AMERICAN NATURAL RESOURCES, LLC v. EAGLE ROCK ENERGY PARTNERS, L.P.
2016 OK 67
| Okla. | 2016Background
- In 2005 ANR and Encore (predecessor to Eagle Rock defendants) executed an Area of Mutual Interest (AMI) agreement under which ANR received various rights, including a contractual "Option Provision" to participate with a 25% working interest in all subsequent wells drilled within the AMI, including on future leases.
- ANR alleges Eagle Rock drilled and completed multiple AMI wells without offering ANR its participation right, and sued for breach of contract, tortious interference, declaratory relief, and an accounting.
- Eagle Rock moved to dismiss under the rule against perpetuities, arguing the Option Provision creates an indefinite property interest violative of Article II, § 32 of the Oklahoma Constitution.
- The district court granted the motion to dismiss; the Court of Civil Appeals partially reversed and remanded on issues relating to possible exceptions; the Oklahoma Supreme Court granted certiorari.
- The Supreme Court held the Option Provision creates an interest subject to the constitutional rule against perpetuities and is invalid because an LLC is not a "life in being," so the option cannot be measured by a permissible life and does not vest within 21 years.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Option Provision is subject to the rule against perpetuities | ANR: AMI/operating agreements are contracts not subject to perpetuities; option self-terminates with cessation of production | Eagle Rock: Option creates a property interest in future wells and is not time-limited, so it violates the perpetuity rule | Held: Option creates a property interest subject to the perpetuity rule and is void because it can operate indefinitely |
| Whether an LLC can qualify as a "life in being" to save the Option under the 21-year measure | ANR: LLC (single-member, fixed duration) can be treated as a life in being; thus option would vest within permissible period | Eagle Rock: An LLC is a separate legal entity and not a human life; cannot serve as a measuring life | Held: LLC is not a life in being; therefore the option must meet the 21-year rule and fails |
| Whether Producers Oil Co. v. Gore exception applies (options in leases/JOAs) | ANR: Producers permits preemptive rights in JOAs/leases and dicta suggests options tied to production terminate | Eagle Rock: This AMI is a stand‑alone agreement, not a lease/JOA; Producers exception does not apply | Held: Producers' exception limited to options tied to the term of a lease/JOA; the AMI option is more like Melcher and is not saved by Producers |
| Whether the Option Provision could be reformed (cy pres) | ANR (late-raised): If void, court should reform option under statutory reformation/cy pres | Eagle Rock: Reformation issue was not raised below or in timely appellate pleadings | Held: Reformation/cy pres not preserved for review; Court did not consider reformation |
Key Cases Cited
- Melcher v. Camp, 435 P.2d 107 (Okla. 1967) (preemptive lease option held void under the rule against perpetuities where option was separate from lease and could operate indefinitely)
- Producers Oil Co. v. Gore, 610 P.2d 772 (Okla. 1980) (preemptive rights contained in a lease or operating agreement tied to the lease term may be exempt from the perpetuities rule)
- Cartwright v. Hillcrest Investments, Ltd., 630 P.2d 1253 (Okla. 1981) (discussion of corporate personhood; court here distinguishes corporate personhood from being a "life in being")
- McLaughlin v. Yingling, 213 P. 552 (Okla. 1923) (holding that, absent a measurable life in being, interests must vest within 21 years or be void under the perpetuities rule)