Husky Ventures, Inc. v. B55 Invs., Ltd.

• Decision Date: 18 December 2018
• Docket Number: No. 17-6034,17-6034
• Parties: HUSKY VENTURES, INC., Plaintiff Counterclaim Defendant - Appellee, v. B55 INVESTMENTS, LTD., Defendant Counterclaimant - Appellant, and Christopher McArthur, an Individual, Defendant - Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

911 F.3d 1000

HUSKY VENTURES, INC., Plaintiff Counterclaim Defendant - Appellee,

v.B55 INVESTMENTS, LTD., Defendant Counterclaimant - Appellant,andChristopher McArthur, an Individual, Defendant - Appellant.

No. 17-6034

United States Court of Appeals, Tenth Circuit.

FILED December 18, 2018

Stephen E. Csajaghy (Marisa Hudson-Arney with him on the briefs), Condit Csajaghy LLC, Denver, Colorado, for Defendants-Appellants.

Shannon Wells Stevenson, Davis Graham & Stubbs LLP, Denver, Colorado, (Kyle W. Brenton and Daniel Rosales, Davis Graham & Stubbs LLP, Denver, Colorado, and Travis P. Brown, Brady L. Smith, John Paul Albert, Mahaffey & Gore, P.C., Oklahoma City, Oklahoma, with him on the briefs) for Plaintiff-Appellee.

Before HOLMES, MATHESON, and MORITZ, Circuit Judges.

HOLMES, Circuit Judge.

Husky Ventures, Inc. ("Husky") sued B55 Investments Ltd. ("B55") and its president, Christopher McArthur, for breach of contract and tortious interference under Oklahoma law. In response, B55 filed counterclaims against Husky.¹ After a trial, a jury reached a verdict in Husky’s favor, awarding $4 million in compensatory damages against both B55 and Mr. McArthur and $2 million in punitive damages against just Mr. McArthur; the jury also rejected the counterclaims presented to it. In further proceedings, the district court entered a permanent injunction and a declaratory judgment in Husky’s favor. After the court entered final judgment, B55 and Mr. McArthur filed a timely notice of appeal from that judgment. They also moved for a new trial under Federal Rule of Civil Procedure ("Rule") 59(a) or, in the alternative, to certify a question of state law to the Oklahoma Supreme Court. The court denied the motion in all respects.

On appeal, B55 and Mr. McArthur contend that the district court erred in denying their motion for a new trial and again move to certify a question of state law to the Oklahoma Supreme Court. In addition, they appeal the permanent injunction and declaratory judgment and argue that the district court erred in refusing to grant leave to amend the counterclaims.

We dismiss B55 and Mr. McArthur’s claims relating to the motion for a new trial for lack of appellate jurisdiction and deny their motion to certify the state law question as moot. We affirm the district court’s judgment on the remaining issues.

I

A

Husky is an Oklahoma oil and gas company. In the early 2000s, Charles Long, Husky’s CEO, became interested in using horizontal drilling techniques to extract oil and gas from geologic formations previously thought to be depleted. In 2008, Husky had success drilling wells at an ostensibly depleted formation called the "Cimarron" prospect.² Encouraged by this promising start, Husky created projects at other prospects, including "Chisholm Trail," "Prairie Grove," "Cherokee Ridge," and "Viking."

But Husky lacked capital to develop each of these projects independently, so it entered into agreements to secure capital with other individuals and companies. Under these agreements, participating entities would contribute capital in exchange for a working interest in a particular project. Husky, for its part, was contractually designated as the projects’ "operator." As the operator, Husky was responsible for making operational decisions regarding lease acquisitions and drilling services for each project. Such arrangements are common in mineral extractive industries. See Debra J. Villarreal & Lucas LaVoy, Participation Agreements , 31 E. MIN. L. FOUND. § 10.03 (2010) ("Frequently, companies desiring to pursue an opportunity with other companies do not want to incur liability for the others’ obligations. Industry participants, therefore, often prefer to enter into a contract to govern the joint exploration and development rather than form a joint venture."); see also id.§ 10.03[11] ("Participants typically name one of the participants ... as the operator for the exploration area. The party named as operator is also often named as the party with primary responsibility for lease acquisition and making development proposals.").

In December 2013, Mr. Long and Mr. McArthur discussed a collaboration between Husky and B55 in a new oilfield "completion company." Aplts.’ App., Vol. XII, at 3139 (Tr. of Jury Trial Proceedings, dated Nov. 14, 2016). Although that company never took form, Husky and B55 signed a Participation Agreement in March 2014 providing for B55’s participation in the Viking project. Three months later, the parties executed a separate Participation Agreement for the Prairie Grove project. Under these agreements, B55 became a 15% participant in the Viking project and a 10% participant in the Prairie Grove project. B55 also invested $4.5 million in extant wells and received the right to acquire interests in future oil and gas leases developed by Husky within the project areas.

