Petition — Wynn Oil Co. v. Southern Union Exploration Co. of Texas

a

4

No. 83-__ | AUG g

en.) 2

IN THE eee |

Supreme Court of the Gnited States

OCTOBER TERM, 1983

Wynn OIL CoMPANY,

Petitioner,

Vv.

SOUTHERN UNION EXPLORATION COMPANY OF TEXAS,

Respondent.

Petition For Writ Of Certiorari To The

Court Of Appeals Of The State Of New Mexico

PETITION FOR WRIT OF CERTIORARI

SABRE ANTHONY SAFI

GRAMBLING, MOUNCE, SIMS,

GALATZAN & HARRIS

P.O. Drawer 1977

E] Paso, Texas 79950

(915) 532-3911

Counsel for Petitioner

PRESS OF BYRON S. ADAMS PRINTING, INC., WASHINGTON, D.C. (202) 347-8203

QUESTIONS PRESENTED

1. Did the New Mexico courts deprive Petitioner of

its property without due process of law by imposing liabil-

ity on Petitioner for the breach of a contract, to which

Petitioner was not a party, where no viable theory ex-

isted upon which Petitioner’s liability could have been

predicated?

2. Did the New Mexico courts deprive Petitioner of

its Fourteenth Amendment guarantees of notice and

opportunity to be heard by imposing liability against

Petitioner based on an arbitrary and capricious

misinterpretation of the New Mexico Court of Appeals’

own prior opinion in the same case?

NAMES OF ALL PARTIES, AND OF AFFILIATE OF

PETITIONER

The names of the parties to the proceeding in the Court

of Appeals of the State of New Mexico are as follows:

Wynn Oil Company, and Southern Union Exploration

Company of Texas (formerly known as Southern Union

Exploration Company, which was formerly known as

Southern Union Supply Company). Wynn Exploration

Co., Inc. may be considered an affiliate of Wynn Oil

Company, and was a party at the trial court level, but was

not a party to the proceeding in the New Mexico Court of

Appeals, and is not a party here.

ii

TABLE OF CONTENTS

Page

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NAMES OF PARTIES, AND OF AFFILIATE OF PETITIONER .. i

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EPUNENNRPEMOI I OVIGIONS ......0.0.0ccccccccccess 2

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REASONS FOR GRANTING THE WRIT ..............00005 11

A. The New Mexico Courts Have Arbitrarily And

Capriciously Entered A Very Substantial Judgment

Against Petitioner, And Have Thereby Deprived

Petitioner Of Its Property Without Due Process Of

Law, In Violation Of The Decisions Of This Court 11

B. The New Mexico Courts Have Deprived Petitioner

Of Its Property Without Notice Or Opportunity To

Be Heard, In Violation Of The Decisions Of This

a 15

C. This Court Should Remind The State Courts That

The Fourteenth Amendment Requires Notice,

Opportunity To Be Heard, And Rational Adjudica-

tion Of Civil Controversies .................... 17

ES 18

APPENDIX

ill

TABLE OF AUTHORITIES

CASES: Page

American Ry. Express Co. v. Kentucky, 273 U.S. 269

CRED snails cue b sues bower keen er eee wer anas 1]

Barnes v. Sadler Associates, Inc., 95 N.M. 334, 622 P.2d

PARED dace asce scare ee xesesesteeeoe: 14

Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281 U.S.

Ge i a ancecctadetcsascebreienekreeeaene 15

Gallup Electric Co. v. Pacific Improvement Co., 16N.M.

OR Bae 2 Ne CIEE cikc ee eris ter c¥iestenera sess 14

Jimenez v. Tuna Vessel Granada, 652 F.2d 415 (Sth Cir.

| RRR Sa Mande iat ee RO aHOD EDS re ter cr UE AN 16

Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923) .... 18

Saunders v. Shaw, 244 U.S. 317 (1917) .............. 16

Williams v. Tooke, 108 F.2d 758 (5th Cir.), cert. denied,

SES Se, Sr Ce anicce kb cueeeeaern cs tateeys 11, 18

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1983

No. 83-__

WYNN OIL CoMPANY,

Petitioner,

Va

SOUTHERN UNION EXPLORATION COMPANY OF TEXAS,

Respondent.

Petition For Writ Of Certiorari To The

Court Of Appeals Of The State Of New Mexico

PETITION FOR WRIT OF CERTIORARI

REPORTS OF OPINION BELOW

The first opinion in this case is reported as Southern

Union Exploration Co. v. Wynn Exploration Co., Inc.,

95 N.M. 594, 624 P.2d 536 (Ct. App.), cert. denied, 95

N.M. 593, 624 P.2d 535 (1981), cert. denied, 455 U.S. 920,

102 S. Ct. 1276 (1982). The second opinion of the New

Mexico Court of Appeals is unreported, although the

denial of a petition for writ of certiorari is reported at ___

N.M. —_, 662 P.2d 645 (1983).

JURISDICTION

The New Mexico Court of Appeals entered its second

judgment in this case on March 10, 1983. (App. 1a).! On

' References to the Appendix to this Petition are cited as “App.

——.” References to Plaintiffs trial exhibits not included in the

2

April 22, 1983, the New Mexico Supreme Court denied a

timely petition for writ of certiorari (App. 6a). On May 12,

1983, the New Mexico Supreme Court denied a timely

motion for rehearing of its order denying the petition for

writ of certiorari (App. 5a). Petitioner believes that 28

U.S.C. § 1257 confers on this Court jurisdiction to review

the judgment in question by writ of certiorari.

CONSTITUTIONAL PROVISIONS

U.S. CONST. amend. XIV, § 1 provides, in pertinent

part, as follows:

No State shall make or enforce any law which shall

abridge the privileges or immunities of citizens of the

United States; nor shall any State deprive any per-

son of life, liberty, or property without due process of

law; nor deny to any person within its jurisdiction the

equal protection of the laws.

STATEMENT OF THE CASE

A. Background

This case involves the imposition of liability on one

corporation, ?etitioner Wynn Oil Company (“Wynn Oil”),

for the contractual obligations of a separate corporation,

Wynn Exploration Company (“Wynn Exploration”). The

case arose as a dispute between joint venturers in an oil

and gas exploration and development project in Lea

County, New Mexico.

The joint venture had its genesis in discussions be-

tween a representative of Southern Union Supply Com-

pany (now known as Southern Union Exploration Com-

Appendix are cited as “P. Ex. ___.” References to portions of the

Record not included in the Appendix are cited by volume and page as

“___R. ___.” References to the trial transcript are cited by volume

and page as “ Tr. 2

3

pany of Texas, the Respondent in this case, and referred

to hereinafter as “Southern Union”), and R. C. Wynn,

president of two Texas corporations, Petitioner Wynn

Oil, and Wynn Exploration. After discussions concerning

the proposed venture, the Southern Union representa-

tive and R. C. Wynn signed a letter agreement dated

September 8, 1975 (the “First Document”), and an

Operating Agreement dated September 15, 1975 (the

“Second Document,” App. 63a), which bore the names of

Southern Union as “Operator,” and Wynn Oil as “Non-

Operator.” These two documents called for a 75% interest

in the project for Wynn Oil and a 25% interest for South-

ern Union.

The First and Second Documents identified the initial

well to be drilled, and contemplated that Southern Union,

as Operator, might choose to drill additional wells on

specified lands. Paragraph 12 of the Operating Agree-

ment (Second Document) provided, however, that South-

ern Union would give the Non-Operator thirty days writ-

ten notice of its intention to drill, rework, deepen, or plug

back any additional wells (App. 63a). Failure of a party

receiving such a notice to affirmatively reply, in writing

(App. 65a), that it elected to participate in the proposed

operation would “constitute an election by that party not

to participate in the proposed operation” (App. 63a), in

which event Southern Union would bear the “entire cost

and risk of conducting such operations” (App. 64a).

Subsequently, an additional letter agreement, dated

November 18, 1975 (the “Third Document”) was signed

on behalf of Southern Union and on behalf of Wynn Ex-

ploration (App. 67a). This Third Document provided that

the First and Second Documents were amended to the

extent that the name of the party contracting with South-

ern Union was Wynn Exploration, not Wynn Oil, and that

+

Wynn Exploration and Southern Union would share costs

and obligations of the project on a 50-50, rather than a

75-25, basis. In a subsequent letter to a third party,

Southern Union and Wynn Exploration jointly stated

that a purpose of the Third Document was “to reflect the

correct reference to Wynn Exploration Company” (P.

Ex. 35).

Southern Union worked five wells in addition to the

initial well. Wynn Oil did not elect to participate in any of

these five wells. Wynn Exploration, on the other hand,

did elect to participate in most of the five subsequent

wells drilled, reworked, deepened, or plugged back by

Southern Union (P. Exs. 30, 40, 47, 52, 53, 99, 100, 105,

106, 115, 116, 117, 120, 121). Southern Union sent in-

voices for 50% of its expenses on these subsequent wells

to Wynn Exploration, not to Wynn Oil.

During the spring of 1976, relations between Southern

Union and Wynn Exploration deteriorated. Wynn Ex-

ploration became convinced that Southern Union,

through utilization of controversial and unproven

stimulation techniques, had negligently destroyed the

recoverability of billions of cubic feet of natural gas re-

serves. Because the monetary value of the lost recover-

able reserves far outweighed Wynn Exploration’s 50%

share of the drilling and operating expenses, and because

of discrepancies in the Southern Union invoices sub-

mitted to Wynn Exploration, it withheld payment.

B. The First Trial

In June of 1976, Southern Union sued Wynn Explora-

tion and Wynn Oil to recover one-half of its costs of

drilling and operating the six wells on the project in the

Santa Fe, New Mexico, district court. Almost

simultaneously, Wynn Exploration sued Southern Union

3)

in the Dallas County, Texas district court for breaches of

the contract of the parties. The New Mexico trial court

denied Wynn Oil’s forum non conveniens motion to dis-

miss, even though Southern Union, Wynn Oil, and Wynn

Exploration were all headquartered in Dallas County,

Texas. Ultimately, Southern Union added R. C. Wynn,

individually, as a defendant, Wynn Exploration count-

er claimed against Southern Union, Wynn Exploration

filed an independent suit in New Mexico against Southern

Union for, inter alia, negligent operation of the wells and

attendant loss of recoverable reserves, and the actions

were consolidated for trial in Santa Fe County, New

Mexico.

In its Third Amended (trial) Complaint, Southern

Union alleged that the effect of the Third Document

(November 18, 1975 letter agreement, App. 67a) was to

“substitute . . . Wynn Exploration in place of. . . Wynn

Oil in the written Operating Agreement” (5 R. 1812).

Wynn Oil and Wynn Exploration both admitted this aver-

ment (5 R. 1886). Southern Union asserted that Wynn Oil

should be liable along with Wynn Exploration, however,

because both corporations were allegedly the alter egos of

R. C. Wynn.

Most of the trial of the case, which lasted several

weeks, was devoted to trying Wynn Exploration’s claim

against Southern Union. Southern Union tried its case

against Wynn Oil on the theory that there was only one

contract, composed of the First, Second, and Third Docu-

ments. Southern Union conceded that Wynn Oil was not a

party to this contract; in its post-trial brief it reiterated

that the Third Document was executed to comply with

the request that “Wynn Exploration Company, Inc.

(‘Wynn Exploration’) be substituted for Wynn Oil as the

contracting party on the Wynn side” (10 R. 3466), and also

6

reiterated that its theory of recovery as against Wynn Oil

was alter ego (10 R. 3484).

Approximately three months after the conclusion of the

trial, the judge sent a letter opinion to counsel (App. 39a).

Concerning Wynn Exploration’s claim against Southern

Union for negligent operation of the wells, he stated that

he would rule against Wynn Exploration, even though its

evidence on this issue “was impressive,” and the explora-

tions “might otherwise be done today” (App. 43a).? Con-

cerning Southern Union’s claims, the trial judge rejected

the alter ego theory but, inexplicably, stated that he

* At the trial, expert witnesses for both sides estimated that the

Morrow formation underlying the property contained between 14.5

and 17.7 billion cubic feet of recoverable gas (VIII Tr. 136-37; IX Tr.

1408-09; X Tr. 1723; XIV Tr. 2617-19). An expert witness for Wynn

Exploration testified that Southern Union’s negligence had virtually

destroyed the recoverability of the estimated reserves (VI Tr. 1052-

53). This was vehemently denied by Southern Union’s experts, who

testified that Southern Union had not been negligent and that the

reserves were still recoverable (XIV Tr. 2636-37). At a supersedeas

bond hearing, both Wynn Oil and Wynn Exploration argued that a

supersedeas bond should not be required since, according to South-

ern Union’s expert witnesses at the trial, the value of Wynn Explora-

tion’s interest in the recoverable reserves vastly exceeded the judg-

ment against them. Southern Union, however, then produced a new

expert witness who admitted that Southern Union’s conduct had

greatly reduced the volume of recoverable reserves, and further

testified that the value of Wynn Exploration’s interest in the proper-

ty was only $219,000 (15 June 1979 Hearing Tr. 30). In view of the

extraordinary inconsistency between Southern Union's trial testi-

mony and its supersedeas hearing testimony on the same matter,

Wynn Oil and Wynn Exploration moved in the Court of Appeals for

remand to the trial court, so that a motion for new trial could be filed,

but the Court of Appeals denied the motion.

7

would enter judgment against Wynn Oil in addition to

Wynn Exploration.’

Faced with the task of proposing findings of fact that

would support a judgment against Wynn Oil, after the

alter ego theory—the only theory pled or tried—had been

rejected, Southern Union suggested that the First,

Second, and Third Documents constituted the entire con-

tract, that Wynn Oil was a party to all three documents,

and that the Third Document effectuated an assignment

by Wynn Oil of its rights to Wynn Exploration, but with-

out an attendant release by Southern Union of Wynn Oil’s

obligations. The trial court adopted Southern Union’s

proposed assignment-without-release finding verbatim

in its Findings of Fact (App. 32a-33a), and entered its

Judgment against Wynn Oil and Wynn Exploration in the

amount of $1,879,791.22 (App. 51la).*

’ The trial judge at the close of his letter, which, to say the least,

was less than a model of clear expression, invited requests for

clarification from counsel. By letter dated April 5, 1979 (10 R. 3595-

96), counsel for Wynn Oil Company requested of the trial court

clarification of its basis for holding Wynn Oil liable, as no theory had

been pled or tried, other than the rejected alter ego theory, upon

which to hold Wynn Oil liable. This request for clarification went

unanswered by the court.

‘The trial court initially entered findings, and companion con-

clusions of law and judgment, without having responded to the re-

quest for clarification made by Wynn Oil’s counsel, and without

having given Wynn Oil “a reasonable opportunity to submit re-

quested findings of fact and conclusions of law,” as required by the

New Mexico Rules of Civil Procedure. The trial court granted Wynn

Oil’s motion to vacate its original judgment, findings, and con-

clusions, and on May 10, 1979, Wynn Oil filed its requested findings of

fact and conclusions of law. The next day, the trial court entered its

May 11, 1979 Decision of the Court (App. 3la) and Judgment (App.

51a), with virtually no changes from the originals.

