Frank T. Fleet v. Sanguine, Ltd.

¶1 Two issues are presented by defendant Sanguine Ltd.'s [Sanguine's or the operator's] appeal from a postjudgment order:1 (1) Did the trial court err by adding prejudgment interest as a penalty after Plaintiffs-Appellees [the mineral owners] had accepted the operator's § 11012 offer of judgment? and (2) Should the trial court's memorialized judgment be corrected to make it conformable to the record? We answer both questions in the affirmative.

¶2 One additional issue is presented by the mineral owners' counter-appeal: Were auditing costs in the parallel ancillary proceeding for equitable accounting allowable against the operator? Our answer is in the affirmative.

I

THE ANATOMY OF LITIGATION

A. THE BACKGROUND

¶3 EXOK, Inc. [EXOK] leased plaintiffs'3 mineral interests in Section 13, Grady County [Section 13].4 The leases give each mineral owner and one-eighth royalty,5 and separate agreements [the letter agreements] provide that the lessee shall assign to the mineral owners a thirty-percent leasehold interest [the back-in interest] as soon as completion and production costs [payout] of any test well drilled in Section [854 P.2d 895] 13 shall have been recovered.6 Although the leases filed in the Grady County Clerk's office specifically refer to the August 11, 1980 letter agreements,7 the agreements themselves are not of record.

¶4 The Oklahoma Corporation Commission [the Commission] "force pooled"8 the leasehold interests in Section 13 and gave Sanguine permission to drill the Annie # 1 well.9 Sanguine was designated unit operator.10 EXOK's election not to participate in the well placed Sanguine in the legal status of lessee vis-a-vis the mineral owners.11 After the well had been completed and production established, each of the mineral owners received an one-eighth royalty.12 Later, when the operator recouped its production costs,13 it refused to honor the unrecorded letter agreements.

B. PLAINTIFFS' ACTION FOR DAMAGES AND THEIR PARALLEL

ANCILLARY PROCEEDING FOR EQUITABLE ACCOUNTING

¶5 The mineral owners sued the operator for damages. They specifically invoked § 540(B)'s14 penalty provision (prejudgment interest at the rate of 12%) for [854 P.2d 896] violation of § 540(A)15 and pressed for recovery under several other theories of liability.16 As an ancillary relief to that action they sought to compel equitable accounting.17 During the discovery phase of the case, the trial judge ordered the operator to submit its records to an audit by the mineral owners' accountant.18 Later, he ruled in the mineral owners' favor (as a matter of law)19 on the operator's liability20 for the back-in [854 P.2d 897] interests21 and set for jury trial the only remaining issue, that of recovery which would make the plaintiffs whole.

¶6 Shortly before trial the operator offered to confess judgment for $135,000,22 and the mineral owners accepted the offer.

C. THE POSTJUDGMENT PROCEEDINGS

¶7 In post-acceptance state of the trial court's proceedings the mineral owners sought prejudgment interest, costs, and attorney's fees. The parties compromised on the attorney's fees and ordinary cost items to be taxed. Over the operator's objection the trial judge conducted a postjudgment evidentiary hearing to decide whether the mineral owners were entitled to interest under § 540(B)23 and if so, to determine its amount. Proof of the mineral owners' auditing costs in the parallel equitable accounting was also adduced. The trial judge (a) awarded the mineral owners $56,578.00 in prejudgment interest at the rate of 12% as a penalty (computed by a plaintiffs'-pressed calculation formula) and (b) held he lacked statutory authority to assess accounting costs against the operator. This appeal challenges the prejudgment interest award and the correctness of a certain recitation in the journal entry. The mineral owners' counter-appeal assigns error in the trial court's denial of their audit-related costs.

II

A PARTY'S ACCEPTANCE OF A § 1101 OFFER OF JUDGMENT REMOVES

ALL PREJUDGMENT ISSUES FROM THE COURT'S CONSIDERATION

A. THE CONTROVERSY

¶8 The operator contends that - except for attorney's fees and costs - it should not be held liable for any sum in excess of the $135,000 compromised judgment.24 It argues that, had the case gone to trial, prejudgment interest would have been an [854 P.2d 898] element of damages for jury submission.25 The mineral owners urge that their acceptance of the operator's offer of judgment accorded them prevailing-party status on each of their various theories of recovery,26 including the operator's alleged violation of the terms of 52 O.S. 1981 § 540 (A).27 According to the mineral owners, (a) since the operator must be deemed to have violated that section, the trial court was required to add the prejudgment interest afforded by § 540(B)28 as a penalty and (b) the § 1101 offer confessed all facts that make prejudgment interest calculable as a matter of simple arithmetic. The mineral owners argue that prejudgment interest must be added by the court after an offer's acceptance of every offer of judgment, unless the § 1101 offer explicitly states that prejudgment interest is included in the offer's amount.29

