RENDERED: JULY 2, 2021; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2020-CA-0432-MR
JAMES Q. MEREDITH AND
PETRO-FLOW, INC.
APPELLANTS
APPEAL FROM CLAY CIRCUIT COURT
v. HONORABLE OSCAR GAYLE HOUSE, JUDGE
ACTION NO. 03-CI-00157
MONTICELLO OPERATING CORPORATION;
C.J. GREEN, LLC; AND
RALPH D. MEREDITH APPELLEES
OPINION
AFFIRMING
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BEFORE: CLAYTON, CHIEF JUDGE; K. THOMPSON AND L. THOMPSON,
JUDGES.
CLAYTON, CHIEF JUDGE: James Q. Meredith (“J. Meredith”) and Petro-Flow,
a Kentucky corporation (“Petro”), appeal from the Clay Circuit Court’s order
involving certain natural gas wells located in Clay County, Kentucky. The trial
court’s order adjudicated issues including the distribution of the proceeds from
such wells, the allocation of transportation charges, and damages for trespass and
improper plugging of the wells. Based on a review of the record and applicable
law, we affirm.
FACTUAL AND PROCEDURAL BACKGROUND
J. Meredith, both individually and as the president of Petro, entered
into a business relationship with Ralph D. Meredith (“R. Meredith”), both
individually and as the president of Monticello Operating Corporation, a Michigan
corporation (“Monticello”). The business relationship related to the exploration
for, and removal of, natural gas located on specific real properties located in Clay
County, Kentucky.
In October of 1996, the parties executed a document entitled
“Assignment of Oil and Gas Leases” (the “1996 Assignment”). Pursuant to the
1996 Assignment – and retroactively effective to August 1, 1996 – J. Meredith and
Petro assigned certain oil and gas leases to Monticello while retaining a thirty
percent (30%) “carried working interest” in such wells. Additionally, the 1996
Assignment allowed J. Meredith and Petro a forty-five percent (45%) “working
interest” on two (2) separate natural gas wells. Importantly, the parties made a
distinction in the 1996 Assignment between a “working interest” and a “carried
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working interest.” In return, Monticello agreed to perform certain exploratory and
production activities on the wells subject to the described leases.
Thereafter, the parties – along with other parties not relevant to this
appeal – entered into a new, separate agreement entitled “Stipulation of Interest
and Cross Conveyance of Oil and Gas Leases” effective as of July 27, 1998 (the
“1998 Agreement”). The 1998 Agreement consolidated ownership in the leases
described therein to Petro and Monticello. The 1998 Agreement provided for a
specific percentage of a “working interest” to Monticello in certain wells, while the
remaining percentage of “working interest” in such wells was allocated to Petro.
Thus, the 1998 Agreement did not reserve a carried working interest for either J.
Meredith or Petro in the wells made subject to this action, as contrasted to the
specific reservation made in the 1996 Assignment.
Additionally, the 1998 Agreement contained a general release of all
claims between the parties “which may have accrued as of July 15, 1998 arising
out of any oil and gas exploration agreement, assignment, farmout agreement, joint
venture agreements, letters of intent or similar document executed previously to
July 15, 1998. As they pertain to [the applicable leases] . . . in Clay . . . County,
Kentucky only.” This clause encompassed the wells made subject to this litigation.
This litigation was initiated by J. Meredith and Petro (referred to
collectively herein as the “Plaintiffs” or “Appellants”) on May 13, 2003 with the
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filing of their complaint against Monticello, C.J. Green, LLC, a Kentucky limited
liability company (“Green”) to whom Monticello subsequently transferred and
assigned its operations, and R. Meredith (collectively referred to herein as the
“Defendants” or “Appellees”). Specifically, the Plaintiffs alleged, among other
things, that Monticello failed to drill and complete the number of wells specified in
the 1996 Assignment, failed to drill the wells in a proper manner, failed to
maintain the wells, and placed a compressor on the wells allegedly causing
permanent damage to the wells.
