Morsey v. Chevron, USA, Inc.

PUBLISH

UNITED STATES COURT OF APPEALS
Filed 9/4/96
TENTH CIRCUIT

____________________

CHASE MORSEY, JR., )
)
Plaintiff-Appellant, )
)
v. ) No. 95-3165
)
CHEVRON, USA, INC., )
)
Defendant-Appellee. )

____________________

Appeal from the United States District Court
for the District of Kansas
(D.C. No. 94-1301-WEB)
___________________

Barry B. Langberg of Langberg, Cohn & Drooz, Los Angeles, California (Evan J. Olson of
Hershberger, Patterson, Jones and Roth, Wichita, Kansas, with him on the brief) for
Plaintiff-Appellant.

Joseph W. Kennedy of Morris, Laing, Evans, Brock & Kennedy, Wichita, Kansas, for
Defendant-Appellee.
____________________

Before ANDERSON, McWILLIAMS and ENGEL,* Circuit Judges.
____________________

ENGEL, Circuit Judge.

The Honorable Albert J. Engel, United States Circuit Judge for the Sixth Circuit Court
of Appeals, sitting by designation.
 ____________________

Plaintiff-Appellant Chase Morsey ("Morsey") appeals from various decisions of the

district court in this diversity case for damages arising out of the operation of a water flood

on a geological formation in Kansas known as the Rhodes Field, a common source of oil and

gas. At issue is whether the court erred in (1) entering judgment as a matter of law against

Morsey on grounds that he failed to present sufficient evidence of temporary damages to his

leasehold; (2) granting summary judgment against him on his claim for punitive damages;

and (3) granting summary judgment against him on his claim for damages inflicted on the

leasehold before he acquired it. We affirm.

FACTS

Although complicated in their detail, the facts of this case are, in all material respects,

straightforward and undisputed. They are well set out in the pertinent decisions of the district

court, which guide our reference to them here. As explained by the district court, the Rhodes

Field produces oil and gas primarily from the Mississippian formation approximately 4,450

feet below ground level in Barber County, Kansas. It is a common source of oil supply

subject to numerous leases. Morsey owns a lease on the Rhodes Field covering Section 20,

Township 33 South, Range 20 West (“Section 20"). At the time he acquired his lease,

Defendant-Appellee Chevron, USA, Inc. (“Chevron”) owned several neighboring leases.

Section 20 was first developed by Conoco in the 1950's. By 1955, Conoco had drilled

at least seventeen producing wells on it and had obtained an average production of about

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14,000 barrels of oil per month. Production increased to over 17,000 barrels of oil per month

by 1957, but then decreased sharply in subsequent years. By 1963, the average monthly

production of oil on Section 20 was only about 3,700 barrels. As of 1957, Conoco had

produced 1.1 million barrels of oil from the lease, which it estimated as approximately 70%

of Section 20's primary recovery, and in 1958, it conducted a pilot water flood project on the

lease to test secondary recovery prospects.

During the same period, other operators, including Barbara Oil Company (“Barbara”),

Sinclair Oil & Gas Company (“Sinclair”), and Gulf Oil Corporation (“Gulf”), developed

surrounding leases in Sections 16, 17, and 21 of the Rhodes Field (collectively the "Rhodes

Unit"). Primary production on the Rhodes Unit peaked in 1955 at about 36,000 barrels of

oil per month. Thereafter, production decreased sharply, and by 1962, it averaged

approximately 6,000 barrels per month.

In response to declining bottom hole pressures and a corresponding decline in the rate

of production, Conoco, Barbara, Gulf, Sinclair, and other operators agreed to undertake a

cooperative water flood project of the Rhodes Field in 1963. Under the project, water was

injected through pipes into the field to raise the pressure and make recoverable otherwise

unrecoverable reserves. After initiation of the project, which was operated with the approval

of the Kansas Corporation Commission ("KCC"), the rate of production on Section 20

increased in 1964 and 1965 and reached a high of about 8,000 barrels per month in 1966.

It then began to decline again, decreasing to 4,000 barrels per month in 1968. By 1972,

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production was 1,400 barrels per month. Similarly, production on the Rhodes Unit increased

to 20,000 barrels per month in 1966 before declining to 13,000 barrels per month by 1968.

