Panhandle Oil and Gas, Inc. v. BHP Billiton Petroleum ?(Fayetteville)?, LLC , 520 S.W.3d 277 ( 2017 )

Cite as 2017 Ark. App. 201
ARKANSAS COURT OF APPEALS
DIVISION II
No. CV-16-884
Opinion Delivered: April 5, 2017
PANHANDLE OIL AND GAS, INC.
APPELLANT APPEAL FROM THE FAULKNER
COUNTY CIRCUIT COURT
V. [NO. 23CV-13-50]
BHP BILLITON PETROLEUM HONORABLE MIKE MURPHY,
(FAYETTEVILLE), LLC JUDGE
AFFIRMED IN PART; REVERSED
APPELLEE AND REMANDED IN PART
RAYMOND R. ABRAMSON, Judge
This is the second time this case is before us on appeal. In the first appeal, our court
dismissed for lack of a final order. Panhandle Oil & Gas, Inc. v. BHP Billiton Petroleum
(Fayetteville) LLC, 2016 Ark. App. 376, 499 S.W.3d 667 (Panhandle I). We now have a final
order; appellant Panhandle Oil and Gas, Inc. (Panhandle), has again appealed three dismissals
of their claims against appellee BHP Billiton Petroleum Fayetteville (BHP) from the
Faulkner County Circuit Court. On appeal, Panhandle argues that the circuit court abused
its discretion in granting two motions to dismiss pursuant to Rule 12(b)(6) of the Arkansas
Rules of Civil Procedure and that the circuit court erred by dismissing its claims against
BHP in the third amended complaint pursuant to Rule 41(b) of the Arkansas Rules of Civil
Procedure. For the following reasons, we affirm in part, and reverse and remand in part.
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I. Procedural History
As our court noted in Panhandle I, the procedural history of this case is rather
complex. We provided a recitation of the facts in that opinion and do so again here. In
May 2005, Panhandle and separate defendant Chesapeake Exploration, LLC (Chesapeake),
entered into a written agreement (the May 2005 Agreement), which stated that Chesapeake
would provide wellbore proposals to Panhandle for oil and gas wells in certain identified
sections of land in Arkansas where Panhandle owns forty or more net mineral acres and
Chesapeake desires to drill a well. Upon receiving a wellbore proposal, Panhandle would
then decide if it wanted to participate in the well. Panhandle argues that the obligations of
Chesapeake (and its assigns) included two things: (1) submit a well proposal in the event a
well was to be drilled; and (2) in the event Panhandle elected to participate in a well, execute
a wellbore assignment of any “Retained Interest,” which was a defined term. The contract
was designed to allow Panhandle to participate in the development of its minerals even
though Panhandle itself would not drill the well.
Panhandle claims that, beginning in 2009, it began experiencing significant delays in
receiving well proposals and other pertinent information. In an effort to remedy this,
Panhandle and Chesapeake entered into another agreement, which is referred to as “the
August 2010 Agreement,” in order to establish Panhandle as a record working-interest
owner in certain listed sections.1 On January 1, 2011, Chesapeake assigned its remaining
interest in the Panhandle Leases to BHP. On January 14, 2013, Panhandle filed suit against
1
Due to a mutual mistake of the parties to the August 2010 Agreement, eight leased
sections in which Panhandle owned forty or more net mineral acres were inadvertently
omitted from the agreement.
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Chesapeake based on Chesapeake’s alleged breaches of the May 2005 Agreement and also
named BHP as a defendant. In its first amended complaint, filed on June 21, 2013,
Panhandle asserted causes of action against BHP for breach of the May 2005 Agreement,
specific performance of the same, an equitable accounting, and unjust enrichment. 2 On July
11, 2013, BHP moved to dismiss the causes of action against it in the first amended
complaint under Rule 12(b)(6) of the Arkansas Rules of Civil Procedure for failure to
adequately state a claim. BHP argued that the first amended complaint sought to extend the
May 2005 Agreement beyond its written terms, failed to allege sufficient facts—including
an adequate basis to support successor liability—and failed to allege claims for an equitable
accounting or unjust enrichment. After Panhandle responded on July 25, 2013, the circuit
court heard oral arguments on the issues raised in the motion and response. On October
31, 2013, the circuit court dismissed BHP from the case by stating, without further
explanation, that the Rule 12(b)(6) motion was granted.
