Appendix — Diamond Shamrock Corp. v. Hamilton

Supreme Court brief1986

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86-607.) | Smeets

QCT 14 1986

| JOSEPH F. SPANIOL, JR,

IN THE :

Supreme Court of the Bnited States

OCTOBER TERM, 1986

DIAMOND SHAMROCK CORPORATION

Petitioner,

JoHN HAMILTON, MARTHA FRANCIS, Morris A.

RICHARDSON, ZINKE & TrumBo, LTp., ROBERT M. ZINKE,

and Davip B. TRUMBO,

Respondents.

APPENDICES TO PETITION

FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

H. B. WATSON, JR.

Counsel of Record

RicHarD K. Books

SHARON TAYLOR THOMAS

Watson & McKENZIE

1900 Liberty Tower

Oklahoma City, OK 73102

(405)232-2501

Attorneys for Diamond Shamrock

Corporation

October 14, 1986

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

Appendix

; Table of Contents

Appendix A--

Opinion of the Tenth Circuit entered July

21,1986 (reported at 791 F.2d 416) .............

Appendix B--

Certified Interlocutory Order of District Court

IE EE Be IE. nteesissncsonavicvescessssenesonne

Appendix C--

Journal Entry of Judgment of District Court

GES TNE By BU Neninentcndscaccdcescccszionsces

Appendix D--

Order of District Court granting New Trial

PB | EE Ree

Appendix E--

Journal Entry of Judgment of District Court

TOE INOUGRMIGP 16, 1GGB cccccccccccccccccccescsacesees

Appendix F--

Order of Tenth Circuit denying reheari —

suggestion for rehearing en banc entered July

BE “0 shbbiik cheeses nies aaaciahenshaeaiaiadabeassibens

Appendix G--

Order of Tenth Circuit correcting order de-

nying rehearing and suggestion for rehearing

en banc entered July 21, 1986 .......

Appendix H--

P Verdict returned in first trial on November 2,

RES cia Neti an ae eRe Rees Oe Re

Appendix I--

Diamond Shamrock’s Alternative Motion for

Judgment Notwithstanding the Verdict or for

New Trial filed November 14, 1983 _.............

Appendix J--

Transcript of Hearing held on January 5, 1984

on Alternative Motion for Judgment Notwith-

standing the Verdict or for New Trial _........

36a

4la

48a

50a

54a

56a

58a

60a

Appendix K--

Diamond Shamrock’s Petition for Permission

4 7 ae filed in Appeal No. 85-1698 on April

Appendix L--

Diamond Shamrock’s Docketing Statement filed

in Appeal No. 85-1698 on June 14, 1984 ...

Appendix M--

Petition for Permission to Appeal filed in

Appeal No. 85-1803 on April 29, 1985 _........

pendix N--

Dedeine Statement filed in Appeal No. 85-

BOOB Ge SURO 10, TOD cccccccccscinccssnnttiscniasnscns

Appendix O--

Docketing Statement filed in Appeal No. 85-

1653 on TR, TOD ceccsssscsoscsnssnisninnisbenseans

Appendix P--

Diamond Shamrock’s Docketing Statement filed

in Appeal No. 85-1765 on June 3, 1985 _......

100a

108a

117a

123a

129a

- at

APPENDIX A

UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

Nos. 85-1698

and 85-1803

DIAMOND SHAMROCK CORPORATION,

a Delaware Corporation,

Plaintiff-Appellant, Cross-A ppellee

ZINKE & TRUMBO, LTD., a business association, ROBERT M.

ZINKE, an individual and Davip B. TRUMBO, an individual,

Defendants, Counterclaimants-A ppellees,

and

Morris A. RICHARDSON, JOHN HAMILTON and MARTHA

FRANCIS,

Counterclaimants-Cross-A ppellants

[May 21, 1986]

Appeal From The United States District Court For The

Western District of Oklahoma

(CIV-82-1754-E)

Richard K. Books (H. B. Watson, Jr., and Sharon L.

Thomas with him on the briefs), Watson & McKenzie, Okla-

homa City, Oklahoma, for Plaintiff-Appellant/Cross-Appel-

lee

Richard C. Ford (Gary W. Davis, James U. White, Jr.,

and L. Mark Walker with him on the briefs), Crowe &

— ~

Dunlevy, Oklahoma City, Oklahoma, for Counterclaimants/

Cross-Appellants.

Before BARRETT, McKAY and TACHA, Circuit Judges.

BARRETT, Circuit Judge

This appeal and cross-appeal is from a judgment con-

taining an interlocutory order, duly certified pursuant to

Fed. R. Civ. P. 54(b). Our jurisdiction vests pursuant

thereto and by virtue of 28 U.S.C. § 1292(b). There are

many issues presented in this complex diversity based case.

However, only onc is dispositive. That involves a party’s

failure to object to a jury’s general verdict on the ground

of inconsistency prior to the discharge of the jury.

I. Factual Background

Appellees John Hamilton and Martha Francis own three-

fourths of the mineral estate underlying a 640 acre tract

situate in Ellis County, Oklahoma, described as Section 33,

Township 23 N., Range 26 W. Their interest was leased

to Diamond Shamrock. The remaining one-fourth interest

is owned by appellee Morris Richardson, who leased his

interest to Zinke and Trumbo, Ltd. The Oklahoma Cor-

poration Commission established Section 33 as a 640 acre

drilling and spacing unit for production from the Morrow

formation.

In 1981, Diamond Shamrock, as 100 percent working

interest owner, drilled and completed a well producing

from the Morrow formation situate in Lipscomb County,

Texas, known as the Travis Well. This well is adjacent to

Section 33, supra. In September of 1981, Diamond Sham-

rock proposed the drilling of the Hamilton No. 1-33 at a

location in the SW’/, of Section 33. Zinke and Trumbo

requested that Diamond Shamrock drill the well as an

offset to the Travis Well in order to protect them from

drainage resulting from production from the Travis Well.

Diamond Shamrock agreed and obtained a location excep-

tion from the Commission to drill the Hamilton No. 1-33

Well 317 feet from the south line and 367 feet from the

west line in the SW’/, of Section 33. Diamond Shamrock

and Zinke and Trumbo entered into a Joint Operating

Agreement whereby Diamond Shamrock was designated

as operator. The well was drilled by Diamond Shamrock

to the Morrow formation and completed in September,

1982. It was reported by Diamond Shamrock as a shut-in

gas well awaiting a pipeline connection. No gas has been

produced and sold from the Hamilton 1-33 Well.

In the course of completion operations, a dispute arose

between Diamond Shamrock and Zinke and Trumbo rel-

ative to completion procedures. This resulted in the instant

litigation. On October 12, 1982, Diamond Shamrock sued

Zinke and Trumbo under the terms of the Operating

Agreement (breach of contract claim) for the proportionate

share of costs and expenses incurred in the drilling and

completion of Hamilton 1-33 Well in amount of $133,551.71,

together with further accruing costs, interest thereon, costs

of the action and a reasonable attorney’s fee. In addition,

Diamond Shamrock sought an order of foreclosure on Zinke

and Trumbo’s leasehold interests in satisfaction of the

claim.

Zinke and Trumbo answered and denied any liability.

On June 28, 1983, Zinke and Trumbo, as defendant, joined

by Morris A. Richardson, John Hamilton and Martha N.

Francis filed a Counterclaim against Diamond Shamreck

alleging that they had been damaged because of the neg-

ligence and gross negligence of Diamond Shamrock in the

completion of the well. Specifically, they alleged that Dia-

mond Shamrock’s completion attempt of the Hamilton 1-

33 Well “[w]jas not done in a good and workmanlike man-

ner despite suggestions, warnings, demands, protests, and

objections from Zinke and Trumbo”’ and that Diamond

Shamrock’s “[c]ompletion attempt of the John Hamilton #

1-33 Well irreparably damaged the productive strata ...

[the Morrow formation at 8862’ - 8874’] ... underlying

Section 33, by fracing into the salt water bearing strata

and contaminating the productive strata with salt water

constituting alleged gross neglect and willful misconduct.”’

R. Vol. I, pp. 59, 60. Counterclaimants John Hamilton and

Martha Francis sought actual and punitive damages for

Diamond Shamrock’s alleged breach of implied covenant

of their oil and gas leases to protect against drainage and

to market production from the well.

The Counterclaim further alleged that: due to the limited

size of the reservoir and geological and economic condi-

tions, a replacement weil cannot be drilled on Section 33;

Hamilton 1-33 Well is noncommercial; counterclaimants

own no interest in the Travis #1 Well and therefore do

not share in production therefrom; Travis #1 Well has been

producing from the same common reservoir as the unpro-

ductive Hamilton 1-33 Well due solely to Diamond Sham-

rock’s gross neglect; and Travis #1 Well will drain all of

the hydrocarbons from the reservoir to the detriment of

counterclaimants. Id. at 59-61.

The Counterclaim alleged, based on log calculations and

production in the area, that the reserves of Hamilton 1-

33 well and values to counterclaimants were: $906,100.00

to Zinke and Trumbo; $209,100.00 to Morris A. Richard-

son; $522,750.00 to John Hamilton; and $104,550.00 to

Martha N. Francis. Jd. at 61. A jury demand was made

by the counterclaimants.

In Answer to the Counterclaim, Diamond Shamrock al-

leged that the Hamilton 1-33 Well “i]s capable of pro-

ducing gas in paying quantities from the Morrow formation,

but that said well is shut in awaiting a pipeline connection”’

and that its every action with regard to Hamilton 1-33

Well has been that of a prudent operator, including every

action necessary to market production from the well but,

pineaireiaits oman ™

notwithstanding, no market has been located. Further, Dia-

mond Shamrock denied that a replacement well cannot be

drilled upon Section 33, and that production from the

Travis #1 Well has or will cause drainage to Section 33.

Id. at 65-67.

Zinke and Trumbo filed an amendment to its Answer

setting up Affirmative Defenses by virtue of an alleged

oral agreement on February 16, 1982, with Diamond

Shamrock “{aJs to the manner in which the subject well

was to be completed and that Diamond Shamrock Cor-

poration breached that agreement by completing the well

in a manner different from that agreed to by Zinke &

Trumbo, Ltd. and Diamond Shamrock Corporation with

the result that the pay zone in the subject well was ir-

reparably damaged and has subsequently been cemented

off.” Id. at 76. Zinke & Trumbo also filed a Second Amend-

ment to Answer which alleged two additional affirmative

defenses: (1) the offer of Zinke & Trumbo to participate

in the completion attempt by Diamond Shamrock was con-

ditioned upon a particular manner of completion which was

rejected by Diamond Shamrock, thus relieving Zinke &

Trumbo from any liability for completion costs, and (2)

Diamond Shamrock’s employees took bribes and kickbacks

from suppliers and others concerning materials, supplies,

and work, resulting in improper charges to Zinke and

Trumbo. Jd. at 78. An Amended Counterclaim was there-

after filed incorporating the aforesaid affirmative defenses

with four additional causes of action, seeking punitive dam-

ages of $10 million. Jd. at 80-92. These allegations were

joined in denial by Diamond Shamrock’s Answer. Id. at

101-109.

A. First Trial

The case proceeded to trial on October 27, 1983. The

jury returned a verdict on November 2, 1983, as follows:

(1) for Diamond Shamrock against Zinke & Trumbo for

breach of the Joint Operating Agreement (balance owing

of drilling and completion costs) in amount of $212,805.60;

(2) for Diamond Shamrock and against Zinke & Trumbo

upon Zinke & Trumbo’s claim for breach of a new agree-

ment (no damages awarded);

(3) for Zinke & Trumbo upon its claim against Diamond

Shamrock for gross negligence and/or willful misconduct

in the operation of the well in amount of $995,196.00;

(4) for counterclaimants John Hamilton, Martha Francis

and Morris Richardson against Diamond Shamrock for neg-

ligence in the operation of the well in amount of

$971,179.00;

(5) for Diamond Shamrock and against counterclaimants

John Hamilton and Martha Francis for breach of the im-

plied covenant to market (no damages awarded); and

(6) for counterclaimants John Hamilton and Martha

Francis against Diamond Shamrock for breach of the im-

plied covenant to protect against drainage in the amount

of $32,499.00 and punitive damages in amount of

$1,000,000.00.

The parties did not object to the verdict form. (R. , Vol.

X, p. 48.) The court, prior to returning the jury, addressed

counsel and stated that ‘“{I] understand we have a verdict

and I have sent for the jury. Due to the length of delib-

eration and the somewhat complexity of the verdict form,

I will want to have a bench conference before I read and

record the verdict and allow you all to examine it. That

will be particularly true if there appears to be any incon-

sistencies in the verdict form.”’ Jd. at 45, 46. When the

jury reported in, the jury’s verdict was handed to the court

and counsel were then called to the bench to examine the

verdict before it was read and recorded. The following

colloquy then occurred:

THE COURT: Any reason why the Court should

not read and record the verdict?

MR. WATSON: (Counsel for Diamond Sham-

rock): I can think of a lot of

reasons, but none that are

valid.

Id. at 46.

Thereupon, the clerk read and recorded the verdict and

the jury was polled. When the court inquired whether

either party had any objection or any reason why the court

should not then discharge the jury, respective counsel ad-

vised that there was none, Jd. at 48. The jury was then

discharged.

B. Posttrial Proceedings

On November 14, 1983, Diamond Shamrock filed an

“Alternative Motion for Judgment Notwithstanding the

Verdict or for New Trial.” (R., Vol. II, pp. 274-281.) In

its Motion for New Trial, Diamond Shamrock relied upon

the ground of inconsistent verdicts. Following hearing on

the motion, the trial court, after Journal Entry of Judg-

ment, entered its ‘Order Granting New Trial and Vacating

Judgment” on January 11, 1984 based upon Diamond

Shamrock’s Motion for New Tria\. Jd. at 286.

C. Second Trial

The second jury trial began on February 11, 1985, and

on February i9, 1985, the jury returned a verdict in favor

of Diamond Shamrock only on its claim against Zinke &

Trumbo for breach of the Joint Operating Agreement in

amount of $220,830.34. Thereafter, Zinke and Trumbo and

the appellees filed a motion to reinstate the verdict in the

first trial or, in the alternative, for new trial on the ground

that the second verdict was defective in that the jury did

not fill in any of the blanks pertaining to any of the

counterclaims. On March 19, 1985, the trial court denied

the motion to reinstate the first verdict or for new trial.

However, thereafter, by order of April 18, 1985, the trial

court made its Journal Entry of Judgment and, on its

finding that the jury did not return a verdict on the coun-

terclaims of John Hamilton and Martha Francis for

breaches of the implied covenants to market and to protect

against drainage, the court, on its own motion, ordered

that a new trial be granted to John Hamilton and Martha

Francis on their counterclaims for breach of the implied

covenant to market and to protect against drainage. Jd.

at 493. In that Order, the trial court noted that its oral

instructions to the jury may have been erroneous, leading

the jury to fail to return a verdict either for or against

John Hamilton and Martha Francis on their counterclaims

for breaches of the implied covenants to protect against

drainage and to market. Jd.

At the hearing on the adequery of the second jury ver-

dict ordered by the trial court, Diamond Shamrock urged

the court to stand by the general verdict. The trial court

stated that, as between Diamond Shamrock and Zinke and

Trumbo he had no difficulty because, by the jury verdict,

“{YJou won the case ... and by so doing, the jury found

that you drilled the well in a prudent way. You were not

negligent, either grossly or otherwise” but “{I] do have

serious reservations about the—you could be the most pru-

dent operator in the world . .. in drilling the well ... but

still failed to market as the operator should do.” (R., Vol.

XVIII, p. 6.) The court concluded that it had erred in its

oral instructions to the jury when “{I] told the jury if they

found for the plaintiff [Diamond Shamrock] on the first

item in the verdict, that ended it. And I just shouldn’t

have done it. Now, there’s no way to cure my mistake.

But I’m a little bit disappointed in you [counsel for coun-

terclaimants] not jumping up and telling me that I was

making a mistake, and I could have cured it in a moment.”

Id. at 15.

II. This Appeal and Cross-Appeal

This appeal and cross-appeal is from a judgment entered

April 18, 1985, following the second trial to jury and re-

turn of a general jury verdict with findings, which ren-

dered all claims final except those at issue here. In that

respect, the judgment certified the entry of final judgment

for plaintiff-appellant Diamond Shamrock Corporation (Dia-

mond Shamrock) and against all defendants except coun-

terclaimants-defendants John Hamilton and Martha

Francis. The court found that the jury failed to return a

verdict on the counterclaims of John Hamilton and Martha

Francis for breaches of the implied covenants to market

gas and to protect against drainage. The judgment was

certified as final pursuant to Fed. R. Civ. P. 54(b).

III. Our Disposition

It is our view that the dispositive issue for our resolution

is whether Diamond Shamrock ’s failure to object to the

first trial jury’s general verdict on the ground of incon-

sistency before the jury was discharged constituted a

waiver of that challenge. We will hold that it did. This

holding necessarily impacts upon the appeal in No. 85-1653

and the cross-appeal in No. 85-1765 docketed in this court,

both of which arise from the final judgment of April 18,

1985, awarding Diamond Shamrock $220,830.34 on its

breach of contract claim against Zinke and Trumbo, Ltd.

(Zinke and Trumbo) and the adjudication that the

defendant, Zinke and Trumbo, recover nothing on its coun-

terclaim against Diamond Shamrock for gross negligence

and that the counterclaimants, John Hamilton, Martha

Francis and Morris Richardson recover nothing on their

claim of negligence against Diamond Shamrock.

It is interesting to note that both parties urge that we

hold that the verdict of a jury be upheld in those cases

where a party does not object to the verdict form after

the verdict is returned and before the jury is discharged.

the jury and after the verdict was returned and the jury

polled. (Brief of Appellant, Diamond Shamrock, pp. 13-15).

Diamond Shamrock relies on Klapmeier v. Telecheck In-

ternational, Inc., 482 F.2d 247 (8th Cir. 1973) for the rule

that (a) a jury’s failure to find either for or against coun-

terclaimants on their counterclaim constitutes an adverse

finding against counterclaimants, and (b) that counterclai-

mants waived any objection to the form of the verdict by

failing to object to the verdict form or the verdict as

Cross-appellants and appellees, Morris A. Richardson,

John Hamilton and Martha Francis in

during the first trial, before the jury verdict was read

entered, it was shown to counsel for all parties, who were

invited by the court to object to inconsistencies, and none

was lodged. Notwithstanding, the trial court granted Dia-

mond Shamrock’s Motion for New Trial on the basis of

inconsistent verdicts. Thus, they assert that failure to ob-

Appellants and Appellees, pp. 8-10.)

