Abraham v. WPX Prod. Prods., LLC

• Decision Date: 25 April 2016
• Docket Number: No. CIV 12-0917 JB/CG,CIV 12-0917 JB/CG
• Citation: 184 F.Supp.3d 1150
• Parties: Steven J. Abraham, and H Limited Partnership on behalf of themselves and others similarly situated, Plaintiffs, v. WPX Production Productions, LLC, f/k/a Williams Production Company, LLC; Williams Four Corners, LLC; and Williams Energy Resources, LLC, Defendants.
• Court: U.S. District Court — District of New Mexico

184 F.Supp.3d 1150

Steven J. Abraham, and H Limited Partnership on behalf of themselves and others similarly situated, Plaintiffs,

v.WPX Production Productions, LLC, f/k/a Williams Production Company, LLC; Williams Four Corners, LLC; and Williams Energy Resources, LLC, Defendants.

No. CIV 12-0917 JB/CG

United States District Court, D. New Mexico.

Filed April 25, 2016

Jake Eugene Gallegos, Michael J. Condon, Gallegos Law Firm, P.C., Santa Fe, New Mexico, Attorneys for the Plaintiffs

Sarah Gillett, Dustin L. Perry, Hall Estill Hardwick, P.C., Tulsa, Oklahoma, Christopher A. Chisman, Holland & Hart LLP, Denver, Colorado, Mark F. Sheridan, Bradford C. Berge, Robert J. Sutphin, John C. Anderson, Elisa C. Dimas, Holland & Hart LLP, Santa Fe, New Mexico, Attorneys for the Defendants

MEMORANDUM OPINION¹

James O. Browning, UNITED STATES DISTRICT JUDGE

THIS MATTER comes before the Court on: (i) the Defendants' Motion to Dismiss Claims for Plaintiffs' Lack of Standing, filed February 12, 2014 (Doc. 131)("MTD"); (ii) the Defendants' Motion to Exclude Expert Report of John Burritt McArthur, filed February 17, 2014 (Doc. 137)("Motion to Exclude"); and (iii) the Plaintiffs' Motion in Limine Concerning Certain Testimony of Kris Terry, filed April 18, 2014 (Doc. 184)("Motion in Limine"). The Court held hearings on March 13, 2014, and May 9, 2014. The primary issues are: (i) whether the Court should dismiss Plaintiffs Steven J. Abraham's and H Limited Partnership's claims on the basis that overriding royalty owners and royalty owners have such different interests that they do not have standing to assert the same causes of action; (ii) whether expert John B. McArthur's testimony will assist the Court in determining whether to certify a class; and (iii) whether expert Kris Terry's testimony will assist the Court in determining whether to certify a class, and whether she may provide custom-and-usage testimony. Because the Plaintiffs demonstrate the requirements for standing under Article III of the Constitution of the United States of America, the Court denies the MTD. Regarding the Motion to Exclude, McArthur may testify about the royalty agreements' meaning to help the Court to determine whether it can certify a class, but he cannot testify to legal conclusions that the case meets rule 23's class certification requirements. Finally, the Court will deny the Motion in Limine and will decline to limit Terry's testimony, because it helps the Court determine whether common questions exist that impact the entire class.

FACTUAL BACKGROUND

This matter arises from alleged royalty underpayments related to oil and gas leases in the San Juan Basin in New Mexico and Colorado. See Third Amended Class Action Complaint, ¶¶ 13-14, at 5, filed October 29, 2012 (Doc. 15) ("TAC").

The San Juan Basin, one of the largest natural gas producing fields located in northwest New Mexico and southwest Colorado, was originally developed in the early 1950's by El Paso Natural Gas Company .... The natural gas produced in the San Juan Basin is conventional gas which contains methane (natural gas) and entrained natural gas liquids ("NGLs"), such as ethane and butane. In order to make the gas safe to enter the interstate pipeline, the NGLs must be removed from the gas stream.

Elliott Indus. Ltd. P'ship v. BP Am. Prod. Co., 407 F.3d 1091, 1099 (10th Cir.2005). The named Plaintiffs are Steven J. Abraham, a New Mexico resident who "owns mineral interests in Colorado and New Mexico," TAC ¶ 1, at 1, and H Limited Partnership, a New Mexico limited partnership that owns mineral interests in New Mexico, see TAC ¶ 2, at 1-2. The Plaintiffs filed this class action on behalf of a proposed class membership to include

[a]ll present and former owners of royalty and overriding royalty which burden oil and gas leases and wells in the San Juan Basin of Colorado ... [and] New Mexico, which leases and wells are now or were formerly held by WPX Production LLC, Williams Production Company, LLC, or their corporate affiliates, successors or predecessors in title, which leases are producing or have been productive of conventional natural gas recovered from sandstone or shale formations, and which gas is or has been transported and delivered for extraction and marketing of natural gas liquids from the gas at the Ignacio Processing Plant in La Plata County, Colorado, the Kutz Plant in San Juan County, and the Lybrook Plant in Rio Arriba County, New Mexico.

TAC ¶ 22, at 7-8.

