F I L E D
United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS
DEC 30 1998
FOR THE TENTH CIRCUIT
PATRICK FISHER
Clerk
NORTH FINN, a partnership,
Plaintiff-Appellee-
Cross-Appellant,
Nos. 97-8112
v. &
97-8115
D.L. COOK, (D.C. No. 92-CV-165-B)
(D. Wyo.)
Defendant-Appellant-
Cross-Appellee.
ORDER AND JUDGMENT *
Before BALDOCK, EBEL, and MURPHY , Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f) and 10th Cir. R. 34.1.9. The cases are
therefore ordered submitted without oral argument.
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
In this protracted oil and gas litigation, defendant D. L. Cook appeals the
district court’s order adopting an expert witness’ accounting which defines the
amounts due between the parties. Plaintiff North Finn appeals from the
accounting as well, but has represented that it will accept the accounting as final
if this court decides to deny defendant’s appeal. Because any error in adopting
the accounting without allowing Cook the opportunity to cross-examine the expert
was harmless, we affirm the judgment.
North Finn is the operator of the Carson Muddy Sand Unit in Campbell
County, Wyoming, an oil recovery unit that includes land leased by Cook from the
federal government. Cook has working and royalty ownership interests in the
Unit. In 1989, Cook farmed out an adjacent federal leasehold to Kelly, who
drilled two wells on the border of the Unit (referred to as the Kelly No. 1-7 and
Kelly No. 2-7 wells). Tests showed that the Kelly wells were draining from the
same reservoir as that being pumped by the Unit.
On October 31, 1991, North Finn, acting for the Unit participants,
purchased the Kelly wells in a Sheriff’s sale. Cook thereafter claimed working
ownership interests and overriding royalty interests in the Kelly wells. When
North Finn sought to join the wells into the Unit, Cook objected, and the issue
was submitted to the Wyoming Oil and Gas Commission. The Commission
upheld joinder of the wells as of September 1993, and the Wyoming Supreme
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Court affirmed. See Cook v. Wyoming Oil & Gas Conservation Comm’n , 880
P.2d 583 (Wyo. 1994). Throughout this interim period, North Finn operated the
wells and recorded the expenses it incurred.
In May 1992, North Finn brought a declaratory judgment action against
Cook, seeking to define the parties’ rights and liabilities regarding the Kelly
wells. Cook filed several counterclaims. In May 1994, trial was had before the
court. During trial, North Finn presented testimony regarding the expenses of
operating the Kelly wells. Thereafter, Cook sought and received leave to amend
its pleadings to include an additional counterclaim seeking an accounting of North
Finn’s operation of the Unit. In November 1995, the parties entered into a
stipulation determining many of the disputed issues of fact and agreeing to entry
of partial judgment. Pursuant to the stipulation, Cook was deemed to own (1) a
12.5 percent overriding royalty interest in the Kelly wells, which was not subject
to costs and charges other than taxes; and (2) a 30 per cent working interest in the
Kelly No. 1-7 well and a 100 percent working interest in the Kelly No. 2-7 well,
which were subject to a proportionate share of operating expenses attributable to
each well. The stipulation called for North Finn to prepare an accounting
regarding (1) its operation of the Kelly wells before they were joined into the
Unit, and (2) its operation of the Unit from its date of inception, addressing the
issues raised in Cook’s counterclaims.
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In December 1995, North Finn submitted its accounting, purporting to set
out the revenues and expenses for each of the Kelly wells and for its operation of
the Unit from its inception. See Supp. App. at 196-204. Cook objected to North
Finn’s submissions and filed a motion to strike the accounting and to require a
more definite and certain accounting. In November 1996, the court held a hearing
regarding the appointment of an outside expert witness to complete the
accounting.
In December 1996, North Finn submitted a supplement to its accounting,
with invoice breakdowns for the two wells and copies of invoices. This
accounting concluded that Cook owed North Finn $30,235.01, after taking
account of Cook’s unit revenues, expenses, and overriding royalty interests, and
his individual revenues, expenses and royalties for the Kelly wells. See
Appellant’s App. at 74-86; Supp. App. at 223-51. Thereafter, accountant Michl
McGee was appointed by the court to render an accounting in the case.
McGee submitted his accounting in August 1997. Although he accepted
fully North Finn’s accounting of the revenues, expenses, and royalties for Cook’s
interests in the Unit before the Kelly wells were purchased, he questioned many
of the operating and legal expenses charged after the wells were acquired but
before they were joined into the Unit in September 1993. McGee concluded that
if the disputed operating and legal expenses were disallowed, Cook would owe
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North Finn $5,372.82. North Finn filed a motion for an order confirming the
accounting, but requested the court to reinstate the operating and legal expenses
questioned by McGee. Cook filed objections to this motion, arguing that North
Finn was not entitled to the deducted expenses, and noting the need for a hearing.