On November 21, 2013, Panhandle filed its second amended complaint, pursuant to
Rule 15(a) of the Arkansas Rules of Civil Procedure, asserting claims against both BHP and
defendant Chesapeake. The claims in the second amended complaint were nearly identical
to the claims made in the first amended complaint. The only changes were to include various
argumentative and conclusory allegations in response to BHP’s previous motion to dismiss
and to state new claims for reformation in which Panhandle specifically requested that the
2
BHP was not a party to the May 2005 Agreement but was named as a defendant in
this lawsuit. In its amended complaint, Panhandle notes that BHP purchased Chesapeake’s
interest in the Panhandle Leases (after intervening conveyances) on January 1, 2011. By
doing so, Panhandle argues, BHP assumed all of Chesapeake’s rights and obligations under
both the May 2005 Agreement and the August 2010 Agreement.
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terms of the May 2005 Agreement and the August 2010 Agreement be expanded in order
to impose new contractual obligations on BHP.3 On December 23, 2013, BHP filed a
motion to dismiss Panhandle’s second amended complaint pursuant to Rule 12(b)(6) of the
Arkansas Rules of Civil Procedure for the same reasons previously argued to the circuit
court. Panhandle filed a written response to the motion, and the circuit court held a hearing
on February 24, 2014. On March 17, 2014, the circuit court, without further explanation,
granted BHP’s motion to dismiss the second amended complaint, finding it had failed to
state facts upon which relief could be granted as to BHP.4
On April 9, 2014, Panhandle filed its third amended complaint. On May 16, 2014,
BHP moved to dismiss or strike this third iteration of Panhandle’s claims against it because
Rule 41(b) of the Arkansas Rules of Civil Procedure directs that the circuit court’s second
order of dismissal should be deemed as an adjudication on the merits, and consequently is a
dismissal with prejudice. Therefore, BHP argued, the circuit court was barred from taking
3Panhandle has never alleged that BHP breached the August 2010 Agreement.
4
Judge Mike Maggio was the original circuit judge on this case. One week after the
March 17, 2014 dismissal order, the Arkansas Supreme Court entered an order suspending
Judge Maggio from the bench. On July 14, 2014, the Chief Justice of the Arkansas Supreme
Court assigned Judge Rob Wyatt of the 11th Judicial Circuit West to hear the case, and the
attorneys were notified by the Faulkner County Circuit Clerk of the appointment. In an
order filed on August 19, 2014, Judge Wyatt set a motion hearing for Monday, September
22, 2014. Judge Mike Murphy, who had been elected to the 1st Division Circuit Court of
the 20th Judicial Circuit in May 2014, was appointed by Governor Mike Beebe in
September 2014 to fill the vacancy in the 2nd Division Circuit Court to finish out that
term. Therefore, on September 22, 2014, the Chief Justice terminated Judge Wyatt’s
assignment of the case. Judge Murphy remained the circuit judge assigned to this case until
he was sworn in as a judge on our court on January 1, 2017, after being elected to the Court
of Appeals, District 2, Position 2, in May 2016.
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up Panhandle’s reasserted allegations. On June 5, 2014, Panhandle filed a response to BHP’s
motion; within its response was a request that the circuit court reconsider and vacate the
March 17, 2014 dismissal.
On December 29, 2014, after the issue was briefed by both parties, the circuit court,
in a letter opinion, granted BHP’s motion and denied the request for reconsideration of the
dismissal of the second amended complaint that was included in Panhandle’s response to the
motion to dismiss the third amended complaint. After a settlement, Chesapeake was
dismissed in August 2015, and the circuit court entered an order and judgment on
September 26, 2016, reflecting the contents of the December 29, 2014 letter opinion. This
timely appeal is now properly before our court.