Fed. Rules Civ. Proc. rule 59a) and (d) , 28 U.S.C.A.

provides, in relevant part:

(a) Grounds

A new trial may be granted to all or any of

the parties and on all cr part of the issues (1)

in an action in which there has been a trial by

jury, for any of the reasons for which new trials

(d) On initiative of court

Not later than 10 days after entry of judgment

the court of its own initiative may order a new

trial for any reason for which it might have

granted a new trial on motion of a party. After

giving the parties notice and an opportunity to

be matter, the court may grant a

motion for a new trial, timely served, for a rea-

son not stated in the motion. In either case, the

court shall specify in the order the grounds there-

for.

Fed. Rules Civ. Proc. rule 49(b), 28 U.S.C.A. provides:

(b) General Verdict Accompanied by Answer

to Interrogatories. The court may submit to the

jury, together with appropriate forms for a gen-

eral verdict, written interrogatories upon one or

more issues of fact the decision of which is nec-

essary to a verdict. The court shall give such

explanation or instruction as may be necessary

to enable the jury both to make answers to the

interrogatories and to render a general verdict,

and the court shall di the jury both to make

written answers and to render a general verdict.

When the general verdict and the answers are

harmonious, the appropriate judgment upon the

verdict and answers shall be entered pursuant to

58. When the answers are consistent with

one or more is inconsistent with

court may return the jury for further consider-

12a

ation of its answers and verdict or may order a

new trial. When the answers are inconsistent with

each other and one or more is likewise incon-

sistent with the general verdict, judgment shall

not be entered, but the court shall return the

jury for further consideration of its answers and

verdict or shall order a new trial.

The above rules, and others, must be read and construed

together and harmonized whenever possible.

We have observed that both parties, at the first trial,

were called to the bench after the jury returned its verdict.

The trial court had previously informed counsel that the

jury’s general verdict should be carefully examined and

any objections thereto lodged. This procedure was fol-

lowed. Diamond Shamrock’s counsel did not object to the

jury’s verdict. The first contention raised by Diamond

Shamrock as to alleged inconsistency in the jury verdict

came only after the jury had been discharged. This chal-

lenge was posited in Diamond Shamrock’s ‘Alternative

Motion for Judgment Notwithstanding the Verdict or for

New Trial,” predicated upon the contention that the ver-

dicts are inconsistent on their faces.

In Stancil v. McKenzie Tank Lines, Inc., 497 F.2d 529

(5th Cir. 1974), the court, dealing with an alleged incon-

sistency in a general verdict observed:

Rule 49(b) does endorse a new trial as one

option open to a trial court when an actual in-

consistency does occur. But in determining

whether Rule 49(b) requires a new trial in this

case, a number of serious questions arise ...

*_* *

By failing to object to the form of the verdict

and answers at the time they were announced

by the jury, both parties waived any objection to

inconsistencies under Rule 49 (b) ... the trial

13a

judge was careful to solicit objections from both

counsel after the verdict was rendered and the

interrogatories answered.... Had an objection

been raised as to the inconsistency of the answers

at that time, the district court could have elected

to “return the jury for further consideration of

its answers and verdict... .”

497 F.2d at pp. 533-35.

We agree with the reasoning of the Stancil court. In

an analogous setting, we held in Kirkendoll v. Neustrom,

379 F.2d 694, 699 (10th Cir. 1967), that appellant waived

his objection to special interrogatories:

The record reflects that after the special an-

swers and verdict were read, the court asked if

there was any reason why the jury should not

be discharged. Both appellant and appellee an-

swered in the negative. The jury was discharged.

Under this rule, [49(b) Fed. R. Civ. P.], as well

as by acquiescence of counsel in the action of the

court, no reversible error occurred... .

Cundiff v. Washburn, 393 F.2d 505 (7th Cir. 1968) ,

dealt with the question whether a party who is disen-

chanted with the gene.al verdict but who did not move

for resubmission pursuant to Rule 4%b) before the jury

was discharged waives the right to have alleged incon-

sistencies in the general verdict remedied by a new trial.

The Cundiff court observed that our Kirkendoll v. Neus-

trom, supra, was “closely analogous,” and held:

Consistent with the rationale of these cases,

we hold that appellant waived any objection to

the verdict on the ground of inconsistency with

the special finding by failing to move the resub-

mission of the verdict and finding to the jury.

Any other decision would hamper the just and

efficient operation of the federal courts. It would

l4a

encourage jury-shopping by litigants, permitting

them to decide whether to take their chances on

resubmitting the verdict and findings to the jury

sitting or remain silent thereby allowing the en-

try of judgment and moving for a new trial be-

fore a new jury ....

... [t]he rule that objection on the ground of

inconsistency is waived by failure to move for

resubmission promotes the fair and expeditious

correction of error. It requires the error be cor-

rected in the proceeding in which it is made, by

the jury which made it unless the trial court de-

termines in the exercise of its discretion under

Rule 49(b) to enter judgment on the special find-

ings or to order a new trial.

Our interpretation of Rule 49(b) , in the ab-

sence of objection by counsel, leaves to the trial

court alone the discretion to choose the means

of correcting inconsistency, subject to review by

this Court on appeal.

393 F.2d at 506, 507. Accord: Itel Capital Corp. v. Cups

Coal Co., Inc., 707 F.2d 1253 (llth Cir. 1983) (appellants

waived objection to alleged inconsistencies in verdict by

failure to object at the time the verdict was rendered);

Fernandez v. Chardon, 681 F.2d 42 (ist Cir. 1982), af-

firmed, 462 U.S. 650 (1983) (counsel waited until after the

jury was excused before raising the inconsistency claim;

defendants therefore held to have waived their right to

have the general verdict set aside on this ground); Rowe

International, Inc. v. J-B Enterprises, Inc., 647 F.2d 830

(8th Cir. 1981) (trial court did not err in returning jury

to correct a mistake in the verdict before accepting the

verdict and discharging the jury on basis of inconsistent

verdict); Skillin v. Kimball, 643 F.2d 19 (ist Cir. 1981)

(party cannot implant ground for appeal by failure to ob-

ject to jury verdict under Rule 49 before jury is dis-

15a

charged); Ludwig v. Marion Laboratories, Inc., 465 F.2d

114 (8th Cir. 1972); Barnes v. Brown, 430 F.2d 578 (7th

Cir. 1970) (failure of appellant to move to resubmit verdicts

to jury for reconciliation and permitting judge to discharge

the jury with inconsistent verdict standing constituted

waiver of any objection to the inconsistency of verdict);

Tennessee Consolidated Coal Co. v. United Mine Workers,

416 F.2d 1192 (6th Cir. 1969), cert. denied, 397 U.S. 964

(1970). In Bass v. Dehner, 103 F.2d 28 (Oth Cir.), cert.

denied, 308 U.S. 580 (1939) we held that before declaring

a conflict between special findings and a general verdict,

an effort should be made to reconcile any apparent in-

consistency.

With respect to answers inconsistent with the general

verdict, it is recognized that the trial court has three

courses of action available under Rule 49(b). The court

may order the jury to deliberate further, order a new trial,

or disregard the general verdict and order judgment on

the basis of answers to interrogatories. Wright and Miller,

Federal Practice & Procedure: Civil § 2513. The first op-

tion was clearly available in the instant case. During the

first trial, the court specifically invited counsel to carefully

examine the jury’s verdict before it was announced and

entered and to voice any objections thereto prior to dis-

charge of the jury. Diamond Shamrock’s counsel did not

object to the jury verdict until after the jury had been

discharged, notwithstanding the trial court’s caveat that

any objections to the jury verdict should be lodged before

the verdict was formally returned and entered. Supra, pp.

7, 8. We hold that failure on the part of Diamond Sham-

rock’s counsel to object to the jury verdict on the alleged

ground of inconsistency constituted a waiver of such con-

tention on appeal. Diamond Shamrock’s failure to so object

was, apparently, a measured, calculated trial tactic.

We are aware that the trial court could have, sua sponte,

granted Diamond Shamrock a new trial pursuant to Rule

50(b). Kain v. Winslow Mfg., Inc., 736 F.2d 606 (10th Cir.

16a

1984), cert. denied, ___ U.S. ___ (1985). Such action is re-

quired if a verdict reflects inconsistencies on its face in-

dicating either that the jury was in a state of confusion

or abused its power. Under such circumstances, not pres-

ent here, a new trial must be granted. Global Van Lines,

Inc. v. Nebeker, 541 F.2d 865 (10th Cir. 1978); Hopkins v.

Coen, 431 F.2d 1055 (6th Cir. 1970); Cheney v. Moler, 285

F.2d 116 (0th Cir. 1960) (verdict returned with “no dam-

ages’’ even though plaintiff lost ear as result of fight with

defendant was nullity under the circumstances requiring

retrial on all issues notwithstanding failure of plaintiff to

object to the verdict). Unlike the determination in Cheney,

the instant case is a proper case to invoke the harsh impact

of the waiver rule.

In our view the trial court erred in setting aside the

verdict of the jury returned at the first trial. The general

verdict was not objected to prior to the jury’s discharge.

Contrary to Diamond Shamrock’s contention, the verdict

is not inconsistent on its face. The claimed inconsistency

rests upon the jury’s finding for Diamond Shamrock on

its breach of contract claim against Zinke and Trumbo

(balance owing for drilling and completion costs) and the

express finding of negligence against Diamond Shamrock

in the operation of the well in favor of Zinke and Trumbo

and the royalty owners, Hamilton, Francis and Richardson.

A verdict which resolves separate and distinct causes of

action in favor of both parties to a lawsuit is not incon-

sistent on its face. We hold that a party’s failure to object

to a verdict on the ground of inconsistency prior to the

jury’s discharge waives his right to raise the issue in a

posttrial motion or on appeal unless the verdict is incon-

sistent on its face so that entry of judgment upon the

verdict is plain error. We therefore hold that the trial

court erred in setting aside the jury’s verdict upon a

ground waived by Diamond Shamrock.

The trial court also erred in finding that the jury’ s

verdict was inconsistent in fact. The claim of inconsistency

17a

advanced by Diamond Shamrock, adopted by the trial court,

was that the jury, by finding for Diamond Shamrock on

its contract claim impliedly found that Diamond Shamrock,

as the operator under the Joint Operating Agreement, had

performed the drilling and completion work in a good and

workmanlike manner and, accordingly, could not have been

liable on the tort claims advanced against it. Diamond

Shamrock contended as follows:

The verdicts entered by the jury are inconsistent

on their faces and indicate that.the jury was

either in a state of confusion or that the jury

abused its power. Specifically, it is impossible for

the jury to find that DIAMOND SHAMROCK

performed conditions in a good and workmanlike

manner and at the same time find that DIA-

MOND SHAMROCK had been negligent and

grossly negligent. The verdict awarding DIA-

MOND SHAMROCK $212,805.60 under the Joint

Operating Agreement is irreconcilably inconsist-

ent with the verdict awarding ZINKE &

TKUMBO, LTD. $995,196.00 for gross negligence

or willful misconduct and verdict awarding John

Hamilton, Martha Francis and Morris Richard-

son, $971,179.00 for negligence.

(R., Vol. II, pp. 274-75.)

The defect in this argument is that Diamond Shamrock’s

claim of inconsistency rests upon its contention that the

jury, by its finding for Diamond Shamrock on its contract

claim, impliedly found that Diamond Shamrock had per-

formed its drilling and completion operations on Hamilton

No. 1-33 well in a good and workmanlike manner. Such

is not the case. Diamond Shamrock’s theory of the case

was that under the terms of the Joint Operating Agree-

ment non-operators were unconditionally obligated to pay

their proportionate share of the costs of drilling and com-

pletion. This was clearly evidenced by Diamond Shamrock’s

18a

cross-examination of Mr. Robert M. Zinke, who, after stat-

ing that Zinke and Trumbo were obligated under the Joint

Operating Agreement to pay their share of the costs of

work done by Diamond Shamrock in a “good workmanlike

manner’’ without “gross negligence or wilful misconduct”

was asked:

Q. And does the operating agreement provide

that if the work is not in a workmanlike manner

or gross negligence occurs, that you’re not ob-

ligated to pay?

A. I’m not Marvin Wiggly. I’m not an expert

on operating agreements. I don’t know. Possibly

it does. I don’t know.

Q. Well, let’s look at it then. Now, on Page 1

of the accounting procedure, you're required to

pay your invoices within fifteen days. If you have

any questions, you can audit the account; isn’t

that right?

A. Yes, sir, that’s correct.

Q. So payment is not excused because you de-

cide on your own that the operator’s been neg-

ligent.

A. That’s true.

(R., Vol. VII, pp. 322-22.) And during closing argument,

counsel for Diamond Shamrock argued that the terms of

the Joint Operating Agreement Diamond ~ smrock, as op-

erator, had sole decision making authority in the drilling

of the well and that Zinke and Trumbo’s claim that Dia-

mond Shamrock was negligent was not “an element of

Diamond Shamrock’s proof’? and that Diamond Shamrock

was obligated only to “show you that they complied with

the contract.” (R., Vol. X, pp. 8-11.)

The trial court accepted Diamond Shamrock’s contention

that if it had substantially complied with the Joint Oper-

dani toaind! UA

19a

ating Agreement as operator, Diamond Shamrock was con-

tractually entitled to recover for the work done in the

drilling of the well. The jury was so instructed. (R., Vol.

II, pp. 430-31.) The court clearly instructed separately,

without objection, on Diamond Shamrock’s breach of con-

tract claim and the counterclaims for gross negligence and

negligence, and the general verdict contained findings on

each. Thus, although each claim arose out of Diamond

Shamrock’s operation of the well, the parties, under their

respective theories of the case, elected to permit the jury

to treat the breach of contract claim of Diamond Shamrock

against Zinke and Trumbo separate and distinct from the

counterclaims. (See jury instructions 4, 5, 6, 7, 8 and 9,

Vol. II, pp. 430-39.)

Thus, we conclude that there were no inconsistencies in

fact in the jury’s general verdict. The jury, as instructed,

returned an award of damages for Diamond Shamrock and

against Zinke & Trumbo on its breach of contract claim

under the Joint Operating Agreement. By doing so, the

jury adopted Diamond Shamrock’ s theory of the case on

this claim, i.e., that as operator it was entitled to receive

payment from Zinke and Trumbo for all costs and expenses

not challenged under the audit provision of the Joint Op-

erating Agreement. By the same token, the jury, in accord

with the court’ s instructions, found for the defendant and

counterclaimants on their claim of negligent and gross neg-

ligent operations of Diamond Shamrock and Diamond

Shamrock’s breach of implied covenant to protect against

drainage and to market.

In effect, then, the jury’s verdict “tracked” the theory-

of-the-case exactly as Diamond Shamrock invited it to be

considered by the jury. The record, largely due to Diamond

Shamrock’s direct and cross-examination, reflects that the

contractual obligation of Zinke and Trumbo to Diamond

Shamrock for proportionate share of drilling and comple-

tion costs was treated and considered by the jury inde-

pendent of the negligence claims and the failure to market

20a

and to prevent drainage claims. With regard to the latter,

a cause of action for breach of an implied covenant to

prevent drainage does not require proof of negligent op-

erations. Spaeth v. Union Oil Co. of California, 710 F.2d

1455 (lOth Cir. 1983); Dixon v. Anadarko Production Com-

pany, 505 P.2d 1394 (Okl. 1972).

Thus, the claimed inconsistency is between verdicts re-

solving entirely separate and distinct causes of action. The

verdicts on the counterclaims were not required to be con-

sistent with the verdict on Diamond Shamrock’s breach of

contract claim because the parties and the court submitted

the respective claims to the jury for separate, distinct con-

sideration. Thus, there was no inconsistency on the face

of the general verdict. The verdicts are not repugnant or

in irreconcilable conflict. This trial involved separate causes

of action and the relationship of the parties was not legally

identical with regard to each cause of action.

Where several distinct causes of action, such as here,

are tried together, verdicts awarding recovery to some of

the parties on one theory or cause of action and to other

parties on another theory or cause of action are not nec-

essarily inconsistent. In those cases where the several

causes of action are identical and defended on the same

ground, a verdict for the plaintiff on one cause of action

and for the defendant on another is inconsistent. Further,

if two causes of action are of such a nature that recovery

can be had only as to one, verdicts in favor of a plaintiff

and against the defendants on both causes of action are

inconsistent.

Notwithstanding the consistency among the parts of the

verdict, we hold, in accord with Stancil v. McKenzie Tank

Lines, Inc., supra, and the mandates of Rule 49(b) , that

under the facts and circumstances of this case, Diamond

Shamrock’s failure to object to the jury’s general verdict

with findings returned at the first trial prior to the jury’s

2la

discharge constituted a waiver of any alleged inconsist-

encies in the damages awarded.

We REVERSE and REMAND with instruction that the

district court reinstate the general verdict of the jury re-

turned at the first trial and enter judgment thereon.

22a

Nos. 85-1698, 85-1803- DIAMOND SHAMROCK COR-

PORATION vy. ZINKE &

TRUMBO, LTD., «° al.

McKAY, Circuit Judge, concurring in part and dissenting

in part:

I concur in the result reached by the majority and in

the court’s conclusion that it is possible to reconcile the

apparent inconsistencies in the verdicts returned at the

first trial. I have serious misgivings, however, about the

majority’s reliance on Rule 49%(b) of the Federal Rules of

Civil Procedure. In my view, Rule 49 does not apply in

this case. I therefore dissent from the court’s holding that

Diamond Shamrock waived its right to object to incon-

sistencies in the verdicts by failing to object or move for

resubmission before the jury was dismissed.

The facts which gave rise to this action are set out in

the majority’s opinion and to repeat them here would ex-

tend this opinion to unwarranted length. I think it is nec-

essary, however, to set out in the margin the verdict form

that was submitted to the jury in the first trial.’

Verdict

[Place either ‘plaintiff’, ‘“‘defendants”, or “‘counterclaimants” in

the first blank.)

