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Online Oil, Inc. v. CO&G Production Group, LLC

Court of Appeals of Oklahoma, Division IV

August 29, 2017

ONLINE OIL, INC., an Oklahoma corporation and REALTY DEVELOPERS, LLC, an Oklahoma Limited Liability Company, Plaintiffs,
v.
CO&G PRODUCTION GROUP, LLC, an Oklahoma Limited Liability Company, Defendant/Third-Party Plaintiff/Appellee, and JERRY PARENT, an individual, Defendant,
v.
KRIS AGRAWAL, an individual, Third-Party Defendant/Appellant, and COAL GAS USA, LLC, an Oklahoma Limited Liability Company, COAL GAS MART, LLC, an Oklahoma Limited Liability Company, REALTY MANAGEMENT ASSOCIATES, LLC, an Oklahoma Limited Liability Company, VIMALA AGRAWAL, an individual and NEWTON AGRAWAL, an individual, Third-Party Defendants, and KENSLEY PETROLEUM, LLC, an Oklahoma Limited Liability Company, Plaintiff,
v.
CO&G PRODUCTION, LLC, Defendant.

          Mandate Issued: 01/03/2018

         APPEAL FROM THE DISTRICT COURT OF TULSA COUNTY, OKLAHOMA HONORABLE MARK BARCUS, TRIAL JUDGE

          Phillip P. Owens II, OWENS LAW OFFICE, PC, Oklahoma City, Oklahoma and James O. Goodwin, GOODWIN & GOODWIN, Tulsa, Oklahoma, for Plaintiffs Online Oil, Inc.; and Realty Developers, LLC; and for Third-Party Defendants Coal Gas USA, LLC; Coal Gas Mart, LLC; and Realty Management Associates, LLC

          CO&G PRODUCTION GROUP, LLC, an Oklahoma Limited Liability Company, Currently unrepresented

          Jerry Parent, Porum, Oklahoma, Pro Se

          Kris Agrawal, Oklahoma City, Oklahoma, Pro Se

          JOHN F. FISCHER, PRESIDING JUDGE

         ¶1 Kris Agrawal, Online Oil, Inc., Realty Developers, LLC, Coal Gas USA, LLC, Coal Gas Mart, LLC and Realty Management Associates, LLC, [1] (Agrawal defendants) appeal the district court's December 5, 2013 Final Journal Entry of Judgment in favor of CO&G Production Group, LLC and the May 14, 2014 order denying their motion for new trial. This case arose from a contract dispute concerning the purchase of oil and gas interests previously owned by some of the Agrawal defendants and the transfer of operations for the producing wells on those leases. After this appeal was filed, the United States Bankruptcy Court for the Western District of Oklahoma granted a petition for involuntary bankruptcy naming Kris Agrawal as the debtor and stayed further proceedings in this appeal. On April 24, 2017, that court granted Agrawal's request for relief from the automatic stay, permitting this appeal to proceed. The Agrawal defendants have failed to preserve certain issues for appellate review and shown no error by the district court with respect to all but two of the issues preserved for review. The award of actual damages on CO&G's tortious interference claim is modified by this Court to $13, 500 and the award of punitive damages on CO&G's two tort claims is vacated. In all other respects, the December 5, 2013 Final Journal Entry of Judgment is affirmed, and this case is remanded for further proceedings consistent with this Opinion regarding the punitive damages issue. The district court's May 14, 2014 order denying the Agrawal defendants' motion for new trial is affirmed in part and reversed in part consistent with this Opinion.

         BACKGROUND

         ¶2 This dispute concerns an August 21, 2007 Contract for Sale of Lease Rights and Appointment of Operator in what the parties refer to as the Hill Top Redfork Sands Units 1, 2 and 3 located in Tulsa County, Oklahoma. At that time, Online was the operator of the wells in the Hill Top Units and Realty Developers owned oil and gas leases in those units. Online and Realty Developers are companies owned and operated by Kris Agrawal. The contract was signed by Jerry Parent on behalf of CO&G and by Gregory Williams on behalf of Realty Developers. The contract states that the operation of the Hill Top Units wells was transferred to CO&G and that CO&G was purchasing the Hill Top Units oil and gas leases previously owned by Realty Developers.

         ¶3 After CO&G assumed operations of the Hill Top Units, Realty Developers and Online filed suit challenging the sale of the Hill Top Units leases alleging that the person who signed the contract on behalf of Realty Developers did not have authority to do so. CO&G filed a counterclaim and third-party claim joining the remaining Agrawal defendants in the litigation. CO&G sued to establish and foreclose its operator's lien on the interest in the Hill Top Units owned by the Agrawal defendants, and for fraud, tortious interference, breach of contract, unjust enrichment, quiet title, reformation and declaratory relief.

