Chesapeake Operating, Inc. v. Valence Operating Co.

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
OCT 4 1999
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

CHESAPEAKE OPERATING, INC.,

Plaintiff-Appellee/
Cross-Appellant,

v. Nos. 98-6314
&
VALENCE OPERATING COMPANY, 98-6327

Defendant-Appellant/
Cross-Appellee.

APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
(D.C. No. 97-CV-74)

Submitted on the briefs:

James R. Waldo of Mock, Schwabe, Waldo, Elder, Reeves & Bryant, Oklahoma
City, Oklahoma, for Defendant-Appellant/Cross-Appellee.

Charles C. Smith, Oklahoma City, Oklahoma, for Plaintiff-Appellee/Cross-
Appellant.

Before BALDOCK , BARRETT , and McKAY , Circuit Judges.

BALDOCK , Circuit Judge.
 Chesapeake Operating, Inc. filed a diversity action against Valence

Operating Company to collect its proportionate share of the costs of drilling,

completing, and operating an oil and gas well known as the “Fell 1-22” located

in a 160-acre quarter section in Grady County, Oklahoma. A jury verdict found

Valence liable to Chesapeake for well costs in the stipulated amount of

$284,262.09 under a November 1995 agreement between the parties. Chesapeake

filed a post-trial motion for prejudgment interest, which was granted by the

district court, and for attorney fees, which was denied. Valence appeals the jury’s

verdict and the award of prejudgment interest; Chesapeake cross-appeals the

district court’s denial of attorney fees. We have jurisdiction over this diversity

action under 28 U.S.C. §§ 1332(a), 1291 and we affirm in part and reverse and

remand in part. 1

Background

Both Chesapeake and Valence own oil and gas leasehold working interests

in the quarter section in which the Fell 1-22 well is located. Chesapeake’s

interest was limited to those formations encountered at a depth between

approximately 11,500 feet and 13,000 feet below the earth’s surface, in an area

1
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); 10th Cir. R. 34.1(G). The case
is therefore ordered submitted without oral argument.

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referred to as the “Pre-Pennsylvanian zones.” Valence’s primary interests were in

those formations encountered between the surface and approximately 11,500 feet

below the surface, referred to as the “Pennsylvanian” zone, but it also owned

interests in the Pre-Pennsylvanian zones. Pursuant to a 1993 agreement

between the parties, Valence agreed to farm out most of its interest in the

Pre-Pennsylvanian zones to Chesapeake and to participate with Chesapeake in

the drilling of Fell 1-22. Chesapeake commenced drilling operations in 1994,

but was forced to suspend operations after the well reached total depth because

of problems with the well. The 1993 agreement between the parties expired.

In May 1995, Chesapeake re-entered the existing Fell 1-22 wellbore and

commenced drilling a side track wellbore from the existing wellbore with the

intent to produce from both the Pennsylvanian and Pre-Pennsylvanian zones.

Because Chesapeake owned no interests in the Pennsylvanian zone and Valence

wanted to produce from both the Pennsylvanian and Pre-Pennsylvanian zones, the

parties entered a letter agreement in November 1995 regarding the Fell 1-22 well

and their respective rights in the Pennsylvanian and Pre-Pennsylvanian zones.

Pursuant to the 1995 agreement, the subject of this litigation, Valence

agreed to participate in the cost of drilling, completing and operating the Fell

1-22 side track well as of May 22, 1995, the date Chesapeake began the side track

operation. The parties agreed to assign to each other sufficient leasehold interests

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so that each would own an equal interest in the Pennsylvanian and

Pre-Pennsylvanian zones in order to allow for commingling production from the

two zones. According to testimony at trial, when production is commingled,

ownership in the commingled zones must be equal because the zone from which

a specific hydrocarbon is produced cannot be identified.

In the area where the Fell 1-22 well was located, however, other entities not

subject to the 1995 agreement owned leasehold interests in the Pennsylvanian

zone. Therefore, to enable commingled production, the 1995 agreement provided

that Chesapeake and Valence would use their best interests to equalize ownership

among all the working interests. The agreement contemplated that if

commingling production was not possible, another means of production known

as “dual completion” would be used. Under this method, equalized ownership is

not necessary because the hydrocarbons from each zone are isolated all the way to

the surface and are measured and produced separately. The agreement did not

specify a date or time period within which either commingled production or dual

completion production would be completed, but it did state that Chesapeake

would “continuously prosecute completion of the well in a timely fashion.”

Appellant’s App., Vol. I at 61.

Chesapeake completed the Fell 1-22 sidetrack in the Pre-Pennsylvanian

zone by February 1996. Chesapeake attempted to purchase all of the non-party

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working interests in the Pennsylvanian zone in order to allow commingling

production. After several months of trying unsuccessfully to equalize ownership,

Chesapeake notified Valence that it could not proceed with commingled

production of the well because of the unequal ownership interests, but was willing

to proceed with the dual completion production method. Valence refused to

authorize dual completion, however, and refused to pay its share of the costs of

drilling and completing the Fell 1-22 side track well.

