## Facts

- Plaintiffs were St. Clair County, Michigan landowners holding mineral interests under oil and gas leases within the Columbus Section 3 Saline‑Niagaran Formation Pool.
- Defendant Sun Oil Company held leases from multiple owners in the pooled area and operated producing wells there.
- The Michigan Department of Natural Resources issued a spacing and proration order limiting production to 75 barrels of oil per well per day to prevent waste and protect correlative rights.
- Plaintiffs alleged Sun intentionally exceeded the regulatory limit, causing drainage of oil from beneath plaintiffs’ tracts.
- After a bench trial, the court found Sun intentionally and unlawfully overproduced about 150,000 barrels, including 50,000 barrels attributable to drainage from beneath plaintiffs’ lands.
- The trial court imposed liability on tort and contract theories, awarded compensatory and exemplary damages, and denied rescission of the leases.

## Issues

1. Whether intentional overproduction in violation of a valid proration order, causing drainage from plaintiffs’ tracts, constituted conversion and a violation of plaintiffs’ common-law property rights.
2. Whether the rule of capture shielded the operator from liability for drainage when the drainage was accomplished through regulatory violations.
3. What measure of damages applied to intentional, wrongful production: the “mild” rule (allowing deductions) or the “harsh” rule (full value without deductions, often using the highest price during the period).
4. Whether exemplary damages and rescission of the leases were available.

## Decision

- The Michigan Court of Appeals affirmed liability, holding that Sun’s intentional overproduction in violation of the proration order amounted to conversion and a violation of plaintiffs’ property rights.
- The court held the rule of capture did not protect production achieved through violation of valid conservation regulation.
- The court rejected the trial court’s damage methodology and required application of the “harsh” conversion measure: full value of the converted oil, without deduction for production costs, valued using the highest price obtained during the wrongful production period.
- The court disallowed exemplary damages as duplicative given the punitive effect of harsh conversion damages.
- The court affirmed denial of rescission and remanded for recalculation of damages consistent with its instructions.

## Legal Principles

- In an ownership-in-place jurisdiction, a landowner has a protectable property interest in oil and gas in place, subject to correlative-rights limits.
- The rule of capture is limited by valid conservation and proration orders; an operator cannot invoke capture to avoid liability for drainage caused by unlawful overproduction.
- Intentional, unauthorized appropriation of another’s share of production from a common reservoir, enabled by violation of a proration order, can constitute conversion.
- For intentional conversion, the “harsh” damages rule may apply: the converter owes the full market value of the property at the time of conversion, typically measured by the highest price during the conversion period, with no deduction for costs.
- When harsh conversion damages are awarded for intentional misconduct, additional exemplary damages may be denied as duplicative.
- Rescission of an oil and gas lease is an extraordinary remedy and may be denied where monetary damages adequately address the wrongful conduct.

## Conclusion

The court held that an operator who intentionally overproduces in violation of proration limits and thereby drains oil from other owners commits conversion and cannot rely on the rule of capture; it required harsh conversion damages based on the highest price during the wrongful period, denied exemplary damages as duplicative, and refused rescission, remanding solely to recompute damages.


Wronski v. Sun Oil Co., 89 Mich. App. 11, 279 N.W.2d 564 (Mich. Ct. App. 1979)