from the District Court of Sheridan County. The Honorable
William J. Edelman, Judge.
Appellant: Marie R. Yeates and Michael A. Heidler of Vinson &
Elkins, L.L.P., Houston, Texas; Mark R. Ruppert, Isaac N.
Sutphin, and Jeffrey S. Pope of Holland & Hart, LLP,
Cheyenne, Wyoming; Patrick H. Martin, Professor of Law,
Louisiana State University. Argument by Ms. Yeates.
Appellee: Kendal R. Hoopes of Yonkee & Toner, LLP, Sheridan,
BURKE, C.J., and HILL, DAVIS, FOX, and KAUTZ, JJ.
[¶1] This case arises from Pennaco Energy
Inc.'s refusal to perform obligations under a surface
damage and use agreement. The story began some years back
when Pennaco acquired mineral leases beneath a surface estate
owned by Brett Sorenson, Trustee
of the Brett L. Sorenson Trust. The parties negotiated a
contract concerning damage to and use of the surface estate.
It granted Pennaco access to and use of the land during
exploration for and production of minerals it had leased. In
return, Pennaco agreed to pay for damage to and use of the
surface estate, and to reclaim the land once operations
[¶2] With the surface damage and use
agreement in place, Pennaco began drilling and production
operations on Sorenson's land. It continued operations
and made the requisite payments to Sorenson for a number of
years, but then decided to sell its oil and gas interest to
CEP-M Purchase, LLC. As part of the sale, Pennaco assigned
its interest in the operations and agreements to CEP-M, which
reassigned those interests to another company, High Plains
Gas, Inc. Since then, neither Pennaco nor the assignees have
made any of the payments required by the surface damage and
use agreement and have not reclaimed Sorenson's land.
[¶3] Sorenson brought this lawsuit against
Pennaco, CEP-M and High Plains Gas to recover the unpaid
surface damage and use payments, and for damages resulting
from the failure to reclaim lands and repair water wells.
CEP-M and High Plains Gas defaulted. Pennaco answered and
unsuccessfully moved for summary judgment, after which the
case made its way to a jury trial. The jury rendered a
verdict finding that Sorenson suffered $1,055,982.62 in
damages. The district court entered judgment on the
jury's verdict, and also awarded Sorenson costs and
attorney fees, as provided for in the contract, in the amount
[¶4] Pennaco contends on appeal that the
district court erred by (1) ruling as a matter of law that
Pennaco remained liable under the surface damage and use
agreement after assignment, and (2) using a 2.5 multiplier to
enhance the lodestar amount in awarding attorney fees. As to
the first issue, the parties in this case submitted their
briefs without having the benefit of our recent decision in
Pennaco Energy, Inc. v. KD Co. LLC, 2015 WY 152, 363
P.3d 18 (Wyo. 2015). That precedent controls the first issue,
and we conclude the district court did not err in ruling that
Pennaco remains liable under the surface damage and use
agreement. As to the second issue, the district court did not
abuse its discretion in awarding attorney fees to Sorenson as
it did. Accordingly, we affirm.
[¶5] 1. Did the district court err when it
determined as a matter of law that Pennaco remains liable to
perform obligations under the surface damage and use
agreement, where those obligations purportedly accrued after
Pennaco assigned its interest in the mineral estate and the
surface damage and use agreement to a third party?
the district court abuse its discretion by adjusting
Sorenson's attorney fees award upward 2.5 times from an
amount calculated by multiplying the number of hours by the
[¶6] Sorenson owns a ranch along the Powder
River near the town of Arvada, Wyoming. The ranch land is a
split estate for mineral development purposes; that is, the
surface estate is owned by Sorenson and the mineral estate is
owned by several parties. Specifically, the minerals are
owned in part by seven private parties, the State of Wyoming
and Sorenson. The third party mineral owners, including the
State of Wyoming, executed oil and gas leases underlying the
surface estate. Subsequently, so did Sorenson.
[¶7] In the 1990s, Pennaco acquired
interests in the oil and gas leases underlying Sorenson's
ranch. Pennaco and Sorenson then entered into a surface
damage and use agreement, the stated purpose of which was to
give the parties a " firm understanding as to what
damages will be payable in the event of development of the
lands" owned by Sorenson. The contract gave Pennaco the
right to enter upon and use Sorenson's lands for
the purpose of coalbed methane drilling and production
operations. The access and use rights granted to Pennaco were
separate from and in addition to the basic reasonable use of
the surface that Pennaco had as a mineral owner under the oil
and gas leases. As a result, Pennaco had the benefit
of detailed terms upon which it could construct access roads,
put up power lines, and install pipelines on Sorenson's
[¶8] In exchange for the rights it was
granted by the surface damage and use agreement, Pennaco
agreed to make annual payments to compensate Sorenson for the
use of his land and the damages caused by its operations. The
agreement required annual payments of $750.00 for each well
drilled and $5.00 per rod for the access roads and pipelines
constructed. The contract provided that " [a]ll annual
payments are due and payable until such time as the property
is restored and reclaimed."
