Encana Oil & Gas (USA), Inc. v. Miller, Court of Appeals No. 16CA1979

• Decision Date: 10 August 2017
• Docket Number: Court of Appeals No. 16CA1979
• Parties: ENCANA OIL & GAS (USA), INC., Plaintiff-Appellant, v. Sally MILLER; Barclay Farms, LLC ; Joan Elaine Brehon; David Furlong and Joyce Furlong, as Co-Trustees for the Janette Foote Estate; Niles Miller ; White River Royalties, LLC; Whitney Brace, as Trustee for the T.E. McClintlock Trust; and Helen Nelson, as Trustee for the Edwin Miller Trust, Defendants-Appellees.
• Court: Colorado Court of Appeals

405 P.3d 488

ENCANA OIL & GAS (USA), INC., Plaintiff-Appellant,

v.Sally MILLER; Barclay Farms, LLC ; Joan Elaine Brehon; David Furlong and Joyce Furlong, as Co-Trustees for the Janette Foote Estate; Niles Miller ; White River Royalties, LLC; Whitney Brace, as Trustee for the T.E. McClintlock Trust; and Helen Nelson, as Trustee for the Edwin Miller Trust, Defendants-Appellees.

Court of Appeals No. 16CA1979

Colorado Court of Appeals, Div. II.

Announced August 10, 2017

Welborn Sullivan Meck & Tooley, P.C., Jens Jensen, Brian S. Tooley, Samuel S. Bacon, Denver, Colorado, for Plaintiff-Appellant

Law Offices of George A. Barton, P.C., Stacy A. Burrows, George A. Barton, Robert G. Harken, Overland Park, Kansas, for Defendants-Appellees

Opinion by JUDGE FOX

¶ 1 A certified class of Colorado oil and gas royalty owners (the Class) and EnCana Oil & Gas (USA), Inc. (EnCana), were involved in litigation beginning in 2005 over EnCana's alleged underpayment of royalties on natural gas it produced. In 2008, EnCana and the Class entered into a settlement agreement that detailed the payment of funds to settle past claims, established the methodology EnCana would use for future royalty payments, and included an arbitration clause. The district court's final judgment approved and incorporated the settlement agreement, dismissed the 2005 case with prejudice, and reserved jurisdiction to enforce the agreement. In 2016, Colorado oil and gas royalty owners Sally Miller; Barclay Farms, LLC; Joan Elaine Brehon; David and Joyce Furlong, as Co-Trustees for the Janette Foote Estate; Niles Miller; White River Royalties, LLC; Whitney Brace, as Trustee for the T.E. McClintlock Trust; and Helen Nelson, as Trustee of the Edwin Miller Trust (collectively Owners), purporting to act on behalf of the Class, filed a demand for arbitration alleging that EnCana had underpaid royalties owed to members of the Class in violation of the 2008 settlement agreement. EnCana quickly filed a new case in district court asserting that (1) the Class ceased to exist when the 2005 case was dismissed with prejudice in 2008 and (2) the 2008 settlement agreement did not authorize arbitration on a class-wide basis. In September 2016, the district court issued an order finding that the Class had not ceased to exist, deciding that the claims between EnCana and the Class should be resolved in class-wide arbitration, and entering summary judgment against EnCana. EnCana now appeals the district court's September 2016 order. We affirm.

I. Background

¶ 2 In the 2005 case, Miller v. EnCana Oil & Gas (USA) Inc., No. 05CV2753 (City & Cty. of Denver Dist. Ct. Aug. 26, 2008), the then putative Class sued EnCana over EnCana's alleged underpayment of royalties for natural gas produced in Colorado. The Class sought damages and declaratory relief to determine the proper method for calculating future royalty payments where the Class members' royalty agreements were silent as to the deduction of post-production costs from royalty payments. In 2006, after briefing and a two-day evidentiary hearing, the district court certified the Class pursuant to C.R.C.P. 23(b)(3). Notice of the certification was mailed to approximately 6000 Class members and about 150 members opted out of the Class.

¶ 3 In 2008, EnCana and the Class entered into a settlement agreement stating that EnCana's payment of $40,000,000 to the Class resolved all disputes concerning natural gas production through December 31, 2008. EnCana and the Class further agreed on a royalty payment methodology for natural gas production on or after January 1, 2009, allocating post-production costs based on the location of the well(s) processing the gas.¹ The agreement contains the following arbitration clause:

In the event of a dispute over EnCana's payment of royalty under [the methodology for calculating royalties on gas produced on or after January 1, 2009], such dispute will be resolved in an arbitration administered by the Judicial Arbiter Group ("JAG"), with the Honorable Richard W. Dana as Arbitrator. The arbitration will be conducted in accordance with the rules (but not under the administrative auspices) of the American Arbitration Association [AAA] then in effect. If Judge Dana is unable to serve as Arbitrator, the Arbitrator will be designated by JAG from among its panel of Arbitrators. If JAG no longer exists, the Parties will attempt to agree on an arbitrator, and if unable to do so, arbitration will be conducted under the rules of the [AAA] then existing.

