Petition for Writ of Certiorari — Phillips Petroleum Co. v. Richardson

86-831) J 1% Sucreme coun

: i FILE

No. NOV 2)

IN THE cee

Supreme Court of the Bnited err

OCTOBER TERM, 1986

PHILLIPS PETROLEUM COMPANY,

Petitioner,

V.

SAM RICHARDSON, JR., ef al.,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

ARTHUR R. MILLER*

1545 Massachusetts Avenue

Cambridge, Massachusetts 02138

(617) 495-4111

WILLIAM G. PAUL

JOHN L. WILLIFORD

T.L. CUBBAGE II

ELIZABETH A. HARRIS

MICHAEL L. RIGGS

Phillips Petroleum Company

Legal Division

1252 Adams Building

Bartlesville, Oklahoma 74004

(918) 661-6280

WILLIAM H. SUTTON

ROBERT K. WALSH

Friday, Eldredge & Clark

2000 First Commercial Building

Little Rock, Arkansas 72201

(501) 376-2011

Attornevs for Petitioner

November 21, 1986 *Counsel of Record

CASTILE AS PRESS INC. - 1717 K STREFT SW WASHINGTON DC 20036 223-1220

QUESTIONS PRESENTED

1. Whether federal courts should give collateral estop-

pel effect to the factfindings of a state administrative

agency, entered after an adjudicatory proceeding and af-

firmed on appeal by a state court — particularly when the

only difference between the administrative agency action

and the federal case is the nature of the relief sought by

respondents.

2. Whether federal courts should apply federal princi-

ples of issue preclusion to the factfindings of a state ad-

ministrative agency, entered after a full and fair adjud-

icatory proceeding, in order to avoid unnecessary reliti-

gation of the same factual issues in the federal courts.

LIST OF PARTIES AND RULE 28.1 LIST

The parties to the proceedings below were petitioner

Phillips Petroleum Company and respondents Sam Ri-

chardson, Jr., J.S. Beebe, J.S. Beebe, Jr., Joe R. May,

Jack Washington, and Berg, Laney and Brown (a partner-

ship). Petitioner believes that Jack Washington no longer

has an interest in the outcome of the case and, therefore,

he has been omitted as a named respondent in this peti-

tion.

Petitioner has no parent corporation. Petitioner’s af-

filiates and subsidiaries (other than wholly-owned sub-

sidiaries) are listed in Appendix J, p. 52a, infra.

QUESTIONS PRESENTED

LIST OF PARTIES AND RULE 28.1 LIST

OPINIONS BELOW

JURISDICTION

ye Vy Ce ay | of ey |.) eee

REASONS FOR GRANTING THE WRIT

l.

Nw

CONCLUSION

APPENDIX

TABLE OF CONTENTS

Supervisory review of this case is necessary to enforce

repose in accord with the collateral estoppel principles

articulated in United States v. Utah Construction and

Mining Co., 384 U.S. 394 (1966), and recently reaf-

firmed in University of Tennessee v. Elliott,

US.

Because of the federal judiciary’s burgeoning dockets,

the court below erred in failing to apply federal prin-

ciples of issue preclusion in order to avoid unneces-

sary relitigation in the federal courts of the same

factual issues previously determined in a state admin-

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iv

TABLE OF AUTHORITIES

Cases: Page

Blonder-Tongue Laboratories, Inc. v. University

of Illinois Foundation,

a SC eG oats os catia pellewades apat 13

Bockman v. Arkansas State Medical Board,

EAP AGM. BAD, SED. WMO UNMOED cca cccecncsacdcuanacan 12

Byrd v. Blue Ridge Rural Electric Cooperative, Inc.,

es I obs oe a KOKA Ae TAS RRR TAS 12, 13

Christmas v. Raiey,

ee Bs A OT UTED, on cckcnscbbncntasceecnss 3

Erie Railroad Company v. Tompkins,

pO Re re ra ene 11,12

Gosnell Special School Dist. No. 6 v. Baggett,

Fee es a Ss PET EREED 0 ed ices « 00 40 enaedea deena 12

National Surety Co. v. Coates,

Se ec es Sc SP CUUINED. Saas bbc ba de cavucnwsesausdas 12

Parklane Hosiery Company, Inc. v. Shore,

EEE cco cesc asi cakes weeguawae cab uae eoace een 13

Sides v. Haynes,

Eee a. Ge Ce ae FAO, TID once ccc cc nctccciscusenes 12

United States v. Utah Construction and Mining Co.,

PE PEED oh ca ccceekcedsao cay keteder eee iii, 6, 8, 9, 10

University of Tennessee v. Elliott,

eRe See eee iii, 6, 8, 9, 10

Page

Miscellaneous:

18 C. Wright, A. Miller & E. Cooper, Federal Practice

and Procedure $4472 (1981) 2.0.0... 65 c cee eee teens 11,13

Restatement (Second) of Judgments § 86 (1982) ...-...----++++: 13

IN THE

Supreme Court of the United States

OCTOBER TERM, 1986

No.

PHILLIPS PETROLEUM COMPANY,

Petitioner,

Vv.

SAM RICHARDSON, JR., J.S. BEEBE,

J.S. BEEBE, JR., JOE R. MAY, and

BERG, LANEY AND BROWN,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

Petitioner Phillips Petroleum Company respectfully

prays that a writ of certiorari issue to review the judgment

and opinion of the United States Court of Appeals for the

Eighth Circuit, finally entered in the above-entitled pro-

ceeding on August 25, 1986.

OPINIONS BELOW

The opinion of the Court of Appeals for the Eighth Cir-

cuit is reported at 791 F.2d 641 and is reprinted in Appendix

A, p. la, infra. The Eighth Circuit’s order with opinion

denying the petition for rehearing en banc and for rehear-

ing by the panel is reported at 799 F.2d 426 and is

reprinted in Appendix B, p. 18a, infra.

The memorandum decision of the United States District

Court for the Western District of Arkansas (Overton,

D.J.) has not been reported. It is reprinted in Appendix E,

p. 24a, infra. The Western District’s order dismissing the

action is reprinted in Appendix C, p. 21a, infra.’

JURISDICTION

Invoking federal diversity jurisdiction under 28 U.S.C.

§1441(a) and (b) and 28 U.S.C. §1331, petitioner removed

this action initiated by respondents in state court to the

Western District of Arkansas. On December 6, 1984, the

Western District granted petitioner’s motion to declare

certain facts etablished by collateral estoppel. Respon-

dents filed their amended complaint on December 12,

1984, and thereafter the Western District dismissed the ac-

tion on December 13, 1984.

On respondents’ appeal pursuant to 28 U.S.C. §1291,

the Eighth Circuit on May 23, 1986, entered a judgment

and an opinion reversing the Western District and direct-

ing that the matter proceed to trial. The Eighth Circuit de-

nied petitioner’s request for rehearing on August 25, 1986.

The jurisdiction of this Court to review the judgment of

the Eighth Circuit is invoked under 28 U.S.C. §1254(1).

‘Also reprinted in the appendix are the following: Amended Com-

plaint filed by respondents in the Western District, Appendix D, p.

23a, infra; Order and J udgment of the Circuit Court of Union Coun-

ty, Arkansas, dated December 27, 1982, Appendix F, p. 3la, infra;

Order of the Arkansas Oil and Gas Commission dated October 25,

1979, Appendix G, p. 33a, infra; Application of Sam Richardson, Jr.,

et al. to the Arkansas Oil and Gas Commission, Appendix H, p. 43a,

infra; Order of the Arkansas Oil and Gas Commission dated March

15, 1976, Appendix I, p. 46a, infra.

i een

STATEMENT OF THE CASE

The issues in this case involve important aspects of

judicial administration regarding collateral estoppel,

perhaps better known today as issue preclusion. These

questions arise in the context of an oil and gas case.

Respondents twice brought adjudicatory proceedings?

before the Arkansas Oil and Gas Commission (the “State

Commission”) contending that petitioner’s unitized secon-

dary recovery project was damaging respondents’ neigh-

boring oil and gas operations. Under Arkansas law,

respondents had an option to bring a state court action

against petitioner for both injunctive relief and money

damages without first seeking relief from the State Com-

mission.? At the conclusion of the second adjudicatory

hearing, held in 1979, the State Commission unanimously

denied respondents’ application for relief and found that

petitioner’s operations neither endangered nor otherwise

damaged the operations of respondents. * Respondents ap-

pealed the 1979 State Commission decision to a state

court, which subsequently affirmed the agency decision. °

Next respondents brought a tort action in Arkansas state

2Order of the Arkansas Oil and Gas Commission dated March 15,

1976, p.46a, infra; Application of Sam Richardson, Jr., ef a/. to the

Arkansas Oil and Gas Commission, p. 43a, infra.

3See Christmas v. Raley, 260 Ark. 150, 539 S.W.2d 405 (1976).

“Order of the Arkansas Oil and Gas Commission dated October 25,

1979, p. 33a, infra.

SOrder and Judgment of the Circuit Court of Union County,

Arkansas, dated December 27, 1982, p. 31a, infra. In affirming the

State Commission decision, the state court determined that “[t]here is

substantial evidence to support the finding of the Commission, on

conflicting evidence, that [petitioner’s} unit operations herein do not

adversely affect |respondents}.” (Emphasis added.) /d., p. 32a, infra.

court making exactly the same allegations against petition-

er that they had litigated in the 1979 state administrative

agency adjudication. Petitioner removed the action to the

Western District of Arkansas and moved for summary

judgment on the grounds, inter alia, that the necessary

factfinding already had been adjudicated in a state ad-

ministrative proceeding, that the factfindings of the State

Commission had been affirmed in state court, and that

these findings were entitled to preclusive effect in the

federal district court under principles of collateral es-

toppel.

The District Judge denied petitioner’s motion for sum-

mary judgment but held as follows:

Even though the prior adjudications before the

Oil and Gas Commiission did not involve a claim

for damages, at least the findings of fact and is-

sues necessarily decided must be given collateral

estoppel effect in the instant lawsuit.°®

The District Judge directed respondents to file an amend-

ed complaint “alleging with specificity any issues which are

not barred by the preclusive effect of the collateral estop-

pel ruling in this order.”’

Respondents amended their complaint by stating that

they were unable to allege with specificity any issues which

were not barred by the preclusive effect of the Judge’s rul-

ing.* The District Judge then dismissed respondent’s ac-

tion as being barred by collateral estoppel.?

‘Memorandum Decision of the Western District of Arkansas, p.

29a, infra.

"Id., p. 30a, infra.

’Amended Complaint, p. 23a, infra.

*Western District’s order dismissing the action, p. 2la, infra.

ILABLE COPY

On appeal to the Eighth Circuit, neither party briefed

nor argued the question whether the factual issues pre-

sented in the District Court were different in nature from

the factual issues presented in the State Commission.

Respondents argued instead (i) inat the state findings

should not be given preclusive effect in the District Court

because they resulted from an administrative hearing be-

fore the State Commission, which had no authority to

award damages, and (ii) that the state court had indicated

that respondents’ right to proceed against petitioner for

damages was not affected by the action of the State Com-

mission.

In reversing the District Court, a majority of the panel

of the Eighth Circuit stated:

After reviewing the record and applicable Arkan-

sas law, we find that the district court erred in

failing to conclude that there is not a sufficierit

identity of issues between those distinctly liti-

gated and necessarily decided in the Commission

hearings and the issues raised in the state law

proceedings to allow application of the collateral

estoppel doctrine here.