In Panhandle’s notice of appeal filed September 29, 2016, Panhandle appeals the two
consecutive Rule 12(b)(6) dismissals by former Judge Maggio of claims asserted against BHP,
and the Rule 41(b) dismissal by Judge Murphy, all of which became ripe for postjudgment
appeal after the combination of Panhandle’s dismissal of Chesapeake and the order and
judgment entered on September 26, 2016.
Panhandle maintains that in order to properly dismiss its claims against BHP under
Rule 12(b)(6), Judge Maggio had to find that Panhandle failed to (1) state general facts upon
which relief could have been granted against BHP or (2) include specific facts pertaining to
one or more of the elements of one of its claims after accepting all facts contained in the
complaint as true and in the light most favorable to the non-moving party. Bethel Baptist
Church v. Church Mut. Ins. Co., 54 Ark. App. 262, 265, 924 S.W.2d 494, 496 (1996). Both
of the orders dismissing BHP pursuant to Rule 12(b)(6) provide that Panhandle “fail[ed] to
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state facts upon which relief can be granted against BHP” but provide no further
explanation. The circuit court was not specific in either order as to why or how the pleading
was inadequate, though we note this is not required when dismissing a case pursuant to
Rule 12(b)(6).
II. Standard of Review
This court has often stated the standards to be applied in reviewing a dismissal order
under Rule 12(b)(6), and we look to the four corners of the complaint. See Peck v. Peck,
2016 Ark. App. 423, 502 S.W.3d 553. In reviewing a circuit court’s decision on a motion
to dismiss under Rule 12(b)(6), we treat the facts alleged in the complaint as true and view
them in the light most favorable to the plaintiff. Neal v. Wilson, 316 Ark. 588, 873 S.W.2d
552 (1994); Gordon v. Planters & Merchants Bancshares, Inc., 310 Ark. 11, 832 S.W.2d 492
(1992); Battle v. Harris, 298 Ark. 241, 766 S.W.2d 431 (1989). In viewing the facts in the
light most favorable to the plaintiff, the facts should be liberally construed in the plaintiff’s
favor. See Biedenharn v. Thicksten, 361 Ark. 438, 206 S.W.3d 837 (2005).
In deciding dismissal motions, the circuit court must look only to the allegations in
the complaint. Neal v. Wilson, supra; Wiseman v. Batchelor, 315 Ark. 85, 864 S.W.2d 248
(1993); Deitsch v. Tillery, 309 Ark. 401, 833 S.W.2d 760 (1992). In order to state a cause of
action, the complaint must allege facts and not mere conclusions. Ark. R. Civ. P. 8; see also
Hollingsworth v. First Nat’l Bank & Trust Co., 311 Ark. 637, 846 S.W.2d 176 (1993); Rabalaias
v. Barnett, 284 Ark. 527, 683 S.W.2d 919 (1985). When a complaint is dismissed without
prejudice, the plaintiff has the option of pleading further or appealing. Hollingsworth, supra.
Arkansas is a fact-pleading state, and this court looks to the underlying facts
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supporting an alleged cause of action to determine whether the matter has been sufficiently
pled. Brown v. Tucker, 330 Ark. 435, 954 S.W.2d 262 (1997). As our supreme court noted
in Ballard Group, Inc. v. BP Lubricants USA, Inc., 2014 Ark. 276 at 5, 436 S.W.3d 445, 449,
[g]enerally speaking, the granting of both a Rule 12(b)(6) dismissal and a Rule 41(b)
dismissal are reviewed under the abuse-of-discretion standard. J.B. Hunt, LLC v.
Thornton, 2014 Ark. 62, 432 S.W.3d 8 (Rule 12(b)(6)); Jonesboro Healthcare Ctr., LLC
v. Eaton-Moery Envtl. Servs., Inc., 2011 Ark. 501, 385 S.W.3d 797 (Rule 41(b)).
However, when this court must construe a court rule, our appellate review is de
novo. Jonesboro Healthcare Ctr., 2011 Ark. 501, 385 S.W.3d 797. Thus, in this case,
we must determine whether the circuit court abused its discretion in dismissing the
complaint; if it did not, then we determine whether the circuit court erred in
applying the two-dismissal rule as expressed in Rule 41(b).