Chesapeake, as operator of the well, brought this diversity action to recover

Valence’s proportionate share of the drilling costs, alleging Valence had breached

the 1995 agreement. Valence responded that Chesapeake had failed to comply

with the terms of the 1995 agreement by not continuously prosecuting completion

of the well in a timely fashion, thereby absolving Valence of any obligation to pay

for the drilling costs of the well. The district court entered partial summary

judgment in favor of Chesapeake, finding that the 1995 agreement was a binding

contract, but concluding that material issues of fact were in dispute with respect

to whether Valence breached the contract and whether any obligations under the

contract were excused. These issues were tried to a jury, which returned a

verdict in favor of Chesapeake in the amount of $284,262.09, together with

post-judgment interest.

Valence’s Appeal

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 Valence first contends the jury’s verdict against it is not supported by

substantial evidence. However, Valence failed to move for judgment as a matter

of law at the end of all the evidence. See Fed. R. Civ. P. 50(a). By virtue of this

failure, it has forfeited the opportunity to secure appellate review of the

sufficiency of the evidence. See Richards v. City of Topeka , 173 F.3d 1247, 1253

n.4 (10th Cir. 1999). Furthermore, even had the error been properly preserved,

we find the evidence sufficient to support the jury’s findings. We therefore

decline to disturb the verdict of the jury.

Valence next contends the district court erred in awarding $17,095.24

in prejudgment interest. “We review the district court’s decision to award

prejudgment interest for abuse of discretion.” Neustrom v. Union Pac. R.R. Co. ,

156 F.3d 1057, 1067 (10th Cir. 1998). “A federal court sitting in diversity applies

state law, not federal law, regarding the issue of prejudgment interest.” See

Strickland Tower Maintenance, Inc. v. AT & T Communications, Inc. , 128 F.3d

1422, 1429 (10th Cir. 1997). “The relevant Oklahoma statute permits the

recovery of prejudgment interest on ‘damages certain, or capable of being made

certain by calculation.’” Id. (quoting Okla. Stat. Ann. tit. 23, § 6 (West 1987)).

“It is well established that a damage award is not certain for purposes of

the Oklahoma statute ‘unless the amount of recovery is liquidated or capable of

ascertainment by calculation or resort to well-established market values.’” Id.

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(quoting Sandpiper North Apartments, Ltd. v. American Nat’l Bank & Trust Co. ,

680 P.2d 983, 993 (Okla. 1984)). “Therefore, if the fact-finder must weigh

conflicting evidence in order to determine the precise amount of damages due to

the plaintiff, then a court cannot grant prejudgment interest.” Id. (citing Withrow

v. Red Eagle Oil Co. , 755 P.2d 622, 625 (Okla. 1988) and Liberty Nat’l Bank &

Trust Co. v. Acme Tool Div. , 540 F.2d 1375, 1383 (10th Cir. 1976)).

Here, the district court found that the amount Valence owed Chesapeake

was capable of being made certain by calculation. The district court concluded

that the amount of liability became certain, and thus that the right to prejudgment

interest began to accrue, on December 31, 1996, the date that Chesapeake

incurred the last charges for drilling and completion of the Fell 1-22 well and,

thus, the total cost of the project became known. The parties did not dispute that

the amount of Valence’s liability to Chesapeake was $284,262.09, the total

amount of all of Valence’s invoices for the drilling and completion of the well as

of December 31, 1996, less the revenues from Valence’s share of production as of

that same date.

Valence contends the amount owed could not be determined with certainty

until the validity and effect of the November 1995 agreement was determined by

the court. The enforceability and validity of the agreement is not, however, the

relevant inquiry; “the correct inquiry is whether ‘the amount sued for’ can be

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ascertained prior to judgment. ” First Nat’l Bank & Trust Co. v. Iowa Beef

Processors, Inc., 626 F.2d 764, 770 (10th Cir. 1980) (construing § 6). “Almost

any lawsuit involves some dispute over defendant’s liability.” Id. We agree with

the district court that the amount sued for was capable of being made certain by

calculation. The claim did not require that any fact-finder weigh conflicting

evidence in order to determine the amount of Valence’s proportionate cost of the

drilling and completion of the Fell 1-22 side track well. Indeed, the amount of

liability was stipulated by the parties and the jury was instructed that the amount

of damages was not an issue for its determination.

Valence also contends the amount owed was uncertain because it was not

until September 1996 that Chesapeake took the position that Valence owned more

than a one percent interest in the Fell 1-22 well. Chesapeake conceded at trial

that it miscalculated Valence’s interest in the well on the invoices it sent prior to

August 1996, at which time it corrected the billing statements to reflect Valence’s

true ownership interest. This miscalculation does not make the amount owed by

Valence uncertain because the parties never disputed the amount of Valence’s

ownership interest under the 1995 agreement. Valence did not argue its

ownership interest was miscalculated after the August 1996 correction and the

district court found that the amount owed by Valence did not become liquidated

until several months later, on December 31, 1996.