791 F.2d at 644, Appendix A, p. 7a, infra.

Although the Eighth Circuit Gemeus did not challenge

the District Court’s finding that the State Commission

proceeding was adjudicatory in nature, a majority of the

panel concluded, after reviewing Arkansas law, that the

inability of the State Commission to award compensatory

damages prevented the findings of the State Commission

from being entitled to preclusive effect in respondents’ tort

action. The majority also stated, sua sponte, that the

burden of proof upon the respondents in their tort action

would be different than their burden of proof before the

State Commission, since the State Commission was con-

cerned with proof of “irreparable harm” in determining

whether to enjoin petitioner’s operations. !°

Judge Fagg, dissenting, would have affirmed the Dis-

trict Court’s decision under Arkansas principles of issue

preclusion. He concluded that respondents raised and ful-

ly litigated before the State Commission the issue of

whether petitioner had injured respondents. 791 F.2d at

648, Appendix A, p. 16a, infra.

On August 25, 1986, the Eighth Circuit denied peti-

tioner’s request for rehearing and rehearing en banc. 799

F.2d 426, Appendix B, p. 18a, infra. Four judges would

have granted the rehearing en banc.

REASONS FOR GRANTING THE WRIT

I.

Supervisory review of this case is necessary to en-

force repose in accord with the collateral estop-

pel principles articulated in United States v. Utah

Construction and Mining Co., 384 U.S. 394

(1966), and recently reaffirmed in University of

Tennessee v. Elliott, _ U.S. , 106 S.Ct.

3220 (1986).

All the necessary facts at issue in this case were litigated

by respondents during lengthy proceedings before the

State Commission in 1979. Respondents sought injunctive

'°The State Commission’s Order dated October 25, 1979, p. 33a, in-

fra, givesno indication that it was limited to determining whether an

“irreparable injury” had been inflicted on respondents; the State Com-

mission’s order speaks in terms of causation, not irreparable injury.

Rather than finding that respondents had suffered less than an ir-

reparable injury, the State Commission specifically found that respon-

dent’s oil operations had not been damaged or even endangered by

petitioners. /d., p. 39a, infra.

relief before the State Commission, alleging that peti-

tioner’s secondary recovery operations had damaged their

oil operations.'! In order to prevail before the State Com-

mission, respondents necessarily had to show that peti-

tioner’s operations were the cause of any damage alleged

by respondents. The State Commission denied relief and

its findings and conclusions subsequently were affirmed

on appeal by an Arkansas state court. These state ad-

judicatory proceedings may be diagrammed as follows:

STATE COMMISSION

Facts Factfindings Remedy

Evidence pro and The evidence No injunctive

con of damage to fails to prove _ relief

respondents’ oil that respon- entered

operations. dents’ oil against

production petitioner.

“has been en-

dangered or

otherwise

damaged” by

petitioner’s

operations.

STATE COURT

Findings and conclusions of State

Commission are affirmed.

''Application of Sam Richardson, Jr., ef a/. to the Arkansas Oil

and Gas Commission, p. 43a, infra.

8

In federal district court, respondents attempted to reliti-

gate precisely the same facts that were adjudicated before

the State Commission. They sought a finding opposite of

that made by the State Commission — i.e., that there has

been “damage” to their interests caused by the operations of

petitioner. They also sought a new remedy — which admit-

tedly was not available to them in the State Commission —

i.e., Compensatory “damages.”

The District Judge concluded that “at least the findings

of fact and issues necessarily decided [by the State Commis-

sion} must be given collateral estoppel effect” in the District

Court. This statement is black-letter law, squarely in line

with this Court’s decisions in United States v. Utah Con-

struction and Mining Co., 384 U.S. 394 (1966), and Univer-

sity of Tennessee v. Elliott, U.S. ____, 106 S.Ct. 3220

(1986). As this Court stated in Utah Construction, the

seminal decision in this area:

Occasionally courts have used language to the ef-

fect that res judicata principles do not apply to

administrative proceedings, but such language is

certainly too broad . . . When an administrative

agency is acting in a judicial capacity and resolves

disputed issues of fact properly before it which

the parties have had an adequate opportunity to

litigate, the courts have not hestitated to apply res

judicata to enforce repose. [384 U.S. at 421-422;

footnotes omitted].

After concluding that the State Commission’s factual

findings were entitled to preclusive effect, the District

Judge invited respondents to amend their complaint to

allege any issues that had not been decided by the State

Commission. Respondents amended their complaint and

stated on the record that there were no such issues. Appen-

dix D, p. 23a, infra. As respondents admitted both in the

District Court and in the Eighth Circuit, the only difference

between the two proceedings was that their action in the

District Court sought money damages. This difference

should not deprive the state adjudicatory proceedings from

having preclusive effect.

Petitioner contends, pointing to the Utah Construction

and Elliott cases, that by admitting that there are no new

issues to be litigated, respondents have _ stipulated

themselves out of federal court. Respondents’ failure to

raise new allegations in their amended complaint is, in ef-

fect, a stipulation that there are none. The amended com-

plaint should govern the disposition of this case. A majori-

ty of the panel of the Eighth Circuit failed to discuss

respondents’ amended complaint or its effect as a stipula-

tion, although urged to do so by petitioner!?

In deciding this case, two judges of the Eighth Circuit,

constituting a majority of the panel, erroneously focused

upon the relief sought in the state administrative pro-

ceeding rather than the factual issues actually litigated

therein. The threshold issue before both the State Com-

mission and the federal district court was whether peti-

tioner had damaged or harmed respondents — the issue

was not what type of remedy would be appropriate. '?

'2Respondents’ amended complairt was discussed by the dissenting

member of the Eighth Circuit panel, Judge Fagg, who viewed the

amended complaint as an admission by respondents that all necessary

factual issues were adjudicated in the state administrative proceed-

ings. 791 F.2d at 648, Appendix A, pp. 15Sa-16a, infra.

'3Respondents’ counsel during the 1979 State Commission pro-

ceeding made the following statement on the record concerning the

matter before the State Commission (1979 Transcript, p. 508, lines

15-20):

The issue here is not the success or failure of this particular

unit. I don’t know whether it is a success, whether it is

good, bad, indifferent or otherwise.

10.

Nevertheless the Eighth Circuit erroneously decided that

the “issue” before the District Court was not the same as

the “issue” before the State Commission, because the State

Commission only considered “whether a petroleum com-

pany’s operations should be completely shut down.” 799

F.2d at 427, Appendix B, p. 19a, infra. This improper

focus on the remedy, rather than on the issue of whether

petitioner caused damage to respondents'* — the criticial

question in the state proceeding — substantially weakens

Utah Construction and Elliott. Most state administrative

tribunals are limited in the types of relief they afford. This

limitation in remedy does not alter the reality that the

basic facts underlying the event being adjudicated before

such a tribunal have been determined.

This Court should review the Eighth Circuit’s ruling in

this case because of its anomalous departure from well-

accepted precepts of legal reasoning and decision making

in the field of former adjudication. Petitioner asks for the

supervisory review of this Court to correct the error of the

Eighth Circuit (i) in failing to give effect to respondents’

stipulation on the record that the issues raised before the

District Court and the issues adjudicated before the State

Commission are the same, and (ii) in holding that Arkan-

sas law requires that a diversity tort action for damages

must go forward in federal court if the state administrative

The issue here is whether the operation of [petitioner’s]

unit is causing damage or has caused damage to offset

operators.

Note: Petitioner believes that there is no real dispute between the par-

ties that the factual issues that respondents now seek to litigate before

a jury in the federal district court are identical to the factual issues

already adjudicated by the State Commission and affirmed on appeal

in state court.

'4See discussion of findings of the State Commission and the state

court on this issue in footnotes 5 and 10, supra.

11

agency before whom the action previously was tried had

no authority to award compensatory damages. Such

supervisory review is authorized by Rule 17.1(a) of the

Rules of this Court.

Because of the federal judiciary’s burgeoning

dockets, the court below erred in failing to apply

federal principles of issue preclusion in order to

avoid unnecessary relitigation in the federal

courts of the same factual issues previously de-

termined in a state administrative adjudication.

The courts below purported to follow the collateral

estoppel or issue preclusion principles of the forum state,

presumably feeling that under the doctrine of Erie Rail-

road Company v. Tompkins, 304 U.S. 64 (1938), they

were bound to do so. See generally, 18 C. Wright, A.

Miller & E. Cooper, Federal Practice and Procedure §4472

(1981). Requiring federal courts to follow state law prin-

ciples of collateral estoppel slavishly in diversity actions,

however, ignores the overriding interests the federal courts

have in controlling their dockets and in increasing the

judicial efficiency of the national courts. This case

presents this Court with an opportunity to evaluate and

protect these overriding federal interests. This Court

should grant review in this case in order to adopt a federal

rule for determining what issues have been necessarily and

preclusively decided by state tribunals for purposes of

avoiding relitigation in the federal courts in cases governed

by state substantive law. This federal principle would

preclude litigants who have received a full and fair hearing

before a state adjudicatory body from re-trying the same

factual issues in federal court, whether or not they would

have a right to relitigate those issues in a state proceeding.

12

The Eighth Circuit majority panel relied upon its under-

standing of Arkansas law in concluding that the State

Commission’s lack of authority to award compensatory

damages precluded that body’s factfindings from having

collateral estoppel effect in respondents’ tort action.

Assuming, arguendo, that the majority’s understanding

of Arkansas law is correct,'* litigants in Arkansas state

courts now are free to re-try factual issues determined pre-

viously by Arkansas administrative agencies: whenever

those agencies are powerless to award money damages. If

the Arkansas courts are willing to dissipate their energies

on such senseless endeavors, which petitioner believes they

are not, that is their prerogative. But surely a federal court

should not be bound by such folly. Federal interests in the

efficient operation of the federal courts, the effective

utilization of the federal judiciary’s limited resources, and

the equal administration of the principles of finality in the

federal courts surely must override Arkansas’ assumed

penchant for giving litigants two bites at the apple. These

federal interests mandate adoption of federal principles of

issue preclusion in a case such as this so that unnecessary

relitigation may be avoided in the federal courts.

This Court has recognized that federal interests — what

have been referred to as countervailing considerations —

may override the Erie doctrine’s requirement that federal

courts sitting in diversity apply the forum state’s law. Byrd

'SPetitioner suggests that this understanding of Arkansas law is

directly contrary to Arkansas precedent, Bockman v. Arkansas State

Medical Board, 229 Ark. 143, 313 S.W.2d 826 (1958); National Surety

Co. v. Coates, 83 Ark. 545, 104 S.W. 219 (1907); Gosnell Speciai

School Dist. No. 6 v. Baggett, 172 Ark. 681, 290 S.W. 577 (1927); and

to a federal case applying Arkansas law, Sides v. Haynes, 181 F.Supp.

889 (W.D. Ark. 1960). Petitioner notes that the same argument that

was accepted by the Eighth Circuit was rejected by this Court, apply-

ing federal law, in Utah Construction, 384 U.S. at 418-419.

13

v. Blue Ridge Rural Electric Cooperative, Inc., 356 U.S.

525 (1958); see also 18 C. Wright, A. Miller & E. Cooper,

Federal Practice and Procedure §4472, p. 729. In Byrd, a

diversity case involving South Carolina law, this Court

concluded, contrary to South Cfolina precedent, that the

jury and not the federal district court should sit as the fact-

finder. After noting that the federal system has allocated

the factfinding function to the jury, this Court reasoned

that compliance with the South Carolina precedent would

so alter the character of the federal court that countervail-

ing federal interests precluded the application of forum

state law.