The same reasoning is applicable in the instant case, and so we turn to the causes of
action at issue here, and we address them individually as to whether they were properly
dismissed under Rule 12(b)(6) and ultimately Rule 41(b).
A. Specific Performance/Breach of Contract
Panhandle alleged in both its first amended complaint and second amended complaint
that it sought specific performance requiring the defendants to satisfy their contractual
obligations under the May 2005 Agreement. In a contract-based case, pleadings “are to be
liberally construed and are sufficient if they advise a defendant of his obligations and allege
a breach of them.” Rabalaias, 284 Ark. at 528, 683 S.W.2d at 921. This applies whether or
not the contract-based theory is specific performance or breach of contract, even though
the remedies differ. As explained in Mitchell v. House, 71 Ark. App. 19, 21, 26 S.W.3d 586,
587 (2000), “[s]pecific performance is an equitable remedy which compels performance of
a contract on the precise terms agreed upon by the parties.” Whether specific performance
should be awarded in a particular case is generally a question of fact. Id.
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The pleading requirements for breach-of-contract claims differ slightly, but the
threshold for pleading such a claim is not high. To state a claim for breach of contract, “the
complaint need only assert the existence of a valid and enforceable contract between the
plaintiff and defendant, the obligation of defendant thereunder, a violation of the defendant,
and damages resulting to the plaintiff from the breach.” Rabalaias, 284 Ark. at 528–29, 683
S.W.2d at 921.
Here, we hold that both the first amended complaint and the second amended
complaint included sufficient factual allegations to state claims for specific performance as
well as breach of contract. In both pleadings, Panhandle identified the contract, BHP’s
obligations thereunder, how BHP breached, and finally how Panhandle was damaged.
We agree with Panhandle that the factual allegations in both the first amended
complaint and the second amended complaint gave BHP fair notice of the claims and the
grounds upon which those claims are based. See Goldsby v. Fairley, 309 Ark. 380, 384, 831
S.W.2d 142, 144 (1992). Accordingly, we conclude that the circuit court abused its
discretion in twice dismissing the specific-performance and breach-of-contract claims
pursuant to Rule 12(b)(6).
We also note that both parties devote significant attention to the defense of successor
liability in their respective briefs. Specifically, BHP argues that Panhandle failed to allege
facts that BHP assumed the liabilities of Chesapeake, while Panhandle maintains that the
circuit court’s “apparent acceptance of BHP’s successor liability argument” constituted an
abuse of discretion. In both of its orders granting BHP’s two separate motions to dismiss,
the circuit court did not expressly address successor liability. However, because we treat the
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facts alleged in the complaint as true and view them in the light most favorable to the party
who filed the complaint, we conclude that Panhandle alleged sufficient facts in its complaints
to establish that BHP assumed Chesapeake’s liabilities—at least sufficient enough to survive
a 12(b)(6) motion. Accordingly, we hold that Panhandle pled sufficient facts upon which
relief can be granted, and BHP’s factual arguments regarding successor liability are not
germane for a motion to dismiss pursuant to Rule 12(b)(6).
B. Reformation
Panhandle’s claims of reformation of the May 2005 Agreement and reformation of
the August 2010 Agreement are pled only in its second amended complaint. Reformation
is an equitable remedy that is available when the parties have reached a complete agreement
but, through mutual mistake, the terms of their agreement are not correctly reflected in the
written instrument purporting to evidence the agreement. Lambert v. Quinn, 32 Ark. App.
184, 798 S.W.2d 448 (1990). A mutual mistake is one that is reciprocal and common to
both parties, each alike laboring under the same misconception in respect to the terms of
the written instrument. Yeargan v. Bank of Montgomery Cty., 268 Ark. 752, 595 S.W.2d 704
(Ark. App. 1980). A mutual mistake must be shown by clear and decisive evidence that, at
the time the agreement was reduced to writing, both parties intended their written
agreement to say one thing and, by mistake, it expressed something different. See Lambert,
supra. Whether a mutual mistake warranting reformation occurred is a question of fact. Id.