Signs of trouble quickly emerged. First, Mr. McArthur began making extra-contractual requests that Husky declined to grant. For example, he asked Mr. Long both to make him Husky’s CFO and to hire his son to lead Husky’s drilling operations. Mr. McArthur also demanded a list of "the name[s], address[es], and phone number[s] of every participant [Husky] ha[d] in every well," which Husky refused to disclose because the information was confidential. Id. at 3239–40.

And mere months after executing their 2014 Participation Agreements, B55 and Husky diverged over the meaning of the Agreements’ terms. Mr. McArthur claimed that Husky had to offer newly-developed leases to B55 on a lease-by-lease basis and that B55 had the right to opt in to participating in individual leases so offered. Holding this view, Mr. McArthur purported to reject certain leases that Husky had acquired. Husky disagreed with Mr. McArthur’s reading of the Participation Agreements and warned B55 that failure to pay its share of the costs for newly-developed leases would forfeit B55’s right to participate in future leases.

Around this time, Mr. McArthur demanded that Husky buy out his interests in Prairie Grove and Viking for $25.6 million, more than five times B55’s original investment just a few months earlier. Mr. McArthur informed Mr. Long that, if Mr. Long did not agree, Mr. McArthur would cause problems for Husky with service providers and other participants in its projects.

Mr. Long refused. True to his word, Mr. McArthur responded by causing problems for Husky. As a result of Mr. McArthur’s efforts, several companies involved in Husky’s projects took adverse legal actions against Husky. For example, Mr. McArthur contacted LaMunyon Drilling ("LaMunyon"), a Husky contractor that had drilled wells for Husky’s Cimarron, Chisholm Trail, and Prairie Grove projects. At that time, Husky and LaMunyon were in talks to resolve a dispute over billing and the quality of a drilling job that LaMunyon had performed for Husky. Those talks ended, however, after Mr. McArthur convinced LaMunyon not to settle with Husky; instead, at Mr. McArthur’s urging, LaMunyon filed liens against a number of Husky’s wells.

Under the Participation Agreements, contractors filing liens against Husky’s wells could serve as grounds to remove Husky as operator. Mr. McArthur was well aware of this fact. Indeed, he had reached out to Gastar Exploration ("Gastar"), a participant in several of Husky’s projects, and offered, in return for over $9 million, to precipitate LaMunyon’s filing of liens against a number of Husky’s wells so that Gastar could oust Husky as operator. The day after LaMunyon filed its liens, Mr. McArthur sued Husky to remove it as operator of the Prairie Grove project. Gastar, too, notified Husky that it intended to exercise its rights to remove Husky as the operator of the Chisholm Trail and Prairie Grove projects.

Mr. McArthur then approached Torchlight Energy Resources, Inc. ("Torchlight"). He offered to sell Torchlight information that he claimed would prove Husky had engaged in misconduct with respect to its transactions with Torchlight. Torchlight agreed, and it later sued Husky in Texas.

Mr. McArthur’s actions had significant negative effects on Husky. Although Husky ultimately settled its differences with Gastar, it was forced to give up its interests in the entirety of Chisholm Trail and a section of Prairie Grove. In addition, all past agreements between Gastar and Husky were terminated, and Husky was deprived of the benefit of Gastar’s participation in its other ventures. Together, Gastar’s departure and the costs of defending the Gastar suit (as well as the LaMunyon and Torchlight suits) caused Husky to lose several leases and severely limited its ability to drill future wells.

B

Husky sued B55 and Mr. McArthur in state court, alleging breach of contract and tortious interference with contract or business relationships under Oklahoma law. Husky sought a declaratory judgment on the contract-interpretation dispute between it and B55 and to quiet title to leases affected by that dispute. It also sought a permanent injunction prohibiting B55 and Mr. McArthur from contacting several of its business partners. And for the harms arising from the interference and breach of contract claims, Husky requested damages. B55 counterclaimed for breach of contract, declaratory judgment, and fraud.

After the suit was removed to federal court under diversity jurisdiction, a six-day trial ensued. The trial ended with a jury verdict in Husky’s favor on its tortious interference claim. On this claim, the jury awarded Husky $4 million in compensatory damages against both B55 and Mr. McArthur and $2 million in punitive damages against Mr. McArthur individually. The jury rejected the fraud counterclaims presented to it.

After the verdict, the district court held more proceedings concerning the requests for a declaratory judgment and a permanent injunction. The court granted Husky a declaratory judgment on the interpretation of the Participation Agreements and issued a permanent injunction prohibiting B55 and Mr. McArthur from...