                                                                            FILED
                                                                United States Court of Appeals
                                                                        Tenth Circuit

                                                                      October 20, 2011
                      UNITED STATES COURT OF APPEALS
                                                   Elisabeth A. Shumaker
                                                                        Clerk of Court
                                    TENTH CIRCUIT



 RODA DRILLING COMPANY;
 RODA, LLC; ROLAND ARNALL;
 DAWN ARNALL; and THE ROLAND
 AND DAWN ARNALL LIVING
 TRUST,

           Plaintiffs-Appellees,
 v.                                                          No. 10-5139
 RICHARD SIEGAL, an individual;                (D.C. No. 4:07-CV-00400-GFK-FHM)
 BIPPY SIEGAL, an individual;                               (N.D. Okla.)
 PALACE EXPLORATION
 COMPANY, a corporation; PALACE
 OPERATING COMPANY, a
 corporation; B&R EXPLORATION
 CO., INC.; BISTATE OIL
 MANAGEMENT CORPORATION;
 and OIL AND GAS TITLE HOLDING
 CORPORATION,

           Defendants-Appellants.



                              ORDER AND JUDGMENT *


Before LUCERO, and MATHESON, Circuit Judges, and FREUDENTHAL,
District Judge. **


       *
         This order and judgment is not binding precedent, except under the doctrines of
law of the case, res judicata, and collateral estoppel. It may be cited, however, for its
persuasive value consistent with Fed. R. App. P. 32.1 and 10th Cir. R. 32.1.
       **
          The Honorable Nancy D. Freudenthal, Chief United States District Judge for the
District of Wyoming, sitting by designation.
      This case involves a contract dispute between business entities concerning

the interpretation of a settlement agreement designed to resolve earlier litigation

arising from the refusal by Defendants-Appellants (Palace) to transfer record title

to oil and gas properties to Plaintiffs-Appellees (RoDa). By consent, the earlier

litigation was referred to the district court magistrate judge for resolution. The

Parties settled their earlier litigation by agreement, which provided in part for

Palace to assign specified oil and gas properties to RoDa (Agreement). The

Agreement also provided that, upon motion, the district court magistrate judge

would reopen the earlier litigation if a dispute arose among the Parties, and the

magistrate judge would resolve the matter by Opinion and Order rather than by

Report and Recommendation.

      A dispute arose concerning whether the Agreement requires Palace to

assign to RoDa an overriding royalty interest reserved to Palace under an

assignment of Palace’s working interest to Brigham Oil & Gas, L.P. (Brigham).

The assignment and overriding royalty interest covered the Bakken Shale

Formation in lands located in North Dakota (the Bakken Override). The Parties

both argue the Agreement is not ambiguous and should be enforced according to

its terms. However, RoDa argues the Bakken Override is included within

Palace’s obligation under paragraph 4(I) of the Agreement to “transfer, assign and

deliver to the RoDa Parties all of the Palace Parties’ interests, in those interests,

properties and assets” in exploratory acreage or held-by-production acreage in


                                           -2-
North Dakota. Palace argues the Bakken Override is not included among the

interests listed in the Agreement and is neither exploratory acreage nor acreage

held-by-production and, therefore, it is not encompassed by the terminology used

by the Parties to describe the interests that Palace must transfer.

      We conclude the district court magistrate judge correctly ordered Palace to

convey the Bakken Override to RoDa. Exercising jurisdiction under 28 U.S.C. § §

636(c)(3) and 1291, we accordingly AFFIRM.

                                    I. Background

1.    The Parties’ Relationship and History 1

      In April 2002, RoDa met with Palace to investigate potential oil and gas

investments, which would be managed by Palace. After several discussions,

RoDa provided Palace $25 million as an initial capital contribution. During the

following years, RoDa invested nearly $2 billion dollars in Palace.

      In approximately 2005, RoDa became concerned about its investments with

Palace and retained consultants to investigate how Palace was using the money.

As a result of the consultant’s findings, RoDa requested transfer of title to several

properties that Palace purchased with RoDa’s investment money. Palace refused

to transfer record title to any of the properties.




