Form 8-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): December 1, 1995 (November 17,
1995)
SAN JUAN BASIN ROYALTY TRUST
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(Exact name of registrant as specified in its charter)
Texas 1-8032 75-6279898
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
Bank One, Texas, NA, Trust Department
P.O. Box 2604, Fort Worth, Texas 76113
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (817) 884-4630
Not applicable
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(Former name or former address, if changed since last report)
Item 1. Not Applicable.
Item 2. Not Applicable.
Item 3. Not Applicable.
Item 4. Not Applicable.
Item 5. Other Events.
As previously reported in San Juan Basin Royalty Trust's Form
10-Q for the quarterly period ended September 30, 1995, with
regard to the lawsuit filed by the Trustee of the San Juan Basin
Royalty Trust against Meridian Oil Inc. and Southland Royalty
Company in the state district court in Santa Fe County, New
Mexico, in Cause No. SF94-1982(c), a hearing was held on
November 17, 1995 with regard to the Trustee's motion for leave
to file its Second Amended Complaint. Such motion was granted
by the court. The Trustee filed the Second Amended Complaint
to more fully particularize the pleadings, the nature of the
claims of liability in the case, and the facts supporting
alter ego and single business enterprise liability and
fraudulent concealment as it pertains to the Defendants' statute
of limitations defense and to assert the following additional
claims for relief: breach of express good faith duty,
constructive fraud, unjust enrichment and prima facie tort and
to add claims in the alternative of intentional interference
with contract and of conspiracy. A copy of such Second
Amended Complaint is attached hereto as an exhibit.
Also, as previously reported, trial of the above-referenced
proceeding was scheduled for February 1996. Meridian Oil Inc.
and Southland Royalty Company filed a motion seeking a
continuance of the February 1996 trial setting. Such
motion was granted at a hearing held on November 28, 1995.
Trial is now scheduled to begin July 15, 1996.
Item 6. Not Applicable.
Item 7. Financial Statements and Exhibits.
(a) Not Applicable
(b) Not Applicable
(c) Exhibits
(99.1) Second Amended Complaint For Breach
Of Contract, Tortious Conduct and For
Damages and Equitable Relief
(99.2) Press Release dated November 30, 1995
Item 8. Not Applicable.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BANK ONE, TEXAS, NA
Trustee of the
San Juan Basin Royalty Trust
By: /s/ LEE ANN ANDERSON
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Lee Ann Anderson
Vice President
DATE: December 1, 1995
(The Trust has no directors or executive officers.)
EXHIBIT INDEX
Exhibit No. Exhibit Page
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99.1 Second Amended Complaint For Breach Of
Contract, Tortious Conduct and For Damages
and Equitable Relief
99.2 Press Release Dated November 30, 1995
EXHIBIT 99.1
STATE OF NEW MEXICO
COUNTY OF SANTA FE
FIRST JUDICIAL DISTRICT
BANK ONE, TEXAS, NA.,
Successor to Team Bank, Trustee for
the San Juan Basin Royalty Trust,
Plaintiff,
VS. No. 94-1982(C)
MERIDIAN OIL INC., a corporation,
and SOUTHLAND ROYALTY COMPANY,
a corporation,
Defendants.
SECOND AMENDED COMPLAINT FOR BREACH OF CONTRACT,
TORTIOUS CONDUCT AND FOR DAMAGES
AND EQUITABLE RELIEF
The plaintiff seeks relief in the form of damages for
breaches of contract, tortious conduct and for other relief, for
its claims stating:
JURISDICTION AND VENUE
1. Each of the defendants is now transacting, and at the
material times has transacted, business within New Mexico and has
an agent for service of process who resides within New Mexico.
2. The statutory agent designated for service of process
by each of the defendant corporations at the time this action was
filed was C. T. Corporation System,
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217 W. Manhattan, Santa Fe, in Santa Fe County, New Mexico and
venue is proper in Santa Fe County.
IDENTIFICATION OF PARTIES
3. The plaintiff Bank One, Texas, N.A., successor Trustee
for the San Juan Basin Royalty Trust, ("Bank") is a national
banking association organized and existing under the laws of the
United States of America with a principal place of business in
Fort Worth, Texas. Bank is the successor by merger to Team Bank,
the successor by merger to Team Bank, N.A., which in turn is
successor to Texas American Bank Fort Worth, N.A. which was
previously named the Fort Worth National Bank. Bank is engaged,
among other things, in the business of managing trusts and
estates and brings this suit in its capacity as trustee for the
San Juan Basin Royalty Trust ("Royalty Trust" or "Trust"). The
Royalty Trust was created November 1, 1980 to hold a 75% net
overriding royalty interest in 122,000 net producing acres of
minerals in the San Juan Basin of New Mexico on which there were
then approximately 834 net productive natural gas wells and an
unknown number of oil wells.
4. The defendant, Meridian Oil Inc. ("MOI"), is a Delaware
corporation with its principal places of business in Ft Worth,
Texas and Houston, Texas. MOI is in the business of exploring
for, developing and producing oil and natural gas; it is also in
the business of providing marketing, gathering and processing of
natural gas and liquids derived from natural gas, with a
significant portion of this activity taking place in the San Juan
Basin of New Mexico. MOI is a wholly-owned subsidiary of
Meridian Oil Holding, Inc., which in turn is a wholly-owned
subsidiary of Burlington Resources, Inc. The
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business of MOI includes at all times material hereto the actual
management and operation of oil and gas properties in the San
Juan Basin of New Mexico to which Southland Royalty Company holds
legal title or interest.
5. The defendant, Southland Royalty Company ("Southland"),
is a Delaware corporation with its nominal principal place of
business in Houston, Texas; it is not an operating company that
actually engages in any business. Since some time in 1986,
Southland's function has been to passively hold title to certain
oil and gas properties within the Burlington Resources, Inc.
corporate family. Southland is now a wholly-owned subsidiary of
MOI.
FACTS COMMON TO ALL CLAIMS
A. Creation of the Royalty Trust and the Conveyance
6. In 1980, Southland was actively engaged in the business
of oil and gas exploration, development and production.
Generally, and particularly in the San Juan Basin, Southland
was not engaged in the business of providing services in the
production areas to oil and gas producers, such as the gathering,
dehydrating or processing of gas (hereafter "Production Area
Services"), except to a very limited degree; and, even then, only
as a necessary incident to its primary business of producing and
selling oil and gas at the wellhead at the best prices and on the
best terms reasonably obtainable. Likewise, Southland at that
time was not engaged in, nor did it have affiliation with any
company engaged in, the business of pipeline transportation of
gas or furnishing Production Area Services in or from the San
Juan Basin production area. Southland's common stock was
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registered with the Securities and Exchange Commission and was
listed and traded on the New York Stock Exchange.