In 1966, Conoco sold Section 20 to Clinton Oil Company (“Clinton”). By the end of

1966, a cumulative total of 5.9 million barrels of water had been injected into the lease since

the initiation of water flooding. Clinton continued operation of the water flood for several

more years, and by 1971 a total of 9.5 million barrels of water had been injected into Section

20. Meanwhile, production of oil on the field continued to decline from an average of about

5,700 barrels per month in 1967 to 1,400 barrels per month in 1972. By that time, Clinton

had plugged and abandoned nine producing and injection wells, as well as several water

supply wells. In March of that year, it considered the producing wells to be “depleted” and

ceased all injection efforts on Section 20.

Although Clinton ceased flooding Section 20 in 1972, the operators of the Rhodes

Unit continued their secondary efforts after 1972, as permitted by the cooperative water flood

agreement. By January 1973, the cumulative water injected into the Rhodes Unit since the

inception of the project was in excess of fifty million barrels. Taking account of water

recovered through production, thirty-seven million barrels were unaccounted for.

Clinton sold Section 20 to another operator in 1975; that operator held that lease until

1987. During that period, production declined from an average of about 700 barrels a month

to about 300 barrels a month. In 1987, the lease was sold to Brito Oil Company, Inc.

(“Brito”). During 1988, Section 20 produced approximately 280 barrels per month. By then,

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the lease had produced a cumulative total of approximately 1.5 million barrels of oil. On

January 9, 1989, Brito sold Section 20 to Morsey for $70,000, the approximate salvage value

of the equipment on the lease. Subsequently, Morsey spent between $150,000 and $200,000

reworking that equipment.

Thereafter, Kewanee Oil Company, and then Gulf, acquired and operated the leases

previously owned by Barbara and Sinclair. When Gulf merged with Chevron in 1984,

Chevron acquired the Rhodes Unit leases and continued to flood them until 1989.

Sometime after Morsey purchased Section 20 in 1989, Richard Armer, who was

employed by him to supervise the lease, complained to the KCC that Chevron was watering

out the producing zone in Section 20 because “every time their injection pumps go down the

fluid level drops very dramatically in my wells and my production increases drastically.” A

tracer test was undertaken to determine if there was communication of water from the

Rhodes Unit to Morsey’s lease, and the test revealed some communication between them.

In October of 1989, Chevron ceased all fresh water injections and then sold the Rhodes Unit

in 1992.

In August 1989, shortly before Chevron ceased injecting water into the Rhodes Field,

Morsey began this action, charging that the water flood operated by Chevron and its

predecessors-in-interest interfered with and damaged the oil producing capabilities of his

lease. On April 16, 1991, he filed an amended complaint asserting causes of action for

trespass, conversion, private nuisance, breach of contract, breach of duties owed to owners

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of a common pool, and strict liability. His Amended Complaint alleges and seeks recovery

for both permanent and temporary damages, as well as punitive damages and prejudgment

interest.

As set out in the Pretrial Order, Morsey maintained that he was damaged by Chevron's

water flood in two ways. First, he contended that it caused more than 1.2 million barrels of

oil, valued at approximately $16,000,000, to become unrecoverable. Second, he urged that

the water flood caused permanent damage "to the formation and the environment" in the

Rhodes Field. Although he acquired his interest in Section 20 in 1989, Morsey submitted

that his predecessors-in-interest assigned all of their rights to him and that he was therefore

entitled to recover for damage done to the leasehold before as well as after he acquired it.

Chevron moved for summary judgment. First, it argued that Morsey's tort claims were

barred by the limitations on actions in Kan. Stat. Ann. § 60-513. Second, it argued that

Morsey could not recover for damage done to the leasehold before he acquired it because he

was not the real-party-in-interest as to those injuries. Third, Chevron argued that he was

precluded from recovering punitive damages by this Court's decision in Tidewater Oil Co.

v. Jackson, 320 F.2d 157 (10th Cir.), cert. denied, 375 U.S. 942 (1963). Finally, it argued

that Morsey was not entitled to prejudgment interest because his claim was unliquidated.

The district court granted the motion in part and denied it in part. It first narrowed

Morsey’s claim for damages. The court held that Chevron was entitled to summary judgment

on Morsey's entire claim for permanent damages on grounds that they were barred by the

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statute of repose in Kan. Stat. Ann. § 60-513(b). The court held that the statute of limitations

in Kan. Stat. Ann. § 60-513(a) barred any claim for temporary damages inflicted more than

two years before the filing of the complaint; however, it did not bar his claim for temporary

damages done within two years of or after the filing of the complaint.