C. The First Appeal

On appeal, the New Mexico Court of Appeals sustained

Wynn Oil’s attack on the assignment-without-release

finding. It held that Wynn Oil was not a party to the Third

Document, and that the Third Document was not an

assignment of rights from Wynn Oil to Wynn Exploration

(App. 20a, 2la). The Court of Appeals also rejected

Southern Union’s alter ego theory brought forward by it

on its cross appeal. It did not expressly disturb the trial

court’s finding that all three documents together con-

stituted the contract. Even though Wynn Oil had pre-

vailed on both points briefed, the Court of Appeals held

that Wynn Oil was “liable on the basis of the documents it

executed,” i.e., liable “for its obligations under the first

two documents” of the three-document contract (App.

21a). The Court of Appeals remanded the case for further

proceedings “in connection with the amount of the judg-

ment” (App. 30a).°

D. Remand

On remand, Wynn Oil attempted to focus the trial

court’s attention “on the liability of Wynn Oil for its

> Baffled by the new theory of liability confected by the Court of

Appeals, Wynn Oil sought redress in the New Mexico Supreme

Court by way of a petition for writ of certiorari. The New Mexico

Supreme Court initially denied the petition, subsequently granted

Wynn Oil’s motion for rehearing, later vacated its order granting the

rehearing, and finally denied Wynn Oil’s second motion for rehear-

ing.

Wynn Oil then filed a timely Petition for Writ of Certiorari in this

Court, No. 81-971, in which it contended that the New Mexico courts

had violated its due process and equal protection rights by holding

that it could be liable at all under the circumstances of the case. This

Court denied the petition without opinion. Wynn Oil Co. v. Southern

Union Exploration Co., 455 U.S. 920, 102 S. Ct. 1276 (1982).

9

obligations under the first two documents” (App. 21a).

The evidence undisputedly showed that Wynn Oil had

executed only the First and Second Documents, which

authorized only the drilling, completion, and operation of

the first of the six wells drilled by Southern Union. It

undisputedly showed that Wynn Oil had not executed any

document by which it elected to participate in any of the

five subsequent wells drilled by Southern Union. The

evidence did show that Wynn Exploration had consented

to participate in the drilling of four of the five subsequent

wells (P. Exs. 39, 40, 47, 52, 53, 99, 100, 105, 115, 116,

117, 120, 121).

Thus, Wynn Oil contended on remand that it was liable

for, at most, 75% of the net expenses of the drilling and

completion of the first well, pursuant to the First and

Second Documents, in the amount of $346,345.41, plus

interest. Wynn Exploration conceded that, pursuant to

the Third Document and the consents to participation it

executed, it was liable for 50% of the net expenses of the

drilling and completion of the second, third, fifth and

sixt’ wells, or $1,466,045.30, plus interest.

The trial court stated, however, that it read the origin-

al Court of Appeals opinion to require Wynn Oil to be

jointly and severally liable with Wynn Exploration for

50% of the entire net amount spent for the drilling,

completion, and operation of the first, and four of the five

subsequent, wells (App. lla). The trial court found, at

Southern Union’s request, that Wynn Exploration and

Wynn Oil “were consenting parties” to these five wells,

despite the total lack of evidence that in any way tended

to show that Wynn Oil had consented to participate in the

drilling, completion, or operation of any well other than

the first well. The trial court entered its Judgment

against Wynn Oil and Wynn Exploration, jointly and

10

severally, in the amount of $1,683,102.55, plus interest

(App. 47a, 50a), or an amount in excess of $1 million more

than Wynn Oil’s share of the expenses for the one well in

which it had agreed to participate.”

On appeal, Wynn Oil argued to the New Mexico Court

of Appeals that under its first opinion, Wynn Oil was to be

held liable only on the documents that it actually ex-

ecuted, and that it had executed no documents which

could possibly lay a predicate for liability for any of the

wells drilled or completed by Southern Union other than

the first well. The Court of Appeals disposed of the appeal

rather summarily by recognizing that Wynn Oil executed

only the first two documents, but stating that “it does not

follow from a reading of the (first) opinion as a whole in

the context of the issues raised, that Wynn Oil was not

liable, on all three (documents) jointly with Wynn (Ex-

ploration)” (App. 3a). The Court of Appeals made no

effort to harmonize its position with its prior holdings in

its first opinion in the case. Nor did it make mention of the

undisputed fact that Wynn Oil, by not affirmatively

notifying Southern Union that it elected to participate in

the subsequent wells, had thereby elected under Para-

graph 12 of the Second Document (Operating Agreement)

“not to participate in the cost of the proposed operation”

(App. 63a).

D. Federal Questions

Wynn Oil filed its Petition for Writ of Certiorari in the

New Mexico Supreme Court, in which it contended that

the Court of Appeals opinion and imposition of liability

was 80 irrational, and so departed from the remand stand-

* Within a few days of the entry of the Judgment on the Mandate,

Southern Union collected on a $1,500,000.00 letter of credit that

Petitioner had posted as a supersedeas bond.

1]

ard set in its first opinion, as to deprive Wynn Oil of its

property without due process of law (App. 55a-59a). Af-

ter the denial (App. 6a) of the petition, Wynn Oil repeated

its due process challenges in its Motion for Rehearing

(App. 60a-62a), which the New Mexico Supreme Court

also denied (App. 5a).

REASONS FOR GRANTING THE WRIT

A. The New Mexico Courts Have Arbitrarily And Capricious-

ly Entered A Very Substantial Judgment Against Peti-

tioner, And Have Thereby Deprived Petitioner Of Its

Property Without Due Process Of Law, In Violation Of

The Decisions Of This Court

The Fourteenth Amendment forbids a state court judg-

ment if it “amounts to mere arbitrary or capricious ex-

ercise of power, or is in clear conflict with those fun-

damental ‘principles which have been established in our

systems of jurisprudence for the protection and enforce-

ment of private rights.’” American Ry. Express Co. v.

Kentucky, 273 U.S. 269, 273 (1927). If a case “between

private parties is arbitrarily and capriciously decided, in

violation of settled principles of law and contrary to undis-

puted facts, though the court so deciding had jurisdiction

over the suit, the judgment may be in violation of the 14th

Amendment.” Williams v. Tooke, 108 F.2d 758, 759 (5th

Cir.), cert. denied, 311 U.S. 655 (1940).

Southern Union admitted below that Wynn Explora-

tion had been “substituted for Wynn Oil as the contract-

ing party” (10 R. 3466; see also 5 R. 1812, 1886), and

originally sought judgment against Wynn Oil solely on an

alter ego theory. The New Mexico Court of Appeals on

the first appeal rejected this theory, but held that Wynn

Oil was “liable on the basis of the documents it executed,”

i.e., liable “for its obligations under the first two docu-

12

ments” (App. 21a). The pertinent documents are summa-

rized as follows:

DOCUMENT PARTIES

First Wynn Oil

Document (Petitioner)

(Sept. 8, 1975 and Southern

Letter Union

Agreement)

Second Wynn Oil

Document (Petitioner)

(Sept. 15, 1975 and Southern

Operating Union

Agreement,

App. 63a-66a)

Third Wynn

Document Exploration

(November 18, and Southern

1975 Letter Union

Agreement,

App. 67a-68a)

REMARKS

Authorized first

well only

Authorized first

well; required

written election

to participate as

condition for

being charged

with costs of

subsequent wells

In Southern

Union's words,

“substituted”

Wynn

Exploration “for

Wynn Oil as the

contracting

party”

DOCUMENT

Written

Elections to

Participate in

Subsequent

Wells (P. Exs.

39, 40, 47, 52,

53, 99, 100,

105, 106,

115-17, 120,

121)

Invoices for

costs of

subsequent

wells

13

PARTIES

Executed by

Wynn

Exploration,

not by

Petitioner

Sent to Wynn

Exploration,

not to

Petitioner

REMARKS

Petitioner's

failure to consent

constituted “an

election by that

party not to

participate in the

cost of the

proposed

operation,” and

placed the

“entire cost and

risk of

conducting such

operations” on

the “Consenting

Parties,” 7.e.,

Southern Union

and Wynn

Exploration

As has been demonstrated, the two documents ex-

ecuted by Wynn Oil could give rise to liability only for a

portion of the net expenses of drilling and completing the

first of the six wells drilled by Southern Union. Yet the

New Mexico courts on remand held Wynn Oil liable for

one-half of the net expenses of not one, but five, of the

wells, in violation of the prior holding in the case, and

without factual or legal support.

l4

Probably nothing is more fundamental and well-settled

that, absent special circumstances such as alter ego, a

person cannot be held liable for the breach of a contract to

which he is not a party. Barnes v. Sadler Associates,

Inc., 95 N.M. 334, 622 P.2d 239 (1981); Gallup Electric

Co. v. Pacific Improvement Co., 16 N.M. 86, 113 P. 848

(1911). Wynn Oil was a party to no contract by which it

could be liable for any portion of the expenses of the five

subsequent wells drilled by Southern Union. The theories

advanced for Wynn Oil’s liability for the subsequent wells

THEORY

1. Alter ego

2. Assignment

without release

. Consent

. The first

“opinion as a

whole in the

context of the

issues raised”

are summarized as follows:

ORIGIN

Only theory

pled or tried

by Southern

Union

Trial Court

Trial Court

Court of

Appeals

REMARKS

Rejection by

trial court and

Court of

Appeals in its

first opinion

Rejected by

Court of

Appeals in its

first opinion

Undisputedly

refuted by the

evidence; not

even mentioned

by Court of

Appeals

A facially

unreasonable

misinterpreta-

tion of the first

opinion

15

Wynn Exploration did elect to participate in four of the

five subsequent wells, and thereby became contractually

obligated to pay 50% of the expenses of working those

wells, but the only two theories ever even suggested that

could possibly explain Petitioner's derivative liability for

Wynn Exploration’s contractual obligations for the sub-

sequent wells—alter ego and assignment—were totally

rejected by the courts below. The “consent” and first

“opinion as a whole” theories are mere ipse dixit fiat, at

war with the evidence and the holdings of the first

opinion.

What remains is a judgment of liability for nearly two

million dollars, bereft of underlying factual or legal sup-

port. It is a judgment that “is in clear conflict with those

fundamental principles which have been established in

our systems of jurisprudence for the protection and

enforcement of private rights.” It is a judgment “in viola-

tion of settled principles of law and contrary to undis-

puted facts.” It “amounts to mere arbitrary or capricious

exercise of power.” This Court should grant its Writ of

Certiorari and reverse this irrational judgment in order

to vindicate Petitioner’s constitutional right to adjudica-

tion that is neither arbitrary nor capricious.

B. The New Mexico Courts Have Deprived Petitioner Of Its

Property Without Notice Or Opportunity To Be Heard, In

Violation Of The Decisions Of This Court.

A state court civil defendant is entitled to notice of the

claims against it, and an opportunity to be heard in its

own defense. A state court, appellate or trial, violates due

process where it affirms or enters a judgment on a theory

that has not been pled or tried, because the civil defend-

ant is thereby denied notice and opportunity to be heard.

Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281 U.S.

673, 677-78 (1930) (reversal of state court judgment

16

where violation of due process because state appellate

court affirmed judgment on a theory not previously pled

or tried; defendant not afforded “an opportunity to be

heard and defend its substantive right”); Saunders v.

Shaw, 244 U.S. 317, 319 (1917) (reversal of state court

judgment where violation of due process because state

appellate court decided the case against defendant on a

new theory against which defendant did not have “the

proper opportunity to present his evidence”); see Jimenez

v. Tuna Vessel Granada, 652 F.2d 415 (5th Cir. 1981)

(reversal of judgment based on a theory neither pled nor

tried because “notice demands of procedural due process”

not met).

On remand in this case, the one theory of liability of

which Wynn Oil had notice was that it was supposedly

“liable on the basis of the documents it executed,” i.e.,

“for its obligations under the first two documents” (App.

21a). At the second trial, it showed the trial court the

extent of its obligation under these two documents—75%

of the net expenses of the first well. The New Mexico

courts, however, disregarded the law of the case, and the

evidence, and held Petitioner liable on five wells, to its

damage in an amount in excess of one million dollars.

Neither the trial nor appellate court, nor yet Southern

Union, even attempted to provide a rational explanation

of how Petitioner could have this greater liability. They

never explained how Wynn Oil could be liable for drilling

expenses on wells in which it undisputedly never con-

sented to participate, or how it could be liable for drilling

expenses for wells that were drilled pursuant to docu-

ments that it never executed.’ The only “explanation”

’ The trial court found, at Southern Union's request, that “Wynn

Exploration Company, Inc. and Wynn Oil Company were consenting

parties” (App. 8a). As discussed hereinabove, the Second Document

17

ever offered was a facially unreasonable misinterpreta-

tion of the first opinion in the case.

Thus, judgment has been imposed on Wynn Oil by the

New Mexico courts, and has been substantially collected

by Southern Union, in an amount many hundreds of thou-

sands of dollars over the maximum amount for which it

could be liable on the theory that was supposed to control

the case on remand. If any rational theory does support

the judgment, it remains unarticulated to this day, and

Petitioner has never had notice of, or an opportunity to

rebut, any such phantom theory. This Court should grant

the Petition and reverse the Judgment below in order to

vindicate Petitioner’s Fourteenth Amendment right to

notice of the claims against it and an opportunity to be

heard in its own defense.

C. This Court Should Remind The State Courts That The

Fourteenth Amendment Requires Notice, Opportunity To

Be Heard, And Rational Adjudication Of Civil Con-

troversies

Whether it be due to the lack of experience, ability, or

judicial temperament, or whether it be due to other

reasons, the New Mexico courts in this case produced an

unconstitutionally irrational result, and can be expected

to produce similarly irrational results in similar cases. In

fact, Petitioner in its previous Petition for Writ of Cer-

tiorari filed in this Court, No. 81-971, made the same

statement: New Mexico courts could be expected to pro-

(Operating Agreement, App. 63a-65a) required that a non-operator

consent in writing to participate in a well before it would be responsi-

ble for any of its cost. Undisputedly, however, Petitioner never

executed any consent documents for any well but the first; Wynn

Exploration, on the other hand, did execute such participation con-

sents for subsequent wells (P. Exs. 39, 40, 47, 52, 53, 99, 105, 106,

115, 116, 117, 120, 121).

18

duce similarly irrational results in other cases, unless this

Court reminded the state courts that they must treat

litigants before them in an even-handed fashion and de-

cide cases on some rational basis (Pet. in No. 81-971 at

15). Perhaps emboldened by this Court’s denial of Wynn

Oil’s first petition, the New Mexico courts acted as

feared. They need a reminder from this Court, more than

ever before, that the Fourteenth Amendment provides

certain minimal! safeguards of notice, opportunity to be

heard, and rationality for civil litigants in state courts.

CONCLUSION

The New Mexico Courts have violated Wynn Oil’s

rights to notice of the claims against it, and an opportun-

ity to present its evidence and defenses; have arbitrarily

and discriminatorily violated their own rules of appellate

review; and have entered, and countenanced the sub-

stantial collection of, a ruinous judgment against Wynn

Oil on a substantively irrational basis. This Court, as the

ultimate guardian of our Constitution, should not permit

such flagrant violations of the due process guarantees.

Relaxation of constitutional oversight can and will allow

unconstitutionally irrational decision making in the state

courts.

Petitioner’s last hope of vindication lies in this Court.

