# Opposition Brief — Dietrich v. Sun Exploration & Production Co.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1994
- **Citation:** 513 U.S. 872

## Text

Geren Court, U8

FILED

AUG 29 1994

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oy

No. 94-133

IN THE

Supreme Court of the Gnited States

OCTOBER TERM, 1994

EDGAR J. DIETRICH and THERESITA DIETRICH,
Petitioners,
V.
SUN EXPLORATION AND PRODUCTION COMPANY a
Delaware corporation, and SUN OPERATING LIMITED
PARTNERSHIP, a Delaware Limited Partnership,
Respondents.

Petition for Writ of Certiorari
to the United States Court of Appeals
for the Sixth Circuit

BRIEF IN OPPOSITION TO PETITION

RODGER T. EDERER
(Counsel of Record for Respondents)
GARY L. FIELD

LOOMIS, EWERT, EDERER, PARSLEY,
Davis & GortTine, P.C.

232 South Capitol Avenue,

Suite 1000

Lansing, MI 48933

(517) 482-2400

oleae

PRESS OF BYRON 8. ADAMS, WASHINGTON, ).C. 1-800-347-8208

QUESTIONS PRESENTED FOR REVIEW

Respondents object to the form and substance of
the questions presented in Petitioners’ Petition for
Writ of Certiorari to the United States Supreme Court
(Petition), and believe the questions should be as fol-
lows:

1. Was the dismissal of Counts I, HII and IV of
Petitioners’ Amended Complaint—on Respondents’
Motion for Summary Judgment Under FRCP 56—in
conformity with substantive Michigan law, Michigan
being the forum state in this diversity action?

2. Did the District Court abuse its discretion by
imposing FRCP 11 sanctions on Petitioners, and their
attorney, for pursuing a factually unsubstantiated
claim (i.¢., Court V of Petitioners’ Amended Com-
plaint)?

3. Does due process require the use of a three judge
panel to adjudicate “‘serious’” FRCP 11 sanctions?

LIST OF ALL PARTIES

The parties appear in the caption to the case. Sun
Energy Partners, a Delaware Limited Partnership,
whose units are publicly traded, owns not over 2%
of Sun Operating Limited Partnership.

iil

TABLE OF CONTENTS

Page
QUESTIONS PRESENTED FOR REVIEW ................ ]
ee eo .. -ccesvacacesusceseccececcsecenece ii
ME IIE ocrvinccvcnccvccccnacoccovaccecoccccecccess iii
RM A UT ENEEIGE Svncscccccccccnsccuccccncccccconvcccss Vv
I. STATEMENT OF THE CASE ...................0000. l

A. DISMISSAL OF COUNTS I, III AND IV OF
PETITIONERS’ AMENDED COMPLAINT . 1

B. DISMISSAL OF COUNT V AND IMPOSI-
TION OF FRCP 11 SANCTIONS ............... 3
II. SUMMARY OF ARGUMENT ...................c0c000e 6
SETI OS a ne 7

A. NO ISSUE RAISED BY THE PETITIONERS
IS OF SUCH A NATURE OR IMPORTANCE
THAT THIS COURT’S INTERVENTION IS
PNET seduiniidevadtisntenrinenbvioscaindecteniaastsseses

B. THE DISTRICT COURT AND THE SIXTH
CIRCUIT COURT OF APPEALS BOTH
CORRECTLY HELD THAT SUMMARY
JUDGMENT DISMISSING PETITIONERS’
COUNT I WAS PROPER’ BECAUSE
PETITIONERS—FOR THEIR PROOFS—RE-

LIED SOLELY ON COLLATERAL ESTOP-
PEL AND SUCH RELIANCE WAS
INSUFFICIENT SUPPORT OF THEIR
PE TE eadaiinenicniedinntnsisneidemesnsnnnece 8

C. RELITIGATION OF THE ISSUES PRE-
SENTED BY PETITIONERS’ COUNTS III
AND IV WAS PRECLUDED BY DEFEN-
SIVE COLLATERAL ESTOPPEL .............. 11

~)

i

3
.
.

1. Collateral Estoppel was based on the
Michigan Unitization Law and the
Michigan Supervisor of Wells orders
unitizing the Columbus “3” Oil and Gas
BP ecitisseenhisdhtnitiplinibdiiiiaas cae. 12

2. Application of Collateral Estoppel was
also Required because of Petitioner
Edgar J. Dietrich’s participation as
counsel for the Koziaras in the Re-
mand Hearing before Administrative
Law Judge Fulkerson .........0.....cccccceee. 17

D. THE FRCP 11 SANCTIONS IMPOSED
WERE NOT AN ABUSE OF
PE sicrvictnala neindabckacksnnseccanisoesesonss 20

E. THE ADMINISTRATION OF FRCP 11
SANCTIONS IN THIS CASE COMPLIED
WEEE DUE PROCESS ooc.iccccccsscccscsersececnes 24

SY» SPAM Scakinnbsccssedetbtnsnccshnondasesiuladiwadesiec 26

TABLE OF AUTHORITIES

CASES Pages
Alterman v Provizer, 195 Mich App 422; 491 NW2d

I aiscidiciaccixensniieiienasceasbncadtentingeiadinedinndés 19
Amoco Production Co v Heimann, 904 F2d 1405

CE te SIE dionehiciccensacodnesiecantibcacnensseinbsenns 12,14,16
City of Troy v Hershberger, 27 Mich App 123; 138

PE ED biistintesisinariienensamern 20
Depolo v Greig, 338 Mich 703; 62 NW2d 441

IE wi tan enti aliis seascancseaetnneanamianihuipaannconenein 18
Donaldson v Clark, 819 F2d 1551 (11th Cir,

MI 6s kc ss sesiieizocinsnpenicahioieceeuninainidichalediphdianiemionnisesautie 24,25

Halm v Board of Education of Dansville Agricul-
ture Schools, 174 Mich App 520; 436 NW2d

I vcaactebitacketbiadincdscecalwadaisastinieasecnian: 20
Halvorsen v Grain Dealers Mutual Insurance Co,

210 F Supp 73 (W.D. Mich 1962) .................. 18
Howell v Vito’s Trucking Co, 386 Mich 37; 191

DE GE GEE vidcsncitncidapsncersoscnndsonqnsiinnn 10,11,18,20
Katter v Arkansas Louisiana Gas Co, 765 F2d 730

Ns EE ess ied eancianaeaiodesineaamnans 15,16
Knoblauch v Kenyon, 163 Mich App 712; 415 NW2d

SI I 2s dais sai as nls nptenaaneneaaaamaainatal 10,19
Mathews v Eldridge, 424 U.S. 319; 96 S.Ct. 893;

se SB ene 24,25
Mize v Exxon Corp, 640 F2d 637 (5th Cir.

TTT chinsicseiinpichiiednasiaiahiaiilaacnesssigsiptillidmiiinsenienbnbebiiahi 17
Nummer v Dep’t of Treasury, 200 Mich App 698;

Se SE HE IIE = ittihivccrninsinpniiticcccantannnnionn 14
Perry & Derrick Co. Inc, v King, 24 Mich App 616;

Fs. Renn nne 16
Rohe Scientific Corp v NBD, 133 Mich App 462;

eee 16
Senior Accountants v Detroit, 399 Mich 449; 249

III iiss saniitinidecieisciitsniitiindnlhapiiecinelsticinildinniaiansions 14

i

Table of Authorities Continued

Page
Trahan v Superior Oil Co, 700 F2d 1004 (5th Cir.
HPNE Puivnasasiniinsinniscesibiipnimirseasipicguen 16
Walz v Reliance Insurance Co. of Philadelphia, 221
Mich 345; 191 N.W.2d 236 EY inti ae 18
Wronski v Sun Oil Co, 89 Mich App 11; 279 NW2d
564 (1979); lv den, 407 Mich 863 (1979)
PND siciotciiaicsaaienag ae ore 1,7,8,9,10
Wronski v Sun Oil Co, 108 Mich App 178; 310
NW2d 321 (1981) (“Wronski II’’) .......... 2,7,11,12,17
STATUTES
Michigan Administrative Procedures Act, 1969 PA 306;
MCL 24.201 et seq; MSA 3.560(101) et seq ...... 12,19
MCL 24.301 et seq; MSA 3.560(201) et seq ...... 13
PII I sin cosvstinnnsbientlnislbaseiidessissinee, 1. 19
Michigan Unitization Law, 1959 PA 197;
MCLA 319.351 et seq; MSA 13.139(101) et
DOG wernrrvversceececavasenssenseenssensseosesestssccsseesseeseeee. 5... ]
Section 5 oon... eesessesssscsesssessessecssesseeeseeseccc 12
Section 6 o.....ceecssecsessecssessesseessessesesseeeseesccccc. 12
SL rr cc 13
Sections 30 through 35 oo... eccccccceeceecec. 13
Section 36 oo... eececsescsesssessessecesesseeeeeeeescc 13
COURT RULES
Federal Rules of Civil Procedure
MD BD in secncsernscassnesresnsenisencsenssueaeseseeceee...,. 8,23,26
Rule 16(€) oo... eecccsecsesstessessesseeseeeeeeseesccc cc... a 21
<casaitasath ee 20

Ds sssivesanineteninsnntsessininsronniaiiseisusies, sis, 6

vil

Table of Authorities Continued

Page
Federal Rules of Criminal Procedure
a aE 25
Rules of the Supreme Court
ERENT RIE TER SRA ETT TD Ta Se 7
TREATISES

IID sscnimeseictcinphbennitatinnicsnialsinunielaainiuadilécine 18

I. STATEMENT OF THE CASE

A. DISMISSAL OF COUNTS I, III AND IV OF
PETITIONERS’ AMENDED COMPLAINT

We, address, first, the dismissal—on Respondents’
Motion for Summary Judgment—of Counts I, III and
IV of Petitioners’ Amended Complaint (R.81).
Petitioners’ Statement of the Case fails to indicate
that their claims below were closely related to and
dependent upon determinations reached in state court
litigation to which Petitioners were not parties. The
related litigation was between landowners in the Co-
lumbus “3” Oil and Gas Field in St. Clair County,
Michigan, the Wronskis and the Koziaras, and
Respondents’ predecessor in interest, Sun Oil Com-
pany (‘‘Sun’’).

Count I, alleging illegal drainage, is related to
Wronski v Sun Oil Company, 89 Mich App 11; 279
NW2d 564 (1979), lv den 407 Mich 863 (1979) (‘‘Wron-
ski I’). Wronski I involved findings of the state court,
vigorously contested by Sun, that Sun had illegally
overproduced certain wells in the Columbus ‘‘3” Oil
and Gas Field resulting in illegal drainage of oil from
Tracts 1, 2 and 6 in the field. Petitioners held an
overriding royalty interest in Tracts 1, 2 and 6 and
it is this interest which gave rise to this litigation.

Counts III and IV grew out of 1974 state admin-
istrative proceedings which unitized the Columbus ‘‘3”’
Oil and Gas Field on petition of Sun, pursuant to the
Michigan Unitization Law, 1959 PA 197: MCLA
319.351, et seq; MSA 13.139(101), et seq. Dissatisfied
with the unit participation percentages assigned to
their field tracts, the Wronskis and the Koziaras
appealed the Michigan Supervisor of Wells orders un-

itizing the field. This appeal produced Wronski v Sun
Oil Company, 108 Mich App 178; 310 NW2d 321
(1981) (‘Wronski IT’). Wronski II resulted in a re-
mand hearing before Michigan Department of Natural
Resources, Administrative Law Judge William C.
Fulkerson. Administrative Law Judge Fulkerson’s
Proposal for Decision (A.9)! (entirely adverse to
Petitioners’ claims in Counts III and IV) was sus-
tained by the Michigan Supervisor of Wells and by
Ingham County, Michigan, Circuit Judge Carolyn Stell
(R.202, Exhibit R-1 thereto). Judge Stell’s ruling is
now on appeal to the Michigan Court of Appeals,
Docket No. 142357. [The case is not before the Mich-
igan Supreme Court as stated on pages 14 and 15 of
the Petition.]

The summaries of Counts III and IV appearing in
Petitioners’ Statement of the Case (Petition, p 2) do
not adequately define Petitioners’ claims. On page 12
of the Petition, Petitioners rely on the affidavit of
Dr. M. Y. Joshi. This affidavit (A.10) shows that the
gravamen of Petitioners’ case is that an inadequate
participation percentage was assigned in the uniti-
zation process. For example, the penultimate para-
graph 16 of the Joshi affidavit reads:

' Petitioners’ Appendix uses the designation “R” to refer to
its appendix documents 1 through 8 instead of the standard “A”
designation. Respondents in the instant brief, when referring to
Petitioners’ appendix documents, use the designation R.1 through
R.8. Respondents follow the usual practice of using the ‘‘R”’
designation to cite the Record below. No confusion should arise
from such dual use of the “R” designation because neither
Petitioners in their Petition or Respondents in the instant op-
posing brief, refer to or cite R.1 through R.8 of the Record.
Respondents’ Appendix designates its included documents as A.9
through A.14.

That Plaintiffs’ participation percentage, had
Defendants properly represented them, would
be far in excess of the approximately 17%
they are credited with at present.

Thus, Petitioners’ Counts III and IV were an attempt
to gain an increased share of the royalties generated
by the Columbus ‘3” Field via an award of monetary
damages.

B. DISMISSAL OF COUNT V AND IMPOSITION OF
FRCP 11 SANCTIONS

We now address the imposition by the District
Court of FRCP 11 sanctions on Petitioners (R.3, Opin-
ion and Order Granting Sanction and R.2, Order Di-
recting Plaintiffs to Pay Sanctions to Defendants).
Here, Petitioners’ Statement of the Case is both mis-
leading and incomplete.

