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City of Carlsbad v. Grace9/24/1998
APPEAL FROM THE DISTRICT COURT OF EDDY COUNTY JAMES L. SHULER, District Judge
{1} The City of Carlsbad (City) filed this action for declaratory judgment asking the district court to determine whether Grace Oil Company (Grace) was entitled to recover overpayment of royalties made to the City during a sixteen-year period. The trial court granted summary judgment in favor of the City. On appeal, we consider three issues: (1) whether the statute of limitations bars an action by Grace against the City to recover overpayment of royalties made during a sixteen-year period; (2) whether Grace may invoke the doctrine of equitable recoupment to recover overpayments made to the City notwithstanding the statute of limitations; and (3) assuming Grace may recover, whether Grace is entitled to receive prejudgment interest pursuant to NMSA 1978, 56-8-3 (1983). We affirm in part, reverse in part, and remand.
FACTS
{2} The City entered into a lease with Grace which allowed the oil company to explore and develop oil and gas wells on a proration unit that included land belonging to the City. In exchange, Grace would market the gas and pay royalties for gas produced and sold from the land. Due to an accounting error, Grace overpaid royalties to the City from 1974 until 1990. When Grace discovered its error in 1990, it immediately contacted the City, advised it of the overpayments, and demanded repayment. Grace then began to withhold all royalty payments to the City to apply against the overpayment balance. Grace continued to withhold payments for approximately two and a half years, claiming that it was entitled to do so until all overpayment plus interest had been repaid.
{3} In 1992, the City filed a petition for declaratory judgment. The City asked the trial court to determine whether Grace was entitled to withhold royalty payments until the amount of the overpayment plus interest had been repaid. The City also contended that Grace's claim for repayment was barred by the three-year statute of limitations provided for in NMSA 1978, 37-1-24 (1941). In response, Grace argued that even if the statute of limitations barred a suit to recover the overpayments, the statute would not bar a defense of recoupment to the City's claim. The trial court granted summary judgment in favor of the City, finding that although Grace made a good-faith error in calculation, it was barred by the statute of limitations for asserting any claim for overpayment. The court ordered Grace to commence making royalty payments to the City; however, Grace was not required to repay the City for the amounts which it had already recouped. The City does not appeal the latter decision. Grace appeals, claiming that the limitations period did not expire and if it had, that under equitable recoupment, Grace is entitled to recover the remaining overpayment plus all accrued interest.
Discussion
I. Statute of Limitations
{4} The City asked the district court to determine whether the statute of limitations, Section 37-1-24, barred a claim by Grace to recover overpayment of royalties made to the City. Section 37-1-24 provides that:
"No suit, action or proceeding at law or equity, for the recovery of judgment upon, or the enforcement or collection of any sum of money claimed due from any city, town or village in this state, or from any officer as such of any such city, town or village in this state, arising out of or founded upon any ordinance, trust relation or contract written or unwritten, or any appropriation of or conversion of any real or personal property, shall be commenced except within three years next after the date of the act of omission or commission giving rise t
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