The Defendants include WPX Energy Production, LLC ("WPX Production"), as well as Williams Four Corners, LLC, and Williams Energy Resources, LLC ("Williams Resources"), (all of these collectively referred to as the "Williams Companies"). TAC ¶¶ 3–5, at 2-3. WPX Production is an " 'upstream' exploration and production company that owns, develops and operates oil and gas leases and gas wells in the Rocky Mountain west, including the San Juan Basin of Colorado and New Mexico and markets some of its gas production." TAC ¶ 3, at 2. Williams Four Corners is a " 'midstream' enterprise that owns and operates a 3,500 mile natural gas gathering system, and processing and fractionation facilities within the San Juan Basin of Colorado and New Mexico. Williams Four Corners provides its services for gas produced by WPX Production from its working interest in leases." TAC ¶ 4, at 2. Williams Energy Resources "performs the functions of acquiring, selling and marketing the natural gas liquids, oil and other hydrocarbons produced by WPX Production on its own behalf and on behalf of Williams Four Corners midstream business." TAC ¶ 5, at 3.

The Plaintiffs allege that the Defendants' "combined conduct" resulted in

WPX's systemic underpayment of Royalty due to the failure to pay on the burdened leaseholds' production on NGLs and on oil and condensate, understating the liquids content of production, the improper charging of post-production expenses against production revenues, and deductions in the royalty computation of charges that are not actually incurred and are unreasonable. NGLs produced as part of the gas stream are subsequently extracted at plants owned and operated by Williams and retained and disposed of by Williams free of royalty at a substantial financial detriment to the plaintiffs and the proposed class by reason of the challenged conduct in which Williams participates with WPX. Although WPX has the contractual Royalty payment obligation, Williams are jointly responsible with WPX for the underpayment of plaintiffs' and the class' royalties.

TAC ¶ 14, at 5.

PROCEDURAL BACKGROUND

The Plaintiffs' claims against WPX Production include: (i) breach of contract (Count I), see TAC ¶¶ 58–61, at 17-18; (ii) breach of the covenant of good faith and fair dealing (Count II), see TAC ¶¶ 62-65, at 18-19; (iii) breach of the implied covenant to market under New Mexico and Colorado law (Counts IV and V), see TAC ¶¶ 70-79, at 20-22; and (iv) violation of the New Mexico Oil and Gas Proceeds Payment Act, N.M. Stat. Ann. §§ 70–10–1 to 70–10–6 (Count VII), see TAC ¶¶ 86–88, at 23. The claims against Williams Four Corners and Williams Resources are for unjust enrichment (Count III). See TAC ¶¶ 66–69, at 19. Against the Williams Companies, the Plaintiffs request a declaratory judgment, accounting for the underpayments, and an injunction for the future royalty calculations and payments (Count VI).See TAC ¶¶ 80-85, at 22-23.

The parties in this case have filed numerous motions. This opinion addresses three of them: (i) the Defendants' MTD; (ii) the Defendants' Motion to Exclude; and (iii) the Plaintiffs' Motion in Limine.

1. The Defendants' MTD.

The Defendants filed the MTD on February 12, 2014. See MTD at 1. They ask the Court to dismiss the case on the ground that the "Plaintiffs lack standing to bring these claims." MTD at 1. They state that the "Plaintiffs purport to represent present and former owners of royalty and overriding royalty interests in [New Mexico and Colorado]. However, in New Mexico, neither Abraham nor H Ltd. owns any royalty interests subject to Plaintiffs' claims; rather, they own only overriding royalty interests." MTD at 2. Likewise, the Defendants allege that the Plaintiffs do not own: (i) any overriding royalty interests in Colorado; or (ii) former royalty interests in either state. See MTD at 2.

The Defendants explain that, in proposed class actions, "the named plaintiffs must have individual standing in order to bring claims on behalf of the absent class members." MTD at 4 (emphasis in original). Because the Plaintiffs own only overriding royalty interests² in New Mexico and royalty interests in Colorado, the Defendants contend that the Plaintiffs lack standing to assert any of their claims "on behalf of royalty interest owners in New Mexico, overriding royalty interest owners in Colorado, or former royalty or overriding royalty interest owners." MTD at 5. The Defendants argue that the Plaintiffs' overriding royalty interests are not sufficient to provide standing to assert claims for injuries to royalty owners, because "[r]oyalty and overriding royalty interests therefore are different property interests, establishing different legal rights, under different state laws." MTD at 8. In short, the Defendants assert that the Plaintiffs must be injured pursuant to the same royalty instrument under which each class member allegedly suffers injury. See MTD at 9-10.

Additionally, the Defendants contend that interest owners in one state do not have standing to assert claims on behalf of interest owners in another state. See MTD at 10-12. They state that, because Abraham owns only Colorado royalty interests, he "cannot allege injury-in-fact with respect to any New Mexico royalty interests." MTD at 10. Moreover, the Defendants contend that "his royalty interests have no causal relation to, and cannot be redressed by, New Mexico law." MTD at 11. Finally, the Defendants assert that neither Abraham nor H Limited have standing to assert claims on behalf...