7. In October, 1980, the stockholders of Southland
approved a plan by which Southland would transfer a significant
portion of its assets to two separate trusts. One of these
trusts, which is significant here, was to receive a net
overriding royalty interest in developed oil and gas producing
properties in the San Juan Basin. "Units" of beneficial interest
in both of the trusts were to be distributed on a one-for-one
basis to Southland's stockholders so they became unit holders of
the Royalty Trust. Thereafter, the Units of the trusts would be
registered as securities with the Securities and Exchange
Commission and traded on the New York Stock Exchange separately
from each other, and from the common stock of Southland.
8. The creation of the San Juan Basin Royalty Trust as one
of those two trusts alleged above was duly approved by the
stockholders of Southland, and the Royalty Trust was created by a
Net Overriding Royalty Conveyance from Southland to The Fort
Worth National Bank as trustee, as of November 1, 1980 (the
"Conveyance"), a true copy of which is attached as Exhibit "A" to
the original complaint and incorporated herein by reference.
9. The Bank's duties for the Royalty Trust consist
primarily of (a) receiving revenues and information from
Southland as operator of the properties and interests committed
to the Royalty Trust, (b) making monthly distributions of funds
to the Unitholders, and (c) reporting in keeping with Securities
and Exchange Commission requirements.
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10. By virtue of the Conveyance, the Royalty Trust received
a 75% net overriding royalty interest carved out of Southland's
working interest and royalty interests in the northwestern New
Mexico properties more specifically described in the Conveyance
and referred to as the "Subject Interests."
11. As used in the Conveyance and in this complaint the
term "Subject Interests" means all right, title or interest which
Southland had in the oil, gas, mineral leases or properties
described on Schedule A to the Conveyance when the Conveyance was
executed; "Subject Minerals" means all minerals in and under and
which may be and are produced from the Subject Interests. Those
terms are more specifically defined at Sections 1.18 and 1.20 of
the Conveyance, which definitions are adopted by reference.
12. Prior to injection in mainline pipeline facilities,
natural gas released from wells requires various Production Area
Services. The term "gathering" or "field transportation" refers
to the service of collecting gas at the wellhead point of
production and moving the gas from the wellhead by pipes to a
point where it is processed or treated at a facility as necessary
to meet pipeline transmission specifications. The word
"transmission" refers to moving the gas physically or by
displacement or exchange from a production area to and through
main line transmission pipelines to the point of delivery to
intrastate pipelines or to consumers or to local distribution
companies for consumption or distribution.
13. The extraction of liquefiable hydrocarbons entrained in
the natural gas stream at a processing plant is known as
"processing" or "extraction." The natural gas liquids ("NGLs")
stream removed from the natural gas by such means contains a
mixture
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of NGLs products ("NGLPs") usually including ethane, propane,
normal butane, isobutane and gasoline. NGLPs are commonly
removed from a mixed NGL stream by a process known as
"fractionation" by plants or units known as "fractionators" or
"fractionation facilities."
14. The net overriding royalty interest on oil, gas and
NGLs production is to be paid based on (a) the gross proceeds
from the sale of production of the Subject Minerals, less (b)
production costs, applicable taxes, operating charges and other
costs and deductions, all as more particularly specified and
provided for in the Conveyance, thus yielding net proceeds to be
determined on a monthly basis. The net proceeds are multiplied
by 75% to arrive at the amount payable to the Royalty Trust with
the remaining 25% retained by the operator, which is specified as
Southland under the Conveyance but in fact has been MOI since
1986.
15. As of November 1, 1980, Southland was the operator of
the overwhelming majority of the Subject Interests (95-97%), and
was also the party responsible for the sale and marketing of oil
and gas produced from the Subject Interests. The terms of the
Conveyance charged Southland with keeping true and correct books
and records to determine the amount payable to the Bank for the
Royalty Trust consistent with the provisions of the Conveyance.
16. From November, 1980 until 1986, Southland continued as
(a) principle operator of the Subject Interests, (b) seller and
marketer of the Subject Minerals, (c) the party who remitted
royalty payments to the Bank for the Royalty Trust, and (d) the
party who performed the accounting and reporting functions
specified in the Conveyance.
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17. The original design of the Royalty Trust in 1980,
consistent with the selection of the properties to be transferred
to it, since the Royalty Trust would not acquire additional
properties, was to provide regular monthly revenue from
production coupled with relatively low expenses so that holders
of the Units would receive regular and dependable long term
income. This in fact was the case for the years 1981 through
1985.
B. The Meridian Companies - a Single Business Enterprise
18. The natural gas industry in the United States began
undergoing significant changes around 1986, as a result of an
oversupply market and deregulation in an industry which had
previously been the subject of extensive federal regulation.
19. Burlington Northern, Inc. was at that time a
corporation engaged in railroad operation and energy
development. Burlington Northern recognized that the
industry changes had substantial profit potential and initiated,
in the early 1980s, a series of corporate acquisitions, creations
and mergers designed to position itself for future growth and
profits, including in the San Juan Basin.
20. On October 22, 1985, Burlington Northern, Inc.
initiated a successful tender offer to purchase all outstanding
shares of Southland. All Southland stock was acquired by
Burlington Northern, Inc. in or about December, 1985.
21. In 1983, Burlington Northern, Inc. had acquired The El
Paso Company, parent company of El Paso Natural Gas Company
("EPNG"). EPNG was and is the dominant interstate pipeline
accessing the San Juan Basin, both in supplying Production Area
Services for that area, and transporting the natural gas
production from
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the San Juan Basin to market in, California, Nevada, Arizona, New
Mexico and Texas. EPNG itself owned huge quantities of gas
reserves and producing wells in the San Juan Basin; in July,
1986, the major portion of those gas producing properties were
placed in the ownership of EPNG's wholly-owned subsidiary, El
Paso Production Company. Like in the Southland case, El Paso
Production Company holds title to those oil and gas properties,
but MOI in fact possesses, operates and manages the production
and marketing of the hydrocarbons therefrom.
22. In 1984, MOI was formed by the merger of Burlington
Northern's Mile Stone Petroleum, Inc. and the El Paso Company's
El Paso Exploration Company. After Burlington Northern acquired
Southland in 1985, Southland became a wholly-owned subsidiary of
MOI. In the in the mid-1980s, MOI became the operating oil and
gas production company for Burlington Northern, Inc.
23. In 1988, Burlington Northern formed Burlington
Resources, Inc. ("BRI"). The common stock of BRI is registered
with the Securities and Exchange Commission and has been and is
listed and traded on the New York Stock Exchange. MOI became and
is the wholly owned subsidiary of BRI; MOI is the company that
actually engages in the energy business while BRI is a holding
company.
24. At some time around 1986, Southland's status as a
separate functioning corporate entity ceased and all of
Southland's activities came to be and at all material times have
been performed by agents, employees, and officers of MOI.
