Extraction Oil & Gas, Inc. v. Platte River Midstream, LLC (In re Extraction Oil & Gas, Inc.)
| Decision Date | 14 October 2020 |
| Docket Number | Adv. Proc. No.: 20-50833 (CSS),Case No.: 20-11548 (CSS) (Jointly Administered) |
| Parties | IN RE EXTRACTION OIL & GAS, INC., et al., Debtor. Extraction Oil & Gas, Inc., et al., Plaintiff, v. Platte River Midstream, LLC, and DJ South Gathering, LLC, Defendants. |
| Court | U.S. Bankruptcy Court — District of Delaware |
Stephen Brett Gerald, Richard W. Riley, Whiteford Taylor Preston LLC, Wilmington, DE, for Plaintiff.
Curtis S. Miller, Brett Shea Turlington, Morris Nichols Arsht & Tunnell, Wilmington, DE, for Defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW ON PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT AGAINST PLATTE RIVER MIDSTREAM, LLC AND DJ SOUTH GATHERING, LLC1
This adversary proceeding is one of several arising from the Chapter 11 case of Extraction and its affiliates.2 The Debtors are in the "upstream" business of extracting hydrocarbons from land in the State of Colorado. In the Chapter 11 case, the Debtors have sought to reject several of what are commonly known as Transportation Services Agreements or TSA's. Broadly speaking, the counterparties to these TSA's are "midstream" pipelines, which transport the Debtors' hydrocarbons to larger "downstream" pipelines or directly to the depot in Cushing, Oklahoma.
In response to the motion to reject, many of the counterparties, including these defendants, have argued that the TSA's cannot be rejected because they include covenants that run with the land. Moreover, they argue that a determination of whether there are covenants that run with the land requires an adversary proceeding. Hence, the Debtors have filed several adversary proceedings in which they have sought a declaratory judgment that the TSA's do not create covenants that run with the land. Currently, before the Court is the Debtor's motion for summary judgment to that effect.3
As set forth in detail below, the Court will grant the Debtors' motion for summary judgment. Under Colorado law, to create a covenant running with the land, the parties must intend to create a covenant running with the land and the covenant must touch and concern the land with which it runs. In addition, there must also be privity of estate between the original covenanting parties at the time of the covenant's creation. Under the unambiguous terms of the Platte River Contract, none of the required elements are met—the parties did not intend to create a covenant that runs with the land, the covenant does not touch or concern the land, and there is no privity of the estate. Similarly, under the unambiguous terms of the DJ South Contract, while the parties did intend the dedication and commitment to run with the land, it nonetheless does not touch or concern the land and there is no privity of the estate. Thus, as not all the required elements are present in connection with either contract, no covenant runs with the land.
Finally, while there are several issues discussed below, the central issue before the Court is whether the dedicated and committed interests in the Transportation Agreements touch and concern the land. They do not. The dedications and commitments concern only personal property and do not affect the physical use of real property or closely relate to real property. Throughout the Transportation Agreements, the dedicated and committed interests are used to identify the particular minerals that are subject to, set apart for, pledged or committed to the parties' contractual obligations. They do not convey any interests in real property. Thus, they cannot serve to satisfy the touch and concern the land element of the test to establish a covenant that runs with the land.
This proceeding concerns two agreements for the transportation of crude oil from wells owned and operated by Extraction Oil & Gas, Inc. ("Extraction") north of Denver, Colorado. Brief in Support of Plaintiff's Motion for Summary Judgment ("Extraction MSJ ") (A. D.I. 4) at p. 1-2. Extraction owns leasehold interests in the crude oil and related hydrocarbons, and has contracted with Platte River Midstream, LLC ("Platte River") and DJ South Gathering, LLC ("DJ South" and, collectively with Platte River, the "Defendants") to transport the oil downstream for eventual sale. Extraction MSJ (A. D.I. 5-1), Ex. A; (A. D.I. 5-2), Ex. B. The issue presented by Extraction MSJ is whether these agreements create covenants running with the land under Colorado law. Extraction MSJ (A. D.I. 4) at p. 1.
Extraction and Platte River entered into the First Amended and Restated Transportation Services Agreement (the "Platte River Contract") on April 14, 2017. Extraction MSJ Ex. A at p. 1.
On the same day, Extraction and Platte River entered into the April 14, 2017 Storage Tank Lease Option Agreement—a side letter agreement that the parties stated was "intended to be a covenant that runs with the land ...." Reply in Support of the Motion for Summary Judgment (A. D.I. 23) Ex. 2 at § 7.