The Plaintiffs requested a specific accounting of the monthly
production from the applicable wells; that the Defendants be removed as operators
of the wells; a judgment in such an amount that was due with respect to their
respective working interests under the 1996 Assignment; damages for the
Defendants’ alleged failure to drill, complete, and maintain the applicable wells; as
well as damages for Defendants’ use of the compressor. The Plaintiffs also asked
for a temporary and permanent injunction to require the removal of the
compressor.
On September 22, 2003, the Defendants filed an answer and
counterclaim in which they requested a judgment against the Plaintiffs in an
amount equal to the Plaintiffs’ percentage of the amount of costs for operating the
wells.
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Ultimately, the Plaintiffs moved the trial court to place all funds
generated from the production of the wells made subject to the litigation in an
interest-bearing escrow account with the clerk of the trial court, which the court
granted on December 16, 2003. Thereafter, the wells at issue were operated by
each party under the 1998 Agreement, with both parties using compressors as part
of such operations. In August 30, 2004, the trial court designated Petro as the
operator of all the applicable wells other than a well described as #K23 (“Well
#K23”).
The circuit court subsequently conducted a three-day trial in
September of 2010 but did not enter an order and judgment until February 26,
2020. During the period both prior to the trial and between the trial and the court’s
entry of an order and judgment in February of 2020, multiple accountings were
filed with the court as part of motions for disbursement from the escrow account
handling the proceeds and expenses of the subject wells. The motions dealt with
issues such as payment of attorneys’ fees, payment of operational expenses, and
payment of proceeds to the parties. Disbursements made under these motions were
made subject to correction or revision by the trial court pending final accounting.
Additionally, at various times throughout the operation of the wells made subject
to this action, natural gas was removed, shipped, and sold by the parties.
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In its February 2020 order, the trial court found that, based on the
evidence, the 1998 Agreement was the controlling document. Thus, the trial court
determined that any carried working interest that J. Meredith and/or Petro may
have had under the 1996 Agreement terminated with the execution of the 1998
Agreement. Therefore, the trial court found that any claim or payment for a
carried working interest on the part of Petro after the date of the 1998 Agreement
was improper. The trial court further reviewed the spreadsheets of the escrowed
funds provided by the parties, as well as other evidence, and determined that Petro
was overpaid in the amount of $173,317.18.
Additionally, the trial court concluded that, because both parties
utilized compressors during their operation of the applicable wells, any claims by
the Plaintiffs against Monticello for the use of a compressor were without merit.
Further, the trial court found that, following its August 30, 2004 order, Petro took
certain actions that went beyond regular maintenance and operation of the wells,
including unilaterally terminating an existing purchase contract and entering into a
new purchase contract with Petro’s affiliate, Cimco Energy (“Cimco”); charging
transportation fees to the Defendants which were not provided for in the 1998
Agreement and without disclosing that such payments were made to Cimco; and
plugging Well #K23, which it did not have court order to operate. The trial court
noted that Petro’s actions were taken without notice or approval by the trial court.
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Ultimately, while the trial court ordered that all future operations of
the wells would be conducted by Petro, the trial court awarded Appellees damages
in the amount of $213,866.36 for trespass regarding plugging Well #K23, improper
distributions from the escrow account to Appellants for carried working interest
claims, improperly charged marketing costs, and unpaid costs of well operation.
Additionally, the trial court ordered that $135,000.00 be paid to Appellees from
Petro’s future proceeds from the wells, after which the proportional division from
the 1998 Agreement would be reinstated and each party paid accordingly.
This appeal followed. Further facts will be discussed as they become
relevant.
ISSUES
Appellants claim numerous issues on appeal, including (1) whether
the trial court erroneously denied Appellants’ claims for transportation fees against
Appellees; (2) whether the trial court erroneously determined that Petro had
trespassed when it plugged Well #K23; (3) whether the trial court erred in
awarding $135,000.00 to Monticello from Petro’s portion of future well proceeds;
(4) whether the trial court erred in finding that Appellants did not have a carried
working interest under the 1998 Agreement; and (5) whether the trial court erred in
failing to award damages to Appellants based on alleged negligent drilling and/or
completion practices by Appellees.