We, the Jury, find as follows:

1. for the Plaintiff upon the claim by the plaintiff, Diamond

Shamrock Corporation, for breach of the operating agreement and

fix damages in the amount of $212,805.60;

2. for the Plaintiff upon the claim by the defendant, Zinke &

Trumbo, Ltd., for breach of a new agreement and fix damages in

the amount of $0.00;

' 8. for the Defendant upon_the claim by the defendant, Zinke

& Trumbo, Ltd., for gross negligence and/or willful misconduct in

the operation of the well and fix damages in the amount of

23a

Throughout the majority opinion, the court refers to the

jury’s verdict in the first trial as a “general verdict.”

Although nothing in the court’s opinion suggests that this

“general verdict’’ was accompanied by responses to “‘writ-

ten interrogatories,’”’ the court relies on Rule 49%b) of the

Federal Rules of Civil Procedure to reach the conclusion

that ‘‘the instant case is a proper case to invoke the harsh

impact of the waiver rule.”” Majority Opinion at 17. What

the majority fails to recognize is that Rule 49b) governs

only when the jury returns a general verdict accompanied

by responses to “written interrogatories upon one or more

issues of fact.”” Where, as here, the jury returns general

verdicts on separate claims and counterclaims and makes

no written findings on issues of fact, Rule 49(b) does not

apply.

Rule 49* grants the trial court the discretion to use one

of two different procedures as an alternative to submitting

$995,196.00;

4. for the Counterclaimants upon the claim by the counterclai-

mants, John Hamilton, Martha Frances and Morris Richardson, for

negligence in the operation of the well and fix damages in the

amount of $971,179.00;

5. for the Plaintiff upon the claim by the counterclaimants, John

Hamilton and Martha Frances, for breach of the implied covenant

to market and fix damages in the amount of $0.00; and

6. for the Counterclaimants upon the claim by the counterclai-

mants, John Hamilton and Martha Frances for breach of the im-

plied covenant to protect against drainage, and fix actual damages

in the amount of $32,499.00 and punitive damages in the amount

of $1,000,000.00 (one million dollars).

(a) Special Verdicts. The court may require a jury to return only

verdict in the form of a special written finding upon each

issue of fact. In that event the court may submit to the jury written

Nei-

ther Courts nor Judges are immune.” Brown, Federal Spe-

a civil case to the jury for a general verdict. In his oft-

cial Verdicts: The Doubt Eliminator, 44 F.R.D. 338, 339

cited article on the use of special verdicts in federal court,

former Chief Judge John R. Brown of the Fifth Circuit

& n.5 (1967) (footnotes omitted) . The majority’s opinion

has observed: “The distinction between F.R.Civ.P. 4%a)

and 4%b) must be—but sometimes is not—made. ...

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requiring

court

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25a

demonstrates that the same can be said for the distinction

between separate verdicts and the alternative ver-

dicts that are authorized by Rule 49.

order to understand why I think Rule 49 does not

in the instant case, it is necessary to understand

the Rule does apply. Rule 4%a) , entitled ‘Special

‘to dispense with the general

verdict altogether, and to submit the various fact issues

in the case to the jury in the form of individual fact ques-

j jury is to return a special

Miller, Federal Practice and

(1971). Judge Brown, who has

‘the strongest advocate of Rule 49a)

the bench,” id. at § 2505, at 495, explains the distinc-

tion between Rule 49%a) and Rule 49(b):

Rule 4%b) offers, so far as I can see, nothing

recognizes that in an appropriate form and way

the Judge gives a firm, detailed explanation of

controlling principles specifically related to the

case, almost as he would for a general verdict.

The difference is that under the 49a) technique

the jury, applying these instructions, records its

conclusions with precision, not in the conglom-

erate ambiguity of “for the plaintiff,”’ “for the

defendant,”’ or the like.

Brown, 44 F.R.D. at 339-40 (footnote omitted).

Rule 4%a) speaks in terms of a “‘special verdict in the

form of a special writter finding upon each issue of fact.”

Thus, “{t}he rule contemplates that only factual questions

26a

will be submitted to the jury to which the judge will then

apply the law, supplementing, if necessary, any factual

determinations not submitted to the jury.” Quaker City

Gear Works, Inc. v. Skil Corp., 747 F.2d 1446, 1453 (Fed.

Cir. 1984), cert. denied, 105 S. Ct. 2676 (1985) (citing 5A

Moore’s Federal Practice, { 46.02, at 49-8 (2d ed. 1984).*

Similarly, Rule 49(b) , entitled “General Verdict Accom-

panied by Answer to Interrogatories,’’ permits the trial

court to request the jury to return a general verdict ac-

companied by responses to “wriiten interrogatories upon

one or more issues of fact.”

My objection to the majority’s application of Rule 49 in

this case is that the verdict returned by the jury in the

first trial did not resolve specific issues of fact or even

mixed questions of law and fact. Rather, the jury merely

found “for the plaintiff,” ‘for the defendant,” or “‘for the

counterclaimants” on six separate claims and counter-

claims. Thus, the verdict in this case does not fit com-

fortably within the framework of either Rule 49(a) or Rule

49%(b). Rule 49(a) is ruled out for two reasons: (1) the jury

did not make written findings of fact; and (2) the jury’s

findings “‘for the plaintiff,’ ‘for the defendant,” or ‘‘for

the counterclaimants” on each claim and counterclaim can

only be described as a general verdict. See Brown, 44

F.R.D. at 340. And, although Rule 49(b) refers to a “‘gen-

eral verdict,” that subdivision cannot apply either because

the jury did not respond to “written interrogatories upon

one or more issues of fact.’

* Under a precise reading of Rule 49a), a “special verdict’ seeks

resolution of only factual issues. Some courts, however, have approved

the use of Rule 49 (a) to resolve mixed questions of law and fact.

Quaker City Gear Works, 747 F.2d at 1453. See also Landy v. Federal

Aviation Administration, 635 F.2d 143, 147 (2d Cir. 1980), aff'd., 705

F.2d 624, cert. denied, 104 S. Ct. 243 (1983); Sperberg v. Goodyear

Tire & Rubber Co., 519 F.2d 708, 715 (6th Cir.), cert. denied, 423 U.S.

987 (1975).

27a

Other courts have declined to apply Rule 49 where the

jury’s verdict did not resolve specific “issues of fact.” For

example, in Railroad Dynamics, Inc. v. A. Stucki Co., 727

F.2d 1506 (Fed. Cir.), cert. denied, 105 S. Ct. 220 (1984),

the court said:

The challenged “‘interrogatory”’ is inartfully la-

beled as such by the parties. It sets forth a stand-

ard of proof (“proved by clear and convincing

evidence’) in relation to a legal conclusion (“‘in-

valid on the ground of obviousness’’). Yet legal

conclusions are not proved; facts are. Interro-

gatories, as such, are best employed in seeking

answers to factual questions, the answers to

which lead to or require a legal conclusion.

Though labeled as “‘interrogatories’’, the ten

questions put to the jury were designed to elicit,

and were treated by all concerned as having elic-

ited , a ten-part verdict. ... The jury’s responses

were not special verdicts, because they were not

simply ‘written finding{[s] upon each issue of

fact’. Rule 49a), Fed. R. Civ. P. Nor was there

a single general verdict, per se, accompanied by

“written answers” to “‘one or more issues of fact,

the decision of which is necessary vo a verdict’.

Rule 49(b) Fed. R.Civ. P. Nonetheless, as above

indicated , the parties have correctly viewed the

jury’s tem responses as the equal of a general

verdict for Stucki.

Id. at 1515-16. Similarly, in Merchant v. Ruhle, 740 F.2d

86 (Ist Cir. 1984) , in considering an alleged inconsistency

in two verdicts, the court said:

[W]e first must determine whether we are deal-

ing with two general verdicts or a general verdict

and answers to interrogatories under Fed. R. Civ.

28a

P. Rule 4%b). If the latter applies, we must scru-

tinize the negligence and seaworthiness findings

for irreconcilable inconsistency. If we are dealing

with general verdicts, we do not have the com-

pulsion of a procedural rule to determine such

inconsistency.

We would be reluctant to interpret Rule 49(b)

as applicable. First, there is no “general verdict”

even if the jury’s response qualify [sic] as an-

swers to “interrogatories upon one or more is-

sues of fact”. Second, the first and second

questions and answers are in such comprehensive

and conclusory terms as to constitute essentially

general verdicts on the two counts of the com-

plaint in all respects but damages.

Id. at 88-89 (footnotes and citations omitted). See also-

Cunningham v. M-G Transport Services, Inc., 527 F.2d 760

(4th Cir. 1975) (per curiam) (instructing district courts to

put special interrogatories in the form of questions rather

than affirmative statements). In Miller v. Premier Corp.,

608 F.2d 973 (4th Cir. 1979), the trial court instructed the

jury to return one of four alternative verdict forms. The

Fourth Circuit explained the procedure as follows:

In an effort to aid the jury in its resolution of

the many issues presented in this multi-claim,

multi-party action, the district court decided to

give the jury a choice of four alternative general

verdict forms to return. Only one was to be re-

turned and the court’s instructions were designed

to present the issues in a way related to the

different verdicts so that the one proper choice

could be dictated by the jury’s resolution of the

issues. One verdict was to be returned if the jury

found for the plaintiffs on the securities fraud

claims. Another was to be returned if the jury

aces

OWL en sal Ei 1 a 2

29a

found for the plaintiffs against Premier on the

common law fraud claim. A third was to be re-

turned if the jury found for the defendant Pre-

mier on its counterclaim. The fourth was to be

returned if the jury found against plaintiffs on

all their claims, and against defendant Premier

on its counterclaim. (a general “for the

defendant” verdict).

Id. at 982-83 (footnote omitted) . The court in Miller noted

that this procedure “was not the special verdict submission

authorized by Fed. R. Civ. P. 49(a) , but a general verdict

submission in which various discrete general verdict choices

were given as alternatives.”’ Jd. at 982 n.10.

Though I am convinced that these cases correctly drew

the distinction between separate general verdicts and ver-

dicts governed by Rule 49, Judge Brown’s opinion in Mer-

cer v. Long Manufacturing N.C., Inc., 665 F.2d 61 (5th

Cir.), reh’g denied, 671 F.2d 946 (1982) (per curiam), sug-

gests that the distinction is not as clear as one might

think. In Mercer, the jury was instructed to find for the

plaintiff or the defendant on three separate theories of

liability: breach of warranty, deceptive trade practices, and

strict liability. The jury found for the plaintiff on two

theories of liability and assessed damages against the

defendant. On appeal, the plaintiff asserted that the ver-

dict was not governed by Rule 49(a) because it was not

a special verdict, but rather three separate general ver-

dicts, one for each of three separate theories of liability.

In his opinion for the court, Judge Brown rejected this

argument, describing the submission to the jury as a “‘spe-

cial verdict consisting of four interrogatories under F. R.

Civ. P. 49(a) .”” Mercer, 665 F.2d at 64 (footnote omitted).

Judge Brown explained:

Although the interrogatories included three bases

for liability, we find that the submission was pur-

suant to Fed. R. Civ. P. 49(a). No general verdict

30a

was rendered by the jury, and the District Court

entered judgment only after applying the treble

damage provisions of the DTPA, both factors

pointing against finding a submission under F.

R. Civ. P. 49(b).

Mercer, 665 F.2d at 65. Although Judge Brown may well

be the leading scholar on the use of special verdicis in

federal court, his application of Rule 49(a) in Mercer ap-

pears to be inconsistent with his description of Rule 49(a)

as a technique whereby the jury, applying the court’s in-

structions, ‘‘ records its conclusions with precision, not in

the conglomerate ambiguity of ’for the plaintiff,’ ’for the

defendant,’ or the like.”’ Brown, 44 F.R.D. at 340. Al-

though Mercer is distinguishable from the instant case,‘ I

must concede that Judge Brown’s opinion in Mercer sup-

ports the majority’s application of Rule 49. But even if I

am wrong in believing that Rule 49 should not apply here,

Mercer makes clear that the majority is also wrong in

analyzing this case under Rule 49(b) instead of Rule 49(a).

Here, the jury did not return a single general verdict but

instead returned separate verdicts on each claim or coun-

terciaim.

The distinction between Rule 49(a) and Rule 49(b) is

important in this case because of the majority’s adoption

of a “waiver rule” where counsel fails to raise the issue

of inconsistent verdicts before the jury is discharged. I

would not hesitate to apply a ‘waiver rule” in a case

governed by Rule 49(b).° The cases cited by the majority

‘In Mercer, the jury was asked to return separate verdicts on dif-

ferent theories of liability and to assess the total damages, if any, for

the plaintiff. Here, in contrast, the jury was asked to return separate

verdicts on each claim and counterclaim and to assess damages with

respect to each.

* This is not to say, however, that I would join the majority in holding

that, because Diamond Shamrock waived its objection to inconsistencies

in the verdicts, the trial court does not have the discretion under Rule

3la

provide ample support for such a rule. But I am not aware

of any case where the ‘“‘waiver rule’ has been applied in

the context of Rule 49(a).* Indeed, the Fifth Circuit . con-

59 of the Federal Rules of Civil Procedure to order a new trial on

that same ground. In every case cited in the majority opinion, the

‘“‘waiver rule’ was invoked by the appellate court to affirm the trial

court’s denial of a motion for new trial. I am not aware of any case

where the ‘waiver rule” has been applied to reverse the trial court’s

grant of a new trial on the grounds of inconsistent verdicts. The ma-

jority’s application of the “waiver rule’ in this context impinges on

j the trial court’s broad discretion under Rule 59(d) to grant a new trial

sua sponte. In commenting on the breadth of the trial court’s discretion,

this court has explained:

; Rule 59 F.R.Civ.P., 28 U.S.C.A., provides that a new trial may

be granted in jury trials “for any of the reasons for which new

trials have heretofore been granted in actions at law in the courts

of the United States.’”’ The rule makers did not attempt to delin-

eate all of the reasons, but obviously had reference to grounds for

granting new trial as at common law. Indeed, the Seventh Amend-

ment to the Constitution provides that ‘“‘no fact tried by a jury,

shall be otherwise reexamined in any Court of the United States,

than according to the rules of the common law.” And, Professor

Moore says that the Seventh Amendment is the only present lim-

itation upon the reexamination of facts found by a jury. See Moo-

re’s Federal Practice, Vol. 6, p. 3733, § 59.05(2). Long before the

adoption of the Seventh Amendment, common law courts were

granting motions for new trial upon any grounds which, in the

sound judgment of the trial court, were in the interest of the

proper administration of justice. Aetna Casualty & Surety Co. v.

Yeatts, 4 Cir., 122 F.2d 350. ...

... [T]he granting of a new trial involves an element of dis-

cretion which goes further than the mere sufficiency of the evi-

dence. It embraces all the reasons which inhere in the integrity

of the jury system itself. Felton v. Spiro, 6 Cir., 78 F. 576; Aetna

Cas. & Surety Co., v. Yeatts, supra.

Tidewater Oil Co. v. Waller, 302 F.2d 638, 642-43 (10th Cir. 1962).

*The First Circuit applied the “waiver rule” in Skillin v. Kimball,

643 F.2d 19, 19-20 (ist Cir. 1981) . It is not clear from the court’s

opinion whether the submission in that case was pursuant to Rule 49(a)

or Rule 49(b) . However, the cases cited by the court involved sub-

mission under Rule 49(b). Other courts have interpreted Skillin as a

ben

32a

sidered this issue on petition for rehearing in Mercer, and

concluded that, in cases involving submission pursuant to

Rule 49(a) . objections to inconsistencies in the verdicts

are not waived by failure to present them before the jury

is discharged. Mercer, 671 F.2d 946, 947-48 (5th Cir. 1982)

(per curiam on petition for reh’g). The court explained:

Rule 49(b) specifically states that when the “an-

swers are inconsistent with each other and one

or more is likewise inconsistent with the general

verdict, judgment shall not be entered, but the

court shall return the jury for further consider-

ation of its answers and verdict or shall order a

new trial.’”’ There is no such specific direction

encompassed within Rule 49(a).

Id. at 948 n.]. See also Ladner v. Murray, 769 F.2d 195,

198 n.5 (4th Cir. 1985); Alverez v. J. Ray McDermott &

Co., Ine., 674 F.2d 1037, 1040-41 (5th Cir. 1982) . Though

I would have considerable difficulty in applying Rule 49

to this case, I am persuaded by Mercer that if this case

can be made to fit within the framework of Rule 49, it

must be under subdivision (a) rather than subdivision (b).

Accordingly, I would not hold, as does the majority, that

by failing to move for resubmission to the jury on the

Rule 49a) case but have declined to follow it. See Ladnier v. Murray,

769 F.2d 195, 198 n.5 (4th Cir. 1985) (refusing to follow Skiilin); Bates

v. Jean, 745 F.2d 1146, 1150 (7th Cir. 1984) (not reaching the qucstion

whether the “‘waiver rule” applies to Rule 49(a)); Mercer v. Long Mfg.

NC., Inc., 671 F.2d 946, 948 n.] (5th Cir. 1982) (per curiam on petition

for reh’g) (refusing to follow Skillin).

Our decision “> Bell v. Mickelsen, 710 F.2d 611 (10th Cir. 1983), is

not to the contiary. Although we cited Skillin with approval in that

case, we did not characterize Skillin as a Rule 49(a) case. Jd. at 616.

Moreover, we did not decide in Bell whether counsel’s failure to object

to inconsistencies in the special verdicts precluded appellant from rais-

ing that issue on appeal. We held only that ambiguities in the jury

instructions and the special verdict questions were waived by counsel’s

failure to object at trial. Jd. at 616.

33a

basis of inconsistencies in the verdicts, Diainond Shamrock

has waived that issue on appeal.

I fully concur, however, with the majority’s viev that

} it is possible to reconcile the apparent inconsistencies in

the verdicts. “In reviewing a verdict for inconsistency, a

court has a duty under the seventh amendment to reconcile

the answers and uphold the verdict if that is at all pos-

| sible.” Crossland v. Canteen Corp., 711 F.2d 714, 725 (5th

Cir. 1983); see also Atlantic & Gulf Stevedores, Inc. v.

: Ellerman Lines, 369 U.S. 355, 364 (1962); Burger King

Corp. v. Mason, 710 F.2d 1480, 1489 (llth Cir. 1983); Mer-

cer v. Long Manufacturing, N.C., Inc., 665 F.2d 61, 65-

66 (5th Cir.), reh’g denied, 671 F.2d 946 (5th Cir. 1982).

“{i]f there is a view of the case which makes the jury’s

answers consistent, the court must adopt that view and

enter judgment accordingly.”’ Griffin v. Matherne, 471 F.2d

911, 915 (5th Cir. 1973).

