By Tim Leeds
District Judge John Warner of the Montana 12th Judicial District rendered judgments in the civil case concerning John Brown and family (Browns), John Klabzuba and family (Klabzubas) and Ron Harmon in 84 pages of facts, judgment and summary.
In the judgment, Browns must pay Klabzubas more than $200,000; Cornerstone Gas Marketing, LLC, a Klabzuba business, must release more than $880,000 to Eagle Gas Marketing, LLC, a Brown business; Browns must disgorge 75 percent of the profits and Klabzubas must pay 75 percent of the costs of specific sites, and Brown entities must pay Harmon and the estate of his father, Merle Harmon, more than $280,000.
Warner awarded $101,499.82, plus interest, that had been set aside in a suspense fund to Harmons. He ruled that the amount, which was used by Browns to purchase a house from Harmons, was rightly Harmons' share of oil production prior to a lease being signed in 1987. He also ruled that "Brown acted to mislead Harmon" regarding the value of the well, violating the hold harmless clause of the lease and voiding it. Because of this, he ruled, Browns owe Harmons $38,320 plus $10,781 for production, as if the lease had never existed.
He ruled that some of Browns actions in regards to Harmons in the purchase of the house that the court could not, by clear and convincing evidence, find that Browns acted totally in disregard of the rights of Harmons and with malice, so the court awarded no punitive damages for the claim.
"There is suspicion that some of the royalty payments (for gas production) may have been included in the price of the house to avoid payment of taxes," Warner wrote.
Warner ruled that Browns used information gained from or in conjunction with Klabzubas in obtaining leases for oil production after the Browns and Klabzubas ended their agreements effective Jan. 1, 1998. He wrote that this was a breach of fiduciary duty coming from Browns' association and agreements with Klabzubas. Due to this, he wrote, Browns must pay Klabzubas the 75 percent that was agreed to prior to 1998, with Klabzubas paying their percent of production costs from the agreement. Since the agreement is over, he wrote, Browns will not receive the 2 percent overriding royalty on the cited production they received on production prior to Jan. 1, 1998. Lis Pendens filed by Klabzubas for the area are released, he ruled.
Warner ruled that when Browns negotiated certain farmouts in the area, and told Klabzubas that there were already farmouts negotiated without saying they were with Brown businesses, it committed a breach of fiduciary duty resulting in a waste of $60,000 for Klabzubas on leases that would not have been taken. He ruled for Klabzubas in the amount of $91,414 with interest.
Warner ruled that Browns selling gas to the East End and Hilldale Hutterite colonies for cash and depositing the money into Browns business accounts without ever notifying Klabzubas constituted conversion of Klabzubas assets, resulting in a judgment of $69,919.91.
He ruled that while it may have been inappropriate for Browns to disburse funds from businesses to build an office building and then not have it registered in the businesses' names, and to use the building as collateral on a loan not authorized by those businesses, the debt is fully repaid and the liens released, so there was no damage to those businesses. He ruled that he would award no damages on that claim.
Warner ruled that Brown entities did owe rent, in the amount of $38,692, to Klabzubas' KB Drilling Co., which would make disbursements to the various businesses and ultimately Klabzubas and Browns according to the shares of ownership in the building.
He ruled that money Browns claimed was owed to Eagle Gas Marketing, LLC, was in fact owed to the company and did not belong to Cornerstone Gas Marketing, LLC. The money, plus interest, being held by Hill County until resolution of the case, will be turned over to Eagle Gas, in the amount of $880,135.09.
Warner ruled that he would award no punitive damages to either Browns or Klabzubas.