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ANALYSIS
a. Preservation of the Plaintiffs’ Insufficiency Claims
As a preliminary matter, Appellees argue that Appellants failed to
preserve their arguments because they failed to file a motion to alter, amend, or
vacate or any other motion for post-judgment relief. Rather, Appellants’
statements of preservation in their brief recite that, “[t]his error is set forth within
the Trial Order and Judgment entered by the court and it was not necessary to
preserve this issue for review. Pursuant to CR 76.12(4)(c)(v).” Appellees argue
that the foregoing statement does not sufficiently preserve Appellants’ arguments
for appeal as required under Kentucky Rules of Civil Procedure (CR)
76.12(4)(c)(v).
In this case, we believe that CR 52.03 ultimately resolves the issue.
The rule states:
[w]hen findings of fact are made in actions tried by the
court without a jury, the question of the sufficiency of the
evidence to support the findings may thereafter be raised
whether or not the party raising the question has made in
the trial court an objection to such findings or has made a
motion to amend them or a motion for judgment or a
motion for a new trial.
(Emphasis added.) Therefore, while Appellants could have done significantly
more to demonstrate how and why the issues regarding the sufficiency of the
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evidence were preserved for appeal, these issues are nonetheless preserved, and we
proceed to consideration on the merits.
Other circumstances, however, require motions or objections
subsequent to the findings. As stated by the Kentucky Supreme Court in Eiland v.
Ferrell:
[i]f the findings are objectionable on grounds other than
insufficiency of evidence, an objection or appropriate
motion should be made to identify the defect. Such
would surely apply where findings are ambiguous or
incomplete. In particular, CR 52.04 requires a motion for
additional findings of fact when the trial court has failed
to make findings on essential issues. Failure to bring
such an omission to the attention of the trial court by
means of a written request will be fatal to an appeal.
937 S.W.2d 713, 716 (Ky. 1997) (citation omitted). Thus, “[t]he thread which runs
through CR 52 is that a trial court must render findings of fact based on the
evidence, but no claim will be heard on appeal unless the trial court has made or
been requested to make unambiguous findings on all essential issues.” Id.
Here, Appellants’ third argument regarding whether the trial court
erred in awarding $135,000.00 to Appellees, while couched in terms of the
sufficiency of the evidence, is more an argument that the trial court did not make
sufficient findings. For example, Appellants state in their brief that “[n]owhere
does the figure of $135,000.00 appear” within the evidence, and question “[d]id the
trial court mean to say the $135,000.00 was a return of operating fees charged by
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[Appellants]? It is pure conjecture and speculation as to why the trial court
employed the amount of $135,000.00.” Thus, we decline to address this issue, as
“[f]ailure to bring such an omission to the attention of the trial court by means of a
written request will be fatal to an appeal.” Eiland, 937 S.W.2d at 716 (citation
omitted).
b. Sufficiency of the Evidence to Support the Trial Court’s Denial
of Appellants’ Transportation Fees
On appeal, Appellants contends that there was insufficient evidence
presented at trial to justify the trial court’s denial of transportation fees incurred
when Petro, as operator of the wells, transported gas through the pipeline owned by
Cimco after August 30, 2004. We first note that, “[a]t a bench trial, the factual
findings of the trial court shall not be set aside unless they are clearly erroneous;
that is, not supported by substantial evidence.” Patmon v. Hobbs, 280 S.W.3d 589,
593 (Ky. App. 2009) (citing Cole v. Gilvin, 59 S.W.3d 468, 472 (Ky. App. 2001)).
“If not clearly erroneous, the findings shall not be set aside.” Id. (citing CR 52.01).
Further, “due regard shall be given to the opportunity of the trial court to judge the
credibility of the witnesses.” CR 52.01. In fact, “judging the credibility of
witnesses and weighing evidence are tasks within the exclusive province of the
trial court.” Vinson v. Sorrell, 136 S.W.3d 465, 470 (Ky. 2004) (quoting Moore v.
Asente, 110 S.W.3d 336, 354 (Ky. 2003)). “Additionally, any questions of law that
are resolved at trial are reviewed de novo.” Patmon, 280 S.W.3d at 593 (citing
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Gosney v. Glenn, 163 S.W.3d 894 (Ky. App. 2005)). With these standards of
review in mind, we turn to the trial court’s findings of fact and conclusions of law
in the present case.
