Anderson Living Trust v. ConocoPhillips Co., CIV 12-0039 JB/KBM
| Decision Date | 28 June 2013 |
| Docket Number | No. CIV 12-0039 JB/KBM,No. CIV 12-0040 JB/LFG,CIV 12-0039 JB/KBM,CIV 12-0040 JB/LFG |
| Parties | THE ANDERSON LIVING TRUST f/k/a THE JAMES H. ANDERSON LIVING TRUST; THE PRICHETT LIVING TRUST; CYNTHIA W. SADLER; SHIRLEY L. SCANLON LIVING TRUST AND ROBERT WESTFALL, Plaintiffs, v. CONOCOPHILLIPS COMPANY, LLC, Defendant. and THE ANDERSON LIVING TRUST f/k/a THE JAMES H. ANDERSON LIVING TRUST; THE PRICHETT LIVING TRUST; CYNTHIA W. SADLER; and ROBERT WESTFALL, Plaintiffs, v. WPX ENERGY PRODUCTION, LLC f/k/a WPX ENERGY SAN JUAN, LLC and WILLIAMS PRODUCTION COMPANY, LLC; and WPX ENERGY ROCKY MOUNTAIN, LLC, f/k/a WILLIAMS PRODUCTION RMT COMPANY, LLC, Defendants. |
| Court | U.S. District Court — District of New Mexico |
THIS MATTER comes before the Court on: (i) Defendant ConocoPhillips Company's Motion to Dismiss Plaintiffs' First Amended Complaint for Underpayment of Oil and Gas Royalties, filed March 5, 2012 (Case No. CIV 12-0039 Doc. 11)("CP MTD"); (ii) and Defendants WPX Energy Production, LLC and WPX Energy Rocky Mountain, LLC's Motion to Dismiss Plaintiff's Second Amended Complaint for Underpayment of Oil and Gas Royalties, filed March 5, 2012 (Case No. CIV 12-0040 Doc. 18)("WPX MTD"). Because the Plaintiffs named in the First Amended Complaint for Underpayment for Oil and Gas Royalties, filed in state court on December 5, 2011, filed in federal court on January 12, 2012 (Case No. CIV 12-0039 Doc. 1-1)("FAC") -- James H. Anderson Living Trust (through James Anderson as trustee), Pritchett Living Trust (through April Pritchett as trustee), Cynthia W. Sadler, Shirley L. Scanlon Living Trust (through Shirley L. Scanlon, as trustee), and Robert Westfall -- and the Plaintiffs named in the Second Amended Complaint, filed February 16, 2012 (Case No. CIV 12-0040 Doc. 10)("SAC") -- James H. Anderson Living Trust (through James Anderson as trustee), Pritchett Living Trust (through April Pritchett as trustee), Cynthia W. Sadler, and Robert Westfall -- are nearly identical and have made nearly identical allegations against the Defendants --ConocoPhillips Company, LLC, and WPX Energy Production, LLC, f/k/a WPX Energy San Juan LLC, Williams Production Company, LLC, and WPX Energy Rocky Mountain, LLC, f/k/a Williams Production RMT Company, LLC -- in both matters, and the Defendants have made nearly identical motions to dismiss the respective complaints against them, the Court will address both parties' motions together in this Memorandum Opinion. Any differences in fact or law which exist between the two matters will be noted.
The Court held a hearing on both motions to dismiss on June 19, 2012. The primary issues are: (i) whether the Plaintiffs have sufficiently alleged that the Defendants are in breach of the parties' oil and gas leases; (ii) whether the Plaintiffs have stated a claim for fraud that can survive notwithstanding the parties' contractual relationship; (iii) whether the Plaintiffs have sufficiently alleged that the Defendants breached the implied duty to market hydrocarbons as recognized by New Mexico law; (iv) whether the Plaintiffs have alleged a plausible claim for relief under the New Mexico Proceeds Payment Act, N.M.S.A. 1978, §§ 70-10-1 to 70-10-5 and the Oil and Gas Conservation Act, Colo. Rev. Stat. §§ 34-60; (v) whether the Plaintiffs may allege a claim for bad-faith breach of contract notwithstanding the parties' contractual relationship; (vi) whether the Plaintiffs may allege a claim for unjust enrichment, and seek a declaratory judgment and an injunction against the Defendants' actions, notwithstanding the parties' contractual relationship; (vii) whether the Plaintiffs may allege a claim for conversion against the Defendants notwithstanding the parties' contractual relationship; and (viii) whether the Court should apply the Supreme Court of the United States' jurisprudence regarding rule 8(a)of the Federal Rules of Civil Procedure to the Plaintiffs' class-action allegations and dismiss the Plaintiffs' class-action allegations. The Court grants in part and denies in part the CP MTD and WPX MTD. The Court will not dismiss the Plaintiffs' first cause of action, because the Plaintiffs have sufficiently alleged that the parties are in a contractual relationship and that the Defendants have breached the terms of the parties' leases. The Plaintiffs have plausibly alleged that the Defendants' reporting and royalty calculation conduct breaches the Defendants' duty of good faith and fair dealing, implied at law into every contract in New Mexico. The Court will not, therefore, dismiss the Plaintiffs' second cause of action to the extent it is a claim for a