Opinion Number: 1998-NMCA-063
Filing Date: March 12, 1998
Docket No. 18,205
FRED R. SKAGGS; JEWELL SKAGGS HOUSE;
CALVIN C. SKAGGS; LAVONIA SKAGGS ARP;
SARAH SKAGGS BELL; KAREN DIANE SKAGGS,
Trustee of the Skaggs Family Trust;
MARY ANN ROOF; and JEAN WRIGHT,
Plaintiffs-Appellants and Cross-Appellees,
CONOCO, INC.; CHEVRON USA, INC.;
ATLANTIC RICHFIELD COMPANY; AMOCO
PRODUCTION COMPANY; MWJR PETROLEUM
CORPORATION; OXY USA, INC.; JOHN H.
HENDRIX CORPORATION; MICHAEL L. KLEIN;
RONNIE H. WESTBROOK; DANIEL L. VEIRS;
KC MINERALS, INC.; RUTTER AND WILBANKS
CORPORATION; WAYNE A. BISSETT; TIMOTHY D.
COLLIER; DONALD G. BECKER, JR.; and
CHARLES M. MORGAN,
Defendants-Appellees and Cross-Appellants.
APPEAL FROM THE DISTRICT COURT OF LEA COUNTY
RALPH W. GALLINI, District Judge
James L. Reed, Jr.
James J. Ormiston
Looper, Reed, Mark & McGraw Incorporated
Charles H. Coll
Kelly M. Cassels
Sanders, Bruin, Coll & Worley, P.A.
Steven L. Tucker
Tucker Law Firm, P.C.
Santa Fe, NM
for Appellants and Cross-Appellees
John R. Cooney
Lynn H. Slade
Modrall, Sperling, Roehl, Harris & Sisk, P.A.
for Appellees and Cross-Appellants
Operating Defendants and MWJR
Lewis C. Cox, III
Heidel, Samberson, Newell & Cox
for Appellees and Cross-Appellants Rutter and
Wilbanks Corp.; John H. Hendrix Corp.; Michael L.
Klein; Ronnie H. Westbrook; Daniel L. Veirs;
Wayne A. Bissett; Timothy D. Collier; Donald G.
Becker, Jr.; Charles M. Morgan; and KC Minerals, Inc.
Stubbeman, McRae, Sealy, Laughline & Browder
for Appellee and Cross-Appellant
Oxy USA, Inc.
Plaintiffs appeal from an order awarding summary judgment
against them, denying their claims for an accounting and
damages, and dismissing their petition to quiet title to a
mineral leasehold in approximately 2560 acres of land located
in Lea County, New Mexico. The central issue presented on
appeal is whether the trial court erred in awarding summary
judgment to Defendants and denying Plaintiffs' claims.
Defendants have also filed a cross-appeal, alleging that
the trial court erred in granting Plaintiffs' partial motion
for summary judgment and finding, as a matter of law, that a
1927 drilling and operating agreement signed by J.M. Skaggs in
favor of Marland Oil Company of Colorado (Marland) was void ab
initio because of the failure of J.M. Skaggs' wife to join in
the agreement as mandated by New Mexico's former statute
requiring the joinder of spouses in conveying a community interest on realty.See footnote 1 We affirm the award of summary judgment
entered in favor of Defendants. For the reasons discussed
herein, our resolution of this issue renders the issues
asserted in the cross-appeal moot.
FACTS AND PROCEDURAL POSTURE
On June 5, 1926, J.M. Skaggs was granted a prospecting
permit by the United States Department of the Interior to
prospect for and to produce oil and gas on the acreage in
question. J.M. Skaggs was married to Mary Maye Skaggs when he
acquired the federal permit.
On February 23, 1927, J.M. Skaggs entered into a drilling
and operating agreement with Marland for the lands involved
herein. The agreement gave Marland the right to explore,
drill, develop, produce, and market any oil and gas discovered
on the property, and retain 87.5% of all the oil and gas
produced therefrom. A true copy of the 1927 drilling and
operating agreement attached to the motion for summary
judgment submitted by Conoco, Inc. and other Defendants does
not contain the signature of, or indicate that, Mary Maye
Skaggs joined in the 1927 drilling and operating agreement.