B. THE § 1101 OFFER OF JUDGMENT

¶9 In an action for the recovery of money, a defendant may offer to allow judgment to be taken against him for a specified sum.30 Acceptance of a confessed judgment removes all prejudgment issues from the triers' consideration.31 Issue removal bars the trial court from entertaining evidence material to that which is no longer within the perimeter of adjudicable controversy. The offer of judgment removes from judicial consideration all fact issues whose resolution is necessary to the judgment's pronouncement.32 In short, a § 1101 offer's acceptance extinguishes the entire cause of action and [854 P.2d 899] substitutes in its place the right to claim the confessed recovery.

C. BECAUSE PREJUDGMENT INTEREST IS AN ELEMENT OF DAMAGES FOR

AN OPERATOR'S BREACH OF ITS § 540(A) DUTY, IT PRESENTS A

PREJUDGMENT ISSUE TO BE DECIDED IN THE CASE

¶10 The mineral owners had pressed for interest at 12% as an element of their damages. The tendered predicates for interest calculation included (1) an assessment of whether title to the proceeds was marketable, (2) the critical finding of the disputed date payment occurred and (3) an inquiry into details of the operator's liability on a month-to-month basis.33 Over the operator's objection, the trial judge decided (after a postjudgment hearing) that title to the proceeds was marketable. He resolved in the mineral owners' favor the disputes over payout's date and the principal amount and then added $56,587.00 interest to the judgment.34

¶11 Prejudgment interest35 is an item of recovery authorized by 52 O.S. 1981 § 540 (B).36 It constitutes a part of the judgment and is considered a part of the total liability recovered.37 The mineral owners rested their claim for prejudgment interest upon the terms of § 540(B). Unlike the statute that governs liability for prejudgment interest in bodily injury cases,38 § 540(B) includes no direction to the trial judge that interest be added to a jury verdict. Prejudgment interest in the § 540(B) sense is not merely compensation for the use of money belonging to another.39 Rather, it is interest qua penalty40 to [854 P.2d 900] compel compliance with § 540(A).41 The cited section (1) governs the payment of royalties on production from an oil or gas unit,42 (2) imposes a time frame for payment and (3) provides for interest on the proceeds at the rate of 6% if payment is delayed because one's (claimant's) title is unmarketable.

¶12 The statutory penalty which may follow a § 540(A) breach must be treated as an element of the mineral owners' legal damage for the operator's default in payment;43 it is the triers who must decide whether the operator wrongfully withheld the proceeds after payment was due, particularly where, as here, the penalty's calculation rests upon disputed facts.44

D. THE OFFEREES' ACCEPTANCE OF THE § 1101 OFFER REMOVED FROM

JUDICIAL INQUIRY THE ISSUE OF PREJUDGMENT INTEREST

¶13 The mineral owners' acceptance of the operator's § 110145 offer of judgment removed from judicial inquiry all elements of the mineral owners' damages, including prejudgment interest. It was error for the trial judge to add prejudgment interest to the amount of compromised recovery. The operator's offer must be treated as implicitly comprising its entire obligation in suit - inclusive of prejudgment interest but exclusive of attorney's fees and costs.46 The nisi prius postjudgment ruling awarding prejudgment interest must hence be reversed.

III

THE MINERAL OWNERS HAD BUT A SINGLE CLAIM; THE JOURNAL ENTRY

MUST BE CORRECTED TO MAKE IT CONFORMABLE TO THE RECORD

¶14 The operator challenges the correctness of the following recitation in the journal entry:

"Plaintiffs are the prevailing parties in this matter as to all claims and allegations asserted in their Amended Petition."

According to the operator, the mineral owners had only one claim arising from its failure to recognize their back-in interests in the well. The mineral owners, on the other hand, consider each "count"47 in [854 P.2d 901] their amended petition as a separate claim. They urge that the trial court decided one of their "claims" in their favor and the operator's offer of judgment confessed all the others.

¶15 Only a single cause of action can be predicated on the same set of facts,48 but different remedies and theories of liability may be pressed in support of each claim alleged.49 Although the mineral owners asserted several discrete theories of recovery and invoked a parallel remedy of equitable accounting, they had only one claim for damages.