Regarding Appellants’ claim for transportation costs, as previously
discussed, the parties entered into two separate contracts – the 1996 Assignment
and the 1998 Agreement – regarding the wells made subject to this action. In the
1996 Assignment, the parties agreed “that there shall be no charge for such
transportation.” Conversely, the 1998 Agreement did not discuss transportation
costs.
Appellants have provided no evidence that the 1998 Agreement was
not the controlling document applicable to the parties’ business relationship.
Moreover, we agree with the trial court that the 1998 Agreement did not provide
for fees of this nature as part of the contract. Additionally, the 1998 Agreement
did not state that Appellants had a “carried working interest” in the operation of the
wells, which is defined as “a fractional interest in an oil and gas property, usually a
lease, the holder of which has no personal obligation for operating costs[.]”
Mayfield v. H.B. Oil & Gas, 1987 OK 106, 745 P.2d 732, 733 n.1 (Okla. 1987)
(citation omitted) (emphasis added). Thus, we would be adding to the terms of the
1998 Agreement, and a court “cannot imply an obligation which would be
inconsistent with the plain language of the contract.” Conley v. Wheeler-Watkins
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Oil & Gas Co., 216 Ky. 494, 288 S.W. 350, 352 (1926). Thus, we cannot say that
the trial court’s decision to deny transportation fees was not supported by sufficient
evidence.
c. Sufficiency of the Evidence to Support the Court’s Conclusion
That Petro Trespassed By Plugging Well #K23
Appellants next argue that there was insufficient evidence to support
the trial court’s conclusion that Petro trespassed on Well #K23 when it unilaterally
plugged such well. Specifically, Appellants argue in their brief that, under the
1998 Agreement, they were granted a thirty percent (30%) working interest in Well
#K23, and thus “had a vested interest in the prudent operation” of the well.
Again, it is undisputed that the 1998 Agreement did not provide for
Appellants to have the unilateral right to cap or plug Well #K23, and we decline to
add such language to the contract. Conley, 216 Ky. 494, 288 S.W. at 352.
Additionally, Well #K23 was not included in the trial court’s August 30, 2004
order as one of the wells of which Petro was designated as operator. Thus, the trial
court’s conclusion was supported by sufficient evidence.
d. Sufficiency of the Evidence to Support the Court’s Conclusion
That Appellants Did Not Have a Carried Working Interest
Appellants next make various arguments regarding whether
Appellants had a carried working interest in the wells. Appellants argue that the
1996 Assignment provided them with a thirty percent (30%) “carried working
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interest.” However, as we have previously discussed, the trial court found the
1998 Agreement to be the controlling document between the parties, and such
finding was supported by sufficient evidence. Moreover, as previously discussed,
the plain language of the 1998 Agreement provided that Petro’s interests were
“working interests” and mentioned nothing regarding a “carried working interest”
with respect to any of the parties. Appellants were well-versed in the business of
gas exploration and production. Had the parties intended to include terms in the
1998 Agreement that had been included in the 1996 Assignment, they would have
included such language. Thus, we take no issue with the sufficiency of the
evidence in this regard.
e. Sufficiency of the Evidence to Support the Court’s Denial of
Damages to Petro
Appellants’ final argument is that the trial court erred in denying
damages to Petro for the alleged negligent drilling and/or completion of the wells
by Appellees. While Appellants clearly disagree with the trial court’s decision and
the weight and credibility assigned by the trial court to certain evidence, “a mere
disagreement with the assessment of the evidence and the weight to be given
thereto constitutes an insufficient basis upon which to reverse.” Sunrise Children’s
Servs., Inc. v. Kentucky Unemployment Ins. Comm’n, 515 S.W.3d 186, 191 (Ky.
App. 2016). Here, the trial court reviewed extensive factual and expert testimony
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and evidence as well as voluminous documentary evidence. Sufficient probative
evidence was presented to support the trial court’s ruling as to this issue.
CONCLUSION
For the foregoing reasons, we affirm the Clay Circuit Court’s order.
ALL CONCUR.
BRIEFS FOR APPELLANTS: BRIEF FOR APPELLEES:
John T. Aubrey Tommie L. Weatherly
Manchester, Kentucky London, Kentucky
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