In Count V of their Amended Complaint, Petitioners
sought monetary damages claiming that Respondents’
predecessor in interest between November, 1984 and
March, 1985 surreptitiously produced 881,071 barrels
of oil from the Columbus ‘3’’ Field on which it did
not pay royalties. Petitioners repeatedly identified No-
vember, 1984 through March, 1985 as the pertinent
period of the alleged surreptitious production. In a
document entitled ‘Plaintiffs’ Claims’, dated October
30, 1990, Petitioners averred:

“Plaintiffs claim that Defendants’ records
show that 881,071 barrels of oil were pro-
duced in the Columbus III field between No-
vember, 1984 and March, 1985 which
Defendants did not account for and for which
Plaintiffs seek compensation.”” (Emphasis
added, R. 190 Claim, p 2)

In a brief filed by Petitioners, dated May 29, 1991,
Petitioners stated:

“The production records attached to
Plaintiffs’ Answer to Defendants’ Motion for
Summary Judgment clearly show that
881,071 barrels of oil were produced during
the relevant period as alleged in the Com-
plaint.”” (Emphasis added; R. 198; Plaintiffs’
Answer and Brief, p 23)

Finally, Petitioners’ attorney, on June 1, 1992,
signed the Final Pretrial Order which twice so iden-
tified the production period:

5. Issues of fact to be litigated.

x * &*

B. Did Defendants remove oil from the Co-
lumbus III field between November, 1984 and
March, 1985, which was not properly ac-
counted for?

*x* * *

11. Damages. Plaintiffs claim that between
November, 1984 and March, ' 1985,
Defendants produced 881,071 barrels of oil
from the Columbus Field, in which Plaintiffs
claim an interest. (R.6, pp 6 and 7)

After numerous postponements, a jury trial on
Petitioners’ Count V (the only Count which had sur-
vived motions for summary judgment) was set to com-
mence on July 2, 1992. On July 1, 1992, Petitioners
filed two motions labeled as motions ‘“‘in limine.’’? The

2 Petitioners attempt to justify the tardiness of their actions
by stating in the petition:

first motion was entitled ‘“‘Motion in Limine to Clarify
and/or Amend Final Pretrial Order’’. This motion con-
cluded with the following prayer:

WHEREFORE, the Plaintiffs request that
this court enter an order amending the Final
Pretrial Order to properly reflect the
Plaintiff's claims or enter such other order
as may be appropriate to allow the Plaintiffs
to claim that the 881,071 barrels of oil may
have been actually produced during time pe-
riods outside the November, 1984 through
March, 1985 time period. (Emphasis added;
A.11, p 38a).

On July 2, 1992, the District Court denied both
motions. Thereafter, Petitioners’ then attorney, Jack
C. Chilingirian, conceded to the District Court that
Petitioners had no proofs to substantiate their claim:

THE COURT: Okay. Well, it’s clear then,
however, that you’re unable to present any
proofs that the—that the oil was removed
surreptitiously, or otherwise, by the

The Final Pretrial Order did not set the date of trial,
but the Court had assured both sides that several
weeks’ notice would be given to the parties and
counsel. (Petition, p 3).

However, Paragraph IX of the April 14, 1992 Final Pretrial
Order reads:

IX. Trial will be held in trial term beginning 7/1/92.
The Court utilizes a trailing trial docket. (A-7, p
2)

Furthermore, Respondents do not agree that the District Court
promised the parties “‘several weeks’ of notice of the exact trial
date.

en

6

Defendant, with no compensation paid to the
Plaintiffs during the period November 1984
through March of 1985, is that correct?

MR. CHILINGIRIAN: That’s correct, your
Honor.

Thereafter Petitioners’ oral motion for adjournment
was denied and Count V was dismissed (R.4).

On Respondents’ motion, and following Petitioners’
answer, Petitioners were sanctioned for pursuing a
factually unsubstantiated claim (R.3, pp 1, 2 and 11;
A.13 and A.14). The sanctions imposed, $19,735, rep-
resented Respondents’ costs incurred in defending
Count V from February, 1992 (when all Counts except
Count V were dismissed) until July 2, 1992 (the day
of trial) (R.1, p 29). Such $19,735 was assessed in
equal shares on Petitioners and on Petitioners’ then
attorney, Jack C. Chilingirian (R.2, p 2).

Petitioners do not seek review of the dismissal of
their Count V.

II. SUMMARY OF ARGUMENT

Respondents seek a Writ of Certiorari claiming that
the rulings below call for an exercise of the Supreme
Court’s power of supervision. However, there is no
need for exercise of such power; the issues raised by
Petitioners are not of special importance such that
review by this Court is required.

Jurisdiction is based on diversity. Dismissal, on
Respondents’ Motion for Summary Judgment pur-
suant to FRCP 56, of Counts I, III and IV of
Petitioners’ Amended Complaint, was clearly consist-
ent with applicable Michigan law. Petitioners, relying

on Wronski I, proposed to use offensive collateral
estoppel in lieu of proofs to support their Count I.
Both the District Court and the Sixth Circuit Court
of Appeals properly found that the facts determined
in Wronski I were not sufficiently similar to the facts
which Petitioners would have to prove in order to
prevail on Count I. As to Counts III and IV, the
District Court and the Sixth Circuit properly found
that collateral estoppel precluded relitigation of the
issues decided adversely to Petitioners in the uniti-
zation hearings and in the Wronski IJ remand hear-

ing.

The FRCP 11 sanctions imposed by the District
Court were not an abuse of discretion. Petitioners
offered no evidence showing any investigation (let
alone reasonable investigation) of the merits of their
now discarded Count V. The procedures before the
District Court complied with due process.

III. ARGUMENT

A. NO ISSUE RAISED BY THE PETITIONERS IS OF
SUCH A NATURE OR IMPORTANCE THAT THIS
COURT’S INTERVENTION IS MERITED.

Rule 10 of the Supreme Court’s Rules set forth the
character of reasons that this Court considers in re-
viewing petitions for writs of certiorari. The Petition
has failed to present any issue or argument that is
even close to meeting the level of significance re-
quired to merit this Court’s review. In contesting the
dismissal of their Counts I, II and IV of their
Amended Complaint, Petitioners are merely pursuing
unsuccessful attempts to increase their royalty pay-
ments from an oil field in which they own an interest.

This aspect of the Petition is entirely controlled by
state law. In contesting sanctions entered against
them under FRCP 11, Petitioners are merely at-
tempting to avoid payment of a $9,867.50 sanction.
None of the rulings of which Petitioners seek review
are in conflict with a decision of another United States
Court of Appeals or involve important questions of
federal law. Rather, Petitioners simply disagree with
the judgment and discretion exercised by the District
Court and sustained by the Court of Appeals. Ac-
cordingly, this Court should deny the Petition on the
grounds that the type and character of the issues
raised are not of special importance.

B. THE DISTRICT COURT AND THE SIXTH CIRCUIT
COURT OF APPEALS BOTH CORRECTLY HELD
THAT SUMMARY JUDGMENT DISMISSING
PETITIONERS’ COUNT I WAS PROPER BECAUSE
PETITIONERS—FOR THEIR PROOFS—RELIED
SOLELY ON COLLATERAL ESTOPPEL AND SUCH

RELIANCE WAS INSUFFICIENT SUPPORT OF
THEIR COUNT I CLAIM.

Petitioners claim that the findings and opinion of
St. Clair County, Michigan Circuit Court Judge Hal-
ford I. Streeter—sustained but modified as to dam-
ages in Wronski I—establishes that a genuine issue
of material fact existed in Count I and therefore,
granting of Respondents’ Motion for Summary Judg-
ment on Count I was in error.

Petitioners’ argument fails to advise this Supreme
Court of the legal basis of the District Court’s dis-
missal of Count I. Below the Petitioners had relied
exclusively on the doctrine of collateral estoppel to
establish their factual allegations in Count I and of-
fered no. proof to support their claim other than fac-
tual findings in Wronski I. District Judge Gadola

babel

found that the factual findings of Wronski I were
clearly insufficient proof of Petitioners’ Count I claim:

Defendants claim that plaintiffs cannot prove
that Sun Oil drained 36,417.5 barrels of oil
from Tracts 1, 2 and 6. Defendants point to
a lack of expert testimony and to the time
and property interest discrepancies between
Wronski I and the instant case. Plaintiffs
state that expert testimony is not necessary
to show defendants’ wrongdoing and that
Wronski I is sufficiently similar to the facts
in this case to allow the use of offensive col-
lateral estoppel. This court agrees that
plaintiffs’ experts and the expert testimony
used in the Streeter Opinion are insufficient
to establish defendants’ alleged illegal drain-
age of oil from Tracts 1, 2 and 6. The use
of Wronski I in this case is limited because
of the time and property interest discrep-
ancies. (R.8, p 11)

The Sixth Circuit Court of Appeals thoroughly re-
viewed the District Court’s ruling and likewise found
the factual findings of Wronski I fell far short of
establishing Petitioners’ Count I claim:

Wronski I is conclusive on the finding of the
illegal drainage occurring between February
1, 1970 and June 30, 1974; but the parties
did not litigate, and the judgment does not
establish, the amount of oil drained illegally
during November 1, 1971 and June 30, 1974.
Wronski I also does not establish that a
steady stream was pumped from the field,
the percentage pumped during any subperiod

10

of time within the relevant time frame, or
the value of oil drained during any subperiod.
Thus, Wronski I cannot be used as the
plaintiffs’ only evidence of the amount of oil
drained from the property between Novem-
ber 1, 1971 and June 30, 1974.

Plaintiff have failed to respond to the prob-
lem of lack of identity of issues actually lit-
igated, continuing to argue on appeal that no
additional evidence is necessary. Without
such additional evidence, plaintiffs cannot
prove Count I. (R.1, pp 8-9)

In affirming the District Court, the Sixth Circuit
properly cited Michigan law which holds that the doc-
trine of collateral estoppel cannot be invoked in sub-
sequent actions as to issues not ‘actually litigated”’
in the first action. See Knoblauch v Kenyon, 163 Mich
App 712; 415 NW2d 286 (1987) and Howell v Vito’s
Trucking Co, 386 Mich 37, 41-42; 191 NW2d 313
(1971). (R.1, p 8). Because there was no identity of
issues, the decisions of the District Court and the
Sixth Circuit Court of Appeals were clearly correct.

Finally, the District Court’s dismissal of Count I
should be affirmed because Michigan law does not
permit the offensive use of collateral estoppel.
Petitioners and their predecessors in interest were
not parties to Wronski I. Thus, Petitioners—because
they were ‘“‘plaintiffs-strangers’’ to Wronski I—were
attempting to use collateral estoppel offensively. The
Michigan Supreme Court in Howell v Vito’s Trucking
Co, supra, addressed a like attempt to use offensive
collateral estoppel by a non-party and ruled the same
could not be done. In Knoblauch v Kenyon, supra,

11

the Michigan Court of Appeals summarized this ruling
of the Michigan Supreme Court:

The court (in Howell v Vito’s Trucking Co.)
completely foreclosed the offensive use of col-
lateral estoppel absent identical parties or
their privities in successive civil suits . . oe
163 Mich App, 720. (Parenthetical expression
added.)

Dismissal of Petitioners’ Count I was fully consist-
ent with and was required by Michigan law.

C. RELITIGATION OF THE ISSUES PRESENTED BY
PETITIONERS’ COUNTS III AND IV WAS PRE-
CLUDED BY DEFENSIVE COLLATERAL ESTOP-
PEL.

Petitioners claim that the application of collateral
estoppel to preclude relitigation of the issues raised
in their Counts III and IV was improper because the
remand hearing which developed out of Wronski II
is now on appeal and, thus, is not a final determi-
nation.

The doctrine of collateral estoppel was properly ap-
plied for two separate reasons. First, Petitioners and
their predecessors in interest are bound by the 1974
State administrative orders unitizing the Columbus
“3” Field and establishing each interest-owners’ par-
ticipation percentage in the unitized field (A.12). Sec-
ondly, and independent of the foregoing, Petitioner
Edgar J. Dietrich and his law firm were counsel for
the Koziaras in the remand hearing and, thus,
Petitioners are bound by the results of that hearing.

12

1. Collateral Estoppel was based on the Michigan Un-
itization Law and the Michigan Supervisor of Wells
orders unitizing the Columbus ‘‘3’’ Oil and Gas Field.

In 1973, Sun, Respondents’ predecessor in interest,
petitioned the Supervisor of Wells, Michigan Depart-
ment of Natural Resources, to unitize the Columbus
“3” Field pursuant to the Michigan Unitization Law.
The purpose of the unit was to enhance the recovery
of oil through secondary operations by pressure main-
tenance.

Unitization is a process which permits an en-
tire field to be operated as a single entity
without regard to surface boundary lines.
When a field is unitized the owners of prop-
erty within the drilling range are awarded a
royalty interest on the whole of what is pro-
duced. Wronski II, p 178.5

The Michigan Unitization Law contains numerous
and rigorous safeguards to protect interested parties
such as Petitioners. For example, Section 5 requires
that notice be given ‘o all interested parties and a
hearing be held before the Supervisor. The hearing
is governed by Chapter 4 of the Michigan Adminis-
trative Procedures Act, 1969 PA 306; MCL 24.201
et seq; MSA 3.560 (101) et seq. Further, Subsection
4 of Section 5 and Section 6 set forth a series of
specific findings of fact which must be made by the
Supervisor as a prerequisite to issuing an order for
unitization of a field. See Section 6(c), which requires,
in effect, that the Supervisor find the tract partici-

’ For additional description of unitization and its legal rami-
fications, see Amoco Production Co v Heimann, 904 F2d 1405,
1410-1411 (10th Cir. 1990).