See Rooker v. Fidelity Trust Co., 263 U.S. 418, 416

(1923); Williams v. Tooke, 108 F.2d 758, 759 (5th Cir.),

cert. denied, 311 U.S. 655 (1940). Petitioner submits that

the issues and constitutional violations are so clearly

drawn that this case is well-suited to a summary disposi-

tion on the merits pursuant to S. Ct. R. 23.1.

This Court should grant the Petition not only to do

justice between these parties, but to make clear to the

19

state courts that the Constitution does not tolerate

arbitrary, capricious and irrational adjudication.

Premises considered, Petitioner Wynn Oil Company

respectfully prays that this Honorable Court grant this

Petition for Writ of Certiorari, and that it issue a writ of

certiorari to review the judgment of the New Mexico

Court of Appeals and the orders of the New Mexico

Supreme Court.

Respectfully submitted,

SABRE ANTHONY SAFI

GRAMBLING, MOUNCE, SIMs,

GALATZAN & HARRIS

P.O. Drawer 1977

El Paso, Texas 79950

(915) 532-3911

Counsel for Petitioner

APPENDIX

TABLE OF CONTENTS (Appendix)

March 10, 1983 Memorandum Opinion (New Mexico

COUR OC RODD: 65 oc ccna cs Keanccndchadeneses cues la

May 12, 1983 Order (New Mexico Supreme Court) ... 5a

April 22, 1983 Order (New Mexico Supreme Court) . ba

April 26, 1982 Decision of the Court (Trial Court) .... 7a

April 23, 1982 Letter From Trial Judge to Counsel ... lla

January 13, 1981 Opinion (First Appeal) ............. 13a

May 11, 1979 Decision of the Court (First Trial) ...... 3la

March 19, 1979 letter from Trial Judge to Counsel (First

BUMS iccxnetabaebas ciate ce pet tuusn cee errs 39a

April 27, 1982 Judgment on the Mandate ............ 47a

May 11, 1979 Judgment (First Trial) ................ dla

March 30, 1983 Petition for Writ of Certiorari filed in the

New Mexico Supreme Court (cover page and portions of

een 2-2: 15, FG Se OS OU cs vwanesanekouceess 55a

May 6, 1983 Motion for Rehearing filed in the New Mexico

Supreme Court (pages 1, 2, and part of 3) ........... 60a

September 15, 1975 4 ating Agreement (cover page,

‘ol of Paragraph 12, Paragraphs 22 and 30, and part of

WORE BEF isc cradascvea cee cieeusn senate aed 63a

November 18, 1975 Letter Agreement .............. 67a

la

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

NO. 5795

SOUTHERN UNION EXPLORATION

: COMPANY OF TEXAs,

FILED Plaintiff-Appellee

'83 MAR 10 Vv,

Wynn OIL Company,

Defendant-Appellant.

APPEAL FROM THE DISTRICT COURT OF SANTA FE

COUNTY

KAUFMAN, Judge

STRASBURGER & PRICE

MONTGOMERY & ANDREWS

Victor R. ORTEGA

WALTER J. MELENDRES

Santa Fe, New Mexico

Attorneys for Appellee

STEPHENSON, CARPENTER, Crout & OLMSTED

CHARLES D. OLMSTED

WILLIAM P,. TEMPLEMAN

Linpsay A, Loveyoy, JR.

Santa Fe, New Mexico

Attorneys for Appellant

MEMORANDUM OPINION

BIVINs, Judge

This case has been before this Court before. Southern

Union, Ete. v. Wynn Exploration, 95 N.M. 594, 624 P.2d 536

(Ct. App. 1981); cert. denied, 95 N.M. 598, 624 P.2d 535; cert.

denied, 455 U.S. 920, 102 S.Ct. 1276, 71 L.Ed.2d 461 (1982).

Upon remand, the trial court entered judgment against Wynn

Oil (Wynn Oil Company) and Wynn X (Wynn Exploration Co.,

Inc.), jointly and severally, and awarded damages for 50% of

2a

the costs incurred by SX (Southern Union Exploration Com-

pany) on all five wells. Wynn Oil appeals again.

Wynn Oil does not challenge the calculations or the figures

utilized by the trial court as required in our first opinion. The

defendant's sole contention is that under the prior decision of

this Court, Wynn Oil can be held liable only on the first two

agreements (the letter agreement dated September 8, 1975

and the operating agreement dated September 15, 1975) for

75% of the net costs of the first well (“Gallagher State 8-2

well”), Wynn Oil claims that our prior decision mandates this

result. We disagree.

In defining the doctrine of law of the case, the Supreme

Court in Demers v. Gerety, 92 N.M. 749, 595 P.2d 387 (1978)

said, “This doctrine means that the law applied on the first

appeal of a case is binding on the second appeal. This rule

applies not only to questions specifically decided, but also to

those necessarily involv ed, and those questions which could

have been so raised.” 92 N.M. at 758 (citation omitted). Wynn

Oil has no quarrel with this principle and, in fact, advances it in

support of its position.

Wynn Oil cites us to parts of our opinion claimed to be

favorable to its position, while disregarding other parts. For

example, Wynn Oil relies heavily on the language contained in

“(e) Miscellaneous” where we rejected the trial court’s finding

that by the third (change of name) document, Wynn Oil

assigned its rights to Wynn X. We went on to say, “This has no

effect on the liability of Wynn Oil for its obligations under the

first two documents,” and in the following paragraph:

The trial court’s findings referred to Wynn Oil and

Wynn X “jointly as Wynn.” This joint reference provides

no basis for a reversal inasmuch as Wynn X is not contest-

ing its liability and inasmuch as Wynn Oil is liable on the

basis of the documents it executed.

5 N.M. at 599.

Our opinion recognized the existence of a basis for Wynn

Oil's liability on all documents. While it is correct that Wynn Oil

3a

executed only the first two agreements, it does not follow from

a reading of the opinion as a whole in the context of the issues

raised, that Wynn Oil was not liable on all three agreements

jointly with Wynn X. Under the discussion entitled “(b) Party

to Contract,” we noted the trial court’s finding that three

documents constituted “the contract.” We then reviewed

Wynn Oil's claim that R. C. Wynn never intended to make

Wynn Oil a party to the agreement. In rejecting Wynn Oil's

request that this Court find facts in its favor, we said:

The two documents signed by Wynn Oil, and the testi-

mony of the SX witness concerning the negotiations and

preparation of these documents are substantial evidence

supporting the finding that Wynn Oil was a party to the

contract,

95 N.M. at 598. (emphasis added),

The discussion under paragraph “(e) Miscellaneous” cannot

be isolated from the remainder of the opinion. We must look to

the opinion as a whole to determine its effect. The decision did

essentially two things: first, it affirmed the “judgment of liabil-

ity against Wynn Oil and Wynn X, entered May 11, 1979. . .”

and, “remanded to the trial court to correct errors in the

amount of the judgment... .” 95 N.M. at 602. The trial court

correctly followed our opinion and the mandate, and we affirm

its judgment.

SX asks that damages be awarded under § 39-3-27,

N.M.S.A. 1978 on the grounds that Wynn Oil's appeal is frivo-

lous, not in good faith and merely for the purposes of delay. We

da

find this request to be meritorious, and award SX damages of

$1,000,

Costs of this appeal shall be assessed against Wynn Oil.

It Is ORDERED.

s/ William W. Bivins

WILLIAM W. Bivins, Judge

WE Concur:

s/ Mary C. Walters

Mary C, WaALTERs, Chief Judge

s/ C. Fincher Neal

C. FINCHER NEAL, Judge

da

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Thursday, May 12, 1983

No. 14,862

WYNN OIL Company,

Petitioner,

Vs,

SOUTHERN Union Exptoration

COMPANY OF TEXaAs,

Respondent.

Proceeding on Certiorari

This matter coming on for cons

Motion of Petitioner for rehearin

sidered said motion and being

ideration by the Court upon

g, and the Court having con-

sufficiently advised:

Now, THEREFORE, It Is ORDERED that Motion of Petitioner

for rehearing is hereby denied,

ATTEST: A TRUE COPY

s Rose Marie Alderete

Clerk of the Supreme Court

of the State of New Mexico

6a

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Friday, April 22, 1983

No. 14,862

WYNN OIL Company,

Petitioner,

VS.

SOUTHERN UNION EXPLORATION

CoMPANY OF TEXAS,

Respondent.

Proceeding on Certiorari

This matter coming on for consideration by the Court upon

petition for writ of certiorari, and the Court having considered

said petition and being sufficiently advised:

Now, THEREFORE, IT Is ORDERED that petition for writ of

certiorari is hereby denied.

It Is FURTHER ORDERED that the Record in Cause No. 5795 is

hereby returned to the Clerk of the Court of Appeals.

ATTEST: A TRUE COPY

‘s' Rose Marie Alderete

Clerk of the Supreme Court

of the State of New Mexico

7a

IN THE DISTRICT COURT OF THE FIRST JUDICIAL DISTRICT

STATE OF NEW MEXICO COUNTY OF SANTA FE

Filed April 26 1982

No. 51726 Consolidated SF 77-1263

SOUTHERN UNION EXPLORATION COMPANY

OF TEXAS, a Delaware corporation,

Plaintiff.

Vs.

WYNN EXPLORATION COMPANY, INC.,

et. al.,

Defendants,

WYNN EXPLORATION CoMPANY, INC.,

Plaintiff,

¥ey

SOUTHERN UNION CoMPANY, SOUTHERN UNION

SupPPLY COMPANY and SUPRON ENERGY

CORPORATION, formerly Southern Union

Production Company,

Defendants.

DECISION OF THE COURT

The Court, having heard the evidence and the arguments of

counsel, and having considered the Requested Findings of

Fact and Conclusions of Law, now renders the following deci-

sion.

FINDINGS OF FACT

1. The $34,867.43 item for delay rental and operating costs

mentioned in the Opinion of the Court of Appeals should be

allowed. There is justly due and owing by the defendants

Wynn Exploration Company, Inc., and Wynn Oil Company,

through October 31, 1978, before calculation of interest on a

monthly basis and deduction for revenues received on a month-

Sa

ly basis, the sum of $1,600,083.44 for the drilling, completion

and operation of the wells in issue in this cause to which Wynn

Exploration Company Ine. and Wynn Oil Company were con-

senting parties.

2. After calculation of interest on a monthly basis and

credit for revenues received on a monthly basis in accordance

with the Opinion of the Court of Appeals of the State of New

Mexico, the amount of the judgment of this Court entered in

this cause on May 11, 1979 should be $1,714,571.41.

3. The proper application of the proceeds of the special

master’s sale of the interest of Wynn Exploration Company,

Inc. in the property in issue is as follows:

Total Amount Paid by Plaintiff at Sale.... $50,000.00

Costs and Expenses of Sale ............. $ 485.25

peeiel Minster’s Fee. icc. vascccecccess $ 2,000.00

Balance Applied to Judgment and Debt ... $47,514.75

4. The interest accrued on the judgment from May 12, 1979

until the special master’s sale on July 5, 1979, revenue credits

accrued from May 12, 1979 until the special master’s sale on

July 5, 1979 and the application of the amounts bid by the

plaintiff at the special master’s sale are:

Interest on Judgment Amount of

$1,714,571.41 for Period

ig BD ly a a ee ee $ 25,836.01

Less Revenue Received 5/12/79

a a Ded GH eee nae $ 9,790.42

Interest on Judgment Amount of

$1,714,571.41 Unpaid as of 75/79 ....... $ 16,045.59

Proceeds of Sale Applied to Interest

After Expenses of Sale ............... $ 16,045.59

9a

Proceeds of Sale Applied to Principal

After Expenses of Sale ..........000:. $ 31,469.16

WE ake ins trsscdas we eiaentee $ 47,514.75

CI iia btn vas 60508 backeueseeoe $1,714,571.41

Less Proceeds of Sale Applied

WE UND evi ccndc cd vcswensnanveene $ 31,469.16

Deficiency as of T/G/TO .... sc ccsccsivess $1,683, 102.55

CONCLUSIONS OF LAW

From the foregoing Findings of Fact, the Court concludes as

a matter of law as follows:

1. The Court has jurisdiction of the parties and over the

subject matter of this action.

2. The plaintiff, Southern Union Supply Company, later

known as Southern Union Expioration Company and now

known as Southern Union Exploration Company of Texas,

should be granted Judgment on the Mandate against the de-

fendants Wynn Exploration Company, Ine. and Wynn Oil

Company, and each of them, in the amount of $1,714,571.41

with interest on the amount of said judgment at the rate of 10%

per annum from and after May 11, 1979 until paid in full.

3. After application of the net revenues received from the

original judgment date of May 11, 1979 to the date of special

master’s sale on July 5, 1979 and the application of the proceeds

of special master’s sale in accordance with this Court's judg-

ment of May 11, 1979, and addition of interest on the judgment

from May 12, 1979 to July 5, 1979 and credit for revenues from

May 12, 1979 to July 5, 1979, there remains a deficiency in the

judgment entered herein in favor of plaintiff and against the

defendants Wynn Oil Company and Wynn Exploration Com-

pany, Inc., and each of them, in the amount of $1,683, 102.55,

such sum to bear interest at the rate of 10% per annum from the

date of sale of July 5, 1979 until paid in full.

10a

4. This Court's judgment of May 11, 1979, in all other

respects, be, and it hereby is, affirmed as required by the

Mandate of the Court of Appeals of the State of New Mexico.

All Requested Findings of Fact and Conclusions of Law of

the Parties inconsistent with those found or which are not

adopted by the Court are denied.

LET JUDGMENT BE ENTERED ACCORDINGLY.

s’ Bruce E. Kaufman

DISTRICT JUDGE

lla

STATE OF NEW MEXICO

FIRST JUDICIAL DISTRICT

CHAMBERS OF POST OFFICE BOX 2268

Bruce E. KAUFMAN SANTA FE, N. M. 87501

DISTRICT JUDGE AREA CODE 505

Division IV TELEPHONE &27-2101

April 23, 1982

VicTOR ORTEGA, ESQUIRE

Post Office Box 2307

Santa Fe, New Mexico 87501

CHARLES D, OLMSTED, EsQuIRE

Post Office Box 669

Santa Fe, New Mexico 87501

RE: SOUTHERN UNION EXPLORATION COMPANY OF TEXAS V.

WYNN EXPLORATION COMPANY, INC., et al.; WYNN EX.

PLORATION COMPANY, INC., V. SOUTHERN UNION Com.

PANY, et al., 51726 Consolidated SF 77-1263

Gentlemen:

The Court in arriving at the Order, a copy of which is herein

contained, has considered the evidence presented both orally

and by stipulation, and documented both of the hearings held

pursuant to the Motion for Judgment on the Mandate and the

Defendants response and counter-motion thereto.

I acknowledge that the argument as advanced by Mr. Olmsted

is intriguing to the extent that the Court of Appeals does

appear to have suggested matters which were not raised on the

appeal or at least in theory, varied from both the original

Finding of the Court and the arguments advanced by counsel.

On the contrary position, the language quoted by Mr. Ortega

from the Court Opinion does seem to retrace to adopt a general

finding precluding the relief sought by the Defendants.

Accordingly, it is my decision that the Judgment on the Man-

date should be entered as updated and corrected, denying the

relief sought by the Wynn interests and I will enter the Judg-

l2a

ment on the Mandate in the form as tendered unless there are

corrections which are necessary of implementation. Thank you

for your consideration.