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 Valence finally contends the amount owed was uncertain because it was

only at the time of trial that appropriate offsets were calculated for the oil and gas

revenues attributable to its interest. Again, the parties never disputed the amount

of offsetting revenues; the offsets were merely an element of the calculation used

to arrive at the liquidated damage amount. The loss was for a sum capable of

being made certain by calculation or by reference to some fixed standards: the

amount of total invoices less the undisputed offsetting revenues. The offsets

were merely an element of the calculation used to arrive at the liquidated damage

amount and the mere fact that there were offsetting revenues does not render the

amount of remaining liability uncertain. See First Nat’l Bank, 626 F.2d at 770

(holding that liability was not uncertain under § 6 even though parties disputed

whether the liability was subject to an offset).

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 Chesapeake’s Cross-Appeal for Attorney Fees

Chesapeake appeals the district court’s denial of its motion for an award of

attorney fees under Okla. Stat. tit. 12, § 936. While we generally review a denial

of attorney fees for an abuse of discretion, we review de novo any statutory

interpretation or other legal analysis underlying the district court’s decision

concerning attorney fees. See Octagon Resources, Inc. v. Bonnett Resources

Corp. (In re Meridian Reserve, Inc.), 87 F.3d 406, 409 (10th Cir. 1996).

Section 936 provides that:

In any civil action to recover . . . for labor or services, unless
otherwise provided by law or the contract which is the subject of the
action, the prevailing party shall be allowed a reasonable attorney fee
to be set by the court, to be taxed and collected as costs.

Valence did not dispute that Chesapeake was the prevailing party or that the fees

requested were reasonable. In denying Chesapeake’s motion for attorney fees, the

district court concluded that Chesapeake’s action to recover the costs of drilling

and completing the well was not for “labor or services” as contemplated by § 936.

In so concluding, the district court cited Russell v. Flanagan, 544 P.2d 510, 512

(Okla. 1975), which narrowly construed § 936 as limited to situations where “suit

is brought for labor or services rendered.” Id. at 512.

However, two months after the district court’s order denying attorney fees,

the Oklahoma Supreme Court held, in response to a certified question from this

court, that an action to recover monies expended to third parties for the drilling

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costs of an oil and gas well does constitute an action to recover for labor and

services under § 936. See ONEOK, Inc. v. Ming, 962 P.2d 1286, 1287

(Okla. 1998). The court held that in an action to recover the proportionate share

of drilling costs, the labor and services were the drilling expenses that the well

operator paid and believed to be owed to it by the other alleged well participant.

See id. at 1288. Citing ONEOK, Chesapeake contends it was entitled to attorney

fees under § 936 as the prevailing party because its action to recover Valence’s

proportionate share of the costs of drilling and completing the Fell 1-22 side track

well constituted an action for labor or services.

We agree with Chesapeake that the nature of the claim in this case is

materially indistinguishable from that in ONEOK. Valence contends that ONEOK

is distinguishable because Chesapeake had already incurred most of the drilling

costs at the time the parties entered into the 1995 agreement. Chesapeake’s

position, however, is no different from that of the well operator in ONEOK,

who first drilled the well to completion and then entered into a letter agreement

regarding the well with the party against whom it later sought to recover drilling

costs. See id. at 1287.

Valence also contends that the ONEOK decision should not be given

retroactive application. However, the court’s decision in ONEOK represented

only a clarification of § 936’s attorney fee statute, not a marked change in the

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law, and should, therefore, be given retrospective application. Cf. Taylor v.

Chubb Group of Ins. Companies , 874 P.2d 806, 810 (Okla. 1994) (holding that

its newly announced interpretation of an attorney fee statute should be applied

retroactively because it changed no preexisting rule of law). Moreover,

Oklahoma courts have classified attorney fee statutes as procedural for

retroactivity purposes, holding that changes to such statutes are to be applied

retroactively. See, e.g., McCormack v. Town of Granite , 913 P.2d 282, 285

(Okla. 1996) (“[S]tatutes relating to the award of attorney fees to a prevailing

party are procedural, and subject to retrospective operation.”); Qualls v. Farmers

Ins. Co. , 629 P.2d 1258, 1259 (Okla. 1981). Thus, we agree with Chesapeake that

ONEOK is controlling. Because Chesapeake’s suit as the well operator for

Valence’s proportionate share of drilling costs constituted an action to collect for

the cost of labor and services, see ONEOK , 962 P.2d at 1287, we conclude

Chesapeake is entitled to attorney fees incurred in the district court. Accordingly,

we reverse and remand this action to the district court for a determination of a

reasonable amount of attorney fees to be awarded to Chesapeake under § 936.

The judgment of the United States District Court for the Western District of

Oklahoma is AFFIRMED in part and REVERSED and REMANDED in part.

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