13

pation percentages to be fair, reasonable and equi-
table. Also, Section 7 then required that the plan for
unit operations be approved in writing by 75% of each
group of interested parties (this requirement has since
been modified). Subsection 4 of Section 5 requires
that the Supervisor consult with the Oil and Gas Ad-
visory Board before issuing his order of unitization.
Sections 30 through 35, inclusive, provide that ag-
grieved parties may take 7» appeal to the Appeal
Board and present writte.. and oral arguments. Pur-
suant to Section 35, the Appeal Board may affirm or
reverse the order or remand the same with recom-
mendations. Finally, Section 36 provides for judicial
review. Judicial review is governed by Chapter 6 of
the Michigan Administrative Procedures Act, MCL
24.301 et seq, MSA 3.560(201) et seq.

Following the procedures outlined above, the Co-
lumbus ‘‘3”’ Field was unitized effective June 30, 1974
and Sun became the unit operator (A.12)

The unitization orders recite that due notice was
given (A.12, pp 39a, 43a and 44a). Petitioners do not
claim lack of due notice, but did not participate in
the unitization hearings (R.33, Request 29).

The doctrine of collateral estoppel applies, in Mich-
igan, to administrative determinations such as those
that resulted in the unitization of the Columbus ‘3’
Oil and Gas Field.

It is established law in this state that the
doctrines of res judicata and collateral es-
toppel apply to administrative determinations
which are adjudicatory in nature, where a
method of appeal is provided, and where it
is clear that it was the legislative intention

14

to make the determination final in the ab-
sence of an appeal. Senior Accountants v De-
troit, 399 Mich 449, 457-458; 249 NW2d 121
(1976).

See also Nummer v Dep’t of Treasury, 200 Mich App
698; 504 NW2d 724 (1998).

For these reasons, the rulings by the District Court
and the Sixth Circuit Court of Appeals that
Petitioners were bound by the unitization order and
could not relitigate the participation percentages as-
signed to Tracts 1, 2 and 6, are entirely correct (R.1,
pp 9-17 and R.8, p 24).

Also, the rulings below are entirely consistent with
a series of Court of Appeals diversity cases, all hold-
ing that a party whose rights are affected by the
orders of a state agency—such as the Michigan Su-
pervisor of Wells—is estopped from obtaining relief
inconsistent with the agency orders.

Amoco Production Co v Heimann, 904 F2d 1405
(10th Cir. 1990), similar to Petitioners’ Count III,
addressed Heimann’s claim that an oil company had
breached its “good faith’? duty in connection with a
unit formed to produce carbon dioxide. In this case,
the landowners, the Heimanns, had consented in their
lease with Amoco to formation of the unit.‘ The unit
had been formed pursuant to procedures before the
New Mexico Oil Conservation Commission similar to
the Michigan Unitization Law discussed above. The
Tenth Circuit Court of Appeals reversed a district

‘ The Heimanns had obtained a rehearing before the New Mex-
ico Commission and had litigated the unit before the New Mexico
courts, 904 F2d at 1418.

:

15

court opinion holding the unitization of the Heimann
lands void. The Tenth Circuit ruled:

Therefore, we hold that where a state ad-
ministrative agency, empowered to rule on
the fairness of unitization plan and entitled
to full faith and credit by a federal court,
finds that a proposed unitization adequately
protects the correlative rights of all inter-
ested parties, said approval is conclusive on
the issue of good faith. 904 F2d at 1414.

The Tenth Circuit concluded that the Heimanns were
estopped from collaterally attacking the unitization
order.

Katter v Arkansas Louisiana Gas Co, 765 F2d 730
(8th Cir. 1985) shows that the proceedings by the
state regulatory agencies are in rem and that inter-
ested parties, like Petitioners, who fail to participate
in the state agencies are precluded from a collateral
attack. In this case the landowners, the Katters, were
in Lebanon during the state agency proceedings. No-
tice was sent to the Katters in care of the American
Embassy in Lebanon, which notice the Katters denied
receiving. A second notice was sent to the Embassy
advising the Katters of their two options upon the
formation of the unit. This second notice was received
by the Katters but the Katters did not respond in a
timely manner, resulting in the first option of two
options being ‘‘assumed”’ to be elected by the Katters.
765 F2d at 732. The Katters did not attempt to set
aside the unit but sought money damages (as under
the circumstances the second option would have been
more beneficial), as do Petitioners in this case. The
Eighth Circuit reviewed the applicable Arkansas stat-
ute and concluded:

16

Clearly the Arkansas legislature intended an
adjudicatory, in rem order which, when final,
would have all the force and effect of a court
judgment; and in fact required and provided
for all things necessary to give it that effect.
In general, then, such an order would fix the
party’s rights and duties as fully and finally
as a court judgment—albeit here a default
judgment*—and should be entitled to the same
full faith and-credit and preclusive effect. 765
F2d at 734. (Emphasis added; Citations omit-
ted).

A like result was reached in Trahan v Superior
Oil Company, 700 F2d 1004 (5th Cir. 1983). The Tra-
hans sought cancellation of an oil and gas lease on
their property or damages on account of drainage.
The Trahans claimed that Superior Oil Company had
knowledge that the productive formation extended
into their lands but failed to include the lands in an
offsetting unit approved by the Louisiana Commission
for the Greene Well. Similar to Amoco and Katter,
the Trahans were precluded from litigating their claim
as the same constituted an impermissible attack on
the order of the state commissioner. 700 F2d at 1025.

The Fifth Circuit Court addressed and dismissed
the Trahans’ claim that they were not making a col-

’ Under Michigan collateral estoppel principles, a default judg-
ment is just as conclusive as adjudication and as binding upon
the parties of whatever is essential to support the judgment as
one which has been rendered following a full evidentiary contest.
Perry & Derrick Company, Inc v King, 24 Mich App 616; 180
NW2d 483 (1970); Rohe Scientific Corp v NBD, 133 Mich App
462, 467; 350 NW2d 280 (1984).

Pe Pe “

17

lateral attack on the commission order because they
were seeking money damages and not attempting to
set aside or to modify the order. The Fifth Circuit
ruled that the prohibition against collateral attack was
not so restricted:

Rather, the rule also extends to suits be-
tween private parties in which a particular
order of the Commissioner is an operative
fact upon which the determination of the par-
ties respective rights directly depends, even
though all relief sought can be given, such
as by money damages or lease cancellation,
without thereby causing any actual violation
of the Commissioner’s order. 700 F2d at 1015
and 1016.

Thus, it is irrelevant that an award of money dam-
ages—as sought by Petitioners—may not have a direct
effect on a unitization order. Rather, collateral es-
toppel attaches to a unitization order to bar the re-
litigation of issues.

For additional case authority holding that orders of
oil and gas boards or commissions are not subject to
collateral attack, see Mize v Exxon Corporation, 640
F2d 637 (5th Cir. 1981) and cases cited therein at
page 640.

2. Application of Collateral Estoppel was also required
because of Petitioner Edgar J. Dietrich’s participa-
tion as counsel for the Koziaras in the Remand Hear-
ing before Administrative Law Judge Fulkerson.

Respondents emphasize that Petitioner Edgar J.
Dietrich personally and through his law firm repre-
sented the landowners Koziaras throughout the Wron-
ski II remand hearings (R.33, Requests 58 and 59),

18

the results of which are now on appeal before the
Michigan Court of Appeals. As stated by the ‘Sixth
Circuit Court of Appeals, all aspects of Counts III
and IV were addressed and conclusively determined
by Administrative Law Judge Fulkerson’s Proposal
for Decision (A.1, pp 16-17). As a result, under Mich-
igan law, Respondents are estopped from relitigating
those issues.

As developed above, Howell v Vito’s Trucking Co,
supra, 386 Mich 37; 191 NW2d 313 (1971) prohibits
offensive collateral estoppel absent mutuality. Howell
also shows that Michigan does permit, under certain
circumstances, defensive collateral estoppel absent
mutuality. The following appears at footnote 7, page
47:

As observed by the commentator in 31 ALR
3d 1044 at 1072, ‘“‘The courts are more in-
clined to permit the defensive than the of-
fensive, use of the doctrine of collateral
estoppel.”’ In line with this general authority,
see our Court’s comments and holding in
Walz v Reliance Insurance Co. of Philadel-
phia (1922), 221 Mich 345, quoted with ap-
proval in DePolo v Greig, supra, at 712.

In DePolo v Greig, 338 Mich 703, 709-713; 62 NW2d
441 (1954), the Michigan Supreme Court allowed the
president and the principal stockholder of a corpo-
ration to plead defense collateral estoppel, based on
a prior action brought by the same plaintiff against
the corporation wherein the corporation had been ex-
onerated.

In Halvorsen v Grain Dealers Mutual Insurance Co,
210 F Supp 73 (W.D. Mich 1962), Phyllis Jones had

19

won a judgment against Reva Halvorsen for injury
suffered in an automobile accident. Thereafter, Reva
Halvorsen sued Edward Jones, father of Phyllis and
owner of the vehicle which Phyllis was driving. Ed-
ward Jones was allowed to plead defensive collateral
estoppel based on the former adjudication which ex-
onerated his daughter Phyllis of negligence.

There are a series of Michigan cases holding that
defensive collateral estoppel can apply, absent mu-
tuality, in attorney malpractice cases. See Alterman
v Provizer, 195 Mich App 422; 491 NW2d 868 (1992)—
cited by the Sixth Circuit Court of Appeals (R.1, p
14)—and the cases cited therein. In Alterman, the
attorney had advised his client to settle a work re-
lated injury. Later and with a new attorney, the em-
ployee sought to set the settlement aside claiming
mental incompetency. The following court proceedings
found that the employee was competent and upheld
the settlement. The employee then sued his first
attorney for malpractice for settling the claim while
the employee was incompetent. The Court of Appeals
allowed the defendant attorney to invoke defensive
collateral estoppel despite the absence of mutuality.
See also Knoblauch v Kenyon, supra.

In effect, Respondents—after having participated as
counsel for the Koziaras in the remand hearings and
being dissatisfied with the outcome of that proceed-
ing—sought to relitigate the issues in this action.

Admittedly, the Fulkerson Proposal for Decision is
now on appeal before the Michigan Court of Appeals.
However, it has not been set aside, modified, or re-
manded for further proceedings. Under Section 106
of the Michigan Administrative Procedures Act,
agency findings of fact are conclusive if supported by

20

competent, material and substantive evidence on the
whole record, Halm v Board of Education of Dansville
Agriculture Schools, 174 Mich App 520; 4836 NW2d
680 (1988).

Michigan case authority clearly demonstrates that
an order pending on appeal nevertheless has preclu-
sive effect:

The rule in Michigan is that a judgment
pending on appeal is deemed res judicata.®
City of Troy v Hershberger, 27 Mich App 128,
127; 188 NW2d 420 (1970).

Petitioners cite no contrary authority to support its
position that a party may proceed to trial and reli-
tigate precluded issues because there is a pending
appeal of the administrative hearing where the pre-
cluded issues were first addressed.

Dismissal of Counts III and IV, likewise, was fully
consistent with and was required by Michigan law.

D. THE FRCP 11 SANCTIONS IMPOSED WERE NOT AN
ABUSE OF DISCRETION.

Petitioners cite FRCP 54 and argue that the sanc-
tions were an abuse of discretion because of a rea-
sonable belief that their motion to amend or clarify
their pleadings would be granted. No factual basis for

® City of Troy v Hershberger predates Howell v Vito’s Trucking
Co, supra, wherein the Michigan Supreme Court first clearly
distinguished the related doctrines of res judicata and collateral
estoppel. See 386 Mich at 41-42. The Michigan Court of Appeals
in City of Troy used the term “res judicata’, but at page 127
cited a “rule” which encompasses both concepts. Accordingly,
the above quotation applies equally to the doctrine of collateral
estoppel.

21

such alleged reasonable belief is given and FRCP 54
is not germane. As shown above in Respondents’
Statement of the Case, Petitioners sought to amend
the Joint Pretrial Statement, not their pleadings.

Such amendments are governed by FRCP 16(e),
reading:

After any conference held pursuant to this
rule, an order shall be entered reciting the
action taken. This order shall control the sub-
sequent course of the action unless modified
by a subsequent order. The order following
a final pretrial conference shall be modified
only to prevent manifest injustice.

Petitioners, likewise, offer no factual basis to support
a claim that amendment to the Joint Pretrial State-
ment was required to prevent manifest injustice.

