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Carlson v. Flocchini Invs. - 2005 WY 19

Rule:

Contracting parties may incorporate express terms varying the standards that would otherwise govern their relationship. Where express terms are contractually agreed upon, they control the relationship of the parties. 

Facts:

Robert and Velma Wright owned the surface estate of a large ranch in Campbell County, Wyoming. Mr. Wright's sister, Alice Spielman, owned some of the minerals underlying the ranch. In May of 1957, Ms. Spielman and the Wrights entered into a "Cross Conveyance and Stipulation of Interests" concerning the minerals underlying the ranch. Pursuant to the stipulation, Mr. Wright acquired all of Ms. Spielman's interest in the minerals, including the executive right to lease the minerals, and Ms. Spielman retained a nonparticipating royalty interest in the minerals. Mr. Wright conveyed his interest in the ranch and minerals to the mineral owners and Ms. Spielman conveyed her royalty interest to the royalty owners. Interest began to grow in the production of methane gas from the ranch. The mineral owners were interested in investigating the possibilities of coalbed methane development while Durham Ranches was concerned with the effects such development would have on the ranch. Mr. Flocchini and Petrox negotiated an agreement whereby the mineral owners agreed to lease the minerals to Petrox in exchange for a 15% royalty interest and Petrox agreed to compensate Durham Ranches for surface use and damages by making a lump sum payment of $ 50,000, a producing well payment of $ 1,000 per well and a 3% overriding royalty interest in all minerals under the ranch. On the basis of this agreement, the mineral owners and Petrox executed a mineral lease.

After learning of the letter agreement, the royalty owners filed suit against the mineral owners, alleging they had entered into an agreement having the effect of diverting to themselves royalty payments owed to the royalty owners. Royalty owners claimed they received only their proportionate share of the 15% landowner's royalty interest when they also should have received their proportionate share of the 3% overriding royalty interest paid to the mineral owners alter ego, Durham Ranches. The royalty owners alleged claims for breach of contract, breach of the covenant of good faith and fair dealing, breach of fiduciary duty, conversion, tortious interference, constructive fraud and fraud, alter ego liability, civil conspiracy, and attorney’s fees and costs. The mineral owners filed motions seeking summary judgment on all claims. Royalty owners also filed a motion for summary judgment.

The district court granted the summary judgment in favor of the mineral owners. The royalty owners argued, inter alia, that the district court erred in granting summary judgment for the mineral owners on the breach of contract claim.

Issue:

Did the mineral owners breach the contract?

Answer:

No.

Conclusion:

The district court properly granted summary judgment as to the royalty owners' claim because the terms of the 1982 agreement clearly and unambiguously provided the royalties to be shared were those "acquired" by the mineral owners, and the evidence was undisputed that the only party to acquire the 3% royalty interest was Durham Ranches, which was not a mineral owner.

The evidence showed that the only entities that "acquired" a royalty interest in mineral production from the ranch lands were the mineral owners and Durham Ranches. The mineral owners received a 15% landowners' royalty interest. Durham Ranches received a 3% overriding royalty interest along with other payments for surface damage done to the property from coalbed methane production. The royalty owners received their proportionate share of the 15% landowners' royalty interest acquired by the mineral owners under the terms of the mineral lease. What they did not receive a share of was the 3% overriding royalty interest described in the letter agreement. However, Durham Ranches, not the mineral owners, acquired that royalty. Thus, it was not a royalty acquired by the mineral owners and they were not required under the clear terms of the 1982 settlement agreement to pay a proportionate share of it to the royalty owners. Because these facts were undisputed,  the summary judgment was proper on the breach of contract claim.

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