¶16 After the trial judge had resolved in the mineral owners' favor the operator's liability for failure to recognize the back-in interests, no alternative theories of relief remained viable.50 The nisi prius recital that plaintiffs are the prevailing parties on all claims and allegations asserted in their amended petition is overbroad.51 The journal entry is accordingly ordered to be corrected and the trial judge directed to sign a nunc pro tunc substitute which would reflect, in conformity to the record, that plaintiffs had prevailed on their single claim for damages.52

IV

THE COSTS OF EQUITABLE ACCOUNTING MAY BE ALLOWED IN TOTO

OR BE APPORTIONED BETWEEN THE PARTIES

¶17 The mineral owners challenge the trial court's failure to award them the costs of a court-ordered audit of the operator's accounts.53 Since the operator had furnished them only three inconclusive documents, the mineral owners invoked the discovery process to compel an accounting. The trial judge ordered the operator to submit its records for an audit by the mineral owners' accountant.54

¶18 The operator does not contest here the mineral owners' account of the operative facts that surround the audit. Rather, it argues that (a) the mineral owners brought no more than an action for damages in which equitable accounting costs are not recoverable and (b) their quest for accounting costs is no more than a futile attempt to recover an "expert witness fee."55

¶19 As a matter of ancillary relief (to their action at law for damages) the mineral owners' pressed for an accounting of the oil and gas revenue.56 Equitable [854 P.2d 902] accounting may be decreed in an action which is founded primarily upon other grounds, if it is necessary to afford the parties complete relief.57 The terms of § 540(A) in force when the claim arose provided that the operator was liable for payment under that section if he had assumed the responsibility of paying those who were legally entitled to the proceeds.58 Equitable accounting was essential to resolve the issue of how much revenue attributable to the mineral owners' back-in interests had come to the operator for distribution to the rightful owners.59

¶20 Nisi prius taxable costs fall into two categories: (a) ordinary court costs - items that the clerk may tax de cursu60 and (b) litigation expenses that may have arisen in an equity suit or, as here, in an ancillary equitable proceeding.61 Equitable litigation expenses (as opposed to ordinary costs taxable de cursu) are explained in Rand v. Nash.62 In a stockholder's action for a receivership, the Rand plaintiff sought court appointment of an accountant to audit corporate books and report his findings to the court. The appointed auditor completed the assigned task. After the case had been settled, the trial court taxed the accountant's fees as costs. Rand teaches that under the trial court's equitable powers - and in the absence of a statute to the contrary - audit-related costs are clearly taxable in equity as a litigation expenses. ¶21 In an equitable setting costs should not be so rigidly confined to specifically enumerated statutory allowances as to exclude any other necessary expenditures.63 Allowance of equitable costs rests in the discretion of the chancellor.64 ¶22 The audit costs in the case here for review clearly fall under the broad rubric comprised within the equity exception to taxable or "true" costs items; they were neither expert witness fees nor taxable by the clerk de cursu. The accounting fees were subject to assessment as litigation cost allowable in equity. Since equitable costs must be tailored to the equities in the case, the chancellor must be set free to [854 P.2d 903] decide on remand whether the audit fee is to be allowed in full or be apportioned between the parties. Our pronouncement in Dulan v. Johnston65 - that only those expenditures which are taxable by statute fall within the term "costs" - does not apply here.

¶23 The nisi prius denial of the mineral owners' accounting costs is hence reversed. The trial court may allow on remand the accounting fees in full or apportion them as the equities are shown to require, taking due consideration of the parties' litigation conduct.

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See: http://www.oscn.net/applications/oscn/deliverdocument.asp?cite=1993+OK+76

¶24 The mineral owners' acceptance of the operator's § 1101 offer of judgment removed from judicial inquiry the damage-related dispute over prejudgment interest. The operator's confessed judgment must hence be treated as comprising its entire obligation in suit (inclusive of interest but exclusive of attorney's fees and costs).

¶25 The trial court's order is accordingly reversed insofar as it adds prejudgment interest to the operator's confessed liability. The judgment's entry is ordered corrected to make it conformable to the record by reflecting the mineral owners to be the prevailing parties on their single claim at law for damages. On remand the trial court is directed to consider the equities in the case and either allow against the operator the entire auditor's fee or apportion that expense between the parties.

¶26 ORDER REVERSED AND CAUSE REMANDED.