United States District Court, E.D. Arkansas, Western Division
JS INTERESTS, INC. and XISTO PROPERTIES, LLC PLAINTIFFS
JOHN HAFNER & ASSOCIATES, THE ESTATE OF JOHN F. HAFNER, MARY KAYE HAFNER, and SEECO, INC. n/k/a SWN PRODUCTION ARKANSAS, INC. DEFENDANTS
Inc.'s motion for summary judgment [Doc. No. 34] is
denied on plaintiffs' breach of contract claim and on
SEECO's indemnification claim, and is granted on
plaintiffs' claim for statutory penalties.
is an oil and natural gas production company that explores,
drills, develops, and produces oil, gas, and other minerals.
Designated as an operator by the Arkansas Oil and Gas
Commission, it contracts with landowners to enter upon the
land of those landowners for the purpose of exploring,
drilling, developing, and producing the oil, gas, and other
minerals contained in certain drilling units on the land. It
is the current operator of the oil and gas drilling units
covered by the leases in question. The leases cover units
located in several Arkansas counties, including Cleburne,
Conway, Faulker, Pope, Van Buren, and White county.
and defendant John F. Hafner & Associates
(“Hafner”) entered into oil and gas leases that
give Hafner a working interest in the oil, gas, and other
minerals produced and sold by SEECO from the units in
question. The leases between Hafner and SEECO are governed by
joint operating agreements (“Agreements”). The
Agreements permit Hafner to participate as a consenting party
or to abstain as a non-consenting party. As a consenting
party, Hafner assumes its working interest and participates
in the mineral production process by sharing in the cost of
the operations conducted. In return, Hafner shares in the
profits from the sale of the oil, gas, and minerals produced.
As a non-consenting party, Hafner does not assume its working
interest and does not share in the production process,
operations, and profits. When Hafner is a non-consenting
party, SEECO assumes Hafner's working interest and
responsibilities. On the leases at issue herein, Hafner
participated as a consenting party as to some leases and
abstained as a non-consenting party as to others.
assigned overriding royalty interests on its leases with
SEECO to plaintiffs JS Interests, Inc. and Xisto Properties,
LLC (“plaintiffs”). The assignments gave
plaintiffs a small percentage of the profit derived by
Hafner. These assignments were recorded in the counties where
the real property was located. It is important to note that
the Agreements did not take effect until after the creation
of these assignments, SEECO is not a party to any of the
assignments between Hafner and plaintiffs, and Hafner did not
directly disclose the assignments to SEECO at the time the
Agreements were entered into.
has dissolved as the result of the death of John F. Hafner,
and the estate of John F. Hafner and Mary Kaye Hafner are
included as defendants because they are the
successors-in-interest of Hafner. Therefore, Hafner, the
estate of John F. Hafner, and Mary Kaye Hafner are
collectively referred to as Hafner.
have yet to receive any of the overriding royalty interest
payments owed to them and bring this case claiming breach of
contract and willful withholding of overriding royalty
interest payments. Plaintiffs seek a determination as to
which of the defendants is responsible for the overriding
royalty interest payments owed to them. See Am.
Compl. ¶ 35, Doc. No. 21. SEECO is cross claiming
against Hafner claiming that Hafner must indemnify SEECO for
any judgment plaintiffs receive against SEECO. See
SEECO's Answer 13, 14, Doc. No. 25.
moves for summary judgment [Doc. No. 34] on plaintiffs'
claims arguing that it is not responsible for the overriding
royalty interest payments owed to plaintiffs because Hafner
did not inform SEECO that Hafner assigned the leases to
plaintiffs. SEECO also moves for summary judgment on its
indemnity claim against Hafner arguing that the Agreements
require Hafner to indemnify SEECO.
undisputed that Hafner is liable to plaintiffs for the
overriding royalty interest payments it did not pay to
plaintiffs on those leases in which Hafner was a consenting
party. See SEECO's Reply Supp. Mot. Summ. J. 1,
Doc. No. 44 (“SEECO's Reply”); Hafner
Defs.' Disc. Resp. 9, Doc. No. 23; Pl. JS Interests, Inc.
Disc. Resp. 9-10, Doc. No. 27; Pl. Xisto Properties, Inc.
Disc. Resp. 9-10, Doc. No. 28. The key question, therefore,
is whether Hafner is liable for the overriding royalty
interest payments owed to plaintiffs on the leases in which
Hafner was a non-consenting party.
judgment is appropriate when there is no genuine dispute as
to any material fact and the moving party is entitled to
judgment as a matter of law. See Fed. R. Civ. P.
56(a); Anderson v. Liberty Lobby Inc., 477 U.S. 242,
249-50 (1986). Once the moving party demonstrates that there
is no genuine dispute of material fact, the non-moving party
may not rest upon the mere allegations or denials in his
pleadings. Holden v. Hirner, 663 F.3d 336, 340 (8th
Cir. 2011). Instead, the non-moving party must produce
admissible evidence demonstrating a genuine factual dispute
that must be resolved at trial. Id. Importantly,
when considering a motion for summary judgment, all
reasonable inferences must be drawn in a light most favorable
to the non-moving party. Holland v. Sam's Club,
487 F.3d 641, 643 (8th Cir. 2007). Additionally, the evidence
is not weighed, and no credibility determinations are made.
Jenkins v. Winter, 540 F.3d 742, 750 (8th Cir.
undisputed that the Agreements, see Doc. No. 25-1
(copy of model agreement), provide whether SEECO is
responsible for the overriding royalty interest payments owed
to plaintiffs and whether SEECO is to be indemnified by
Hafner. See SEECO's Br. Supp. Mot. Summ. J. 5,
Doc. No. 34 (“SEECO's Br.”); Hafner
Defs.' Br. Resp. SEECO's Mot. Summ. J. 4, Doc. No. 37
(“Hafner Defs.' Resp.”); ...