As relevant here, the agreement (1) defines "Parties" as "Plaintiffs, Class Members and EnCana, each of whom individually may be referred to as a ‘Party’ "; (2) adopts Colorado law; (3) provides that it runs with the land; and (4) states that it is binding upon "EnCana and the Class Members and their respective ... successors and assigns, with respect to both the current interests owned by EnCana and Class Members and any additional interest that either EnCana or Class Members acquire under the Royalty Agreements."²

¶ 4 The district court preliminarily approved the settlement agreement, and a notice of the proposed settlement was mailed to the Class members informing them of the settlement terms and their right to object. Based upon the evidence adduced at the class fairness hearing, the district court approved the settlement as being "fair, reasonable, bona fide and adequate to the Settlement Class." The district court then entered a final judgment approving the settlement agreement "between EnCana and [the] Class[,] except for those persons and entities [opting] out of the class," and dismissing the case with prejudice. The judgment states that "[f]or production of Natural Gas ... occurring from the Leases on and after January 1, 2009 and continuing for the respective lives of the Leases, EnCana (and its successors) shall calculate and pay Class Members (and their successors) royalties as set forth in the Agreement," consistent with the methodology and subclasses laid out in section 10 of the agreement. The district court's judgment expressly

reserves jurisdiction, without affecting the finality of this Final Judgment, over (a) implementing, administering and enforcing this Settlement and any award or distribution from the Settlement Funds; (b) disposition of the Settlement Funds; and (c) other matters related or ancillary to the foregoing.

The judgment incorporates the settlement agreement, specifying that the judgment and the settlement agreement "are to be construed together as one Settlement between the Parties."

¶ 5 In 2016, Owners, on behalf of the Class, filed a demand for class arbitration with JAG, alleging that EnCana violated the settlement agreement by underpaying royalties on natural gas produced since January 1, 2009. EnCana responded by suing Owners, in City and County of Denver District Court case 16CV31444, for declaratory relief. In a later motion, EnCana claimed that the settlement agreement did not authorize arbitration on a class-wide basis and requested that the district court decide the issue and stay arbitration. Responding to EnCana's motion, Owners did not oppose EnCana's request that the court, not the arbitrator, decide whether their agreement authorized class arbitration. The district court stayed arbitration until it resolved the disputed question.

¶ 6 Owners next moved for summary judgment on the issue of class arbitration, and EnCana later filed (1) a C.R.C.P. 56(h) motion asking the district court to decide that the Class ceased to exist after the 2008 dismissal with prejudice and (2) a cross-motion for summary judgment on the class arbitration issue. In September 2016, the district court issued an order finding that the Class had not ceased to exist and entering summary judgment in favor of Owners, deciding that the claims between EnCana and the Class should be resolved in class-wide arbitration.

¶ 7 EnCana now appeals the September 2016 order.

II. The Class May Enforce the Settlement Agreement

¶ 8 EnCana contends that the district court erred in finding that the Class continued after the case was dismissed with prejudice in 2008. According to EnCana, C.R.C.P. 23 is a procedural tool facilitating the aggregation of claims and does not affect substantive rights or law; therefore, once the underlying case is dismissed, the class and its ability to bring new claims cease to exist. Otherwise, EnCana argues, the district court's obligation under C.R.C.P. 23(c)(1) —to continually and rigorously analyze whether proceeding as a class is appropriate—would continue beyond the case's dismissal with prejudice. EnCana asserts that the district court's September 2016 order lacked sufficient C.R.C.P. 23(c)(1) analysis regarding (1) the named representatives' current ability to adequately represent the Class; (2) the current composition of the Class; and (3) the alleged unilateral substitutions of Class counsel. EnCana also argues that Class counsel did not provide sufficient notice of the arbitration demand to Class members. We disagree.

A. Preservation and Standard of Review

¶ 9 The parties agree that this issue was properly preserved.

¶ 10 When deciding a motion under C.R.C.P. 56(h), a district court may decide a legal question "[i]f there is no genuine issue of any material fact necessary for the determination of the question of law." We review a court's ruling on such a motion de novo. Francis v. Aspen Mountain Condo. Ass'n, 2017 COA 19, ¶ 7, 401 P.3d 125. Also, an arbitration clause in a settlement agreement is part of a contract, the interpretation of which is a matter of law that we review de novo. See Allen v. Pacheco, 71 P.3d 375, 378 (Colo. 2003).

B. Applicable Law

¶ 11 A district court "has inherent authority and jurisdiction to make such orders as are necessary to give effect to or enforce its prior decrees." Mulei v. Jet Courier Serv., Inc., 860 P.2d 569, 571 (Colo. App. 1993) ("Although the trial court had dismissed the cause with prejudice, it retained...