         ¶4 Pursuant to an order filed May 25, 2011, the district court granted CO&G's motion for partial summary judgment on its lien foreclosure claim and request for declaratory relief. In summary, the district court found that the Agrawal defendants had been "duly served" with the motion for partial summary judgment, that CO&G was the operator of the Hill Top Units, and that CO&G had a statutory and contractual lien in the amount of $3, 282, 218.37 for unpaid operating expenses against any interest owned by any of the Agrawal defendants in the Hill Top Units. The May 2011 order also authorized the sheriff to "levy upon and sell/auction any interest that the Agrawal defendants may now have or may ever acquire in the mineral leasehold underlying the Hilltop [sic] Units...." The findings, conclusions and partial judgment in favor of CO&G on its lien theory contained in this order were incorporated into the district court's December 5, 2013 Final Journal Entry of Judgment.

         ¶5 The December 2013 judgment also granted judgment against Online and Realty Developers as to all claims asserted by those plaintiffs against CO&G. In addition, judgment was granted in favor of CO&G and against the Agrawal defendants on CO&G's remaining theories for fraud, intentional interference, breach of contract, unjust enrichment, quiet title, reformation and declaratory relief. This aspect of the judgment was imposed as a sanction for failing to participate in the discovery process and for failing to comply with the court's discovery and pretrial conference orders. The judgment recites the Agrawal defendants' "repeated history" of "failing to cooperate in the discovery process, abusing the discovery process and violating this Court's orders which warranted sanctions by this Court pursuant to 12 O.S. § 3237 (B)(2)." [2] The matter was then set for hearing on the amount of damages. At the conclusion of that hearing, the district court found that CO&G's damages for unpaid operating expenses on its lien theory had increased to $5, 508, 689.89 and reformed its previous judgment to reflect that amount. The district court entered judgment for this amount of actual damages on CO&G's breach of contract, fraudulent inducement and tortious interference claims. The court also found that CO&G was entitled to punitive damages on CO&G's two tort theories in the amount of $5, 508, 689.89 and included that amount in its December 2013 judgment.

         ¶6 Within ten days, the Agrawal defendants filed a motion seeking reconsideration of the December 5, 2013 judgment. That motion was denied by order filed May 14, 2014. The Agrawal defendants appeal both the December 2013 Judgment and the May 2014 order denying their motion for reconsideration. [3]

         STANDARD OF REVIEW

         ¶7 "A motion seeking reconsideration, re-examination, rehearing or vacation of a judgment... which is filed within 10 days of the day such decision was rendered, may be regarded as the functional equivalent of a new trial motion, no matter what its title." Horizons, Inc. v. Keo Leasing Co., 1984 OK 24, ¶ 4, 681 P.2d 757. The Agrawal defendants' motion for reconsideration is properly treated as a motion for new trial. The district court is vested with wide discretion in ruling on a motion for new trial, and its order will be reversed only if the court is deemed to have erred with respect to a pure, simple and unmixed question of law. Jones, Givens, Gotcher & Bogan, P.C. v. Berger, 2002 OK 31, ¶ 5, 46 P.3d 698. A trial court's denial of a motion for new trial is reviewed for abuse of discretion. Head v. McCracken, 2004 OK 84, ¶ 2, 102 P.3d 670.

         ¶8 The December 2013 judgment also granted judgment in favor of CO&G on its remaining claims as a sanction pursuant to 12 O.S.2011 § 3227, based on the Agrawal defendants' failure to cooperate in discovery and violation of the court's orders regarding the production of documents. The standard of review for a district court's sanction order entered pursuant to section 3227 is also abuse of discretion. Payne v. DeWitt, 1999 OK 93, ¶ 9, 995 P.2d 1088 ("[T]he trial court's discretion, while broad, is not unbridled. The sanction must be both fair and related to the particular claim (or defense) at issue in the discovery order.").

         ¶9 "An abuse of discretion occurs when a decision is based on an erroneous conclusion of law or where there is no rational basis in evidence for the ruling." Spencer v. Oklahoma Gas & Elec. Co., 2007 OK 76, ¶ 13, 171 P.3d 890 (emphasis omitted) (footnote omitted).

         ¶10 The amount of the December 2013 judgment was determined after a nonjury trial on the issue of damages. "The proper standard of review in an action at law is that the findings of the trial court are as binding on appeal as the verdict of a jury, and if there is competent evidence to support the findings, they will not be disturbed on appeal." Dismuke v. Cseh, 1992 OK 50, ¶ 7, 830 P.2d 188.