Second, the court held that Morsey was not entitled to recover for damages inflicted

on the leasehold before he acquired it. It so reasoned on alternative grounds. First, it

indicated that Morsey failed to show that the tort claims of his predecessors had been

assigned to him. Second, it held that Kansas law prohibits the assignment of tort claims.

Next, the court entered summary judgment against Morsey on his claim for breach of

the cooperative water injection agreement under which the operators agreed to flood the

Rhodes Field. It held that Morsey could not assert a claim for breach of the agreement

because when his predecessor Clinton ceased its injection efforts on Section 20 the

agreement terminated as to Clinton, taking it out of position to bring an action against the

other parties to the agreement for their failure to perform according to its terms. As Clinton’s

assignee, the court indicated, Morsey stood in no better position. Alternatively, the court

concluded that the claim was barred by the five-year statute of limitations in Kan. Stat. Ann.

§ 60-511.

Finally, the court held that Chevron was entitled to summary judgment on Morsey's

claim for punitive damages but not on his request for prejudgment interest. According to the

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court, his claim for punitive damages was barred by this Court's decision in Tidewater. An

award of prejudgment interest was within the discretion of the trier of fact, the court said, and

thus inappropriate for resolution on summary judgment.

The case proceeded to trial before a jury on Morsey's remaining claims--those for

temporary damages inflicted on Section 20 after he acquired it. At the close of his case-in-

chief, Chevron moved for a judgment as a matter of law on grounds that Morsey had failed

to adduce sufficient evidence of temporary damages and that his claims were barred by the

statute of limitations. The court took the motion under submission, pending presentation of

Chevron’s case. After hearing all the evidence, the court orally (and later in writing) granted

the motion and entered judgment for Chevron as a matter of law. The court concluded that

Morsey failed to adduce adequate evidence of temporary damages: he failed to prove that

it was economically feasible to remove sufficient water from the leasehold to permit recovery

of the oil allegedly trapped in it. The evidence showed only permanent damages, the court

held, which were barred by its ruling on summary judgment.

Morsey timely appealed.

DISCUSSION

Under Kansas law, a leaseholder is entitled to a remedy for wrongful interference with

his or her interest in the leasehold. In the proper case, the owner of a lease may obtain relief

for interference with and damages to the oil producing capabilities of his or her lease.

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 Morsey raises essentially three arguments against the district court's determination that

this is not a case in which he, as the leaseholder of Section 20, is entitled to relief for

Chevron's alleged interference with and damages to the oil producing capabilities of that

lease. First, he argues that the district court erred in holding that he presented insufficient

evidence of temporary damages. Next, he contends that the court erred in holding that he

was not entitled to punitive damages. Finally, he maintains that the court erred in holding

that his acquisition of Section 20 did not constitute a valid and complete transfer to him of

his predecessors' rights to sue for injury to the leasehold.

I

We first consider Morsey's claim that he presented sufficient evidence of temporary

damages. In support of that claim, he makes six related arguments: (1) Kansas law does not

impose on him the burden to produce evidence of cost remediation to sustain his claims for

temporary damages; (2) he satisfied his burden of proof under Kansas law by establishing

an ongoing and continuous injury and proving the water flood abatable; (3) he provided a

reasonable basis for calculating his temporary damages; (4) he submitted evidence permitting

an inference that remediation of the leasehold is cost-effective; (5) Chevron had the burden

to prove that remediation efforts are not cost-effective; and (6) the court should have allowed

him to reopen his case-in-chief to provide additional evidence of the cost-effectiveness of

remediation.

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 A judgment as a matter of law is appropriate when a party has been fully heard on an

issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that

party on the issue. Fed. R. Civ. P. 50(a);Honce v. Vigil, 1 F.3d 1085, 1088 (10th Cir. 1993).

An order entering judgment as a matter of law is reviewed de novo. Hinds v. General Motors

Corp., 988 F.2d 1039, 1045 (10th Cir. 1993). In our view, the district court did not err in

entering judgment as a matter of law against Morsey on his claim for temporary damages.

As we explained in Miller v. Cudahy Co., 858 F.2d 1449, 1455 (10th Cir. 1988), cert.

denied, 492 U.S. 926 (1989), "[d]rawing a distinction between permanent and temporary

damages . . . is at best problematical." While "`no hard and fast rule can be adopted as to

when . . . damages are deemed permanent and when they are deemed temporary,'" the

distinction "remains a viable concept." Id. at 1453 (quoting Olson v. State Highway Comm'n

of Kan., 679 P.2d 167, 172 (Kan. 1984)).