Not only the trial court, but this court as well, has a

constitutional duty to reconcile apparent inconsistencies in

the jury’s verdicts, if at all possible, before we are free

to disregard those verdicts and affirm the trial court’s

grant of a new trial. Gallick v. B & 0 Railroad Co., 372

U.S. 108, 119 (1963); Gross v. Black and Decker, Inc., 695

F.2d 858, 867 (5th Cir. 1983) . Although the jury’s verdicts

could easily be construed as inconsistent, ‘“‘a search for

one possible view of the case which will make the jury’s

finding inconsistent results in a collision with the Seventh

Amendment.” Atlantic & Gulf Stevedores, Inc. v. Ellerman

Lines, 369 U.S. 355, 364 (1962) . Because the trial court

could have harmonized the apparently conflicting findings

of the jury but failed to do so, I would hold that the trial -

court abused its discretion when it set aside the jury ver-

dict and ordered a new trial.

Although I disagree with the rationale adopted by the

majority for its holding, I fully concur in the court’s judg-

a eT

34a

ment reinstating the jury verdict returned at the first trial

and entering judgment thereon.

35a

Nos. 85-1698, 85-1803—Diamond Shamrock Corporation v.

Zinke and Trumbo.

TACHA, Circuit Judge, concurring.

I concur only in the portion of the court’s opinion that

finds that the verdicts in the first trial were not incon-

sistent and therefore should be reinstated. I think it is

unnecessary to reach the Rule 49 question and therefore

decline to express an opinion on that issue.

36a

APPENDIX B

IN THE UNITED STATES DISTRICT COURT FOR

THE

WESTERN DISTRICT OF OKLAHOMA

No. CIV-82-1754-E

DIAMOND SHAMROCK CORPORATION,

a Delaware corporation,

Plaintiff

vs.

ZINKE & TruMBO, LTD., a business association; RoBEeRT M.

ZINKE, an individual; and, Davin B. TRUMBO, an individual,

Defendants,

and

Morris A. RICHARDSON, JOHN HAMILTON, and MARTHA

FRANCIS,

Counterclaimants.

[FILED April 18, 1985]

CERTIFIED INTERLOCUTORY ORDER |

On this 28th day of March, 1985, Plaintiff's Motion for

Judgment in Accordance with Motion for Directed Verdict

came on for hearing before the Court, all parties being

represented by their attorneys of record herein, and the

parties having presented their authorities and arguments

and based upon the record in this case, the Court hereby

finds as follows:

1. That Plaintiff's Motion for Judgment in Accordance

with Motion for Directed Verdict should be denied.

37a

2. That on February 11, 1985, the above cause

counterclaims permitted by the Court to be heard

jury came on for trial before the Court and jury

on February 19, 1985, the jury returned its

against Counterclaimants on their claim of negligence.

3. The Court’s oral instructions to the jury, explaining

the verdict forms, may be erroneous and the jury failed

to return a verdict either for or against Counterclaimants

JOHN HAMILTON and MARTHA FRANCIS on their

counterclaims for breaches of the implied covenants to

protect against drainage and to market.

4. The Court finds, on its own Motion and pursuant to

its letter to counsel for all parties in this case dated Feb-

ruary 20, 1985, which is on file in this case, that a new

trial should be granted on Counterclaimants JOHN HAM-

ILTON and MARTHA FRANCIS’ counterclaims for breach

of the implied covenant to market and to protect against

drainage.

5. Two jury trials have been held in this case, the Court

having previously granted Plaintiff's Motion for New Trial

filed after the first jury trial by its Order entered on

January 11, 1984.

6. The denial of Plaintiffs’ Motion for Judgment in Ac-

cordance with Motion for Directed Verdict, the granting

of a new trial upon the Court’s own Motion and the grant-

ing of Plaintiff's Motion for New Trial on January 11,

1984 involve controlling questions of law as to which there

are substantial grounds for differences of opinion.

7. An immediate appeal from the rulings specified in

Paragraph 6 above may materially advance the ultimate

determination of the litigation.

til Rea nie

fe i + ULE sity

yee E Geat aRE

hiift iy Hi ili

fi TEE ia f

ipa tt Bi: ae “2 Hit Hie :

HIT 4 faae iL: aH _

IT IS THEREFORE ORDERED, ADJUDGED AND

DECREED that Plaintiff DIAMOND SHAMROCK COR-

PORATION’s Motion for Judgment in Accordance with

Motion for Directed Verdict is denied.

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that the new trial hereby granted is stayed until

the Court of Appeals disposes of the interlocutory appeal

brought from these rulings or until the time for interlo-

cutory appeal has passed without the parties having filed

cok ts ieee

CERTIFICATION

I hereby certify that the issues disposed of by this Order

aenying Plaintiff's Motion for Judgment in Accordance with

Motion for Directed Verdict and granting a new trial upon

of Counterclaimants JOHN HAMILTON and

MARTHA FRANCIS for breaches of the implied covenants

to protect against drainage and to market, and by the

aaah @ Jaunary 11, 1984 granting Plaintiff's

iiatien fer Have toteh, tation quatediiin eundiions of tow

as to which there are substantial grounds for differences

of opinion and that an immediate appeal from these Orders

Dated this 18 day of April, 1985.

‘s/ LutHer B. EUBANKS

The Honorable Luther B. Eubanks,

Chief Judge United States District

Court, Western District of Oklahoma

Entered In Judgment

Docket 4-18-85

40a

Approved as to forin:

/s/ JAMES U. WHITE Jr.

James U. White, Jr.

Gary Davis

CROWE & DUNLEVY, P.C.

1800 Mid-America Tower

20 North Broadway

Oklahoma City, Oklahoma 73102

Telephone: (405)235-7700

Attorneys for Defendant and

Counterclaimants

/s/ H. B. Watson, Jr.

H.B. Watson, Jr.

Richard K. Books

WATSON & McKENZIE

1900 Liberty Tower

Oklahoma City, Oklahoma 73102

Telephone: (405)232-2501

Attorneys for Plaintiff

SLT/25/sp

4la

APPENDIX C

IN THE UNITED STATES DISTRICT COURT FOR

THE WESTERN DISTRICT OF OKLAHOMA

No. CIV-82-1754-E

DIAMOND SHAMROCK CORPORATION,

a Delaware corporation,

Plaintiff,

vs.

ZINKE & TRUMBO, LTD., a business association; RoBERT M.

ZINKE, an individual; and, Davip B. TruMBo, an individual,

Defendants,

and

Morris A. RICHARDSON, JOHN HAMILTON, and

MARTHA FRANCIS,

Counterclaimants.

[FILED April 18, 1985]

JOURNAL ENTRY OF JUDGMENT

On February 11, 1985, the above cause and all coun-

terclaims permitted by the Court to be heard by the jury

came on for trial bef re the Court and jury, all parties

being represented by their attorneys of record herein, and

the parties having presented their evidence and authorities,

and arguments to the Court and jury, and having close?

all of the evidence on February 15, 1985, the jury, based

upon the instructions given by the Court, returned its

verdict on February 19, 1985 and made the findings as

reflected on the Verdict Form, a true and correct copy of

which is attached hereto as Exhibit “A”. Based upon the

jury’s verdict and upon the law,

42a

IT IS ORDERED, ADJUDGED AND DECREED that

Plaintiff DAMOND SHAMROCK CORPORATION recover

on its Complaint from the Defendants the sum of

$220,830.34. Based upon the jury’s verdict and upon the

law,

THE COURT FINDS AND IT IS FURTHER OR-

DERED, ADJUDGED AND DECREED that Defendant

ZINKE & TRUMBO, LTD. recover nothing on its coun-

terclaim against DIAMOND SHAMROCK CORPORATION

for gross negligence and that the Counterclaimants JOHN

HAMILTON, MARTHA FRANCIS and MORRIS RICH-

ARDSON recover nothing on their claim for negligence

against DIAMOND SHAMROCK CORPORATION.

THE COURT FINDS AND IT IS FURTHER OR-

DERED, ADJUDGED AND DECREED as follows:

1. DIAMOND SHAMROCK CORPORATION is entitled

to judgment, pursuant to this Court’s previous rulings in-

cluding its February 8, 1985 rulings, against ZINKE &

TRUMBO, LTD. on ZINKE & TRUMBO, LTD.’s claim for

breach of an oral agreement and on ZINKE & TRUMBO,

LTD.’s claim for actual and punitive damages for kick-

backs.

2. DIAMOND SHAMROCK CORPORATION is further

awarded, pursuant to this Court’s ruling on April 11, 1985,

attorney fees in the amount of $140,000.00 against

Defendants and Counterclaimants.

3. Costs will be determined by separate application pur-

suant to the agreement of the parties.

4. DIAMOND SHAMROCK CORPORATION is entitled

to post-judgment interest on the amount awarded by the

jury and the amount awarded as attorney fees at the rate

of 9.17% per annum from the date hereof.

5. DIAMOND SHAMROCK CORPORATION is allowed

all writs and processes provided by law for the enforce-

ment of this judgment.

———— a

43a

CERTIFICATION

This Court has found that the jury did not return a

verdict on Counterclaimants JOHN HAMILTON and MAR-

THA FRANCIS’ claims for breaches of the implied cov-

enants to market and to protect against drainage. The

Court finds that, as to the claims which the Court has

entered judgment by its Journal Entry of Judgment, fi-

nality should be ordered to advance the interests of sound

judicial administration and justice to the litigants, based

upon a balancing of competing factors, including the fol-

lowing:

1. The claims upon which the Court has entered judg-

ment by its Journal Entry of Judgment were finally ad-

judicated and they are separate, distinct and independent

from Counterclaimants HAMILTON and FRANCIS’ claims

for breaches of the implied covenant to market and to

protect against drainage.

2. Certification of these claims will not result in un-

necessary appellate review nor will the questions raised in

such appeal have to be decided more than once in the

event of a subsequent appeal because the above claims are

separate and unrelated to Counterclaimants HAMILTON

and FRANCIS’ claims for breaches of the implied covenant

to market and to protect against drainage.

3. An immediate review of the claims finally adjudicated

would not be mooted by any future developments in this

lawsuit.

4. Due to the length of time that this lawsuit has been

pending and because two lengthy jury trials have already

been held in this case, any further delay in the entry of

judgment would be unjust to the parties. Judgment should

also be entered so that it will bear interest.

IT IS THEREFORE CERTIFIED that, with respect to

the claims finally determined by the jury’s verdict and the

Journal Entry of Judgment to which this certificate is

44a

appended, in accordance with Rule 54(b), Fed. R. Civ. P.,

(1) the Court has directed the entry of final judgment for

the Plaintiff on its Complaint in the amount of $220,830.34,

and against Defendants on their counterclaims for gross

negligence, breach of oral contract and kickbacks, includ-

ing punitive damages, and against all Counterclaimants on

their counterclaim for negligence; and (2) the Court has

determined there is no just reason for delay.

Dated this 18 day of April, 1985.

/s/ LUTHER B. EUBANKS

The Honorable Luther B. Eubanks,

Chief Judge United States District

Court, Western District of Oklahoma

Entered In Judgment

Docket 4-18-85

Approved as to form:

/s/ JAMES U. WHITE, JR.

James U. White, Jr.

Gary Davis

CROWE & DUNLEVY, P.C.

1800 Mid-America Tower

20 North Broadway

Oklahoma City, Oklahoma 73102

Telephone: (405)235-7700

Attorneys for Defendant and

Counterclaimants

45a

/s/ H.B. WATSON, JR.

H.B. Watson, Jr.

Richard K. Books

WATSON & McKENZIE

1900 Liberty Tower

Oklahoma City, Oklahoma 73102

Telephone: (405)232-2501

Attorneys for Plaintiff

SLT/24/sp

46a

IN THE UNITED STATES DISTRICT COURT FOR

THE WESTERN DISTRICT OF OKLAHOMA

CIV-82-1754-E

DIAMOND SHAMROCK CORPORATION,

a Delaware corporation,

Plaintzff,

Vv. \

ZINKE & TRUMBO, LTD., a business association; ROBERT M.

ZINKE, an individual; and Davip B. TRuMBO, an individual,

Defendant.

VERDICT

[Place either “plaintiff,” ‘defendants,’ or ‘‘counterclai-

mants’”’ in the first blank.]

We, the Jury, being duly empaneled and sworn upon

our oath, find as follows:

1. for the plaintiff upon the claim by the plaintiff, Dia-

mond Shamrock Corporation, for breach of the operating

agreement and fix damages'in the amount of $220,830.34;

2. for the upon the claim by the defendant,

Zinke & Trumbo, Ltd., for gross negligence and/or willful

misconduct in the operation of the well and fix actual

damages in the amount of $ ; and punitive

damages, if any, in the amount of $

3. for the upon the claim by the counter-

claimants, Morris A. Richardson, John Hamilton, and Mar-

tha Francis, for negligence in the operation of the well

and fix damages in the amount of $ ; and pu-

nitive damages, if any, in the amount of $

EXHIBIT A-PAGE 1 OF 2 PAGES

Gre 2 ath Vane leu, S22 a Be Ps le SAAT lee oy ea Ie” ote Fs. wae tide

—-

47a

4. for the upon the claim by the counter-

claimants, John Hamilton and Martha Francis for breach

of the implied covenant to protect against drainage, and

fix actual damages in the amount of $ - and

punitive damages, if any, in the amount of $ ‘

5. for the upon the claim by the counter-

claimants, John Hamilton and Martha Francis, for breach

of the implied covenant to market and fix actual damages

in the amount of $ ; and punitive damages, if

any, in the amount of $

2-29-85 Louis MCCLURE

Date Foreman

EXHIBIT A-PAGE 2 OF 2 PAGES

48a

APPENDIX D

IN THE UNITED STATES DISTRICT COURT FOR

THE WESTERN DISTRICT OF OKLAHOMA

No. CIV-82-1754-E

DIAMOND SHAMROCK CORPORATION,

a Delaware corporation,

Plaintiff,

¥.

ZINKE & TRUMBO, LTD, a business association; ROBERT M.

ZINKE, an individual; and, Davin B. TRuMBo, an individual.

Defendants.

[FILED January 11, 1984]

ORDER GRANTING NEW TRIAL AND VACATING

JUDGMENT

NOW on this 5th day of January, 1984, came on for

hearing the Motion for Judgment Notwithstanding the

Verdict or, in the Alternative, New Trial filed herein by

DIAMOND SHAMROCK CORPORATION, with the

Plaintiff DIAMOND SHAMROCK CORPORATION ap-

pearing by and through its attorneys H. B. Watson, Jr.

and Richard K. Books, and the Defendants ROBERT M.

ZINKE and DAVID B. TRUMBO appearing personnally

and through their counsel Gary Davis and James U. White,

and the Defendant ZINKE & TRUMBO, LTD. and the

Counterclaimants Hamilton, Richardson and Francis ap-

pearing by and through the same counsel.

The Court, after hearing the authorities presented in

the argument of counsel, finds that the Motion for Judg-

ment Notwithstanding the Verdict should be denied and

that the Motion for New Trial should be granted in all

respects.

49a

IT IS THEREFORE ORDERED, ADJUDGED AND

DECREED that the verdict entered in this case on No-

vember 2, 1988, should be and is hereby vacated, set aside

and held for naught.

: _ IT IS FURTHER ORDERED, ADJUDGED AND DE-

: CREED that the judgment entered herein on November

10, 1988, should be and is hereby vacated, set aside and

held for naught.

Dated this 11 day of January, 1984.

BY: /s/ LUTHER E. EUBANKS

Honoraole Luther E. Eubanks

. ENTERED IN JUDGMENT DOCKET ON 1-11-84

APPROVED AS TO FORM:

i BY: /s/_H.B. WaTSON, IR.

i H.B. Watson, Jr.

| Richard K. Books

Watson & McKenzie

1900 Liberty Tower

Oklahoma City, OK 73102

405/232-2501

BY:

Mr. Gary Davis

Mr. James U. White, Jr.

Crowe & Dunlevy

1800 Mid-America Tower

Twenty Broadway

Oklahoma City, OK 73102

405/235-7700

50a

APPENDIX E

IN THE UNITED STATES DISTRICT COURT FOR

THE WESTERN DISTRICT OF OKLAHOMA

No. CIV-82-1754-E

DIAMOND SHAMROCK CORPORATION,

a Delaware corporation,

Plaintiff,

ZINKE & TRUMBO, LTD., a business association; RoBERT M.

ZINKE, an individual; and Davin B. TRUMBO, an individual,

Defendants.

[FILED November 16, 1983]

JOURNAL ENTRY OF JUDGMENT

On October 27, 1983, the above cause and all counter-

claims therein, came on for trial before the Court and

Jury, all parties being represented by their attorneys of

record herein, and the parties having presented their evi-

dence and authorities, and arguments to the Court and

Jury, and having closed all of the evidence on October 31,

1983, the Jury made its Verdict based upon the instruc-

tions given by the Court, finding for the plaintiff on its

complaint, and for the counterclaimants on their counter-

claims in the respective amounts indicated in the Jury’s

Verdict dated November 2, 1983. Based upon the Jury’s

Verdict and upon the law,

IT IS ORDERED, ADJUDGED AND DECREED that

plaintiff, Diamond Chemicals Company, recover on its com-

plaint from the defendants the sum of $212,805.60.

ee ee eo

Na a

" Bla

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that counterclaimant Zinke & Trumbo, Ltd., re-

cover on its counterclaim the sum of $995,196.00 from

Diamond Chemicals Company and that counterclaimants

John Hamilton, Martha Frances and Morris Richardson

jointly recover on their counterclaims the sum of

$971,179.00 from Diamond Chemicals Company and that

counterclaimants John Hamilton and Martha Frances

jointly recover on their counterclaims the sum of

$1,032,499.00 from Diamond Chemicals Company:

Based upon the Jury’s Verdict and upon the law,

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED as follows:

(1) That defendants breached the parties’ written joint

operating agreement by their failure to pay their propor-

tionate share of completion costs, for which Diamond

Chemicals Company is entitled to recover on its complaint

the damages awarded by the jury as above-indicated.

(2) That Diamond Chemicals Company performed op-

erations on the Hamilton Well in a grossly negligent man-

ner, for which counterclaimant Zinke & Trumbo, Ltd., is

entitled to recover on its counterclaim the damages

awarded by the jury as above-indicated.