This Court has recognized that strong federal interests

in judicial efficiency and finality are promoted by a liberal

application of issue and claim preclusion. See Parklane

Hosiery Company, Inc. v. Shore, 439 U.S. 322 (1979) (ap-

proving of the offensive use of collateral estoppel in the

federal courts); Blonder-Tongue Laboratories, Inc. v.

University of Illinois Foundation, 402 U.S. 313 (1971)

(abolishing requirement of mutuality in federal question

cases). See also Restatement (Second) of Judgments § 86,

comment g (1982) (suggesting that although a federal

court usually must give exactly the same faith and credit to

a state judgment as would the courts of the rendering

state, there may be federal concerns and interests that

justify giving that judgment greater preclusive effect in

federal court than it would receive in state court). Even

assuming the Eighth Circuit’s understanding of Arkansas

law is correct, these same federal interests — as compelling

as those in Byrd — run counter to and override the need to

follow Arkansas law. This Court should grant this petition

and determine whether federal principles of issue preclu-

sion should be adopted, at least for purposes of defining

the nature of issues that cannot be relitigated in federal

court.

14

The desirability of adopting federal principles of issue

preclusion in diversity cases is great — particularly with re-

gard to the situation in the instant case. Assuming that the

Eighth Circuit’s interpretation of Arkanss law is correct,

slavish following of that law requires a federal court sit-

ting in a diversity case to permit the relitigation of an issue

that has been fully and fairly litigated before a competent

State administrative agency — a tribunal with special

competence over such issues — only because the losing

party before the agency is now asking for a different

remedy.

Allowing the decision below to stand would encourage

unsuccessful litigants before state agencies to invoke diver-

sity jurisdiction and burden the federal courts with

repetitive and unnecessary relitigation, thereby distracting

our national courts from matters of nationwide concern.

This Court should grant review in this case to shut the

door to those who would consume our limited federal

judicial resources on such wasteful endeavors.

15

CONCLUSION

For these reasons, petitioner prays that this petition for

certiorari be granted.

Respectfully submitted,

ARTHUR R. MILLER*

1545 Massachusetts Avenue

Cambridge, Massachusetts 02138

(617) 495-4111

WILLIAM G. PAUL

JOHN L. WILLIFORD

T.L. CUBBAGE I

ELIZABETH A. HARRIS

MICHAEL L. RIGGS

Phillips Petroleum Company

Legal Division

1252 Adams Building

Bartlesville, Oklahoma 74004

(918) 661-6280

WILLIAM H. SUTTON

ROBERT K. WALSH

Friday, Eldredge & Clark

2000 First Commercial Building

Little Rock, Arkansas 72201

(S01) 376-2011

Attorneys for Petitioner

*Counsel of Record

November 21, 1986

° rege

la

APPENDIX A

United States Court of Appeals

FOR THE EIGHTH CIRCUIT

No. 85-1033

Sam Richardson, Jr., J.S. )

Beebe, J.S. Beebe, Jr., Joe R. May, }

Berg, Laney and Brown, )

Appellants, ) Appeal! from the United States

and Jack Washington. ) District Court for the Western

) District of Arkansas.

V )

)

Phillips Petroleum Company, )

Appellee. )

Submitted: October 18, 1985

Before LAY, Chief Judge, ARNOLD and FAGG, Circuit

Judges.

LAY, Chief Judge.

Six independent oil and gas contractors appeal from the

district court’s order dismissing with prejudice their

amended complaint. The district court found that the facts

and issues as determined in prior proceedings before the

Arkansas Oil and Gas Commission barred litigation of the

facts and issues raised in the complaint. We reverse, and

remand to the district court for a plenary trial.

Background

Sam Richardson and five other individuals (“the

Richardson group”) hold oil leases and operate welis on a

tract of land in Union Country, Arkansas which is adja-

2a

cent to a tract on which Phillips Petroleum Company

(“Phillips”) holds oil leases and operates wells. In 1970,

Phillips was authorized by the Arkansas Oil and Gas Com-

mission (“the Commission”) to establish and operate the

Smackover Nacatoch Sand 985 Acre Unit (“the Smackover

Unit”) with the express purpose of implementing an ex-

perimental secondary recovery steam, air, and water injec-

tion process. The Commission’s 1970 unit authorization

was conditioned on Phillips’ operations being conducted

in such a manner as not to endanger the production of

nearby operations. However, contending that Phillips’

Smackover Unit injections migrated from that unit and

damaged the productivity of the Richardson group’s adja-

cent wells, the Richardson group twice instituted ad-

judicatory proceedings before the Commission challeng-

ing Phillips’ operation and seeking injunctive relief. In

1976, some members of the Richardson group joined in an

application for an order from the Commission requiring

that Phillips discontinue its air injections on the

Smackover Unit. After a full administrative hearing, their

request that Phillips’ 1970 authorization be revoked was

denied without prejudice to the filing of a new application

upon the production of new evidence. The Commission

concluded, in pertinent part:

1. That the applicants have failed to prove

that they have experienced increasing and ir-

reparable damage to their offset wells producing

from the Nacatoch Sand as a result of the opera-

tions of Phillips Petroleum Company in oper-

ating its 985 acre Smackover Nacatoch Sand Unit

and *x** *

2. That the applicants have failed to prove

that unit operations of the Smackover Nacatoch

Sand 985 acre unit is in violation of any of the

3a

Orders of the Arkansas Oil and Gas Commission

and to the contrary, Phillips Petroleum Com-

pany has proven that its operation of its

Smackover Nacatoch Sand 985 acre unit is not in

violation of any of its Orders.

The Commission’s 1976 order was not appealed. In 1979,

the entire Richardson group now before this court filed

another application with the Commission, which was

treated by the Commission as a request to amend the 1970

order to set forth additional protections for nearby

operators and to suspend, if necessary, its authorization of

Phillips’ Smackover "nit operation until the unit’s opera-

tions conformed to that amended order. After a full hear-

ing, the Commission found in pertinent part:

7. That the total evidence presented at said

hearing is insufficient to establish that the pro-

duction of such off-set or nearby operators has

been endangered or otherwise damaged as the

consequence of the conduct of the operations in

carrying out the development of the unitization.

8. That the application as filed and which is’

the subject matter hereof should be denied; pro-

vided, however, that the staff of the Commission

should be directed to investigate and determine a

testing procedure * * * for purposes of monitor-

ing the movement of fluid and/or gas materials

within the Nacatoch Formation.

The Richardson group sought review of the Commis-

sion’s 1979 denial of its application in Arkansas state

district court. In December 1982, the state court issued an

order affirming the Commission’s findings. In that order,

the state court stated that “[the Richardson group’s] rights

to proceed against [Phillips] for any perceived damages to

their property rights are not affected by the action of the

4a

Commission.” Neither party appealed the state court’s

order.

In January 1981 the Richardson group filed a civil tort

action for trespass, nuisance, and negligence in Arkansas

state court, seeking compensatory and punitive damages

from Phillips for alleged damage to their property’s pro-

ductivity due to Phillips’ secondary recovery operation.

On Phillips’ motion, the suit was removed to federal

district court. Phillips then moved the district court for

dismissal of the action on collateral estoppel grounds,

arguing that the Commission’s prior administrative find-

ings barred litigation of the facts and issues raised in the

Richardson group’s tort action. The district court' denied

Phillips’ motion to dismiss, finding that the Richardson

group’s tort action sought money damages, which the

Commission is not authorized to grant. The district court’s

denial was also based on its finding that the issue before

the Commission was whether its prior order authorizing

Phillips’ secondary recovery operation should be modified

or revoked, a question different from the breach of duty

issues pleaded in the Richardson group’s tort complaint.

Phillips next moved for summary judgment, partial

summary judgment, and a declaration that the findings

made by the Commission in its prior proceedings are

established and binding between the parties in the tort ac-

tion by virtue of collateral estoppel. In December 1984,

the district court, with a different judge presiding,? denied

Phillips’ motion for summary judgment, reaffirming the

prior district court finding that the Richardson group was

'The Honorable Oren Harris, Senior United States District Judge

for the Eastern and Western Districts of Arkansas, presiding.

2The Honorable William R. Overton, United States District Judge

for the Western District of Arkansas, presiding.

Sa

not barred from bringing its action for money damages on

res judicata grounds. However, finding “that the Commis-

sion acted in a judicial, or quasi-judicial, capacity when it

conducted the prior hearings and rendered its findings of

fact and conclusions of law”, the district court did grant

partial summary judgment on behalf of Phillips. The

district court stated that even if the Commission’s 1979

order did not in itself preclude litigation of the facts and

issues raised in the complaint, the state court’s December

1982 order affirming the Commission’s 1979 order would

have collateral estoppel effect. The district court conclud-

ed:

Even though the prior adjudications before the

Oil and Gas Commission did not involve a claim

for damages, at least the findings of fact and

issues necessarily decided must be given col-

lateral estoppel effect in the instant lawsuit.

* * *

Plaintiffs are directed to file an amended com-

plaint within 20 days of the entry of this order

alleging with specificity any issues which are not

barred by the preclusive effect of the collateral

estoppel ruling in this order.

In amending its pleadings as directed by the district court,

the Richardson group stated that it was “unable to allege

with specificity any issues which are not barred by the

preclusive effect of the collateral estoppel ruling in the

Court’s Order.” The district court dismissed the amended

complaint. This appea! followed.

Analysis

The issue on appeal is whether the Richardson group’s

state tort action is barred because the essential facts to be

6a

litigated in that action were necessarily decided by the

Commission so that the Commission’s findings, affirmed

by the state court, should be given collateral estoppel ef-

fect.

Collateral estoppel is an issue of substantive law requir-

ing the application of state law in diversity actions. Kuehn

v. Garcia, 608 F.2d 1143, 1147 (8th Cir. 1979), cert.

denied, 445 U.S. 943 (1980). Arkansas courts have applied

collateral estopped in the context of certain state ad-

ministrative adjudications to preclude the litigation of

identical fact issues in a subsequent judicial proceeding.

Following the Supreme Court’s statement in United States

v. Utah Construction and Mining Co., 384 U.S. 394

(1966), the Arkansas Supreme Court has recognized that:

When an administrative agency is acting in a

judicial capacity and resolves disputed issues of

fact properly before it which the parties have had

an adequate opportunity to litigate, the courts

have not hesitated to apply res judicata to en-

force repose.

Rainbolt v. Everett, 639 S.W.2d 532, 534 (Ark. Ct. App.

1982) (quoting Utah Construction, 384 U.S. at 422).

Arkansas law instructs that Phillips, as the party seeking

to invoke collateral estoppel or “issue preclusion,” a doc-

trine related to but distinct from questions involving claim

extinguishment, see, e.g., Smith v. Roane, 284 Ark. 568,

683 S.W.2d 935, 936 (Ark. 1985), has the burden to

demonstrate that the precise issue on which it claims that

the court and other parties are bound and which is

precluded from being litigated was decided in the previous

proceeding. Smith, 683 S.W.2d at 936 (citing JeToCo

Corp. v. Hailey Sales Co., 268 Ark. 340, 596 S.W.2d 703,

706 (Ark. 1980)). In JeToCo, the Arkansas Supreme

Court explained that “the true test of whether a particular

7a

point, question or right has been concluded by a former

suit and judgment is whether such point, question or right

was distinctly put in issue, or should have been put in

issue, and was directly determined by such former suit and

judgment.”JeToCo, 596 S.W.2d at 706. After reviewing

the record and applicable Arkansas law, we find that the

district court erred in failing to conclude that there is not

a sufficient identity of issues between those distinctly

litigated and necessarily decided in the Commission hear-

ings and the issues raised in the state law proceedings to

allow application of the collateral estoppel doctrine here.

