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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