         ¶11 Finally, the December 2013 judgment also included an award of punitive damages. Punitive damages may be imposed in actions for the breach of obligations not arising out of contract, and the proceedings are governed by 23 O.S.2011 § 9.1. Lierly v. Tidewater Petroleum Corp., 2006 OK 47, ¶ 30, 139 P.3d 897. Punitive damages are now authorized where the trier of fact finds "by clear and convincing evidence" that a party "has been guilty of reckless disregard for the rights of others" (Category I), or that a party "has acted intentionally and with malice towards others" (Category II). 23 O.S.2011 § 9.1. In this case tried to the district court, we review the district court's findings of fact to determine if there is clear and convincing evidence in the record to support the award of punitive damages. See Wilspec Techs., Inc. v. Dunan Holding Group Co. Ltd., 2009 OK 12, 204 P.3d 69 (holding that plaintiff seeking punitive damages for tortious interference must prove by clear and convincing evidence that the defendant acted either recklessly, or intentionally and maliciously). Cf., In re S.B.C., 2002 OK 83, ¶ 7, 64 P.3d 1080 (noting that "use on review of anything less than the very same standard as that which is required in the trial courts" would water down the heightened standard and render it "meaningless"). See also State Farm Mut. Auto. Ins. Co. v. Campbell, 538 U.S. 408, 418, 123 S.Ct. 1513, 1520 (2003) (punitive damage awards are subject to "exacting" de novo appellate review).

         ANALYSIS

         I. The Motion for New Trial

         ¶12 Although Kris Agrawal appears pro se in this appeal, the motion for new trial was filed in the district court on his behalf and on behalf of all of the Agrawal defendants by their counsel at the time. [4] That motion argued four propositions: (1) the "harsh sanction" of default judgment was improper because only Online and Realty were served with discovery requests, and the Agrawal defendants' conduct was not malicious because the material not produced was privileged; (2) default judgment was unjust because of the defendants' "meritorious claims and defenses;" (3) the award of punitive damages was unsupported by the law or the facts; and (4) irregularity in the proceedings and the excessive amount of damages warrant a new trial.

         ¶13 It is important to examine these arguments in detail. "If a motion for a new trial be filed and a new trial be denied, the movant may not, on the appeal, raise allegations of error that were available to him at the time of the filing of his motion for a new trial but were not therein asserted." 12 O.S.2011 § 991 (b). The Supreme Court has consistently invoked this statute to restrict the appellate issues to those raised in a motion for new trial. See, e.g., Slagell v. Slagell, 2000 OK 5, 995 P.2d 1141; Horizons, Inc. v. Keo Leasing Co., 1984 OK 24, 681 P.2d 757. A "motion for new trial... acts to limit the issues reviewed on appeal to those raised by that motion." City of Broken Arrow v. Bass Pro Outdoor World, L.L.C., 2011 OK 1, ¶ 11, 250 P.3d 305. Consequently, we address only those issues raised in the Agrawal defendants' motion for new trial and preserved for review in their appellate briefing. Okla. Sup. Ct. R. 1.11(k)(1), 12 O.S.2011 and Supp. 2013, ch. 15, app. 1. See also Walker v. Walker, 1985 OK 2, ¶ 4, 695 P.2d 1 (noting that issues not supported by argument and authority in a party's brief may be deemed waived).

         A. Judgment Imposed as a Sanction

         ¶14 The foundation of the discovery dispute concerns CO&G's 2009 request for production of documents and the redacted copies of emails to and from Kris Agrawal produced in response to that request. CO&G's discovery requests were served on Online and Realty Developers on January 16, 2009. Only ninety pages of documents have been produced, even though Kris Agrawal testified that he had a "room full" of documents relating to those companies and the Hill Top Units. The ninety pages of documents were produced by Kris Agrawal as the designated representative of Online in response to a 2009 notice to take deposition. Included in those documents are copies of emails to or from Kris Agrawal with material appearing in the margins that had been redacted. Kris Agrawal's original counsel stated that the redacted material contained notes made by Kris Agrawal and comments on the substance of the emails. She stated she redacted this material because she believed the notes were subject to the attorney/client privilege. That action eventually resulted in two sanctions orders, a November 13, 2012 order sanctioning Online and Realty Developers, and an August 26, 2013 order sanctioning the remaining Agrawal defendants.

         ¶15 As stated in CO&G's first motion to compel, counsel for Online and Realty Developers agreed in an August 31, 2012 conversation that he would produce unredacted copies of those emails. Online and Realty Developers did not file a response to CO&G's first motion to compel. On October 29, 2012, the district court granted CO&G's motion and ordered Online and Realty Developers to produce the requested documents within ten days, including unredacted copies of the emails. Neither Online nor Realty Developers produced any documents. On November 13, 2012, the district court granted CO&G's motion for sanctions finding Online and Realty Developers had failed to comply with the court's October 29, 2012 order.

         ¶16 Citing section 3234 of the Oklahoma Discovery Code (12 O.S.2011 §§ 3224 to 3237), the Agrawal defendants point out that any party is authorized to serve a request for the production of documents on any other party. However, the Agrawal defendants argue that no discovery requests were ever served by CO&G on any party other than the plaintiffs, Online and Realty Developers. From this, they conclude that the third-party defendants could not have failed to produce documents because no request for the production of documents was served on them. ...


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