[¶9] Pennaco also agreed to restore and
reseed well sites, to remove all above-ground equipment, and
to restore the land to its original state when mineral
production ended. It was also required to return roads and
other rights-of-way to a condition as close to the land's
original state as reasonably possible. It promised to restore
any of Sorenson's water wells or natural artesian springs
that were impaired by the coalbed methane operations, either
by reconfiguring or redrilling them, or by drilling new water
wells if necessary.
[¶10] With the surface damage and use
agreement in place, Pennaco began developing its coalbed
methane operation on Sorenson's ranch. It drilled ten
coalbed methane wells, constructed 5.67 miles (1,815.37 rods)
of road, and installed 4.19 miles (1,343.57 rods) of
pipeline. It also constructed four water disposal pits to
store water produced by the wells.
[¶11] Pennaco made the annual payments
required by the surface damage and use agreement through
2010. However, in 2009, Pennaco wrote Sorenson that it
intended to shut-in some or all of its coalbed methane
wells on the ranch. In early 2010, when Pennaco was
shutting down its operations, Sorenson contacted
Pennaco's landman regarding reclamation of the coalbed
methane operations, including reclaiming the four water
disposal pits (otherwise referred to as reservoirs).
Pennaco's landman wrote to him in response on June 11,
2010, stating in part: " Pennaco affirms by the Surface
Damage and Surface Use Agreement (" SUA" ) dated
April 13, 2001 . . . that upon termination of the productive
life of the producing field in conjunction with the following
impoundments that if you elect not to retain the reservoirs
for personal use that Pennaco will reclaim them."
[¶12] A few weeks later, Pennaco entered
into a purchase and sale agreement effective July 1, 2010
with CEP-M. As part of the sale, Pennaco assigned its
interest in the lease underlying Sorenson's ranch lands
and rights in the surface damage and use agreement to CEP-M.
That entity then as
signed its interests to High Plains Gas. According to
Sorenson, the wells, pipelines, and roads were for all
practical purposes abandoned.
[¶13] After the assignment in 2010, Pennaco
did not pay annual payments or reclaim any of Sorenson's
land as required by the surface damage and use agreement. The
assignees did not do so either. Accordingly, Sorenson gave
Pennaco written notice of its default and of the impairment
of his water sources as was required under the surface damage
and use agreement. Pennaco still did not perform these
obligations after receiving notice that Sorenson claimed it
was in violation of the contract.
[¶14] Sorenson then sued Pennaco and the
assignees to collect the annual payments and to enforce the
reclamation obligations he was owed under the surface damage
and use agreement. CEP-M and High Plains Gas failed to answer
or otherwise respond to the complaint, and as a result, the
district court entered a default judgment against
them. Pennaco answered, generally denying
[¶15] In due course, Pennaco filed a motion
for summary judgment in which it claimed that it was no
longer required to perform the obligations in the surface
damage and use agreement. It argued that the exculpatory
clause included in the mineral lease was incorporated by
reference into the surface damage and use agreement, and that
as a result, it was no longer liable after assignment.
Alternatively, it argued that obligations in the surface
damage and use agreement constitute covenants running with
the ownership of the mineral estate that benefits from using
an easement on the surface estate. Thus, it asserted, because
the obligations are considered covenants running with the
land, those obligations passed from Pennaco to CEP-M when the
mineral estate and surface damage and use agreement was
assigned, leaving Pennaco free and clear of any continued
liability. Sorenson argued in response that Pennaco continued
to be bound to perform the obligations in the contract after
assignment by basic principles of contract law. Sorenson
contended that because there was neither an exculpatory
clause in the contract nor a subsequent novation, Pennaco
remained on the hook.
[¶16] The district court denied
Pennaco's motion for summary judgment, finding that the
company was not entitled to judgment as a matter of law. By
virtue of its analysis and ultimate conclusion, the district
court decided in effect that Pennaco remained liable under
the surface damage and use agreement. Accordingly,
Pennaco's continued liability was treated as a foregone
legal conclusion by the parties and the district court, and
it was no longer an issue for jury trial. The trial instead
focused on the amount of damages owed by Pennaco for breach
of the contract.
[¶17] The damage case was tried to a jury
over a four-day period. After Sorenson rested his principal
case, Pennaco moved for judgment as a matter of law pursuant
to W.R.C.P. 50(a), but in its motion it only challenged the
sufficiency of the evidence to support Sorenson's claims
for damages. It did not raise the legal issue of whether it
was liable under the surface damage and use agreement after
assignment. The district court denied the motion, and Pennaco
then presented its case.
[¶18] The court's charge to the jury
included an instruction not objected to by Pennaco indicating
that the court had previously determined that Pennaco was
obligated to honor the surface damage and use agreement it
entered into with Sorenson, and that it was required to
fulfill its obligations under the agreement regardless of
whether it sold or assigned it to CEP-M.