25. Southland has no employees, no facilities and is a mere
shell corporation. While some functions required by the
Conveyance are ostensibly performed
8
by use of the name Southland, those functions are actually
performed by employees, officers and agents of MOI at the
direction and control of MOI.
26. At some time during 1986, MOI assumed all duties and
responsibilities related to the Subject Interests, which
Southland had in fact previously performed from 1980 to 1986.
Upon information and belief plaintiff alleges that because MOI
and Southland are and were affiliated corporations who were and
are part of a single business enterprise, no formal assignment or
transfer of Southland's rights and obligations under the
Conveyance with respect to the Subject Interests to MOI was ever
made. Rather, in the BRI alignment of functions and assets MOI
was substituted for Southland and became the delagee of
Southland's duties under the Conveyance and under the leases,
unit operating agreements and operating agreements pertaining to
the Subject Interests. Consequently, plaintiff will utilize the
designation "Southland/MOI" in referring to conduct involving the
operation of the Subject Interests and Southland's rights, duties
and obligations under the Conveyance from 1986 to the present.
27. Beginning in 1986 and continuing to the present the BRI
corporate family has formed and controlled wholly-owned
subsidiaries providing Production Area Services and other
services in the San Juan Basin. Some of those companies as
material here include, inter alia: (a) Meridian Oil Trading Inc.
("MOTI"), which is a department of MOI functioning as a supply
area aggregator of gas and a marketer or broker of gas for MOI
and other parties and is a wholly-owned subsidiary of MOI; (b)
Meridian Oil Gathering Inc. ("MOGI") which provides a combined
gathering and CO2, extraction service in the San Juan Basin for
the delivery of coal seam gas from the wellhead to the
9
transmission pipeline, and which is a wholly-owned subsidiary of
Meridian Oil Production Inc., that is in turn a wholly-owned
subsidiary of Meridian Oil Holding, Inc.; (c) Meridian Oil
Hydrocarbons Inc. ("MOHI"), is a wholly-owned subsidiary of MOI,
is a buyer, seller and broker of oil, wellhead condensate and of
NGLPs extracted from the conventional gas stream (i.e., non-coal
seam gas) by processing plants in the production area, and
engages in the fractionation of NGLS in the San Juan Basin, and
(d) Meridian Oil Transportation Inc. ("MOTRAN") which is a truck
transporter of oil and NGLs in the San Juan Basin and, plaintiff
alleges on information and belief, is a wholly-owned subsidiary
of MOI.
28. Southland/MOI and each and all of the BRI corporate
family members identified in the paragraph above are and were
during material times one to the other an "Affiliate", as that
term is defined by, and used in, Section 1.01 of the Conveyance.
29. On January 15, 1992, BRI, EPNG and Meridian Oil Holding
Inc. entered into a Master Separation Agreement as a result of
which BRI made an initial public offering of 15% of EPNG's common
stock for sale to the public. That stock is now registered with
the Securities and Exchange Commission and is listed and traded
on the New York Stock Exchange. On June 30, 1992, BRI
distributed all of its remaining common stock of EPNG to the BRI
stockholders as a dividend. Pursuant to that Master Separation
Agreement, EPNG and Meridian Oil Holding Inc. (and its
subsidiaries) have entered into numerous contracts, agreements
and understandings providing for a relationship by contract that
previously existed by corporate ownership. While EPNG is
10
no longer an affiliate of MOI by corporate relationship, it
remains an "Affiliate" by contract as that term is defined by,
and used in, Section 1.01 of the Conveyance.
30. Plaintiff will refer to MOI, Southland, EPNG and the
other Meridian affiliates described in paragraph 27, supra, as
the "Meridian Companies." The Meridian Companies are and have at
all material times comprised a single business enterprise or
single economic unit with a unity of purpose, common design and a
single economic objective.
31. The Meridian Companies have at all material times been
under common management, direction, control and ownership, and
have integrated resources and aligned functions and assets to
achieve a common business purpose.
32. At all material times since 1986, MOI has been the
party accomplishing and implementing all decisions concerning the
duties, obligations and conduct of the Meridian Companies as that
conduct relates to the Royalty Trust and the Conveyance,
including the operation of the Subject Interests and the
management and administration of the sales, collection of
revenues, making expenditures, accounting and all field and non-
field business pertaining to the Subject Minerals.
33. Each and every one of the Meridian Companies, including
Southland, are alter egos of each other regarding all actions and
activities of the Meridian Companies related to the Royalty Trust
and Subject Properties since 1986.
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C. The Parties' Duties, Obligations and Conduct Under the
Conveyance.
34. By the terms of the Conveyance, Southland/MOI has
the authority and responsibility to sell the gas, oil and liquids
produced from the Royalty Trust properties for the Royalty Trust,
viz:
SECTION 4.01. SALES CONTRACTS. ASSIGNOR, TO THE
EXTENT IT HAS THE RIGHT TO DO SO, SHALL MARKET OR CAUSE
TO BE MARKETED THE SUBJECT MINERALS. For such purpose,
sales of Subject Minerals may continue to be made
pursuant to existing Sales Contracts. ASSIGNOR MAY
AMEND SUCH EXISTING SALES CONTRACTS AND MAY ENTER INTO
ONE OR MORE SALES CONTRACTS IN THE FUTURE AT THE BEST
PRICES AND ON THE BEST TERMS ASSIGNOR SHALL DEEM
REASONABLY OBTAINABLE IN THE CIRCUMSTANCES. Gross
PROCEEDS OF SUBJECT MINERALS subject to Sales Contracts
SHALL BE DETERMINED ON THE BASIS OF AMOUNTS ACTUALLY
RECEIVED BY ASSIGNOR FROM SALES under the Sales
Contracts regardless of whether at the time of
production or sale market value should be different
from proceeds of sale. (Emphasis added)
35. Southland, prior to its acquisition by Burlington
Northern, Inc., was a wellhead seller of gas, and not a merchant
buyer and reseller of gas, and Southland sold the gas, oil and
natural gas liquids from the Subject Interests to unaffiliated
pipeline companies under long-term sales contracts. Under the
operation of MOI/Southland since 1986, the long-term gas sales
contracts with pipelines have been totally released. The
majority of the gas from the Subject Interests since then is
"sold" (in actuality an intracorporate accounting transfer among
affiliates occurs) by Southland/MOI to MOTI. From the year 1989
and to the present on average over 80% of the gas produced
monthly from
12
the Subject Interests is transferred between MOI and MOTI in a
non-arms length exercise in self-dealing.
36. Essentially all of the condensate and oil from the
Subject Interests and all of the NGLs derived from the gas are
likewise "sold" to MOHI; again the reality is that an intra-
corporate accounting transfer among Meridian Companies occurs.
