Slamon v. Carrizo (Marcellus) LLC
| Decision Date | 07 February 2023 |
| Docket Number | 3:16-CV-2187 |
| Parties | JANIE SLAMON, as Executrix of the Estate of James Slamon, and ERIC LEWIS, on behalf of themselves and all others similarly situated, Plaintiffs, v. CARRIZO (MARCELLUS) LLC, RELIANCE MARCELLUS II, LLC, RELIANCE HOLDINGS USA, INC., BKV OPERATING LLC, and BKV CHELSEA LLC, Defendants. |
| Court | U.S. District Court — Middle District of Pennsylvania |
Presently before the Court are four motions for summary judgment. Plaintiffs, Janie Slamon as Executrix of James Slamon's Estate, Eric Lewis, and two certified classes of others similarly situated, have filed a Motion for Partial Summary Judgment. (Doc. 191.) The three Defendants in this case have filed motions for summary judgment: Defendant Callon (Marcellus) LLC, f/k/a Carrizo (Marcellus) LLC (“Carrizo”) (Doc. 192),[1] Defendants Reliance Marcellus II, LLC and Reliance Holdings USA, Inc. (collectively “Reliance”) (Doc. 188), and Defendants BKV Operating LLC and BKV Chelsea LLC (collectively “BKV”) (Doc. 196).
The case concerns a breach of contract claim regarding the calculation of royalties under the oil and gas leases between Defendants, as lessees, and Plaintiffs, as lessors. (See generally Second Am. Compl., Doc. 107.) Despite the complexity of the relevant transactions, the material facts are not genuinely disputed, and Defendants are entitled to summary judgment.
The following facts are undisputed unless otherwise noted.
In 2009, James Slamon entered into a Paid Up Oil and Gas Lease with Carrizo (“Slamon Lease”).[2] (Pls. Stmt, of Facts, Doc. 195 at ¶ 1.) Around the same time, Plaintiff Eric Lewis entered into multiple leases with Carrizo (“Lewis Lease”). (Doc. 195 at ¶ 2.) Carrizo also entered into or purchased substantially similar leases with many other landowners in Northeastern Pennsylvania (the “NEPA Leases”). (Doc. 195 at ¶ 3.) The “Class Leases” accordingly consist of the NEPA Leases, the Slamon Lease, and the Lewis Lease.
Two lease provisions, substantially the same in all of the relevant leases, are at issue. First, the Production Royalty term (“No Deductions Provision”) states:
(Slamon Lease, Doc. 193-4, at 2.) Second, the Valuation term (“Highest Price Provision”) provides:
[4](f) Valuation: The value of oil, gas, or other hydrocarbon production shall be determined on the basis of the greater of (i) the prevailing local market price at the time of sale or use, or, NYMEX spot price as published at the time of sale, whichever is greater, or (ii) the price paid to Lessee from the sale or use of the gas, including proceeds and any other thing of value received by Lessee; provided, however, that when gas production is sold in an arms-length sale transaction with an unaffiliated third party, the value of such gas production shall be the price paid to Lessee.
(Id. at 3.)
The Class Leases do not provide for the location at which the Lessee must sell the gas, nor do they expressly restrict the Lessee's right to choose that location.
In August 2010-before gas production began-Carrizo assigned Reliance an undivided 60% interest in the Class Leases. (Carrizo Stmt, of Facts, Doc. 194 at ¶ 3; Doc. 195 at ¶ 4.) Reliance took its gas in-kind and separately marketed its share of the gas. (Doc. 195 at ¶ 5.) Once production began, Plaintiffs received two monthly royalty checks: one from Carrizo and one from Reliance. (Doc. 194 at ¶ 4.)
Carrizo sold its entire share of the gas produced to DTE Energy Trading, Inc. (“DTE”). DTE is “an active physical and financial gas, power and environmental marketing company.” (Doc. 195 at ¶ 9 (quoting DTE Energy Trading, https://newlook.dteenergy.com/wps/wcm/-connect/dte-web/home/about-dte/common/dte-energy-trading (last accessed Jan. 31, 2023)).) Carrizo and DTE do not have common ownership and are not parents, subsidiaries, or corporate sisters with each other.
