GREENE, C.J.
David A. Barker, assignor of an oil and gas lease to RAMA Operating Company, Inc. (RAMA), appeals the district court's denial of his motion for summary judgment as well as the judgment against him after bench trial for damages totaling $13,356.44 for breach of his covenant to warrant and defend title to the interest conveyed. Concluding RAMA failed to establish at summary judgment that there was a lawful adverse claim against the interest conveyed, there was no actionable breach of the covenant of warranty of title. Thus, we reverse and remand with directions to enter summary judgment in favor of Barker.
Barker obtained an oil and gas lease from B.F. and Eleanor Babb on May 6, 1996, covering lots 1 and 2 that are the west half of the northwest quarter of Section 30, Township 21 South, Range 8 West, in Rice County. A previous lease of this tract (the Tyrell lease) had been unitized with other leases to form a 160-acre gas unit apparently known as the "Fitzgerald Gas Unit." The lessee of the Tyrell lease, Bear Petroleum, executed and there was recorded a release of its right, title, and interest in the Tyrell lease on October 3, 1996. A second release of its interest in the Tyrell lease was requested by Barker and executed by Bear Petroleum on March 1, 2001, and was subsequently recorded, but there is a dispute as to its validity.
Within the primary term of Barker's Babb lease and on May 6, 2001, Barker obtained an identical lease from the Babbs — except the primary term was specified as 2 years. Based on information in the record, this lease was recorded on February 7, 2001. Neither party to this litigation has noted, argued, or raised an issue in district court or on appeal surrounding the rather strange sequence of the second lease acquisition, the recordation thereof, and the assignment at issue.
After obtaining a supplemental drilling title opinion on the acreage, on April 9, 2001, Barker executed an assignment conveying to RAMA his right, title, and interest to this oil and gas lease. On that date, the records of the Kansas Corporation Commission and Rice County Assessor's Office show there had been no production by the only well on the Fitzgerald Gas Unit for at least 23 months. Although a contract between Barker and RAMA required only an assignment "without warranty," the Barker assignment contained a covenant of warranty of title, which we quote later in this opinion.
In July 2001, when RAMA's drilling rig contractor appeared on the lease property to
Based on the information from Schremmer, RAMA terminated drilling operations and purportedly incurred damages "in the form of expenses in the commencement of drilling operations" totaling $13,356.44. Other facts embellished this story at time of trial, but our initial and determinative focus is on the summary judgment proceedings.
After RAMA filed its petition alleging breach of warranty of title, Barker sought summary judgment on the ground that RAMA caused its own damages when it precipitously terminated drilling operations although no lawful adverse claim was ever established to the oil and gas lease assigned to RAMA. The district court denied the motion because the court found there were two genuine issues of material fact preventing judgment as a matter of law: (1) whether Schremmer executed the release of his prior lease by mistake; and (2) exhibits purporting to show "differing amounts of production at different times" on a unit including the subject lease and another lease.
After a different district judge was assigned to the case, Barker's motion for reconsideration of his motion for summary judgment was denied, and the matter was set for bench trial. After trial, the court found that RAMA had sustained its burden to establish a breach of the covenant of warranty of title and awarded it damages in the amount claimed.
Barker appeals.
Our standard of review for a district court's grant or denial of a motion for summary judgment is well established:
On appeal, Barker initially argues that his motion for summary judgment should have been granted because the only material fact dispute was created by RAMA's false affidavit submitted in opposition to the motion. That affidavit attempted in conclusory fashion to dispute the production history provided in Barker's uncontroverted fact statements and served to create what the district court believed was a genuine issue of fact precluding preclude summary judgment.
Barker argues that the lack of a condition precedent — i.e., no previous lawful claim against defendant or against plaintiff that Barker refused to defend under his covenant of warranty in the assignment — is fatal to
In Kansas, there can be no breach of a covenant of title in a warranty deed unless the third party's claim is superior to the title or possessory rights of the grantee. See Bedell v. Christy, 62 Kan. 760, 763, 64 P. 629 (1901); Lewis v. Jetz Service Co., 27 Kan.App.2d 937, Syl. ¶ 1, 9 P.3d 1268 (2000). In the typical wording of a covenant of warranty, the grantor covenants to warrant and defend the title conveyed by the deed against all lawful claims which may be asserted against it. Lewis, 27 Kan.App.2d at 938, 9 P.3d 1268 (quoting 14 Powell on Real Property § 81A.06[2][d][i], p. 81A-121 [1999]); see K.S.A. 58-2203. "A breach does not occur without a disturbance of possession and eviction under an adverse title which existed at the time of the conveyance." 27 Kan.App.2d at 938, 9 P.3d 1268. Our Supreme Court stated that "`[a] covenantee who, voluntarily or without suit, yields to an alleged paramount title or claim assumes the risk of its turning out not to be so.'" Wood v. Stewart, 158 Kan. 729, 732, 150 P.2d 331 (1944).