37. Portions of the gas from the Subject Interests have
been and are sold to or gathered by Gas Company of New Mexico
and/or Sunterra Gas Gathering Company. The majority of the gas
from the Subject Properties not connected to the systems of those
non-affiliates is processed by Affiliates of Southland/MOI, that
is by MOGI or EPNG.
38. The economic best interests of BRI, as being carried
out by the Meridian Companies, are advanced by affecting a low,
fictitious "wellhead price" because it is on that so-called MOTI
Pool Price that the Royalty Trust revenues are calculated as
likewise are the economic burdens of mineral royalty, State of
New Mexico production taxes, overriding royalty and payments to
many hundreds of working interest owners; moreover, the lower the
MOTI Pool Price the greater margin Meridian can realize when
the Subject Minerals are actually first sold to a true third
party purchaser.
39. Recognizing that the operator of the Subject Properties
is in total control of payment of the production costs for the
Subject Interests, the Conveyance specifically defines the
allowable costs in Section 1.15 of the Conveyance. Included
among those deductible production costs are,
". . . the cost of construction of gathering lines . .
. and other production and delivery facilities
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and of transporting, compressing, dehydrating,
separating, treating, storing and marketing the Subject
Minerals;...
(Conveyance, Section 1.15(a)(v).)
40. A specifically-defined production cost is the cost for
gas processing as provided in the Conveyance,
SECTION 1.14. "Processing Costs" means the costs to
Assignor of manufacturing, refining or processing (all
herein referred to as 'processing') gas and casinghead
gas included in the Subject Minerals before the Sale
thereof, which costs for purposes hereof shall consist
of
(a) The sum of (i) any such processing
charges paid to Non-Affiliates and (ii) the
expenses (including depreciation but
otherwise not including capital costs)
incurred by Assignor or its Affiliate in
processing such Subject Minerals plus an
amount equal to a return of 15% on the
depreciated book value of the fixed assets
used in such processing (for which purpose of
computing depreciation and the return on
depreciated book value the value of fixed
assets owned by Assignor will be their book
value as of the date first used in processing
Subject Minerals), or
(b) if greater, the amount allowed as
processing charges by any Federal or State
agency having jurisdiction over the sale of
such Subject Minerals.
(Conveyance, Section 1.14.)
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D. Meridian's Sham Sales, Self-Dealing, and Failure to Fully
Remit Royalty Payments.
41. Southland/MOI has at all material times been charged
with the responsibility and given the authority to sell the
Subject Minerals. That responsibility and authority gives rise
to an agency relationship whereby Southland/MOI is the agent of
the Royalty Trust with respect to Southland/MOI's sale of the
Trust's gas and all the Subject Minerals.
42. Although an owner and seller of gas, the economic best
interests of Southland/MOI are actually advanced by high gas
production volumes and low "net-back" prices at the wellhead.
"Net-back" refers to a wellhead amount per Mcf or MMBtu derived
by taking the gross price at the point of sale, such as the
tailgate of a processing plant, and deducting Production Area
charges to arrive at the net remaining amount. Production Area
Services charges in which the Meridian Companies have a 100%
interest are levied on volumes of gas stated in Mcfs (one
thousand cubic feet) or MMBTU'S, regardless of the levels of the
wellhead prices. During some months of 1990, 1991 and 1992, the
total charges for Production Area Services by EPNG and the
Meridian Companies have closely approximated or even exceeded the
wellhead netback value in which the Royalty Trust has a 75%
interest and Southland/MOI has a 25% interest.
43. The arrangement between MOI and MOTI for the "sale" of
the Trust's gas, is self dealing between related parties having
common, rather than competing, economic interests. MOTI is the
alter ego of Southland/MOI, and is nothing more than the name
given to the MOI gas marketing group which consists of MOI
employees and agents. MOTI itself has no employees. The
arrangement "negotiated" by MOI and MOTI
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for the "sale" of Trust gas is and has at all material times been
dictated by MOI, and is designed for the financial benefit of MOI
and the Meridian Companies.
44. The "sale" of gas from MOI-operated wells to MOTI is
nothing more than an internal accounting transfer by which MOI
creates a wellhead netback price. MOI characterizes the price as
the MOTI Pool Price. The design and purpose of this "price" is
to minimize the amount on which MOI pays production taxes,
royalties, overriding royalties, and by which MOI and the
Meridian Companies maximize the margin obtained when the gas is
eventually sold by MOTI to third parties in true arms-length
transactions. The monthly MOTI Pool Prices upon which royalty
payments are calculated are regularly less than the average of
the prices MOTI realizes when it sells in multiple arms-length
transactions to independent, third parties and substantially less
than sales on the best prices and terms reasonably available to
MOI.
45. The use of the MOTI Pool Prices for the ostensible
"sale" by Southland/MOI to MOTI as a basis for calculating
royalty payments to the Trust is a sham. Both MOTI Pool Prices
and various published San Juan Index Prices are not accurate and
reliable reflections of a true sales price negotiated by
independent buyers and sellers in arms-length transactions
because, inter alia (a) MOI's sham sales constitute a major
percentage of the gas transactions in the San Juan region, and
these sham sales are thus reflected in the index prices, and (b)
MOI employees a practice of misreporting to the various
publications its realized prices to end users; those
misrepresented prices they skew the published index prices in the
San Juan Basin.
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46. These sham MOTI Pool Prices are not "sales ... at the
best prices and on the best terms [Southland] shall deem
reasonably obtainable in the circumstances."
47. The proceeds from the MOTI Pool Prices do not represent
"amounts actually received by [Southland] from sales" as
required, intended and contemplated under the terms of the
Conveyance.
48. The wellhead Pool Prices, which in industry practice is
actually a "netback" to the wellhead, is calculated by MOI by
first approximating the expected monthly mainline San Juan index
price. After that mainline price is selected, MOI then
unilaterally subtracts or deducts imputed charges for Production
Area Services, rather than actual costs for field fuel (the
amount the gathering system levies for volumetric reduction of
gas transported), plant shrink (amount levied for plant thermal
reduction for volumes lost to NGLs extractions) and plant fuel
(amount levied for powering the extraction plant) and for
monetary maximum tariff charges for dehydration, processing fees
and field transportation; the calculation is completed by adding
a so-called "liquids credit" for the sale of part of the NGLs
extracted from the conventional gas.
49. Southland/MOI has failed to totally credit or has
undercredited the true or full value of the extracted NGLs on the
Royalty Trust gas marketed by MOTI. Plaintiff is informed and
believes and therefore alleges that a source of failure to credit
or such undercrediting on the EPNG gathering system results from
NGLs being systematically misappropriated by EPNG and by
overcrediting to MOI of NGLs which actually belong to the Trust
production from the Subject Interests.