On October 3, 1997, the district court entered an order confirming McGee’s
report and adjudging North Finn entitled to $5,372.82 from Cook. The court
rejected both North Finn’s argument that it was entitled to the disputed legal and
operating expenses, and Cook’s arguments that the accounting was not
sufficiently complete and that additional issues remained for determination.
Noting that McGee had, as an independent expert, examined the record and
documentation thoroughly, the court found upon reviewing the report that it was
“an accurate determination of the rights and liabilities of the parties to this
action.” Appellant’s App. at 129. Cook moved for withdrawal of the order on
the grounds that he should have been permitted to cross-examine McGee, and that
McGee did not analyze North Finn’s accounting of its operation of the Unit from
its inception, including the issues raised in Cook’s counterclaims, as was required
by the stipulated judgment. The district court denied the motion.
On appeal, Cook argues that the district court erred in adopting McGee’s
findings without a plenary hearing, that such a procedure transformed McGee into
the final decision maker, and that the district court erred in failing to make
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separate findings of fact and law, as required by Federal Rule of Civil Procedure
52(a). We review the district court’s legal rulings de novo, but defer to its factual
findings unless they are clearly erroneous. See Pierce v. Underwood , 487 U.S.
552, 558 (1988).
The district court appointed McGee pursuant to Federal Rule of Evidence
706. That rule entitles the parties to cross-examine court-appointed experts.
Therefore, we agree the district court erred in restricting Cook’s right to cross-
examine McGee before adopting the accounting. Given the procedural posture of
this case, however, we conclude that the error was harmless. Federal Rule of
Civil Procedure 61 provides
No error in . . . the exclusion of evidence and no error or defect in
any ruling or order or in anything done or omitted by the court . . . is
ground for . . . disturbing a judgment or order, unless refusal to take
such action appears to the court inconsistent with substantial justice.
The court at every stage of the proceeding must disregard any error
or defect in the proceeding which does not affect the substantial
rights of the parties.
Here, the district court had before it many years of evidence regarding North
Finn’s operation of the Unit and the revenues and expenses relating to the Kelly
wells. Much of the testimony in the May 1994 trial concerned these subjects.
The stipulated judgment set out each of the parties’ working interests in the wells
and Cook’s overriding royalty interests. The record also included the Unit
operating agreement, with provisions pertaining to the assessment of operating
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expenses, detailed invoices evidencing expenses incurred in operating the Kelly
wells between their purchase on October 31, 1991, and their inclusion in the Unit
in September 1993, and North Finn’s revenue/expense reports. McGee’s
accounting included a detailed explanation of his methodology, assumptions, and
the evidence relied upon. Moreover, the district court had before it Cook’s
objections both to North Finn’s initial accounting and to McGee’s report. This
backdrop provided the district court with more than enough information to
evaluate the accuracy of McGee’s conclusions. See, e.g. In re Spillane , 884 F.2d
642, 646-47 (1st Cir. 1989) (holding that denial of cross-examination, if error,
was harmless, when court “had sufficient information reasonably to conclude that
all of the [disputed legal services] were compensable”).
More importantly, Cook has not demonstrated how cross-examining McGee
would have changed the outcome of this case. He has not identified any
substantive errors in the accounting, merely suggesting that infirmities might be
uncovered during a hearing. In the absence of such a showing, Cook has not
demonstrated how the failure to allow cross-examination affected his substantial
rights. See, e.g. , Texas-Capital Contractors, Inc. v. Abdnor , 933 F.2d 261, 270-71
(5th Cir. 1990) (noting significance of party’s failure to identify factual errors
which would have been revealed by cross-examination in holding denial of such
cross-examination harmless); People of the State of Illinois v. Interstate
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Commerce Comm’n , 722 F.2d 1341, 1350 (7th Cir. 1983) (holding denial of
cross-examination harmless when party did not indicate how acceptance of its
evidentiary arguments might reasonably have been expected to have led to a
different result).
In addition, the district court did not abdicate its decision-making role by
adopting McGee’s accounting. McGee clearly indicated the bases upon which his
report rested, and the legal issues yet to be decided by the court. The court
decided these legal issues, concluding that the disputed operating and legal
expenses should not be set off against Cook’s revenues from the Kelly wells. The
court also conducted an independent review of McGee’s conclusions, adopting
them only after concluding they were an accurate determination of the parties’
rights and liabilities. Further, the court’s adoption of the accountant’s factual
conclusions and its determination of the identified legal issues are sufficient to
permit “meaningful review,” and therefore satisfy the requirements of Fed. R.
Civ. P. 52(a). See Wolfe ex rel. Joseph A. v. New Mexico Dep’t of Human
Servs. , 69 F.3d 1081, 1087 (10th Cir. 1995).
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The judgment of the United States District Court for the District of
Wyoming is AFFIRMED.
Entered for the Court
Bobby R. Baldock
Circuit Judge
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