In conducting our review, we deem it relevant to ex-

amine the scope of authority granted to the Commission

by the Arkansas legislature. It is well recognized that when

a legislature’s scheme of remedies demonstrates that the

proceedings in an administrative tribunal are determina-

tive only for purposes of the controversy immediately

before the agency, the rule governing issue preclusion does

not apply. See Restatement (Second) of Judgments § 83,

comment h (1982) (incorporating Restatement (Second) of

Judgments §§ 27 and 28). Although the Commission is

plainly not a court, it was created by the Arkansas legis-

lature and endowed by that body with quasi-judicial func-

tions. See Rainbolt, 639 S.W.2d at 534 (finding res judi-

cata principles may apply to quasi-judicial proceedings

before the Arkansas Employment Security Division,

Board of Review). The policies underlying the establish-

ment of Arkansas’ Oil and Gas Commission are to protect

public and private interests against recognized evils occur-

ring in the production and use of oil and gas, to compel

ratable production, and to prohibit waste. Ark. Stat. Ann.

§ 53-101 (1971). As a state administrative agency with a

statutory mandate to conserve Arkansas’ natural

resources, the measures enumerated in the Commission’s

8a

enabling act are the exclusive means by which the Com-

mission can attain that goal. See Dobson v. Arkansas Oil

and Gas Commission, 218 Ark. 160, 235 S.W.2d 33, 36

(Ark. 1950). The Commission’s powers include the author-

ity to make, after hearing and notice, “such reasonable

rules, regulations and orders as may be necessary from

time to time in the proper administration and enforcement

of this act” and lists a variety of regulatory, ad-

ministrative, and enforcement functions delegated to the

Commission. Ark. Stat. Ann. § 53-111 (Supp. 1985). By

its terms, however, the statute does not contemplate that

the Commission can adjudicate and award money

damages.

It is plain that a prior tribunal’s findings should not be

given preclusive effect if the issues determined in the first

case are not the same as those to be determined in the sec-

ond. See Smith, 683 S.W.2d at 936. In evaluating whether

the issues adjudicated in an administrative hearing are

substantially different from those raised in a subsequent

court action, the weight given the facts in each proceeding

and the applicable proof burdens are highly relevant. See 4

K. Davis, Administrative Law Treatise § 21.5 (2d ed.

1983); cf. Smith, 683 S.W.2d at 936-37 (no collateral

estoppel effect because first tribunal’s finding of intent to

protect oneself from injury for self-defense purposes dif-

ferent from intent or expectation of injury caused by one’s

act). Moreover, in order to determine what has been ad-

judicated, resort may be made to the record developed in

the prior case’s proceedings. See JeToCo, 596 S.W.2d at

707.

The Commission’s November 1979 deliberations, on

which the order sought to be given collateral estoppel ef-

fect here was based, reveal that the Commission members

were well aware of the statuiory constraints to their review

9a

of the facts and fashioning of a remedy. When one of the

Commission members asked at the very beginning of the

deliberations what the Commission’s alternatives were, the

hearing officer explained:

I think that the Commission can either find

that on the one extreme [the 1970 order] and the

conditions imposed upon Phillips with respect to

[the Smackover Unit] under the terms of that

order have been fully performed and that the ap-

plication should be denied; to the other extreme

that you find a violation of that order to be to the

extent that you would have the authority to set

aside the unit.

Now within the middle ground necessarily

there would be the area that has been touched

upon during the course of the presentation of the

imposition of further reporting requirements

either by Phillips or by the applicants. ;

** *

I don’t think any member of this Commission

wants to strike down the unit. I really don’t feel

that that is what the applicants want done, is to

destroy the unit.

But neither does any member of this Commis-

sion wish to see any offset lease operator pre-

judiced or hurt in any way with regard to the unit

operations.

The bulk of the Commission’s deliberations were devoted

to devising a test for determining whether Phillips’ injec-

tions were in fact migrating to the Richardson group’s ad-

jacent wells, with a consensus reached that the Commis-

sion would either approve or disapprove the Richardson

group’s petition as applied for with a concurrent order that

some method of testing for monitoring migration, if any,

10a

from Phillips’ unit would be implemented. The thrust of

the hearing testimony, in the Commission’s eyes, was

whether the 1970 unitization order should “be withdrawn

and the unit terminated as the method of proposed opera-

tion cannot be conducted whereby it will not adversely af-

fect, [sic] offset and nearby operators.”

Moreover, the Richardson group’s alternative prayer for

payment of damages was recognized by the Commission

members as outside the scope of their authority. Several

times during the Commission’s deliberations after the

close of the evidence, the issue of awarding money

damages to the Richardson group in lieu of injunctive

relief was raised but repeatedly dismissed with an express

acknowledgement that the Commission members were not

weighing the facts for purposes of determining damages

because the Commission did not have the statutory

authority to award money damages.

The Commission members thus clearly understood that

they were narrowly constrained to assess the evidence for

purposes of fashioning injunctive relief. As the hearing of-

ficer stated on behalf of the other Commission members,

“if [a testing method] is obtainable, [sic] then [we shall]

enter an order which I assume would be the request of the

applicants since the prayer is for the termination of the

unit and no one has indicated that is their disposition.” the

deliberations also illustrate that the Commission members

understood the substantive difference between the level of

proof required to completely enjoin Phillips’ operation

and the entirely different proof burden applicable to

resolving a claim for monetary damages in tort. We find it

significant that in the Commission’s 1976 order denying

the Richardson group’s first request for injunctive relief, it

found that the Richardson group had not proven they had

been “irreparably harmed.” The Commission’s delibera-

lla

tions convicingly demonstrate that a finding that the

Richardson group was damaged in some way short of ir-

reparable harm compelling injunctive relief was simply not

essential to the findings contained in the Commission’s

1979 order. A finding of damage to the Richardson group

short of irreparable damage for injunctive purposes was

never decided by the Commission.

The Arkansas Supreme Court has previously recognized

the incompatibility of legal concepts and proof burdens

applicable in an action to enjoin a secondary recovery

operation and those appropriate to an action for trespass

of a mineral field which seeks an award of compensatory

damages to make the allegedly injured party whole. In

Jameson v. Ethyl Corp., 271 Ark. 621, 609 S.W.2d 346

(Ark. 1980), the Arkansas Supreme Court held that:

reasonable and necessary secondary recovery

processes of pools of transient materials should

be permitted, when such operations are carried

out in good faith for the purpose of maximizing

recovery from a common pool. The permitting

of this good faith recovery process is condition-

ed, however, by imposing an obligation on the

extracting party to compensate the owner of the

depleted lands for the minerals extracted in ex-

cess of natural depletion, if any, at the time of

taking and for any special damages which may

have been caused to the depleted property. By

this holding we believe that the interests of the

owners and the public are properly protected and

served.

Jameson, 609 S.W.2d at 351.

We hasten to note that there are likely many instances in

which it might be appropriate to find that the Commis-

sion’s findings have a collateral estoppel effect on the

litigation of issues in a related state court action. See, e.g.,

anni |

l2a

Matter v. Arkansas Louisiana Gas Co., 765 F.2d 730, 733

(8th Cir. 1985). We also agree with the district court that

in some circumstances administrative determinations

which have been upheld on judicial review are entitled to

special deference for collateral estoppel purposes. See

Bockman v. Arkansas State Medical Board, 229 Ark. 143,

313 S.W.2d 826, 829 (Ark. 1958). However, we do not

view the Richardson group’s tort complaint to be an at-

tempt to relitigate facts and issues already determined. Cf.

Wells v. Arkansas Public Service Commission, 272 Ark.

481, 616 S.W.2d 718, 719 (Ark. 1981) (“One fair trial on

the merits of the case is all [the parties] are entitled to.”)

The degree of actionable harm to be proved in each pro-

ceeding is quite different; the limits to each tribunal’s

powers to evaluate the alleged harm and to construct an

appropriate remedy vary greatly. After reviewing the

record and the statutory scope of authority delegated to

the Commission, we believe there is more than a de

minimus difference between the issues raised and the

weight to be given the facts in the two actions. It does not

appear from the record that the Commission resolved the

factual issue of “damage” to the same extent and in a

means clearly necessary for the state court tort action. Our

evaluation of the record, review of the administrative pro-

ceedings, and study of the applicable law convinces us that

the findings of the Commission in its 1979 order denying

injunctive relief should not preclude litigation of the fact

questions and issues raised in the subsequent state tort ac-

tion brought by the Richardson group.’

‘The Richardson group also argues on appeal that because no appeal

was taken by Phillips from the state court’s statement in its December,

1982 order, affirming on appeal the Commission’s 1979 order, that the

Richardson group’s right to proceed in tort was not affected by the

Commission’s actions, that finding by the state court is conclusive as

l3a

As applied to the facts before us, it is clear that the col-

lateral estoppel doctrine is no bar to the Richardson

group’s suit for damages. We reverse the judgment of the

district court and remand for plenary trial of the claims

stated in the Richardson group’s complaint.

FAGG, Circuit Judge, dissenting.

In 1970, the Arkansas Oil and Gas Commission

authorized Phillips Petroleum to establish a secondary oil

recovery project. As an express condition of that

authorization, Phillips was forbidden from operating the

recovery project in a manner that would damage or en-

danger the production of nearby oil fields.

In 1979, the Richardson group (containing the identical

parties involved in the present action) instituted pro-

ceedings against Phillips before the Oil and Gas Commis-

sion. Asserting that the operation of the Phillips’ recovery

project had endangered and damaged the productivity of

their oil wells, the Richardson group sought injunctive

relief against Phillips.

In response to the Richardson group’s complaint, the

Oil and Gas Commission gave public notice of the com-

plaint and conducted a public hearing. At that hearing,

both parties werer represented by counsel. Additionally,

both parties made opening and closing statements, in-

troduced evidence, and called witnesses who were subject

to direct and cross-examination. Central to the entire pro-

ceeding before the Commission was the issue of whether

the interests of the Richardson group had been damaged

sufficiently to warrant injunctive relief against Phillips

Petroleum.

the law of the case and precludes the application of collateral estoppel

here. Because we find for the Richardson group on collateral estoppel

grounds, we need not address the law of the case issues raised here.

|

l4a

After considering all evidence presented, the Oil and

Gas Commission denied the relief requested by the

Richardson group. In reaching that result, the Commis-

sion expressly found the Richardson group had failed to

establish that its oil interests had been damaged by Phillips

Petroleum. In fact, the Commission found that the

Richardson group had even failed to show that its oil in-

terests had been endangered by the conduct of Phillips

Petroleum.

As was its right under Arkansas law, the Richardson

group sought judicial review of the Oil and Gas Commis-

sion’s decision in Arkansas state court. However, before

receiving any determination by that court, the Richardson

group instituted the present action in January of 1981.

In December of 1982, the Arkansas state court affirmed

the action taken by the Commission. Significantly, in its

decision affirming the Commission’s ruling, the state court

recognized the Commission’s express finding that the in-

terests of the Richardson gorup had not been damaged by

Phillips Petroleum. The state court found further than this

finding was supported by substantial evidence.

Obviously, Phillips Petroleum, in whose favor judg-

ment was entered, did not appea! the decision of the Ar-

kansas state court. The Richardson group, although hav-

ing incentive to do so, also failed to appeal the state court’s

decision.

In August of 1984, Phillips Petroleum, on the basis of

the 1979 Oil and Gas Commission ruling as affirmed by

the Arkansas state court, filed a motion for summary

judgment. That motion was based on theories of claim

preclusion (res judicata) and issue preclusion (collateral

estoppel). The district court properly recognized (as had

lSa

the state court) that the Richardson group’s right to bring

a damage claim was not affected by the Commission’s re-

fusal to award injunctive relief. Thus, the district court

found that the Richardson group’s damage claim was not

barred by claim preclusion.