Panhandle’s second amended complaint set forth two reformation claims: (1) an
alternative request for reformation of the May 2005 Agreement based upon an unforeseen
regulatory change in circumstances, which Panhandle intended to request if the circuit court
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found that the May 2005 Agreement limited Panhandle’s participation rights to
“Chesapeake-drilled” wells; and (2) a request for reformation of the August 2010 Agreement
based upon a mutual mistake of the parties.
We first look at the facts pled in Panhandle’s second amended complaint regarding
the August 2010 Agreement. Panhandle pled a mutual mistake with respect to this
agreement which BHP does not dispute. The parties to the August 2010 Agreement
intended that the execution of that agreement would establish Panhandle as a record
working-interest owner in all relevant sections, but certain sections were left out by mistake.
Panhandle identified the sections that were mistakenly omitted in paragraph 42 of its second
amended complaint. Panhandle asserted that the wells at issue were all drilled in, or
associated with, the identified sections, and therefore the August 2010 Agreement did not
fix all the problems it was designed to fix. We hold that Panhandle was not required to plead
anything more, and as such, we reverse the circuit court’s decision to dismiss the reformation
claim as to the August 2010 Agreement.
As to Panhandle’s alternative request for reformation of the May 2005 Agreement,
Panhandle argues that its factual allegations established an unforeseen change in
circumstances that authorized reformation. Treating the facts alleged in the complaint as
true and viewing them in the light most favorable to the plaintiff as we are required to do,
we will construe the pleadings liberally and resolve all reasonable inferences in favor of the
complaint. See J.B. Hunt, LLC v. Thornton, 2014 Ark. 62, 432 S.W.3d 8. Our court also
looks to the underlying facts supporting an alleged cause of action to determine whether the
matter has been sufficiently pled. Perry v. Baptist Health, 358 Ark. 238, 189 S.W.3d 54
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(2004). While Panhandle does not use the phrase “mutual mistake” with regard to its
reformation claim as to the May 2005 Agreement, we conclude its facts as pled alleged a
mutual mistake of the parties.
The complaint sets forth facts that establish that the parties made a mutual mistake in
the May 2005 Agreement; when the agreement was executed, the parties believed
Chesapeake would be the only party drilling wells on the tracts covered by that agreement.
Whether either party to the May 2005 Agreement contemplated that leasing and drilling
activity would become so popular that other operators would be awarded drilling rights in,
or associated with, the leased sections is a question of fact that is inappropriate for a Rule
12(b)(6) dismissal. Accordingly, we reverse the circuit court’s dismissal of Panhandle’s
reformation claims that were alleged in its second amended complaint.
C. Equitable Accounting/Appointment of a Special Master
In both its first and second amended complaints, Panhandle attempts to bring a
separate claim for an equitable accounting and argues that it is entitled to have a special
master appointed to conduct a full and complete accounting of defendants with respect to
all revenues, profits, and other activities for the wells. However, Arkansas law is clear that
an equitable accounting is a remedy and not a proper cause of action. In re Estates of McKnight
v. Bank of Am., N.A., 372 Ark. 376, 380, 277 S.W.3d 173, 177 (2008). Therefore, we hold
that the circuit court did not abuse its discretion when it twice dismissed Panhandle’s
equitable-accounting claims under Rule 12(b)(6).5
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We note that we are not precluding Panhandle from seeking the remedy of an
equitable accounting, but only recognizing that it cannot be asserted in a complaint as a
cause of action.
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D. Unjust Enrichment
In both its first amended complaint and second amended complaint, Panhandle pled
unjust enrichment, premised on the assumption that the circuit court might find the parties’
written agreements inapplicable or unenforceable. Arkansas permits a complaint to state
alternative legal theories even if those theories are inconsistent with one another. Hoyle v.
Faucher, 334 Ark. 529, 975 S.W.2d 843, 845 (1998); Albright v. S. Farm Bureau Life Ins. Co.,
327 Ark. 715, 940 S.W.3d 488, 490 (1997). Pleading alternative legal theories does not
negate either theory’s viability. Id. Our appellate courts have allowed litigants to proceed
under an alternative theory of unjust enrichment when there is a dispute as to a written
agreement’s applicability or enforceability. See, e.g., Campbell v. Asbury Auto, Inc., 2011 Ark.