Very truly yours,

‘s/ Bruce E. Kaufman

Bruce E. KAUFMAN

DISTRICT JUDGE

BEK:mh

13a

IN THE COURT OF APPEALS

OF THE STATE OF NEW MEXICO

No. +168

SovutHern Union Exproration Company,

Plaintiff-Counterdefendant,

Appellee-Cross-Appellant,

and

SovutHenn Unton Company,

Counterdefendant-Appellee,

v.

Wyysw Exproration Compayy, Inc. and

Wyxw Orr Company,

Defendants-Appellants,

Cross-A ppellees,

and

R. C. Wrsy,

Defendant-Cross-Appellee.

Consolidated

SovutHern Uston Exproration Company,

Plaintiff-Appellee,

Vv.

Wyswy Exeroration Company, Ivc.,

Defendant-Appellant.

(continued )

l4a

APPEALS FROM THE DISTRICT COURT OF

SANTA FE COUNTY

KAUFMAN, Judge

Leo J. HorrmMan COURT OF APPEALS OF

Davip N. KitNer NEW MEXICO

StTRasBURGER & Price FILED

Dallas, Texas 75250 JANUARY 13, 1981

oe ee SUSAN H. BAGWELL

WaLtTer J. MELENDRES

Montcomery & AnpREWs, P.A.

Santa Fe, New Mexico

Attorneys for Southern

Union Exploration Company

Mopra.y, SpenunG, Roext,

Harris & Sisk

Albuquerque, New Mexico

Wiruiam J. Mounxce

ANTHONY Sari

GraMBLine, Mounce, Sius,

Garatzan & Harris

El Paso, Texas 79901

Cuartes D. OLMSTED

Wituram P. TemPLeMayn

BicBee, STEPHENSON, CaRPENTER,

Crovut & OL_usTED

Santa Fe, New Mexico

Attorneys for Wynn Exploration,

Luc., Wynn Oil Company

and R.C. Wynn

l5a

OPINION

Woop, Judge.

After almost 2,000 pages of pleadings (the record proper

totals 3,900 pages), these oil business litigants finally

framed the issues on which this case was tried in a thitd

amended complaint, answer and counterclaim. After some

3,500 pages of trial proceedings, plus voluminous exhibits,

the trial court's findings eliminated most of the legal

theories asserted. It is unnecessary to catalog the various

claims made because appellant, in Cause No. 4262, has

abandoned that appeal, and the issues for decision in

Cause No. 4168 are all based on a breach of contract. This

Court’s jurisdiction, however, is based on claims of fraud

(tort claims) alleged in the third amended complaint and

counterclaim. See § 34-5-8(A), N.M.S.A. 1978; Citizens

Bank v. C & H Const. Co. & Paving Co., Ine., 89 N.M. 360,

552 P.2d 796 (Ct.App. 1976).

SX (Southern Union Exploration Company) entered

written agreements with one or more of the Wynn defend-

ants for the exploration and development of oil and gas

property. The Wynn defendants are R. C. Wynn, Wynn

Oil (Wynn Oil Company) and Wynn X (Wynn Exploration

Co., Ine.). Wynn Oil and Wynn X are Texas corporations;

R. C. Wynn is the sole stockholder of each corporation.

Payments due to SX pursuant to the agreements were not

made; SX sued to collect those payments and to foreclose

an operator’s lien. The trial court entered judgment against

Wynn Oil and Wynn X, and foreclosed the lien. The lia-

bility of Wynn X is not contested. The issues to be dis-

cussed are: (1) Apart from Wynn X, who is liable?; (2)

the amount of the judgment; and (3) attorney fees.

l6a

Apart from Wynn X, Who is Liable?

(a) Issue Pled and Tried

Wynn Oil contends it cannot be held liable because lia-

bility of Wynn Oil under the agreements was neither pled

nor tried. This contention is frivolous. R.Civ.Proec. 3(a)

provides for notice pleading sufficient to enable the adverse

party to answer and prepare for trial. Malone v. Swift

Fresh Meats Co., 91 N.M. 359, 574 P.2d 283 (1978). In

paragraph 3 of the first cause of action, labeled Breach

of Written Agreement, SX alleged that Wynn Oil was

the alter ego of R. C. Wynn, but if Wynn Oil was not the

alter ego of R. C. Wynn, then Wynn Oil was “directly liable

for the damages set forth herein.” The damages claimed

were the failure to pay amounts due under the written

agreements. Wynn Oil’s answer denied liability under the

agreements and, in an affirmative defense, alleged that

Wynn Oil was not obliged to SX “by reason of any con-

tract ...” Wynn Oil had notice in the pleading of SX’s

contract claiin. The contracts were introduced into evi-

dence and the trial court made a finding as to the documents

constituting the agreement. The contract claim against

Wynn Oil was tried.

(b) Party to Contract

Wynn Oil claims it was not a contracting party. The trial

court found that three documents coustituted the contract.

The first two of these documents —a letter agreemient ad-

dressed to Wynn Oil and an operating agreement — show

they were agreed to and accepted by Wynn Oil. These

documents were executed on behalf of Wynn Qil by R. C.

Wynn, President. The contents of these two documents

provide a basis for the judginent against Wynn Oil.

R. C. Wynn testified that he never intended to make

Wynn Oil a party to the agreement. The controlling intent

of a party is his expressed assent and not his seeret or

17a

undisclosed intent. State ex rel. Santa Fe Sand & G. Co. v.

Pecos Const. Co., $6 N.S. 58, 519 P.2d 294 (1974) ; Higgins

vy. Cauhape, 33 NLM. 11, 261 P. 813 (1927).

R. C. Wynn also testified that the documents showing

Wynn Oil as a contracting party were @ mistake. Wynn

Oil claims this testimony was uncontradicted. Wynn Oil is

incorrect. A witness for SX who negotiated with R. C.

Wynn concerning the contract and who directed the pre-

paration of the documents, testified: “(M]y understanding

that we had that Mr. Wynn wanted to put the deal in Wynn

Oil Company’s name....”

Wynn Oil claims the trial court committed manifest

error in finding that Wynn Oil was a party to the agree-

ment. In support of this argument, Wynn Oil reviews the

evidence in the light most favorable to its position and, in

effect, asks this Court to find the facts in its favor. Such

is not proper. State v. Gonzales, 82 N.M. 388, 482 P.2d 252

(Ct.App. 1971). The trial court determines the credibility

and weight of the evidence; we review the evidence in the

light most favorable to SX, the successful party. Cave v.

Cave, 81 N.M. 797, 474 P.2d 480 (1970).

The two documents signed by Wynn Oil, and the testi-

mony of the SX witness concerning the negotiations and

preparation of these documents are substantial evidence

supporting the finding that Wynn Oil was a party to the

contract.

(ec) Admissions

Under this item (c) and in the following item (d), we

discuss Wynn Oil’s arguments that even though originally

a contracting party, it was subsequently relieved of any

obligation under the contract. These arguments involve the

third document found by the trial court to be a part of the

contract. This third document was signed by Wynn X.

lSa

Wynn Oil claims that in a post-trial brief, prior to find-

ings, SX admitted that the third document substituted

Wynn X for Wynn Oil as a contracting party. Wynn Oil

also claims an admission by SX resulted from the way SX

pleaded the third document in the third amended com-

plaint, and Wynn Oil’s admission in its answer that this

allegation was correct. Assuming, but not deciding, that

these two items can properly be characterized as admis-

sions, what is the effect of the admissions?

Wynn Oil asserts that if unexplained or uncontradicted.

the admissions were binding and conclusive upon SX, cit-

ing Turner v. Silver, 92 N.M. 313, 587 P.2d 966 (Ct.App.

1978), and that the admissions were neither contradicted

nor explained. There are two answers to this argument.

First, Turner v. Silver, supra, expresses only the opinion

of its author, Judge Sutin; other members of the panel did

not join in Judge Sutin’s opinion. Thus, with respect to

the effect of admissions, Turner is not a decision of the

Court of Appeals. Casias v. Zia Co., 94 N.M.- , 616 P.2d

436 (Ct.App. 1980). Judge Sutin’s opinion is based on a

Kansas decision. We apply New Mexico law. An admission

in pleadings, or in testimony, is sufficient to support a find-

ing. Feldhut v. Latham, 60 N.M. 87, 287 P.2d 615 (1955);

Lujan v. Gonzales, 84 N.M. 229, 501 P.2d 673 (Ct.App.

1972). However, an admission “is by no means con-

clusive. . . . [T]he admission is only one factor to be

considered together with the other evidence.” Michael v.

Bauman, 76 N.M. 225, 413 P.2d 888 (1966). See also Al-

bright v. Albright, 21 N.M. 606, 157 P. 662 (1916). If an

admission was neither contradicted nor explained, the

effect to be given the admission would depend upon the

application of the uncontradicted evidence rule set forth

in Medler v. Henry, +4 N.M. 275, 101 P.2d 398 (1940).

Second, the assumed admissions were contradicted by the

express wording of the third document; this wording is set

forth in item (d).

19a

(d) Novation

Wynn Oil claims the third document of the contract

amounted to a novation which substituted Wynn X for

Wynn Oil as a contracting party. See Dougherty, et al v.

Van Riper, 16 N.M. 600, 120 P. 333 (1911). Wynn Oil’s

argument that a novation was established by pleadings’

amounting to an admission was answered in (c) above.

Wynn Oil contends that the trial court ruled on the ques-

tion of novation by rejecting certain of its requested find-

ings. Assuming, but not deciding, that the trial court did

rule there was no novation, the question is whether, under

the evidence, this ruling was wrong.

All of the documents to the contract were executed in

Texas and the contract was formed there; Texas law ap-

plies. Satterwhite v. Stolz, 79 N.M. 320, 442 P.2d 810

(Ct.App. 1968). Thus, we do not consider the non-Texas

authorities relied on by Wynn Oil.

Russell v. Northeast Bank, 527 S.W.2d 783 (Tex.Civ.App.

1975) states:

To effect a novation by the substitute of one debtor for

another and thereby release the first party, there must

be an agreement to that effect between all three

parties.

Ridgleawood, Inc. v. White, 380 S.W.2d 766 (Tex.Civ.

App. 1964) states:

A requisite of novation is that parties to the previous

contract and the new one agree that the obligations

of the new be substituted for and operate as a dis-

charge of the obligations of the first.

Allstate Insurance Company v. Clarke, 471 S.W.2d 901

(Tex.Civ.App. 1971) states:

Whether a subsequent agreement works a novation

is a question of intention. For there to be a novation it

20a

must clearly appear such was the intention of the

parties. Novation is never presumed.

The third document, asserted to be a novation, is a letter

agreement addressed to Wynn X by SX which was agreed

to and accepted by Wynn X. As Wynn Oil correctly asserts:

“No one executed this document on behalf of Wynn Oil.

Manifestly, Wynn Oil was not a party to this agreenient

...” This third document made two changes in the agree-

ment reflected by the first two documents of the contract.

First, the share of costs and obligations to be paid to SX

was reduced from 75 percent to 50' percent. Second, Wynn

X, the addressee, was “desirous of the change in name of

your Company from Wynn Oil Company to Wynn Explor-

ation Company.” This third document went on to state

that the first letter agreement was amended accordingly,

however the first letter agreement remained in full force

and effect “except as herein specifically amended.”

A letter exhibit requesting an assignment pursuant to

a farmout agreement, which referred to this third docu-

ment as “correcting” the first letter agreement, was signed

by SX and Wynn X. R. C. Wynn's testimony concerning

this third document can properly be understood as refer-

ring to R. C. Wynn’s intentions as an individual and not

as referring to the intentions of Wynn Oil.

The trial court could properly view the evidence as show-

ing that Wynn Oil never agreed to be released, Russell v.

Northeast Bank, supra; that the third document changed

the corporate name but did not discharge Wynn Oil's lia-

bility, Ridgleawood, Ine. v. White, supra; and that SX,

Wyn X and Wynn Oil never intended a novation, All-

state Insurance Company v. Clarke, supra. If the trial

court did in fact rule on the question of novation by reject-

ing Wynn Oil’s requested findings, we cannot hold, under

the evidence, that the ruling was incorrect.

(e) Miscellaneous

The trial court found that by the third (change of name)

document, Wynn Oil assigned its rights to Wynn X. This is

incorrect because the document was not executed by Wynn

Oil and there are no words of assignment in the document.

This has no effect on the liability of Wynn Oil for its

obligations under the first two documents.

The trial court’s findings referred to Wynn Oil and Wynn

X “jointly as Wynn.” This joint reference provides no basis

for a reversal inasmuch as Wynn X is not contesting its

liability and inasmueh as Wynn Oil is liable on the basis

of the documents it executed.

(f) Alter Ego

In its cross-appeal, SX contends the corporate veil of

Wynn Oil and Wynn X should be pierced and liability

should be imposed upon R. C. Wynn individually. SX’s

theory is that the two corporations are the alter ego of

R. C. Wynn, that there is such a unity of interest and

ownership hetween the corporations and R. C. Wynn that

the corporations are no more than corporate shells utilized

by R. C. Wynn to conduct his personal business, that R. C.

Wynn has manipulated the assets and operations of the

corporations “in an effort to make SX’s judgment wholly

or partly uncollectible,” that the trial court’s failure to

pierce the corporate veil works an injustice and promotes

fraud. See Scott Graphics, Ine. v. Mahaney, 89 N.M. 208,

549 P.2d 623 (Ct.App. 1976).

SX presents this argument hy analyzing factors pertinent

to a “piercing” decision. See Associated Vendors, Ine. v.

Oakland Meat Co., 210 Cal.App.2d $25, 26 Cal.Rptr. 806

(1962). In doing so, it proceeds in the same improper man-

ner as did Wynn Oil in arguing that it was not a party to

the contract —that is, by reviewing the evidence in the

light most favorable to its position. The same SX witness

22a

who testified that R. C. Wynn wanted the deal in Wynn

Oil’s name also testified that it made no difference to him

whether the contracting party was R. C. Wynn or Wynn

Oil. A permissible inference from this testimony is that

SX knowingly dealt with a corporation in which R. C.

Wynn owned the stock rather than with R. C. Wynn indi-

vidually.

“A corporation and a stockholder, even though that

stockholder be the owner of the vast niajority of the stock,

are separate entities.” London v. Bruskas, 64 N.M. 73, 324

P.2d 424 (1958); see Shillinglaw v. Owen Shillinglaw Fuel

Company, 70 N.M. 65, 370 P.2d 502 (1962). “(T]he corpo-

rate entity should be recognized and supported”; limited

liability is the rule, not the exception. Scott Graphics, Ine.

v. Mahaney, supra. Piercing the corporate veil by the device

of the alter ego is an equitable remedy. Associated Vendors,

Inc. v. Oakland Meat Co., supra.

The trial court could properly view the evidence as estab-

lishing that SX knowingly contracted with Wynn Oil rather

than R. C. Wynn individually, and that an asserted inabil-

ity to collect all of its judgment from Wynn Oil was not a

basis for relieving SX from a choice knowingly made. The

trial court did not err in refusing to find R. C. Wynn indi-

vidually liable to SX on an alter ego theory.

Amount of the Judgment

(a) The Issue of Excessiveness

Wynn Oil and Wynn X claim the amount of the judgment

was excessive. SX contends the question of excessiveness

Was not preserved for review hecause the Wynn corpora-

tions neither moved to amend the judgment nor tendered

specific findings as to the amount due. SX is incorrect.

