In re Badlands Energy, Inc.

• Decision Date: 30 September 2019
• Docket Number: Jointly Administered Under Case No. 17-17465 KHT,Adversary No. 17-01429 KHT,Case No. 17-17465 KHT, Case No. 17-17471 KHT, Case No. 17-17469 KHT, Case No. 17-17467 KHT
• Citation: 608 B.R. 854
• Parties: IN RE: BADLANDS ENERGY, INC., Debtor. In re: Badlands Production Company, Debtor. In re: Badlands Energy-Utah, LLC, Debtor. In re: Myton Oilfield Rentals, LLC, Debtor. Monarch Midstream, LLC, f/k/a Monarch Natural Gas, LLC, Plaintiff, v. Badlands Production Company f/k/a Gasco Production Company, a Colorado corporation; Badlands Energy, Inc. f/k/a Gasco Energy, Inc., a Colorado corporation; and Wapiti Utah, LLC f/k/a Wapiti Newco, LLC, a Delaware limited liability company, Defendants.
• Court: U.S. Bankruptcy Court — District of Colorado

608 B.R. 854

IN RE: BADLANDS ENERGY, INC., Debtor.In re: Badlands Production Company, Debtor.In re: Badlands Energy-Utah, LLC, Debtor.In re: Myton Oilfield Rentals, LLC, Debtor.Monarch Midstream, LLC, f/k/a Monarch Natural Gas, LLC, Plaintiff,

v.Badlands Production Company f/k/a Gasco Production Company, a Colorado corporation; Badlands Energy, Inc. f/k/a Gasco Energy, Inc., a Colorado corporation; and Wapiti Utah, LLC f/k/a Wapiti Newco, LLC, a Delaware limited liability company, Defendants.

Case No. 17-17465 KHT

Case No. 17-17467 KHT

Case No. 17-17469 KHT

Case No. 17-17471 KHT

Jointly Administered Under Case No. 17-17465 KHT

Adversary No. 17-01429 KHT

United States Bankruptcy Court, D. Colorado.

Signed September 30, 2019

David M. Rich, Denver, CO, for Plaintiff.

Theodore J. Hartl, Ballard Spahr LLP, Denver, CO, for Defendant Badlands Energy, Inc.

Kyung S. Lee, Charles M. Rubio, Houston, TX, for Defendant Wapiti Utah, LLC.

ORDER ON WAPITI UTAH, L.L.C.'S MOTION FOR JUDGMENT ON THE PLEADINGS AND MONARCH NATURAL GAS, LLC'S MOTION FOR SUMMARY JUDGMENT

Kimberley H. Tyson, Judge

THIS MATTER comes before the Court on the following motions filed by Plaintiff Monarch Midstream, LLC ("Monarch") and Defendant Wapiti Utah, LLC ("Wapiti Utah"):

(1) Wapiti Utah's Motion for Judgment on the Pleadings ("Wapiti Utah's Motion," docket #22); Monarch's Opposition thereto (docket #26); Wapiti Utah's Reply (docket #31); Wapiti Utah's Supplement to the Motion (docket #55); and Monarch's Response to the Supplement (docket #57); and

(2) Monarch's Motion for Summary Judgment and Supporting Memorandum ("Monarch's Motion," docket #27) and supplemental exhibits (docket #29); Wapiti Utah's Opposition thereto and Objection to Materials in Support Thereof (docket #32); and Monarch's Reply (docket #34).

I. INTRODUCTION

Badlands Production Company, f/k/a Gasco Production Company, and Badlands Energy, Inc., f/k/a Gasco Energy, Inc., are Colorado corporations and Debtors in the above captioned Chapter 11 bankruptcy cases. Badlands Energy, Inc. owns 100% of Badlands Production Company and will be collectively referred to herein as "Badlands". Badlands was a consolidated natural gas and petroleum exploration, development and production company.

Following notice and a hearing, on October 26, 2017, the Court entered an Order authorizing Badlands to sell its oil and gas assets located in the Uintah Basin, Utah (the "Riverbend Assets") to Wapiti Utah, formerly known as Wapiti Newco, L.L.C.,¹ a Delaware limited liability company, free and clear of liens, claims, encumbrances and interests pursuant to Sections 363(b) and (f) of the Bankruptcy Code² ("Sale Order").³

Monarch is a Delaware limited liability company and the owner and operator of natural gas gathering and processing and salt water disposal systems in Uintah and Duchesne Counties, Utah.

Monarch objected to the sale of the Riverbend Assets to Wapiti Utah. Monarch had midstream gas gathering/processing and saltwater disposal contracts with Badlands and asserted those contracts could not be rejected because they constitute covenants running with the land. Just prior to the sale hearing, Monarch filed this adversary proceeding, requesting a declaratory judgment that its midstream contracts with Badlands burden the Riverbend Assets as covenants running with the land. Monarch also asserts a claim for breach of contract for over $1.2 million in unpaid pre-petition fees under the contracts.

The purchaser, Wapiti Utah, agreed to take the Riverbend Assets subject to the outcome of this adversary proceeding, and the Court approved the sale with consensual language in the Sale Order to that effect. Debtors did not assume and assign the Monarch contracts to Wapiti Utah, but Wapiti Utah purchased the Riverbend Assets subject to the outcome of this litigation.

II. JURISDICTION

The Court has jurisdiction over this core matter pursuant to 28 U.S.C. §§ 157(b)(2)(N) and (O), 28 U.S.C. § 1334, and 28 U.S.C. § 2201. The Court retained jurisdiction to interpret, implement, and enforce the terms of its Sale Order⁴ , and the Court has jurisdiction to interpret and enforce its own prior Orders. Travelers Indem. Co. v. Bailey , 557 U.S. 137, 151, 129 S.Ct. 2195, 174 L.Ed.2d 99 (2009). Monarch and Wapiti Utah⁵ both consent to the entry of final orders by the Bankruptcy Court in this proceeding.