Carrizo and DTE operated pursuant to a “Base Contract for Sale and Purchase of Natural Gas,” dated February 12, 2010, and periodic “Transaction Confirmations” thereafter. (Doc. 194 at ¶ 5; Doc. 201-1, Ex. 4.) The Base Contract for Sale and Purchase of Natural Gas is an industry standard form contract created by the North American Energy Standards Board, Inc. and is referred to as an “NAESB.” (See Doc. 200-1, Ex. 4; T. Neu 30(b)(6) 1/8/19 Dep. Tr. at 37:21-38:22.) The NAESB lists Carrizo as the seller and DTE as the buyer. (Doc. 201-1, Ex. 4 at 4.) Transaction Confirmations, defined in the NAESB, are documents “setting forth the terms of a transaction” for a “particular Delivery Period.” (Id.)
Reliance also sold its entire share of the gas to DTE, excepting a period of approximately one year during which it sold some of its gas to Twin Eagle Resource Management, LLC (“Twin Eagle"). (Reliance Stmt, of Facts, Doc. 190 at ¶¶ 7-8.) Reliance and DTE are separate business entities with no parent or subsidiary relationship or common ownership.
Reliance and DTE also operated pursuant to an NAESB standard form base contract and Transaction Confirmations. (Doc. 190 at ¶ 11.) DTE refers to its agreements with Carrizo and Reliance as “asset management agreements” that are “executed through NAESBs.” (T. Neu 30(b)(6) 1/8/19 Dep. Tr. at 29:7-10.)
All sales of gas by Carrizo and Reliance to DTE were made in contemplation of future gas resales by DTE. (Doc. 195 at ¶¶ 10, 19.) DTE took title to the gas from Carrizo and Reliance at “Delivery Point[s],” defined by the respective NAESB agreements as “point(s) as are agreed to by the parties in a transaction.” (See, e.g., DTE/Reliance NAESB, Doc. 202-12, Ex. Q.) DTE, Carrizo, and Reliance determined the location of Delivery Points in their respective Transaction Confirmations. (See, e.g., DTE/Reliance Transaction Confirmation dated March 29, 2017, Doc. 202-13, Ex. R (Delivery Point would be at “all of the wellhead meters”).) Plaintiffs and Defendants agree that the agreed-upon Delivery Points were generally at or near “the wellhead” or at “the inlet to the gathering system,” and that DTE took title to the gas there. (See, e.g., T. Neu 30(b)(6) 1/8/19 Dep. Tr. at 43:3-7 (“title was transferring from-at the wellhead into the gathering agreement”), 53:14-54:11 (“DTE always [took] title at the inlet to the gathering system”); Doc. 219 at ¶ 13 (); Reliance/DTE Transaction Confirmation dated December 1,2011, Doc. 200-3, at 4 (“Contract Summary” stating that Reliance “sells all production to DTE at the wellhead"); Doc. 201-1 at 18 (DTE/Carrizo Transaction Confirmation stating the Delivery Point would be at the meters into various gas gathering systems).)[3]
Per the terms of the NAESBs, DTE bore the full risk of loss when title transferred. (See, e.g., Doc. 200-1, Ex. 4, at 6.) Plaintiffs contend this was not the case in practice, pointing to deposition testimony from DTE's 30(b)(6) representative explaining that DTE does not pay Carrizo or Reliance for gas that is “lost-and-unaccounted-for” and therefore not ultimately resold by DTE.[4]
After taking title, DTE “moved the gas downstream, and paid costs, if any, associated with transportation, gathering, dehydration, compression, and processing of the gas.” (Doc. 194 at ¶ 12.) Because of the disputed characterization of these costs, the Court will refer to them as “TGDCP costs.” DTE paid the TGDCP costs pursuant to contracts, at least some of which were negotiated directly by Carrizo and Reliance and thereafter assigned or released to DTE. (Doc. 195 at ¶¶ 14, 23.) The contracts were assigned or released to DTE on a “prearranged, non-biddable basis.” (See, e.g., DTE/Reliance Transaction Confirmation dated 12/1/11, Doc. 200-3, Ex. 6 at 2.)
DTE ultimately sold the gas to customers downstream. (Doc. 194 at ¶¶ 12-15.) Both Carrizo and Reliance communicated regularly with DTE about DTE's gas resales. Carrizo and Reliance discussed with DTE the quantities of gas DTE would sell, the locations at which DTE would sell, the price at which DTE would sell, and the timing of such sales. (See Doc. 216 at 24 n.19 ().) DTE often sought, and Carrizo and Reliance provided, input on these topics. (See id.)
Plaintiffs and Defendants point to conflicting evidence regarding the extent to which DTE was required to act in accordance with Carrizo and Reliance's input. For example, the Transaction Confirmations provide that DTE would use “its sole discretion and judgment in determining the location,...
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