Requested findings were submitted! on behalf of all of the

Wyun defendants. Requested finding No. 29 was to the

etfect that SX had never supplied an accurate accounting

23a

of the expenses incurred and that the accounting at the

time of trial was deficient. This request sufficiently pre-

served tor review the question of the amount of the judg-

ment and the findings on which that amount was based.

Van Orman vy. Nelson, 78 N.M. 11, 427 P.2d 896 (1967).

(b) Amount of Excessiveness

Wynn Oil and Wynn X claim the judgment is excessive

by at least $276,385.00 and by the computation of post-

judgment interest. We do not attempt to calculate the

amount of the excessiveness; that can be better done by

the trial court with the assistance of counsel. The following

paragraphs respond to the arguments under this issue, and

these responses are to guide the trial court and counsel in

recalculating the judgment and interest.

(c) Amount of the Liability for Costs and Expenses

The trial court found Wynn Oil and Wynn X liable for 50

percent of SX’s costs and expenses. This percentage amount

has not been disputed. The trial court concluded that Wynn

Oil and Wynn X, as of November 1, 1978, owed SX

$1,879,791.22 and entered judgment for that amount on

May 11, 1979. This is an incorrect sum.

First, the trial court found that $279,707.78 of the judg-

ment amount was unpaid interest through October 31, 1978.

We discuss the interest question in subsequent paragraphs.

Subtracting the interest item, the liability for costs and

expenses should have been 31,600,083.44. The trial court’s

finding, however, was for $1,565,216.01. This discrepancy,

of $34,367.43, appears in SX’s proof which shows this

amount owed for operating costs and delay rental. We do

not know whether the trial court intended to disallow the

$34,367.43 item; the diserepaney between the finding and

the conclusion is to be resolved on remand.

Second, whether or not the trial court intenced to disal-

low the $34,867.43 item, the amount of costs and expenses

24a

owed by the Wynn corporations is to be recalculated on

remand in accordance with the operating agreement (pre-

viously referred to herein as the second document of the

contract). Exhibit C to that agreement, a standardized

form for “Accounting Procedure”, provided that the oper-

ator, SX, was to bill the nonoperators, Wynn Oil and Wynn

X “on or before the last day of each month for their pro-

portionate share of costs and expenses for the preceding

month. Such bills will be accompanied by statements re-

flecting the total charges and credits...” SX’s proof was

to the effect that as of October 31, 1978, the Wynn corpo-

rations had credits in excess of $215,000.00. It is undis-

puted that this credit had not been applied against the

amount SX claimed as due and, thus, the credits could not

have been applied on a monthly basis as provided by the

operating agreement.

(d) The Interest Rate

The trial court found that SX was entitled to interest at

the rate of 10 percent per annum on the amount of costs

and expenses due from the Wynn corporations, and unpaid.

The Wynn corporations claim the interest rate should have

been 9 percent. Paragraph 8 of the operating agreement

authorized SX to demand and receive advance payments

of estimated costs. Upon failure to pay an advance estimate

Within the time provided, “the amount due shall bear inter-

est at the rate of nine percent (9°) per annum until paid.”

However, under the monthly billing provision in the “Ac-

counting Procedure”, “the unpaid balance shall bear inter-

est monthly at the rate of ten per cent (10%) per

annum...” The Wynn corporations contend these provi-

sions are inconsisteut. They are wrong. The LO percent

interest rate applied unless the amount unpaid was a bill-

ing for an advance estimate. The Wynn corporations «lo

not claim any of the amount they owe SX was for advance

estimates. The trial court correctly found that the interest

rate on unpaid balances was 10 percent per annum.

25a

(e) Caleulating the Interest Rate

The operating agreement provided that the 10 percent

annual interest rate was to be calculated on each unpaid

billing and there is testimony that this was done. There is

evidence that the total interest due, as of October 31, 1978,

was $279,707.78. To the extent this interest was calculated

on a balance which should have been reduced by credits

(see item c), it is excessive.

The trial court awarded, in a conclusion carried forward

into the judgment, an improper interest amount between

the October 31, 1978S date to which interest was figured,

and the date judgment was entered. The judgment amount

was for $1,879,791.22. Of this amount, $279,707.73 was

interest. The judgment provides for “interest on such sum

from November 1, 1978, until entry of this judgment, at

the rate of 10% per annum, and thereafter interest on the

judgment at the rate of 10% per annum until paid in full.”

We are not concerned with the rate of interest. The un-

paid balance bears interest at 10 percent pursuant to the

contract; the judgment amount would also bear interest at

10 percent. See $ 56-8-4, N.M.S.A. 1978 (1980 Cum.Supp.).

Interest accrued to date of judgment may be properly in-

cluded within the judgment amount. O’Meara v. Commer-

cial Insurance Company, 71 N.M. 145, 376 P.2d 486 (1962).

Any interest included within the judgment amount bears

interest at 10 percent, but that is because the judgment

bears interest.

The error was in allowing interest at 10 percent on the

$279,707.73 interest item from October 31, 1978 until entry

of judgment on May 11, 1979. The contract provides only

for simple interest and thus did not authorize interest on

interest. SX does not point to any statute authorizing inter-

est on interest, prior to entry of judgment. Absert either

4 contract or statutory provision authorizing interest on

interest prior to judgment, such may not be recovered. See

26a

Mississippi Valley Trust Co. v. Oklahoma Ry. Co., 156 F.2d

283 (10th Cir. 1946); Watkins & Faber v. Whiteley, 592

P.2d 613 (Utah 1979).

(f) SX contends any error resulting from findings in-

sufficient to support the judgment amount, from failure to

apply eredits at the time provided in the contract, from

calculating interest on amounts that should have been

reduced by credits, and from calculating interest on inter-

est prior to judgment was either waived or was corrected

when the trial court approved the report of a special

master’s sale.

Wynn Oil superseded the judgment against it; Wynn

X's interest in certain property was sold by a special

master, and the special master’s report was approved by .

the trial court.

Wynn Oil was not involved in the special master proceed-

ings; those proceedings have no bearing on Wynn Oil’s

attacks on the amount of the judgment.

Neither the special master’s report nor the order ap-

proving the report identify any errors in the judgment or

purport to correct any such errors; rather, the improper

judginent amount is utilized in both the report and the

order. SX's brief attempts to show that the errors were

corrected but fails in that attempt; the effect of the brief

is to highlight the errors of calculation.

SX claims Wynn X waived any right to have the errors

corrected by failing to appeal from the order approving

the special master’s sale. We disagree. Wynn X had ap-

pealed the propriety of the judgment prior to the special

master’s sale; its attack on the propriety of the judgment

amount was not waived by not taking a second appeal

involving the same issue.

(g) The judgment of liability against Wynn Oil and

Wynn X, entered May 11, 1979, is affirmed. The cause is

27a

remanded to the trial court to correct errors in the amount

of the judgment and the references to the incorrect amount

in the order approving the special master’s sale. The cor-

rection is to be in accordance with the above discussion.

Attorney Fees

In its cross-appeal, SX contends the trial court erred.in

refusing to award it attorney fees. .

(a) Basis for Attorney Fees

Absent an authorizing statute or rule of court, or the

applicability of an exeeption such as those discussed in

Aboud v. Adamis, 84 N.M. 683, 507 P.2d 430 (1973), attorney

fees are not recoverable. SX relies on § 36-2-39, N.M.S.A.

1978 which provides:

In any civil action in the district court ... to re-

cover On an open account, the prevailing party may

be allowed a reasonable attorney fee set by the court,

and taxed and collected as costs.

(b) Meaning of Open Account

“Open account” in §36-2-39, supra, does not mean an

amount owed on a single transaction. Lujan v. Merhege, 86

N.M. 26, 519 P.2d 122 (1974). Nor does it mean an account

stated. Tabet Lumber Company v. Chala:midas, 83 N.M.

172, 489 P.2d 885 (Ct.App. 1971).

“Open account” was defined in Gentry v. Gentry, 59 N.M.

395, 285 P.2d 503 (1955) as follows:

[A]n account usually and properly kept in writing,

wherein are set down by express or implied agreement

of the parties concerned a connected series of debit and

eredit entries of reciprocal charges and allowances,

and where the parties intend that the individual items

of the account shall not be considered independently,

28a

but as a continuation of a related series, and that the

account shall be kept open and subject to a snifting

balance as additional related entries of debits or credits

are made thereto, until it shall suit the convenience of

either party to settle and close the account, and where,

pursuant to the original, express, or implied intention,

there is to be but one single and indivisible liability

arising from such series of related and reciprocal

debits and credits, which liability is to be fixed on the

one party or the other, as the balance shall indicate

at the time of settlement or following the last pertinent

entry of the account.

This definition is the meaning of open account in § 36-2-39,

supra. Lujan v. Merhege, supra; Tabet Lumber Company v.

Chalamidas, supra.

(c) Was There an Open Account?

The Wynn corporations assert there could not be an

open account in this case, citing Texas cases defining “open”

and “sworn” accounts. The Wynn corporations argue that

“(w]here the contract of the parties expressly defines their

respective rights and obligations, no open account results.”

We reject this contention as too extreme.

Our view is that under the evidence the trial court could

properly refuse to find an open account under New Mexico

law, or a “sworn account” as defined by Texas law. See

Carter v. Hegar, 595 S.\W.2d 612 (Tex.Civ.App. 1980); Tex.

Rev. Civ. Stat. Ann. art. 2226 (Vernon). The evidence which

supports this refusal is found in the terms of the contract,

specifically, the operating agreement and the attached

“Accounting Procedure”. See Curter v. Hegar, supra;

French v. Joseph E. Seagram & Sons, Ine., 439 S.W.2d 448

(Tex.Civ.App. 1969).

New Mexico’s detinition of open account, Gentry v. Gen-

try, supra, requires “a connected series of debit and credit

29a

entries of reciprocal charges and allowances,” an account

to be “kept open and subject to a shifting balance... until

it shall suit the convenience of either party to settle and

close” with “but one single and indivisible liability arising

from such series... fixed... as the balance shall indicate

at the time of settlement or following the lust pertinent

entry..." This is the generally accepted definition of

“open account” most frequently found in American case

law. See 1 Tex.Jr.3d Accounts and Accounting, §§ 2 and 3

(1979) at 123; 1 AmJur.2d Accounts and Accounting, $4

(1962) at 373, and cases therein cited.

The operating agreement was for 90 days and as long

thereafter as specified conditions existed; liability accruing

under this term could not be settled or closed at the con-

venience of the parties.

The Accounting Procedure negates a one, single and

indivisible liability fixed at the time of settlement. Rather,

the Accounting Procedure provides for monthly billings

to be paid within fifteen days after receipt of the bill and

thus contemplates divisible liabilities.

The Accounting Procedure provides for adjustments and

reaches (we need not consider whether this reach was suc-

cessful) for an account stated by a provision that a bill

(any monthly bill) “shall conclusively be presumed to be

true and correct” absent written exceptions to the bill with-

in a specified time period.

The trial court did not err in refusing SX’s requested

finding that there was an open account. There being no

open account, } 36-2-39, supra, did not authorize attorney

fees. With this result, we need not consider other arguments

presented on the question of attorney fees.

30a

The judgment of liability having been affirmed, the cause

is remanded for further proceedings in connection with

the amount of the judgment, as previously specified. Each

party is to bear his own costs.

It Is So OnpeEreEp.

Joe W. Woop

Judge

We Concur:

Ramon Lopez, J.

Mary C. Waxters, J.

3la

[NX THE DISTRICT COURT

OF THE FIRST JUDICIAL DISTRICT

State or New Mexico Cousty oF Santa FE

No. 51726 Consolidated SF 77-1263

Filed on 5-11-79

Sovutuers Unioy Scppry Company,

a Delaware corporation,

Plaintiff,

vs.

Wrysy Exptoration Company, Inc.,

et al.,

defendants,

Wryyw Exproration Compayy, INc.,

Plaintiff,

vs.

SovutHern Usion Company, SouTHERN

Ustos Suppty Company and Svproyx

Exsercy Corporation, formerly

Southern Union Production Company,

Defendants.

DECISION OF THE COURT

The Court, having heard the evidence and the arguments

of counsel, and having considered the Requested Findings

of Fact and Conclusions of Law submitted by Southern

Union Supply Company, now known as Southern Union

Exploration Company, Southern Union Company, Wynn

Exploration Company, Inc., Wynn Oil Company and R. C.

Wynn, now renders the following decision:

32a

FINDINGS OF FACT

1. Southern Union Supply Company, the Plaintiff in this

ease, has change its name to Southern Union Exploration

Company and hereinafter will be referred to as Southern

Union Exploration Company. Southern Union Exploration

Company is a corporation duly organized and existing

under the laws of the State of Delaware and is authorized

to do business in the State of New Mexico and has a valid

and separate corporate existence from that ot Southern

Cnion Company.

2. Wynn Oil Company and Wynn Exploration Company

are corporations organized under the laws of the State of

Texas. R. C. Wynn, a resident of Santa Fe County, New

Mexico, is the sole stockholder of Wynn Oil Company and

Wynn Exploration Company. The registered office and

registered agent of each corporation is the Corporation

Company, P.O. Box 787, Santa Fe, New Mexico 87501.

Wrnn Oil Company and Wynn Exploration Company, Inc.

will hereinafter be referred to jointly as Wynn.

3. Southern Union Exploration Company and Wynn

entered into an agreement to explore and develop certain

oil and gas leases in Lea County, New Mexico, such leases

hereinafter referred to as the Gallagher Prospect and be-

ing located on the following described property:

Sections Fight (8) and Seventeen (17)

and the East One Half (E 14) of Section

Eighteen (18), Township Seventeen South

(T-17-S), Range Thirty Four East

(R-34-E), Lea County. New Mexico.

4. The letter agreement of September 8, 1975, (Plain-

tiff’s Exhibit No. 1), the Onerating Agreement (Plaintitf’s

Exhibit No. 3), and the letter agreement of November 18,

1975 (Plaintiff’s Exhibit No. 4) were all made and entered

into in Dallas, Texas, and constitute the entire agreement

33a

between Southern Union Exploration Company and Wynn

as to the Gallagher Prospect.

5. Wynn Oil Company was a party to all agreements

with Southern Union Exploration Company regarding the

Gallagher Prospect. Wynn Oil Company assigned its rights

in the Gallagher Prospect to Wynn Exploration Company

by the letter agreement of November 18, 1975, but the let-

ter agreement was not intended by the parties to release

Wynn Oil Company from its obligations to Southern Union

Exploration Company regarding the Gallagher Prospect.

6. The Operating Agreement was intended by Southern

Union Exploration Company and Wynn to apply to all

wells drilled on the Gallagher Prospect.

7. Wynn agreed to the drilling and completion of all

wells on the Gallagher Prospect except the Supco State

No. 1 well.

8. In accordance with the agreements of the parties,

Southern Union Exploration Company drilled, completed

or operated the following wells on the Gallagher Prospect:

Gallagher State 8-2, Gallagher State 8-3, Lea-C-State;

Pennzoil State No. 1; Supeo State No. 1 and Supco State

No. 2.

9. Southern Union Exploration Company, in drilling,

completing and operating the wells on the Gallagher Pros-

pect (to which Wynn consented), incurred expenses in the

total amount of 33,130,432.02 through October 31, 1978, all

of which expenses were reasonable, necessary and proper

for the prudent development of the property.

