Law School Case Brief
Prairie Oil & Gas Co. v. Allen - 2 F.2d 566 (8th Cir. 1924)
It seems to us that the peculiar circumstances of a cotenancy in land upon which oil is discovered warrant one cotenant to proceed and utilize the oil, without the necessity of the other cotenants concurring. Oil is a fugitive substance and may be drained from the land by well on adjoining property. It must be promptly taken from the land for it to be secured to the owners. If a cotenant owning a small interest in the land had to give his consent before the others could move towards securing the oil, he could arbitrarily destroy the valuable quality of the land."
This action was originally brought in the state court by Plaintiff Lizzie Allen against the Prairie Oil & Gas Company to recover damages for alleged conversion of a quantity of petroleum oil. It was properly removed to the federal court. Thereafter, Skelly Oil Company, on motion of Prairie Company, was made a party defendant. Allen alleged, inter alia, she owned one-tenth of the oil and gas rights in the land, but that she had never received any payment for or statement concerning her share of the proceeds. The district court ruled that Allen was entitled to recover her share from the defendants. The defendants sued out of a writ of error.
Did the plaintiff have any right to recover damages for the conversion of a quantity of petroleum oil over the property that she shared with defendant co-tenant?
The United States Court of Appeals for the Eighth Circuit concluded that Allen was entitled to an accounting from Skelly Company for the market value of the oil produced less the reasonable and necessary expense of developing, extracting and marketing the same, the appellate court reversed the the judgment in favor of Allen, and remanded the issue to the district court with instructions to grant defendants a new trial. The appellate court specifically noted that the royalty paid by defendants to another company was not a part of the cost of production and should not be included in the accounting for the market value of the oil produced less the reasonable and necessary expense of developing, extracting and marketing the same.
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