III. STANDARD OF REVIEW

Rules 12(b)-(i) of the Federal Rules of Civil Procedure apply in adversary proceedings. Fed.R.Bank.P. 7012(b). Pursuant to Fed.R.Civ.P. 12(c), a party may move for judgment on the pleadings after the pleadings are closed. The Court "accept[s] the well-pleaded allegations of the complaint as true and construe[s] them in the light most favorable to the non-moving party." Atl. Richfield Co. v. Farm Credit Bank of Wichita , 226 F.3d 1138, 1160 (10th Cir. 2000) (citing Realmonte v. Reeves , 169 F.3d 1280, 1283 (10th Cir.1999) ; Mock v. T.G. & Y. Stores Co. , 971 F.2d 522, 529 (10th Cir.1992) ).

Under applicable rules on a motion for judgment on the pleadings, if "matters outside the pleadings are presented to and not excluded by the court, the motion must be treated as one for summary judgment under Rule 56. All parties must be given a reasonable opportunity to present all the material that is pertinent to the motion." Fed.R.Civ.P. 12(d) ; Fed.R.Bankr.P. 7012(b).

Similarly, Fed.R.Civ.P. 56 applies in adversary proceedings and provides summary judgment is appropriate if "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a) ; Fed.R.Bankr.P. 7056 ; Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). When reviewing a motion for summary judgment, the Court is to "view the evidence and draw reasonable inferences therefrom in the light most favorable to the nonmoving party." Koch v. Koch Indus., Inc. , 203 F.3d 1202, 1212 (10th Cir. 2000) (citation omitted), cert. denied , 531 U.S. 926, 121 S.Ct. 302, 148 L.Ed.2d 242 (2000).

The Court treats the parties' pleadings as cross motions for summary judgment. Both parties submitted materials beyond what is attached to the Complaint and both incorporated arguments from their respective pleadings concerning Monarch's Motion into their arguments on Wapiti Utah's Motion. The Court held oral argument on these matters and finds both sides have had ample opportunity to present their arguments and materials to the Court. Although the Motions were filed early on in this case before discovery commenced, the material facts largely set forth in Monarch's Complaint are not disputed and the issues the Court is called upon to resolve are questions of law. To the extent the Court considered materials outside of the Complaint as noted below, those materials are undisputed as well. See note 6, below.

IV. UNDISPUTED FACTS

On January 29, 2010, Monarch executed an Asset Purchase Agreement to purchase gas gathering and salt water disposal systems in Uintah and Duchesne Counties from Badlands Energy, Inc.'s predecessor, Gasco Energy, Inc., and Riverbend Gas Gathering, LLC (together, "Gasco Energy"). A copy of the Asset Purchase Agreement is attached to Monarch's Motion as Exhibit 2-A.⁶

Badlands, as successor-in-interest to Gasco Production Company ("Gasco"), and Monarch are parties to a Gas Gathering and Processing Agreement, effective March 1, 2010, which was amended and restated by the Amended and Restated Gas Gathering and Processing Agreement effective March 22, 2012 (the "Amended and Restated Agreement"). The original Agreement and the Amended and Restated Agreement are attached to Monarch's Complaint as Exhibits 1 and 2⁷ , respectively. The Amended and Restated Agreement was further amended on two occasions: Amendment No. 1, dated November 6, 2012, and effective as of March 22, 2012; Amendment No. 2, dated August 29, 2014, and effective as of July 1, 2014. The Amendments are attached to Monarch's Complaint as Exhibits 3 and 4, respectively. The Amended and Restated Agreement, together with Amendment Nos. 1 and 2, are hereinafter collectively referred to as the "GPA."

Wapiti Oil & Gas II, LLC ("WOG II") acquired a 50% interest in Badlands' oil and gas leases subject to the GPA (hereafter, the "Leases"), and in connection therewith, WOG II executed a Joinder to the Amended and Restated Agreement on March 22, 2012. Badlands and WOG II are hereafter collectively referred to as "Producers."

The Leases under the GPA are comprised of over 400 oil and gas leases in which Producers own interests. See Amended and Restated Agreement, Schedule 3 (Complaint, Exhibit 2).

Monarch and Gasco also entered into an Agreement for Disposal of Salt Water (the "SWDA"), effective February 26, 2010. The SWDA is attached to Monarch's Complaint as Exhibit 5. Amendment No. 1 to the SWDA, dated August 29, 2014, is effective as of July 1, 2014 and is attached to Monarch's Complaint as Exhibit 6. Gasco caused WOG II to be bound to the terms and conditions of the SWDA. The GPA and the SWDA shall together be referred to herein as the "Agreements."

On August 11, 2017, Badlands and certain of its affiliates filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code.⁸

On August 14, 2017, Badlands filed a Motion for Entry of an Order (A) Approving the Purchase and Sale Agreement Between Badlands Production Company and the Successful Auction Bidder, (B) Authorizing the Sale of Substantially All of its Property Pursuant Thereto, Free and Clear of Liens, Claims, Encumbrances, and Interests, (C) Authorizing the Assumption and Assignment of Contracts, and (D) Granting Related Relief ("Sale Motion").⁹ The Sale Motion identified Wapiti Utah as a "Stalking Horse Bidder" and potential purchaser of the Riverbend Assets. The Purchase and Sale Agreement between Badlands and Wapiti Utah dated August 7, 2017, attached to the Sale Motion as Exhibit "A," provides Wapiti Utah shall not assume any...