Petitioners claim:

Appellant’s [sic] counsel attempted to rectify
a technical defect by filing a motion to amend
to broaden the specified time period within
which Appellants [sic] reasonably and objec-
tively believed that Appellees [sic] wrongfully
produced oil. (Petition, p 20)

Contrary to Petitioners’ characterization in their
Petition, the motion was not so viewed by
Respondents, by the District Court, or by the Sixth
Circuit Court of Appeals as a mere attempt to remedy
a technical defect. Petitioners sought to enlarge the
time period during which the unlawful activity was
alleged to have occurred from a precise and definite
time period of between November, 1984 and March,

22

1985 to an expansive and unspecified period. The Dis-

trict Court commented:

Further, the tactic of plaintiff in filing their
motion on the eve of trial to state an entirely
different claim than they had been asserting
since the filing of their amended complaint
of April 11, 1988, was reprehensible and un-
acceptable. Viewing this motion against the
backdrop of the history of this case, this court
can only surmise that it was intended to
either be a surprise tactic or at least a delay
tactic. Therefore, this court did not allow
plaintiffs’ amendment on the morning of trial,
with a jury having been selected and ready
to hear the case, because it would have
worked substantial injustice upon defendants
who have adequately prepared for trial over
the five years this case had been pending,
on the basis that they were defending a claim
of oil allegedly taken without compensation
between November 1984 and March 1985.
This would have presented defendants with
the prospect of defending against an entirely
different claim, with possibly different defen-
ses, including, as defendants counsel cor-
rectly pointed out in oral argument on July
2, 1992, the defense of the statute of limi-
tations. (R.4, p 10)

The Sixth Circuit Court of Appeals com-

mented:

As such, this was not a “technical defect’’
of which plaintiffs were unaware. Plaintiffs
have established absolutely no abuse of dis-

Pare wer gee

23

cretion on the part of the district court in
imposing these sanctions. In fact, the record
reflects that this is exactly the type of case
for which Rule 11 sanctions are appropriate.
(R.1, p 29)

Petitioners’ arguments fail to address the fact that
sanctions were imposed for pursuit of a factually un-
substantiated claim. FRCP 11 reads, in part:

The signature of an attorney or party con-
stitutes a certificate by the signer that the
signer has read the pleading, motion, or other
paper; that to the best of the signer’s knowl-
edge, information, and belief formed after
reasonable inquiry it is well grounded in fact
and is warranted by existing law or a good
faith argument for the extension, modifica-
tion, or reversal of existing law, and that it
is not interposed for any improper purpose,
such as to harass or to cause unnecessary
delay or needless increase in the cost of lit-
igation. (Emphasis supplied)

Petitioners do not now offer, and did not offer below,
any exculpatory evidence showing reasonable inves-
tigation of the now discarded claim that surreptitious
oil production occurred between November 1984 and
March 1985. More to the point, Petitioners do not
undertake to explain why they knew on the first day
of trial (July 2, 1992) that they had no proofs, but
for the 5-1/2 years that the claim was previously pend-
ing were unaware of such lack of proofs. See
Petitioners’ Answer to Motion for FRCP 11 Sanctions
and Brief in Support of Answer to Motion (A.14).

24

E. THE ADMINISTRATION OF FRCP 11 SANCTIONS IN
THIS CASE COMPLIED WITH DUE PROCESS.

Petitioners conclude with a policy argument based
on a perceived prejudice which they claim is inherent
when the presiding trial judge rules on a motion for
sanctions. Petitioners suggest, in “‘serious cases’’ (a
sanction of $2,500 or more), that use of a three judge
panel is necessary to avoid such perceived inherent
prejudice and any appearance of unfairness.

The history of this case renders Petitioners’ plea
for more due process a bit hollow. In addition to the
fully justified FRCP 11 sanctions, Petitioners were
also sanctioned below for obstruction of discovery.
The factual history leading to these discovery sanc-
tions is outlined in the District Court Opinion and
Order Granting Sanctions (R.3, pp 3 - 5) and begins:

The history of this case would not be com-
plete without an overview of the extreme li-
tigiousness and delay that has occurred
because of the actions of plaintiffs and
plaintiffs’ counsel.

Petitioners do not address the requirements of due
process applicable in FRCP 11 proceedings based on
Mathews v Eldridge, 424 U.S. 319; 96 S. Ct. 893; 47
L. Ed. 2d 18 (1976) and addressed in Donaldson v
Clark, 819 F2d 1551 (11th Cir, 1987). In fact,
Petitioners did not, before the District Court, request
a hearing, but rested on their Answer to Motion for
FRCP 11 Sanctions (A.14). Furthermore, as shown
above, Petitioners did not offer evidence of due in-
vestigation into the merits of Count V. Nor did
Petitioners raise this due process issue before the
Sixth Circuit Court of Appeals. Rather, Petitioners

25

raised frivolous technical objections (i.e., lack of ju-
risdiction and lack of a continuing obligation to review
each pleading or paper filed) and attempted to reli-
tigate the District Court’s findings (R.3, pp 6 and 7).
Accordingly, the Petitioners possess no right to seek
“review” of this due process issue at this late date.

Overlooking the above, Petitioners’ suggestion of a
three judge panel, even if otherwise authorized, runs
counter to the established practice in FRCP 11 pro-
ceedings. Use of three judge panels would increase
the use of the judicial system and the fiscal and ad-
ministrative burdens. This Supreme Court, in Ma-
thews, and the Eleventh Circuit Court of Appeals in
Donaldson have both acknowledged that the proce-
dural safeguards to be afforded must be weighed
against the resulting costs. See Mathews, 429 U.S. at
335 and the similar statement in Donaldson:

The specific dictates of due process will be
determined by the interaction of several fac-
tors. These factors include but are not limited
to: the interests of attorneys and parties in
having a specific sanction imposed only when
justified; the risk of an erroneous imposition
of sanctions under the procedures used and
the probable value of additional notice and
hearing; and the interests of the court in
efficiently monitoring the use of the judicial]
system and the fiscal and administrative bur-
dens that additional procedure requirements
would entail. (819 F2d at 1558)

Finally, we should comment that in a truly serious
case the criminal contempt procedures of Rule 42(b)
of the Rules of Criminal Procedure may be applicable.
The Donaldson Court stated:

26

It is not necessary to follow the procedures
required in criminal contempt proceedings in
every case to insure that the imposition of
a monetary sanction is justified; less exten-
sive procedures will generally protest the in-
dividual interests involved without
undermining Rule 11. (819 F2d at 1559)

IV. CONCLUSION

The Petition should be denied.

Respectfully submitted,

LOOMIS, EWERT, EDERER, PARSLEY,

Davis & GOTTING, P.C.
Attorneys for Respondents
RODGER T. EDERER (P13100)

(Counsel of Record for Respondents)

GARY L. FIELD (P37270)
232 South Capitol Avenue,
Suite 1000

Lansing, Michigan 48933
(517) 482-2400

Dated: August 29, 1994

APPENDIX

APPENDIX TABLE OF CONTENTS
District

Court

Appendix

Appendix
First

Description Entry No. Designation Page Nos.

The May 25, 1988 R.192
Proposal for

Decision of

Administrative

Law Judge William

J. Fulkerson, being

Exhibit 6 to

Defendant’s Motion

for Summary

Disposition

(Judgment)

Affidavit of Dr. R.76
M.Y. Joshi

Motion in Limine R.219
to Clarify and/or

Amend Final

Pretrial Order

Reports (2) of the R.17
Michigan
Supervisor of
Wells Unitizing the
Columbus ‘3’ Oil
and Gas Field,
being Attachments
O and T to
Defendants’
Request for
Admissions

A.9

A.10

A.11

A.12

la

Description

Motion for FRCP
11 Sanctions and
Supporting Brief

Answer to Motion
for FRCP 11
Sanctions and
Supporting Brief

ii

District Appendix
Court Appendix First
Entry No. Designation Page Nos.

R.227 A.13 48a

R.230 A.14 57a

la

STATE OF MICHIGAN
Before the Department of Natural Resources

In Re: Koziaras v Sun Oil Company
Proposal for Decision

William C . Fulkerson
Administrative Law Judge

This matter, is before the Supervisor of Wells pur-
suant to the Order of the Ingham County Circuit Court.
The hearing was conducted pursuant to The Michigan Un-
itization Act, 197 PA 1959, as amended. The parties to
the hearing were the Koziaras and Sun Oil Company. At
the time of the remand Patrick Petroleum Company and
the Wronskis were parties to the proceeding who subse-
quently reached a settlement and did not participate in
the hearing. The hearing record is in two phases. The first
is the record of proceedings before the Supervisor of Wells
at the May 15, 1973, and subsequent hearings which cul-
minated in the Order of Supervisor of June 25, 1974 (ef-
fective June 30, 1974). The second phase is the appeal of
the Wronskis and Koziara of the Supervisors Order which
culminated in a nine-day hearing.

Historical Background

The Koziaras own an interest in and Sun Oil Company
is the operator of the Columbus #3 field. The Columbus
#3 field is approximately two and one-half miles long and
one-half mile wide located in Sections 3 and 10 of Colum-
bus Township and Section 34 of Wales Township, St. Clair
County, Michigan. The field was discovered in November
of 1968. A total of 39 wells were drilled during the de-
velopment of the field. Sixteen of those wells were dry
and unproductive. Twenty-three were productive of gas
and oil. The Columbus #3 pool is a Salina-Niagaran res-
ervoir. The productive reservoir is a reef which was part

2a

of an ancient sea. The wells are productive of both gas
and oil from the Brown Niagaran. The productive interval
is at a depth of approximately 3,000 feet below the surface.

In March of 1973, Sun Oil Company petitioned the Su-
pervisor of Wells for the unitization of the Columbus #3
field. The Unitization Proposal was that all produced gas
would be reinjected into the producing formation together
with some additional water. The purpose of the reinjection
is to maintain reservoir pressure and energy allowing for
a greater percentage of recovery of oil and gas in place.

The unit operations would convert some producing wells
to injectors where gas or water would be reinjected to the
producing formation. Other producing wells would be al-
lowed to produce at a higher rate than currently allowable.
Oil that is recoverable by conventional means through
pumpage or natural flow on each drilling unit is called
Primary Production. The proposal of Sun Oil Company was
for secondary recovery or enhanced oil recovery. Accord-
ing to Sun’s calculations, an additional 2.3 million barrels
of oil would be recovered by engaging in enhanced oil
recovery. As previously stated, in order to enhance re-
covery there must be some form of pressure maintenance
or increase in reservoir energy to force an incremental
amount of oil out of the reservoir. When this is done the
field can no longer be operated as it was in the past with
each landowner having a well on their own tract. Some
of the wells will be produced, others will be converted to
injectors. Additional gas or water would be injected into
the Salina-Niagara Group reservoir rocks for pressure
maintenance. The tracts with injector wells would no longer
produce gas or oil. In order to accomplish secondary re-
covery it is necessary to reach an agreement among the
various owners as to how the benefits and burdens of this
different operation will be shared. The typical method for
conducting these types of operations is for the operators
to meet and propose a plan for the unitized operation of
the field. Of particular importance to the agreement for

q

3a

unitization is the determination of a participation formula.
This formula determines how the proceeds of unit pro-
duction and the corresponding expenses shall be allocated
to the various tracts. Upon the execution of an agreement
for unitized operations and a plan for unitization by req-
uisite percentage of working interest and royalty owners,
a plan may be submitted to the Supervisor of Wells who
has the power to order the implementation of the unit and
join non-consenting interests into the plan.

On May 15, 1978, the Supervisor of Wells conducted a
hearing to review the technical feasibility of Sun’s proposal
for unitization and secondary recovery from the Columbus
#3 pool. Part of the hearing related to the fairness of the
participation formula to which non-consenting owners
would be subjected. At that time Sun Oil Company did
not have the requisite percentage of royalty interests to
invoke the power of the Supervisor to join the non-con-
senting interest. Therefore, a supplementary hearing was
scheduled limited to the issue of the percentage of con-
sents, culminating in a June 25, 1974 Order of the Su-
pervisor of Wells. This Order adopted the plan of
unitization, found the proposal feasible, and in compliance
with the various statutory criteria for unitization and or-
dered the unit effective June 30, 1974. The unit has op-
erated since that date. Following the hearing both Mr.
Wronski and Mr. Koziara appealed the Order of the Su-
pervisor pursuant to the Michigan Unitization Act.

Over the next several years Circuit Court litigation en-
sued between the parties to this proceeding. This litigation
resulted in a determination by the St. Clair County Circuit
Court, and ultimately substantially adopted by the Michi-
gan Court of Appeals, that Sun Oil Company had system-
atically over-produced certain wells in the Columbus #3
field to the detriment of the plaintiffs and awarded dam-
ages accordingly. This case is now on remand from the
Ingham County Circuit Court with the Supervisor obli-

gated to make findings as expre

4a

as follows:

3. Upon the completion 0

and serve on the parties

of fact as to:

(a) The extent, if any, to which any well in
the Columbus “3” Salina-Niagaran Formation
Pool was, in the months of October, November
and December, 1971, produced in excess of the
daily oil allowable per producing well as spec-
ified in the Department of Natural Resources,
Supervisor of Wells, February 1, 1970 Prora-
tion Order, and in violation of the applicable
rules, regulations and approved practices gov-
erning production of oil fields subject to pror-
ation.

(b) The participation percentages allocated to
Plaintiff Wronskis’ Tract No. 7 and to Plaintiff
Koziaras’ Tract No. 6 pursuant to the formula
contained in Article 5, Tract Participations, of
the Columbus “3” Unit Agreement if the ov-
erproduction, if any, found pursuant to sub-
paragraph (a) is excluded in the application of
such formula. |

(c) Any other matter which plaintiffs or
defendants demonstrate is relevant to estab-
lishment of royalty percentages to which
plaintiffs and/or defendants are entitled. Any
“other matter” set forth herein shall include
the matter,s set forth in the Offer of Proof
attached as Exhibit I to Plaintiffs Wronskis’
Motion and Affidavit in support thereof dated
February 4, 1983, and filed in this case and
such similar, type proofs as may be offered on
behalf of the Plaintiffs Koziara. Defendants Sun

ee

ssed in the Court’s Order

f such procedures, the Su-
pervisor of Wells shall promptly file with this Court
a report containing findings

mn . sain thay
ee ee ee eee eee a eo ve

5a

Oil Company and Patrick Petroleum Company
may submit relevant proofs in opposition to
such matters submitted by Plaintiffs.

In the preparation of this Proposal for Decision, I have
reviewed the record of the original hearing, all Exhibits,
and testimony from the second hearing, including all briefs
and writings filed by the parties.

