Summary
The Oklahoma Supreme Court held that an agreement granting an LLC the right to participate in all future wells within an area of mutual interest created a property interest subject to Oklahoma's constitutional rule against perpetuities. The Court further held that an LLC is not a life in being for purposes of that rule and affirmed dismissal of the claims. The Court vacated the Court of Civil Appeals' opinion and affirmed the district court's order.
Topics
Practice areas
Questions Presented
- Whether a provision in a stand-alone area-of-mutual-interest agreement granting American Natural Resources the right to participate in all future wells creates a property interest subject to Oklahoma's constitutional rule against perpetuities.
- Whether a limited liability company qualifies as a life in being for purposes of measuring the permissible period under the rule against perpetuities.
- Whether American Natural Resources could obtain review of its request to reform the provision under the cy pres doctrine when that issue was not raised in the district court or petition in error.
Holdings
- The participation provision in the stand-alone area-of-mutual-interest agreement creates a property interest and is subject to Oklahoma's rule against perpetuities.
- A limited liability company is not a life in being for purposes of the rule against perpetuities.
- The court would not review American Natural Resources' reformation argument because it was raised for the first time in the response to the certiorari petition and was not preserved in the district court or petition in error.
Key quotations
“We answer the first question in the affirmative and the second question in the negative.” (¶ 1)
“Simply, the Option Provision provides for ANR to participate in wells infinitum and is subject to the rule against perpetuities.” (¶ 13)
“Here, ANR, as an LLC, is not a life in being regardless of whether it has an expiration date or it is perpetual.” (¶ 18)
“COURT OF CIVIL APPEALS' OPINION VACATED; DISTRICT COURT'S ORDER AFFIRMED.” (¶ 21)
Factual background
American Natural Resources and Encore Operating, L.P. entered into an agreement concerning development of an area of mutual interest for oil and gas exploration. The agreement granted American Natural Resources the right to participate with a twenty-five-percent working interest in all subsequent wells within the area, including wells drilled under future leases and joint operating agreements. After becoming Encore's successors, the defendants allegedly drilled seventeen wells without allowing American Natural Resources to participate.
Procedural history
American Natural Resources alleged breach of contract and intentional interference with prospective economic benefits and sought declaratory and accounting relief based on an agreement granting it the right to participate in future wells. The district court dismissed the claims, concluding that the participation provision violated the rule against perpetuities. The Court of Civil Appeals affirmed in part, reversed in part, and remanded for further proceedings. The Oklahoma Supreme Court granted certiorari, vacated the Court of Civil Appeals' opinion, and affirmed the district court's order.