After J.M. Skaggs executed the 1927 operating agreement,
he conveyed all of the royalty interest retained by him to
third parties. From 1927 to 1930, J.M. Skaggs cooperated with
Marland in obtaining extensions from the Department of
Interior for the prospecting permit. On November 6, 1936,
J.M. Skaggs and Mary Maye Skaggs were divorced in Gray County,
Marland assigned its interest in the operating agreement
to Continental Oil Company (Continental), which subsequently
assigned portions of its interest to certain other named
Defendants. On July 2, 1937, the Department of Interior
issued an oil and gas lease involving the property in
question. After securing several extensions, Continental
discovered oil on the property in 1937. Following this
discovery, J.M. Skaggs informed the Secretary of Interior that
he objected to the issuance of the lease to Continental and
other Defendants, and refused to assist in the applications
for issuance of a lease for the property. The Department of
Interior, however, issued the lease to Continental and its
assignees, subject to the provisions of the 1927 operating
On January 28, 1994, Plaintiffs filed suit against Defendants to quiet title to the property in question, and
sought an accounting and damages for the oil produced from the
property. Plaintiffs moved for partial summary judgment
seeking an adjudication that the 1927 operating agreement
signed by J.M. Skaggs was void as a matter of law. Defendants
also filed motions for summary judgment, asserting that, as a
matter of law, Plaintiffs' claims were barred by the statute
of limitations, and the doctrines of laches, ratification,
waiver, estoppel, or acquiescence. Following the filing of
cross-motions for summary judgment, the trial court ruled, as
a matter of law, that the 1927 operating agreement was void,
but that Plaintiffs' claims were barred by both laches and the
statutes of limitations contained in NMSA 1978, §§ 37-1-3
(1975) and 37-1-4 (1880).
Plaintiffs assert that the trial court erred in denying
their claim to quiet title to the property in question and
denying their claim for an accounting and damages. In
furtherance of this argument, Plaintiffs contend that the 1927
operating agreement created an express trust, giving rise to
a fiduciary relationship between the parties, and that the
statutes of limitations relied upon by the trial court were
tolled until the trust agreement was repudiated. Plaintiffs
further argue that because Defendants have never repudiated
the trust, the defenses of laches and statute of limitations
Prior to the entry of its order granting summary judgment
in favor of Defendants, the trial court sent a letter to the
parties detailing its reasons for denying Plaintiffs' claims.
The trial court stated that it was granting Defendants'
partial motion for summary judgment and rejecting Plaintiffs'
claim of the existence of a fiduciary relationship, and that:
The long delay - almost sixty (60) years since
the 1927 operating agreement - and the clear
awareness of the 1927 operating agreement
by Mary Maye Skaggs and her heirs appears, as the
. . . Defendants claim, to be "a textbook example
of the circumstances calling for the application of
the laches defense."
Our review of the record indicates the existence of
undisputed material facts from which the trial court could
properly award summary judgment in favor of Defendants as a
matter of law. The record discloses that after J.M. Skaggs
obtained the prospecting permit to the lands in question in
1927, he entered into a drilling and operating agreement with
Marland. Within a year of execution of that agreement, J.M.
Skaggs conveyed all of the royalty interest retained by him
under the 1927 operating agreement to third parties who
ultimately assigned or conveyed their interests to Defendants herein.See footnote 2
It is undisputed that Mary Maye Skaggs wrote to the
Department of Interior in 1951 and inquired concerning the
status of any interests her husband had in the Lea County
property. By letter dated September 25, 1951, the Department
of Interior responded to her inquiry advising her that its
records revealed that on February 23, 1927, J.M. Skaggs
entered into an operating agreement with Marland and such
operating agreement was later assigned to Continental and
others. The 1951 letter also advised Mary Maye Skaggs that,
under the terms of the operating agreement, J.M. Skaggs was to
receive an overriding royalty of 7½% on all production from
the lands in the lease and that:
[i]t appears that Mr. Skaggs assigned the entire
7½% overriding royalty in the (a) lease to various
parties and therefore, he no longer holds any
royalty interest in either of these leases. So far
as the records show, Mr. Skaggs owns no other oil
or gas leases on the public domain. [Emphasis
Plaintiffs do not dispute that Mary Maye Skaggs received
this letter advising her of her former husband's execution of
the operating agreement and his subsequent assignment of his
interests therein. Thereafter, no action was brought by
either her or her heirs to contest such transfers until 1994
when her heirs initiated the present action. J.M. Skaggs
died on December 12, 1960, and Mary Maye Skaggs died on
September 12, 1973.
Plaintiffs' claims were filed over sixty years after J.M.
Skaggs transferred the royalty interests, and over forty years
after the notification to Mary Maye Skaggs of the fact of such
transfers. Under these circumstances, where it is evident
that Mary Maye Skaggs was placed on notice of the fact that
the records showed that J.M. Skaggs had transferred such
royalty interests, where an extended period of time has
transpired during which there was no attempt to enforce any
rights claimed by Plaintiffs therein, and where Defendants
invested substantial sums in prospecting and developing oil
from such properties, the trial court could properly find the doctrine of laches to be applicable. The decision to apply
laches is left to the sound discretion of the trial court
which we review only for an abuse of discretion. See
Archuleta v. Pina, 86 N.M. 94, 99, 519 P.2d 1175, 1180 (1974).