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50. The volumetric and monetary charges used by MOI to
calculate the netback and yield the MOTI Pool Prices are not
based upon charges actually incurred by or paid by MOTI, which
often receives deep discounts for Production Area Services and
mainline transportation. MOI nevertheless computationally
assesses the Trust the full tariff volume reductions and
production area charges as though it were paying the full tariff
charge, and concealed the existence of discounts on these charges
from the Bank.
51. Under Section 29 of the Internal Revenue Code,
production from coal seam gas wells drilled and completed prior
to January 1, 1993 (the deadline was originally January 1, 1991)
qualifies for a federal income tax credit for producing so-called
"nonconventional" fuels. This tax credit is currently
approximately $.98 per MMBTU, and the tax credit applies to
production through the year 2002. The tax credit stimulated
extensive development of coal seam gas from the Fruitland
Formation in the San Juan Basin beginning in about 1988.
52. Southland/MOI drilled and developed many coal seam gas
wells on the Subject Interests in 1988, 1989 and 1990 at great
expense to the Royalty Trust but then failed and delayed in
marketing the gas for the benefit of the Trust from those wells
for insufficient and improper reasons so as to deprive the Trust,
and thus the Unitholders, of income and tax credits it would have
otherwise received from the proper development of such wells and
the timely and prudent marketing of coalseam gas from those
wells.
E. Southland/MOI's Fraud and Fraudulent Concealment
53. While Southland/MOI has regularly supplied certain
reports and information to the Bank in the form and content it
unilaterally prescribes, that information
18
has failed to disclose facts material to the rights and
entitlement of the Royalty Trust, and in fact has diverted and
misled, on a continuing basis, the plaintiff from discovering,
until recently, the facts that underlie the claims hereafter
stated.
54. While Southland/MOI knew all of the true material
facts, it fraudulently concealed knowledge of material facts from
the plaintiff. Southland/MOI's relationship to the plaintiff
creates an affirmative duty of full and honest disclosure. On
the other hand, given the Bank's lack of access to information
and the defendants' concealment and misrepresentations, plaintiff
did not, and could not, have known of the true material facts
thus concealed.
55. On various occasions representatives of Southland/MOI,
when being expressly asked about whether problems or objections
to the Southland/MOI should be put in writing, stated the Bank
need not put such exceptions or questions in writing but that
oral requests or objections were sufficient.
56. At all times relevant hereto, the plaintiff has
occupied an extremely inferior position relative to Southland/MOI
in terms of manpower, expertise, knowledge and access to
information concerning the business of the Subject Interests.
Southland/MOI has made oral and written representations lulling
plaintiff into a sense of trust and security so that
Southland/MOI is now equitably estopped to raise as defenses
statutory limitations, the provisions of Section 2.04 of the
Conveyance, or any other time bar defenses.
57. Defendants on numerous occasions made representations,
or by their statements to plaintiff inferred the following, which
were false:
19
a. That the price for gas received by the Trust
for sales was the weighted average price paid
under contracts for sales to end-users less
the costs of transportation and production
areas service charges;
b. that charges which were being deducted from gas
prices for the Trust's gas for gathering,
processing and transportation charges were
actually being paid by MOI so as to reduce the
price per unit realized for the sale of gas;
c. that the Trust was receiving credit for actual
NGLs from the Trust's gas in that liquids were
incorporated into the price the Trust was being
paid for the gas;
d. that none of the Trust's gas was subject to any
transportation by backhaul;
e. that MOI was excused from not connecting and
producing the Trust's coal seam wells due to
environmental concerns, due to the CO2 treating
plant being at capacity, and/or due to regulatory
problems; and
f. that the Trust wells would be hooked up shortly.
58. The false representations were made by Southland/MOI
either knowingly or recklessly and with the intent to deceive
plaintiff and induce plaintiff to accept royalty payments which
were substantially less than payments actually owed to plaintiff
under the Conveyance, and to lull plaintiff into a sense of trust
and security regarding Southland/MOI's reporting on its
performance of its duties and obligations under the Conveyance,
and to hide from plaintiff the failure of Southland/MOI to comply
20
with the terms of the Conveyance. Plaintiff reasonably relied
upon those false and misleading misrepresentations.
59. Pursuant to the terms of the Conveyance, and by virtue
of the relationship between the parties, Southland/MOI and
plaintiff enjoyed a special, confidential relationship.
Southland/MOI consequently owed to plaintiff an affirmative duty
of full disclosure of all issues pertaining to the operation,
management, accounting and administration of the Subject
Interests and sale of the Subject Minerals.
60. Until no earlier than 1991 did plaintiff have reason to
suspect the falsity of the misrepresentations or the failures to
disclose of Southland/MOI. Until no earlier than 1991 did
plaintiff know or have the means of knowing the true facts
concerning Southland/MOI's underpayments, overcharges for
expenditures, unauthorized charges, and other conduct as alleged
herein.
61. The Bank has reasonably relied upon the written and
verbal information and reports provided to it by Southland and/or
MOI since it became Trustee, having no other or independent
source or means of ascertaining the truth, correctness or
completeness of such information.
FIRST CLAIM FOR RELIEF
(Breach of Contract and Intentional Breach of Contract
62. The plaintiff realleges by adoption paragraphs 1
through 61 above, as though fully set forth herein.
63. Southland/MOI has breached, and continues to breach,
the terms of the Conveyance in failing and refusing to report to,
provide to, and to obtain for the Royalty Trust the true and
complete proceeds for the sale of the Subject Minerals to
21
which the Royalty Trust is entitled under the Conveyance. The
plaintiff is informed and believes, and thereupon alleges, that
some of the means by which the underpayment has occurred include,
but are not limited to, the following:
a. attributing hypothetical sales to the Royalty
Trust interests at unfavorable prices and
unfavorable terms for the aggregate gas
volume transferred from Southland/MOI to
MOTI, while MOI was selling its own gas and
the Royalty Trust gas through MOTI at better
prices and on more favorable terms;
b. attributing to the Subject Minerals a
fictitious netback "pool price" in the San
Juan Basin when, in fact, the gas was sold by
MOTI at a higher price by use of MOTI's firm
backhaul on EPNG to thereby accomplish the
first third-party sale in the Permian Basin,
Texas Gulf Coast or the Midwestern United
States;
c. failing totally to credit, or undercrediting,
the true or full value of the extracted NGLs
on the Royalty Trust gas marketed by MOHI;
d. from April 1990 to the present, failing to
credit the Royalty Trust for the full value
of the 80% of extracted gas liquids received
by MOI on gas from the Subject Interests
gathered and processed by Gas Company of New
Mexico and/or Sunterra Gas Gathering Company;
e. failing to credit the Royalty Trust for the
full amounts of the gas sold from the Subject
Interests to Gas Company of New Mexico and
Sunterra Gas Gathering Company;
f. failing to credit the Subject Interests with
refunds obtained from EPNG in connection with
various EPNG rate cases before the Federal
Energy Regulatory Commission ("FERC");
g. Southland/MOI having inserted in the
marketing process MOTI, MOHI and Meridian Oil
Services, Inc. to divert value of the Subject
Minerals from the Royalty Trust to those
Affiliates;
h. understating the posted prices and
overstating gravity adjustments on the
marketing of oil;
22
i. as regards gas, oil and gas liquids, failing
to realize for the Trust the more favorable
prices and terms that are and should have
been available to a seller of large, reliable
and consistent volumes of those products as
is the position that could be and should be
enjoyed by marketing the Subject Minerals;
and
j. omitting totally from all reporting and
payments the production of Subject Minerals
from a substantial number of wells located on
the Subject Interests and operated by
Southland/MOI or by third-party operators.