      1
      These facts come from a prior Tenth Circuit Opinion involving the same parties.
See Roda Drilling Co., v. Siegal, 552 F.3d 1203 (10th Cir. 2009).

                                           -3-
       In 2007, RoDa filed a complaint against Palace alleging fraud, breach of

contract, and breach of duty with respect to its oil and gas investments. Palace

filed several counter-claims against RoDa.

       In 2008, RoDa sought a preliminary injunction against Palace, seeking

transfer of all properties purchased by Palace with RoDa’s investment funds. The

district court magistrate judge granted the preliminary injunction, which was

affirmed by this court. See Roda Drilling Co. v. Siegal, 552 F.3d 1203, 1215

(10th Cir. 2009).

2.     The Agreement

       In 2009, RoDa and Palace (the Parties) entered into an Agreement in which

they agreed to release their claims against one another. Section 4(I) of the

Agreement provided for Palace to assign specified oil and gas properties to RoDa

as follows:

       The Palace Parties further agree to transfer, assign and deliver to the
       RoDa Parties all of the Palace Parties’ interests in those interests,
       properties and assets set forth in subparagraphs A-G below, which
       were acquired for the joint account of the RoDa Parties and the
       Palace Parties. 2 The parties agree that the Palace Parties’ interests in
       those interests, properties and assets have a value as of July 1, 2009
       as set forth in subparagraphs A-G below. The values for the Palace
       Parties’ interests in the interests, properties and assets referenced in
       Subparagraphs A, B, and D, below, are based on the Palace Parties
       owning the interests/acreage reflected on Exhibit B-1 hereto . . . .

       ...

       2
         Palace has not asserted that the Bakken Override does not qualify as a property or
interest acquired for the Parties’ joint account.

                                            -4-
         In the event the Palace Parties own lesser interests than [is] reflected
         on Exhibit[] B-1 . . . then the Palace Parties shall pay the RoDa
         Parties upon demand an amount in cash equal to such value
         differential. In the event the Palace Parties own greater interests than
         [is] reflected on Exhibit[] B-1 . . . such that the values herein are
         understated, then the RoDa Parties shall credit such excess amount
         against the cash payments to be made by the Palace Parties under
         paragraph 9 of this Agreement.

             A. The Palace Parties’ interests in all exploratory acreage wherever
             located . . .

             D. The Palace Parties’ interests in all “held-by-production” acreage in
             North Dakota . . .

Aplt. App., at 447.

         The Agreement further states that Palace’s “interests in the exploratory

acreage have an agreed value of $[redacted] million” and that Palace’s “interests

in all ‘held-by-production’ acreage have an agreed value of $[redacted] million.”

Id. at 448. These values are “based on . . . Palace . . . owning the

interests/acreage reflected on Exhibit B-1” to the Agreement.” Id.

         Section 16 of the Agreement states that the Agreement’s terms “shall be

construed, interpreted, and governed by the laws of the State of Oklahoma.” Id. at

466. 3

3.       The Dispute




         3
         Both Parties agree that the contract dispute in this case is governed by Oklahoma
state law.

                                            -5-
       Shortly after they entered into the Agreement, a dispute arose concerning

whether the Agreement requires Palace to convey its interests in the Bakken Shale

Formation to RoDa. For the Parties’ joint account, Palace acquired oil, gas, and

mineral leases in the Bakken Shale Formation. In October 2005, Palace assigned

its working interests 4 in the Bakken Shale Formation to Brigham. In making this

assignment, Palace reserved an overriding royalty interest in the prospective oil

and gas revenue that Brigham might generate from its working interests in the

Bakken Shale Formation.

       The Parties’ dispute concerns whether the terms of the Agreement require

Palace to transfer the Bakken Override to RoDa. In resolving this dispute, the

district court magistrate judge rejected Palace’s argument that an overriding

interest is somehow excepted from the broad terms of the Agreement requiring

Palace to transfer, assign and deliver to . . . RoDa all of Palace’s interests in those

interests, properties and assets in exploratory and held-by-production acreage in

North Dakota. In support of this ruling, the court explained:

              The word “all” encompasses every interest Palace
              possesses in the particular land that is either exploratory or

       4
         A working interest is defined in Oklahoma Statute, Title 52, Section 570.2(12) to
mean the interest in a well entitling the owner thereof to drill for and produce oil and gas,
including by not limited to the interest of a participating mineral owner to the extent
[allowed by Oklahoma’s conservation regulations.] See also Black’s Law Dictionary
1745 (9th ed. 2009) (defining a working interest as “[t]he rights to the mineral interest
granted by an oil-and-gas lease, so called because the lessee acquires the right to work on
the leased property to search, develop, and produce oil and gas, as well as the obligation
to pay all costs”).

