Ellwood Oil Co. v. Anderson

Citations: 655 So. 2d 694; 1995 La. App. LEXIS 1153; 1995 WL 271600Docket: 26,907-CA

Court: Louisiana Court of Appeal; May 10, 1995; Louisiana; State Appellate Court

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In Ellwood Oil Company v. Gertrude Feazel Anderson, the Court of Appeal of Louisiana addressed an appeal involving co-owners of a gas well that operated for nearly 30 years before depletion in 1990. The plaintiffs, having not received their entitled production shares, contested a judgment favoring the defendants, who had received excess shares. The dispute arose from a 1961 drilling-production unit order and a 1963 operating agreement, which allowed co-owners to receive and sell their production independently but lacked provisions for cash balancing to address disparities in production shares. Evidence indicated that the 1963 agreement did not foresee the issue of uneven production among co-owners. The court reversed the lower court's decision, overruling the exceptions of no right of action and remanding the case. The plaintiffs—Rutherford Group, Columbia Gas Development Corporation, and Ellwood Oil Company—sought relief after settling prior under-production claims with other co-owners. The agreement designated Exxon’s predecessor as the well operator, while the plaintiffs and defendants sold their production to different gas companies, with Exxon also acting as a seller and operator.

Exxon was authorized to operate and distribute gas, including that of Sun/Oryx and the Andersons, but lacked the authority to deliver the plaintiffs' gas share to Monterrey Pipeline as the plaintiffs had directed their gas to Columbia Gas Transmission Corporation. The operating agreement stipulates that only the purchaser, not the operator, is responsible for payment to the owner-sellers of the gas. It allows the operator to sell a non-operator’s share only if that non-operator has not opted to take their share in kind. The plaintiffs exercised their right to sell their share separately, yet Exxon delivered their gas to Monterrey Pipeline without authorization. When Exxon received payment from Monterrey Pipeline, it acted as a co-owner and agent for its co-owners, including the Andersons and Sun/Oryx, who had a purchase contract with Monterrey Pipeline. After the well was depleted, the plaintiffs raised concerns about being under-produced, leading to Exxon and Sun/Oryx compensating the plaintiffs for over-production. The trial court dismissed the plaintiffs' claims based on a peremptory exception of no right of action.

The absence of a gas balancing provision in the operating agreement means a co-owner has the right to take their share in kind and sell it separately, but not taking that option does not imply they assumed the risk of being under-produced. Relevant case law was found to be distinguishable, emphasizing that the lack of provisions for certain situations in contracts implies that the parties intended to adhere to both express and implied obligations necessary for fulfilling the contract's purpose.

Principles of co-ownership are applied to assess the plaintiffs' right of action against the Anderson group. Due to the lack of a specific agreement, general co-ownership principles are relevant. While partition is deemed inapplicable because the well is depleted, plaintiffs are entitled to a proper redistribution of revenue from co-owned gas production. Monterrey Pipeline compensated Exxon, the co-owner-agent, in line with the gas purchase contract, which obligates the Andersons to pay plaintiffs their share of the proceeds, minus production costs. According to Louisiana Civil Code Articles 797 and 798, co-owners jointly own property and are entitled to share in the fruits and products based on ownership proportion. A co-owner can sue another co-owner to recover their share or proceeds, provided there is an accounting of sales. The action is not classified as conversion since each co-owner may sell fruits or products, provided they account for their co-owners' shares. The court concludes that plaintiffs possess a right of action against the Andersons, reversing the trial court's judgment and remanding the case for further proceedings, with the costs to be borne by the defendants.