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Lon V. Smith Foundation v. Devon Energy Corp.

Supreme Court of Wyoming

October 10, 2017

LON V. SMITH FOUNDATION, a California non-profit corporation, Appellant (Plaintiff),
v.
DEVON ENERGY CORPORATION, an Oklahoma corporation; DEVON ENERGY PRODUCTION COMPANY L.P., an Oklahoma limited partnership; and ANDREW KEAN, as Trustee of the Marguerite Brown Smith Trust, a California testamentary trust, Appellees (Defendants). DEVON ENERGY CORPORATION, an Oklahoma corporation; and DEVON ENERGY PRODUCTION COMPANY L.P., an Oklahoma limited partnership, Appellants (Defendants),
v.
LON V. SMITH FOUNDATION, a California non-profit corporation, Appellee (Plaintiff). LON V. SMITH FOUNDATION, a California non-profit corporation, Appellant, (Plaintiff),
v.
DEVON ENERGY CORPORATION, an Oklahoma corporation; and DEVON ENERGY PRODUCTION COMPANY L.P., an Oklahoma limited partnership, Appellees, (Defendants).

         Appeal from the District Court of Carbon County The Honorable Wade E. Waldrip, Judge

          Representing Lon V. Smith Foundation: Kristopher C. Koski, Thomas N. Long, and Rebecca J. Zisch of Long Reimer Winegar Beppler LLP, Cheyenne, Wyoming; Drake D. Hill, Hill Law Firm, LLC, Cheyenne, Wyoming. Argument by Messrs. Koski and Long.

          Representing Devon Energy Corporation and Devon Energy Production Company: Jeffery J. Oven, Clayton H. Gregersen, and Victoria A. Marquis of Crowley Fleck PLLP, Billings, Montana. Argument by Mr. Oven.

          Representing Andrew Kean: Brett M. Godfrey and Anne E. Zellner of Godfrey Johnson, P.C., Englewood, Colorado. Argument by Mr. Godfrey.

          Before BURKE, C.J., and HILL, DAVIS, FOX, and KAUTZ, JJ.

          FOX, JUSTICE.

         [¶1] Thirty-four years ago, a California court issued a probate order distributing the estate of Lon V. Smith. A couple of years later, a Wyoming court entered an ancillary probate order to distribute Mr. Smith's Wyoming property, including the Carbon County overriding royalty interest (ORRI) that is the subject of this dispute. It is undisputed that Mr. Smith's intent, as expressed in his will (Will), was for the ORRI to be distributed to his wife, Marguerite B. Smith, for her life, and then to be distributed to the Lon V. Smith Foundation (Foundation). That is not, however, what the courts ordered in the California and Wyoming probates.

         [¶2] The Foundation sued Devon Energy Corporation and Devon Energy Production Company L.P. (collectively, Devon) and the Marguerite Brown Smith Trust (Trust), claiming the ORRI payments should have been made to the Foundation. The district court found that, regardless of Mr. Smith's intent, the probate orders governed, and they distributed the ORRI to Mrs. Smith under the Will's residuary clause. The district court granted summary judgment to Devon and the Trust (the beneficiary under Mrs. Smith's will), ruling that the Trust owned the ORRI, not the Foundation. The district court also denied requests from both the Foundation and Devon for attorney fees and costs pursuant to the Wyoming Royalty Payment Act's (WRPA) fee provision. The Foundation appeals, challenging the district court's interpretation of the probate orders and its conclusion that they govern over the terms of the Will, and the ruling on attorney fees. Devon appeals the denial of attorney fees. We affirm.

         ISSUES

         [¶3] We restate the issues as follows:

1. Did the district court correctly determine as a matter of law that the 1983 California probate order and the 1985 Wyoming ancillary probate order govern, and that the Trust is the owner of the ORRI at issue?
2. Did the district court properly dismiss the Foundation's claim that Devon violated Wyo. Stat. Ann. § 30-5-302 when it is undisputed that Devon held ORRI proceeds in Devon's own "suspense account" and not in an interest-bearing account in a Wyoming financial institution?
3. Is either party entitled to attorney fees under the WRPA?

         FACTS

         The parties

         [¶4] The Foundation is a charitable foundation organized under the California Nonprofit Public Benefit Corporation Law. It operates for charitable and educational purposes and "provides grants for a number of causes, including health organizations, medical research, and youth organizations." The Foundation was created by Mr. Smith and is a named beneficiary under his Will.

         [¶5] The Trust is a California testamentary trust that was created pursuant to the will of Marguerite Brown Smith, the wife of Mr. Smith. The Trust is a beneficiary under Mrs. Smith's will. At times, Trust management has overlapped with that of the Foundation, however, there is no overlap between the Foundation and Trust beneficiaries.

         [¶6] Devon is an oil and gas producer headquartered in Oklahoma City, Oklahoma. Devon was the lessee and operator of the oil and gas lease at issue in this case between 1982 and December of 2014. Devon sold its interest to Linn Operating, Inc. (Linn), effective April 1, 2014.

         Lon V. Smith's Will and the California Probate Order

         [¶7] The facts in this case are undisputed. In 1973, Mr. Smith obtained a federal BLM oil and gas lease in Carbon County, Wyoming, and in 1974 he assigned the lease to J.D. Simmons, Inc., reserving a 5% ORRI. Mr. Smith died on June 5, 1979.