10. In accordance with the agreements between Wynn

and Southern Union Exploration Company, Wynn is

obligated to pay one-half of all expenses incurred in the

drilling, completion and operation of the wells to which

Wynn was a consenting party.

3da

1l. Although statements and invoices for charges in-

eurred by Southern Union Exploration Company in the

drilling, completion and operation of the wells were sent

to Wynn, Wynn has failed and refused to pay any of its

share of such expense.

12. Wynn's share of the expenses incurred by Southern

Union Exploration Company in the drilling, completion

and operation of the wells to which Wynn was a consenting

party is $1,565,216.01 through October 31, 1978.

13. In accordance with the Operating Agreement, South-

ern Union Exploration Company is entitled to interest at

the rate of 10% per annum of Wynn’s unpaid share of the

expenses, such interest amounting to $279,707.78 through

October 31, 1978.

14. There was no agreement between Southern Union

Exploration Company and Wynn to list, publish, give

evidence to others or show Wynn as co-owner or co-oper-

ator of the wells.

15. Wynn did not suffer any damages as a result of not

being listed or shown as a co-owner or co-operator of the

wells.

16. Southern Union Exploration Company’s use of the

Keil process in completing the Pennzoil State No. 1 well

did not constitute either ordinary or gross negligence.

17. Southern Union Exploration Company drilled, com-

pleted and operated the wells in a good, prudent and work-

manlike manner and was not guilty of any ordinary or

gross negligence in the drilling, completion and operation

of the wells.

18. Wynn did not sutfer any damages as a result of

Southern Union Exploration Compauy’s drilling, comple-

tion and operation of the wells.

35a

19. Southern Union Exploration Company did not breach

any fiduciary duties, contractual duties or duties of ordi-

nary care to Wynn with respect to the drilling, completion,

operation or marketing of production from the wells.

20. Southern Union Exploration Company was not neg,

ligent and did not act in bad faith or in a reckless or wan-

ton manner in filing or processing an application with the

Federal Power Commission to market the gas from the

wells in interstate commerce or in uot marketing the gas

pending approval of such application.

21. Southern Union Exploration Company has prudently

and timely marketed the production from the wells.

22. Wynn did not suffer any damages as a result of

Southern Union Exploration Company’s filing an applica-

tion with the Federal Power Commission to market the

gas from the wells in interstate conumerce or as a result of

Southern Union Exploration Company’s not marketing

the gas pending approval of such application.

23. The agreements between Southern Union Exploration

Company and Wynn did not contemplate, nor were they

intended to extend to properties other than those specifi-

cally described. Southern Union Exploration Company and

Wynn did not enter into any other agreements to explore

or develop any other oil and gas reserves. No fiduciary

relationship existed between Southern Union Exploration

Company aud Wynn by virtue of their agreements or

activities.

24. Wynn never elected to take over the drilling, com-

pletion or operation of any of the wells.

25. Southern Union Exploration Company and Wynn

did not enter into any agreement to allow Wynn to operate

the Gallagher State 8-2.

26. The information obtained by Southern Union Explor-

ation Company in drilling, completing and operating the

36a

wells was provided or made available to Wynn or was

equally available to Wynn as to Southern Union Explor-

ation Company.

27. Southern Union Company and Southern Union Ex-

ploration Company have not allowed their corporate pur-

poses to overshadow the agreement between Southern

Cnion Exploration Company and Wynn.

28. Wynn did not suffer any damages as a result of any

acts or omissions of either Southern Union Company or

Southern Union Exploration Company in any way related

to the events or transactions involved in this case.

29. Southern Union Company and Supron Energy Cor-

poration did not intentionally or otherwise interfere with

Southern Union Exploration Company or its agreement

with Wynn.

30. Southern Union Company and Southern Union Ex-

ploration Company did not combine, contract or conspire

to shut in the wells and did not restrict trade and did not

limit or control the quantity of oil and gas produced from

the wells.

31. Southern Cnion Exploration Company did not make

uny misrepresentations or commit any fraud upon Wynn

during or after negotiations concerning the Gullagher

Prospect.

32. Southern Cnion Exploration Company performed all

of its obligations to Wynn as required by the agreements

relating to the Gallagher Prospect.

33. Southern Union Exploration Company has provided

an accounting to Wynn as required by the Operating

Agreement.

CONCLUSIONS OF LAW

From the foregoing Findings of Fact, the Court con-

eludes as a matter of law as follows:

37a

1. This Court has jurisdiction over the parties and sub-

ject matter of this action.

2. The doctrine of forum non conveniens alleged by the

Wynn defendants is not applicable to the circumstances of

this action. :

3. Wynn was in breach of the agreements with Southern

Union Exploration Company in failing to pay its share

of the expenses incurred by Southern Union Exploration

Company in drilling, completing and operating the wells.

4. Southern Union Exploration Company is not the alter

ego of Southern Union Company.

5. The Operating Agreement applies to all wells drilled

on the Gallagher Prospect.

6. Southern Union Exploration Company, as operator

of the wells, has no liability to Wynn, as non-operator, for

losses sustained, or liabilities incurred, except such as

result from gross negligence. The standard of care of gross

negligence as applied to the actions of the operator in

this case is not against publie policy and is valid and

enforceable.

7. Southern Union Exploration Company has a valid and

enforceable call on all natural gas produced from the wells

as provided in the Operating Agreement. The call on gas

is not vague, ambiguous or indefinite or against public

policy.

8. Southern Union Company and Southern Union Ex-

ploration Company did not violate any provisions of the

laws of the State of New Mexico relating to antitrust,

monopolies or restraints of trade in connection with the

drilling, completion or operation of the wells or marketing

of production from the wells.

9. The evidence presented by Southern Union Explora-

tion Company in this action constitutes an adequate and

38a

proper accounting to Wynn of the income and expenses

relating to the wells through October 31, 1978.

10. Wynn did not prove by a preponderance of the evi-

dence uny of its affirmative defenses to Southern Union

Exploration Company’s Third Amended Complaint.

11. Wynn failed to prove by a preponderance of the

evidence any of the material allegations contained in its

Complaint and Counterclaim against Southern Union Ex-

ploration Company, Southern Union Company and Supron

Energy Corporation, und accordingly, the causes of action

contained therein should be dismissed with prejudice.

12. Southern Union Exploration Company has a valid,

subsisting, first and preferred operator’s lien under the

Operating Agreement as to Wynn's interest in the real and

personal property and the proceeds from the wells located

on the Gallagher Prospect.

13. Southern Union Exploration Company is entitled to

judgment against Wynn Exploration Company and Wynn

Oil Company in the amount of $1,879,791.22, plus interest

on such sum from November 1. 1978, at the rate of 10%

per annum until paid in full, foreclosure of its operator’s

lien and costs of this action.

All Requested Findings of Fact and Conclusions of Law

of the Parties inconsistent with those found or which are

not adopted by the Court are denied.

Let JuvGmMent Be Enterep AcconDINGLy.

Beatce EB. KactrmMay

District Judge

39a

[SEAL]

STATE OF NEW MEXICO

FIRST JUDICIAL DISTRICT

Chambers of Post Office Box 2258

Bruce E. Kaufman os ag a tt

District Judge -( rea Code

Division IV March 19, 197 9)

Telephone 827-2101

Montgomery, Andrews & Hannahs, P..A.

Post Office Box 2307

Santa I’e, New Mexico 87501

Strasburger & Price

Attorneys at Law

One Main Place

Dallas, Texas 75250

Modrall, Sperling, Roehl, Harris & Sisk, P.A.

Post Office Box 2168

Albuquerque, New Mexico 87103

Re: Southern Union Supply

Co., et al. v. Wynn

Exploration Co., et al.:

Cause No. 51726

(Gentlemen:

In arriving at the court’s opinion on the issues in this

case I have considered the pleadings and responses as

amended, the evidence received orally at trial and the

exhibits and documents properly received in evidence, the

urguments on the law and legal memoranda submitted by

counsel as well as independent research attempted by my-

40a

self on issues raised during the proceedings. As may be

apparent by virtue of the delay and (sic) the rendering of

this decision, I have to some extent sought to review my

own notes and materials gathered during the trial to the

extent that it is possible tu do so with the interruptions

normally attended to in day to day routines. I am satisfied

that I have as thoroughly reviewed the materials pertinent

to this decision as is possible and therefore render this

opinion directed toward ultimate findings and conclusions

and judgment in this cause.

After all of the research and arguments touching upon

technical matters which have been received and reading

many materials, some cited, some not cited, I must return

to a matter of original impression that after all is said and

done the case is one basically of contract law principles.

Having considered all of the testimony in light of legal

far afield (sic) in my own independent research, I ulti-

mately return to the conclusion and judgment that there is

virtually no issue of law raised in this case that could not

have been decided by reference to a contract horn book. It

is true as was argued, that to a large extent the matters

herein must be cletermined by believability or credibility of

testimony considered in the entire context of evidence,

conversations and exchanges which took place, as well as

customs and practices of the industry and other considera-

tions which arise in day to day commerce in the oil and

gas industry, bear on the conclusion reached (sic).

Initially, my conclusions are that negotiations which did

occur between Haseltine and Wynn were largely predicated

upon knowledge held by one individual of another but were

nonetheless reduced to formal writings and indeed infor-

mal understandings on the basic (sic) of corporate under-

takings. This is to say, that while Wynn claims certain

things were done by him principally in reliance of Haseltine

and Haseltine indicates that he was dealing with Wynn (the

dla

individual) that nonetheless both in their original writings

(and later corrected contracts) each of the parties was

dealing with the other on a business format or corporate

basis.

Certain of the errors or clerical misprisions (which ever

one chooses to regard them as) were nonetheless, it seems

to me, rather rvutinely accepted and corrected in formal

written form or at least by the conduct of the parties sub-

sequently, and to that extent ratified in reliance upon what

appeared to me, well understood terms and conditions

sought to be incorporated in the original agreement and

modified to some extent thereafter.

The letter of September Sth, acted upon apparently on

the 4th of October, 1975, by Wynn and the operating agree-

ment, the receipt of which was in dispute but which was in

any event signed, appeared to me to predicate the basis

for the agreement and must be the documents from whence

flowed the legal consequence without substantial variance.

It seems clear to me viewing with the benefit of hind-

sieht and perspective perhaps not afforded the parties, the

initial basis could have been better set forth in greater

detail and that notices issuing and responses thereto should

have been done in a more orderly fashion. However, I rec-

ognize that in the day to day course of business, many of

these things are not viewed as crucial to the on-going flow

of business and not particularly noted, therefore subse-

quent conduct of the parties in reliance upon their prior

judgment becomes ot increasing import as to the manner

in which the parties did view actions taken, affirmed or

ratified.

With the exception of the Supco Number One Well upon

which the notice was clearly inappropriate under the terms

of the original agreement or understanding, I believe that

the evidence must weigh on behalf of the plaintiff to the

extent that Wynn was in fact a willing participant in each

of the drilling operations.

42a

Whether or uot one views the agreement as having

created a joint venture, there was certainly the opportunity

for certain mutual exercise of control or taking over of

operations at one phase or another. This Wynn apparently

never did, and it seems by virtue of the evidence produced

at trial, he did attempt to belatedly documeut expressions

of interest in becoming operating partner. In other words,

Wynn had the opportunity to exercise certain prerogatives

which in fact it is not documented that he did so employ.

Defendant Wynn Companys’ (sic) did pursue the matters

and all outward communications reflected continuing parti-

cipation and interest upon the part of the Wynn defendants.

I cannot find any evidence before me, that plaintiff’s (sic)

Southern Union Exploration did in fact breach any right

of Wynn either in initially commencing drilling or to take

(sic) over operation of any of the ventures pursued. Other

than the obvious overlooking of the Supco One notice the

evidence is entirely to the contrary.

Because of the nature and substance of the agreement

which I previously indicated I viewed as a contract matter

between consenting parties, in effect as corporate partners,

I do believe that either of the parties was entitled upon

appropriate notice and proper form to an accounting one

from the other. Again, it would seem that the accounting

practices initially applied in this matter were not destined

to clearly reflect the day to day transactions. By the time

this matter came to trial it is apparent that this had been

corrected and that the reporting aspects of claily operations

toyether with a recapitulation type statement are readily

available. I therefore believe that it is appropriate that

Wynn have an accounting showing precisely what the total-

ity of his involvement and obligations was and is as of the

current time. In effect, it may well be that the evidence

produced at trial from the various representatives of each

of the parties, and particularly the tiscal officer of the

43a

defendant Southern Union Company, has been provided.

If that is not sufficient, however, I would direct that the

information provided as to the total picture of the financial

obligations of the parties be rendered in a simplistic letter

form stating what the commitment and balances of the

parties are with regard to their respective interests and

have the underlying vouchering material available for in-

spection by Wynn at a mutually agreed time and place.

With respect to the claims that notwithstanding notice

to Wynn and his chance to participate that the Southern

Union Exploration’s work was done on a basis that was

either negligent, grossly negligent or otherwise improper,

this aspect of the case took far more time in receipt

that I am prepared to give it in the rendition of an opin-

ion. The testimony received on behalf of both parties was

impressive. One cannot certainly overlook the testimony

received from the Wynn witnesses any more than one can

lightly discard the testimony of the company employees

and people in the industry that were produced by Southern

Union.

After all that is said and done this is still a court of

law to be governed by not only the credibility of the evi-

dence but the propriety of actions occurring at past times

based on information then available.

I cannot find that the explorations, while they might

otherwise be done today, were in fact so negligent, grossly

negligent or otherwise improper so as to afford either a

defense to or an action by the Wynn defendants against

Southern Union Exploration. Whether it was a neglect of

research in advance, the obtaining of information or the

manner and form of the treatments, I must find that no

activities so undertaken were so grossly deficient or widely

neglectful so as to in any fashion predicate the claims

either in defense or counterclaim on behalf of Wynn.

d4a

The testimony on the issue of the FPC and “intra” state

marketing or “inter-state” marketing while positing inter-

esting theories which might or could have underlain the

considerations of Southern Union in seeking to formulate

and operate this agreement, are to me as produced in evi-

dence no more than that simply intriguing theories which

are tactually unsupported in evidence received by the court.

I have not overlooked the fact that parent company of

the plaintiff is in fact a public utility and that the stan-

dards applicable there are indeed to some extent different

than those which might apply to a purely public but non

utility type gas and petroleum exploration or marketing

company. I find that none of the standards urged by

defendant Wynn affects the manner or course of their

conduct or legal consequences flowing therefrom.

I also indicate that whether the standard as observed

above was one of negligence, reckless professional disre-

gard, or misconduct or gross negligence that the defendant

Southern Union has not breached any of the standards

which [ find to be here applicable.

With the foregoing recitations, it is not necessary to con-

sider the application for recession (sic) for false represen-

tatious as prayed and that application of the plaintitf will

be denied. The balance of the claims by the Wynn interest

including the call on the gas and marketing the gas which

are intertwined with the other contractual theories of coun-

terdefendant, I find are not supported by sufficient evidence

to warrant further consideration and will dismiss them

ilenying the relief prayed.