FINDINGS OF FACT
Fourth Quarter 1971 Production

The unitized operation of a field for oil and gas results
in commingling of the oil from the various tracts of land
which make up the unitized area. It is necessary to arrive
at a formula for distribution of produced products that will
allocate to each separately owned tract their fair and eq-
uitable share of the proceeds. The participation formula
selected for the Columbus #3 unit has two components.
The first component of the formula was that each tract
was to be given credit for the production from their wells
for a given period of time, specifically, the fourth quarter
of 1971, divided by the total production of the field for
that period of time. The second component of the formula
is oil and gas porosity acre feet for each tract divided by
the total porosity acre feet for the entire field. Within the
porosity acre of feet calculations a weighted formula was
used giving greater value to oil porosity feet than gas
porosity feet as a reflection of the disparity in value be-
tween the two products. The formula then gave credit 60%

to the production phase, 40% to the porosity acre of feet
portion.

At the time the unitization was ordered the Columbus
#3 field was a prorated field. This means that allowable
production rates were established for the wells to preserve
reservoir energy and gain the maximum oil recovery from
the reservoir. By a proration order the maximum amount
of oil and/or gas to be produced by each well was estab-

6a

lished. The limit established by the Supervisor of Wells
Order of January 27, 1970, was 75 barrels of oil and/or
100,000 cubic feet of gas. The allowable production rates
for each individual well were established by gas/oil ratio
tests. For example, a well that would produce 100,000
cubic feet of gas and 10 barrels of oil per day would not
be allowed to produce more than the 10 barrels of oil per
day.

A well that could produce 75 barrels of oil and only
10,000 cubic feet of gas would not be allowed to produce
any more than the amount of gas that came along with
75 barrels of oil. At the time of the unitization the gas
from the field was being flared. This means that the gas
was burned. According to the testimony of Sun’s witnesses
at the original hearing the field only produced about
500,000 cubic feet of gas per day of which about 100,000
cubic feet was used to operate lease equipment. They es-
timated a capital expenditure of $165,000 would be nec-
essary to market the gas. Therefore, on the basis of the
uneconomical gas production, the operators were allowed
to flare their gas in the field.

The St. Clair County Court in the litigation between the
parties found that the Sun Oil Company had produced
several of their wells at greater than the allowed 75 bar-
rels per day rate to make up for wells that were poor
producers. The resultant excess production was then as-
signed back to the poor producers as though the proration
order had not been violated. The Court found that the
wells had been overproduced in the time period between
February 1, 1970, and June 30, 1974. The Court found a
specific amount of oil that was overproduced. The Court
further found that false records were filed by Sun Oil
during that same period of time. It is my opinion that the
parties are bound by the findings of Judge Streeter in the
St. Clair County Opinion.

a

7a

Plaintiff Koziara has urged from the start of the pro-
ceeding that if production is to be a component of the
formula, then we must remove the illegal oil from the
overproduced leases and add that oil to the Koziara’s prop-
erties. According to the testimony of Mr. Lorenz, a Ge-
ology witness for plaintiff, 2,061 barrels of oil should be
added to the Koziara’s tracts. He then would subtract the
2,061 barrels from the Winn lease. This approach divides
the illegally produced oil by the number, of quarters and
then allocates it to a given quarter. The then derived ov-
erproduction would be added to Koziara’s lease and sub-
tracted from the overproduced lease. These new figures
would then be incorporated into the participation formula
yielding a new participation formula for the tracts in-
volved.

There are a number of reasons why this simplistic ap-
proach is inappropriate. The first and most compelling rea-
son is that the St. Clair County Circuit Court did not
allocate any amount of overproduction to any specific time
period within the three plus years that the Court found
overproduction. If the overproduction were added to the
production credited for the fourth quarter of 1971 then
the Koziara wells would be overproduced by 13% over the
established allowable. The reason that current production
is incorporated into an allocation formula is that it is re-
flective of the wells current capabilities for production.
Since the Koziara wells were produced very near their
allowable it would be an unfair advantage over all other
tracts to credit a production amount greater than that
allowed by the proration order. It is my opinion that an
approach such as that suggested by plaintiff Koziara is
entirely artificial and has no relationship to the productive
capability of the wells. If the formula were based on cu-
mulative production, the addition of overproduced oil might
be appropriate. However, this approach too is unfair in
that all tracts within the unit would have had to have a

8a

similar opportunity to overproduce so their cumulative oil
could be larger.

I have reviewed all of the production records and various
exhibits relating to the production from wells during the
fourth quarter of 1971. I find that the gas/oil ratio test
establishing the production levels for each well are reliable.
The St. Clair County Circuit Court based their determi-
nation of overproduction on gas/oil ratios. There were no
findings by the St. Clair County Court that the gas/oil
ratios were unreliable and they were used by the Court
to calculate overproduction. The allowables were set by
this Agency following an Administrative Hearing. This
Agency is mandated to prevent waste and to allow each
operator in the pool to produce their fair and equitable
share. The gas/oil ratio tests determine the amount of oil
and gas that can be produced without waste of reservoir
energy.

The allowable production for all wells in the Columbus
#3 field for the fourth quarter of 1971 was 102,844 barrels
of oil. The reported production used in the participation
formula for the same period of time was 101,793 barrels
of oil. The actual production figures are very near the
allowable production level. If allowable production levels
were substituted for the production records, the difference
would be negligible. In the case of the Koziara interest it
would cause a decrease in their percentage of the fields
production. I, therefore, conclude that the production fig-
ures used are reflective of the capability of the individual
wells and represent the fair and equitable share of res-
ervoir energy and products. The production figures re-
ported by Sun Oil during the fourth quarter of 1971 appear
to be reflective of the individual wells capability. These
records reflect no illegal overproduction. They do reflect
that permission was granted for wells including the Ko-
ziara wells to make up production lost as a result of a
pipeline blockage. The records show that four wells did
poorly as expected, the good wells performed well and

oO

9a

that certain wells were shut in during that period of time.
It is my opinion that the production figures used in the
participation formula are in fact representative of the ca-
pabilities of the well and closely parallel the amounts set
as production allowables for the wells. I therefore find that
the overproduction found by the St. Clair County Court
does not require an adjustment or the percentage attrib-
utable to the Koziara tracts on the basis of production. If
it does require an adjustment, it is negligible and I would
suggest in the alternative that the percentages derived
from field proration allowables be used in its place. If this
were the case, Mr. Koziara’s percentage would be reduced
from 13.539% of reported production to 13.41% of field
proration allowable production. In light of the negligible
difference it makes no sense to me to adjust the production
portion of the formula at this late date.

Porosity Acre Feet

The second component of the participation formula is
40% porosity acre feet. In simple terms, this is an expres-
sion of how much space is available to contain oil or gas
under a given tract of land. The Columbus #8 field is fairly
well defined. That is, there were 39 wells drilled in the
field, 16 of them were dry holes and 23 were producers.
Each well drilled yields information about the geologic con-
ditions of the reservoir. The precision with which the res-
ervoir can be defined is directly proportional to the number
of wells drilled into it. Each well brings new knowledge
to be used in assessing the various parameters of the
reservoir. This reservoir is a Salina-Niagaran reef. Organic
material of this ancient marine reef, through lengthy chem-
ical and physical processes, has become hydrocarbons. The
Brown Niagaran hydrocarbon bearing portion of the reef
is overlain with impervious layers of salts and carbonates.
The origins of the hydrocarbon and structure of the reef
are biological in nature. The reef mass is heterogeneous.
This is in contrast to a reservoir that is of mechanical

10a

origin, such as, a fault. All available data is used in order
to evaluate the reservoir. Each well bore that penetrates
the structure yields additional knowledge. Even dry holes
yield useful information in terms of delineating the edges
of the reservoir. The wells yield information only to the
extent of the few inches the diameter of the drill bit en-
compasses and some additional radial distance reflected in
electric logs run in the wells. In this field most of the
wells were cored. When wells are cored a special drill bit
is used that causes 4 cylinder, called the core barrel, to
cut a continuous length of rock from the interval drilled.
This yields a continuous sample of the rock penetrated.
The cores are taken to a laboratory and analyzed to de-
termine porosity, permeability, and other rock character-
istics. The electric logs involve the sending of instruments
along a wire line down the well bore which send out var-
‘ous kinds of signals and measure the values returned from
the adjacent rock. Depending upon the type of log various
types of information can be gathered.

Since cores were taken of most welts the primary source
of data was the core analysis. In the determining of po-
rosity acre feet, the process is to determine the number
of feet of productive well bore which has a porosity greater
than 5% and then determine the average porosity for the
productive zones. As previously stated, these reservoirs are
not homogenous. This means that porosity is not contin-
uous, but random. For example, a well may have 10 feet
of highly porous rock, the next few feet may be less than
5% porosity, followed by several feet which may again be
highly porous. The porosity feet figure gives a relative
value for the reservoir with which to compare the various

lationship between wells. The determination of net porosity
feet is not a simple matter. This reef is to some extent
water filled. The porous zones within the reservoir which
are water filled are not ca le of producing oil or gas.
Therefore an oil/water contact must be determined, and

lla

the porosity feet below the oil/water contact are not con-
sidered as productive reservoir. The participation formula
also distinguishes between reservoir that is oil productive
and reservoir that is gas productive. Again, a determi-
nation must be made of the gas/oil contact. The porosity
feet above the gas/oil contact are gas bearing, below the
gas/oil contact is the oil bearing zone. The change from
water to oil and oil to gas is not always clearly defined
and smooth. Sometimes it is difficult to determine the
precise point at which one media changes to another. The
term “transition zone” is used to express that area be-
tween oil and water or, oil and gas. The primary method
of determining porosity feet used in this field was by core
analysis.

The participation formula credited each well with its
porosity acre feet. The prior calculations yield porosity feet
which is the height of productive interval multiplied by
the average porosity for that height. To determine porosity
acre feet it is necessary to interpret between the various
well bores and contour the porosity feet values. The con-
touring of various values on a base map yields isopach
maps.

These contour maps can then be measured and a value
given to the amount of acres within a given contour line.
The use of contour maps in oil and gas reservoir study is
common. It is a well recognized and accepted tool. There
was no issue in this case as to the use of porosity acre
feet determinations derived from the making of a contour
map. In fact, I know of no other method to determine the
porosity acre feet. The dispute at hand concerns the cal-
culated values for height and porosity assigned to each
well and the placement of the contours between wells. A
change in height or movement of contours can cause sub-
stantial differences in the resultant porosity acre feet cal-
culations.

12a

That is not to say that plaintiff Koziara agrees that
porosity acre feet is the best method for determining oil
in place. It was their opinion that oil in place calculations
should be made and oil reserve figures used to distribute
production. It was their belief that the most fair and eq-
uitable method for distribution of the proceeds of unitized
operation is a formula weighted 100% oil in place.

At the original unitization hearing Sun Oil Company
offered a number of exhibits. These exhibits included geo-
logical cross-sections and various contour maps. Among
those maps were a Brown Niagaran thickness map, oil and
gas porosity contour maps, oil and gas net pay isopach
maps, and oil and gas porosity feet maps. The oil and gas
porosity feet isopachs were used in the participation for-
mula, the other exhibits were not.

A careful review of all of the data and maps assembled
by the parties reveals that the similarities of their con-
clusions are more marked than the dissimilarities. The sub-
stantial divergence as to the interpretations comes about
when the data obtained from drilling the Koziara Tract 6
#3 well is reviewed. This well was drilled in 1983. There
is no testimony in the record as to why this well was
drilled approximately a decade after unitization had com-
menced. Each party views the results from the 6-3 well
as a vindication of their respective positions.

Sun Oil is of the opinion that the well encountered geo-
logic reservoir conditions reasonably within the range that
their contour maps predicted. The plaintiff Koziara views
the well as clear evidence of the presence of much greater
reserves of oil than those credited to him by Sun’s cal-
culation. The compelling aspect of the 6-3 well, from the
point of view of this Agency, is that the well did not exist
at the time of unitization. The well could not have con-
tributed any data to the original calculations. As previously
discussed, this Niagaran Reef is of biological origin with
porosity and permeability being random and not uniform.

13a

Each well drilled gives accurate data as to the well bore
location. Between well bores data must be interpretative.
Therefore, were each of the owners of a tract within the
unit given the opportunity to drill a well, they too would
have additional data which may improve or depreciate the
relative value of their tracts. It would both be unfair, and
inequitable to utilize the 6-3 data to alter the interpreta-
tions of the productive reservoir.

The testimony concerning the 6-3 well was both long
and involved. Every aspect of the 6-3 well was examined
in great detail including the drilling, logging, and core
analysis. Without exception every component of the data
concerning the 6-3 well is in dispute. Drilling on the well
commenced on August 19, 1983. On August 27, 1983, at
a depth of 2,996 feet a lost circulation zone was encoun-
tered, and the drill bit dropped approximately five feet.
At that time gas came to the surface and was flared until
the well could be killed. It is the contention of the Plaintiff
Koziara that Sun Oil Company pumped cement down the
well to close off the loss of circulation zone. Mr. Koziara
testified that he saw something pumped down the well.
He further testified that during coring operations, follow-
ing the resumption of drilling, part of the core was a
cement plug drilled out from the lost circulation zone. He
further testified that he saw an employee on the rig take
a piece of core from the core rack and put it in his truck.
Mr. Koziara also took samples from the shale shaker that
he had analyzed; Plaintiff's Exhibits 35 and 36. He believes
these analyses show that the material drilled was cement.