Kansas law is consistent with the majority view, which holds that "[t]itle defects are not actionable as a breach of warranty unless the grantee has been compelled to yield to such title, or is in a situation requiring him or her to do so presently, as a matter of legal duty." 20 Am.Jur.2d, Covenants, Etc. § 63. Further, "[a] covenantee cannot claim a breach of warranty by reason of the existence of an outstanding title in a third party, where such title is not paramount." 20 Am.Jur.2d, Covenants, Etc. § 66. In fact, many courts have even held that eviction is requisite before there is a breach of covenant of warranty or of quiet enjoyment. See 4 Williams & Meyers, Oil and Gas Law, § 685.1, pp. 411-12 (2011). Our court quoted a respected treatise on this subject in Lewis:
RAMA argues that all that must be shown "is a failure of performance as warranted" and that "a specific defect need not be proven." RAMA cites two cases for this proposition. The first discussed the breach of warranties in a construction contract. Broce-O'Dell Concrete Products, Inc. v. Mel Jarvis Constr. Co., 6 Kan.App.2d 757, 634 P.2d 1142 (1981). The second discusses express warranties accompanying the sale and installation of a transmission. Scheuler v. Aamco Transmissions, Inc., 1 Kan.App.2d 525, 571 P.2d 48 (1977). RAMA does not explain how these cases are relevant to a grantor's covenant of title. These cases address warranties in the sale of goods and services and have little if any application to warranty of title. They appear to be inconsistent with Kansas caselaw on warranty of title.
RAMA also argues that the specific language of warranty in the assignment form required Barker to defend the title even absent a lawful claim. RAMA argues that the warranty against "adverse claims" "is all encompassing and not limited in any way" and is distinguishable from "general and limited warranties." According to RAMA, because of the "all adverse claims" language in Barker's warranty, it should not be required to prove that the adverse claims presented by Bear Petroleum are legally sustainable. We disagree.
The specific warranty language provision contained in the assignment form signed by Barker provided:
This language is not unique, as the form used appears from the record copy to be a standard Kansas Blue Print assignment form routinely utilized in Kansas for these purposes. The precise language is found in the "Typical Forms and Agreements" section of 2 Brown, The Law of Oil and Gas Leases, Assignment of Oil and Gas Lease with General Warranty § 18.03(2), p. 18-168 (2d ed. 2009) (with no alternative form provided), and in Kuntz, Kansas Law of Oil and Gas, p. 232 (1983) (reflecting Form 694 of the American Association of Petroleum Landmen). The precise language in the warranty of title provision in Wood was not quoted in the court's opinion, but the court stated that for purposes of the appeal it was proceeding on the assumption that the covenants found in the assignment warranted title and ownership. 158 Kan. at 732, 150 P.2d 331. Similarly, courts have not focused on precise language in finding that any such covenant is restricted to warranting and defending lawful claims. In Archer v. Eiland, 64 Fed.Appx. 676, 678-81 (10th Cir.2003), the Tenth Circuit Court of Appeals noted that the deed contained a covenant of warranty and quiet enjoyment, and in Lewis, this court discussed the warranty of title in a warranty deed. 27 Kan.App.2d at 938, 9 P.3d 1268. We are not convinced that the language of Barker's assignment varies materially from language employed, construed, and applied in warranty of title matters in Kansas and beyond.
More importantly, our examination of the language employed here defies RAMA's argument that a lawful claim is not required to trigger Barker's covenant to defend the title. RAMA's reading of the provision is a distortion of its plain meaning. Barker covenanted that his interest was "free and clear" of "adverse claims." But his promise to "warrant and forever defend" was restricted to persons "lawfully claiming or to claim" an adverse interest. Thus, in the absence of a lawful adverse claim, Barker had no duty to defend.