(3) That Diamond Chemicals Company performed op-

erations on the Hamilton Well in a negligent manner, for

which counterclaimants John Hamilton, Martha Frances

and Morris Richardson, are entitled to jointly recover on

their counterclaims the damages awarded by the jury as

above-indicated.

(4) That Diamond Chemicals Company breached its duty

to counterclaimants John Hamilton and Martha Frances to

protect against drainage as implied under the parties’ re-

spective leases, for which counterclaimants John Hamilton

and Martha Frances are jointly entitled to actual damages

as awarded by the jury in the amount of $32,499.00. Be-

cause of the nature of plaintiff's breach of this implied

52a

duty to protect against drainage, counterclaimants John

Hamilton and Martha Frances are further entitled to jointly

recover punitive damages as awarded by the jury in the

amount of $1,000,000.00.

(5) All parties are entitled to post-judgment interest on

their respective recoveries as awarded by the jury at the

rate of nine and eighty-six one hundredths percent (9.86%)

per annum from the date hereof.

(6) The awarding of attorney’s fees and costs shall be

determined by separate application of the parties.

IT IS FURTHER ORDERED, ADJUDGED AND DE-

CREED that all parties are allowed all writs and processes

provided by law for the enforcement of this judgment.

DATED this 16 day of November, 1983.

/s/ LUTHER B. EUBANKS

LUTHER B. EUBANKS

Chief Judge - U.S. District Court

Western District of Oklahoma

ENTERED IN JUDGMENT DOCKET ON 11-16-83

Approved as to form:

/s/ JAMES U. WHITE, JR.

Gary W. Davis

James U. White

CROWE & DUNLEVY

A Professional Corporation

1800 Mid-America Tower

20 North Broadway

Oklahoma City, Oklahoma 73102

Telephone: (405) 235-7700

ATTORNEYS FOR DEFENDANTS

AND COUNTERCLAIMANTS

Approved as to form:

/s/ H. B. Watson, Jr.

53a

H. B. Watson, Jr.

Richard K. Books

WATSON & McKENZIE

1900 Liberty Tower

Oklahoma City, Oklahoma 73102

Telephone: (405) 232-2501

ATTORNEYS FOR PLAINTIFF

Gee ll —__ ie i

54a

APPENDIX F

MAY TERM - July 16, 1986

Before Honorable William J. Holloway, Jr., Honorable

James E. Barrett, Honorable Monroe G. McKay, Honorable

James K. Logan, Honorable Stephanie K. Seymour, Hon-

orable John P. Moore, Honorable Stephen H. Anderson,

Honorable Deanell R. Tacha and Honorable Bobby R. Bal-

dock, Circuit Judges

Nos. 85-1698

85-1803

DIAMOND SHAMROCK CORPORATION,

a Delaware corporation,

Plaintiff-Appellant, Cross-Appellee,

vs.

ZINKE & TRUMBO, LTD., a business association, ROBERT M.

ZINKE, an individual, and Davin B. TRUMBO, an individual,

Defendants, Counterclaimants-A ppellees, :

and

Morris A. RICHARDSON, JOHN HAMILTON and —

MARTHA FRANCIS,

Counterclaimants-Cross Appellants.

[FILED July 16, 1986, U.S. Court of Appeals for the Tenth

Circuit]

This matter comes on for consideration of appellant’s

petition for rehearing and suggestion for rehearing en banc

in the captioned cause.

Upon consideration whereof, the petition for rehearing

is denied by the panel that rendered the decision sought

55a

to be reheard. It is the view of this panel that Oklahoma

law does not require demand for payment as a prerequisite

to filing a suit for damages.

The petition for rehearing having been denied by the

panel to whom the case was argued and submitted, an no

member of the panel nor judge in regular active service

on the Court having requested that the Court be polled

on rehearing en banc, Rule 35, Federal Rules of Appellate

Procedure, the suggestion for rehearing en banc is denied.

ROBERT L. HOECKER, Clerk

By /s/ PATRICK FISHER

Patrick Fisher

Chief Deputy Clerk

56a

APPENDIX G

MAY TERM - July 21, 1986

Before Honorable James E. Barrett, Honorable Monroe G.

McKay, Honorable James K. Logan, Honorable Stephanie

K. Seymour, Honorable John P. Moore, Honorable Stephen

H. Anderson, Honorable Deanell R. Tacha and Honorable

Bobby R. Baldock, Circuit Judges

Nos. 85-1698

85-1803

DIAMOND SHAMROCK CORPORATION,

a Delaware corporation,

Plaintiff-Appellant, Cross-A ppellee,

vs.

ZINKE & TRuMBO, LTD., a business association, ROBERT M.

ZINKE, an individual, and Davin B. TRUMBO, an individual

Defendants, Counterclaimants-A ppellees,

and

Morris A. RICHARDSON, JOHN HAMILTON and MARTHA

FRANCIS,

Counterclaimants-Cross Appellants.

[FILED JULY 21, 1986-U.S. Court of Appeals For The

10th Circuit]

The Court in order to correct a clerical error in the

issuance of this order on July 16, 1986, hereby reissues

it in order to reflect that Judge William J. Holloway, Jr.

did not participate in the issuance of this order.

The order reissued nunc pro tunc and is to read as

follows:

SF ne ea Ca a RF Nel leks ae DIAM IE ale ABSl Aaah oat ak Sint

ee POEs 15m, lle eg EN ae

Waste Soke

Darin haw ms

bined CPAs

57a

This matter comes on for consideration of appellant’s

petition for rehearing and suggestion for rehearing en banc

in the captioned cause.

Upon consideration whereof, the petition for rehearing

is denied by the panel that rendered the decision sought

to be reheard. It is the view of this panel that Oklahoma

law does not require demand for payment as a prerequisite

to filing a suit for damages.

The petition for rehearing having been denied by the

panel to whom the case was argued and submitted, and

no member of the panel nor judge in regular active service

on the Court having requested that the Court be polled

on rehearing en banc, Ruie 35, Federal Rules of Appellate

Procedure, the suggestion for rehearing en banc is denied.

Chief Judge Hollceway did not participate in the consid-

eration or disposition of the petition for rehearing and

suggestion for rehearing en banc.

ROBERT L. HOECKER, Clerk

By /s/ PATRICK FISHER

Patrick Fisher

Chief Deputy Cierk

58a

APPENDIX H

IN THE UNITED STATES DISTRICT COURT FOR

THE WESTERN DISTRICT OF OKLAHOMA

No. CIV-82-1754-W

DIAMOND SHAMROCK CORPORATION,

a Delaware corporation,

Plaintiff,

ZINKE & TRUMBO, LTD., a business association; ROBERT M.

ZINKE, an individual; and, Davin B. TRUMBO, an individual,

Defendants.

[FILED November 2, 1983]

VERDICT

[Place either “plaintiff”, ‘defendants’, or “counterclai-

mants” in the first blank.]

We, the Jury, find as follows:

1. for the Plaintiff upon the claim by the plaintiff, Dia-

mond Shamrock Corporation, for breach of the operating

agreement and fix damages in the amount of $212,805.60;

2. for the Plaintiff upon the claim by the defendant,

Zinke & Trumbo, Ltd., for breack of a new agreement

and fix damages in the amount of $0.00;

3. for the Defendant upon the claim by the defendant,

Zinke & Trumbo, Ltd., for gross negligence and/or willful

misconduct in the operation of the well and fix damages

in the amount of $995,196.00:

59a

4. for the Counterclaimants upon the claim by the coun-

terclaimants, John Hamilton, Martha Frances and Morris

Richardson, for negligence in the operation of the well and

fix damages in the amount of $971,179.00;

5. for the Plaintiff upon the claim by the counterclai-

mants, John Hamilton and Martha Frances, for breach of

the implied covenant to market and fix damages in the

amount of $0.00; and

6. for the Counterclaimants upon the claim by the coun-

terclaimants, John Hamilton and Martha Frances for

breach of the implied covenant to protect against drainage,

and fix actual damages in the amount of $32,499.00 and

punitive damages in the amount of $1,000,000.00 (one mil-

lion dollars).

November 2, 1983 /s/ LARRY MULLINAX

Date Foreman

60a

APPENDIX I

IN THE UNITED STATES DISTRICT COURT FOR

THE WESTERN DISTRICT OF OKLAHOMA

No. CIV-82-1754-W

DIAMOND SHAMROCK CORPORATION,

a Delaware corporation,

Plaintiff,

vs.

ZINKE & TRUMBO, LTD, a business association; ROBERT M.

ZINKE, an individual: and, Davip B. TRUMBO, an individual.

Defendants.

[FILED November 14, 1983]

ALTERNATIVE MOTION FOR JUDGMENT

NOTWITHSTANDING THE VERDICT OR FOR NEW

TRIAL

Motion for Judgment Notwithstanding the Verdict

COMES NOW DIAMOND SHAMROCK CORPORA-

TION, Plaintiff herein, and moves this Honorable Court

to set aside the verdict rendered in the above-entitled ac- |

tion on November 2, 1983, in favor of Counterclaimants,

and to enter judgment in favor of Plaintiff for $212,805.60

on the grounds that:

1. The verdicts entered by the jury are inconsistent on

heir faces and indicate that the jury was either in a state

»f confusion or that the jury abused its power. Specifically,

t was impossible for the jury to find that DIAMOND

SHAMROCK performed operations in a good and work-

nanlike manner and at the same time find that DIAMOND

SHAMROCK had been negligent and grossly negligent.

6la

The verdict awarding DIAMOND SHAMROCK $212,805.60

under the Joint Operating Agreement is irreconcilably in-

consistent with the verdict awarding ZINKE & TRUMBO,

LTD. $995,196.00 for gross negligence or willful miscon-

duct and the verdict awarding John Hamilton, Martha

Francis and Morris Richardson, $971,179.00 for negli-

gence.

2. Judgment should be entered in favor of DIAMOND

SHAMROCK on both the prayer for actual damages and

the prayer for punitive damages regarding the drainage

issue because absolutely no evidence was placed before the

court or jury to indicate the terms of the oil and gas leases

in question, and it is therefore impossible for the jury or

the court to determine whether DIAMOND SHAMROCK

breached any express or implied obligation under the oil

and gas leases. Judgment should also be entered in favor

of DIAMOND SHAMROCK on the drainage issue because

there was no evidence from which the jury could find that

Counterclaimants made demand upon DIAMOND SHAM-

ROCK to protect against drainage.

3 DIAMOND SHAMROCK should have judgment upon

the claim of John Hamilton and Martha Francis for drain-

age because there was no evidence to show that drainage

has occurred to Section 33 and the undisputed evidence

was that DIAMOND SHAMROCK satisfied any covenant

to protect against drainage by the drilling of the John

Hamilton 1-33 well, which well is shut in awaiting a pipe-

line.

4. DIAMOND SHAMROCK should have judgment with

regard to ZINKE & TRUMBO, LTD.’s claim of gross neg-

ligence because there exists no evidence from which the

jury could infer that DIAMOND SHAMROCK was guilty

of either gross negligence or willful misconduct.

5. DIAMOND SHAMROCK should have judgment on

the claim of John Hamilton, Martha Francis and Morris

Richardson for negligence because there is no evidence

62a

from which the jury could infer that DIAMOND SHAM-

ROCK was negligent.

6. Judgment should be entered in favor of DIAMOND

SHAMROCK as to both actual and punitive damages for

drainage because the award of damages to Counterclai-

mants Hamilton and Francis for drainage after first award-

ing Counterclaimants full recovery for alleged destruction

of the reservoir would constitute an unwarranted double

recovery and would constitute an unjust enrichment of

Counterclaimants Hamilton and Francis.

7. Plaintiff DIAMOND SHAMROCK should have judg-

ment in its favor as to the exemplary or punitive damage

issue for the reason that there was no evidence of any

oppression, fraud, or malice as is required by 23 O.S 1971

Section 9 for an award of exemplary damages; that the

necessary threshold of evidence as a basis for submission

of the issue of exemplary damages to the jury was never

established by the Counterclaimants; that the issue should

not have been submitted to the jury.

- 8. Judgment should be entered in favor of DIAMOND

SHAMROCK on each of Counterclaimants’ causes of action

for the reason that there was no evidence of the value of

either oil or gas during the period in which drainage or

destruction was alleged to have occurred, and no evidence

of the amount of gas or oil allegedly drained from Section

33.

WHEREFORE, DIAMOND SHAMROCK prays that the

Court set aside the verdicts entered herein in favor of

Counterclaimants and enter judgment in favor of DIA-

MOND SHAMROCK in the amount of $212,805.60, in ac-

cordance with the Motion for Directed Verdict made by

DIAMOND SHAMROCK at the close of all the evidence.

Motion for New Trial

In the alternative to the foregoing Motion for Judgment

Notwithstanding the Verdict, DIAMOND SHAMROCK

63a

moves the Court to set aside the jury’s verdict of Novem-

ber 2, 1983, in its entirety and to grant a new trial for

each of the following reasons:

9. The jury’s verdicts are so inconsistent on their face

as to indicate that the jury was either in a state of con-

fusion or that the jury abused its power. Specifically, the

jury’s finding for DIAMOND SHAMROCK under its claim

for breach of the Joint Operating Agreement is irrecon-

cilably inconsistent with the jury’s finding in favor of

ZINKE & TRUMBO, LTD. on its claim for gross negli-

gence or willful misconduct and inconsistent with the find-

ing in favor of John Hamilton, Martha Francis and Morris

Richardson on their claim for negligence.

10. It was impossible for the jury to find that DIAMOND

SHAMROCK had breached the oil and gas leases in ques-

tion since the leases were not introduced into evidence,

nor was any evidence introduced regarding the terms of

the oil and gas leases in question.

11. As to punitive damages, there is a total absence of

any proof of any act or omission on the part of DIAMOND

SHAMROCK which could be classified as malicious, frad-

ulent or oppressive.

12. The exemplary or punitive damages awarded to

Counterclaimants John Hamilton and Martha Francis bear

no reasonable relationship to the injury inflicted, if any,

upon the Counterclaimants due to the alleged drainage,

and said punitive damages are excessive in emount even

if punitive damages were otherwise allowable. The award

of $1 million in punitive damages was necessarily the result

of passion and prejudice on the part of the jury.

13. It was error for this Court to overrule DIAMOND

SHAMROCK’s motion for continuance filed on October 19,

1983, in light of the fact that on October 7, 1983, the

Court allowed Counterclaimants to file an Amended Coun-

64a

terclaim containing three new causes of action and which

Amended Counterclaim for the first time sought the im-

position of punitive damages.

14. The verdict is contrary to the manifest weight of

the evidence in the following particulars:

a. There was no evidence regarding the obligations,

either express or implied, imposed by the oil and gas lease

in question and there is no evidence that Counterclaimants

ever made demand upon DIAMOND SHAMROCK to pro-

tect against drainage.

b. There is no evidence from which the jury could

conclude that DIAMOND SHAMROCK has breached the

oil and gas lease in question, since there is no evidence

whatsoever of the terms of the oil and gas lease.

c. There is no evidence of oppression, fraud or malice

on the part of DIAMOND SHAMROCK, as is required by

23 0. S., Section 9, to support a basis of determination

by the jury that exemplary damages should be awarded.

d. The manifest weight of the evidence shows no ac-

tion or inaction on the part of DIAMOND SHAMROCK

which would not have been taken by a reasonably prudent

operator in the same circumstances.

e. The manifest weight of the evidence shows that

there was no unreasonable delay in drilling a well in Sec-

tion 33 under the circumstances of the instant case.

15. The Court committed error in its charge to the jury

in the following respects, over the objection of DIAMOND

SHAMROCK:

a. By instructing the jury that, if the Counterclai-

mants Hamilton and Francis established the essential ele-

ments of their case and if DIAMOND SHAMROCK had

superior knowledge of the facts at the time of demand to

protect against drainage, then the burden of proof shifted

to DIAMOND SHAMROCK.

65a

b. By instructing the jury that the instant action was

one in which punitive damages might be awarded.

c. By instructing the jury that they could use rules

of construction in interpreting the contract between the

parties when the contract in question was plain and un-

ambiguous.

d. By failing to instruct the jury that, in determining

whether or not DIAMOND SHAMROCK acted as a rea-

sonably prudent operator to protect against drainage, the

jury could only consider those facts known to DIAMOND

SHAMROCK at the time of DIAMOND SHAMROCK'’s al-

leged improper actions.

e. By failing to instruct the jury to find for DIAMOND

SHAMROCK on each of Counterclaimants’ causes of ac-

tion.

16. The Court committed error in its ruling on numerous

evidentiary matters during the course of the trial, all of

which affected the substantial rights of DIAMOND SHAM-

ROCK, including the following:

a. In the admission, over the continuing objection of

DIAMOND SHAMROCK, of evidence regarding the al-

leged improper drilling, completion, or operation of the

George Travis 1 “A” well.

b. In the admission of all other evidence shown by

the record to have been admitted by the Court over the

objection of DIAMOND SHAMROCK, or as to which the

record shows that the Court failed to sustain DIAMOND

SHAMROCK’s objections.

17. The Court committed error in failing to dismiss juror

Susan Drake for cause, or in the alternative, in failing to

substitute the alternate juror for juror Susan Drake when

it was discovered that Ms. Drake was personally ac-

quainted with one of Counterclaimants’ expert witnesses.

66a

18. This motion is based upon the record and proceed-

ings in this action, and upon the brief filed in support of

this motion; however, DIAMOND SHAMROCK reserves

the right to supplement and amplify the foregoing reasons

for judgment notwithstanding the verdict or new trial fol-

lowing receipt of a transcript of the record.

WHEREFORE, premises considered, DIAMOND

SHAMROCK CORPORATION respectfully requests that

this Court enter its judgment in favor of DIAMOND

SHAMROCK for $212,805.60, and against Counterclai-

mants on each of their counterclaims or in the alternative,

that this Court set aside the jury’s verdict of November

2, 1983, in all respects and that this Court grant a new

trial.

BY: /s/ H. B. Watson, Jr.

H. B. Watson, Jr.

BY: /s/ RicHarp K. Books

Richard K. Books

Watson & McKenzie

1900 Liberty Tower

Oklahoma City, Oklahoma 73102

405/232-2501

CERTIFICATE OF SERVICE

This will certify that a true and correct copy of the

foregoing ALTERNATIVE MOTION FOR JUDGMENT

NOTWITHSTANDING THE VERDICT OR FOR NEW

TRIAL was duly mailed with postage fully prepaid thereon,

this 14th day of November, 1983, to James U. White, Jr.

and Gary Davis, Crowe & Dunlevy, 1800 Mid-America

Tower, 20 North Broadway, Oklahoma City, Oklahoma,

73102.