64. Southland/MOI has also breached, and continues to
breach, the terms of the Conveyance in failing and refusing to
correctly deduct from gross proceeds of sale of gas and oil from
the Subject Interests the operating and production costs in
keeping with the terms specified by the Conveyance. The
plaintiff is informed and believes, and thereupon alleges, that
some of the means by which the overcharges have occurred include,
but are not limited to, the following:
a. charging costs as though the full published
and FERC-approved rates for Production Area
Services of dehydration, extraction and
gathering and for mainline transmission
services were paid when, in truth, MOI
received those services from its Affiliates
and non-affiliates at deeply discounted
costs;
b. failing to observe and apply the requirements
of Section 1.14(a) of the Conveyance for
allowance of processing costs when the
processing is and has been performed by
Southland/MOI or its Affiliates;
c. use of incorrect producing overhead rates;
d. material transfer pricing being charged in
excess of current market replacement rates;
e. use of excessive rates for saltwater
gathering and disposal;
23
f. unauthorized escalation of overhead rates
beyond those specified by controlling
agreements;
g. incorrect coding of outside-operated joint
interest billings;
h. charging a fee for marketing services and
realizing a resale profit on the sale of gas
from the Subject Interests while the
Conveyance requires that marketing be
provided at the Operator's cost or as part of
the well overhead cost specified in Schedule
B to the Conveyance;
i. charging the Royalty Trust for capital
facilities and lease operating expenses
supposedly attributable to the Subject
Minerals, but which are nonexistent,
misallocated or overstated; and
j. charging for material costs as though the
full Computerized Equipment Pricing System
("CEPS") rates were paid when, in truth, MOI
purchases the material at discounted costs or
at costs lower than CEPS rates;
65. Southland/MOI has also breached and continues to breach
the terms of the Conveyance by structuring its accounting and
system of allocations to the Trust so as to deprive from the
Unitholders tax benefits to which Unitholders would be entitled,
and to transfer those tax benefits to the use and economic
advantage of MOI and BRI.
66. The plaintiff is informed and believes, and thereon
alleges, that the breaches above described and the resultant
failure of Southland/MOI to pay amounts due the Royalty Trust
have taken place, at least during the years 1987 through 1994 and
are continuing to the present time, and have directly and
proximately resulted in damages to the Royalty Trust by way of
significant underpayment of revenue and overcharge of costs. The
breaches of the and wrongful practices described are continuing
and will continue in the future necessitating a multiplicity of
suits and demonstrating the inadequacy of remedies at law.
24
67. Any and all conditions precedent to the performance by
Southland/MOI of its obligations under the Conveyance have been
performed, satisfied or waived. At all times material hereto,
the Royalty Trust and Bank have been, and are, ready, willing and
able to perform any and all of their obligations under the
Conveyance.
68. The Conveyance requires at Section 3.02 that amounts
owed by the Operator to the Royalty Trust shall bear interest
until paid at four percent over the prime interest rate
determined at the end of each month from the due date.
69. The devious, self-serving and systematic failure and
refusal of Southland/MOI to perform the contractual obligations
of the Conveyance in furtherance of the economic gain of
Southland/MOI and the BRI corporate family at the expense of the
Royalty Trust, and in conscious disregard of the rights of the
Royalty Trust, constitutes intentional, willful and malicious
breach of contract thereby entitling plaintiff to punitive
damages.
WHEREFORE, the plaintiff prays judgment in behalf of and for
the benefit of the Royalty Trust as follows:
A. For compensatory damages in an amount to be established
at trial, pre-judgment interest provided by the Conveyance, and
punitive damages, costs of suit and such other relief as is
proper;
B. For a permanent injunction mandating the ongoing future
performance by Southland/MOI in conformance with the Conveyance
and prohibiting the various breaches and wrongful practices shown
by the evidence.
25
SECOND CLAIM FOR RELIEF
(Breach of Fiduciary Duty)
70. The plaintiff realleges by reference paragraphs 1
through 69 above, as though fully set forth herein. Plaintiff
maintains that its breach of fiduciary duty claim lies under the
facts and controlling instruments and agreements in this case but
recognizes that the Court previously ruled on Defendants' Motion
to Dismiss and has dismissed the claim without prejudice.
71. Southland/MOI has a possessory interest in the Subject
Interests while the Royalty Trust's interest is non-possessory.
The Royalty Trust has an ownership interest in the Subject
Minerals as and when produced. The Conveyance provides that, as
to any third party, Southland/MOI acts as agent for and is
capable of binding the Royalty Trust in the marketing of the
Subject Minerals.
72. Southland/MOI has served as the agent in behalf of the
Royalty Trust for the sale of all Subject Minerals, and for the
collection of sale proceeds and the enforcement of sales
contracts.
73. Southland/MOI is in possession and control of all books
and records concerning collection of payments of gas and liquids
sold and for payment of all costs and expenses. Southland/MOI
completely controls the expending of funds derived from sale of
gas production from the Subject Interests for payment of costs
and expenses, in large part making the payment of expenses to
itself as operator.
74. Southland/MOI occupies a position in which the trustee
of the Royalty Trust has had no choice but to reside trust and
confidence in Southland/MOI.
26
75. The Conveyance confers on Southland/MOI the opportunity
to exercise management of the Subject Interests and in so doing
to vitally affect the rights and fortunes of the Royalty Trust.
76. A fiduciary relationship or a special relationship
exists and has existed between Southland/MOI and the Royalty
Trust. At all material times, Southland/MOI had and continues to
have the duty to exercise the utmost good faith, loyalty and
honesty toward the Royalty Trust.
77. Per that fiduciary or special relationship between
Southland/MOI and the Royalty Trust, Southland/MOI has the duty
to make full and honest disclosure to the Royalty Trust of all
material facts relevant to the Subject Interests; and
Southland/MOI is bound to affirmatively and quickly disclose any
information of which Southland/MOI has notice that the plaintiff
might desire or benefit in knowing in the conduct of its duties
as trustee, or to safeguard the assets and revenues of the
Royalty Trust.
