Tep Rocky Mountain LLC v. Record TJ Ranch Ltd.

Decision Date25 August 2022
Docket NumberS-21-0288
Citation516 P.3d 459
Parties TEP ROCKY MOUNTAIN LLC, a Delaware limited liability company, f/k/a WPX Energy Rocky Mountain, LLC, a Delaware limited liability company, Appellant (Defendant), v. RECORD TJ RANCH LIMITED PARTNERSHIP, a Wyoming limited partnership, Appellee (Plaintiff).
CourtWyoming Supreme Court

Representing Appellant: Isaac N. Sutphin, Jeffrey S. Pope, and Macrina M. Sharpe, Holland & Hart LLP, Cheyenne, Wyoming. Argument by Mr. Pope.

Representing Appellee: Dan B. Riggs, Amanda K. Roberts, and J. Kyle Hendrickson, Lonabaugh and Riggs, LLP, Sheridan, Wyoming. Argument by Mr. Hendrickson.

Before FOX, C.J., and KAUTZ, BOOMGAARDEN, GRAY, and FENN, JJ.

KAUTZ, Justice.

[¶1] Record TJ Ranch Limited Partnership (TJ Ranch) sued TEP Rocky Mountain LLC (TEP RM) and Carbon Creek Energy, LLC (Carbon Creek) for payment under a surface use and damage agreement (SUA) governing oil and gas development and production on the ranch lands. Carbon Creek defaulted and is not a party here. The district court denied TEP RM's motion to dismiss for lack of personal jurisdiction, granted summary judgment to TJ Ranch on several issues, and, following a bench trial, found TEP RM had breached the agreements and TJ Ranch was entitled to payment. We affirm.

ISSUES

[¶2] TEP RM presents the following issues, which we restate:

1. Did the district court have personal jurisdiction over TEP RM?
2. Did the district court err in finding TJ Ranch reasonably withheld its consent for assignment of the SUA?
3. Did the district court err in finding TJ Ranch did not novate the SUA?
4. Did the district court err by refusing to stay this case pending resolution of a related federal case?
FACTS
Surface Use Agreement

[¶3] TJ Ranch is located in the Powder River Basin of Campbell County and, at all times relevant to this matter, was owned by the Record family. In 1999, operator Barrett Resources Corporation and the Record family entered into the SUA to govern the development of oil and gas leases on the ranch lands. Paragraph 47 of the SUA addressed assignment.

47. Assignment. Operator may assign this Agreement, in whole or in part, with the prior written consent of the Owners, which shall not be unreasonably withheld in the case of assignment to a reputable Operator who expressly assumes the obligations of Operator hereunder with the proven financial capability to fully perform all of the Operator's responsibilities under this Agreement, both at the present time and for the reasonably foreseeable term of this Agreement. In the case, however, that Operator assigns this Agreement without first obtaining such written consent of Owners, then any such assignment by Operator shall not relieve Operator of its obligations hereunder and upon any such assignment, Operator and its assignees and successor assignees shall remain jointly and severally responsible in the full, faithful and complete performance of all promises and obligations undertaken herein by the Operator.

The parties consented to Wyoming district court jurisdiction for any "lawsuit" "arising out of or in conjunction with" the SUA.

[¶4] Over time, the Record family transferred its interests in the ranch and SUA to TJ Ranch, and different companies took over as operator under the SUA. The various operators developed coal bed methane gas wells and associated infrastructure, including roads, pipelines, reservoirs, and irrigation facilities on the ranch lands. From 1999 through 2008, TJ Ranch and the operators amended the SUA and entered into agreements for additional facilities, but the changes did not alter the parties’ obligations to each other in any relevant way. WPX Energy Rocky Mountain, LLC (WPX RM), which was solely owned by WPX Energy Holdings, LLC (WPX Holdings), took over as operator under the SUA in 2012.

WPX RM's Sale of Gas Interests and Assignment of the SUA to Moriah/Carbon Creek

[¶5] On July 31, 2015, WPX RM sent a letter to TJ Ranch seeking its consent for WPX RM's assignment of the SUA to Moriah Powder River, LLC (Moriah). The letter stated WPX RM "has entered into" an agreement, "effective January 1, 2015," to sell all its Powder River Basin methane assets, including those located on TJ Ranch property, to Moriah. Referencing the SUA, WPX RM asked TJ Ranch to "indicate [its] consent and approval of the assignment ... by signing in the space" at the bottom of the letter and returning it to WPX RM within five days of receipt. The letter said that if TJ Ranch had any questions or needed additional information, it should contact the WPX RM landman who sent the letter. WPX RM did not include any additional information about the sale or Moriah with its consent letter.