BY: /s/ RicHarp K. Booxs

Richard K. Books

—————————

67a

APPENDIX J

IN THE UNITED STATES DISTRICT COURT FOR

THE WESTERN DISTRICT OF OKLAHOMA

No. CIV-82-1754-E

DIAMOND SHAMROCK CORPORATION,

a Delaware corporation,

Plaintiff,

vs.

ZINKE AND TRUMBO, LTD., a business association; ROBERT

M. ZINKE, an individual; and DAVID B. TRUMBO,

an individual,

Defendants,

Morris A. RICHARDSON, JOHN HAMILTON AND MARTHA

FRANCIS,

Counterclaimants.

*-* *

OFFICIAL COURT REPORTER’S TRANSCRIPT

OF PROCEEDINGS HAD

ON JANUARY 5, 1984

BEFORE THE HONORABLE LUTHER B. EUBANKS

IN OKLAHOMA CITY, OKLAHOMA

APPEARANCES

For the Plaintiff: Mr. H. B. Watson, Jr., and

Mr. Richard K. Books

Watson & McKenzie

1900 Liberty Tower

Oklahoma City, Oklahoma 73102

68a

For the Defendants and Mr. Gary W. Davis and

Counterclaimants: Mr. James White

Crowe & Dunlevy

1800 Mid-America Tower

Oklahoma City, Oklahoma 73102

Reported by: Vicki Dilbeck, CSR, CM

Room 3011-A, U. S. Courthouse

Oklahoma City, Oklahoma 73102

(405) 232-2804

THE COURT: All right. I guess we'll hear from you

first, Mr. Davis. Wait a minute. Let me get my papers

all straightened up here.

MR. DAVIS: Your Honor, would you prefer to hear

from Mr. Watson?

THE COURT: No, no. I’m sorry. I do have you back-

wards. We’ll hear from Mr. Watson first. Pardon me.

MR. WATSON: If the Court please, Your Honor, you'll

recall I’m sure that this was a rather lengthy trial in-

volving the plaintiff’s claim.

We represented the plaintiff, Diamond Shamrock and

their claim for monies due under a joint operating agree-

ment for the drilling of an oil and gas well. And the

defendants and counterclaimants had several causes of ac-

tion, and the Court submitted to the jury each cause of

action raised in the pleadings by either party.

The jury in its verdict on the first cause of action, being

that of the plaintiff, found for the plaintiff under the

Court’s instructions that if the plaintiff had substantially

complied with the contract, he was entitled and had done

the work, paid for the work, and he was entitled to recover

or it was entitled to recover. The jury so found rendering

judgment or verdict for the plaintiff for the total sum

claimed by Diamond Shamrock for the drilling of the well.

69a

The second cause of action was that raised by the cross-

claimant, Zinke, Trumbo, in that the joint operating agree-

ment had been modified or amended and changed.

The jury found that such was not the case; that the

parties were bound by the contract, the joint operating

agreement.

The next cause of action—pardon me was by the

defendant Zinke and Trumbo for gross negligence and will-

ful misconduct in the operation of the well.

Now, as you no doubt recall, Your Honor, we didn’t—

we finished the evidence in the case late on a Friday and

the Court did not entertain arguments on the motion for

directed verdict. And so it is our position on this particular

cause of action that the evidence—the record is void of

evidence to support this cause of action they relied upon

a expert witness by the name of Berry to establish the

amount of their damages.

If you will recali, Mr. Berry was a petroleum engineer,

and he testified that he had determined that the value of

the property prior to the drilling of the well in question,

he had calculated what he estimated the reserves to be

prior to drilling of the well. He sponsored Defendant’s

Exhibits 53 through 60.

If the Court please, I would like to hand up a copy of

those exhibits.

THE COURT: All right.

MR. WATSON: And looking at his testimony, and the

evidence of the defendants in the most favorable light to

the defendants, he testified that they should recover the

value of the property. He stated that over the life of the

property, there on paying one, he was asked to circle and

a number $995,196 which you'll see there, if the Court

please, is what he would estimate the income to be over

the next six years.

70a

And he also testified that obviously in fixing the value

of the property, you could not give people what they would

receive over the next six years. You had to discount it.

And on the next page, he states his opinion. The reason-

able discount factor is five percent which would be

$536,708.

Now, they rendered judgment for the $995,000 figure

identical to Exhibit 53. It has to be where they got it.

And they awarded the defendants and crossclaimants the

amount that this witness—and this is the only evidence as

to the value that this witness said they would receive over

the life of the property, and he had calculated this prior

to to the drilling of the well.

They were all hopeful of getting a good well prior to

drilling of it. But now we know what is down there. And

we know that Mother Nature has not put the reserves

under this property that the people thought beforehand.

So, there’s no evidence in this record, I submit, Your

Honor, that would support a judgment for damages based

on the theory adopted by the crossclaimant that they’re

entitled to the value of this property as if they were selling

it. .

You may recall I asked the witness on cross-examina-

tion, if we pay you the value, the current value of the

property which would be this five hundred and some odd

thousand dollars, do we get a deed to it, and he said no.

Now, the measure of damages, if any, here would be

value before and after. If we have damaged the property,

we submit that the evidence doesn’t show that we have

damaged the property. But clearly, Your Honor, we submit

that there is no evidence upon which the jury could assess

damages under this cause of action.

He said that he had no evidence as to the net revenue

interest of the defendants, Zinke and Trumbo. He shows

net revenue interest here up there at the top of this ex-

Tla

hibit. And I asked him how he arrived at that, and he

said he assumed what royalties and overrides might be

against this property. The net revenue interest is .23125.

I understand both—

THE COURT: I don’t find it. Yes, I do now. I’m sorry.

Yeah. Yeah, I do.

MR. WATSON: And he had assumed their net revenue

interest. Well, of course, they’re entitled to no more than

the necessary revenue interest in the property would en-

title them to, and of course, that cannot be assumed either

by the witness or by the jury.

So we respectfully submit as to this particular cause of

action, that there is no evidence upon which the plaintiff

can prevail, and respectfully submit that it should not have

been submitted to the jury; that they failed to prove a

cause of action; and that we would be entitled to judgment

notwithstanding the verdict.

However, if the Court should hold otherwise, we, never-

theless, state that clearly, we would be entitled to a new

trial because under the evidence submitted --

THE COURT: Well, that’s the thing that, Mr. Watson,

still runs through my mind. I think that verdict, insofar

as your claim and the main crossclaim, was just about as

inconsistent as you can make it.

First of all, the jury awarded you compensation for the

pro rata share of the cost of completion, and et cetera.

Under the Instructions, it’s said they could do so if they

found that you completed it in a good, substantial and

workmanlike manner. And then at the same time, awarded

the other side damages for your failure to do so. That is,

they said you did it, therefore, you're entitled to compen-

sation. But in the same breath, same verdict, said you

were grossly negligent. And you didn’t complete it as pro-

vided for in the operation agreement which should have

72a

relieved the payment. See. I1 addition, to relieve payment

authorized damages, but when they do both, I just cannot

see any way in the world that it’s not an inconsistent

verdict that must be set aside.

I do want to hear Mr. Davis, because I have got so

much confidence in him. He may even convince me that

the original thinking is wrong. It seems that maybe the

drainage thing can stand because there is no inconsistency

in the claim there as I tentatively view it.

Now, go ahead.

MR. WATSON: May I speak, if the Court please, and

I'll try to be brief on the question of judgment notwith-

standing the verdict on several of these causes of action.

THE COURT: Go ahead.

MR. WATSON: If I may, I’ll go to the drainage question

since you’ve raised that. We feel that we’re entitled to

judgment notwithstanding the verdict on the question of

drainage for several reasons.

One, this is an action for breach of an implied covenant

to protect against drainage. The parties entered into a

contract obligating it to an oil and gas lease; oligates the

lessee to perform certain acts.

Now, neither the Court nor the jury has that lease be-

fore them. There is no evidence in this record as to what

the terms and provision of that lease are. There is a stip-

ulation whereby we acknowledge a valid and existing oil

and gas lease dated a certain date and filed in book and

page, but certainly these people are free to contract and

to agree on the provisions of that contract.

And how can this Court or any jury say that we hav

violated the provision of the contract if they don’t even

know what the provisions are.

And the position that we take, even if the Court should

disagree with us and say they can sue us for breach of

73a

contract and not introduce the contract and not prove the

terms of it, even if the Court should hold against us on

that point, I respectfully submit that there is no, not one

scintilla of evidence in this record whereby you can arrive

at damages for drainage.

They didn’t prove when the drainage occurred. They

didn’t prove the amount of hydrocarbons drained, nor did

they prove the value of those hydrocarbons.

Now, how else can a jury arrive at a figure—where in

the world they got this $32,499.00, I don’t know.

Furthermore, there is no evidence of demand for us to

protect against drainage. The jury was instructed that the

lessors had to—in Instruction Number 2, that the lessors

had to make demand on us. This is a gas well. We elected

to shut it in. If the lessors are dissatisfied with the shut-

_ ting in of that well and waiting on a local pressure line,

we say that a cause of action has not arisen when the

parties are in agreement.

And no lessor took that stand. There was not one scin-

tilla of evidence that they disagreed with the fact that

that the well should be shut-in. So if they agree that the

well should be shut-in, how can they say that they have

been fraudulently drained.

Is the Court going to presume fraud when the parties

that allege the cause of action don’t even take the stand.

They don’t even say we asked them to turn it on the line.

They don’t say we disagreed with the operators’ decision

to shut-in the well and await a low pressure line.

Our testimony was, and the jury found that we had not

failed to market the gas. That’s a separate cause of action.

Said we should have marketed the gas. The jury found

that we acted as a prudent operator in awaiting the mar-

ket.

So no question; there is no consistency in those.

74a

THE COURT: Can they not, though, have said that the

drainage will be a necessary consequence of ruining this

well. There is no—the evidence was if the jury believed

it, and I guess they did, on this one lease, so whatever

is fraudulently drained is going to be drained by your

surrounding leases.

MR. WATSON: Are we saying then that they can re-

cover for what might happen in the future? I didn’t know

that that was their theory of the case.

THE COURT: Well, there is evidence to that effect.

MR. WATSON: Right. That is so, Your Honor. I don’t

think the evidence supports the fact that any amount of

hydrocarbons will ever be drained from this tract, and

what the value of them would be.

Obviously, how long before this drainage takes place—

THE COURT: Well, your position was that the

defendants’ theory is incorrect, that a new well can be

drilled right exactly alongside or where the other one was.

MR. WATSON: That’s correct. If anybody would drill

it.

THE COURT: Yeah.

MR. WATSON: But unfortunately, we found that there

is not much reservoir in there.

THE COURT: I see.

MR. WATSON: And no one wants to drill it. They,

Zinke, Trumbo, said they wouldn’t drill one there. Al] the

witnesses said they wouldn’t drill another one.

So if it would not be commercial to drill another well,

we would not have an obligation to protect it.

THE COURT: I may have misconstrued the position of

the defendants in that regard, and we’ll let Mr. Davis talk

75a

to it. But that was my memory of some of the evidence

in the case.

MR. WATSON: I think the lawsuit imposes upon it only

a duty to drill wells to protect against drainage if it would

be economic to do so.

THE COURT: Well, I suppose that’s the law. It should

be.

MR. WATSON: Yes, sir. And I don’t think there’s any

question about it. I believe it’s—

THE COURT: Well, wasn’t it, though, Mr. Watson—

this is a problem when there’s a long lapse between the

trial and the ruling on the motion. Many, many cases in

between, and wasn’t it a part of the theory that you could

not, if you wanted to drill another well, that there’s no

other location on that lease that could be approved by the

Corporation Commission.

So the jury could have said well, it would have been a

commercial producer and a good one if it had been drilled,

done right. And now we believe their case; that there is

no way to drill another well. So for that reason, they have

lost—royalty owners have lost— |

MR. WATSON: Yes, sir. They took the position that

another well could not be drilled there.

THE COURT: And you disagree. You think he could

get a permit easily from the Corporation Commission, but

it just wouldn’t be economically feasible to do it.

MR. WATSON: That’s right. And I don’t think there

was any evidence to contradict the economics of another

well. I don’t think anybody wants another well drilled

there; would put up the money to drill another well there.

Even their own witnesses, their experts—

THE COURT: Let’s hear from Mr. Davis. Then I’ll hear

you further, of course, unless—did you have any other

features you wanted to touch before—

76a

MR. WATSON: There’s one other, Your Honor.

THE COURT: Go ahead. I’m sorry.

MR. WATSON: If you don’t mind.

THE COURT: Sure, certainly don’t.

MR. WATSON: That is on the question of damages

arising accruing to the lessors. The jury awarded them

$971,179.00 for damages to the well: that they damaged

the well.

Now, how could that figure be arrived at. And if you

will refer starting on Page 3, Exhibit 55. That’s the third

page. I have clipped those exhibits together.

THE COURT: I see. 55 is the third page of this.

MR. WATSON: Now, the way you arrive at this figure

of $971,179.00 is to take—

THE COURT: Wait a minute. Go ahead.

MR. WATSON: We are talking about the defendant,

Francis, on this page. You’ll see the top. It says Martha

N. Francis.

THE COURT: Right.

MR. WATSON: One of the lessors. Now, if you will look

at the net income and cumlative, this would be the same

column that was used that I called your attention to on

the prior exhibit. This is the amount of money that Mrs.

Francis would receive according to this witness after a

period of six years from now if that would be produced.

THE COURT: Explain that. You used that term with

reference to the first part of it. Six years. Where is this

exhibit? Runs through 30 years.

MR. WATSON: Yes, sir. But if you will note, the money

stops at six.

THE COURT: Oh. I follow you, yeah. Same identical,

yes. The figures are identical thereafter. I see now.

77a

MR. WATSON: I didn’t explain that.

THE COURT: Well, I guess I didn’t look at the exhibit.

MR. WATSON: Now, the computer is set up on a 30

year period, but the well only lasts six.

THE COURT: I see. I see.

MR. WATSON: So, according to this figure as to what

she would receive, if the reserves were there that he cal-

culated before the well was drilled, it would be $102,258.00

Now, if you take that figure from each one, I don’t

want to go through this for you, but you take—go through

those pages and take that same figure of what each royalty

owner would receive over the next six years according to

this reserve estimate prior to to the drilling of the well.

It comes up to the identical figure, $971,179.00 which

is what the jury awarded. That figure for Hamilton is

$626,140.00. And for Richardson, is $242,781.00. And you

add them up and that’s what they would total, what the

jury awarded them.

There again, I know this witness testified that under

no circumstances would the property be worth that. You

would have to wait six years to get it.

And so one other point if the Court—

THE COURT: It doesn’t reduce it to present value at

all. The jury didn’t—

MR. WATSON: On the next page—

THE COURT: But I mean the jury didn’t.

MR. WATSON: That’s correct.

THE COURT: I see that.

MR. WATSON: And one other point here I’d like to

raise if I may, Your Honor, the defendants in the cross-

complaint, Hamiiton and Francis are our lessors. We have

78a

a contract, an oil and gas lease with these people. Rich-

ardson, the crossclaimant, Richardson, is Zinke and Trum-

bo’s lessor.

Now, we have no privity of contract with this man. He

contracted with Zinke and Trumbo to develop this prop-

erty. And they voluntarily entered into this joint operating

agreement making Diamond Shamrock their agent in this

operation.

Now, did they convey to us the liability under their oil

and gas lease? Under this verdict, the man we didn’t even

contract with is being awarded a judgment against us for

the way we operated under the oil and gas lease that

Zinke and Trumbo had entered into. You see. They all

ganged up on Diamond Shamrock.

First just Zinke and Trumbo was in this case because

we are suing them for what they owed. Then they went

out and got our lessors and their lessors to sue us.

What obligation do we owe their lessors? Are they ob-

ligated to him under their contract to properly operate

the premises; and by delegating the operation to another,

can they relieve that responsibility and that liability to

their lessors? We certainly have assumed no liability to

their lessor. And under this theory, their lessor—

THE COURT: Undivided lease, Mr. Watson. You owe

that where you’re the operator of the entire unit, don’t

you, the same duty to all irrespective of who they origi-

nally leased to. I would have thought so.

MR. WATSON: Well, I think not. This is a voluntary

joint operating agreement. And in which the owners of

the lease hold interest in there. Say, we are going to go

together and we are going to appoint one of us as op-

erator.

And I submit to the Court that that does not relieve

Zinke and Trumbo for their obligation to their lessor. I

79a

think they can sue us under the joint operating agreement.

Say we didn’t perform it, but nevertheless, their lessor

has to look to them. If he wants to send a bumpkin out

there, they have breached their oil and gas lease with their

lessor. But yet we have Richardson coming in here and

suing us through the same lawyers for breach of this duty

that is owed from Zinke and Trumbo to Richardson.

So we submit that clearly under this particular cause

of action that if the Court should find that there’s evidence

to indicate that we’re’liable to our lessor. Certainly we’re

not liable to the lessor of Zinke and Trumbo.

One other point if I may, and that is the question of

punitive damages. They rendered against us for a million

dollars for punitive damages. And I’m sure the Court will

recall that that was injected into the case a few days prior

to the trial, and we asked for time to defend and get

ready for that, and so now we are stuck with a million

dollars in punitive damages. And we take the position and

the Court so instructed the jury in Instruction Number 9

that if they found that we had allowed this fradulent drain-

age to occur; fraudently being because we are over here

and own a hundred percent of the draining well, and we

are stealing their—stealing their gas is what it amounts

to, that the jury could award punitive damages.

Well, number one, if they have not proved actual dam-

ages, the 32,000 in actual damages, they wouldn’t possibly

be entitled to punitive damages, that there can be no will-

ful, malicious conduct on our part in shutting-in that well

in this instance, and that that would be the basis of the

fraudulent drainage.

We shut in the well where we own three quarters of

the production. Well, where we own a hundred percent,

there could be no willful and malicious conduct on our part

unless our lessors had not agreed with our actions. And

here, again, I don’t mean to be repetitive, but there’s not

one scintilla of evidence that this lessor said that we had

80a

acted in a willful, malicious manner: that they had not

agreed with everything we did. So to allow—

THE COURT: Well, Zinke and Trumbo argued there,

though, that the agreement was modified, we’ll go in and

participate in the completion if you will do it this way

rather than what you proposed. The evidence was before

the jury that you ignored them. Your company did what

it agreed to do, but if that’s the case, the question I have

would punitive damages not be disallowed under the theory

of it arising out of a contract.

