Anderson Living Trust v. Conocophillips Co.
| Decision Date | 01 March 2016 |
| Docket Number | No. CIV 12-0039 JB/KBM,CIV 12-0039 JB/KBM |
| Parties | THE ANDERSON LIVING TRUST f/k/a THE JAMES H. ANDERSON LIVING TRUST; THE PRITCHETT LIVING TRUST; CYNTHIA W. SADLER; SHIRLEY L. SCANLON LIVING TRUST AND ROBERT WESTFALL, Plaintiffs, v. CONOCOPHILLIPS COMPANY, LLC, Defendant. |
| Court | U.S. District Court — District of New Mexico |
THIS MATTER comes before the Court on the Plaintiffs' Motion for Leave to File Third Amended Complaint, filed December 10, 2015 (Doc. 165)("Motion"). The Court held a hearing on February 17, 2016. The primary issues are: (i) whether the United States Court of Appeals for the Tenth Circuit's decision in Elliott Industries Ltd. Partnership v. BP America Production Company, 407 F.3d 1091 (10th Cir. 2005)("Elliott Industries"), prevents the Court from recognizing that the implied duty to market imposes obligations on the price that lessees of oil-and-gas leases must obtain; (ii) whether the implied duty to market conflicts with any express contractual provisions; (iii) whether plaintiffs must allege unjust enrichment to recover under the implied duty to market; (iv) what the implied duty to market requires of lessees; and (v) whether the Court should grant the Motion and allow the Plaintiffs to amend their Second Amended Complaint for Underpayment of Oil and Gas Royalties, filed August 28, 2013 (Doc. 83)("ConocoPhillips Complaint"), pursuant to rule 15 of the Federal Rules of Civil Procedure. Because the Tenth Circuit did not consider a situation similar to the one here, where the Plaintiffs/lessors assert that the Defendants/lessees base the Plaintiffs' royalty payments off of low sales prices for all of the hydrocarbons in an affiliate sale, the Tenth Circuit's decision in Elliott Industries does not foreclose this Court from defining New Mexico's implied duty to market as bearing on the price that lessees must obtain when selling the hydrocarbons. The Court will not, however, allow the Plaintiffs to include those portions of the Motion that seek to reiterate arguments that Elliott Industries foreclosed. Second, under New Mexico law, the implied duty to market can coexist alongside the express royalty provisions in the Plaintiffs' leases. Third, alleging unjust enrichment is not a prerequisite to a New Mexico implied-duty-to-market claim. Because amending the ConocoPhillips Complaint does not involve undue delay or bad faith and it would not be futile, the Court will grant the Motion in part and deny it in part.
The Court has summarized this case's facts in other opinions. See, e.g., Memorandum Opinion at 5-9, filed June 28, 2013 (Doc. 76). The Court will not repeat the facts here, but, rather, will outline only those facts that are relevant to the disposition of the Motion before it. On October 20, 2011, two nearly identical groups of Plaintiffs,1 represented by the same group of attorneys, filed two lawsuits in state court. Compare Anderson Living Trust v. Williams Prod. Co., D-117-CV-2011-00511 (1st Jud. Dist. Ct., Cnty. of Rio Arriba, State ofN.M.) (Raphaelson, J.), with Anderson Living Trust v. ConocoPhillips Co., LLC, D-117-CV-2011-00510 (1st Jud. Dist. Ct., Cnty. of Rio Arriba, State of N.M.)(Raphaelson, J.). The two suits are similar in every way except that one of them, Anderson Living Trust v. WPX Energy Production, LLC ("WPX"), is against Defendants WPX Energy Production, LLC, Williams ProductionCompany, LLC, and WPX Energy Rocky Mountain, LLC (collectively, "the WPX Defendants"), while the other, ConocoPhillips, is against Defendant ConocoPhillips Co., LLC. Compare WPX Fourth Amended Complaint for Underpayment of Oil and Gas Royalties, filed September 27, 2013 (Doc. 129)("WPX Complaint"), with ConocoPhillips Complaint.
Both suits are proposed class actions on behalf of landowners who executed long-term leases with the Defendants. See WPX Complaint ¶ 26, at 10-12; ConocoPhillips Complaint ¶ 24, at 9-11. The leases, which were largely executed in the 1940s, allow the Defendants to drill for natural gas on the Plaintiffs' land in exchange for a royalty payment -- usually one-eighth of the proceeds from sale. See WPX Complaint ¶ 26, at 10-12; ConocoPhillips Complaint ¶ 24, at 9-11. The Plaintiffs contend that the Defendants have been underpaying the royalties in a number of ways -- most notably by paying royalty on natural-gas liquids at the same price per MMBtu2 that they pay for natural gas, which is a cheaper product -- and they seek damages for this underpayment going back to 1985. See WPX Complaint ¶ 33, at 14; ConocoPhillips Complaint ¶ 19, at 7-8; id. ¶¶ 31-32, at 12-13.