We conclude and hold that in the absence of a lawful claim by Bear Petroleum to the interest conveyed to RAMA, Barker had no duty to defend and did not breach his covenant of warranty of title. We must thus examine the record (and specifically the uncontroverted facts at summary judgment) to determine whether the adverse claim of Bear Petroleum was, in fact, lawful, or whether RAMA voluntarily and without suit yielded to a mere allegation of paramount title or claim, taking the risk that the adverse claim might not prove lawful.
Some additional background information is necessary to frame this issue: RAMA contended in its petition that the warranty of title was breached by a claim that the leased acreage was "subject to an oil and gas lease as part of a unitized producing gas unit which was held by production." In his defense of this argument, Barker's summary judgment motion focused on and supported his position that the underlying lease had expired by lack of production. His uncontroverted fact statements included the following facts particularly relevant to the issue on appeal:
In response to these proposed uncontroverted facts, RAMA controverted each of these statements as follows:
RAMA also stated some additional proposed uncontroverted facts including details of Austin's long-distance phone call with Schremmer, the conversation between Austin and Barker, the fact that Bear Petroleum was holding some royalties owed to the Babbs, the expenses incurred in commencing drilling operations, and another general denial of the accuracy of Barker's production history on the Fitzgerald Gas Unit.
First, we must address whether RAMA successfully controverted either the facts regarding
Turning first to the title documents, the record on appeal reflects that actual copies of the releases bearing recordation data were attached to Barker's memorandum in support of his summary judgment motion, and copies of title opinions obtained by Barker in early 1996 and in early 2001 were also attached as exhibits to the memorandum. Although an affidavit of Austin was cited by RAMA in support of its controversion of these facts, RAMA does not and cannot successfully controvert the existence of the documents except to the extent that it attempts to cloud the effect of the second release in citing a conversation with Schremmer.
Examining RAMA's attempt to controvert the production history, we find it to be a naked conclusory denial of Barker's history without any factual support whatsoever except a reference to a similar general denial contained in RAMA's response to a request for admissions. K.S.A. 60-256(e) requires that the nonmoving party in a summary judgment proceeding must "set forth specific facts showing that there is a genuine issue for trial." This is not merely a practice or a rule, this requirement is a statutory mandate. K.S.A. 60-256(e) provides in part:
This statute clearly provides that RAMA was required to respond with specific facts showing that there was a genuine issue for trial. Here, RAMA merely stated that production was not as represented by Barker, but it provided no specific facts beyond this conclusory statement. Caselaw in both Kansas state and federal courts have found that conclusory affidavits are insufficient to establish contested facts for summary judgment purposes. See Korytkowski v. City of Ottawa, 283 Kan. 122, 132, 152 P.3d 53 (2007) (finding that summary judgment for defendants was appropriate in inverse condemnation case when "the defendants presented ample evidence to support the reasonableness of the projects, and plaintiffs presented no evidence to rebut it, beyond their own unsupported and conclusory affidavits"); Estate of Belden v. Brown County, 46 Kan.App.2d 247, 284-285, 261 P.3d 943 (2011) (finding expert's conclusory opinions regarding county jail's policies for dealing with suicidal inmates contained in summary judgment affidavit were insufficient to create a genuine issue of material fact in negligence action); Sherwin-Williams Co. v. Cornerstone Painting, Inc., No. 95,262, ___ Kan. App.2d ___, 2006 WL 2864786, at *2-3 (Kan. App.2006) (unpublished opinion) (distinguishing between conclusory statements and substantive allegations contained in affidavit); see also KMMentor, LLC v. Knowledge Mgmt. Professional Soc., 712 F.Supp.2d 1222, 1251 (D.Kan.2010) (finding conclusory affidavit insufficient to establish contested fact for summary judgment purposes). Thus, we conclude that Austin's affidavit was insufficient to establish a genuine issue of material fact regarding the relevant production history from the lease of the gas unit in question.
Next we must address whether the Barker production history and the Bear Petroleum releases were alone sufficient to establish that the previous lease on the acreage had expired. RAMA argues on appeal that periods of nonproduction alone do not establish lease expiration, but rather "a proper analysis requires a weighing of the period of cessation of production together with evidence of the lessee's intent to resume production and of the efforts or lack of efforts by the lessee to resume production of oil or gas," citing Wrestler v. Colt, 7 Kan.App.2d 553, 644 P.2d 1342 (1982).