78. Per that fiduciary or special relationship between
Southland/MOI and the Royalty Trust, an absolute duty exists on
Southland/MOI to keep accurate records and render to the Royalty
Trust an accurate and complete account of all transactions within
the scope of the operation of the Subject Interests, and that
duty is not relieved by any contractual time limitation on
excepting to the Southland/MOI reports, or by loss or absence of
records.
79. Southland/MOI has systematically and persistently
violated its fiduciary duty to the Royalty Trust and the Royalty
Trust has been directly and proximately damaged thereby.
27
80. Southland/MOI has placed its own interest above that of
the Royalty Trust, has fraudulently deceived, knowingly failed to
disclose, and has provided incomplete and deceptive information
to the Royalty Trust and to this plaintiff since Southland/MOI
assumed its fiduciary position in 1986. Southland/MOI should now
be held to render a true and complete accounting to the Royalty
Trust.
81. The breach of fiduciary duty by Southland/MOI has been
the result of bad faith and has been done as an intentional
betrayal of its duties of utmost loyalty and honesty, and in
conscious disregard of the rights of the Royalty Trust, so that
compensatory and punitive damages should be assessed in favor of
the plaintiff and against the defendants for all injury
proximately resulting from that wrongful conduct.
WHEREFORE, the plaintiff prays for compensatory and punitive
damages in behalf of and for the benefit of the Royalty Trust,
and in addition prays the equitable remedy of an accounting
ordered against the defendants to be made to the plaintiff, and
for an injunction against defendants from management and
administration of the sales, collection of revenues, making
expenditures, accounting and other such non-field business of the
Subject Properties and providing for another party to provide
suitable and trustworthy management, and for pre-judgment
interest, for costs of suit and for such further relief as is
proper.
THIRD CLAIM FOR RELIEF
(Breach of Covenant of Good Faith and Fair Dealing)
82. The plaintiff realleges by adoption paragraphs 1
through 69 above as though fully set forth herein.
28
83. The Conveyance confers on Southland/MOI control of the
Subject interests to the exclusion of plaintiff and confers on
Southland/MOI a discretion directly affecting the rights,
interests and financial outcomes of the Royalty Trust. The
Conveyance further imposes upon Southland/MOI a duty of good
faith in the operation of the Subject Interests.
84. Under the circumstances alleged, the law implies upon
Southland/MOI a covenant of good faith and fair dealing requiring
defendants to have in the past and to continue to perform its
duties under the Conveyance in good faith and in accordance with
fair dealing.
85. Southland/MOI has breached that duty to the Royalty
Trust, and as a proximate result caused damages to the Royalty
Trust.
86. The breach of the implied covenant of good faith and
fair dealing by Southland/MOI has resulted from acts of
purposeful bad faith and has been done out of self-interest and
intentionally, and in conscious disregard of the rights of the
Royalty Trust to deprive the Royalty Trust of the complete
benefits of the Conveyance, so that compensatory and punitive
damages should be assessed in favor of the plaintiff and against
the defendants for all injury proximately resulting from that
wrongful conduct.
WHEREFORE, the plaintiff prays judgment in behalf of and for
the benefit of the Royalty Trust for compensatory damages in an
amount to be established at trial, pre-judgment interest, and
punitive damages, costs of suit and such other relief as is
proper.
29
FOURTH CLAIM FOR RELIEF
(Breach of the Express Duty of Good Faith)
87. The plaintiff realleges by adoption paragraphs 1
through 69 above, as though fully set forth herein.
88. The Conveyance imposed upon Southland/MOI a duty of
good faith and the operation of the Subject Properties, in the
management and administration of the sales, collections of
revenues, making expenditures, accounting and other non-field
business pertaining to the Subject Interests.
89. Under the circumstances alleged, Southland/MOI have
breached that duty to the Royalty Trust, and as a proximate
result caused damages to the Royalty Trust.
90. The breach of the duty of good faith has resulted from
acts of purposeful bad faith and has been done out of self-
interest and intentionally, and in conscious disregard of the
rights of the Royalty Trust, to deprive the Royalty Trust of the
complete benefits of the Conveyance, so that compensatory and
punitive damages should be assessed in favor of the plaintiff and
against the defendants for all injury approximately resulting
from that wrongful conduct.
WHEREFORE, the plaintiff prays judgment in behalf of and for
the benefit of the Royalty Trust for compensatory damages in an
amount to be established at trial, pre-judgment interest provided
by contract, and punitive damages, costs of suit and such other
relief as is proper.
30
FIFTH CLAIM FOR RELIEF
(Constructive Fraud)
91. The plaintiff realleges by adoption paragraphs 1
through 69 above, as though fully set forth herein.
92. By virtue of the contractual and confidential or
special relationship which existed between plaintiff and
defendants, and owing to the trust and reliance plaintiff has
placed in defendants, defendants at all times owed to plaintiff a
duty to fully and fairly disclose to the plaintiff the true
proceeds realized on sales of the Trust's Subject Minerals,
charges which were actually incurred in the marketing process,
the manner and method of calculating payments to the Trust,
accounting and reporting to the Trust, and other matters as
alleged above.
93. The defendants breached their duty of full and fair
disclosure to the plaintiff. The defendants' breach of duty in
this regard constitutes constructive fraud.
94. Plaintiff has suffered substantial economic harm as a
consequence of defendants' constructive fraud for which
defendants are liable to plaintiff.
95. Defendants' breaches were intentional, willful and in
wanton disregard of the rights and interests of plaintiff and
exemplary damages should thereby be assessed against them.
WHEREFORE, the plaintiff prays for compensatory and punitive
damages in behalf of and for the benefit of the Royalty Trust,
and in addition prays the equitable remedy of an accounting
ordered against the defendants to be made to the plaintiff, and
for pre-judgment interest, for costs of suit and for such further
relief as is proper.
31
SIX CLAIM FOR RELIEF
(Unjust Enrichment)
96. The plaintiff realleges by reference paragraphs 1
through 69 above, as though fully set forth herein.
97. Southland/MOI has been unjustly enriched by virtue of
its underpayment of royalties due plaintiff under the Conveyance,
its failure to properly credit the Trust for its share of NGLs,
and by virtue of the general failure of Southland/MOI to comply
with its obligations under the Conveyance as described above in
an amount to be established at trial.
WHEREFORE, plaintiff prays for compensatory and punitive
damages in behalf of and for the benefit of the Royalty Trust,
restitution of amounts by which defendants have been unjustly
enriched by their wrongful conduct, and for pre-judgment
interest, for costs of suit and for such further relief as is
proper.
SEVENTH CLAIM FOR RELIEF
(Intentional Interference with Contractual Relations)
98. The plaintiff realleges by adoption paragraphs 1
through 69 above, as though fully set forth herein and makes
these allegations under this claim for relief IN THE ALTERNATIVE.