In contrast, the records of Sun Oil Company of the
drilling and of the materials placed in the hole do not
reveal any cement was placed in the lost circulation zone.
The records of Sun Oil show that brine gel, cotton hulls,
and Quick Seal were added to the well. These are the
types of materials that would be expected to be placed in
a lost circulation zone. The use of cement in lost circulation
zones would be highly unusual. The purpose of lost cir-

l4a

culation material is to fill the pores of the rock close to
the well bore. The materials placed in the hole are spe-
cifically designed for that purpose. There is no indication
in the record that there was anything unusual about the
lost circulation zone that would require extraordinary
measures. While the encountering of lost circulation zones
is not particularly common, it also is not that unusual.
There are many places in the state where lost circulation
zones are routinely encountered. The standard oil field
practice is to treat these zones with lost circulation ma-
terial. Additionally, if the loss zone is severe, a liner or
casing may be placed over the zone to secure it. This was
not necessary in this case. Open hole electric logs were
run by Schlumberger on the 6-3 well; Sun Exhibits C and
B. Those logs are consistent with a lost circulation zone
or washout in the well bore. The response of the logs from
2,996 to 3,002 feet is inconsistent with the presence of
cement in the bore hole which was drilled out. For ex-
ample, the purpose of a caliper log is to show the condition
of the hole. A caliper log is a tension device that rides
along the edges of the hole and expands and contracts
with the size of the hole. The caliper log shows a marked
difference in hole size at the 2,996 foot depth. If the well
had been filled with cement and drilled out, the side of
the hole should be smooth. In light of the foregoing, it
now becomes necessary to address Mr. Koziara’s conten-
tion that the laboratory anaylsis reveals the presence of
cement. It is interesting to note that the Laboratory report
in addition to the chemical composition identifies sample
#1 as pure dolomite and sample #2 a foreign substance.
This is highly unusual. Dolomite is carbonate sedimentaly
rock that may vary considerably as to mineral content
within a reef. The conclusion that the cuttings are pure
dolomite is suspicious.

There is nothing in the record to indicate the compo-
sition of cement used for oil field purposes. There also is
nothing in the record to indicate the chemical composition

TRI Etc LON, AR Bi ei pnia eT

l5a

of Quick Seal. The conclusion that the well was cemented
is not credible for a number of reasons. First, it is not a
typical oil field practice to cement lost circulation zones.
Second, the records made contemporaneous with the event
all indicate the type of material that was placed in the
hole. This material was the material expected to be used
in a lost circulation zone. The electric log responses are
entirely consistent with a lost circulation zone. The Lab-
oratory reports are inconclusive. In order to agree with
the proposition that cement was placed in the well it would
be necessary to find that Mr. Gunn had lied under oath.
I make no such finding. As to the core that Mr. Koziara
claimed was removed, I find this testimony to be highly
speculative in view of the fact I have just found there was
no cement placed in the well bore. A review of the de-
scription of cores will show that some are light tan to
white as Mr. Koziara described. Had Sun Oil used cement
to block off this zone of less than six feet it probably
would have made a minimal amount of difference. Because
there was no core recovered and the logs are unreliable
in the washed out zone, if that zone had been cemented,
there would be no more available data than in the absence
of the cement. There was no reason to cement the well
bore and no benefit to be gained by concealing it.

The parties also differed over the net oil pay and po-
rosity found in the 6-3 well. The available data from which
to assess the porosity feet and gas porosity feet present
in the well are the driller’s log, the core analysis, and the
electric logs. It should be noted that Mr. Lorenz was not
provided the complete core analysis until after he had com-
pleted most of his work, and therefore he did not incor-
porate the results in his study. The principle point of
disagreement is the selection of a gas/oil contact. The gas/
oil contact is that point at which the oil phase is no longer
predominately present in the reservoir and gas is present
to the top of the reservoir. Mr. Lorenz found the oil/gas
contact to be at minus 2,992 feet. Mr. Gunn, Sun’s well

16a

site geologist, found the gas/oil contact to be minus 3,046
feet. Mr. Cottrill, a geologist consultant to Sun, found the
gas/oil contact to be minus 3,059 feet and Core Labora-
tories who did the core analysis found the gas/oil contact
to be at minus 3,048 feet. Mr. Lorenz found that the
average porosity for the oil section was 19.16%. Mr. Cot-
trill found it to be 13.13%. The significant difference in
their analysis is the selection of a gas/oil contact. I find
that the gas/oil contact of minus 3,048 feet selected by
Core Laboratories is the most reliable. The analysis is
based upon an actual physical examination of the rock and
its properties. At the time of drilling the 6-3 well the
secondary recovery operation had been underway for nine
years. During that period of time large quantities of oil
had been produced and large amounts of gas had been
reinjected. Therefore, the reservoir fluids would not be
present at the levels expected when the reservoir was
originally drilled. Even though a substantial amount of oil
present in the reservoir had been drained there still would
be residual oil present in the rock. This is a solution gas
reservoir and the oil/gas contact should remain constant.
That is, where there is a water drive mechanism there is
a possibility that the oil would have been forced upward
in the column causing oil to rise higher than the original
gas/oil contact. The evidence in this case clearly indicates
that the gas cap has expanded forcing the oil down. As
the oil is forced down it leaves behind residue and staining
which will clearly identify the original gas/oil contact. I
therefore conclude that based on an oil/gas contact of mi-
nus 3,048 feet a net oil pay column of 82 feet is reasonable.

Mr. Lorenz found an average porosity of 19.16%. Mr.
Cottrill found an average porosity of 13.13%. In large part
the difference in porosity is attributable to the portion
above the gas/oil contact at minus 3,048. The lost circu-
lation zone was at 2,996 feet to 3,001 feet. Mr. Lorenz
credited this interval with a fairly high porosity. The end
product is that Mr. Lorenz’s 19.16% porosity is unreliable

er re on nec ern Ss

17a

because it includes the porosity values for 48 net feet that
are in the gas column and not in the oil column. Even if
for speculative purposes one were to assume that there
were 82 net feet of oil pay in the 6-3 and that the porosity
was 19.16%, the porosity feet assigned to the 6-3 location
would be 15.71. If this value were contoured in it would
provide a new data point and would require new con-
touring. However, this data is not inconsistent with the
oil porosity feet map presented in the original unitization
hearing.

The foregoing discussion of the 6-3 well data is not
offered for the purpose of suggesting that it should prop-
erly be included for a review of the data presented at the
original hearing. It continues to be my opinion that use
of the 6-3 data, at this late date, is inappropriate. The
discussion is included as a result of the broad parameters
of the remand order from the Circuit Court and to provide
enlightenment on this lengthy portion of the testimony
should the Court so desire.

The tract participation formula for the Columbus 3 unit
credited porosity acre feet as 40% of the formula for the
distribution of unit proceeds. Porosity acre feet is one
method of giving each tract credit for the underlying res-
ervoir. This method gives each tract credit for the volume
available to contain reservoir fluids. There are other meth-
ods of crediting tracts with reservoir fluids.

The other methods calculate the oil in place multiplied
by the expected recovery percentage and allocate the re-
coverable oil or gas estimate to each tract. A critical com-
ponent in the determination of oil in place is to know the
water saturation of the formation. That pore space occu-
pied by water reduces the amount of oil available for pro-
duction. Using differing water saturation levels in the
reservoir will produce considerable disparity in the cal-
culation of oil in place. For example, Mr. Lorenz assumed
a water saturation of approximately 30% and calculated

18a

there were 9 million barrels of oil in the Columbus 3 field.
Sun Oil Company using a water saturation of approxi-
mately 15% calculated that the oil in place was in excess
of 12 million barrels of oil. Sun explained that they chose
to use porosity feet instead of oil in place because they
believed the available water saturation data was not re-
liable. The porosity feet for each well was determined pri-
marily from core data. These were washed cores, therefore,
water saturation data was not reliable. Additionally, the
early 1970’s electric logs are not good indicators of water
saturation. Sun did make oil in place calculations for the
purpose of determining the feasibility of secondardy re-
covery operations and to estimate the incremental oil to
be recovered by the project.

The contour map used in making calculations for the
formula was the oil porosity feet map. This map gives a
value to each well which represents the net thickness of
pay times the average porosity which is then contoured.
Additionally, a contour map of the Brown Niagaran, a
contour map of the net pay thickness, and a contour map
of porosity were prepared. Mr. Lorenz prepared one con-
tour map in a different fashion. He took the maps of Sun
Oil for oil porosity and net pay and superimposed one over
the other. Wherever the isolines drawn on each map
crossed, he interpreted the value. For example, where a
15% porosity isoline crossed a 120 foot net pay line he
considered that to be a net oil porosity feet value of 18.
This yielded additional data points which were placed on
a base map with the well data and contoured, Plaintiff's
Exhibit #4. As can be seen by Plaintiff's Exhibit #4, this
yielded considerably more data points.

A review of tract 6 shows there are two wells present
which gives two actual data points. By using Mr. Lorenz’s
technique an additional 30 data points are added. The
drawing of contour maps is both an art and a science.
The science is to recognize characteristics of the productive
structure, to properly assign values to the wells and to

5

4
:
$
Z
a

19a

recognize trends from the data. The art is in the con-
touring between data points. There are generally accepted
methodologies and techniques for contouring. Therefore it
would be expected that competent geologists would pro-
duce similar maps. The emphasis is on the word “similar’’.
The greater the number of data points, the greater the
similarity that would be expected. The end products will
not be identical. The record contains all the original con-
tour maps plus a series of maps that include the data
obtained from the 6-3 well.

The question to be addressed in this matter is whether
the porosity acre feet calculations of Sun Oil assign a fair
and equitable share of the oil and gas to each tract within
the unit. It is the position of Plaintiff Koziara that if Sun’s
data is to be used, it is more accurately portrayed by their
Exhibit 4 which is an oil porosity acre foot map. This map
was derived entirely from Sun’s data doing an overlay of
the original oil porosity and oil thickness maps. In Exhibit
4 the values resulting from a crossing of isolines of the
two contour points were entered on the map and then a
contour map created using the additional points derived
from the two maps. The argument is that this method
gives a large number of data points thus increasing reli-
ability of the map. As previously stated, this exercise yields
30 data points in tract 6 where previously there were only
two represented by the well bores. There are a number
of frailties with this approach. At first blush it appears
attractive because it provides additional data points. In
actuality these data points are not representative of data
but rather the result of merger of two interpretations. In
the recontouring these interpretative points are given equal
credence with actual data. Because the interpretative points
out number the real data points on tract 6 by 15 to 1 the
resultant contour map gives much greater weight to in-
terpretive data than to actual data. A review of Exhibit
4 shows that a substantial portion of tract 6 is given
porosity feet values between 18 and 23. The highest actual

20a

porosity feet measurement recorded in the field from well
data was less than 16. There is no data to support the
18 to 23 values. It is true that Mr. Lorenz did, in his
analysis of the 6-3 well, find a value for porosity acre feet
in the range of 23 porosity feet. However, that data was
not included on Exhibit 4 and further the 6-3 well was
improperly credited with excessive oil pay as a result of
an erroneous gas/oil contact.

After careful examination of the porosity foot calcula-
tions of the individual wells by Sun and Mr. Lorenz, absent
6-3 data, I conclude that there is minimal difference. The
differences expressed are well within the range that one
would expect from the interpretation of the same data by
two different people. This is true in spite of the fact that
the methodology employed by Sun and by Lorenz in de-
termining porosity feet was somewhat different. Sun Oil
Company used a porosity cut-off of 5%. That is any section
of the well bore with less than 5% porosity was considered
nonproductive and not included in net pay. Mr. Lorenz
used a porosity cut-off of 3% in his calculations. Mr. Lor-
enz used logs and cores and whatever other data was
available to make his interpretations. Sun Oil used a some-
what more standardized approach in their evaluations. Mr.
Lorenz picked individual oil-water contacts; Sun Oil used
a uniform oil-water contact throughout the field. Sun Oil
relied primarily on core data to determine porosity. In the
case of missing cores, Sun Oil averaged the known porosity
above and below the missing section and used that value
for the interval of missing core. Mr. Lorenz used logs to
evaluate the missing interval. The methodology used by
Mr. Lorenz is probably preferable and should yield some-
what greater accuracy. The Sun methodology was a meth-
odology agreed upon by the operators in the field to
provide for uniform treatment from well to well through-
out the field. In spite of the different approaches the end
results remain quite similar. I therefore find that the orig-
inal porosity acre feet isopach, Exhibit 12 original record,

2la

is a fair and equitable presentation of the value for oil of
each tract when compared to the other tracts in the pool.
There was no challenge to the gas porosity initially de-
termined by Sun Oil represented by Exhibit 13. I find this
is a fair and equitable representation of the gas reserves
present under each tract when compared to other tracts
throughout the field.

If the data for the 6-3 well were to be added to the oil
porosity feet map, the difference would be negligible. Orig-
inal record Exhibit 12 shows the location of the 6-3 well
to be within the 13 oil porosity foot isoline. The measured
value for the 6-3 well is 10.77 oil porosity feet. Therefore
the data is within a range that would be expected from
the original map. Sun contoured the oil porosity feet on
Exhibit W using the 6-3 well data. The contouring between
the 6-3 well and 6-2 well on this Exhibit is somewhat
unusual. The contours indicate a lowering of porosity feet
between the two points. There should not be 7 and 9
porosity feet isolines between these two points. The top
of the reef should flow smoothly through tract 6 and not
be interrupted. It is my opinion that original Exhibit 12
is the most accurate portrayal of reservoir conditions.