We begin with the elementary legal principles guiding our analysis: (1) When the primary term of an oil or gas lease has expired and the lease is being held upon the condition of continued production only, all rights under the lease terminate if and when production of oil or gas in paying quantities ceases. Kelwood Farms, Inc. v. Ritchie, 1 Kan.App.2d 472, Syl. ¶ 2, 571 P.2d 338 (1977); (2) a mere temporary cessation of production because of necessary developments or operation does not result in the termination of such lease or the extinguishment of rights acquired under its terms. Eichman v. Leavell Resources Corp., 19 Kan.App.2d 710, 713-14, 876 P.2d 171, rev. denied 255 Kan. 1001 (1994); and (3) a shut-in royalty clause in an oil and gas lease enables a lessee, under appropriate circumstances, to keep a nonproducing lease in force by the payment of the shut-in royalty. See Levin, 290 Kan. 928, Syl. ¶¶ 3-5, 234 P.3d 805; Tucker v. Hugoton Energy Corp., 253 Kan. 373, 381, 855 P.2d 929 (1993); see also Welsch v. Trivestco Energy Co., 43 Kan.App.2d 16, 221 P.3d 609 (2009) (general discussion of all these general principles and their application in Kansas), rev. denied 291 Kan. 917 (2010).
To avoid expiration due to lack of production after the primary term of a lease, however, it is incumbent on the party making the claim to sustain its burden to show that either of these alternative doctrines is applicable to keep the lease from expiring. That is, in the absence of evidence to show that a lack of production is merely temporary or that shut-in royalty payments have been made to serve as constructive production, an extended period of nonproduction standing alone can indeed serve to support lease expiration. The burden to rebut the clear implication of expiration by lack of production must fall on the party who seeks to demonstrate an exception to the clear effect of the habendum clause in the lease under challenge. See Tucker, 253 Kan. at 380-82, 855 P.2d 929 (habendum clause is provision defining secondary term of lease after development takes place); Pray v. Premier Petroleum, Inc., 233 Kan. 351, 353-55, 662 P.2d 255 (1983) (detailing burdens on the lessee in establishing applicability of shut-in provisions); Eichman, 19 Kan.App.2d at 714, 876 P.2d 171 (burden is on the lessee seeking to prove lease still in effect to establish any cessation of production is temporary and not permanent); see also Webb v. Hardage Corp., 471 So.2d 889, 892 (La.App.1985) (a lessee who claims to hold through the payment of shut-in royalties has the burden of showing that the well was capable of producing in paying quantities).
Here, the undisputed production history presented at summary judgment demonstrated that at the time of Barker's assignment of the Babbs lease to RAMA, there had been no production within the gas unit for 23 months and the operator/lessee of the prior lease (the Tyrell lease) had executed and there were recorded two releases of that interest. Granted, there was some dispute as to whether the second release was a "mistake," but we are not inclined to hold that this alone created a genuine issue of material fact that precluded summary judgment as a matter of law for three reasons.
First, every instrument in writing, certified and duly recorded in Kansas, imparts notice to all persons of its contents, and where its validity is called into question, it will not be held invalid absent satisfactory and convincing evidence by the challenging party. See K.S.A. 58-2222; Palmer v. The Land & Power Co., 172 Kan. 231, 239 P.2d 960 (1952).
Second, although not raised by Barker, Schremmer was estopped from asserting
Third, the lack of production, together with (i) no factual assertions to support its being merely temporary, (ii) no allegations that the well was a shut-in well with royalty payments being made, and (iii) and at least one undisputed release of record by the prior operator/lessee, cause us to conclude that the prior leases had expired. Under these circumstances, a long-distance phone call with the individual executing the second release who indicated that the release was a "mistake" has little if any evidentiary value on the question of continuing lease validity because of the long-established principle in Kansas that the lack of a release is no evidence that an oil and gas lease is still in force. Cement Co. v. Brick & Tire Co., 100 Kan. 547, 549, 164 P.1087 (1917); see also Peatling v. Baird, 168 Kan. 528, 536-38, 213 P.2d 1015 (1950) (finding that although no release appeared in the record, the failure of the lessee to file an affidavit showing the happening of any contingency that would extend the express term of the lease disclosed a situation where the lease had expired by its own terms, and therefore it was of no force or effect and constituted no encumbrance on the title).
Based upon RAMA's failure to successfully controvert the production history on the gas unit and the resulting 23 months of nonproduction, its failure to factually support a temporary cessation of production, its failure to support constructive production by reason of shut-in royalty payments, and the fact of at least one undisputed release of record by the operator/lessee of the prior lease on this acreage, we hold that there was no lawful adverse claim constituting a breach of Barker's covenant of warranty of title or triggering his duty to defend and he was entitled to judgment as a matter of law at summary judgment.