While there is a clear conflict as to the exchanges orally,

the weight of the evidence seems to me clearly to be on the

side of the plaintiff, Southern Union Exploration and I

cannot find any overriding testimony to the degree neces-

sary to negate the clear agreement which I have recited

above, therefore, the claim for relief on that basis by the

counterclaimant is respectfully denied.

45a

With respect to the various discussions of intermingled

corporate purpose “overshadowing” purposes or the alter

ego theories, these are again intertwined with both the

contractual theory of the case, alleged misrepresentations

or inactions and acts said to have been neglectful or impru-

dently done, As has often been said corporations act only

through their individual employees, officers and agents.

While the counterclaini pleadings do not go as far as to.

claim fraud they do claim improper activity to the extent

that it would have to be established by clear and convincing

evidence in my view, to so sustain such a cause of action.

[ can find no such proof accordingly, the claim for alleged

corporate overshadowing is denied.

Having found that the basic action herein is a contrac-

tual one which was in fact breached by the legal contracts,

I will award judgment based on the foregoing recitations

against the principle (sic) corporate defendants as named in

the amended pleadings. I have also above stated, that the

nature of the relationship was one of between (sic) agreeing

partners of corporate character much in the nature of a

joint-venture undertaken. Accordingly, I cannot find that

it was an open account but can find that interest should

be assessed by virtue of the apparent wilful delay in the

acknowledgment of a legitimate debt passed (sic) due. The

provision for collection of attorney fees, however, I cannot

accede to hecause of the recitations as just made. I will

therefore assess judgment in the sum of $1,879,791.22 as

adduced by the proof of the fiscal officer during his testi-

mony, will deny the application for attorneys fees but will

award costs on behalf of the plaintiff, Southern Union

Supply Company. The judgment shall lie against both Wynn

Exploration and Wynn Oil Companies but not against R. C.

Wynn individually, All counterclaims as submitted and not

otherwise specifically enumerated in the foregoing reci-

tations are respectfully clenied and the defendant Wynn

interests shall take nothing by their counterclaims.

dba

Parties requiring further clarification of the foregoing

recitation may address themselves specifically at the court

for such clarification with copies of the inquiry noted to

opposing counsel.

Thank vou for your consideration and patience.

Very truly yours,

Bruce E. Kacraay

Bruce E. Kaufman

District Judge

BEK :maf

47a

STATE OF NEW MEXICO COUNTY OF SANTA FE

IN THE DISTRICT COURT

No. 51726

*82 APR 27

Consolidated SF 77-1263

SOUTHERN UNION EXPLORATION COMPANY

oF TEXAs, a Delaware corporation,

Plaintiff,

VS.

WYNN EXPLORATION CoMPANY, INC.,

et. al.,

Defendants,

WYNN EXPLORATION CoMPANY, INC.,

Plaintiff,

Vs.

SOUTHERN UNION COMPANY, SOUTHERN UNION

Supply COMPANY and SUPRON ENERGY

CORPORATION, formerly Southern Union

Production Company,

Defendants.

JUDGMENT ON THE MANDATE

This matter coming on for hearing on the motion of the

plaintiff, Southern Union Supply Company, later known as

Southern Union Exploration Company and now known as

Southern Union Exploration Company of Texas, for judgment

on the mandate, and the Court being fully advised in the

premises, find and concludes that the mandate from the Court

of Appeals of New Mexico was filed in this court on February

24, 1981 and that a petition for certiorari by the defendant

Wynn Oil Company was denied by the Supreme Court of New

Mexico on February 18, 1981, that thereafter a motion by

defendant Wynn Oil Company for reconsideration of the Su-

preme Court’s denial of certiorari was denied on July 22, 1981

and that thereafter a second motion by defendant Wynn Oil

4sa

Company for reconsideration of the Supreme Court's denial of

certiorari was denied on August 26, 1981. The Court finds and

concludes that the $34,867.43 items mentioned in the Opinion

of the Court of Appeals should be allowed and that there is

justly due and owing by the defendants Wynn Exploration

Company, Inc. and Wynn Oil Company, through October 31,

1978, before calculation of interest on a monthly basis and

deduction for revenues received on a monthly basis, the sum of

$1,600,083.44 for the drilling, completion and operation of the

wells in issue in this cause to which Wynn Exploration Com-

pany, Inc. and Wynn Oil Company were consenting parties.

The Court further finds and concludes, that after calculation

of interest on a monthly basis and credit for revenues received

in a monthly basis, in accordance with the mandate of the Court

of Appeals of the State of New Meico that the amount of the

judgment of this Court entered in this cause on May 11, 1979

should be $1,714,571.41.

The Court further finds and concludes that the proper appli-

cation of the proceeds of the specia! master’s sale of the interest

of Wynn Exploration Company, Inc. in the property in issue is

as follows:

Total Amount Paid by Plaintiff at Sale .... $50,000.00

Costs and Expenses of Sale ............. $ 485.25

Special Master’s Fee ........csscecseeees $ 2,000.00

Balance Applied to Judgment and Debt ... $47,514.75

The interest accrued on the judgment from May 12, 1979

until the special master’s sale on July 5, 1979, revenue credits

accrued from May 12, 1979 until the special master’s sale on

July 5, 1979 and the application of the amounts bid by the

plaintiff at the special master’s sale are:

49a

Interest on Judgment Amount of

$1,714,571.41 for Period

iRErge Ge CHT ckckcckcecect tacctncce Eee

Less Revenue Received 5/12/79

ON Rete ER i ab RE aC Ea LA see NMC $ 9,790.42

Interest on Judgment Amount of

$1,714,571.41 Unpaid as of

Tg OE ithe NES Sa Poy oA ne Rey $ 16,045.59

Proceeds of Sale Applied to Interest

After Expenses of Sale ............5. $ 16,045.59

Proceeds of Sale Applied to Principal

After Expenses of Sale ...........055 $ 31,469.16

WE ives butkcectachavensavebcete $ 47,514.75

PUNE 6 iv oes os Kansnatvecaseunceetas $1,714,571.41

Less Proceeds of Sale Applied

OP PEE cn criudcusnskesheccuenaoan $ 31,469.16

Deficiency as of 7/5/79 .........000+++++ 91,683, 102,55

It Is THEREFORE ORDERED, ADJUDGED AND DECREED that

the plaintiff, Southern Union Supply Company, later known as

Southern Union Exploration Company and now known as

Southern Union Exploration Company of Texas, be, and it

hereby is, granted judgment on the mandate against the de-

fendants Wynn Exploration Company, Inc. and Wynn Oil

Company, and each of them, in the amount of $1,714,571.41

with interest on the amount of said judgment at the rate of 10%

per annum from and after May 11, 1979 until paid in full.

It Is FURTHER ORDERED, ADJUDGED AND DECREED that after

application of the net revenues received from the original

judgment date of May 11, 1979 to the date of sale on July 5, 1979

and the application of the proceeds of sale in accordance with

this Court's judgment of May 11, 1979, and addition of interest

50a

on the judgment from May 12, 1979 to July 5, 1979 and credit

for revenues from May 12, 1979 toJuly 5, 1979, there remains a

deficiency in the judgment entered herein in favor of plaintiff

and against the defendants Wynn Oil Company and Wynn

Exploration Company, Inc., and each of them, in the amount of

$1,683, 102.55, such sum to bear interest at the rate of 10% per

annum from the date of sale of July 5, 1979 until paid in full.

It Is FURTHER ORDERED, ADJUDGED AND DECREED that the

Court's judgment of May 11, 1979, in all other respects, be, and

it hereby is, affirmed as required by the mandate of the Court

of Appeals of the State of New Mexico.

s’ Bruce E. Kaufman

DISTRICT JUDGE

SUBMITTED:

STRASBURGER & PRICE

MONTGOMERY & ANDREWS, P.A.

By /s/ Victor R. Ortega

Victor R. ORTEGA

Attorneys for Southern Union Supply

Company later known as Southern

Union Exploration Company and now

known as Southern Union Exploration

Company of Texas

5la

IN THE DISTRICT COURT

OF THE FIRST JUDICIAL DISTRICT

State or New Mexico County or Santa Fe

No. 51726 Consolidated SF 77-1263

Filed on 5-11-79

Soutnern Usroy Suppry Company,

a Delaware corporation,

Plaintiff,

Vs.

Wyyy Exproration Company, Inc.,

et al.,

Defendants,

Wryyy Exproration Compayy, Ine.,

Plaintiff,

vs.

Sovtuern Union Company, SouTHERN

Ustoy Suppry Company and Suproy

Exserocy Corporation, formerly

Southern Union Production Company,

Defendants.

JUDGMENT

This cause having come on for trial before the Court

sitting without a jury, and the Court having heard the

testimony of the witnesses and having considered all of

the evidence submitted at the trial and having considered

52a

the arguments and briefs submitted by counsel and having

made its decision herein and entered its Findings of Fact

and Conclusions of Law.

Ir ts OrnpereD, AvsupGep anv Decreep as follows:

1. That the Plaintiff, Southern Union Supply Company,

now known as Southern Union Exploration Company, be,

and it hereby is, granted judgment against the Defendants,

Wynn Exploration Company, Ine. and Wynn Oil Company,

in the amount of $1,879,791.22, plus interest on such sum

from November 1, 1978, until entry of this judgment, at the

rate of 10% per annum, and thereafter interest on the

judgment at the rate of 10% per annum until paid in full.

2. That the Plaintiff, Southern Union Supply Company,

now known as Southern Union Exploration Company, be

and hereby is, awarded its costs against the Defendants,

Wynn Exploration Company, Inc. nd Wynn Oil Company.

3. That the Plaintiff, Southern Union Supply Company,

now known as Southern Union Exploration Company, be,

and it hereby is, adjudged and declared to have a valid,

subsisting, first and preferred operator’s lien under the

Operating Agreement upon, against and applicable to any

and all interest of the Defendants, Wynn Exploration Com-

pany. Ine. and Wynn Oil Company, in the following de-

scribed land located in Lea County, New Mexico:

Sections Eight (8) and Seventeen (17) and the East

One Half (E '%) of Section Eighteen (18), Township

Seventeen South (T-17-S), Range Thirty-Four East

(R-34-E), Lea County, New Mexico,

and in all rights, properties, assets and interests appurte-

nant to such land, including, but not limited to, any and all

interest of such Defendants in all oil, gas and other min-

erals in, on and under such land, and in ull oil, gas and other

minerals produced from such land and in the value and

proceeds thereof, und in all wells, materials, equipment,

58a

fixtures and personal property located on or acquired for

use on such land, such lien to secure the payment of all

sums awarded to Plaintiff under this judgment, including

interest and the costs of this action.

4. That the said operator’s lien awarded to Plaintiff,

Southern Union Supply Company, now known as Southern

Union Exploration Company, be, and it hereby is, ordered

foreclosed and the above described interest of the Defend-

ants, Wynn Exploration Company, Ine. and Wynn Oil

Company, be, and it hereby is, ordered sold in accordance

with the law of the State of New Mexico to satisfy this

judgment and all sums due under it, and the Defendants,

Wynn Exploration Company, Ine. and Wynn Oil Company,

be, and they hereby are, forever foreclosed, barred and

estopped from having or claiming to have any right, title,

interest, or lien superior to the lien of Plaintiff in and to

the above described property.

5. That Sumner G. Buell be, and he hereby is, appointed

as a Special Master by the Court to sell the interest of the

Defendants, Wynn Exploration Company, Inc., and Wynn

Oil Company, in and to the said above described property.

The sale shall take place on the 20th day of June, 1979, at

10:00 am. (or on such later (late as may be ordered by

this Court) at the Lea County Courthouse in Lea County,

Lovington, New Mexico. The Special Master shall, upon

confirmation of the sale by this Court, issue a Special Mas-

ter’s Deed and Bill of Sale to the purchaser of the interest

ordered sold hereunder,

6. The foreclosure and sale shall be in accordance with

the provisions of the law of New Mexico relating to such

matters, to-wit: Section 39-5-1 through 39-5-23, N.M.S.A,

1978, inclusive, and the parties to this action may bid and

purchase at such sale. The Plaintiff, Southern Union Sup-

ply Company, now known as Southern Union Exploration

Seda

Company, may hid all, or any portion of, the judgment

awarded herein ut the sale.

7. That the proceeds of said sale be applied first to the

expenses of the sale and then to the amounts due Plaintiff.

Southern Cuion Suppiy Company, now known as Southern

Union Exploration Company, such sums to be applied first

to accrued interest and then to principal. If the proceeds

vf the sale ure insufficient to satisfy said sums due to the

Plaintiff, then this judgment shall be effective against the

Defendants, Wynn Exploration Company, Ine. and Wynn

Oil Company, with respect to the amount of any such defi-

ciency and execution shall issue against the assets of said

Defendants for such deficiency.

8. That all actions and all counterclaims and complaints

of the Defendant, Wynn Exploration Company, Inc.,

against the Plaintiff, Southern Union Supply Company,

now known as Southern Union Exploration Company, and

against Supron Energy Corporation, formerly Southern

Union Production Company, and Southern Union Com.

pany be, and they hereby are, dismissed with prejudice.

9, That Supron Energy Corporation, formerly Southern

Union Production Company and Southern Union Company,

be, and they hereby are, awarded their costs against the

Defendant, Wynn Exploration Company, Ine.

10. That the application for attorneys’ fees by the Plain-

tiff, Southern Cnion Supply Company, now known as

Southern Union Exploration Company, be, and the same

hereby is, denied.

Dated this llth day of May, 1979.

Brcce FE. Kavrmay

District Judge

55a

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

No. 14862

Wyxw Ort Company,

Petitioner.

Vs.

SOUTHERN UNION EXPLORATION

COMPANY OF TEXAS,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE NEW

MEXICO COURT OF APPEALS

STEPHENSON, CARPENTER, CRoUT & OLMSTED

CHARLES D. OLMSTED

WILLIAM P. TEMPLEMAN

Linpsay A. Lovesoy, JR.

P.O. Box 669

Santa Fe, New Mexico 87504-0669

(505) 982-4611

Attorneys for Petitioner

Wynn Oil Company

March 30, 1983

56a

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

No. 14862

Wynn OIL CoMPany,

Petitioner.

Vs,

SOUTHERN UNION EXPLORATION

CoMPANY OF TEXAS,

Respondent.

PETITION FOR WRIT OF CERTIORARI TO THE NEW

MEXICO COURT OF APPEALS

Pursuant to Rule 28 N.M.R.App.P. (Civ.) and § 34-5-14

NMSA (1978), petitioner Wynn Oil Company (“Wynn Oil”)

hereby petitions this Court for its writ of certiorari to review

the decision of the New Mexico Court of Appeals, dated March

10, 1983, in Southern Union Exploration Co. v. Wynn Oil Co.,

No. 5795 (annexed hereto as Exhibit A—the “Second Opin-

ion”), and the earlier opinion of the Court of Appeals, dated

January 13, 1981, in the same case, Nos. 4168 and 4262 con-

solidated (annexed hereto as Exhibit B—the “First Opinion”).

