Krug v. Helmerich & Payne, Inc.
2013 OK 104
| Okla. | 2013Background
- H& P was sued by a class of royalty owners over two Beckham County 640-acre sections (Littauer and Copeland) where H& P operated wells from 1978–1998.
- Plaintiffs allege H& P breached duties by allowing uncompensated drainage and by concealing a take-or-pay settlement with ANR Pipeline.
- H& P settled its take-or-pay claims with ANR in Oct. 1989 for a net amount; plaintiffs contend part of that settlement represented uncompensated drainage.
- Trial evidence included three verdicts: breach of implied duty to prevent drainage ($3,650,000), breach of fiduciary duty ($4,055,000), and constructive fraud in the ANR settlement ($6,845,000); the jury also found unjust enrichment.
- The court treated disgorgement of profits as advisory, later increasing the disgorgement award to $112,677,750, culminating in a total judgment of $119,522,750.
- On appeal, the Oklahoma Supreme Court held the fiduciary duty claim was improper, that the remedy for breach should be contractual, and that equitable remedies could not replace an adequate legal remedy; it reversed in part and remanded for further proceedings consistent with the opinion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a fiduciary duty existed | Krug/Eubanks argue fiduciary duty to prevent drainage | H& P asserts no fiduciary duty; duty is contractual | No fiduciary duty; duty is contractual under implied covenant. |
| Whether the implied covenant to prevent drainage supports a legal remedy | Plaintiffs seek damages under implied covenant and disgorgement | Drainage remedy should be measured contractually, not via equity | Remedy for breach is legal (contractual); equity claims cannot stand. |
| Whether net flow or counter-drainage should affect damages | Net flow claimed as offset to drainage damages | Net flow not a proper consideration given facts | Net flow not to be considered; Feely governs; net-flow rule rejected. |
| Whether equitable claims were properly recast from contract | Plaintiffs recast as unjust enrichment/constructive fraud | Equity should not override adequate legal remedy | Equitable claims not allowed where adequate legal remedy exists; construct. fraud/ disgorgement rejected. |
| Statute of limitations and concealment tolling | Concealment tolls limitations under Jarvis | Limitations barred absent tolling | Concealment tolling applicable; claim not barred. |
Key Cases Cited
- Howell v. Texaco, Inc., 2004 OK 92, 112 P.3d 1154 (OK Supreme Court 2004) (fiduciary duty not imposed; contract-based liability for drainage)
- Rogers v. Heston Oil Co., 1984 OK 75, 735 P.2d 542 (OK Supreme Court 1984) (prudent operator rule; no fiduciary duty in lease context)
- Fransen v. Conoco, Inc., 64 F.3d 1481 (10th Cir. 1995) (implied covenants to protect against drainage; counter-drainage rule not adopted)
- Watts v. Atlantic Richfield Co., 115 F.3d 785 (10th Cir. 1997) (citedFransen; policy limits on duty to drill protection wells)
- Roye Realty & Developing v. Watson, 1996 OK 93, 2 P.3d 320 (OK Supreme Court 1996) (royalty owners not entitled to take-or-pay settlement absent lease language)
- Feely v. Davis, 1989 OK 163, 784 P.2d 1066 (OK Supreme Court 1989) (net flow principle referenced in drainage context)
- Jarvis v. City of Stillwater, 1987 OK 5, 732 P.2d 470 (OK Supreme Court 1987) (concealment tolling; estoppel against time bar)
- Anderson v. Copeland, 1963 OK 34, 378 P.2d 1006 (OK Supreme Court 1963) (equitable remedies with contract context; rental vs. sale analogy)