance. Sections 30-5-302, 30-5-303(a).

[¶9] From the evidence presented at trial, the district court found that CMS began producing coal bed methane from the leases in April 1999. The first sale of production occurred in December of 1999. Pursuant to § 30-5-301(a), CMS was required to pay Ms. Morris by June of 2000.*fn3 However, the district court found that Ms. Morris did not begin receiving royalty payments until November 24, 2000. CMS also did not escrow any funds during the period from June to November of 2000. The district court found that CMS suspended payments to Ms. Morris again on January 29, 2002; however, CMS did not deposit funds into an escrow account until April 8, 2002.

[¶10] In spite of finding that CMS failed either to timely make payments to Ms. Morris or into an escrow account, the district court concluded that ultimately CMS had paid Ms. Morris all she was due. The district court based this conclusion on the following findings: CMS had paid Ms. Morris $7,054.76 in royalties before it suspended payments on January 25, 2002; CMS deposited $28,139.86 in the escrow account on April 8, 2002; CMS instructed the bank to distribute funds to Ms. Morris on September 18, 2002, and on September 30, 2002, the bank sent Mrs. Morris a check for $25,871.94; on October 11, 2002, CMS instructed the bank to distribute additional funds and on November 25, 2002, the bank sent Ms. Morris a check for $5,730.71. The district court further found from the evidence presented that Ms. Morris failed to meet her burden of proving that she was owed any more than the $38,657.41, either in royalties or as interest on the amounts CMS failed to timely pay or escrow.

[¶11] Ms. Morris's principal claim on appeal is that the district court's findings are clearly erroneous because there was no way for her, or the court, to determine from CMS's records whether she was properly paid. She contends CMS did not provide the documentation necessary to make that determination and the documentation it did provide was unreliable. She claims CMS's after the fact revisions and overstatements of payments further contributed to the problem of determining whether she was properly paid. She also asserts CMS's own expert witness testified she was not paid royalties on some wells.

[¶12] The following principles govern our review of a district court's determinations following a bench trial:

―The factual findings of a judge are not entitled to the limited review afforded a jury verdict. While the findings are presumptively correct, the appellate court may examine all of the properly admissible evidence in the record. Due regard is given to the opportunity of the trial judge to assess the credibility of the witnesses, and our review does not entail re-weighing disputed evidence. Findings of fact will not be set aside unless they are clearly erroneous. A finding is clearly erroneous when, although there is evidence to ...


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