99. This claim is alleged in the alternative arising from
and due to the contention of the defendants that Southland and
MOI are separate and independent corporations. If that were the
case, which plaintiff denies, then in that event the separate
nature of those entities would give rise to the claim for relief
here alleged.
32
l00. To the extent Southland is determined responsible for
the breaches of contract alleged supra, the defendant MOI
directly, intentionally and improperly procured and encouraged
Southland's breaches of the Conveyance as described above for the
improper purpose of financially benefitting MOI and causing
damage to plaintiff by procuring and instigating non-performance
of contractual benefits to which the Bank is entitled.
101. MOI has intentionally interfered in the contractual
relationship between Southland and plaintiff beginning in about
1986 and continues to do so persistently and systematically to
the present.
102. Plaintiff has suffered special and consequential
damages as a proximate result of MOI's intentional interference
with contract.
103. MOI's conduct was intentional, willful and in wanton
disregard of the rights and interest of plaintiff and exemplary
damages should thereby be assessed against it.
WHEREFORE, the plaintiff prays for compensatory and punitive
damages in behalf of and for the benefit of the Royalty Trust,
for pre-judgment interest, for costs of suit and for such further
relief as is proper.
EIGHTH CLAIM FOR RELIEF
(Conspiracy)
104. The plaintiff realleges by adoption paragraphs 1
through 94 above, as though fully set forth herein and makes
these allegations under this claim IN THE ALTERNATIVE.
33
105. This claim is alleged in the alternative arising from
the contention of the defendants that Southland and MOI are
separate and independent corporations. If that were the case,
which plaintiff denies, then in that event the separate nature of
those entities would give rise to the claim for relief here
alleged.
106. The Meridian Companies, including MOI and Southland,
and EPNG acted in concert to deprive the Royalty Trust of its
complete, timely correct revenues, income and other benefits
under the Conveyance.
107. A conspiracy existed at all material times between MOI,
Southland and the other Meridian Companies to prevent plaintiff
from securing the benefit of the Conveyance. The Meridian
Companies have conspired with each other to attribute
artificially low prices for the Trust's Subject Minerals and upon
which the Trust received royalty payments, to improperly charge
plaintiff for costs and expenses not incurred, not properly
allocated or otherwise contrary to the terms of the Conveyance
and contrary to the duties of operator of the Subject Interests,
to deprive plaintiff of the economic benefit of NGLs from the
Trust's gas to which the Trust was entitled, and to deprive
plaintiff of other economic benefits under the Conveyance as
herein alleged.
108. As a proximate result of the described conspiracy,
plaintiff has suffered special and consequential damages.
109. The co-conspirators Southland and MOI acted willfully
and intentionally and in wanton disregard of the rights and
interests of plaintiff and exemplary damages should thereby be
assessed against them.
34
WHEREFORE, the plaintiff prays for compensatory and punitive
damages in behalf of and for the benefit of the Royalty Trust,
for pre-judgment interest, for costs of suit and for such further
relief as is proper.
NINTH CLAIM FOR RELIEF
(Prima Facie Tort)
110. The plaintiff realleges by reference paragraphs 1
through 61 above, as though fully set forth herein. This claim
is pled IN THE ALTERNATIVE, to all other claims alleged herein.
111. To the extent the actions described above were
intentional and also in the alternative were lawful, the lawful
acts of Southland/MOI, jointly or as independent corporations,
were undertaken with an intent to injure plaintiff, and did in
fact proximately cause injury to plaintiff by denying plaintiff
the financial benefits owing under the Conveyance.
112. Southland/MOI's actions, as alleged, were undertaken
without sufficient economic or social justification and with an
intent to injure plaintiff.
113. The actions of Southland/MOI were intentional, willful,
and in wanton disregard of the rights of plaintiff and exemplary
damages should thereby be assessed against them.
WHEREFORE plaintiff prays for compensatory and punitive
damages in behalf of and for the benefit of the Royalty Trust,
for pre-judgment interest, for costs of suit and for such further
relief as is proper.
35
GALLEGOS LAW FIRM, P.C.
By /s/ J.E. GALLEGOS
------------------
J.E. GALLEGOS
MICHAEL J. CONDON
MICHAEL L. OJA
460 St. Michael's Drive, Bldg. 300
Santa Fe, New Mexico 87505
(505) 983-6686
FRIEDMAN, YOUNG & SUDER
Walker Friedman
500 Throckmorton Street
Twentieth Floor
Fort Worth, Texas 76102
(817) 335-7373
CERTIFICATE OF SERVICE
I hereby certify that I did on the 20th day of November,
1995, serve a true and correct copy of the Second Amended
Complaint as follows:
Michael B. Campbell, Esq. Via Hand Delivery
Campbell, Carr & Berge
110 N. Guadalupe Street
Santa Fe, New Mexico 87501
Richard N. Carrell, Esq. Via U.S. Mail
Fulbright & Jaworski Postage Prepaid
1301 McKinney Street - Suite 5100
Houston, Texas 77010-3095
Randolph P. Mundt Via U.S. Mail
John H. Bemis Postage Prepaid
Southland Royalty Corporation
2919 Allen Parkway
Houston, Texas 77019
/s/ J.E. GALLEGOS
------------------------------
J. E. GALLEGOS
36
EXHIBIT 99.2
San Juan Basin Royalty Trust NEWS RELEASE
Post Office Box 2604
Fort Worth, Texas 76113
Telephone 817/884-4417
FORT WORTH, Texas, November 30, 1995 -- Bank One, Texas,
N.A., Trustee of the San Juan Basin Royalty Trust (the "Trust")
announced today that with regard to the lawsuit filed by the
Trustee against Meridian Oil Inc. and Southland Royalty Company
in the state district court in Santa Fe County, New Mexico, in
Cause No. SF94-1982(c), a hearing was held on November 17, 1995
with regard to the Trustee's motion for leave to file its Second
Amended Complaint. Such motion was granted by the court. The
Trustee filed the Second Amended Complaint to more fully
particularize the pleadings, the nature of the claims of
liability in the case, and the facts supporting alter ego and
single business enterprise liability and fraudulent concealment
as it pertains to the Defendants' statute of limitations defense
and to assert the following additional claims for relief: breach
of express good faith duty, constructive fraud, unjust enrichment
and prima facie tort and to add claims in the alternative of
intentional interference with contract and of conspiracy.
Trial of the above-referenced proceeding was scheduled for
February 1996. Meridian Oil Inc. and Southland Royalty Company
filed a motion seeking a continuance of the February 1996 trial
setting. Such motion was granted at a hearing held on November
28, 1995. Trial is now scheduled to begin July 15, 1996.
###
Contact: Lee Ann Anderson
Vice President
Bank One, Texas, N.A.
(817) 884-4630