                                             -6-
             held-by-production acreage in North Dakota. The Parties’
             use of the word ‘all’ and the absence of any provision
             specifically excepting the Bakken Override from Palace’s
             obligation to transfer evinces an intention that the Bakken
             Override be transferred. Any other interpretation places an
             unnatural construction on the language employed by the
             parties.

RoDa Drilling Co. v. Siegal, 2010 U.S. Dist. LEXIS 101704, at *9 (N.D. Okl. Sept.

10, 2010)

      The district court magistrate judge also rejected Palace’s argument that the

Agreement provides for the transfer of only those properties listed in Exhibit B-1

to the Agreement. The magistrate judge reasoned that the Agreement does not link

Palace’s obligation to transfer interests to the agreed value the Parties assigned to

Palace’s interests, which is further supported by the recognition in the Agreement

that Exhibit B-1 may be inaccurate or incomplete. Therefore, “Palace’s attempt

to cast the Exhibit B-1 list as the finite expression of the properties to be

transferred must fail as being contrary to the language of the Settlement

Agreement.” Id. at *11.

                                     II. Analysis

1. Standard of Review

      Both this Circuit and the Oklahoma Supreme Court have stated that “[t]he

proper construction of a contract is a question of law [that is] review[ed] de

novo.” Penncro Assocs. v. Sprint Spectrum, L.P., 499 F.3d 1151, 1155 (10th Cir.

2007); See also May v. Mid-Century Ins. Co., 151 P.3d 132, 140 (Okl.2006)

                                          -7-
(“Under Oklahoma law, the interpretation of a contract is a question of law

reviewed de novo.”).

2. The Unambiguous Agreement

       When sitting in diversity jurisdiction, this court applies the most recent

version of the law articulated by the state’s highest court. First American

Kickapoo Operations, L.L.C. v. Multimedia Games, 412 F.3d 1166, 1172 (10th

Cir.2005). In Oklahoma, “[i]f a contract is complete in itself, and when viewed

as a totality, is unambiguous, its language is the only legitimate evidence of what

the parties intended.” 5 Pitco Production Co. v. Chaparral Energy, Inc., 63 P.3d

541 (Okl. 2003). The Parties agree the Agreement is unambiguous as to the

interests Palace is to convey to RoDa. We agree.

       The granting clause, Section 4(I) of the Agreement, is neither ambiguous

nor susceptible to more than one interpretation. Section 4(I) requires Palace to

transfer, assign and deliver to RoDa “all of the Palace Parties’ interests in . . .

[t]he Palace Parties’ interests in all exploratory acreage wherever located . . .

[and] [t]he Palace Parties’ interests in all “held-by-production” acreage in North

Dakota. The phrases “exploratory acreage” and “‘held by production’ acreage”

can only be understood as a shorthand reference to how mineral rights or


       5
        By Oklahoma statute, “[t]he words of a contract are to be understood in their
ordinary and popular sense, rather than according to their strict legal meaning, unless
used by the parties in a technical sense, or unless a special meaning is given to them by
usage, in which case the latter must be followed.” 15 O.S.1991 § 160.

                                            -8-
leasehold or working interests are held. If mineral rights are held by production

from producing wells on a lease or within a unit, another entity cannot obtain a

present right to explore for oil and gas. See French Energy, Inc. v. Alexander,

818 P.2d 1234, 1238 (Okl.1991).

      French involved a purchaser of an oil and gas lease at judicial sale who

sued, seeking damages or, alternatively, rescission of lease and restitution,

because the estate did not hold the interest that was the subject of the sale.