However, the district court also recognized that the

Commission’s denial of the Richardson group’s injunctive

claim was based in part on an express finding that the Ri-

chardson group had not been damaged by the actions of

Phillips Petroleum. Without question, the issue of dam-

ages was at the very heart of the proceedings before the

Commission. Given the adjudicatory nature of the prior

administrative proceedings, at which the Richardson

group had the opportunity to litigate fully the damage

issue, and given further that the Commission’s express

finding of no damage liad been specifically affirmed on ju-

dicia! review, the district court held that under Arkansas

law the Richardson group was collaterally estopped from

relitigating in the present action the samme damage issue al-

ready adjudicated.

The district court then gave the Richardson group the

opportunity to assert issues not barred by its ruling. In

response, the Richardson group did not assert that the

damage issue in the present case was somehow distinguish-

able from the damage issue adjudicated in the prior ad-

ministrative proceeding (i.e. involving a different burden

of proof or different evidence). The Richardson group

also failed to assert that actions of Phillips Petroleum oc-

curring after the Commission’s ruling created some new

and distinct claim for damages. Rather, the Richardson

group admitted that no issue existed beyond that barred by

the district court’s ruling. By so doing, the Richardson

group effectively conceded that the damage issue expressly

l6a

resolved by the Oil and Gas Commission was identical to

the damage issue presented in its federal action.

Under Arkansas law, collateral estoppel will bar the reli-

tigation of an issue if the party asserting its applicability

demonstrates that the issue in question was distinctly rais-

ed and directly determined in an earlier adjudicatory pro-

ceeding. JeToCo Corp. v. Hailey Sales Co., 596 S.W.

2d 703, 706 (Ark. 1980); see also Smith v. Raone, 683

S.W.2d 935, 936 (Ark. 1985). That doctrine is equally

applicable when the prior proceeding involved an adminis-

trative body acting in its quasi-judicial function. Rainbolt

v. Everett, 639 S.W.2d 532, 534 (Ark. App. 1982) (citing

United States v. Utah Construction & Mining Co., 384

U.S. 394 (1966)). Such deference to an administrative

body is particularly warranted when an issue expressly

decided by the administrative body has been specifically

upheld on judicial review. See Bockman vy. Arkansas State

Medical Board, 313 S.W.2d 826, 829 (Ark. 1958).

Here, the record clearly demonstrates that the Richard-

son group in the proceeding before the Oil and Gas Com-

mission raised and fully litigated the issue of damages.

Further, during that proceeding the group had the incen-

tive and the opportunity to present evidence of any and all

damage to its oil interests.

After considering the evidence presented at the adju-

dicatory hearing, the Commission denied injunctive relief

to the Richardson group. That denial, however, was not

based on a finding that while damaged the Richardson

group’s interests were not so irreparably harmed as to war-

rant injunctive relief. Rather, the Commission’s denial was

based on the specific finding that the Richardson group

had not been damaged or even endangered by the Phillips’

operation. The Commission’s express finding of no dam-

age was affirmed by an Arkansas state court.

17a

I agree with the district court that these determinations

are binding on the Richardson group. The Oil and Gas

Commission’s finding of no damage not only supports and

was central to its decision but also fatally undermines the

Richardson group’s identical assertion of damage in the

present action. Because the Richardson group has received

and has taken advantage of a full and fair opportunity to

litigate the damage issue, I conclude the district court’s

dismissal of the Richardson group’s complaint on the basis

of collateral estoppel should be affirmed.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHT

CIRCUIT.

18a

APPENDIX B

UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

No. 85-1033

Sam Richardson, Jr., J.S. °

Beebe, J.S. Beebe, Jr., Joe R. °

May, Berg, Laney and Brown, °

-

Appellants, °

+.

and Jack Washington. * Appeal from the United

* States District Court for

v. * the Western District of

* Arkansas.

Phillips Petroleum Company, .

7.

Appellee.

Filed: August 25, 1986

ORDER

The petition for rehearing en banc is denied for lack of a

vote to rehear by a majority of the active circuit judges.

See Fed. R. App. P. 35(a). Judges ROSS, FAGG, BOW-

MAN AND MAGILL would grant the rehearing en banc.

The petition for rehearing by the panel is also denied.

In denying the petition, we note that in University of

Tennessee v. Elliott, 106 S.Ct. 3220 (1986), the Supreme

Court recently held that quasi-judicial administrative ad-

judications can have a preclusive effect on further court

proceedings on the same issue. Arkansas law has long ad-

hered to the collateral estoppel principles articulated in

19a

United States v. Uah Construction and Mining Co., 384

U.S. 394 (1966), which were reiterated in Elliott, that

preclusive effect may be accorded findings of a state agen-

cy when it acts in a judicial capacity to resolve disputed

fact issues properly before it which the parties have had an

opportunity to litigate. See Elliott, 106 S.Ct. at 3226;

Rainbolt v. Everett, 639 S.W.2d 532, 534 (Ark. Ct. App.

1982) (both quoting Utah Construction 384 U.S. at 422).

Here, as both the administrative tribunal and the state

court on review recognized, the issue before the Arkansas

Oil and Gas Commission was whether a petroleum com-

pany’s operations should be completely shut down. The

relief sought from the Commission was for an injunction

based upon a showing of irreparable harm from the com-

pany’s acts. The Commission specifically referred to its in-

ability to pass on compensatory damges and the state

court acknowledged that its judgment on review uphold-

ing the Commission’s denial of injunctive relief should not

preclude a state court tort action. Notwithstanding the

legal precepts found controlling in E/liott, which our ma-

jority opinion also quotes and with which we agree, where

the issue tried before the administrative tribunal was not

the same as the issue to be determined in the subsequent

lawsuit, these rules of issue preclusion do not bar further

proceedings here.

Judge Fagg, reaffirming his dissent, argues that E//iort

reinforces his contention that collateral estoppel should

apply here to bar a subsequent tort action. Clearly, how-

ever, Elliott establishes no new rule which should alter our

present opinion. Migra v. Warren City School District

Board of Education, 465 U.S. 75 (1984), still requires this

court to look to state law, and we must give the Commis-

sion’s fact finding the same preclusive effect to which it

would be entitled in the state’s courts. Our reading of

20a

Arkansas state law convinces us that the issue preclusion

rules stated in Utah Construction should not be applied to

bar a state court action for damages here. For these rea-

sons, the petition for rehearing is denied.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH

CIRCUIT. |

o~ ann en rae

2la

APPENDIX C

IN THE UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF ARKANSAS

EL DORADO DIVISION

SAM RICHARDSON, JR.,

J.S. BEEBE,

J.S. BEEBE, JR.,

JOE R. MAY and

BERG, LANEY AND BROWN PLAINTIFFS

Vs. NO. 81-1008

PHILLIPS PETROLEUM COMPANY DEFENDANT

ORDER

The plaintiffs having amended their complaint so as to

state that they are unable to allege with specificity any

issues which are not barred by the preclusive effect of the

collateral estoppel ruling in this Court’s Order of Decem-

ber 6, 1984, the complaint of the plaintiffs is hereby dis-

missed with prejudice on the grounds that the findings of

fact and issues determined by the Arkansas Oil and Gas

Commission in the prior proceeding are established and

binding between the parties in this lawsuit by virtue of col-

lateral estoppel.

22a

DATED this 13th day of December, 1984.

/s/ William R. Overton

United States District Judge

APPROVED AS TO FORM:

Compton, Prewett, Thomas & Hickey, P.A.

By: /s/ Robert C. Compton

Robert C. Compton

Attorneys for Plaintiffs

Friday, Eldredge & Clark

By: /s/ Robert K. Walsh

Robert K. Walsh

Attorneys for Defendant

23a

APPENDIX D

IN THE UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF ARKANSAS

EL DORADO DIVISION

SAM RICHARDSON, JR.,

J.S. BEEBE,

J.S. BEEBE, JR.,

JOE R. MAY and

BERG, LANEY AND BROWN PLAINTIFFS

Vs. NO. 81-1008

PHILLIPS PETROLEUM COMPANY DEFENDANT

AMENDED COMPLAINT

Plaintiffs are unable to allege with specificity any issues

which are not barred by the preclusive effect of the col-

lateral estoppel ruling in the Court’s Order of December 6,

1984. :

COMPTON, PREWETT, THOMAS & HICKEY, P.A.

423 North Washington Avenue

El Dorado, Arkansas 71730

Telephone: (501) 862-3478

By: /s/ Robert C. Compton

Robert C. Compton

Attorneys for Plaintiffs

——EE

24a

APPENDIX E

IN THE UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF ARKANSAS

EL DORADO DIVISION

SAM RICHARDSON, JR.; J.S. BEEBE;

J.S. BEEBE, JR.; JOE R. MAY;

BERG, LANEY AND BROWN; AND

JACK WASHINGTON PLAINTIFFS

VS. NO. 81-1008

PHILLIPS PETROLEUM COMPANY DEFENDANT

ORDER

Before the court are defendant’s motion for summary

judgment, partial summary judgment, and to declare cer-

tain facts established by collateral estoppel.

Plaintiffs brought this action alleging that the defendant

has operated Smackover Nacatoch Sand 985 Area Unit

(the Unit) in a negligent manner. Specifically, it is alleged

that defendant, in an attempt to increase production, ini-

tiated an experimental stream injection project at the Unit.

Plaintiff contends that the stream migrated onto other

properties and adversely affected the oi! producing capabi-

lities of properties owned by the plaintiffs. The properties

owned by the plaintiffs are not part of the Unit. Phillips,

according to the plaintiffs, has willfully continued to

operate the Unit in a negligent manner, without protective

measures for other operators and has endangered and

damaged plaintiffs, offset operators, nearby operators,

royalty owners and other mineral owners. Plaintiffs allege

that defendant has trespassed on their properties and that

its operations constitute a private nusiance. Compensatory

and punitive damages are sought.

25a

Defendant has moved for summary judgment, partial

summary judgment, and seeks to declare certain facts es-

tablished by collateral estoppel.

In support of its motion, defendant states that plaintiffs

have twice brought adjudicatory proceedings before the

Arkansas Oil and Gas Commission challenging the same

operations of Phillips’ unitized secondary recovery project

as are the subject of this lawsuit. Specifically, it is con-

tended that in 1976 three of the plaintffs herein were par-

ties to a proceeding and hearing before the Arkansas Oil

and Gas Commission (the Commission) in which the Com-

mission denied plaintiffs’ contentions and requested relief.

It is also stated that in 1979 each of the plaintiffs in the in-

stant suit brought an adjudicatory proceeding before the

Commission alleging that their operations had been ad-

versely affected and their expenses increased by the opera-

iions on the Phillips Unit. In that proceeding, plaintiffs re-

quested a modification, or enforcement, of the unitization

order. At the conclusion of the hearing, the Commission

denied plaintiffs’ application. The plaintiffs filed a peti-

tion for review of the 1979 Commission order in the Cir-

cuit Court of Union County. On December 27, 1982, the

Circuit Court issued an order which affirmed the 1979

Commission order and dismissed plaintiffs’ petition for

review.

Defendant attached copies of the Commission’s orders

and the order of the Circuit Court of Union County. Bas-

ed upon the alleged res judicata effect of these prior or-

ders, defendant states that all of the plaintiffs’ claims are

barred by res judicata and that defendant is entitled to

summary judgment.