The only mention by RAMA at summary judgment of its claim of breach of the implied covenant of good faith and fair dealing were the following references near the end of RAMA's summary judgment brief:
Beyond this bare-bones articulation of a claim at summary judgment, RAMA
In summary and conclusion, we hold that Barker's uncontroverted production history showing no production within the Fitzgerald Gas Unit and on the lease in question for at least 23 months, coupled with the failure of RAMA to provide factual support for any scenario that could have kept the lease from expiring by its own terms and the fact of at least one duly recorded release by the adverse claimant, demonstrated that there was no lawful claim asserted by Schremmer/Bear Petroleum, thus entitling Barker to summary judgment. We further hold that RAMA failed to adequately defend the summary judgment by its claim that Barker breached his implied duty of good faith and fair dealing and further failed to adequately raise this defense on appeal to warrant our discussion of its merits. For these reasons, we must reverse the decision of Judge Kitts at summary judgment, reverse Judge Bennington's reconsideration of that motion, reverse the subsequent judgment at bench trial, and remand with directions to grant summary judgment for Barker.
Reversed and remanded with directions to enter summary judgment in favor of David A. Barker.
ATCHESON, J., concurring:
I join in Chief Judge Greene's thorough discussion and disposition of the substantive issues in this case. But I pause to note my guarded reservation about the procedural frame the parties have used to display those issues and which the court borrows to decide them. The district court denied summary judgment to Defendant David A. Barker, finding there were disputed issues of material fact. The case then proceeded to bench trial, and the district court entered judgment for Plaintiff RAMA Operating Company, Inc. in due course. Barker has focused his appeal on the denial of summary judgment.
The Kansas appellate courts have regularly entertained challenges to decisions denying summary judgment, even though the parties' dispute has then been submitted to and resolved by a judge or jury at trial. That basis for appeal is not plainly set forth in any statute or rule; it is a judge-made device. The federal appellate courts, operating under comparable rules, generally do not permit a party losing at trial to appeal the denial of a summary judgment on grounds that the district court arguably erred in finding disputed issues of material fact. See, e.g., Cravens v. Smith, 610 F.3d 1019, 1027 (8th Cir.2010) (cases cited); Banuelos v. Construction Laborers' Trust Funds, 382 F.3d 897, 902-03 (9th Cir.2004) (When a district court denies summary judgment based on a factual dispute and a jury then resolves that dispute, appellate review of the denial amounts to a "pointless academic exercise of deciding whether a factual issue was disputed after it has been decided."); Paschal v. Flagstar Bank, 295 F.3d 565, 571-72 (6th Cir.2002). Under the Kansas Code of Civil Procedure, as with the federal rules, a party denied summary judgment may preserve legal issues or defenses for appeal by incorporating them into a trial motion for judgment as a
There are arguments to be made for either approach to denials of summary judgment. But Kansas has long expressed a compelling regard for the insight of jurors and the primacy of jury trials in civil proceedings. See Kansas Constitution Bill of Rights § 5 ("The right of trial by jury shall be inviolate."); Dixon v. Prothro, 251 Kan. 767, 774, 840 P.2d 491 (1992) ("Juries, and their position as fact-finding bodies, have such an important place in our system and history that any attempt to curtail the right to jury trial should be examined with the utmost care."); Hasty v. Pierpont, 146 Kan. 517, 520-21, 72 P.2d 69 (1937). A practice that elevates the dueling affidavits and deposition excerpts of summary judgment over the actual fact-finding of a jury (or a judge) after seeing witnesses and hearing evidence might be questioned as unwise or as lacking due respect for the trial process.
In this case, however, the parties have not raised those questions. And without the benefit of the sharpened debate of advocates advancing competing legal arguments, I have no intention of suggesting here and now if a denial of summary judgment ought to be appealable following a trial on the merits to a judge or a jury. See GTE Sylvania, Inc. v. Consumers Union, 445 U.S. 375, 382-83, 100 S.Ct. 1194, 63 L.Ed.2d 467 (1980) ("The clash of adverse parties `"sharpens the presentation of issues upon which the court so largely depends for illumination of difficult ... questions."'"). By the same token, my concurrence in reversing the district court in this case should not be construed as a suggestion one way or the other.