MR. WATSON: Well, I think if your actions are tortious,

if you commit a tort in the performance—

THE COURT: Tortious breach of contract.

MR. WATSON: Yes, sir. But the thing that the Court

must remember, Your Honor, is that don’t be separating

the amounts. Don’t be mixing apples and oranges. We are

talking about a cause of action by our lessor. Zinke and

Trumbo doesn’t have anything to do with it. The lessors

are saying that we committed fraudulent drainage. We

have to look at this cause of action separate from the

other.

THE COURT: Punitive award, though, to Zinke and

Trumbo—

MR. WATSON: No, sir. It went to the lessors.

THE COURT: I’m sorry.

MR. WATSON: It went to the lessors.

THE COURT: I thought it went to Zinke and Trumbo.

Then I do stand corrected. I didn’t—I’m getting it. All

right.

MR. WATSON: You see. The punitive damages was di-

rected to this theory which is relatively new. And if you'll

recall, the Tenth Circuit case, the Space case, in which

the Tenth Circuit set out some pretty firm guidelines as

Sila

to what constitutes fraudulent drainage. And it was not

until then really that we had much law on this question

of fraudulent drainage. That Hall Jones case in the state

court, but clearly there you have to prove that the thieving

well was designed to steal the oil or gas from over here,

from the well being drained. You see. You have a bigger

interest.

The facts here would fit Space. You have a bigger in-

terest over here. So you don’t care what happens over

here. Let these lessors—just let them be robbed. They have

their hands tied. They cannot develop the property. You

have both leases. And it’s better for you to take the hy-

drocarbons out of this well.

Well, such was not the case here, I submit, Your Honor.

And that was the theory and the basis upon which they

claimed punitive damages and the basis, the only basis

upon which the jury could have awarded punitive damages.

And clearly, one, they didn’t show drainage, and two,

they didn’t show that the shutting-in of the well was a

willful, wanton and malicious act. To the contrary, there

is no evidence that both parties to the contract, lessors

and lessee were not in agreement on shutting it in.

THE COURT: All right. Thank you. I may want to hear

from you again after Mr. Davis presents his arguments.

Go ahead, Mr. Davis.

MR. DAVIS: If the Court please, what I’d like to do,

if it’s all right with Your Honor, would be to simply dis-

pose of these things that I regard as inconsequential or

sort of minor issues that Mr. Watson has been arguing.

THE COURT: Whichever way you want.

MR. DAVIS: I'll start from the rear and work my way

backwards.

THE COURT: That’s fine.

82a

MR. DAVIS: Mr. Watson mentioned the thieving well.

Well, that’s what it was. It was a thieving well, and that’s

what the Space case was based on, Your Honor.

Your Honor will recall that this Travis Well, which is

sitting over in Texas, as opposed to the Hamilton Well in

Oklahoma that we are trying this lawsuit about, had been

operating, was operating full blast, and there at least,

according to our neue witness, it was draining gas from

these three lower zones that were completed successfully.

And it was a stealing well.

The Diamond Shamrock witness got on this witness

stand and testified that the only reason—this came out in

his deposition that Mr. White read in evidence—that the

reason that they blocked up these three zones, these three

lower zones of this well, was because they didn’t want to

cross state lines. Of course, that’s no excuse.

Mr. Zinke testified that he had demanded that if these

three zones, in fact, would produce, start producing. But

they never produced, and they haven’t produced to this

date.

I can’t imagine a worse case or a better case for reckless

conduct. And just the hell with you. This well, we own a

hundred percent. We are going to produce it. This well,

that we own only seventy-five percent of it, just tough on

you.

And the jury believed that, and that frankly was the

almost unrebutted evidence.

Now, with regard to the this question of demand and

the lease, we had two pages, Your Honor, first two pages

of the pretrial order that covered all of these incidents of

ownership, who owned what in the lease. We stipulated

to that in the pretrial order.

We had all kinds of testimony during the case about

the lease, what its terms were; that the law of Oklahoma

83a

and the law of the Tenth Circuit there, implied covenant

against drainage in every single Oklahoma oil and gas

lease. They have to protect it against that. And they have

to protect their own lessors.

Now, that is as far as I’m concerned, that’s the end of

punitive damages on the drainage issue. We had a moun-

tain of evidence, not only through our own witnesses, but

through the witnesses on these values questions. I think,

Your Honor will recall that Mr. Berry testified that this

value, this discounted value was based upon prices that

were lower than the actual market price.

Furthermore, and I asked the jury to take them with

them to the jury room. We had records from Diamond

Shamrock out of their own records as to what this Travis

Well was producing and what the estimated reserves in

the Travis Well were and what the reserves were in all

four zones of the Hamilton Well.

There figures of reserves were much higher, much higher

than Mr. Berry’s that the jury based their verdict on. So

that’s, as far as I’m concerned, just plain nonsense.

THE COURT: Well, the jury had to base the verdict

on this one, though, to get to the exact dollar.

MR. DAVIS: Exactly, and they did, but they had not

only our figures, Your Honor, but they had the figures

from Diamond Shamrock as well.

THF COURT: But they had your discounted figures too,

which they ignored.

MR. DAVIS: That’s right Your Honor, but they had

figures from Diamond Shamrock. If they had taken Dia-

mond Shamrock’s figures over our own, well, they would

have given us much more damages, much more actual

damages than they did.

And these actual damages, of course, just related to

these three lower zones that actually were completed suc-

cessfully by Diamond Shamrock.

84a

Now, with regard to the question of demand, don’t have

to give demand if it’s a useless thing. Wouldn’t do any

good.

Mr. Zinke again testified that he said get it producing

if these wells will produce. The Diamond Shamrock witness

said they weren’t going to because they weren’t going to

cross state lines.

You don’t need to notify somebody of something if it’s

absolutely worthless. Furthermore, according to Professor

Hemmingway, who’s professor of oil and gas at the Uni-

versity of Oklahoma, and I have got his text here, if the

Court wants to read it, where your suing for damages as

opposed to asking for cancellation of a lease, demand is

not necessary.

And the reason being that when you’re suing for for-

feiture cancellation, you’re asking for some kind of equi-

table relief. There in some cases, they have said, some

Courts have said that demand is necessary. But Professor

Hemmingway makes the flat statement that where you’re

suing for damages, no demand is necessary at all.

Now, if there was any error, and I don’t think there

was, because there was fact on this demand, but if there

was any, it would certainly—it is certainly harmless error

under Rule 61.

Now, I think that’s basically all Mr. Watson talked about.

Oh, got to get into this. He talked about the verdicts

in favor of the land owners. And that it wasn’t proper

because it was some contractual—he had no liability be-

cause it was a contractual liability.

Your Honor, our lessors had no contract with Diamond

Shamrock. When you come onto someone’s property and

damage it, and if you’re negligently doing so—and this is

what the Court instructed the jury—then you’re respon-

sible for that negligence. And, you know, people just have

85a

to be responsible for their own acts. And this is not a

matter—

THE COURT: The operating agreement irregardless of

the lease issues—

MR. DAVIS: The operating agreement doesn’t have a

single thing to do with the land owners.

This was exactly a matter between Zinke and Trumbo.

This operating agreement was a matter between Zinke and

Trumbo and Diamond Shamrock Corporation, and there

isn’t anything in that contract that could adversely affect

in any way these verdicts in favor of the land owners.

And before I get into the main point Your Honor is

concerned about, I want to say unequivocally that the law

is universal, and I don’t think there is a case in the world

to the contrary including the Tenth Circuit case where

that—where you have dirferent parties even if there, you

could say they’re inconsistent verdicts. A verdict involving

Zinke, Trumbo and Diamond Shamrock Corporation is to

have absolutely zero effect on any verdicts involving

Zinke—and any verdict involving the land owners.

And the Diamond Shamrock/Zinke, Trumbo verdicts are

put into one capsule. The verdicts between Diamond Sham-

rock and the land owners are put into another.

I can cite here from Corpus Juris Secundum. I can read

from the Cypert (phonetic) case in the Tenth Circuit. Your

Honor may be interested in that case.

Just very simply, there was a case where a son was in

an automobile accident, Cypert vs. Baker, arising out of

the Northern District of Oklahoma. Passenger was in—or

son was in an automobile accident, and he and his father

sued the driver. A verdict—the father was trying to re-

cover the medical expenses that he paid on behalf of his

son.

86a

The jury returned a verdict in favor of the father and

against the son. And it went up to the Tenth Circuit. Well,

the Tenth Circuit ruled for support of the jury verdict

based on a procedural basis but then we go onto say, Your

Honor, this is 399 Federal 2nd, 927, 1968. Cypert vs.

Baker arising out of the Oklahoma Tenth Circuit Court of

Appeals. I’ll just read from Page 929.

“Although it appears that in cases such as this which

have been consolidated for trial because of common ques-

tions of law and fact, different verdicts on the question

of liability are not considered to be in consistent.” And

then for authority, they -cite a bunch of cases. They cite

a bunch of cases, but the first thing they cite is out of

Corpus Juris Secundum.

And I want to read to the Court just so that there

won't be any misunderstanding about what the law is on

the different verdicts. I thought I had it here, Your Honor.

Can’t find it. But the whole bottom line is, of the whole

thing is that inconsistencies just makes absolutely no dif-

ference where you're talking about different verdicts.

And there is a Supreme Court case of—United States

Supreme Court case to the same effect.

THE COURT: You’ve there look at Page 5 of your brief.

You cite Corpus Juris Secondum.

MR. DAVIS: Right. I believe it may be quoted at length

there, too, Your Honor.

THE COURT: Well, you cite the Section 16 of the Cor-

pus Juris Secundum.

MR. DAVIS: That’s correct, Your Honor.

THE COURT: From Volume 17A. That’s all right if you

don’t put your hand on it.

MR. DAVIS: Cannot put my hand on it right now, Your

Honor.

87a

THE COURT: All right.

MR. DAVIS: But it’s conclusive. It’s the law that ver-

dicts affecting the land owners should have no effect on

the verdicts affecting Diamond Shamrock.

Furthermore, so where we are now, what were looking

at and I think what Your Honor is most concerned about,

is the two verdicts involving just Zinke Trumbo.

I got mad when I read the plaintiff's brief because just

in my opinion, there is a misleading statement right at

the start. And Your Honor referred to it.

And that is that Instruction Number 4, which relates

to the recovery by Diamond Shamrock for its costs of

completion, required that Diamond Shamrock be found to

have acted as a reasonably prudent operator.

That was not the Instruction by this Court at all.

THE COURT: No, no.

MR. DAVIS: There’s nothing --

THE COURT: In order to fulfill the contract entitled

it, however --

MR. DAVIS: What Your Honor—as a matter of fact in

my judgment, Your Honor, and I'll tell you what the—

just a second. That if Your Honor had instructed that

Diamond Shamrock act as a reasonably prudent operator

in order to recover its costs, that would have been error.

And I want to tell you that there’s nothing in the Court’s

Instructions. There’s nothing under the Oklahoma law;

there’s nothing in the contract between Zinke and Trumbo

and Diamond Shamrock that in any way requires that

Diamond Shamrock perform as a reasonably pursuant op-

erator in order to recover its costs.

Now, what we need to do is precisely—is precisely what

the jury did. And that is look, read the contract because

that tells the whole story or telling a good part of it.

88a

Now, Your Honor, do you reniember when Mr. Watson

had Mr. Trumbo on cross-examination? He was contending

vehemently why didn’t you pay your costs of completion.

Why didn’t you pay your cost of completion. You have to

pay your cost of completion whether we’re liable to you

for not acting like a reasonably prudent operator for gross

negligence or not. The contract requires that you pay.

They’re independent obligations of one another, totally in-

dependent, according to Mr. Watson when he was ex-

amining Mr. Trumbo. The jury believed him.

And the inconsistency now is to come into here and

contend that because what Mr. Watson said the contract

said and what the jury did is now inconsistent.

And I have got the contract here and I just want to

go through it very briefly because this is the issue in the

case as I understand it, Your Honor, as to where part of

it is going to be retried.

Page 3, the first article. It’s article 5. And remember,

Your Honor, this is an operator’s contract. It’s a Diamond

Shamrock contract. It was put together for the operator

by the operator. And this was the contract that was sent

to Zinke/Trumbo for signature.

And the Court sent it to the jury for interpretation.

“Article 5, operator. A. Designation and responsibilities of

the operator.” This is on Page 3.

And then this provision is where it says that, ‘‘Diamond

Shamrock shall act in a good and workmanlike manner,

but it shall have no liability as operator except for gross

negligence.” Okay. That’s a provision.

Then we go over to Page 8. And we are now on Article

7, and we are taking about the expenditures and the li-

ability of the parties for those expenditures. ‘Payments

and accounting. Each such statement and invoice for the

payment in advance of estimated expenses shall be sub-

mitted on or before the 20th day of the next succeeding

89a

month.” Mr. Watson was going through this on cross-

examination.

“Each party shall pay to the operator its porportionate

share of such estimate within 15 days after such estimate

and invoice is received.”’

Shall pay. Their isn’t anything in here that says you

get out of paying if Diamond Shamrock hasn’t acted as a

reasonably prudent operator.

Then we get down here to Option Number 2 which is

the completion provision that we argued about as to

whether there would be an election or not. “Such election

when made,” and the jury held that Zinke Trumbo had

elected, “‘shall include consent to all necessary expendi-

tures for the completing and equipping of such well in-

cluding necessary tankage and service facilities.”

Has nothing to do with this back over in Article 3 where

we're talking about liability.

Then let’s go to the accounting procedures, Your Honor.

It’s on Page 1 of the accounting procedure, Provision Num-

ber 3. “Each non-operator provided for in the agree-

ment’’—well, wait a minute. “Each non-operator shall pay

its proportion of all the bills within 15 days after receipt.”

Mr. Watson was very upset when we hadn’t paid our

bills within 15 days after receipt. Said we had to pay them

regardless of liability of Diamond Shamrock.

Provision number 4. “Payment of such bills shall not

prejudice the right of any non-operator to protest or ques-

tion the correctness thereof.”’

Okay. So what the jury said, and what Diamond Sham-

rock was contending the jury should do, was to say that

the obligation to pay for completion costs is independent

and a totally separate matter with regard to the liability

of Diamond Shamrock for gross negligence and not acting

as reasonably prudent operator.

90a

Now, I think if you just interpret the contract the way

the jury does, that ends it. But there are other reasons

that I want to tell the Court about.

In my judgment it would have been an impossibility,

total absolute impossibility for the jury, with regard to

Diamond Shainrock and Zinke Trumbo, to have come back

with a more consistent verdict than they did.

And the first reason is that if you read the contract,

that’s what the contract seems to require. The second

reason is—Your Honor will remember that in this partic-

ular Hamilton Well there was just one completion. In other

words, they completed all four of those intervals together.

THE COURT: Right.

MR. DAVIS: Now, three of them were okay. And this

lawsuit didn’t concern these three intervals. How is Zinke

Trumbo going to participate in the production from these

three intervals? How is it going to participate in the pro-

duction of these three intervals if it doesn’t pay its share

of the completion costs?

Now, I tried through the Diamond Shamrock witnesses

to separate or define some basis for separating the costs

that might be attributable to this particular interval op-

posed to these three other intervals. But I obviously wasn’t

successful.

Frankly, I can see why the jury couldn’t separate them

because it was one act. It was one act that was completing

all those intervals together.

If Zinke Trumbo doesn’t pay for these three intervals,

doesn’t pay it’s cost of completion, then it’s not entitled

to participate in the production from these three intervals.

THE COURT: Well, they didn’t want to. They said it’s

not worth a hill of beans. These three are not. It’s the

fourth one that may be commercially productive if you will

do it right.

9la

MR. DAVIS: But the testimony of Diamond Shamrock

was these three intervals were good.

THE COURT: Surely, Mr. Davis you don’t expect me

to believe that the jury was that selective; that they could

believe Mr. Watson on a little, old insignificant part and

not believe him on the big part. I don’t think—and besides

that, they were told to follow the law and apply it to the

evidence.

What lawyers said is not evidence. And they were so

told at the beginning of the case.

MR. DAVIS: What the jury concluded, I’m convinced

of, is that—and this is where another total consistency

comes about, besides the contract is that if Diamond Sham-

rock or if Zinke Trumbo didn’t pay the share of the costs

of completion, they could not participate or could not re-

cover the full value of the reserves from the damaged

portion because otherwise you're looking at double recov-

ery.

In other words, in order to get the reserves, you have

to pay the cost of completion. Well, if they didn’t pay

their share of the cost of completion, why are they entitled

to the full value of the reserves. I mean that—I think

that’s the short of the thing. You say you want damages

for your reserves. Well, then you've to pay what it costs

to get those reserves. You didn’t get these reserves, but

you still have to pay what you would have had to pay.

THE COURT: Well, now your defense to their claim

was we cannot owe them those completion costs for the

reason that you didn’t do it properly. You didn’t follow

the operating agreement, right?

MR. DAVIS: Your Honor, our reason was, and the jury

didn’t follow us on this, our reason was that we did not

owe the costs of completion was that we elected not to

participate in the completion. But the jury decided that

we had elected to participate in the completion.

92a

THE COURT: But you alleged we don’t owe it because

they didn’t do it as directed.

MR. DAVIS: No, Your Honor. We alleged that we did

not: have to pay because we didn’t—we didn’t elect to

participate. And that’s a big difference.

THE COURT: Well, the evidence was you elected to

participate if the method of completion would be changed

to suit your directives.

MR. DAVIS: And the jury said we didn’t win on that

case. They said that we were in for the completion.

THE COURT: I think to the contrary. They said that

you did, and that seems to me that purely the evidence

in the case that Diamond Shamrock agreed to modify the

method of completion, then didn’t do it. And I think that’s

the reason that you won your counterclaim.

MR. DAVIS: Well, there’s no question about that. There

was tons of evidence on the actual—

THE COURT: Almost unrefuted. That’s right. That they

didn’t agree. I mean they didn’t comply with this oral

agreement that was made.

MR. DAVIS: That’s right. But the point I’m making is

if—and the first thing you’ve got to look at the contract

and take the jury’s interpretation of the contract. And

then these other things are the reasons that I say I think

the verdict is, in addition to the contract, the verdict is

consistent. But there’s a fourth reason.