Extraction and DJ South entered into the Transportation Services Agreement (the "DJ South Contract," together with the Platte River Contract, the "Transportation Agreements") on May 16, 2018. Extraction MSJ (A. D.I. 5-2), Ex. B at p. 1.
The Transportation Agreements are construed in accordance with, and are governed by, Colorado law, without regard to Colorado's conflict of laws provisions. Extraction MSJ (A. D.I. 5), Ex. A at § 13.14; Extraction MSJ (A. D.I. 5-2), Ex. B at § 14.14. The real property implicated by the Transportation Agreements is located within Colorado. Extraction MSJ (A. D.I. 5-1), Ex. A at § 1.1(t); Extraction MSJ (A. D.I. 5-2), Ex. B at § 1.1(u).
Extraction did not grant any easement or rights-of-way to the Defendants contemporaneously with the Transportation Agreements. Defendants' Response in Opposition to the Motion for Summary Judgment (A. D.I. 21) (the "Platte River Response "), Ex. G (A. D.I. 21-7) (Extraction not a party to the contract); Ex. H (A. D.I. 21-8) (same); Ex. N (A. D.I. 21-14) (same); Ex. S (A. D.I. 21-19) (same); Ex. L (A. D.I. 21-12) (right-of-way granted to Platte River on July 17, 2019).
On June 14, 2020, Extraction and its affiliates filed voluntary petitions under Chapter 11 of the Bankruptcy Code.
On August 11, 2020, the Debtors filed the Debtors' Second Omnibus Motion for Entry of an Order (I) Authorizing Rejection of Unexpired Leases of Nonresidential Real Property and Executory Contracts Effective as of the Dates Specified Herein and (II) Granting Related Relief (D.I. 412) (the "Motion to Reject ").
In connection with the Debtors' chapter 11 cases, Extraction instituted this adversary proceeding by filing its Complaint for Declaratory Judgment (A. D.I. 2) against Platte River and DJ South on August 25 (the "Extraction Complaint "). The parties dispute whether the Transportation Agreement creates any covenants running with the land. Extraction Complaint (A. D.I. 2) at p. 8 and 10.
On the same day, Extraction filed its Motion for Summary Judgment (A. D.I. 3).
On September 18, Platte River and DJ South filed their Response in Opposition to the Motion for Summary Judgment (A. D.I. 21).
On September 23, Extraction filed its Reply in Support of the Motion for Summary Judgment (A. D.I. 23).
On September 30, 2020, the parties argued the motion for summary judgment before this Court.
On October 8, 2020, the parties submitted proposed findings of fact and conclusions of law under the direction of this Court.
The Platte River Contract's term ends on "October 31, 2026 unless earlier terminated pursuant to the terms of this Agreement or extended" under the contract's terms. Extraction MSJ (A. D.I. 5-1), Ex. A at § 4.1.
The DJ South Contract's term ends ten years following the Commencement Date. Extraction MSJ (A. D.I. 5-2), Ex. B at §§ 1.1(o) and 5.1.
Section 1.1(o) of the Platte River Contract states: " ‘Committed Volume’ means, subject to Section 3.1, the number of Barrels of Crude Petroleum per day Shipper commits to ship on the Pipeline System as set forth on Schedule A." Extraction MSJ (A. D.I. 5-1), Ex. A at § 1.1(o).
Section 1.1(p) of the DJ South Contract states: " ‘Committed Volume’ means, subject to Section 4.1, the number of Barrels of Crude Petroleum per day Shipper commits to ship on the Pipeline System as set forth on Schedule A." Extraction MSJ (A. D.I. 5-2), Ex. B at § 1.1(p).
Section 1.1(s) of the Platte River Contract states: " ‘Crude Petroleum’ has the meaning set forth in the Tariff." Extraction MSJ (A. D.I. 5-1), Ex. A at § 1.1(s).
Section 1.1(t) of the DJ South Contract also states: " ‘Crude Petroleum’ has the meaning set forth in the Tariff." Extraction MSJ (A. D.I. 5-2), Ex. B at § 1.1(t).
The Tariff attached to the Platte River Contract defines "Crude Petroleum" as "the direct liquid product of oil wells, or the indirect liquid petroleum products of oil or gas wells, or a mixture of such products." Extraction MSJ (A. D.I. 5-1), Ex. A, (Ex. C) at Item 5.
Section 1.1(bb) of the Platte River Contract states:
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