During the course of the proceeding the Plaintiff Ko-
ziara’s witness pointed out that a planimetering error had
been made on tracts 3, 6, and 9. Sun Oil reviewed their
data and replanimetered the subject tracts and found that
an error had been made. The results of the replanimetering
are demonstrated on Sun Exhibits NN, 00, and PP. Ex-
hibit PP shows the two [sic] participation factor that would
be arrived at by replanimetering tract 6 only. The result
is that the Koziara interest would go from .1674799 to
-1738652. This is a difference of 0.0063853.

The Participation Formula

The Plaintiff Koziara maintains that the participation
formula embodied in the unit agreement for the Columbus

22a

3 field is unfair and inequitable and violate of his correl-
ative rights. They maintain that the most fair and equi-
table formula would be one that is based entirely on oil
in place. They were of the opinion that the Supervisor had
never utilized a formula for unitization which contained
production as a factor. This assertion is wrong. The Su-
pervisor has used any number of factors in any number
of different combinations. The Unitization Act puts no con-
straints on the parameters to be used in a unitization
formula.

The Act requires that the Participation Formula fairly
distribute the proceeds of production and that a requisite
percentage of interest owners agree to the plan.

Participation formulas are arrived upon as a result of
meetings of various operators in the field who form a
technical committee. The first stage is for someone to
perform a feasibility study. This feasibility study involves
a review of the geological and engineering aspects of the
reservoir to determine if it is a viable candidate for sec-
ondary recovery. Such a study was performed in this in-
stance but was not offered in evidence. In this case the
operators met to determine the Participation formula and
to agree upon the technical approach to be taken towards
assigning reservoir values to each well. For example, a
constant oil-water contact was agreed upon. The Commit-
tee agreed to the treatment for lost cores. The porosity
would be averaged above and below for those intervals
where the core was missing. The Committee settled upon
the porosity acre feet method for the reservoir portion of
the formula. The initial maps were revised to reflect these
agreements and a final map was prepared. The Partici-
pation Formulas for each tract were developed and in-
cluded in the unitization plan and plan for unit operations.
97% of the operator’s interest ratified the unitization plan.

Is there justification for weighting the formula 60% cur-
rent production? The fact that 97% of the working interest

%
[
i

23a

owners‘ agreed to that component of the formula is an
indicator that each felt they were getting their fair and
equitable share. There are a number of reasons to be ad-
vanced as to why current production is appropriate. This
portion of the opinion will not review the discussion of the
fourth quarter production. However, this portion of the
opinion is predicated upon the fourth quarter allowables
being used in the Participation formula. Current produc-
tion is reflective of current income and allows for a rec-
ognition and maintenance of current income levels for those
who are involved in the field. Current production is a
measure of well capability. Current production based upon
allowables is a measure of the amount of oil and gas to
be produced from a well without permitting waste.

An important component of correlative rights is the pre-
vention of waste. Each operator is entitled to his fair share
of the hydrocarbons in the reservoir provided he can re-
cover that share without committing waste. The allowables
determine the amount of oil that can be recovered without
waste. Therefore, use of allowables is protective of cor-
relative rights. The use of allowables reflects the relative
well capability to recover primary production. The second
component of formula 40% porosity acre feet gives credit
for the reservoir volume underlying each tract. Neither
component of the formula can be said to precisely measure
the fair share of each and every tract. In this instance
the allowables, because they are based on actual gas-oil
ratio tests of each individual well, are a measure of the
wells ability to recover its fair share of the reservoir prod-
ucts and energy. The porosity acre feet portion has been
criticized because it does not give credit to actual volumes
of oil and gas in place. This is because there is no re-
flection of the water saturation for each tract. Mr. Lorenz
in Exhibit #1 went through each and every well and as-
signed, based on the electric logs and core, a water sat-
uration to each tract. The end product was that he
estimated there were around 9 million barrels of oil in

BE sate 2 moe er mee

24a

place. Since the actual recovery has been over 6 million
barrels of oil, it is clear that an estimate of 9 million
barrels in place is incorrect. Sun estimated there were 12
million barrels of oil in place. In both cases the same data
was reviewed presumably using the same methodology.
The disparity in the volumetrics can be attributed to dif-
ferences in water saturation. Mr. Lorenz assumed a much
greater water saturation than did Sun Oil. Therefore, Sun
Oil determined that there was more oil in the reservoir
than Mr. Lorenz.

The record is replete with challenges to data, challenges
to the interpretations of data and challenges to the con-
clusions drawn from both. All of this gives the appearance
that there is only one wa, to do things and only one
answer that is correct. There are generally accepted meth-
ods to perform reservoir analyses. These analyses are gen-
erally dependent upon the quantity and quality of available
data. The greater the amount of good quality data the
more reliable the analyses become. In the case of the Co-
lumbus #3 field there were available both a good quantity
and quality of data. Anyone making an analysis would
always prefer to have more data, however, there was no
shortage of data in this case. The reservoir was fairly well
defined and developed. The field was developed on 40 acre
units. The record clearly demonstrates that Sun reasonably
construed the data and that they fairly and equitably de-
termined the participation factors for all parties. I conclude
that the participation formula provides for the distribution
of the fair and equitable share of all interests within the
unit.

Miscellaneous Matters

A number of other matters were in factual dispute at
the hearing. All of the various contentions of error or
allegations of concealment, fraud or misstatement have
been considered. It is my opinion that there was no scheme
to deprive Koziaras of their share. All Sun witnesses tes-

iam amied

25a

tified that they were unaware of any prior overproduction
at the time of unitization. In fact, it appears they had
very little knowledge or contact with day-to-day opera-
tions, most were out of state. There is no evidence that
the Sun representatives approached the unitization in other
than a professional manner. The substantial majority of
the Koziara interests lies in tract 6. The working interest
in this tract is owned by Sun. If the tract 6 interest was
shortchanged, Sun would suffer a corresponding loss. To
Suggest that Sun consciously deprived Koziaras to benefit
other tracts is not supported by the evidence or any rea-
sonable inference to be drawn from it. There is nothing
in the record that supports anything other than a profes-
sional difference of opinion.

I am compelled to comment on the plaintiff Koziara’s
“Technical Summary”. In 20 years of practice I have never
seen such a display of unrestrained rhetoric. The entire
pleading is laced with misstatement, extra-record excur-
sions, and hyperbole. All witnesses adverse to their inter-
est are accused of lying, incompetence or both. This type
of exercise does not provide assistance in reviewing the
record, it just obscures it. :

Those findings of fact proposed by the parties incon-
sistent with and not addressed by this Proposal for De-
cision, are rejected as being contrary to the evidence.

Conclusions of Law

The law governing the formation of units for unitized
operations and governing this matter on remand is the
“Michigan Unitization Law’ MCL 319.351; MSA
13.139101). The relevant language to this matter is con-
tained in Section 6 which states in part

“The order of the Supervisor shall be upon terms and
conditions that are fair, reasonable and equitable, and
shall prescribe a plan for unit operations that includes:
(C) An allocation to the separately owned tracts in

26a

the unit area of all the oil and gas that is produced
from the unit area and is saved, excepting that pro-
duction which is used in the conduct of operations on
the unit area or unavoidably lost. A separately owned
tract’s fair, reasonable and equitable share of pro-
duction shall be measured by the value of each such
tract for oil and gas purposes and its contributing
value to the unit in relation to like values of all tracts
in the unit.”

There have been a number of cases that have inter-
preted the meaning of a fair and equitable share of pro-
duction in the regulatory context. The Michigan Public
Service Commission prorates gas reserves in a manner
somewhat similar to unitization. The Commission allocates
the total production of gas from a common reservoir among
all of the wells within the reservoir. In a challenge to the
regulatory authority of the Public Service Commission the
Court of Appeals stated as follows:

“Absent regulation, natural gas and oil are subject to
the rule of capture under which, essentially, the first
person to take them is entitled to them even though
the well drains natural resources from under the land
of another. See Williams & Meyers, Oil and Gas Law,
pp 782-784. In most American jurisdictions, the rule
has been modified by the ‘fair share’ or ‘ownership-
in-place’ rule. Michigan is an ownership-in-place state.
Manufacturers Nat’l Bank v DNR, 420 Mich 128, 141;
362 NW2d 572 (1984), Under the rule, ‘each owner
of the surface is entitled only to his equitable and
ratable share of the recoverable oil and gas energy
in the common pool in the proportion which the re-
coverable reserves underlying his land bears to the
recoverable reserves in the pool.’ Wronski v Sun Oul
Co., 89 Mich App 11, 22; 279 NW2d 564 (1979), quot-
ing from 8 Nat Res Law 61, 64-65 (1975). ‘Fair share’

27a

is implemented by a number of procedures, including
balancing, retroactive adjusting and proration.

Williams & Meyers, supra, pp 62, 756, 695-696. The
proration which we are concerned about in this case
is an allocation of the total production of gas from a
common reservoir among the wells drilled into the
reservoir.’’ N Mich Exploration Co. v. PSC 153 Mich
App 635, 638-639 (1986).

In the case of Traverse Oil Company v Natural Re-
sources Commission. 153 Mich App 679(1986) an order of
the Supervisor of Wells which allocated production on a
surface acreage basis was challenged alleging that the Su-
pervisor abused his discretion because he did not allocate
upon the actual pool or reservoir underlying the property.
The Court found that the Supervisor did not allocate pro-
duction to barren lands and quoted the language used by
the Supervisor in the order

“I further conclude that the appropriate spacing and
production unit is the SE1/4 NE1/4, Section 26. This
unit provides for all parties to receive their fair and
equitable share of the reservoir. Such spacing is nec-
essary to encompass the maximum area to be eco-
nomically and efficiently drained by one well. Although
‘the precise parameters of the reservoir cannot be as-
certained, it appears to substantially underlay the unit
and sharing in the proceeds on the surface acreage
basis is deemed fair and equitable.”

A case with many parallels to the case at hand is Gil-
more v Oil and Gas Conservation Commission 642 p 2d
773(1982). This is a Supreme Court of Wyoming opinion
addressing an appeal from an Oil and Gas Conservation
Commission order adopting a plan of unitization for an oil
and gas field. The Commission had found that waste would
occur by delaying secondary recovery and ordered a cur-
tailment of production within the field pending unitization.

28a

This curtailment motivated the various operators to at-
tempt to agree on unitization for the field. The Court at
page 775 states,

“The operators held various meetings at which they
voted on formula to be used in allocating production
under unitization. The 81 working interest owners
considered a total of 71 formulae.

Naturally, each of the owners wanted parameters fa-
vorable to them and wanted more weight to be given
these parameters. After voting on almost 60 formulae,
the owners were frustrated in their attempt to find
one that would receive the statutory approval. As a
result, they examined their voting records and used
a computer to arrive at an equitable compromise for-
mula that could receive the required approval. The
resulting formula #67 at issue here, received 75.89%
approval. It appeared that no greater percentage
would approve any formula proposed.”

The Appellant objected to the unitization formula be-
cause he believed the production components of the for-
mula were unfair to him and that the survey used shorted
him by over 30 acres. A parties agreed e governmental
survey used was inaccurate. The United States owned 62%
of the royalty interest in the unit area and would only
approve based on the old survey. This effectively gave veto
power over the entire project to the United States.

The Gilmore case discusses the correlative rights of the
appellant at pp 779,

‘he contends that in preventing waste his correlative
rights cannot be ignored. We agree, but hold that
substantial waste cannot be countenanced by a slavish
devotion to correlative rights. We are faced with the
delicate balancing problem between the prevention of
waste and correlative rights, but prevention of waste
is of primary importance.

29a

The right to produce one’s fair share from the pool
is limited by and subject to the practicalities of the
situation and the ability to produce without waste.
Other owners have a concomitant right to produce
from the pool without waste.” “In striking a balance
between conservation of natural resources and pro-
tection of correlative rights the later is secondary and
must yield to a reasonable exercise of the former.”

The court later states, in conclusion, at page 781,

“the group effort and compromise should not be dis-
carded because of Appellant’s general disagreement
with the plan. Appellant seems to expect perfection.
Justice was accomplished here, as much as could be
under the circumstances. This litigation should end.”

The cornerstone of governmental regulation of the oil
and gas industry is the prevention of waste.

There is a strong public policy favoring the efficient pro-
duction of oil and gas reserves so that the maximum re-
covery of oil and gas can be attained. The regulation of
the common source of supply to prevent waste has long
been recognized as a legitimate regulatory tool. In this
instance the common source of supply has been regulated
to allow for operations that maximize recovery. The suc-
cess of this unit in substantially increasing the ultimate
recovery of oil is a matter of record. The unitization plan
does provide for a fair and equitable distribution of the
benefits and burdens of unitization.

One of the allegations of the Plaintiff Koziara is that
the Supervisor has never used a participation formula in
a unitization similar to the one incorporated herein. It is
his belief that unitization is to be based upon oil in place
or pore volume of the reservoir. There is no set unitization
formula. The statute does not require it and practical real-
ity precludes it. The formula must be reflective of the data
available and attain the agreement of the parties. Williams

STE RSE sy ocr ned ge En na

30a

& Myers, Oil and Gas Law, abridged edition page 670
states,

“Perhaps the most frequently employed basis for al-
locating pooled unitized production is surface acreage.
Another allocation method considers both acreage and
other factors, e.g., saturated hydrocarbon pore space.
Thus, the 50/50 allocation formula sustained by the
Court in Woody v State Corporation Commission al-
located 50% of the unit production on an acreage basis
and 50% on the basis of saturated hydrocarbon pore
space. Obviously such a formula may employ any per-
centage factor; in this case for example, some parties
advocated a 70/30 formula and still others advocated
a 90/10 formula, viz., giving more than 50% credit to
saturated hydrocarbon pore space; one opinion was
that in any unitization case the oil should be divided
on the basis of 100% saturated by hydrocarbon pore
space.