breach of the duty of good faith and fair dealing in contract. The Court dismisses the Plaintiffs' second cause of action to the extent it asserts a stand-alone claim of fraud in tort. The Court similarly dismisses the Plaintiffs' seventh cause of action, because the parties' leases preclude the Plaintiffs from recovering in tort for the breach of a duty that their leases cover. The Court will dismiss the Plaintiffs' third cause of action, because New Mexico law does not recognize that the Defendants' conduct alleged in the FAC and SAC breaches the Defendants' implied duty to market hydrocarbons. The Court will dismiss the Plaintiffs' fourth cause of action in part. The Plaintiffs may proceed on their theory that the Defendants' have failed to make timely payments as required under the Proceeds Payment Act, but may not proceed under Colorado's Oil and Gas Conservation Act in this Court. The Court will not dismiss the Plaintiffs' fifth cause of action because the Plaintiffs' have sufficiently alleged that the Defendants breached their duties under the leases, and as required by the covenant of good faith and fair dealing, in bad faith. The Courtwill dismiss the Plaintiffs' sixth cause of action in part. The Plaintiffs may not recover in equity for conduct that allegedly breaches the parties' leases; the Court, therefore, dismisses the Plaintiffs' claim for unjust enrichment. The Court also dismisses the Plaintiffs' claim for injunctive relief, because the Plaintiffs have alleged only that the Defendants' conduct will cause them monetary harm in the future, and monetary harm is not irreparable. The Plaintiffs may seek a declaratory judgment proscribing the Defendants' future conduct under the leases. Lastly, the Court will not dismiss the Plaintiffs' class-action allegations because these allegations do not purport to state a claim for relief, and, even if they did, the Plaintiffs' have made allegations, sufficient to demonstrate that they may plausibly bring this matter as a class action.
This matter arises from a dispute over the royalty payments that the Defendants, producers of oil and gas in New Mexico and Colorado, and working interest holders on oil and gas leases belonging to the Plaintiffs, owe to the Plaintiffs, royalty interest holders on the leases.
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)("Elliott Indus."). As this matter comes before the Court on a Motion to Dismiss, the Court will assume that all facts in the Plaintiffs' complaints are true. See Bell Atl. Corp. v. Twombly, 550 U.S.544, 555 (2007)( that, to survive a motion to dismiss, "[f]actual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact)").
The Plaintiffs in this matter all own interests in hydrocarbons derived from wells in the States of New Mexico and Colorado. See FAC ¶¶ 1-7, at 1-2; SAC, ¶¶ 1-4, at 1-2. The Plaintiffs reside in the southwest, in the states of Utah (Anderson Living Trust), Colorado (Pritchett Living Trust), Texas (Sadler), and New Mexico (Scanlon Living Trust and Robert Westfall). See FAC ¶¶ 1-7, at 1-2; SAC ¶¶ 1-4, at 1-2. ConocoPhillips and WPX Energy Production, LLC, f/k/a WPX Energy San Juan LLC, Williams Production Company, LLC, and WPX Energy Rocky Mountain, LLC, f/k/a Williams Production RMT Company, LLC ("WPX") are producers and vendors of conventional natural gas, originating from the Fruitland coal formation; coalbed methane ("CBM") natural gas; and other petroleum hydrocarbons from wells in which the Defendants own lease-hold interests.2 See FAC ¶ 8, at 2-3; SAC ¶ 9, at 3."Plaintiffs each own a non-cost bearing interest in the revenues derived from the production and sale of hydrocarbons pursuant to the terms of oil and gas leases owned or partially owned by" the Defendants in the "subject wells," save for Scanlon Living Trust, which owns no interest in WPX lease-hold interests. FAC ¶ 9, at 3; SAC ¶10, at 3. The "subject wells" are "all wells in the States of New Mexico and Colorado in which [the Defendants own] all or a portion of the oil and gas leases under which non-cost bearing, royalty and/or overriding royalty payments are/were owed, and which produce or produced hydrocarbons." FAC ¶ 10, at 3; SAC ¶ 11, at 3. The Plaintiffs bring this action as a class against the Defendants on behalf of all owners of "non-cost bearing" royalty interests in the subject wells.3 FAC ¶ 12, at 4; SAC ¶ 13, at 4.
The Plaintiffs, or their predecessors, acquired their interests in the hydrocarbon revenues from the subject wells through executing oil and gas mining leases and/or permits to Defendants. See FAC ¶ 10, at 3; SAC ¶ 11, at 3. Under the leases, the Defendants owe the Plaintiffs a "duty to pay royalties...
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