That’s under the law of Oklahoma, under the substantive

law of Oklahoma, you can sue somebody for not paying

your bills. And you can still be—and recover for not paying

your bills. And then you can bring another lawsuit and

sue them for negligence on those services and recover the

value. And most recent cases on that—

THE COURT: Repeat that. I didn’t follow you com-

pletely. You’ve got to do it all in one case, surely.

93a

MR. DAVIS: No, Your Honor. You do not.

THE COURT: Oh?

MR. DAVIS: You do not have to. And the Supreme

Court of Oklahoma has spoken.

THE COURT: All right.

MR. DAVIS: It’s the case of Wabanese (phonetic) versus

Harris, 610 Pacific 2nd, 782, Supreme Court of Oklahoma,

1980.

In this case, you know, an attorney sued his client be-

cause the client wouldn’t pay the bill for services that he .

had rendered. The client or the attorney won, and he got

judgment in his favor.

Then the client, the same—precisely the same services

were involved, everything was the same. Then the client,

after that judgment became final, brought a new lawsuit

and sued to recover their damages as a result of the neg-

ligent representation by this attorney.

They got a judgment for negligent representation by

the attorney. The Supreme Court of Oklahoma said that’s

totally proper, that these are independent causes of action.

And that recovery on one is not to affect the liability on

the other.

THE COURT: All right.

MR. DAVIS: That’s the law of the State of Oklahoma,

at least.

THE COURT: General rule of the Doctrine of Res Ju-

dicata precludes the questions that were raised and all

that could have been raised in that later case.

MR. DAVIS: I agree with that.

THE COURT: Maybe there did they have later facts to

show that the lawyer had been negligent; something that

they didn’t have at the time the original claim was brought?

94a

MR. DAVIS: Nothing, Your Honor.

THE COURT: All right.

MR. DAVIS: Precisely the same thing, and that’s what

these lawyers were saying. You should have raised it in

the first case.

But the whole point is that even when you’re talking

about a contract—and incidentally, I’m very familiar with

Mr. Watson’s side of the case becai ‘< I lost his argument

in the District Court down in El Reno just recently.

I contended that I wasn’t liable on a contract because

of a provision in the contract. But the Court said well,

that’s fine. I agree with you, Mr. Davis, but he said you’re

still liable for tortious acts committed under that contract.

And he is right. The Judge is right.

THE COURT: I don’t believe that would float in federal

practice. That’s procedural law that the state may be bound

by, but I don’t believe that the Federal Court is bound.

And that’s not a substantive interpretation that would

be binding on a diversity court, I don’t believe. I just don’t

think that we are going to be required to hear the same

case three or four times, but I’m glad to hear that.

MR. DAVIS: Your Honor, as this Court knows, again,

I hate to use the word universal, but the universal law is

if there is any way, any way to uphold a jury verdict—

THE COURT: Right.

MR. DAVIS: —you must do so, or otherwise you’re

messing around with the parties’ Seventh Amendment

rights.

And right here front of me is the U.S. Supreme Court

case Atlantic and Gulf Stevedores vs. Ellerman Lines (pho-

netic). It was a case where—it’s 369, U.S., 355.

It was a case where a workman was injured, and he

sued the stevedore company and he sued the owners of

95a

the vessel. And the jury brought in a verdict against the

stevedoring company for negligence. They returned a ver-

dict in favor of the stevedoring company against the own-

ers.

There was a contract between the stevedoring company

and the owners which made, under those circumstances,

which made the stevedoring company liable to the owners

for any such negligence.

And the U. S. Supreme Court said look, that’s a jury

verdict. And we’re not going to get into exploring their

vagaries as to why they found for one or another.

THE COURT: Certainly.

MR. DAVIS: That’s the jury’s business. And Justice

Frankfurter, I love what he said—

THE COURT: Now, we must concern ourselves when

they find for both.

MR. DAVIS: Your Honor, that’s exactly right. It’s not

the province of this Court to get in and figure out why

they might have found for Zinke and Trumbo on one thing

and for Diamond Shamrock on the other.

When one of my favorite judges—

THE COURT: Well, you argue at length here on that

very thing. You said they did it because he was cross

examining one the defendants here in that regard.

MR. DAVIS: But the jury chose to believe Mr. Watson

on his interpretation of the contract.

THE COURT: We don’t know that that’s the case. We

don’t know because we don’t inquire into why the jury

did what it did.

MR. DAVIS: But in any event, there’s ample basis under

the contract for the jury to do just exactly that they did.

And this contract was sent to the jury to be interpreted

by the jury. And that—you forget about everything else,

96a

but the contract in and of itself is a clear way for the

jury to have found for Diamond Shamrock on its comple-

tion costs and to have found for Zinke and Trumbo for

the gross negligence of Diamond Shamrock.

There are two different standards, two different causes

of action under the contract. And I think the Court prop-

erly instructed the jury on this point.

And the jury interpreted the instrument, the contract;

took the contract to the jury room.

If there’s something else that I could say that would—

THE COURT: I don’t think of anything right now. Do

you want to respond to that, Mr. Watson.

MR. WATSON: If I might just briefly, Your Honor. I

want for speak to the inconsistency. I want to speak to

the inconsistency and the matters I spoke to previously.

But the thing that concerns me here, if the Court please,

there is a lot of money involved here. And there’s a lot

of expense in the trial of this case.

And I respectfully submit that clearly we have two con-

tracts here. One a joint operating agreement, and one an

oil and gas lease and the causes of action on behalf of

the lessors for breach of an oil and gas lease contract.

The cause of action for Zinke and Trumbo was for breach

of the joint operating agreement contract. And the jury

in both instances found for both parties.

And either the contract was breached or it wasn’t. But

with regard to the facts, if the Court orders a new trial

because of the inconsistencies of these verdicts, we re-

spectfully submit that they have failed to prove a cause

of action on those various allegations of theirs. And those

in which they have failed the first time around to prove

a cause of action, we shouldn’t be forced to try on the

second time around.

97a

And if the Court please, I submit that this damage

verdict for Zinke and Trumbo of almost a million dollars,

$995,000.00, that they failed to prove the damages if any

they sustained if we did not perform those completion

operations in the manner in which we should have—

THE COURT: How do you recall the wording of the

answer of the defendants to be? How did they defend

against payment of their pro rata share of the operating

costs? What did they allege? What facts did they say ex-

cused them of payment? Wasn’t it because you didn’t do

it as --

MR. WATSON: We breached the contract.

THE COURT: Right.

Mr. WATSON: We didn’t perform. The contract pro-

vides --

THE COURT: And if that be the case, then you subject

yourselves to damages.

MR. WATSON: That’s right. And why would they have

to pay under a contract that’s been breached?

THE COURT: Then, I’ll tell you, gentleman, I have

looked at this and looked at it, and I don’t see anything

for the Court to do in keeping with my oath, as busy as

we are, except just to order the whole thing retried.

I’m going to grant you a new trial on all issues. Now,

we might be able to clean the issues up a little bit more.

That will reopen discovery and maybe have another pre-

trial, but I guess that jury either was confused or they

didn’t understand the instructions. Or they were confused

on what the evidence was.

And I hate to say this, just one of those kind that hate

to say no. And so we'll just give everybody what they

want. But this is an inconsistency that we just absolutely

cannot live with.

98a

I first thought that maybe I could grant the request to

leave it intact with respect to the drainage claims, but I’m

inclined after hearing these arguments to believe that a

new trial should be granted on that also, if for no other

good reason than you got an appeal going up on part of

the case and whether or not our hand should be tied with

respect to retrial of the remainder of the case, and that—

but that’s not the main thing.

I just think in my own mind that the verdict is so

inconsistent with respect to the findings on all of the claims

that I have just got to set it aside and start over.

If either of you or any of you wish to continue with

discovery, now, you may do so. And we'll get it on a

pretrial docket as soon as I can get it there.

But don’t expect that to be right away because we have

got criminal cases coming up we must give priority to.

And our dockets are so terribly crowded that we just don’t

know. It may be a long, long time. We need about twice

as many judges as we have. But they won’t give them to

us.

And you'll just have to kind of await your turn.

But that’s going to be the order of the Court, and a

new trial granted on all aspects of this case. The verdict

of the jury vacated, set aside and held for naught as being

so terribly inconsistent that this Court cannot in good

conscious allow it to stand.

You prepare the order now.

MR. WATSON: Yes, sir.

THE COURT: Because it was your motion really that

was the vehicle that got us here. Get it approved as to

form bring it in to me.

MR. WATSON: Yes, sir. We’ll do so.

99a

THE COURT: Thank you, folks.

(Conclusion of. proceedings.)

CERTIFICATE

I, Vicki Dilbeck, C.S.R., C.P., C.M., an Official Court

Reporter for the United States District Court for the

Western District of Oklahoma, do hereby certify that the

above and foregoing hearing was by me taken in shorthand

and thereafter transcribed, and that it is accurate and

correct, and that it was taken on the 5th day of January,

1984, and that I am not attorney for or relative of either

of said parties, or otherwise interested in the events of

said action.

In witness whereof, I have hereunto set my hand this

28th day of February, 1985.

/s/ Vick1 DILBECK

VICKI DILBECK, C.S.R., C.P., C.M.

Official Court Reporter

U. S. District Court for the

Western District of Oklahoma

100a

APPENDIX K

IN THE UNITED STATES COURT OF APPEALS

FOR THE TENTH CIRCUIT

No. 85-8017

DIAMOND SHAMROCK CORPORATION,

a Delaware corporation,

Appellant,

vs.

ZINKE & TRUMBO, LTD., a business association; ROBERT M.

ZINKE, an individual; and, Davip B. TruMBo, an individual,

Morris A. RICHARDSON, JOHN HAMILTON, and

MARTHA FRANCIS,

Appellees.

[FILED Apri! 29, 1985 in No. 85-1698]

PETITION FOR PERMISSION TO APPEAL

COMES NOW Petitioner, DIAMOND SHAMROCK

CORPORATION (“DIAMOND SHAMROCK”), and, pur-

suant to Rule 5, F.R.A.P.,respectfully requests permission

to appeal the Order of the United States District Court

for the Western District of Oklahoma in Case No. CIV-

82-1754-E, denying DIAMOND SHAMROCK’s Motion for

Judgment in Accordance with Motion for Directed Verdict

and granting a new trial upon the Court’s own motion,

which Order was entered on April 18, 1985 and which

Order was certified under 28 U.S.C. Section 1292(b), as

shown by the true and correct copy of the Certified In-

terlocutory Order attached hereto as Exhibit “A’’. In sup-

port hereof, DIAMOND SHAMROCK shows the Court as

follows:

10la

1. Statement of Facts:

The action below was commenced on October 12, 1982

by DIAMOND SHAMROCK for recovery of money owed

to it by Defendants ZINKE & TRUMBO, LTD., ROBERT

M. ZINKE and DAVID B. TRUMBO (“ZINKE &

TRUMBO”) under the terms of a joint operating agree-

ment covering the John Hamilton 1-33 Well located in

Section 33-23N-26W, Ellis County, Oklahoma. ZINKE &

TRUMBO denied liability because of alleged gross negli-

gence on the part of DIAMOND SHAMROCK in com-

pleting the well. ZINKE & TRUMBO counterclaimed for

damages which allegedly occurred to the well bore as a

result of this alleged gross negligence. Certain royalty

owners, JOHN HAMILTON, MARTHA FRANCIS and

MORRIS RICHARDSON (‘‘Counterclaimants”’) also joined

in the counterclaim, seeking to recover against DIAMOND

SHAMROCK for alleged negligence in the completion of

the well. Counterclaimants HAMILTON and FRANCIS are

lessors of oil and gas le.ses owned by DIAMOND SHAM-

ROCK. HAMILTON and FRANCIS sought actual and pu-

nitive damages for DIAMOND SHAMROCK’s alleged

breach of implied covenants of their oil and gas leases to

protect against drainage and to market production from

the well.

The first jury trial of the case below began on October

27, 1983 and resulted in a verdict on November 2, 1983

in favor of DIAMOND SHAMROCK on its claim against

ZINKE & TRUMBO and against HAMILTON and FRAN-

CIS on their claim for failure to market. The jury found

in favor of ZINKE & TRUMBO on its claim for gross

negligence, in favor of all Counterclaimants on their claim

for negligence, and in favor of Counterclaimants HAM-

ILTON and FRANCIS for breach of implied covenant to

protect against drainage. By its Order entered on January

11, 1984, the trial court granted DIAMOND SHAM-

ROCK’s Motion for New Trial in all respects.

102a

A second jury trial began, on February 11, 1985 and,

on February 19, 1985, the jury again returned a verdict

in favor of DIAMOND SHAMROCK on its claim against

ZINKE & TRUMBO for breach of the joint operating

agreement in the amount of $220,830.34. By its verdict,

the jury necessarily found that DIAMOND SHAMROCK

had complied with the joint operating agreement and had

conducted operations in a good and workmanlike manner.

The jury therefore properly refused to return a verdict in

favor of ZINKE & TRUMBO on its claim for alleged gross

negligence or for Counterclaimants on their claim for al-

leged negligence. Accordingly, the Court has entered judg-

ment on the above claims, as reflected in the true and

correct copy of the Journal Entry of Judgment attached

hereto as Exhibit‘‘B’’.

It is DIAMOND SHAMROCK’s position that the jury,

by its verdict, also found against HAMILTON and FRAN-

CIS on their claims for drainage and failure to market by

failing to fill in the verdict form on those claims. Even if

the jury had not found for DIAMOND SHAMROCK on

those claims, DIAMOND SHAMROCK’s Motion for Di-

rected Verdict should have been sustained with regard to

the issues of drainage and failure to market because HAM-

ILTON and FRANCIS failed to prove the essential ele-

ments of these claims. Therefore, DIAMOND SHAMROCK

filed a Motion for Judgment in Accordance with Motion

for Directed Verdict which was denied by the trial court.

ZINKE & TRUMBO and Counterclaimants filed a Mo-

tion to reinstate the original verdict rendered in this case.

In the alternative, they sought a new trial on Counter-

claimants’ causes of action for drainage and marketing.

By its Order of April 18, 1985, the trial court denied the

Motion for Reinstatement of the First Verdict, but the

trial court also found that the jury failed to return a ver-

dict with respect to HAMILTON and FRANCIS’ claims

for failure to market and drainage and therefore granted

a new trial on its own motion.

103a

The trial court certified its granting of a new trial and

denial of DIAMOND SHAMROCK’s Motion for Judgment

in Accordance with Motion for Directed Verdict for appeal

pursuant to 28 U.S.C.Section 1292(b), as shown by the

Certified Interlocutory Order attached hereto as Exhibit

éé Pg

At both trials, none of the individual Counterclaimants

testified. The leases in question were not introduced into

evidence. Although the Court specifically instructed the

jury that demand was a necessary element of Counter-

claimants’ causes of action for drainage and failure to

market, no evidence, either documentary or testimonial,

was introduced to indicate that Counterclaimants had made

demand on DIAMOND SHAMROCK to market production

or to protect against drainage. No evidence was introduced

to indicate that any of the individual Counterclaimants

objected to DIAMOND SHAMROCK’s action in shutting

in the John Hamilton 1-33 Well to await a pipeline con-

nection or its action in attempting to market production.

There was also no evidence of drainage from Section 33

or the value and amount thereof. The evidence before the

jury was that DIAMOND SHAMROCK complied with the

implied covenant to protect against drainage by drilling

the John Hamilton 1-33 Well. Further,there was no evi-

dence or basis in law for submitting the issue of punitive

damages to the jury. Counterclaimants failed to object to

the verdict form at the time it was explained and at the

time it was returned by the jury and the jury polled.

2. Statement of Contvolling Questions of Law:

A. Whether the trial court, in its Order of April 18,

1985, erred in granting a new trial.on its own motion

where the jury filled in that portion of the general verdict

form providing for a judgment in favor of DIAMOND

SHAMROCK and left blank those portions of the general

verdict form which would have allowed a verdict in favor

of Defendants and Counterclaimants?

104a

B. Whether the trial court, in its Order of April 18,

1985, erred in granting a new trial on its own motion

when Defendants and Counterclaimants waived any objec-

tion to the verdict by failing to object both at the time

the Court explained the verdict form to the jury and after

the verdict was returned and the jury polled?

C. Whether the trial court erred in failing to grant

DIAMOND SHAMROCK’s Motion for Judgment when

there was no evidence of the terms of the oil and gas

leases in question and it was therefore impossible for the

jury or the Court to determine whether DIAMOND SHAM-

ROCK breached an express or implied obligation to protect

against drainage or market, and where it was impossible

for the Court or jury to determine whether the leases in

question contained an express negation of any such cov-

enants?

D. Whether the trial court erred in failing to grant

DIAMOND SHAMROCK’s Motion for Judgment when

there was no evidence that Counterclaimants made de-

mand upon DIAMOND SHAMROCK to protect against

drainage or to market production as required by law and

the instructions of the Court?

EK. Whether the trial court erred in failing to grant

DIAMOND SHAMROCK’s Motion for Judgment when

there was no evidence to support an award of punitive

damages because there was no evidence that any breaches

of the implied covenants to protect against drainage and

to market production were actuated by oppression, fraud

or malice as required by 23 O.S. Section 9 and, further,

there was no evidence of actual damages?

F. Whether the trial court erred in granting a new trial

on its own Motion when DIAMOND SHAMROCK’s Motion

for Judgment in Accordance with Motion for Directed Ver-

dict should have been sustained?

105a

3. Statement of the Reasons why a Substantial Basis

Exists for a Difference of Opinion on the Controlling

Questions of Law and Why an Immediate Appeal May

Materially Advance the Termination of the Litiga-

tion:

There is a difference of opinion under the authorities

as to the following issues, all of which are crucial to the

trial and decision of this case: (a) whether under Oklahoma

law demand is a prerequisite to an action for damages for

breach of implied covenants of an oil and gas lease; (b)

whether the failure of the jury to fill in portions of a

general verdict form renders the verdict incomplete, and

whether waiver applies for failure of a party to object to

a such verdict prior to the discharge of the jury; and (c)

whether, in an action for breach of implied covenants of

an oil and gas lease, the oil and gas lease or its terms

must be in evidence to show whether or not there is an

express negation of such covenants. These questions (per-

haps more precisely expressed in the Statement of Con-

trolling Questions of Law contained herein) are crucial to

the issues of the instant case. The correct resolution of

these questions is at the core of the instant dispute, and

a resolution of these quest

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