Judge Oren Harris, in an order dated March 23, 1983,

denied the defendant’s motion for summary judgment bas-

26a

ed on the res judicata effect of the prior proceedings and

orders. Judge Harris found that plaintiffs were not barred

from bringing this action seeking damges for alleged tres-

pass and nuisance as the Commission was not empowered

to award damges and the issue before the Commission was

whether a modification or enforcement of the unitization

order should be issued. This court agrees with the order

previously entered and the ruling with respect to res

judicata remains unchanged. The motion for summary

judgment is denied.

Defendant also moves for partial summary judgment and

to have the court declare that the findings of fact and

issues determined by the Arkansas Oil and Gas Commis-

sion in the prior proceedings are established and binding

between the parties in this lawsuit by virtue of collateral

estoppel.

The Arkansas Oil and Gas Commission, on March 15,

1976, issued Order, Reference No. 9-76, in which it made

the following findings of fact and conclusions of law.

That volumes of air injected by the operator,

Phillips Petroleum Company, are substantially

equal to the volumes of air actually produced

from the wells within the 985 acre unit and there

is no substantial encroachment of the air injected

by the operator on the offsetting or nearby wells.

That the Nacotoch Sand has operated on a va-

cuum since early 1930’s and that huge amounts

of air have penetrated the formation and reser-

voir and that air injection by the operators of the

unit does not substantially alter the present day

condition of the reservoir.

That the applicants have failed to prove that they

have experienced increasing and irreparable

damage to their offset wells producing from the

27a

Nacatoch Sand as a result of the operations of

Phillips Petroleum Company in operating its 985

Smackover Nacatoch Sand Unit and to the con-

trary, the operator, Phillips Petroleum Com-

pany, has proven that any difficulties and opera-

tional problems experienced by the offsetting or

nearby operators from the Nacatoch Sand have

not been caused by the injection of air into its

985 acre unit or any other portion of its opera-

tion of said unit. That the applicants have failed

to prove that unit operations of the Smackover

Nacatoch Sand 985 acre unit is in violation of

any of the orders of the Arkansas Oil and Gas

Commission and to the contrary Phillips Petro-

leum Company has proven that its operation of

its Smackover Nacatoch Sand 985 acre unit is not

in violation of any of its Orders.

The Arkansas Oil and Gas Commission also issued an

order in 1979, Reference No. 117-79, in which the Com-

mission made the following findings of fact and conclu-

sions of law:

That the total evidence presented at said hearing

is insufficient to establish that the production of

such offset or nearby operators has been endan-

gered or otherwise damged as the consequence of

the conduct of the operations in carrying out the

development of the unitization. That applica-

tions herein did file their application alleging that

the unit operations had been conducted in a man-

ner to endanger the production of off-set or

nearby operators so as to thereby invoke the

jurisdiction of this Commission which had other-

wise been specifically retained. That the total evi-

dence presented at said hearing is insufficient to

establish that the production of such off-set or

nearby operators has been endangered or cther-

28a

wise damaged as the consequence of the conduct

of the operations in carrying out the develop-

ment of the unitization.

The Circuit Court of Union County denied the petition

for review and stated:

There is an express finding of the Commission

that the unit operations have not damaged the

correlative rights of petitioners. This Court can-

not make its own evaluation of the evidence and

arrive at its own conclusions.

The general law of collateral estoppel is summarized in

the Restatement of Judgements 2d, §27, as follows:

When an issue of fact or law is actually litigated

and determined by a valid anJ final judgment,

and the determination is essential to the judg-

ment, the determination is conclusive in a subse-

quent action between the parties, whether on the

same or a different claim. (Emphasis added).

See also, Sides v. Haynes, 181 F.Supp. 889 (W.D. Ark.

1960). The decision of an administrative tribunal acting in

a judicial, or quasi-judicial, capacity should have the

finality afforded by the doctrine of res judicata. Rainbolt

v. Everett, 6 Ark. App. 204, 639 S.W.2d 532 (1982); Bock-

man v. Arkansas State Medical Board, 229 Ark. 143, 313

S.W.2d 826 (1958). The court finds that the Commission

was acting in a judicial, or quasi-judicial, capacity when it

conducted the prior hearings and rendered its findings of

fact and conclusions of law. The order of the Commis-

sion, Reference No. 117-79, recites the procedure of the

hearing. The Commission met after due notice and con-

ducted a public hearing in which both parties were rep-

resented by counsel. The parties made opening statements,

called witnesses to testify, cross-examined witnesses, in-

29a

troduced evidence into the record, and made closing state-

ments. The Commission’s findings of fact and conclusions

of law should be given collateral estoppel effect in this

proceeding. Even if the Commission’s order would not

alone be entitled to preclusive effect, the order of the Cir-

cuit Court of Union County would. In Bockman vy. Ar-

kansas State Medical Board, 229 Ark. 143, 313 S.W.2d

826 (1958), the Arkansas Supreme Court stated:

When an administrative tribunal acts judicially

or quasi-judicially, there are good reasons for

holding that the decisions should have the finali-

ty that is conferred by the rule of res judicata.

Especially is this true when, as here, the adminis-

trative decision has been upheld upon judicial re-

view. (Emphasis added.)

Even though the prior adjudications before the Oil and

Gas Commission did not involve a claim for damages, at

least the findings of fact and issues necessarily decided

must be given collateral estoppel effect in the instant law-

suit.

Defendant Phillips also raises the statute of limitations

as a bar to this action. The applicable statute of limitations

is three years after the cause of action has accrued for

claims of trespass, negligence, or nuisance. Ark. Stat.

Ann. §37-206. In plaintiffs’ complaint, it is alleged that the

operations on the Phillips unit project have caused them

“permanent” damage to their property. See plaintiffs’

complaint, Paragraphs 16(iii) and 19.

Under Arkansas law, the statute of limitations on per-

manent injuries to property interest, such as alleged in th’s

complaint, runs from the time that plaintiffs state that

the injury became permanent. Sunray DX Oil Co. v. Thur-

man, 238 Ark. 789, 384 - S.W.2d 482 (1964); City of

30a

Springdale v. Weathers, 241 Ark. 772, 410 S.W.2d 754

(1967). There exists a question of fact as to when the in-

jury occurred and when the cause of action accrued. Fur-

thermore, if the damages complained of were of a continu-

ing nature, plaintiffs could recover under Arkansas law for

damages during the three year period next preceding filing

of their complaint. Moore v. City of Blytheville, 1 Ark.

App. 35, 612 S.W.2d 327 (1981); Consolidated Chemical

Industries, Inc. v. White, 227 Ark. 177, 297 S.W.2d 101

(1957). The motion for summary judgment on the basis of

the statute of limitations is denied.

Plaintiffs are directed to file an amended complaint

within 20 days of the entry of this order alleging with spe-

cificity any issues which are not barred by the preclusive

effect of the collateral estoppel ruling in this order. Plain-

tiffs are also directed to allege any claims for damages

which are consistent with the court’s decision and holding

on the statute of limitations issue.

Dated this December 6, 1984.

/s/ William R. Overton

United States District Judge

3la

APPENDIX F

IN THE CIRCUIT COURT OF UNION COUNTY,

ARKANSAS

SECOND DIVISION

SAM RICHARDSON, JR., ET AL PLAINTIFFS

VS. NO. CIV-79-399

ARKANSAS OIL & GAS COMMISSION DEFENDANT

PHILLIPS PETROLEUM COMPANY INTERVENOR

ORDER AND JUDGMENT

This cause is submitted by the parties with the record of

proceedings and orders of the Arkansas Oil and Gas Com-

mission, the pleadings and hearings herein, and excellent

briefs of counsel for each of the parties.

After careful consideration, the Court finds that the

decision of the Commission in its Order Reference No.

117-79 is supported by substantial evidence, the action is

not arbitrary, capricious, or an abuse of discretion.

The Comission acted within its statutory authority after

affording a substantial opportunity for hearing. The deci-

sion does not violate any rights of petitioners under the

state or federal Constitutions.

Petitioners rights to proceed against the operator for

any perceived damages to their property rights are not af-

fected by the action of the Commission. The Commission

expressly permitted such self-help as the petitioners might

care to undertake, such as drilling additional wells. There

is an express finding of the Commission that the unit oper-

ations have not damaged the correlative rights of peti-

tioners. This Court cannot make its own evaluation of the

evidence and arrive at its own conclusions.

32a

The Commission is charged with the responsibility of

promoting the greatest possible total recovery of oil and

gas by whatever methods are found by it to be appropri-

ate. It is also charged with the protection of the correlative

rights of all owners of minerals within the common source

of supply. However laudable an experiment, the Commis-

sion must protect these correlative rights by requiring

safeguards or, if satisfactory safeguards cannot be devis-

ed, by denying its sanction to a plan which would adverse-

ly affect the rights of other owners in the pool.

There is substantial evidence to support the finding of

the Commission, on conflicting evidence, that the unit

operations herein do not adversely affect other common

owners. This Court cannot make further inquiry.

IT IS, THEREFORE, CONSIDERED, ORDERED

AND ADJUDGED that the Order and action of the Ar-

kansas Oil and Gas Commission appealed from herein be

and the same is hereby affirmed and that the petition for

review filed herein be and the same is hereby DISMISSED.

DATED: December 27, 1982.

/s/ D. Gillaspie

Don Gillaspie, Circuit Judge

Bits os ise a Ne eee 0 te

33a

APPENDIX G

ARKANSAS OIL AND GAS COMMISSION

314 East Oak Street

El Dorado, Arkansas 71730

REFERENCE NO. 117-79 October 25, 1979

SMACKOVER FIELD

Nacatoch Formation

RE: APPLICATION FOR THE WITHDRAWAL OF ORDER

REFERENCE NO. 49-70 AND THE TERMINATION OF THE

985 ACRE UNIT AS CREATED THEREUNDER FOR THE

PRODUCTION OF OIL AND/OR GAS FROM THE NACA-

TOCH FORMATION

After due notice, a public hearing was held in El Dorado,

Arkansas commencing on October 25, 1979 in the matter

of the application referred to above as filed by Sam M.

Richardson, Jr., et al. Upon the conclusion of proceedings

therein on October 26, 1979, the parties thereto acting by

and through their respective counsel of record agreed to

the adjournment thereof until the public hearing which was

thereafter likewise held upon due notice at Hot Springs, Ar-

kansas, on November 28, 1979, following which the Ar-

kansas Oil and Gas Commission ordered that the appli-

cation as filed be denied and directed that an inquiry be

made to determine test procedures which were available

for purposes of monitoring the movement of fluid and/or

gas materials within the Nacatoch Formation underlying

the SNS-985 Unit, the subject matter of said hearing as

presently operated by Phillips Petroleum Company,

respondent herein.

34a

DEFINITIONS:

1. The SNS-985 Unit as referred to herein has reference to

the unit area designated within the Unit Operating

Agreement and Unit Agreement annexed to the Peti-

tion as filed in Order Reference No. 49-70 as entered

under date of September 16, 1970 and covers those

lands as in said Order specifically described.

STATEMENT OF THE CASE:

By Order Reference No. 49-70 entered following a specific

hearing held upon due notice as required by law, the

Arkansas Oil and Gas Commission did approve a Unit

Operating Agreement and Unit Agreement and ordered

that from and after the effective date thereof the 985 acre

tract as therein particularly described and the rights of all

parties therein or pertaining thereto would be unitized for

the production of oil and/or gas from the Nacatoch For-

mation. Under the terms of said Order, Phillips Petroleum

Company was designated as the Operator of said unit area

and said Order specified that operations in carrying out

the development of the unitization shall be conducted in

such manner as not to endanger the production of off-set

operators, or nearby operators, and it was further ordered

that said docket would be kept open to consider any claims

of discrimination or hardship and to afford administrative

relief, if possible, and to hear any pertinent evidence con-

cerning such matter. Subsequently, a further application

was filed seeking the revocation of said Order Reference

No. 49-70 on the alleged ground that the operation of said

unitized area was adversely effecting operations conducted

by off-set and nearby operators. Following a public hear-

ing thereon, such application was denied by Order Re-

ference No. 9-76 upon a finding by the Commission that

the evidence introduced in support thereof was insufficient

35a

to establish that the off-set or nearby operators were being

damaged as the result of such unit operation.