[¶19] The jury returned a verdict finding
that Sorenson had suffered damages of: (1) $76,033.62 for
unpaid annual surface payments; (2) $883,732.00 for the costs
of reclaiming Pennaco's operations; and (3) $96,217.00
for the cost of replacing an artesian
spring that had been damaged by Pennaco's drilling
operations. The district court subsequently
entered judgment in favor of Sorenson in the amount of
$1,055,982.62. Pennaco renewed its motion for judgment as a
matter of law concerning damages pursuant to W.R.C.P. 50(b),
this time tersely touching upon the legal issue of its
liability under the assigned contract.
[¶20] Sorenson then moved for an award of
costs and attorney fees under the surface damage and use
agreement, which provided: " Operator, if determined by
a court of competent jurisdiction to be in default, will be
responsible for all reasonable legal fees and costs."
Although Sorenson's counsel took the case on a contingent
fee arrangement, they meticulously tracked the hours they
worked on the case.
[¶21] Applying the lodestar test, the
district court first determined the total fee that would have
been charged based upon the number of hours worked times
Sorenson's attorneys' usual hourly rate--$124,591.25.
It then considered the factors listed in Wyo. Stat. Ann.
§ 1-14-126(b) to decide whether an upward or downward
adjustment to the fee was warranted. Applying several of
those factors, the district court awarded Sorenson attorney
fees in the amount of $311,478.13.
[¶22] Pennaco timely perfected this appeal.
Contractual Obligations after Assignment
[¶23] We must first address Sorenson's
assertion that Pennaco did not preserve the legal issue of
whether it remains liable for obligations under the surface
damage and use agreement after assignment for appellate
review. This complication arises out of the order denying
Pennaco's motion for summary judgment.
[¶24] Although it denied Pennaco's
motion, the order also resulted in an affirmative legal
ruling somewhat akin to that made possible by the procedures
found in W.R.C.P. 56(c)-(d). The district court
determined, in essence, that Pennaco remained liable after
assignment as a matter of law. Although the order did not say
this in so many words, the parties and the court interpreted
it that way, and it is easy to see why they did. The trial
was accordingly limited to causation and damages. A separate
order granting a partial summary judgment in favor of
Sorenson on the issue of Pennaco's continuing duty to
perform under the contract was neither requested by the
parties nor entered sua sponte by the district
[¶25] On appeal, Sorenson takes an austere
view of the situation, urging that because the ruling denied
Pennaco's motion for summary judgment, and because
Pennaco failed to challenge the legal ruling on liability
through a W.R.C.P. 50(a) motion, the issue
was not preserved for our review. It is true " that
challenges to the denial of a defendant's summary
judgment motion are generally not reviewable."
Halvorson v. Sweetwater Cty. Sch. Dist. No. 1, 2015
WY 18, ¶ 21, 342 P.3d 395, 402 (Wyo. 2015). We have
explained that " [t]he proper procedural mechanism for
challenging an adverse judgment, following a trial on the
merits, is a motion for judgment as a matter of law."
Cargill, Inc. v. Mountain Cement Co., 891 P.2d 57,
61 (Wyo. 1995).
[¶26] We see Sorenson's point, but there
is more to the order than just the denial of Pennaco's
summary judgment motion. After studying the order and rest of
the record, we conclude that the order denying Pennaco's
motion determined as a matter of law that Pennaco remained
liable for the obligations in the surface damage and use
agreement. The ruling did not leave questions of fact for a
jury to determine as to Pennaco's contractual duties, but
only as to the damages caused by any breach of its
obligations. See W.R.C.P. 56(c); see also
Wheatland Irr. Dist. v. McGuire, 537 P.2d 1128,
1129-30 (Wyo. 1975); cf. 10B Charles A. Wright &
Arthur R. Miller, Federal Practice and Procedure,
Civil § 2736 (3d ed., database updated April 2015).
That ruling then became the law of the case, although it was
not appealable until it was subsumed into a final judgment on
the entire case after the trial. See Big-D
Signature Corp. v. Sterrett Properties, LLC, 2012 WY
138, ¶ 18, 288 P.3d 72, 77 (Wyo. 2012). As a result, the
issue was preserved for our review.
[¶27] Turning to the merits, Pennaco posits
that in construing the surface damage and use agreement, this
Court must apply real property principles because the
agreement creates real property interests. It contends that
if such principles are followed--namely those found in the
Restatement (Third) of Property: Servitudes § 4.4--the
only possible conclusion is that the obligations are
covenants running with the land, and therefore the covenant
obligations are owed only by the owner at the time the
covenant obligation is to be performed. Pennaco says its
obligations passed like a quarterback passes the football to
a receiver--once the ball is passed, the receiver has it, and
the quarterback does not. We view Pennaco's attempts to
relieve itself of the obligations it bargained to perform
more as a game of hot potato.
[¶28] The Court recently dealt with this
subject in Pennaco Energy, Inc. v. KD Co. LLC,
supra. As in this case, the controlling issue was
whether the relationship established between Pennaco and the
landowners by the surface agreements was primarily
contractual, or whether it was instead based on privity of
estate involving ...