Laches will lie when, in addition to other factors, there
has been an unexplainable delay of such duration in asserting
a claim as to render enforcement of such claim inequitable.
Larson v. Undem, 805 P.2d 1318, 1321 (Mont. 1990). The
elements of laches are: (1) conduct on the part of another
which forms the basis for the litigation in question; (2)
delay in the assertion of the complaining party's rights; (3)
lack of knowledge or notice on the part of the defendant that
the complaining party would assert such rights; and (4) injury
or prejudice to the defendant in the event relief is accorded
to the complaining party or the suit is not barred. Garcia v.
Garcia, 111 N.M. 581, 588, 808 P.2d 31, 38 (1991) (suit to
quiet title is subject to defense of laches); see also Berry
v. Meadows, 103 N.M. 761, 768, 713 P.2d 1017, 1024 (Ct. App.
1986) ("The application of the doctrine of laches depends upon
the circumstances of each case.").
It is undisputed that both Mary Maye Skaggs and J.M.
Skaggs, and other key witnesses, are no longer living and the
claims sought to be litigated had their genesis over a half-century earlier. See Foster v. State, 752 P.2d 459, 465-66
(Alaska 1988) (plaintiff's claim to property held barred where
evidence supports finding of laches, and foreclosure judgment
and deed had been a matter of public record for over thirty
years). It is also undisputed that Defendants expended monies
in exploring, drilling, and developing oil wells on the
property in question.See footnote 3 From these undisputed facts, the trial
court could also determine, as a matter of law, that
Defendants were prejudiced by the period of long delay. See
Farrar v. Hood, 56 N.M. 724, 732-33, 249 P.2d 759, 764-65
(1952) (as a matter of law, laches barred claim to quiet title
to mineral interests where there was showing of prejudicial
delay); see also Henry L. McClintock, Principles of Equity
§ 28, at 71 (2d ed. 1948). As noted by Professor McClintock,
"[c]ommon forms of prejudice to defendant are loss of evidence
to meet the claim of plaintiff, change in situation induced by
the delay, and change in the value of the subject-matter
involved, [and] . . . [p]rejudice to third persons . . . ."
McClintock, supra § 28, at 71-72 (footnotes omitted).
We deem the observations of the Montana Supreme Court in
Lowrance v. Gunderson, 487 P.2d 511, 514 (Mont. 1971) (decided
on summary judgment), relevant in the instant case. In Lowrance the court considered an action to quiet title in
certain lands involving an oil and gas royalty interest, and
held that equitable factors preclude a person from withholding
"`his claim, awaiting the outcome of an enterprise, and then,
after a decided turn has taken place in his favor, assert his
interest, especially where he has thus avoided the risks of
the enterprise.´" Id. (quoting 30A C.J.S. Equity § 118, at
67-68 (1965)); see also Moncrief v. Williston Basin Interstate
Pipeline Co., 880 F. Supp. 1495, 1513 (D. Wyo. 1995) ("It is
a well-accepted principle that the doctrine of laches is
particularly well-suited for application in the oil and gas
and mining areas due to the nature of these property
Plaintiffs vigorously argue, however, that the trial
court erred in granting Defendants' defense of laches. They
claim that a fiduciary relationship existed between the
parties by reason of the 1927 operating agreement and the
issuance of the 1937 leases indicating that Continental and
other Defendants held such leases as "trustees for J.M.
Skaggs." Plaintiffs assert that because Continental and other
Defendants were trustees, the time for filing such claims was
tolled until and unless Defendants repudiated such trust.
Plaintiffs, citing Oldland v. Gray, 179 F.2d 408, 415-16 (10th
Cir. 1950) and similar authority, also assert that Defendants
fraudulently breached their fiduciary duty by placing their
interests above the interests of the alleged beneficiaries.
In Oldland the court held that where a trust has been found to
exist, laches will not bar a claim unless the court determined
it is equitable to do so. The court also held that time does
not begin to run against a trustee until the trust is openly
disavowed by the trustee. Plaintiffs also argue that under
Jack v. Hunt, 75 N.M. 686, 698, 410 P.2d 403, 411 (1966) and
Kutz Canon Oil & Gas Co. v. Harr, 56 N.M. 358, 381-82, 244
P.2d 522, 536-38 (1952), our Supreme Court recognized that
operating agreements create a fiduciary relationship between
the permit holder and the operator.