This matter is now again before the Commission as the

result of an application filed by Sam M. Richardson, Jr.,

et al in behalf of the parties specifically named therein and

as an alleged class action for and in behalf of all other par-

ties directly or indirectly affected The provisions of initial

Order Reference No. 49-70 and the Exhibits and evidence

introduced pursuant thereto were made a part of such ap-

plication by reference. Furthermore, the entire transcript

and hearing in Docket Reference No. 9-76 was likewise

made a part of the record in the instant hearing. The peti-

tioners in such application as currently filed alleged that

the operations in carrying out the development of the unit-

ization have been and or being conducted in such manner

as to endanger the production of off-set operators and

nearby operators. It was further alleged that the produc-

tion of said offset and nearby operators has been adversely

affected and reduced and that the operations of the unit

have resulted in increased operating expenses for peti-

tioners who recuested that Order Reference No. 49-70 be

withdrawn and the unit terminated or in the alternative

that appropriate provisions be made for the payment of

damages for any decreased or affected production of said

petitioners and members of the class whom they purported

to represent.

At the outset of such special hearing, Chairman James

D. Reynolds disqualified himself voluntarily at which time

a letter of appointment was introduced as Commission Ex-

hibit 1 for purposes of evidencing the authority of William

J. Wynne to act as a Commissioner specially for such

matter. The petitioners were represented by William I.

Prewett, Esquire, as counsel, and the respondents, Phillips

Petroleum Company and the non-operating parties within

es

36a

said unitized area were represented by Joe D. Woodward,

Esquire, as counsel. Additionally, Ms. Elizabeth Harris

appeared as co-counsel with Mr. Woodward on behalf of

Phillips Petroleum Company by whom she is employed.

The written response of respondents to said application

was filed by Mr. Woodward and made a part of the rec-

ord.

Preliminary statements were made on behalf of the respec-

tive parties and the challenges of the jurisdiction of the

Commission as made on behalf of the respondents were

overruled. Counsel for the petitioners clarified the request

for relief contained within the application filed on their

behalf by stating tht they were not asking that Order Re-

ference No. 49-70 be revoked but simply that it be clarified

to specifically set forth additional protection for off-set

operators and to indicate that in the event the unitized area

was not operated as required and specified thereunder

then that unit operation be suspended until such time as

they were conducted in conformity therewith. The acting

Chairman of the Commission likewise overruled the con-

tention made on behalf of respondents that Order Re-

ference No. 9-76 was res judicata with respect to oper-

ations conducted prior thereto.

Counsel for the respective parties thereupon specifically

approved the Commission as constituted and waived any

objection to the participation of any acting member there-

of. The Affidavit of Proof of Publication was introduced

and identified as Applicants’ Exhibit No. 1 whereupon

A.T. Slagle was called as a witness to testify on behalf of

the applicant. His qualifications as an expert in the field of

petroleum engineering were established and he then testi-

fied concerning the operation of the unit area as Area

Superintendent for Phillips Petroleum Company. The

nn

37a

applicants thereafter called Mr. Jim E. Crisman who testi-

fied as an adverse witness in his capacity as Director of Re-

servoir Engineering and Unitization for Phillips Petro-

leum Company. Thereafter Messrs. Sam M. Richardson,

Jr., Eric Richardson, Ed Peckan and Joe R. May testi-

fied as owners and operators of off-set or nearby leases.

Mr. Henry C. Coutret, Jr., was then called to testify on

behalf of applicants as an expert in the field of petroleum

engineering and during the course of his testimony, Ap-

plicants’ Exhibit No’s. E-1 to E-16, inclusive, were in-

troduced and received into evidence. Therafter, Messrs.

David Reynolds, William H. Byrd and J.S. Beebe ap-

peared and testified on behalf of applicants. Each said

witness was likewise cross-examined by counsel on behalf

of the respondents and each witness was otherwise ques-

tioned by the Commission. The case as presented by ap-

plicants was thereupon concluded. Counsel for the respec-

tive parties then concurred in the request that said hearing

be adjourned and reconvened at the regular hearing sche-

duled to be held in November at Hot Springs.

Such public hearing thereafter reconvened on November

28, 1979 at which time said parties were represented by

their respective counsel referred to above. Essentially all

of the 154 separate Exhibits which were introduced during

the course of testimony by the respective witnesses called

to testify on behalf of the respondents, had been re-filed

with the Commission on November 20, 1979. A copy of

each was furnished to Mr. Prewett as counsel for and on

behalf of the applicants at the commencement of such

hearing following which respondents called Messrs. Har-

vey J. Robinson, Paul R. Stapp, Victor L. Hayes, Jim E.

Chrisman and Raymond K. Watts to testify in the capacity

as a reservoir engineer, organic chemist concerned with

38a

research and development, expert in metallurgical engi-

neering and corrosion control, Director of Reservoir En-

gineering and Unitization and corrosion control expert,

respectively. Each said witness was cross-examined by

counsel appearing on behalf of applicants and by the

Commissioners. At the conclusion thereof, applicants call-

ed Messrs. J.S. Beebe, Jr. and Henry C. Coutret, Jr. to

testify as rebuttal witnesses in further support of said ap-

plication. Closing statements were then made by counsel

for the respective parties at the completion of which said

hearing was concluded on November 29, 1979.

FINDINGS OF FACT:

From the evidence introduced at said hearing, the Com-

mission finds:

1. That due notice of said hearing and of the continuation

thereof was given by publication and by mailing no-

tices thereof more than ten (10) days prior thereto in

the manner and form prescribed by law and in confor-

mity with the rules and regulations of said Commis-

sion.

2. That the Commission has jurisdiction over said parties

and of the subject matter herein.

3. That an area comprised of 985 acres as located within

the Smackover Field in Ouachita County, Arkansas,

has previously been unitized for the production of oil

and/or gas from the Nacatoch Formation by Order

Reference No. 49-70 as entered under date of Sep-

tember 16, 1970.

4. That Phillips Petroleum Company was designated as

the Operator of the aforesaid unit area under the pro-

visions of said Order Reference No. 49-70 and such

6.

39a

Operator has prepared and filed with the Commission

the reports required thereunder containing the data as

specified.

. That Order Reference No. 49-70 requires that the

operations in carrying out the development of the unit-

ization shall be conducted in such manner as not to

endanger the production of off-set operators or nearby

operators and requires that said docket be kept open to

consider any claims of discrimination or hardship and

to afford administrative relief, if possible, and to hear

any pertinent evidence concerning this matter.

That applicants herein did file their application alleg-

ing that the unit operations had been conducted in a

manner to endanger the production of off-set or near-

by operators so as to thereby invoke the jurisdiction of

this Commission which had otherwise been specifically

retained.

That the total evidence presented at said hearing is in-

sufficient to establish that the production of such off-

set or nearby operators has been endangered or other-

wise damaged as the consequence of the conduct of the

operations in carrying out the development of the unit-

ization.

That the application as filed and which is the subject

matter hereof should be denied; provided, however,

that the staff of the Commission should be directed to

investigate and determine a testing procedure for pre-

sentment at the January hearing for purposes of moni-

toring the movement of fluid and/or gas materials

within the Nacatoch Formation within the unit area

known as the SNS-985 Unit which the respondent,

Phillips Petroleum Company, is operating as Oper-

ator; and that the docket in this matter shall be kept

40a

open and maintained for purposes of receiving further

testimony and evidence herein and the jurisdiction of

this Commission shall be retained for all purposes.

CONCLUSIONS OF LAW:

Be

That due notice of said hearing and of the continuation

thereof was given by publication and by mailing no-

tices thereof more than ten (10) days prior thereto in

the manner and form prescribed by law and in confor-

mity with the rules and regulations of said Commis-

sion.

That the Commission has jurisdiction over said parties

and of the subject matter herein.

. That Order Reference No. 49-70 requires that the

operations in carrying out the development of the unit-

ization shall be conducted in such manner as not to en-

danger the production of off-set operators or nearby

operators and requires that said docket be kept open to

consider any claims of discrimination or hardship and

to afford administrative relief, if possible, and to hear

any pertinent evidence concerning this matter.

That applicants herein did file their application alleg-

ing that the unit operations had been conducted in a

manner to endanger the pre:uction of off-set or near-

by operators so as to thereby invoke the jurisdiction of

this Commission which had otherwise been specifically

retained.

. That the total evidence presented at said hearing is in-

sufficient to establish that the production of such off-

set or nearby operators has been endangered or other-

wise damaged as the consequence of the conduct of the

operations in carrying out the development of the unit-

ization.

4la

ORDER:

It is, therefore, by the Commission ordered that the ap-

plication as filed herein be and the same is denied. The

Commission further orders and directs that the staff of the

Commissioon investigate and determine a testing proce-

dure for presentment at the January hearing for purposes

of monitoring the movement of fluid and/or gas materials

within the Nacatoch Formation within the unit area

known as the SNS-985 Unit which the respondent, Phillips

Petroleum Company, is operating as Operator; and that

the docket in this matter shall be kept open and maintain-

ed for purposes of receiving further testimony and

evidence herein and the jurisdiction of this Commission

shall be retained for all purposes.

All interested parties being represented at said public hear-

ing and at the Adjudicatory Session publicly held at the

conclusion thereof were thereby advised of the ruling of

the Commission upon the aforesaid application and this

Order shall therefore be deemed efffective from and after

November 29, 1979.

ARKANSAS OIL AND GAS COMMISSION

Ralph A. Dumas, Director of

Production and Conservation

42a

It is so ordered by the Commission:

William J. Wynne, Acting Chairman

Thomas C. Mueller, Vice Chairman

Ned R. Price

E. Boyd Alderson

C.G. Davis

James O. Staggs

Hayes C. McClerkin

43a

APPENDIX H

ARKANSAS OIL AND GAS COMMISSION

El Dorado, Arkansas

IN THE MATTER OF: Ref. No. 49-70 and

Unit Operation, Nacatoch Sand Formatior

of Smackover Field, Ouachita County,

Arkansas and related mattes.

NO.

APPLICATION

1. Petitioners herein are specifically as follows:

Sam M. Richardson, Jr. and SEDCO;

J.S. Beebe, Sr. and J.S. Beebe, Jr.;

Berg, Laney & Brown;

Joe R. Mays;

Jack Washington;

Orlis Daniels of Rutledge and Daniels; and

All other parties directly or indirectly affected

by the operation of the Nacatoch Sand For-

mation Unit.

NINA” hh wWN —

2. Petitioners herein are each owners of an oil and/or

gas interest in the immediate area of the property describ-

ed in Reference No. 49-70 dated September 16, 1970, of

the Arkansas Oil and Gas Commission and either operate

or have an interest in an oil and/or gas well affected by the

operations of the unit described in Reference No. 49-70.

This petition is filed in behalf of the parties specifically

named and as a class action for and in behalf of all other

parties directly or indirectly affected.

3. The provisions of Reference No. 49-70 and the ex-

hibits thereto and evidence introduced pursuant thereto

are made a part of this application by reference to the

records of the Commission.

a cera

44a

4. The operations in carrying. out the development of

the unitization have been and are being conducted in such

manner as to endanger the production of offset operators

and nearby operators.