The Supreme Court of Kansas outlined the contours of these damages in its decision

in McAlister v. Atlantic Richfield Co., 662 P.2d 1203 (Kan. 1983). According to the court

in McAlister,

Temporary damages or continuing damages limit
recovery for injury that is intermittent and occasional and the
cause of the damages remediable, removable, or abatable.
Damages are awarded on the theory that cause of the injury may
and will be terminated. Temporary damages are defined as
damages to real estate which are recoverable from time to time
as they occur from injury.

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 Permanent damages are given on the theory that the cause
of injury is fixed and that the property will always remain
subject to that injury. Permanent damages are damages for the
entire injury done--past, present, and prospective--and generally
speaking those which are practically irremediable. If an injury
is permanent in character, all the damages caused thereby,
whether past, present, or prospective, must be recovered in a
single action.

Id. at 1212 (citations omitted); see Gowing v. McCandless, 547 P.2d 338 (Kan. 1976).

Our review of the record indicates that Morsey may have presented evidence sufficient

to prove permanent damages to Section 20. But, as noted above, the district court held that

any claim for permanent damages was barred by the statute of repose in § 60-513(b), and

Morsey has not challenged that ruling on appeal. Only his claim for temporary damages

survived summary judgment, and proof of permanent damages is no substitute for proof of

temporary damages.

As plaintiff, Morsey bore the burden to prove temporary damages, if any, to his

leasehold. Temporary damages are, as indicated above, for injuries that are intermittent and

occasional; unlike permanent damages, they are remediable, removable, or abatable. Morsey

appears to take the position that so long as he showed that any damages to Section 20 might

be remedied, removed, or abated, he carried his burden of proof on the matter. However,

proof of temporary damages requires more. Inherent in the concept of temporary damages

is a element of feasibility, comprised of (but not limited to) both economic and temporal

concerns. See Miller, 858 F.2d at 1454-55; McAlister, 662 P.2d at 1212; Gowing, 547 P.2d

at 343. Temporary damages are distinguished from permanent damages at least in important

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part because the former may be remedied, removed, or abated within a reasonable period and

at a reasonable expense, whereas the latter cannot be.

Morsey presented evidence revealing the possibility of remediation, removal, or

abatement of the cause of the alleged injury to Section 20. He adduced evidence that the

water on his leasehold would ultimately abate and that remediation efforts similar to those

required on Section 20 were being done in other areas. While helpful to his cause, that

evidence fell short of sustaining that cause. Morsey failed to show that the water interfering

with the recovery of oil on Section 20 could be remedied, removed, or abated within a

reasonable time and at reasonable expense. He did too little to distinguish those damages

from the permanent damages barred by § 60-513(b). Proof of temporary damages requires

more. Possibilities are not proof, and as Chevron points out, speculation and conjecture are

no substitute for evidence.

We divine no error in the district court's refusal to allow Morsey to reopen his case

to submit additional proof of temporary damages. A motion to reopen a case to receive

additional evidence is committed to the sound discretion of the trial court and will be

reversed only for abuse of discretion. Sanders v. International Ass'n of Bridge, Structural

& Ornamental Iron Workers, 546 F.2d 879, 882 (10th Cir. 1979). Morsey's request came too

late in the day and with too little to recommend it to merit interference with the exercise of

the district court's discretion.

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 Morsey's challenge to the district court's decision on temporary damages must

therefore fail. Accordingly, the court’s decision granting Chevron’s motion for judgment as

a matter of law is affirmed.

II

Next, we consider Morsey's claim that he was entitled to a jury determination on his

claim for punitive damages. He contends that in barring his claim for punitive damages, the

district court misplaced reliance on this Court's decision in Tidewater. According to Morsey,

under the Kansas Supreme Court's more recent decisions in Folks v. Kansas Power & Light

Co., 755 P.2d 1319 (Kan. 1988), and Glynos v. Jagoda, 819 P.2d 1202 (Kan. 1991), he is

entitled to a jury determination on punitive damages, because he presented evidence of

Chevron's reckless indifference to his property rights.

Summary judgment is appropriate where there is no genuine issue of material fact and

the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(c); Quaker

State Minit-Lube, Inc. v. Fireman's Fund Ins. Co., 52 F.3d 1522, 1526 (10th Cir. 1995). "We

review the district court's grant of summary judgment de novo, applying the same legal

standard used by the district court." Frandsen v. Westinghouse Corp., 46 F.3d 975, 977 (10th

Cir. 1995). In our view, the district court did not err in granting summary judgment against

Morsey on his claim for punitive damages.