Although Plaintiffs correctly interpret the foregoing
cases as recognizing that execution of certain types of
agreements may indeed give rise to the existence of a
fiduciary relationship, the trial court here properly
determined that the circumstances existing here supported
Defendants' claim of laches. In 1951 Mary Maye Skaggs wrote
to the Department of Interior inquiring about the status of
J.M. Skaggs' exploration lease. The Department of Interior
responded informing her that "Mr. Skaggs assigned the entire
7½% overriding royalty in the (a) lease to various parties and
therefore, he no longer holds any royalty interest in either
of these leases." Because Mary Maye Skaggs was placed on
notice that any royalty interest in the property had been
transferred, there was nothing left upon which one could
impute the existence of a trust. Additionally, the doctrine
of laches incorporates the equitable maxim that "Equity Aids
the Vigilant." McClintock, supra § 28, at 71. We agree with the trial court that the long delay (1951 to 1994) by
Plaintiffs in asserting their claims "makes the laches and
limitations defenses viable on the part of the . . .
We assume, but do not decide, that the operating
agreement here which granted an exclusive right to drill on
real estate in accordance with a federal oil and gas lease,
conveyed an interest in realty so as to bring such instrument
within the purview of the then existing statute requiring the
joinder of spouses under the circumstances described in 1915
New Mexico Laws, Chapter 84, Section 16. See Rock Island Oil
& Ref. Co. v. Simmons, 73 N.M. 142, 146, 386 P.2d 239, 241
(1963); see also Terry v. Humphreys, 27 N.M. 564, 569-70, 203
P. 539, 541 (1922) (oil and gas lease viewed as "real
property" within contemplation of statute governing transfer
or conveyance of community interest in realty). However,
because we determine that the trial court properly granted
Defendants' motion for summary judgment based upon the defense
of laches, we need not consider this or the other issues
raised by Defendants' cross-appeal.See footnote 4 Does v. Roman Catholic
Church, 1996-NMCA-094, ¶ 12, 122 N.M. 307, 924 P.2d 273
(courts will not decide unnecessary issues).
Lastly, Plaintiffs argue that the trial court erred in
refusing their discovery requests and denying them access to
title opinions or title reports relating to the
subject acreage, and opinions or title reports in the
possession of Defendants concerning the operating agreement or
the leases. Defendants objected to the production of this
information based on the attorney-client privilege.
Plaintiffs contend Defendants waived such privilege by
pleading affirmative defenses which place the contents of
those documents in issue. We disagree. Title opinions have
generally been recognized to be privileged communications.
See, e.g., Texaco, Inc. v. Phoenix Steel Corp., 264 A.2d 523,
525 (Del. Ch. 1970); see also Rule 11-503 NMRA 1998.
Moreover, it has also been recognized that a party does not
waive a claim of attorney-client privilege simply because he
or she has asserted an affirmative defense; rather there must
be some "offensive use" of the privileged information for
waiver to occur. Marathon Oil Co. v. Moyé, 893 S.W.2d 585,
590-92 (Tex. Ct. App. 1994). For example, in the principal
case relied upon by Plaintiffs, Conkling v. Turner, 883 F.2d
431, 434 (5th Cir. 1989), the plaintiff sought to evade
application of the statute of limitations in order for his
suit to proceed, but he refused to allow his attorneys to be
deposed concerning the issue as to when he knew or should have known of facts giving rise to the existence of his claim. The
Conkling court concluded that such use of the attorney-client
privilege "`would be [sic] manifestly unfair to the opposing
party.´" Id. (quoting Hearn v. Rhay, 68 F.R.D. 574, 581 (E.D.
Wash. 1975)). Under the facts presented here, we fail to see
how the defense of laches implicates the title opinions sought
by Plaintiffs since Defendants have not been shown to have
relied upon those opinions to prove their defense of laches.
See Restatement (Third) of the Law Governing Lawyers § 130
cmt. c, at 231 (Tentative Draft No. 2, 1989) ("Whether an
adversary may obtain discovery of materials that otherwise are
privileged depends not merely upon what the client pleads but
upon the way in which the client will likely prove the
assertion. If, for example, the client proposes to prove the
allegation [or defense] in ways that do not involve any
privileged communication, the exception does not apply.").
The order granting summary judgment in favor of
Defendants is affirmed.
IT IS SO ORDERED.
THOMAS A. DONNELLY, Judge
JAMES J. WECHSLER, Judge
MICHAEL D. BUSTAMANTE, Judge