When all of the premises included within a voluntary
or compulsory unit have previously been developed,
the parties may agree to an allocation of unit pro-
duction on the basis of prior production.”

The Supervisor has employed numerous participation
factors including surface acreage, allowables, production
history, oil and gas reserves and other factors. The uni-
tization formula for the Columbus #8 field provides for a
fair and equitable distribution of the benefits and burdens
of unit operation.

The formula recognizes current productive capacity and
potential future reserves. The initial responsibility for de-
velopment of the participation formulae lies with those who
own interests in the field. The task of the Supervisor is
to determine if the statutory criteria have been satisfied.
The only criteria to be addressed by this matter is the
fairness and equity of the formula. I conclude as a matter
of law that the formula treats all interests in a fair and

3la

equitable manner. There is no question that the Koziara
interests would prefer a formula that favored hydrocarbon
pore space, such a formula was not agreed upon. Similarly,
other owners might find other formulas to be to their
benefit. The inquiry is not limited to what formula might
best benefit a single tract. The inquiry must be directed
towards the treatment of all tracts. All tracts were treated
in the same manner and all tracts derived their fair, and
equitable share.

Proposal

Based on the foregoing findings of Fact and Conclusions
of Law it is proposed that the participation formula de-
veloped in this case be left undisturbed. Although a slight
adjustment might be made to the participation factor by
substituting field allowables for the fourth quarter pro-
duction and because of a planimetering error, those
changes are minor and well within any likely margin of
error.

All interests joined the unit on the basis of the tract
allocations and have shared proceeds by its application.
The overproduction found by the St. Clair County Circuit
Court did not influence the participation percentages al-
located to the various tracts. The proceedings before the
Supervisor in the original hearing resulted in a fair and
equitable distribution of benefits and burdens of unit op-
eration. The Order of the Supervisor should be affirmed.

5/25/86 William C. Fulkerson
Dated William C. Fulkerson

Administrative Law Judge

AFFIDAVIT

STATE OF MICHIGAN )
) SS
U.S. DISTRICT COURT )

I, Dr. M. Y. Joshi, a Petroleum Engineer, first being
duly sworn, deposes and states as follows:

1. I was asked to review all pertinent information rel-
ative to the Columbus ‘‘3” Field in St. Clair County, Mich-
igan, and to determine whether the Dietrichs and the
Koziaras received their “fair share” of the revenue re-
ceived from the productin of oil and gas resources from
tracts one, two and six.

9. That although Defendants are withholding critical
data necessary to render a complete opinion, I reviewed
all data either supplied at the Michigan Department of
Natural Resources or made available by Defendants in
other legal proceedings relative to this field.

3 It is clear from my study of the field that Plaintiffs
were denied their ‘fair share’’ as is required by Michigan
law as a result of intentional misconduct, errors in profes-
sional judgment, and a negligence on the part of Defendant
and their employees.

4. That notwithstanding MCL 319.13 required the
Defendants to abide by rules issued by the Supervisor of
Wells during the effective period of Proration (February
1, 1971 through June 22, 1974), Defendants did not adhere
to those rules although it is clear from the statute that

such conduct is felonious.

5. That data supplied by Defendants show that the Su-
pervisor’s Rules 299.1503; 299.1504; 29.1506; 299.1507; and
999.1508 were consistently violated during that time pe-
riod.

6. That as a result of these violations, valuable oil rev-
enue was denied to Plaintiffs because oil was drained from
the tracts that they had interest in.

EE oO

33a

7. That there is no way a royalty interest owner such
as Plaintiffs or their predecessors could have known about
Defendants misconduct because of the esoteric nature of
the data that had to be reviewed before such a determi-
nation could be made.

8. That my opinion is based upon my knowledge and
experience as a Petroleum Engineer for the last 20 years.

9. That Defendants withheld this information from the
State of Michigan, the Plaintiffs and other royalty interest
holders of the Columbus “3” Field.

10. That notwithstanding that Defendants knew or had
to know that the Production Figures for the Pforation
period had nothing to do with the wells ability to produce
oil, Defendants, in petitioning for a Unitization of the field,
used a 60/40 formula for determining the participation per-
centages for the royalty interest holders.

11. This 60 percent assigned to production overcredited
tracts where Defendants were overproducing one well and
attributing that production to other wells in violation of
the Supervisor of Wells Proration Order.

12. The net effect of this misconduct was to substan-
tially underrepresent the participation percentage that was
assigned to the Plaintiffs and to overcredit tracts where
there was less of an oil reserve and less of a royalty that
had to be paid by Defendants.

13. That there are substantial problems with the
“professional” interpretation by Defendants of the geology
of the Columbus “3” Field. Errors, incorrect interpreta-
tions, and intentional misconduct can be seen.

14. That there is no way that Plaintiffs could have
known of Defendants misconduct by a review of the data
that Defendants sent to Plaintiffs and/or the letter that
Sought agreement to the Unitization of the field that stated
that scientific study had been made of the field by

34a

Defendants and that royalty interest owners would receive
their fair share. Defendants clearly misrepresented the
facts to the Dietrichs predecessors to obtain their agree-
ment to the Unitization. The Dietrichs were and are being
substantially denied their fair share of revenue from the
field as is required by law. ;

15. That it is my professional opinion that Defendants
conduct can in no way be stated to at a level of a “prudent
operator.”

16. That Plaintiffs’ participation percentage, had
Defendants properly represented them, would be far in
excess of the approximately 17% they are credited with
at present.

17. It is clear that Defendant’s conduct was goal ori-
ented, i.e. that is to obtain the Unitization of the Columbus
“3” Field and that without the “discrepancies” that I
found, Defendants could not have unitized the field or
obtained as great a return on their investment in the wells
in the southern region of the field.

18. The net effect on Defendant’s conduct was to fi-
nancially harm the Plaintiffs in this matter.

FURTHER, Deponeth sayeth not.

M. Y. Joshi

Dated: March 25, 1988

Subscribed and sworn to before me
this 25th day of March, 1988.

Susan L. Clark

Notary Public, Wayne County, Michigan
My Commission Expires: February 14, 1990

35a

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

CASE NO. 87-CV-70451-DT
HONORABLE PAUL V. GADOLA

EDGAR J. DIETRICH and THERESITA DIETRICH,
Plaintiffs,
VS.

SUN EXPLORATION AND PRODUCTION COMPANY, a
Delaware Corporation, and SUN OPERATING LIMITED
PARTNERSHIP, a Delaware Limited Partnership,

Defendants.

JACK C. CHILINGIRIAN (P 11838)
Attorney for Plaintiffs

24055 Jefferson Ave., Ste. 200
St. Clair Shores, MI 48080

(313) 777-0400

LYNAM & ASSOCIATES
BY:TERENCE V. LYNAM (P 26490)
SUSAN LESNEK (P 38447)
Attorneys for Defendants

P.O. Box 80705
Lansing, MI 48908
(517) 321-4545

MOTION IN LIMINE TO CLARIFY AND/OR AMEND
FINAL PRETRIAL ORDER

Plaintiffs through their attorney, JACK C. CHILINGI-
RIAN, request that this court clarify and/or amend its Final

36a

Pretrial order dated June 8, 1992, and in support states
as follows:

1. Page 2, paragraph 2 of the Final summarizes a por-
tion of the Plaintiffs’ claims as follows:

“Plaintiffs allege that in November of 1984
through March of 1985, Defendant, Sun Oil Com-
pany’s records showed that an additional 881,071
barrels of oil were produced in the Columbus III
field between November, 1984 and March, 1985
for which Plaintiffs were not compensated.
Plaintiffs further allege that “‘said figures were
subsequently removed from the production rec-
ords after an inquiry was made by Eugene Ko-
ziara.’’ (Amended Complaint, Paragraphs 45 and
45; Plaintiffs’ Claims, submitted October 30,
1990).”

2. Defendants now claim that the Plaintiffs have com-
mitted themselves to prove facts at trial which would show
that the 881,071 barrels of oil were actually produced dur-
ing November, 1984 and March, 1985.

3. Defendants are splitting hairs and attempting to have
this court read the above referenced portion of the Final
Pretrial Order in a hyper-literal way.

4. Plaintiffs have always claimed that the Defendant’s
records during the time period between November, 1984
and March, 1985, showed the additional 881,071 barrels
of oil produced. This does not mean that the barrels of
oil were actually produced during that time period. Evi-
dence may or may not be elicited at trial to show exactly
when the barrels of oil were produced.

5. It was not the intent of the Plaintiffs to allege and
claim that the 881,071 barrels of oil were actually produced
during the time period between November, 1984 and
March, 1985. Plaintiffs claim is and always has been that

37a

the records during that time period show the production
during those time periods.

WHEREFORE, the Plaintiffs request that this court en-
ter an order amending the Final Pretrial Order to properly
reflect the Plaintiff’s claims or enter such other order as
may be appropriate to allow the Plaintiffs to claim that
the 881,071 barrels of oil may have been actually produced
during time periods outside the November, 1984 through
March, 1985 time period.

Respectfully submitted,

JACK C. CHILINGIRIAN (P_ 11838)
Attorney for Plaintiffs
24055 Jefferson Ave., Ste. 200
St. Clair Shores, MI 48080
(313) 777-0400

DATED: July 1, 1992

BRIEF IN SUPPORT OF MOTION IN LIMINE TO
CLARIFY AND/OR AMEND FINAL PRETRIAL ORDER

FRCP 16 (e) provides that the Final Pretrial Order shall
control the subsequent course of the action unless modified
by a subsequent order. The Rule goes on to state “the
order following a final pretrial conference shall be modified
only to prevent manifest injustice’.

Courts have been willing to amend the Final Pretrial
Order or clarify it when justice requires. Rule 16 was not
intended to be a trap for unwary counsel and their liti-
gants. Peter Eckrich and Sons Inc. v Selected Meat Co.,
012 F2d 1158 (1975, CA7 Ill.). Here, Defendants wish to
trap the Plaintiffs by preventing them from arguing that
the barrels of oil may have been produced at different
times but that the records showing their production exist
from November, 1984 through March, 1985.

In Insurance Co. of North America v Northwestern Nat.
Ins. Co., 494 F2d 1192 (1974, CA6 Mich.), the trial court

38a

allowed additional proof to explain a stipulation that was
entered into as part of the pretrial order. The Court of
Appeals held that the trial court did not err in allowing
additional proof which it considered essential to adjudi-
cating the controversy, since the facts as contained in the
stipulation were largely bare-bones, and additional proof
did not contradict agreed facts, but added flesh and life
to them and presented an understandable controversy to
which the judge could apply the law and the facts.

In the instant case, the stipulation is a brief explanation
of the Plaintiff's claims. Plaintiffs had no intention of being
barred from introducing further evidence to explain their
claims. Plaintiffs had no intention of claiming that the
881,071 barrels of oil were all actually produced during
the time period reflected in Sun Oil’s records. Plaintiff has
always intended to allow the jury to determine when the
barrels were actually produced based on the evidence to
be presented at trial.

WHEREFORE, the Plaintiffs request that this court en-
ter an order amending the Final Pretrial Order to properly
reflect the Plaintiff's claims or enter such other order as
may be appropriate to allow the Plaintiffs to claim that
the 881,071 barrels of oi] may have been actually produced
during time periods outside the November, 1984 through
March, 1985 time period.

Respectfully submitted,

JACK C. CHILINGIRIAN (P 11838)
Attorney for Plaintiffs
24°55 Jefferson Ave., Ste. 200
St. Clair Shores, MI 48080
(313) 777-0400

DATED: July 1, 1992

39a

State of Michigan
Department of Natural Resources

Supervisor of Wells

CAUSE NO. (A) 1-5-73

IN THE MATTER OF THE PETITION OF SUN OIL
COMPANY FOR UNITIZATION OF THE COLUMBUS
SECTION “3” SALINA-NIAGARAN FORMATION POOL,
ST. CLAIR COUNTY, MICHIGAN FOR THE PURPOSE OF
CONDUCTING SECONDARY RECOVERY OPERATIONS
BY PRESSURE MAINTENANCE

REPORT OF THE SUPERVISOR OF WELLS

On March 20, 1973 Sun Oil Company of Tulsa, Okla-
homa, pursuant to the provisions of Act No. 197 of the
Public Acts of the State of Michigan, 1959, filed a petition
with the Supervisor of Wells for an Order providing for
the unitized management, operation and pressure main-
tenance of the Salina-Niagaran Formation, common source
of supply in a specified area designated as the Columbus
Three Unit located In St. Clair County, Michigan.

After due notice as provided in Act No. 197 of the
Public Acts of the State of Michigan, 1959 and in com-
pliance with the Rules of Procedure in Public Hearings
before the Supervisor of Wells, a public hearing was held
on said Petition on May 15, 1973 in the City of Lansing,
Michigan. At said hearing before the Supervisor of Wells
the petitioner submitted proof, exhibits, evidence and tes-
timony relating to a plan of unitized management, oper-
ation and pressure maintenance which the Petitioner
recommended be approved by the Supervisor of Wells.
Other interested parties were afforded an opportunity to
be heard In connection therewith.

40a

FINDINGS OF FACT

Pursuant to review and consideration, the Supervisor of
Wells finds:

1) That the unitized management and operation
of the Columbus Three Unit in St. Clair
County as described in said Petition is rea-
sonably necessary to substantially increase the
ultimate recovery of oil and gas therefrom;

2) That the type of operation contemplated by
the Unit Agreement and Unit Operating
Agreement is feasible, will prevent waste, and
will protect correlative rights;

3) That the estimated additional costs of con-
ducting such operations will not exceed th

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386012_0123%3A2. Public record. Not legal advice.