[¶6] In deciding whether to consent to the assignment, the principals for TJ Ranch, Jerry and Sarah Record, researched Moriah online. They discovered the company had "just been formed" but could not locate any information about Moriah's financial condition or reputation in the oil and gas industry. TJ Ranch did not return the consent form to WPX RM, nor did WPX RM make any additional effort to communicate with TJ Ranch about the sale to Moriah or the assignment. Despite TJ Ranch's failure to approve the assignment, the sale closed on September 1, 2015, and WPX RM assigned the SUA to Moriah.

Sale of WPX RM Membership Interest and Change of Name to TEP RM

[¶7] In 2016, WPX Holdings sold its 100% membership interest in WPX RM to Terra Energy Partners LLC (Terra Energy). The Membership Interest Purchase Agreement (MIPA) stated WPX RM's assets did not include "rights, title and interests in the real and personal property interests, leasehold interests and other assets and interests set forth in Exhibit H." The list of excluded assets in Exhibit H included "[a]ny and all obligations arising out of the terms and conditions of the Purchase and Sale Agreement ... between [WPX RM] and Moriah ...." After purchasing the membership interest, Terra Energy changed WPX RM's name to TEP RM. Because WPX RM had transferred its Wyoming assets and operations to others before Terra Energy bought WPX Holdings’ ownership interest in WPX RM, the renamed LLC -- TEP RM -- did not have any ongoing operations or assets in Wyoming.

Forbearance Agreement and Default

[¶8] Also in 2016, Carbon Creek, a sister company formed by Moriah to operate its gas interests, contacted TJ Ranch seeking a discount on the 2016 SUA payment because gas prices were low. TJ Ranch agreed to a five percent discount because the Records believed it "would be worth the goodwill that [the ranch] might be able to acquire with the new companies and also to foster a good working relationship with them." Carbon Creek remitted the discounted 2016 payment.

[¶9] In 2017, Carbon Creek tendered $444,441.73 to TJ Ranch for its annual SUA payment. TJ Ranch rejected Carbon Creek's payment and sent notices of default to Carbon Creek and WPX RM, claiming it was owed an annual payment of more than $1,000,000. At the time, TJ Ranch was not aware that WPX Holdings had sold its membership interest in WPX RM to Terra Energy or that WPX RM's name had been changed to TEP RM. Carbon Creek thereafter informed TJ Ranch it would be "indemnifying WPX."

[¶10] TJ Ranch and Carbon Creek eventually agreed TJ Ranch would forbear filing suit to enforce the payment terms of the SUA provided Carbon Creek complied with a modified payment schedule based upon the price of natural gas (Forbearance Agreement). Carbon Creek's 2017 payment under the terms of the Forbearance Agreement was $725,000.

[¶11] The Forbearance Agreement expressly ratified the SUA and stated "[s]ubject to its duty to forbear as provided in this [a]greement, [TJ Ranch] reserves all rights under the [SUA], including its right to hold [Carbon Creek's] predecessors-in-interest liable for the performance of all obligations" under the SUA after exercising its right to terminate the Forbearance Agreement. The Forbearance Agreement's termination provision provided that if Carbon Creek failed to "timely make any payment," TJ Ranch would notify Carbon Creek of the breach and its right to cure within 60 days. If Carbon Creek did not cure, the Forbearance Agreement became "null and void." The parties further agreed:

To avoid any doubt and by way of example, in the event this [a]greement is terminated by [TJ Ranch] ... in the year 2020, [TJ Ranch] shall be entitled to recover from [Carbon Creek] and its respective predecessors-in-interest all sums owed under [the SUA] for the years 2017, 2018, 2019, and 2020 ... less any sums received in those years from [Carbon Creek]."

[¶12] Carbon Creek paid in accordance with the Forbearance Agreement until 2020, when it defaulted after Moriah (n/k/a US Realm Powder River, LLC) declared bankruptcy. TJ Ranch sent notices of default to Carbon Creek and the WPX Energy entities. Instead of responding directly to the notice of default, WPX Energy, Inc. (the parent company of the WPX entities) filed a declaratory judgment action against TJ Ranch in the United States District Court for the District of Wyoming, seeking a declaration that WPX Energy, Inc., and by association all WPX entities, were not liable under the SUA because TJ Ranch "executed a new contract with Carbon Creek that superseded and replaced any prior obligations."

Course of Proceedings in the Case at Bar

[¶13] After WPX Energy, Inc. filed its federal declaratory judgment action, TJ Ranch brought this suit for breach of the SUA in the Wyoming district court for Campbell County. TJ Ranch originally named only Carbon Creek and WPX RM as defendants. Once it learned WPX RM had changed its name, TJ Ranch amended its complaint to designate TEP RM f/k/a WPX RM and Carbon Creek as defendants.

[¶14] Carbon Creek defaulted. TEP RM filed a motion to dismiss the action, claiming the district court lacked personal jurisdiction over it because it did not have minimum contacts with the State of Wyoming. The district court denied TEP RM's motion to dismiss because WPX RM had...

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