Cory v. Newfield Expl. Mid-Continent, Inc.

• Decision Date: 28 February 2020
• Docket Number: Case No. CIV-19-221-G
• Parties: CURTIS CORY et al., Plaintiffs, v. NEWFIELD EXPLORATION MID-CONTINENT, INC., Defendant.
• Court: U.S. District Court — Western District of Oklahoma

CURTIS CORY et al., Plaintiffs, v. NEWFIELD EXPLORATION MID-CONTINENT, INC., Defendant.

Case No. CIV-19-221-G

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA

February 28, 2020

ORDER

Now before the Court is the Motion for Partial Judgment on the Pleadings (Doc. No. 17) filed by Defendant Newfield Exploration Mid-Continent, Inc. ("Newfield"). Plaintiffs have responded in opposition (Doc. No. 18), and Newfield has replied (Doc. No. 19).

SUMMARY OF THE PLEADINGS¹

Plaintiffs Curtis Cory and Cheryl Cory are the surface owners of a 160-acre tract of land located at Section 36, Township 15 North, Range 9 West in Kingfisher County, Oklahoma. Compl. (Doc. No. 1-1) at 1. On March 14, 1977, Plaintiffs' predecessors ininterest executed an oil and gas lease (the "Lease") in favor of Cal-Tex Tungsten Co., Newfield's predecessor in interest, that burdens an 80-acre tract of Section 36-15N-9W (the "Leased Property"). Id. at 2. The Lease provided for an initial three-year term, to continue so long as oil and gas are produced in paying quantities on the Leased Property. Id.

The Lease includes a "voluntary pooling" clause, which provides, in part:

Lessee, at its option, is hereby given the right and power to pool or combine the acreage covered by this lease or any portion thereof with other land, lease or leases in the immediate vicinity thereof, when in lessee's judgment it is necessary or advisable to do so . . . such pooling to be of tracts contiguous to one another and to be into a unit or units not exceeding 160 acres each in the event of an oil well, or into a unit or units not exceeding 640 acres each in the event of a gas well.

Compl. Ex. A, ¶ 6.

On February 19, 1980, the Oklahoma Corporation Commission ("OCC") entered its Order No. 164538 ("Order No. 164538"), providing among other things "that Section 36, Township 15 North, Range 9 West, Kingfisher County, Oklahoma, is established as one 640-acre drilling and spacing unit for the production of gas and gas condensate from the Tonkawa, Mississippi Solid, and Hunton separate common sources of supply." Pls.' Resp. Ex. 1 (Doc. No. 18-1) at 3.

On April 25, 2017, Plaintiffs contacted Newfield after learning that Newfield intended to drill a horizontal well on Section 36-15N-9W. See Compl. at 2-3; Compl. Ex. D. Citing the spacing limitations contained in the Lease's voluntary-pooling clause, Plaintiffs stated to Newfield that any effort to pool or combine the Leased Property into aunit exceeding 160 acres for the purpose of drilling an oil well would violate the Lease terms irrespective of any spacing approval obtained from the OCC. See Compl. Ex. D.

On April 27, 2017, Newfield filed an application with the OCC, in Cause CD No. 201702631-T, to establish a 640-acre drilling and spacing unit so that it could drill oil from the Mississippian, Woodford, and Hunton common sources of supply. Compl. at 3; Pls.' Resp. Ex. 2 (Doc. No. 18-2). Newfield later requested to dismiss the application, representing that it no longer intended to drill the well. Pls.' Resp. at 3; Pls.' Resp. Ex. 4 (Doc. No. 18-4).

On May 18, 2017, Newfield filed an application for increased density in Cause CD No. 201703285-T so that it could drill an additional well in a unit established by OCC Order No. 164538. Compl. at 3; Pls.' Resp. Ex. 6 (Doc. No. 18-6). In this application, Newfield stated that Order No. 164538 had "established a 640-acre drilling and spacing unit for the production of oil and gas or gas and gas condensate from the Mississippian common source of supply" underlying Section 36-15N-9W. Pls.' Resp. Ex. 6, ¶ 2 (emphasis omitted). In fact, Order No. 164538 had established Section 36-15N-9W as "one 640-acre drilling and spacing unit for the production of gas and gas condensate from the Tonkawa, Mississippi Solid, and Hunton separate common sources of supply." Pls.' Resp. at 4; Pls.' Resp. Ex. 1, at 3.

On July 6, 2017, the OCC issued Order No. 665651 ("Order No. 665651") granting Newfield's increased-density application. See Pls.' Resp. at 4; Compl. Ex. E (authorizing an additional well to be drilled for the Mississippian common source of supply as an "[e]xception" to Order No. 164538). Shortly thereafter, Newfield began drilling the Katie1509 1h-36 (the "Katie 1509"), an oil well, on the western half of Section 36-15N-9W. Compl. at 3; see also Answer (Doc. No. 5) at 6.

On November 1, 2018, the OCC issued an order nunc pro tunc finding that, due to a scrivener's error, Order No. 665651 erroneously referenced the Mississippian common source of supply rather than the Mississippi Solid common source of supply. See Pls.' Resp. at 5; Pls.' Resp. Ex. 8 (Doc. No. 18-8) at 1-2.