Shortly after its purchase of the lease, French learned the mineral rights it had

purchased were subject to a pre-existing lease which remained in force based on

production from another section within the unit. French demanded the return of

its money. The estate refused arguing the doctrine of caveat emptor was

dispositive of the issue and the estate could and did sell only what interest it had

to sell. Id. at 1236.

      The trial court granted summary judgment in favor of the estate, which was

affirmed by the appellate court on grounds that French should have raised a

breach of warranty argument and, having failed to do so, did not meet its burden

to overcome the estate's motion for summary judgment. The Oklahoma Supreme

Court granted certiorari and reversed the lower courts on the grounds of unjust

enrichment. In explaining its ruling, the court noted, “[i]n the present case, the

mineral rights French thought it was purchasing were being held by production

from within the unit. The contract, in clear and unambiguous terms, purported to

                                          -9-
convey the present right to explore for oil and gas. However, there was nothing to

convey. To allow [the estate] to keep the bonus money in exchange for nothing

would result in them being substantially and unjustly enriched.” Id. at 1238.

      Looking to the French case to differentiate and assist in defining the

phrases at issue in this case, we understand the phrase “‘held by production’

acreage” to refer to mineral rights or leasehold or working interests which are

held by production from producing wells. We understand the phrase “exploratory

acreage” to refer to mineral rights or leasehold or working interests held by an

entity possessing a present right to explore for oil and gas.

      Therefore, we agree with Palace’s argument that the Bakken Override is not

a mineral right or a leasehold or working interest that can be explored or held by

production. However, this is not the issue presented. The key issue is whether

the Bakken Override is one of Palace’s interests in an interest owned by Palace in

a leasehold or working interest that can be explored or held by production. We

conclude it is.

      The Oklahoma Supreme Court defines an overriding royalty as “a certain

percentage of the working interest which as between the lessee and the assignee is

not charged with the cost of development or production. XAE Corp. v. SMR

Property Management Co., 968 P.2d 1201, 1206 (Okl.1998)(citations omitted).

As the owner of the Bakken Override, therefore, Palace owns a percentage of the

working interest free of the burdens normally incident to the working interest, in

                                         -10-
the Bakken Formation. No party argues that the Bakken Formation is anything

other than exploratory acreage or held-by-production acreage in North Dakota.

      It is true, as argued by Palace, that the nature of an overriding royalty

interest is such that it attaches only when oil and gas are reduced to possession.

Id. at p. 1207. However, neither the point of attachment nor the vesting of the

overriding royalty owner’s right to receive payment change the overriding royalty

interest to anything other than an interest owned by Palace in Brigham’s working

interest in the Bakken Formation. Palace’s overriding royalty interest was created

from the working interest acquired by Palace for the joint account of RoDa and

Palace. The Bakken Formation working interest was then assigned by Palace to

Brigham, and the carved-out overriding royalty interest was reserved to Palace

under the terms of the 2005 assignment.

      Further and in addition to the reasons articulated by the district court

magistrate judge, we conclude that, had the Parties desired to exclude the Bakken

Override from Palace’s transfer obligations, they could have limited Section

4(i)(A) and (D) to include only Palace’s working interests in all exploratory

acreage wherever located and Palace’s working interests in all “held-by-

production” acreage in North Dakota. Palace owns no working interests in the

Bakken Formation, having previously conveyed this interest to Brigham. That,

however, does not mean Palace owns no interest in any working interest covering

the Bakken Formation. We will not rewrite a clear and unambiguous contractual

                                          -11-
provision to provide Palace with the relief requested. See Simpson v. Farmers

Ins. Co., Inc., 981 P.2d 1262, 1266 (Okl.1999)(“to rewrite clear and unambiguous

policy provisions . . . would require us to indulge in the sort of ‘loose and ill-

considered judicial interpretation,’ which we criticized in Max True Plastering,

1996 OK 28 at ¶ 24, 912 P.2d 861.”)

                                   III. Conclusion

        For the foregoing reasons, we AFFIRM the district court magistrate judge’s

decision requiring Palace to transfer its interest known as the Bakken Override to

RoDa.

                                                 Entered for the Court


                                                 Nancy D. Freudenthal
                                                 Chief District Court Judge




                                          -12-