Under our decision in Tidewater, which anticipates the Kansas courts’ attitude toward

the availability of punitive damages under circumstances similar to those here, Morsey's

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claim for punitive damages must fail. In Tidewater, we held that under Kansas law, punitive

damages are not available for a legalized trespass or nuisance. 320 F.2d at 165. We doubt

whether Folks and Glynos call Tidewater into question or command a different result.

Fransen v. Conoco, Inc., 64 F.3d 1481, 1492-93 & n.11 (10th Cir. 1995) (citing Tidewater

with approval), cert. denied, 116 S. Ct. 1060 (1996). Nevertheless, we need not resolve the

matter.

Morsey's failure to prove actual damages short-circuits his claim for punitive

damages. In Kansas, actual damages are a prerequisite to punitive damages.
Enlow v. Sears,

Roebuck & Co., 822 P.2d 617, 624 (Kan. 1991); Lantz v. City of Lawrence, 657 P.2d 539,

545 (Kan. 1983). As discussed above, Morsey failed to prove actual, temporary damages,

and his claim for permanent damages was barred by § 60-513(B). Thus, the court did not err

in holding that he was not entitled to punitive damages. Accordingly, the decision of the

district court granting summary judgment on Morsey’s claim for punitive damages is

affirmed.

III

Finally, we consider Morsey's claim that his acquisition of Section 20 included a valid

and complete transfer to him of his predecessors' rights to sue for injury to the property. In

support of the claim, Morsey advances five arguments that can fairly be reduced to two.

First, he contends that he received his leasehold by way of an all-inclusive assignment

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encompassing his predecessor's rights to sue for damage to the leasehold. Second, he argues

that Kansas law permits the assignment to him of his predecessors' tort claims.

As indicated above, summary judgment is appropriate where there is no genuine issue

of material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ.

P. 56(c); Quaker State Minit-Lube, 52 F.3d at 1526. Here too, the district court's grant of

summary judgment is reviewed de novo. Frandsen, 46 F.3d at 977. As with the previous

claim, the district court did not err in granting summary judgment against Morsey on his

claim for damages inflicted on the leasehold before he acquired it.

Morsey's failure to prove temporary damages to Section 20 after he acquired it,

discussed above, bodes poorly for his ability to prove temporary damages to the leasehold

within the statutory period before he acquired it. However, his failure of proof as to the one

does not signal as a matter of law a failure of his proof as to the other. Damages inflicted on

Section 20 before Morsey acquired it were not in issue at the trial in this matter. Thus, they

are not barred by the district court's decision granting judgment as a matter of law with

respect to those damages that were at issue. Our affirmance of the district court's decision

on temporary damages does not therefore dispose of Morsey's claim for such damages during

the period before he acquired the leasehold. Rather, that claim requires consideration on the

merits.

Assuming without deciding that Morsey acquired his leasehold by an assignment

broad enough to include his predecessors' causes of action as to Section 20, he cannot recover

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for injuries inflicted on the leasehold before he acquired it. Any tort for damages done to the

leasehold before he acquired it belonged to his predecessors-in-interest and lapsed when they

transferred it. In Kansas, tort claims such as those in question are unassignable. E.g.,

Heinson v. Porter, 772 P.2d 778, 783-85 (Kan. 1989), overruled in part on other grounds by

Glenn v. Fleming, 799 P.2d 79 (Kan. 1990); Howe v. Mohl, 214 P.2d 298, 300 (Kan. 1950);

Star Mfg. Co. v. Mancuso , 680 F. Supp. 1496, 1499 (D. Kan. 1988); see Bank IV Wichita,

Nat'l Ass’n v. Arn, Mullins, Unruh, Kuhn & Wilson, 827 P.2d 758, 764 (Kan. 1992); Cullen

v. Atchison, Topeka, & Sante Fe Ry. , 507 P.2d 353, 360 (Kan. 1973). Thus, Morsey's

acquisition of Section 20 did not include an assignment of his predecessors' causes of action.

It follows that the district court did not err in holding that Morsey could not pursue

a claim for damages inflicted on Section 20 before he acquired it. Accordingly, his challenge

to the court's ruling must fail, and the court's grant of summary judgment against him on this

claim is affirmed.

CONCLUSION

For the reasons stated, the decisions of the district court are affirmed.

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