Panhandle Oil and Gas, Inc. v. BHP Billiton Petroleum ‎(Fayetteville)‎, LLC

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.
Cite as 2017 Ark. App. 201

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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