157, 381 S.W.3d 21, 36; QHG of Springdale, Inc. v. Archer, 2009 Ark. App. 692, 373 S.W.3d
318.
Here, the circuit court presumably accepted BHP’s argument that the May 2005
Agreement was unenforceable as against BHP or that there had been no breach of the May
2005 Agreement. As Panhandle argues, this should have opened the door for a viable unjust-
enrichment claim because the May 2005 Agreement either did not fully address the subject
matter of the lawsuit, or BHP’s disputed performance would eventually be compelled under
protest. See QHG of Springdale, Inc., supra.
In both the first amended complaint and the second amended complaint, Panhandle
identified which wells were at issue, based on its then existing knowledge, by well name,
well number, and spud/drill date. In its complaints, Panhandle also identified what it
believed it was entitled to from either Chesapeake or BHP––or both. We believe the facts
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pled by Panhandle are sufficient to state a claim for unjust enrichment; accordingly, we hold
that the circuit court abused its discretion in dismissing Panhandle’s alternative claim for
unjust enrichment on two occasions.
III. Rule 41(b)
We turn now to the circuit court’s dismissal pursuant to Rule 41(b), or what is
commonly referred to as “the two-dismissal rule.” Rule 41 provides in pertinent part,
(b) Involuntary Dismissal. In any case in which there has been a failure of the plaintiff
to comply with these rules or any order of court or in which there has been no action
shown on the record for the past 12 months, the court shall cause notice to be mailed
to the attorneys of record, and to any party not represented by an attorney, that the
case will be dismissed for want of prosecution unless on a stated day application is
made, upon a showing of good cause, to continue the case on the court’s docket. A
dismissal under this subdivision is without prejudice to a future action by the plaintiff
unless the action has been previously dismissed, whether voluntarily or involuntarily,
in which event such dismissal operates as an adjudication on the merits.
Ark. R. Civ. P. 41(b) (2016).
This rule essentially mandates that a second dismissal of a lawsuit operates as an
adjudication on the merits and must be with prejudice if the previous dismissal was a result
of the plaintiff’s failure to comply with the rules. The purpose of the two-dismissal rule is
“to prevent unreasonable use of the plaintiff’s unilateral rights to dismiss an action prior to
the filing of the defendant’s responsive pleading” and “to prevent delays and harassment by
plaintiffs securing numerous dismissals without prejudice.” Richard v. Union Pac. R.R. Co.,
2012 Ark. 129, at 7–8, 388 S.W.3d 422, 426. Our supreme court has concluded that the
second Rule 12(b)(6) dismissal of claims is a dismissal with prejudice. See Ballard Group,
supra.
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As noted above, our standard of review here is twofold. Normally, a Rule 41
dismissal is reviewed under an abuse-of-discretion standard. See Jonesboro Healthcare Ctr.,
LLC v. Eaton-Moery Envtl. Servs., 2011 Ark. 501, 385 S.W.3d 797. When this court must
construe the meaning of a court rule, however, our review is de novo. Richard, supra.
Because we have concluded that the claim for equitable accounting/appointment of a special
master was twice properly dismissed pursuant to Rule 12(b)(6), we hold that the Rule 41(b)
dismissal of this claim with prejudice was appropriate. That part of the Rule 41(b) dismissal
is therefore affirmed. However, because we conclude that the circuit court abused its
discretion in dismissing the claims of specific performance, breach of contract, reformation
of the May 2005 Agreement, reformation of the August 2010 Agreement, and unjust
enrichment pursuant to Rule 12(b)(6), we hold that the Rule 41(b) dismissal is also improper
as to those claims, and we therefore reverse and remand.
Affirmed in part; reversed and remanded in part.
KLAPPENBACH and VAUGHT, JJ., agree.
Morgan Law Firm, P.A., by: M. Edward Morgan; and Fellers Snider Blankenship Bailey
& Tippens, P.C., by: Mark K. Stonecipher and C. Eric Shephard, pro hac vice.
PPGMR Law, PLLC, by: Julie DeWoody Greathouse and Kimberly D. Logue, for
appellee.
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