5. The operations of Phillips Petroleum Company as

the operator of the unit area have been conducted in such

a manner as to discriminate against offset and nearby

operators and owners and have caused hardship in that the

production of offset operators and nearby operators has

been adversely affected and reduced. The operations of

the unit have resulted in increased operating expenses for

petitioners.

6. Petitioners request that Reference No. 49-70 be

withdrawn and the unit terminated as the method of pro-

posed operation cannot be conducted whereby it will not

adversely affect offset and nearby operators. In the alter-

native, appropriate provision should be made for payment

of damages for any decreased or affected production of

offset and/or nearby operators and Reference No. 49-70

and all other orders relating to the operation of the unit

referred to in said 49-70 be modified to provide specific

and detailed protection for all offset and nearby operators

and owners.

WHEREFORE, petitioners pray that a hearing be sche-

duled and after hearing, that relief be granted to peti-

tioners as herein set forth and that all other appropriate

and proper relief be granted to them and to each of them.

eee

4Sa

Petitioners further pray that this petition be treated as a

class action in behalf of all similarly affected parties.

/s/ Wm. 1. Prewett

Attorney for Petitioners

Wm. I. Preweit

Brown, Compton & Prewett

423 North Washington

El Dorado, AR 71730

VERIFICATION

Wm. I. Prewett, being duly sworn, states on oath that

he is the attorney for the herein named pefitioners and that

the statements set forth in the foregoing Application are

true and correct as he verily believes.

/s/ Wm. I. Prewett

William I. Prewett

SUBSCRIBED AND SWORN to before me, a Notary

Public within and for Union County, Arkansas, on this

Sth day of July, 1979.

/s/ {Illegible]

Notary Public

My Commission Expires:

11-15-81

46a

APPENDIX I

ARKANSAS OIL AND GAS COMMISSION

EL DORADO, ARKANSAS

REFERENCE NO. 9-76 March 15, 1976

Smackover Field

Nacatoch Sand

RE: APPLICATION OF N.T. RUTLEDGE, JOE R.

MAY, BERG, LANEY AND BROWN, O.B. DA-

NIELS, JACK WASHINGTON, TENNYSON OIL

COMPANY ET AL FOR AN ORDER REQUIRING

THAT INJECTION OF AIR BE DISCONTINUED.

After due notice followed by public hearing held in Hot

Springs, Arkansas, on February 25, 1976, and recessed un-

til March 15, 1976, in El Dorado, Arkansas, the under-

signed members having been regular members of the Com-

mission together with specially appointed members of the

Commission by the Governor of Arkansas for the special

purpose of hearing this case and this case only, have made

the following findings of fact and conclusions of law.

FINDINGS OF FACT:

1. The applicants are offsetting and nearby operators of

Phillips Petroleum Company’s “Smackover Nacatoch

Sand 985 acre unit in Ouachita County, Arkansas,”

which unit was established and authorized by Order of

the Arkansas Oil and Gas Commission, No. 49-70,

dated September 16, 1970.

2. That Monsanto Company, Gulf Oil Corporation,

Kerr-McGee Corporation, Richard Vickers, Sara Nell

Humphreys, Bettye V. Gray and Phillips Petroleum

Company are the owners of the “Smackover Nacatoch

eee

47a

Sand 985 acre unit in Ouachita County, Arkansas”

and that Phillips Petroleum Company is designated as

the operator.

That the “Smackover Nacatoch Sand 985 acre unit,

Quachita County, Arkansas” was formed and is oper-

ated under the terms of the aforementioned Order of

the Arkansas Oil and Gas Commission, No. 49-70,

dated September 16, 1970, and a plan of unitization,

Smackover Nacatoch Sand (985 acre unit) Ouachita

County, Arkansas, was approved by the Commission.

That the nature of the proposed unit operation was set

forth in detail in the application of Phillips Petroleum

Company and the owners of said unit and among other

things, specifically provided under Sub-paragraph C

that the working interest owners operating through

the unit operator “will be authorized to control and

alter pressures within the proposed unit area, to inject

steam and other substance or substances therein, . . .

And the Order of the Arkansas Oil and Gas Commis-

sion, Reference No. 49-70, above referred to, also

provided “that the parties owning the operating rights

in said unit area are to engage in thermal type recovery

operations employing injection of steam or other

substances, provided, however, such operating parties

shall have the right, subject to the notification of this

Commission, to discontinue in whole or in part any

method of operation which, in their opinion, is no

longer in accord with good engineering or production

practices. The plan of operation presented at the

Hearing is hereby approved.”

That the operator, Phillips Petroleum Company, has

10.

48a

filed monthly reports with the Arkansas Oil and Gas

Commission furnishing all the pertinent data with re-

spect to injection volumes by substance, pressure in-

formation, methods of operation, and other pertinent

information pertaining to the operation of said unit.

That during the fall of 1973, the operator, Phillips

Petroleum Company, commenced the injection of water

and air into the unit in addition to steam and all subse-

quent reports filed with the Commission have contain-

ed all pertinent information in relation thereto.

That the purpose of air injection along with the steam

injection was for pressure backup with water as an ad-

ditional pressure backup.

That the alternate or simultaneous injection of steam

and air reduces overall injection costs per acre flooded

and improves the overall efficiency of the steam injec-

tion and recevery of hydrocarbons from the reservoir

underlying the unit by producing more efficient usage

of heat and energy and reducing undesirable heat losses.

That volumes of air injected by the operator, Phillips

Petroleum Company, are substantially equal to the

volumes of air actually produced from the wells within

the 985 acre unit and there is no substantial encroach-

ment of the air injected by the operator on the offset-

ting or nearby wells.

That the Nacatoch Sand has operated on a vacuum

since early 1930’s and that huge amounts of air have

penetrated the formation and reservoir and that air in-

jection by the operators of the unit does not substan-

tially alter the present day condition of the reservoir.

49a

11. That the Nacatoch Sand is in advanced stages of de-

pletion and operational problems of the operators

throughout the Smackover Field have become increas-

ingly difficult over the years and evidence indicates

that production problems will become increasingly

difficult as the field reaches final, ultimate, deple-

tion.

12. That Paragraph 6 of Order No. 49-70 referred to

above required that the operations in carrying out the

developments of the unitization of the Smackover Na-

catoch Sand 985 acre unit were required to be con-

ducted in such a manner as not to endanger the offset

operators or nearby operators.

CONCLUSIONS OF LA W:

1. That the applicants have failed to prove that they have

experienced increasing and irreparable damage to

their offset wells producing from the Nacatoch Sand

as a result of the operations of Phillips Petroleum

Company in operating its 985 acre Smackover Naca-

toch Sand Unit and to the contrary, the operator,

Phillips Petroleum Company, has proven that any dif-

ficulties and operational problems experienced by the

offsetting or nearby operators from the Nacatoch

Sand have not been caused by the injection of air into

its 985 acre unit or any other portion of its operation

of said unit.

2. That the applicants have failed to prove that unit

operations of the Smackover Nacatoch Sand 985 acre

unit is in violation of any of the Orders of the Arkan-

sas Oil and Gas Commission and to the contrary, Phil-

lips Petroleum Company has proven that its operation

ieee eee

50a

of its Smackover Nacatoch Sand 985 acre unit is not in

violation of any of its Orders.

3. That no action is necessary at this time to proteci the

production of offset or nearby operators from the

operations of said unit.

ORDER:

Now, therefore, it is ordered:

1. That the application of N.T. Rutledge, Joe R. May,

Berg, Laney, and Brown, O.B. Daniels, Jack Wash-

ington and Tennyson Oil Company et al, Reference

Docket No. 9-76 before the Arkansas Oil and Gas

Commission, is denied.

2. That the Petitioners or any other interested party may

file a new application upon a showing that new evi-

dence not shown at this Hearing can be produced by

the applicants or any other interested party.

3. That upon a showing by any of the Petitioners or any

interested party that evidence is being unreasonably

withheld by the unit operator and is unavailable from

any other source except the unit operator, then applica-

tion may be filed with this Commission citing such mat-

ters and this Commission shall retain jurisdiction in the

matter to make such reasonable Orders as are necessary

to carry out the intention of the original Order of this

Commission.

—————————————— =

Sla

This Order shall be effective from and after March 15,

1976.

ARKANSAS OIL AND GAS COMMISSION

By:

Ralph A. Dumas, Director of

Production and Conservation

It is so ordered by the Commission:

Ned A. Stewart, Jr. - Vice-Chairman

Thomas C. Mueller

James O. Staggs

James O. Jones

Dorsey M. Ryan

Spence A. Leamons

Kenneth B. Estes

52a

APPENDIX J

RULE 28.1 LIST

PHILLIPS PETROLEUM COMPANY’S DIRECT AND

INDIRECT SUBSIDIARIES AND AFFILIATES

OWNED LESS THAN 100%*

ALESKA PIPELINE SERVICE COMPANY

ARCTIC LNG TRANSPORTATION COMPANY

CANADA WESTERN CORDAGE COMPANY,

LIMITED

CANYON REEF CARRIERS, INC.

CHISHOLM PIPELINE COMPANY

COCHIN REFINERIES LIMITED

COLONIAL PIPELINE COMPANY

DIXIE PIPELINE COMPANY

EAST TEXAS SALT WATER DISPOSAL COMPANY

EXPLORER PIPELINE COMPANY

GREAT YARMOUTH PORT LABOUR COMPANY LIMITED

HEAT TRANSFER RESEARCH, INC.

IRANIAN MARINE INTERNATIONAL OIL COMPANY —

IMINOCO

KENAI LNG CORPORATION

LONG BEACH OIL DEVELOPMENT COMPANY

|

53a

MULTINATIONAL GAS AND PETROCHEMICAL

SERVICES LIMITED

NORLAND GMBH FUR GRUNDBESITZ UND

INDUSTRIEANLAGEN

NORPIPE A.S

NORPIPE PETROLEUM UK LIMITED

NORSEA GAS A/S

NORSEA GAS GMBH

NORSEA PIPELINE LIMITED

OIL INSURANCE LIMITED (NEW)

PAPAGO CHEMICALS, INC.

PHILLIPS CARBON BLACK COMPANY (PROPRIETARY)

LIMITED

PHILLIPS CARBON BLACK ITALIANA S.P.A.

PHILLIPS CARBON BLACK LIMITED

PHILLIPS EXTRUDED PRODUCTS — LES PRODUITS

EXTRUDES PHILLIPS

PHILLIPS PETROLEUM CHEMICALS

PHILLIPS PETROLEUM INTERNATIONAL

ANDINA, S.A.

PHILLIPS PETROLEUM INTERNATIONAL S.P.A.

PHILLIPS PETROLEUM SINGAPORE CHEMICALS

(PRIVATE) LIMITED

PHILLIPS PETROLEUM TANKER MANAGEMENT,

LIMITED

PHILLIPS PETROLEUM TORAY INC.

PHILLIPS-IMPERIAL PETROLEUM LIMITED

POLAR LNG SHIPPING CORPORATION

RENOLIT — HAUS GMBH

SOLAR GAS, INC.

SPODCO LIMITED

SPODCO-USA, INC.

THE SALK INSTITUTE BIOTECHNOLOGY /

INDUSTRIAL ASSOCIATES INC.

VENEZOIL, C.A.

WALTON INSURANCE LIMITED

WESTERN DESERT OPERATING PETROLEUM

COMPANY (WEPCO)

WHITE RIVER SHALE OIL CORPORATION

*Does not include companies required to issue one or more shares

to directors or officers.