         [¶8] Mr. Smith's Will provided that all of his oil and gas interests, including the ORRI, are to be transferred to his wife as a life estate, and then to the Foundation upon her death. Mr. Smith's estate was probated in California, and on April 6, 1983, the California court entered its Order Settling First and Final Report, Petition for Statutory Attorney's Fee and Extraordinary Attorney's Fee and Petition for Distribution Upon Waiver of Accounting (the California probate order). The California probate order distributes oil and gas interests as follows:

B) To Marguerite B. Smith a Life Estate in and to all mineral interests, oil and gas leases and properties, royalties, rentals, contracts, covering or affecting properties of the said Estate wherever situated together with all income of every sort thereon during her lifetime, the remainder interest therein, after the death of Marguerite B. Smith, to vest in and be distributed to Lon V. Smith Foundation, all as described as follows:

         The next 94 pages of the California probate order describe oil and gas and mineral interests owned by Mr. Smith, but do not include the Wyoming ORRI. The order then goes on to state that after the Marguerite B. Smith life estate, the listed oil and gas interests are to pass to the Foundation:

E) To Lon V. Smith Foundation, a non-profit California corporation, the remainder interest after the death of said Marguerite B. Smith, in and to all mineral interests, oil and/or gas leases, properties, royalties, rentals and contracts, all as more particularly described in Pages 11 through 105 of this Order.

         Again, the Wyoming ORRI is not included in the inventory of the California probate order. The California probate order also provides:

F) To Marguerite B. Smith all the rest, residue and remainder of said Estate, both real and personal, and wherever situated, together with the income thereon received after date of distribution of said Estate, whether described herein or not.
G) That all other and after-discovered property which may be found to belong to said Estate be distributed in accordance with decedent's said Last Will to the said Marguerite B. Smith.

         [¶9] The parties do not dispute that the terms of Mr. Smith's Will provided that the ORRI, along with all of Mr. Smith's other oil and gas interests, would be transferred to his wife, Mrs. Smith, as a life estate, with the remainder interest to the Foundation. They also do not dispute that the California probate order specifically listed each of the oil and gas interests to be passed to Mrs. Smith as life estates and that the ORRI was not included on that list. Finally, they do not dispute that the California probate order also indicated that the remainder interest in only the listed oil and gas interests that passed to Mrs. Smith as life estates, was to pass to the Foundation upon her death. Thus, the California probate order did not distribute the ORRI in accordance with the Will.

         [¶10] The Wyoming ancillary probate order distributing Mr. Smith's Wyoming property ordered that the California probate order be "admitted to this Court and [] be considered and treated as original proceedings of this Court and as conclusive evidence of the facts therein shown." Thus, the Wyoming probate order, recorded in Carbon County in March of 1985, also omitted any specific reference to the Wyoming ORRI.

         [¶11] Over the years, the parties have taken differing positions regarding who is entitled to payments of Lon V. Smith's ORRI. It is undisputed that Devon has made payments to both the Trust and the Foundation at different times and with respect to different wells covered by the ORRI.[1] In July of 2014, Devon sent a letter to the Trust, copying the Foundation, which explained its position at that time that the Foundation and not the Trust was entitled to royalty payments on certain wells:

The [Trust] received $747, 273.07 during the period from 12/15/2004 through 11/15/2011 in connection with the ORRI on the Standard Draw Wells. As explained below, the Trust was not entitled to these funds, and Devon requests that the Trust immediately repay these funds to Devon so that they may be credited to the proper owner.

         The Trust did not repay the allegedly erroneous royalty payments to Devon, and soon thereafter the Foundation brought this lawsuit against Devon, its successor, Linn, and the Trust, claiming that under the terms of the Will, it is entitled to the ORRI payments.

         [¶12] The Foundation sought to recover royalty payments that Devon made to the Trust, an accounting, recovery of statutory assessments for the improper reporting and retaining of oil and gas proceeds, and damages for conversion of royalty proceeds.[2] Additionally, the Foundation sought a constructive trust for the royalty payments received by the Trust. Devon asserted counterclaims against the Foundation and cross-claims against the Trust, seeking declaratory judgment on the ownership of the ORRI and seeking indemnification by the Trust. Devon contended that payments on the ORRI are governed by the California probate order, which was adopted in Wyoming in the ancillary probate proceeding, and that the Trust, not the Foundation, is entitled to royalty payments. The Trust has indicated that it is not adverse to the Foundation's position that the Foundation is the owner of the ORRI, but that it does not believe it owes the Foundation any royalty payments that Devon wrongfully paid the Trust in the past.

         [¶13] Both the Foundation and Devon filed motions for summary judgment. The district court held that the ORRI passed to the Trust and that the Foundation was not "entitled to receive royalty payments in question." Consequently, the Foundation's other claims failed as well. The Foundation and Devon sought recovery of attorney fees and costs, both claiming they were the prevailing party entitled to fees under the WRPA, Wyo. Stat. Ann. § 30-5-303 (LexisNexis 2017). The district court concluded that the WRPA was inapplicable and neither party was entitled to an award of attorney fees.

         [¶14] The parties filed several appeals which have been consolidated for review. The Foundation contends that the district court erred when it concluded that the ORRI belongs to the Trust, when it granted summary judgment on the Foundation's statutory claims, and when it denied the Foundation's request for attorney fees. Devon appeals the district court's denial of its motion for attorney fees. Additional facts will be discussed as they become relevant to the issues addressed below.

         STANDARD OF REVIEW

         [¶15] Summary judgment is appropriate when there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. W.R.C.P. 56(a). This Court considers the record from the viewpoint most favorable to the party opposing the motion, and gives all favorable inferences to be drawn from the facts contained in materials appearing in the record to the ...


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