The named Plaintiffs are individuals and trusts owned by individuals with no in-depth knowledge of the oil-and-gas industry, although their levels of oil-and-gas sophistication vary from Plaintiff to Plaintiff. Owing to the leases' ages, no Plaintiff personally executed the lease that now pays his or its royalty; rather, all of the named Plaintiffs inherited their royalty interests. See WPX Complaint ¶ 26, at 10-12; ConocoPhillips Complaint ¶ 24, at 9-11. The onlyinformation that all of the Plaintiffs receive regarding their royalties is their monthly check stubs, which contain figures -- broken down by well, for those Plaintiffs who own royalty interests in more than one well -- for the total "price," "quantity," "value," "deductions," and "net [proceeds]" of all gas recovered from the Plaintiff's well over that payment period, and the "interest," "paid int[erest]," "value," "deductions," and "net share" of the Plaintiff's royalty. E.g., Check Stubs of James H. Anderson Living Trust (dated over numerous years), filed with the Court during the class-certification hearing in WPX as Plaintiffs' Ex. 1. See WPX Complaint ¶¶ 86-87, at 26-27; id. ¶ 95, at 28-29; ConocoPhillips Complaint ¶¶ 81-82, at 24-25; id. ¶ 90, at 27. The Plaintiffs also receive the checks, which contain only the final dollar figure of the royalty payout for that payment period. See, e.g., Check Stubs of James H. Anderson Living Trust at 1-2.
The Defendants calculate the Plaintiffs' royalty interests using the sale price received from the Defendants' affiliated intermediaries for hydrocarbons from wells in which the Plaintiffs own royalty interests, mixed with hydrocarbons from other wells in which the Plaintiffs do not own royalty interests. See Third Amended Complaint for Underpayment of Oil and Gas Royalties ¶ 36, at 23, filed December 10, 2015 (Doc. 165-1)("TAC"). The Plaintiffs contend that the Defendants' affiliated intermediaries sell the hydrocarbons downstream at a significant profit, but do not share this profit with the Plaintiffs, because the Defendants base the Plaintiffs' payment on the upstream transfers to the affiliated intermediaries. See TAC ¶ 36, at 23.
The Defendants in both cases removed their cases to federal court on January 12, 2012, asserting federal jurisdiction under the Class Action Fairness Act, 28 U.S.C. § 1332(d) ("CAFA"). WPX Notice of Removal, filed January 12, 2012 (Doc. 1); ConocoPhillips Notice ofRemoval, filed January 12, 2012 (Doc. 1). The Court had previously granted portions of the Defendants' earlier motions to dismiss. See Anderson Living Tr. v. ConocoPhillips Co., LLC, 952 F. Supp. 2d 979 (D.N.M. 2013)(Browning, J.)("June 28 MO"); Anderson Living Tr. v. ConocoPhillips Co., LLC, 2015 WL 3543011 (Browning, J.)("May 26 MO"). In both opinions, the Court dismissed the Plaintiffs' implied-duty-to-market claim on the grounds that it actually asserted that the Defendants violated the marketable-condition rule, which is a corollary of the implied duty to market. See Davis v. Devon Energy Corp., 2009-NMSC-048, ¶ 6, 218 P.3d 75, 78; Anderson Living Tr. v. WPX Energy Prod., LLC, 306 F.R.D. at 423. Although each state describes the marketable-condition rule in its own way, in general, the marketable-condition rule prohibits lessees from deducting certain post-production costs from lessors' royalty payments. See Garman v. Conoco, Inc., 886 P.2d at 661; Wood v. TXO Prod. Corp., 854 P.2d 880, 882 (Okla. 1992); Gilmore v. Superior Oil Co., 192 Kan. 388, 388 P.2d 602, 606 (1964). In contrast, the implied duty to market is broader: it requires lessees to extract the minerals subject to a lease and to market them for the mutual benefit of the lessees and lessors. See Elliott Indus., 407 F.3d at 1113. The Court held that the Tenth Circuit's decision in Elliott Industries foreclosed their arguments.
On March 19, 2015, the Court denied class certification in WPX. See Class Certification MOO at 1-2. Of importance here, the Court did not consider whether to certify a class on the basis of the implied duty to market, because the Court had previously dismissed the Plaintiffs' assertion of that claim. See Class Certification MOO at 2. The Plaintiffs in WPX then filed a motion asking the Court to reconsider its denial of class certification on the basis of the implied duty to market. See Plaintiffs' Motion for Reconsideration of Order Denying Class Certification, filed June 1, 2015 (Doc. 288)("Motion to Reconsider"). Although the Court concluded that theimplied duty to market imposes requirements on the price that lessees must obtain when selling hydrocarbons, it denied the Motion to Reconsider on the grounds that it had already dismissed the implied-duty-to-market claim. See Memorandum Opinion and Order, filed December 31, 2015 (Doc. 306). The Court had not yet ruled on the Motion to Reconsider when the Plaintiffs filed this Motion.
In this Motion, the Plaintiffs move the Court "for an Order permitting them to file Plaintiffs' Third Amended Complaint." Motion at 1 (referencing the TAC). The Plaintiffs assert that the TAC is necessary to: (i) incorporate the Court's May 26, 2015 rulings on the Defendants' Motion to Dismiss Plaintiffs' Second Amended Complaint; and (ii) add a new cause of action, which alleges a cause of action for...
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