On January 30, 2019, Plaintiffs filed suit in the District Court of Kingfisher County, Oklahoma, seeking to quiet title to the Leased Property and asserting claims against Newfield for breach of contract, tortious interference with contract, and bad faith. See Compl. at 1-7. After removing this action to federal court, Newfield filed the instant Motion seeking partial judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure.

DISCUSSION

Newfield seeks judgment on Plaintiffs' claims for breach of contract, tortious interference with contract, and bad faith. In their Response, Plaintiffs concede that they cannot maintain a claim for tortious interference. See Pls.' Resp. at 8. Accordingly, the Court grants Newfield's Motion with respect to that claim and addresses the remaining relevant claims below.

I. Subject-Matter Jurisdiction and Collateral Attack

Newfield argues that Plaintiffs' lawsuit attempts an impermissible collateral attack on Order No. 164538 (establishing Section 36-15N-9W as a 640-acre drilling and spacing unit) and Order No. 665651 (authorizing the drilling of the Katie 1509). See Def.'s Mot.(Doc. No. 17) at 4-5, 8-9. Because this argument implicates the Court's subject-matter jurisdiction, it must be addressed at the outset. See Farmer v. Banco Popular of N. Am., 791 F.3d 1246, 1254 (10th Cir. 2015) (explaining that "subject matter jurisdiction is a threshold inquiry"); Fransen v. Conoco, Inc., 64 F.3d 1481, 1493 (10th Cir. 1995) (finding that on a collateral attack of an OCC order, "the district court had no jurisdiction to inquire into the facts determined in the OCC proceedings" but "could only determine from the face of the proceedings whether the OCC had jurisdiction to issue the order"); see also Optima Oil & Gas Co. v. Mewbourne Oil Co., 500 F. App'x 749, 753-54 (10th Cir. 2012). "A facial attack on the complaint's allegations regarding subject matter jurisdiction questions the complaint's sufficiency and requires the court to accept the allegations as true." Smith v. United States, 561 F.3d 1090, 1097 (10th Cir. 2009).

Pursuant to Oklahoma statute, courts may not permit a "collateral attack 'upon the orders, rules and regulations of the OCC.'" Ladra v. New Dominion, LLC, 353 P.3d 529, 531-32 (Okla. 2015) (alteration omitted) (citing Okla. Stat. tit. 52, § 111); accord Fransen, 64 F.3d at 1487 (finding that plaintiffs' claims that "would avoid, defeat or deny the force and effect" of an OCC order were barred by "Oklahoma's statutory proscription against collateral attacks"). The Oklahoma Supreme Court has broadly defined the term "collateral attack" as "an attempt to avoid, defeat, evade, or deny the force and effect of a final order or judgment in an incidental proceeding other than by appeal, writ of error, certiorari, or motion for new trial." Ladra, 353 P.3d at 532 (internal quotation marks omitted). At the same time, the Oklahoma Supreme Court has explained that OCC orders do not provide blanket immunity from private lawsuits, as the OCC's jurisdiction is "limited to theresolution of public rights." Tucker v. Special Energy Corp., 187 P.3d 730, 733 (Okla. 2008); see also Grayhorse Energy, LLC v. Crawley Petroleum Corp., 245 P.3d 1249, 1254 (Okla. Civ. App. 2010) (stating that "a pooling order, or other OCC order, does not immunize the operator, or other parties connected to the pooling order, from lawsuits in the district courts").

While the OCC has exclusive jurisdiction to regulate oil and gas exploration and production for the protection of public rights, "[state] district courts have jurisdiction to resolve disputes over private rights involving mineral interests and oil and gas leaseholds," including "the relationship of private parties, their duties, their rights and obligations, and the existence of liability for the breach of such duties." Grayhorse Energy, 245 P.3d at 1254-55 (internal quotation marks omitted). Judicial adjudication of private rights under a leasehold agreement does not amount to a collateral attack on an OCC order unless it would require the court to "reverse, modify, or correct" the order. Id. at 1254; see also Leck v. Cont'l Oil Co., 800 P.2d 224, 226 (Okla. 1989) ("[W]hen a dispute arises between a lessor and a lessee regarding the lessee's breach of an implied covenant, the rights involved enter the realm of the private world and are proper disputes for the district court to resolve because they involve issues concerning the construction of a private contract between the parties.").

Plaintiffs in this case seek not to reverse, modify, or correct any OCC order but to enforce a private contractual right. See Compl. at 4-5. As such, their lawsuit does not amount to a collateral attack on Order No. 164538 or Order No. 665651, and their claims are properly before this Court. See Tucker, 187 P.3d at 734 (holding that plaintiffs' actionto quiet title was not a collateral attack on an OCC pooling order because plaintiffs were "not attempting to obtain an order declaring the [pooling order] void"); Leck, 800 P.2d at 226 (holding that lessors' "action for damages for the lessee's alleged breach of an implied covenant to protect from drainage [was] a private action arising from their contract and [did] not involve the correlative rights of...