As reasons for granting this petition, Wynn Oil states:

* “* *«

4. THE BASES FOR GRANTING THE WRIT

This petition invokes this Court’s certiorari jurisdiction as to

both the First and Second Opinion on all four of the grounds

provided in § 34-5-14 NMSA (1978)}—namely, because both

opinions of the Court of Appeals conflict with the decisions of

this Court, because the opinions conflict with each other, be-

cause the Second Opinion’s construction of the First Opinion

violates constitutional due process, and because these conflicts

raise issues of substantial public interest respecting the judi-

cial process which should be determined by this Court.

or

a. The Second Opinion

The trial court’s first judgment held Wynn Oil joint/y liable

with Wynn X for 50 percent of the cost of the five wells on the

sole theory that, pursuant to the Third Document, Wynn Oil

was the “unreleased assignor” of Wynn X and, therefore, was

jointly liable for all wells in which only Wynn X elected to

participate. The First Opinion destroyed this basis of Wynn

Oil’s liability, holding that “Wynn Oil was not a party to” the

Third Document, that it “was not executed by Wynn Oil and

there are no words of assignment in the document,” and that it

“has no effect on the liability of Wynn Oil for its obligations

under the first two documents” (Ex. B, 541). The First Opin-

ion, instead, held that “[t]he contents of [the First and Second

Documents} provide a basis for the judgment against Wynn

Oil” (id. 539) and that “Wynn Oil is liable on the basis of the

documents it executed” (/d. 541). The First Opinion plainly did

not hold that Wynn Oil was jointly liable with Wynn X on the

basis of the same contract. Finally, the First Opinion con-

cluded that: “The judgment of liability having been affirmed,

the cause is remanded for further proceedings in connection

with the amount of the judgment, as previously specified” (id.

545).

The Second Opinion again held Wynn Oil jointly liable with

Wynn X for 50 percent of the costs of the same five wells,

ostensibly on law of the case grounds. In doing so, the Second

Opinion either ignored or reversed the specific rulings of the

First Opinion establishing that Wynn Oil is not liable on the

Third Document.

* * *

By ignoring and reversing the actual rulings of the First

Opinion respecting the Third Document, and by holding that

its own subjective distortions of the First Opinion are the law

of this case, the Second Opinion seeks to deny review of both

opinions on the merits by this Court and, thus, to deny con-

stitutional due process to Wynn Oil.

58a

All above-described conflicts, due process violations, and

violations of orderly judicial process raise issues of substantial

public interest which should be determined by this Court.

* ~~ 7~

The subjective test applied in the Second Opinion creates a

trap for litigants and for this Court. If the First Opinion means

what the Second Opinion now claims it says, then the First

Opinion is plainly deceptive. For the actual language of the

First Opinion clearly states that Wynn Oil is not bound by the

Third Document and that the trial court's critical “assignment”

theory is simply “incorrect” (Ex. B, 541). And Wynn Oil has

been caught ina bizarre trap, in which the Court of Appeals has

only revealed the hidden meaning of the First Opinion two

years after it was rendered, when Wynn Oil may have no

opportunity to argue the validity of that decision, and this

Court may be precluded from reviewing that decision at the

instance of Wynn Oil.

Such “Catch-22” jurisprudence requires this Court’s im-

mediate intervention. The Court of Appeals here has pre-

sumed to rewrite its own prior opinion, reversing the previous

result which was favorable to Wynn Oil, and resolving critical

issues contrary to its own previous judgment. Such result was

achieved without trial, evidence, or, indeed, any legal theory

which would support the result. The outcome is presented to

Wynn Oil as a conclusive matter, and any further litigation is

precluded. Obviously, the retroactive revision of matters

which are res judicata denies due process under the Four-

teenth Amendment to the unfortunate litigants, like Wynn Oil,

who are caught in such a trap.

The Second Opinion creates the conclusive presumption that

the remand directions state the entire substance of the First

Opinion, and that none of the specific rulings in that opinion,

which are favorable to Wynn Oil, need be considered. Such a

presumption is so irrational that it violates Constitutional due

process. See, e.g., Elkins v. Moreno, 435 U.S. 647 (1978);

59a

Turner v. Department of Employment Security, 423 U.S. 44

(1975); Cleveland Board of Education v. LaFleur, 414 U.S.

632 (1974); Vlandis v. Kline, 412 U.S. 441 (1973); Stanley v.

[llinois, 405 U.S. 645 (1972); United Transportation Union v.

State Bar of Michigan, 401 U.S. 576 (1971).

* * *

60a

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

No. 14,862

WYNN OIL CoMPANY,

Petitioner,

Vs.

SOUTHERN UNION EXPLORATION

COMPANY OF TEXAS,

Respondent.

Certiorari To The New Mexico Court of Appeals

MOTION FOR REHEARING

COMES NOW WYNN OIL COMPANY, Petitioner in the

above styled and numbered cause, and files this Motion for

Rehearing of this Court’s decision dated April 22, 1983 denying

its Petition for Writ of Certiorari, and respectfully shows the

Court the following:

In denying Wynn Oil Company’s (“Wynn Oil”) Petition for

Writ of Certiorari, this Court overlooked or misapprehended

the following points of law and fact:

1. The Court of Appeals violated the New Mexico doctrine

of the law of the case and this Court’s controlling decisions in

Gerety v. Demers, 92 N.M. 396, 589 P.2d 180 (1978); Spingola

v. Spingola, 93 N.M. 598, 603 P.2d 708 (1979); State ex rel.

Bujac v. District Court, 28 N.M. 28, 205 P. 716 (1922); and

others. The Second Opinion (Ex. A to Pet. for Writ of Cert.)

holds that Wynn Oil is liable to Southern Union for more than a

million dollars on the basis of a contract which another panel of

the Court of Appeals had previously rejected as the basis of

Wynn Oil's liability in the First Opinion.

The First Opinion (Ex. B. to Pet.) of the Court of Appeals:

(a) rejected the basis of joint liability employed by the trial

court against Wynn Oil; ‘b) found that Wynn Oil was separate-

6la

ly liable on a contract different from the contract which binds

Wynn X; and (c) “remanded for further proceedings in connec-

tion with the amount of the judgment.” However, contrary to

this Court’s decision establishing the principles of the law of

the case, another panel of the Court of Appeals refused to be

bound by the specific holdings of the First Opinion, and

affirmed a second judgment by the trial court which erroneous-

ly held Wynn Oil jointly liable on the same contract which binds

Wynn X,—the very basis for liability rejected in the First

Opinion.

The only basis for this nonsensical conclusion is the second

panel's subjective impression of the thrust of the First Opin-

ion, which is contradicted by the express contrary holdings in

the First Opinion. For the second panel to disregard express

rulings and confect “the law of the case” out of its own subjec-

tive imagination makes a mockery of this Court's decisions,

such as Gerety v. Demers, supra, that the law of the case is

contained only in express rulings.

Thus, the Court of Appeals has turned New Mexico's law of

the case doctrine on its head—it refused to apply the law of the

case when it was required to do so, and it distorted that

doctrine to apply it when the doctrine was inapplicable. In so

doing, the Court of Appeals rode roughshod over numerous

decisions of this Court and undermined the fundamental pro-

cedural framework by which disputes are resolved in New

Mexico. (Argued Point 1, Pet. for Writ of Cert.)

2. Asaresult of such judicial misconduct, Wynn Oil never

received notice or an opportunity to be heard as to the basis

upon which it has been found contractually liable for over two

million dollars, instead of only approximately $480,000 to date.

The Court of Appeals, with no new evidence, has rewritten its

First Opinion, reversing the previous result which was favor-

able to Wynn Oil, and resolved critical issues contrary to the

plain rulings of the First Opinion. The Court of Appeal’s in-

defensible interpretation of the First Opinion was not revealed

to Wynn Oil until two years after the decision was rendered—

62a

when it was presented as a conclusive matter with any further

litigation precluded. Such retroactive revision of an appellate

ruling trapped Wynn Oil and denied it due process in violation

of the Due Process Clause of the 14th Amendment to the

United States Constitution and Article 11, Section 18 of the

New Mexico Constitution. (Argued Point 1, Pet. for Writ of

Cert.)

3. The Second Opinion seems to have invented a conclusive

presumption that the remand directions are the exclusive

source of the law contained in the First Opinion, and that none

of the specific rulings of that opinion which were favorable to

Wynn Oil need be considered, Such a decision is not merely

error; it is arbitrary, capricious, and in violation of established

principles of law, and has denied Wynn Oil its constitutionally

guaranteed substantive due process in violation uf the above-

cited Due Process clauses. (Argued Point 1, Pet. for Writ of

Cert.)

63a

A.A.P.L. FORM 610

MODEL FORM OPERATING AGREEMENT—1956

Non-Federal Lands

OPERATING AGREEMENT

DATED

September 15, 1975,

FOR UNIT AREA IN TOWNSHIP 178, RANGE 34E, Lea

COUNTY, STATE OF New Mexico,

AMERICAN ASSOCIATION OF PETROLEUM LANDMEN

APPROVED FORM AAPL NO, 610 MAY BE ORDERED

DIRECTLY FROM THE PUBLISHER ROSS-MARTIN

COMPANY, BOX 800, TULSA 74101

A « "

12, OPERATIONS BY LESS THAN ALL PARTIES

If all the parties cannot mutually agree upon the drilling of

any well on the Unit Area or upon the reworking, deepening or

plugging back of a dry hole drilled at the joint expense of all

parties or a well jointly owned by all the parties and not then

producing in paying quantities on the Unit Area, any party or

parties wishing to drill, rework, deepen or plug back such a

well may give the other parties written notice of the proposed

operation, specifying the work to be performed, the location,

proposed depth, objective formation and the estimated cost of

the operation. The parties receiving such a notice shall have

thirty (30) days (except as to reworking, plugging back or

drilling deeper, where a drilling rig is on location, the period

shall be limited to forty-eight (48) hours exclusive of Saturday

or Sunday) after receipt of the notice within which to notify the

parties wishing to do the work whether they elect to partici-

pate in the cost of the proposed operation. Failure of a party

receiving such a notice to so reply to it within the period above

fixed shall constitute an election by that party not to partici-

pate in the cost of the proposed operation.

If any party receiving such a notice elects not to participate

in the proposed operation (such party or parties being hereaf-

64da

ter referred to as “Non-Consenting Party”), then in order to be

entitled to the benefits of this section, the party or parties

giving the notice and such other parties as shall elect to partici-

pate in the operation (all such parties being hereafter referred

to as the “Consenting Parties”) shall, within thirty (30) days

after the expiration of the notice period of thirty (30) days (oras

promptly as possible after the expiration of the 48-hour period

where the drilling rig is on location, as the case may be) actually

commence work on the proposed operation and complete it

with due diligence.

The entire cost and risk of conducting such operations shall

be borne by the Consenting Parties in the proportions that

their respective interests as shown in Exhibit “A” bear to the

total interests of all Consenting Parties. Consenting Parties

shall keep the leasehold estates involved in such operations

free and clear of all liens and encumbrances of every kind

created by or arising from the operations of the Consenting

Parties. If such an operation results in a dry hole, the Consent-

ing Parties shall plug and abandon the well at their sole cost,

risk and expense. If any well drilled, reworked, deepened or

plugged back under the provisions of this section results in a

producer of oil and/or gas in paying quantities, the Consenting

Parties shall complete and equip the well to produce at their

sole cost and risk, and the well shall then be turned over to

Operator and shall be operated by it at the expense and for the

account of the Consenting Parties.

* » *

22. LIABILITY OF PARTIES

The liability of the parties shall be several, not joint or

collective. Each party shall be responsible only for its obliga-

tions, and shall be liable only for its proportionate share of the

costs of developing and operating the Unit Area. Accordingly,

the lien granted by each party to Operator in Section 9 is given

to secure only the debts of each severally. It is not the intention

of the parties to create, nor shall this agreement be construed

65a

as creating, a mining or other partnership or association, or to

render them liable as partners,

* * *

30, NOTICES

All notices authorized or required between the parties, and

required by any of the provisions of this agreement, shall,

unless otherwise specifically provided, be given in writing by

United States mail or Western Union Telegram, postage or

charges prepaid, and addressed to the party to whom the

notice is given at the addresses listed on Exhibit “A”. The

originating notice to be given under any provision hereof shall

be deemed given only when received by the party to whom

such notice is directed and the time for such party to give any

notice in response thereto shall run from the date the originat-

ing notice is received, The second or any responsive notice

shall be deemed given when deposited in the United States

mail or with the Western Union Telegraph Company, with

postage or charges prepaid. Each party shall have the right to

change its address at any time, and from time to time, by giving

written notice thereof to all other parties.

31, OTHER CONDITIONS, IF ANY, ARE:

* * *

Consent to the drilling of a well shall not be deemed as

consent to the setting of casing and a completion attempt.

After any well drilled pursuant to this agreement has reached

its authorized depth, Operator shall give immediate notice to

Non-Operators, The parties receiving such notice shall have

forty-eight (48) hours (exclusive of Saturday or Sunday) in

which to elect whether or not they desire to set casing and to

participate in a completion attempt. Failure of a party receiv-

ing such notice to so reply within the period above fixed shall

constitute an election by that party not to participate in the

cost of a completion attempt. If all the parties elect to plug and

66a

abandon the well, Operator shall plug and abandon same at the

expense of all the parties. If one or more, but less than all, of

the parties elect to set pipe and to attempt a completion, the

provisions of Section 12 shall apply to the operations thereafter

conducted by less than all parties.

This agreement may be signed in counterpart, and shall be

binding upon the parties and upon their heirs, successors,

representatives and assigns.

OPERATOR

SOUTHERN UNION SUPPLY COMPANY

ATTEST:

/s/

Assistant Secretary

‘s) By Oran L. Haseltine

Vice President

NON-OPERATOR

WYNN OIL COMPANY

ATTEST:

/s/ Sue Kelly

Asst. Sec’y.

is) R. C. Wynn

ATTEST:

67a

SOUTHERN UNION SUPPLY COMPANY

Fivetity Uxton Tower

Darras, Texas 75201

November 18, 1975

Wynn Exploration Company ‘

Suite 1808, Campbell Ceutre E

Dallas, Texas 75206

Attention: Mr. R. C. Wynn

Re: Gallagher Prospect, Section 8, 17

and East Half of Section 18, T-17-S,

R-34-E, Lea County, New Mexico

Gentlemen:

Reference is made to our letter to you dated September 8,

1975, to which was attached an operating agreement and

also reflected the agreement between Wynn Oil Company

and Southern Union Supply Company. I have recently been

informed that you have agreed to assume 50% of the cost

and obligations as well as the rights and benefits to be

earned and acquired in connection with the subject prospect

and further that you were desirous of the change in name

of your Company from Wynn Oil Company to Wynn Explo-

ration Company.

The purpose of this letter is to amend our agreement

dated September 8, 1975, herein above referred to, to the

extent that Wynn Exploration Company and Southern

Union Supply Company each agree to assume 50% of the

cost and obligations and accordingly be entitled to 50% of

the rights and benefits to be earned and/or acquired as

results of our joint operation hereunder.

It is understuod and agreed that the provisions set forth

in our letter agreement dated September 8, 1975, shall

remain in full force and effect in all of its terms and pro-

visions except as herein specifically amended.

68a

In the event the above remarks correctly state the terms

agreed upon, please indicate your concurrence by executing

and returning a copy of this letter in the space provided at

your earliest convenience since the well is presently on

location and drilling. )

Yours truly,

SovutHern Union Svuppry

CoMPANY

By Oraw L. Hazerttve

Oran L. Hazeltine —

Vice President

AGREED TO aNpD AccerTep Tus 24th

day of November, 1975.

Wyysw Exproration Company

By R. C. Wrsx

R. C. Wynn — President