Three Stars Prod. Co. v. BP America Prod. Co.

• Decision Date: 06 January 2012
• Docket Number: Civil Action No. 11-cv-01162-WYD-MJW
• Parties: THREE STARS PRODUCTION COMPANY, LLC, an Oklahoma Limited Liability Company, Plaintiff, v. BP AMERICA PRODUCTION COMPANY, a Delaware Corporation, f/k/a Amoco Production Company, Defendant.
• Court: U.S. District Court — District of Colorado

THREE STARS PRODUCTION COMPANY, LLC, an Oklahoma Limited Liability Company, Plaintiff,

v.BP AMERICA PRODUCTION COMPANY, a Delaware Corporation, f/k/a Amoco Production Company, Defendant.

Civil Action No. 11-cv-01162-WYD-MJW

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Dated: January 6, 2012

Chief Judge Wiley Y. Daniel

ORDER

I. INTRODUCTION

THIS MATTER is before the Court on the Motion of Defendant BP America Production Company ("BP") Pursuant to Fed. R. Civ. P. 12(b)(7) and Fed. R. Civ. P. 19 filed on May 23, 2011 (ECF No. 10). A response was filed on June 15, 2011 (ECF No. 14), and a reply on July 5, 2011 (ECF No. 16). In addition, Plaintiff Three Stars Production Company, LLC ("Three Stars") filed a surreply on July 15, 2011 (ECF No. 24), and BP filed a response to the surreply on July 25, 2011 (ECF No. 27).

II. BACKGROUND

This case involves a dispute over proceeds derived from an oil and gas well, designated as the Southern Ute 53-1 Well ("Well"), located within the exterior boundaries of the Southern Ute Indian Tribe Reservation in La Plata County, Colorado. The land is owned by the United States in trust for the Southern Ute Indian Tribe("Tribe"). Three Stars alleges that the Well lies within an established 320-acre drilling and spacing unit, yet Defendant BP has wrongfully distributed the proceeds from the Well on a 240-acre basis. Three Stars has recently acquired the leasehold interest in the 80 acres allegedly within the drilling unit but not included in Defendant's 240-acre distribution area. Three Stars is suing for 25 percent of the proceeds from the Well dating back to 1992, when the Well first became operational, and a constructive trust that would provide for 25 percent of the proceeds going forward. Compl., ECF No. 1, ¶¶ 103-104, 106, 139, 143.

BP argues that the Department of the Interior ("DOI"), the Tribe, and the other owners of interest in the Well are indispensable parties in this action, and therefore must be joined or the action dismissed pursuant to Fed. R. Civ. P. 19. BP also requests an order pursuant to Fed. R. Civ. P. 12(b)(7) requiring Three Stars to file an amended complaint joining these parties to this action. Further, BP contends that the Southern Ute Indian Tribal Court ("Tribal Court") has already determined that the DOI is an indispensable party in this dispute, and thus the doctrine of issue preclusion, also known as collateral estoppel or res judicata, prohibits Plaintiff from relitigating the issue here.¹ BP also alleges that the absence of mineral development on the subject lands resulted in the title to those mineral acres reverting back to the Tribe in 1966, wellbefore Three Stars obtained the leases for the subject lands via a default judgment proceeding in a Colorado state district court in September 2009. BP's Mot. to Dismiss, ECF No. 10, at 6 n.2; BP's Reply in Supp. of Mot. to Dismiss, ECF No. 16, at 5.

Plaintiff Three Stars counters by arguing that issue preclusion does not apply in this case and that Rule 19 does not require joinder of any additional parties. Pl.'s Resp. to Def.'s Mot. to Dismiss, ECF No. 14, at 7-8, 13-17. Three Stars further contends that BP's argument regarding the alleged reversion of title to the subject acres is without merit and is belied by the Tribe and BP's previous statements regarding the subject acres. Pl.'s Surreply to Def.'s Reply in Supp. of Mot. to Dismiss, ECF No. 24, at 5-10.

For the reasons stated below, I find that the Tribe and the DOI are indispensable parties in this action, and, therefore, that BP's Motion Pursuant to Fed. R. Civ. P. 12(b)(7) and Fed. R. Civ. P. 19 (ECF No. 10) should be granted and this case dismissed for failure to join an indispensable party.²

III. ANALYSIS

I begin my analysis by examining BP's claim of issue preclusion. If I conclude that the doctrine of issue preclusion applies, my analysis will be complete. However, if I conclude that issue preclusion does not apply, I will continue my analysis by applying Rule 19 to the facts of the case to determine whether the DOI, the Tribe, or any other owners of interest in the Well are required parties to this action.

A. Issue Preclusion

BP argues that the doctrine of issue preclusion bars Three Stars from relitigating the question of whether the DOI is an indispensable party in this action because the issue was already considered and decided by the Tribal Court. Issue preclusion "bars a party from relitigating an issue once it has suffered an adverse determination on the issue, even if the issue arises when the party is pursuing or defending against a different claim." Park Lake Res. LLC v. United States Dep't of Agric., 378 F.3d 1132, 1136 (10th Cir. 2004). Issue preclusion applies when:

(1) the issue previously decided is identical with the one presented in the action in question, (2) the prior action has been finally adjudicated on the merits, (3) the party against whom the doctrine is invoked was a party, or in privity with a party, to the prior adjudication, and (4) the party against whom the doctrine is raised had a full and fair opportunity to litigate the issue in the prior action.

Id. (quoting Ashe v. Swenson, 397 U.S. 436, 443 (1970)).

Given that Plaintiff Three Stars asserted essentially the same claims arising from the same dispute in a separate action before the Tribal Court, Compl., ECF No. 1, ¶¶ 11-12, the first, third, and fourth elements of the issue preclusion analysis have been satisfied. However, since the Tribal Court granted a motion to dismiss in that prior action based on Three Stars' failure to join an indispensable party pursuant to Rule 19, the prior action was not adjudicated on the merits.³ Thus, I conclude that the doctrine of issue preclusion does not apply in this case.

B. Rule 19 Analysis

Federal Rule of Civil Procedure 12(b)(7) allows for dismissal for failure to join a person under Rule 19. Rule 19 requires that I perform a two step analysis before dismissing a claim for failure to join an indispensable person. See Davis ex rel. Davis v. United States, 343 F.3d 1282, 1288 (10th Cir. 2003). First, I must determine whether the absent person is a necessary party to the lawsuit. Id.; Fed. R. Civ. P. 19(a). A necessary party must be joined if joinder is feasible. Id.

If a party is necessary but joinder is not feasible, I must determine whether the party is indispensable. Rishell v. Jane Phillips Episcopal Mem'l Med. Ctr., 94 F.3d 1407, 1411 (10th Cir. 1996). This inquiry requires me to consider "whether, in equity and good conscience, the action should proceed among the existing parties or should be dismissed." Fed. R. Civ. P. 19(b). In addition, "The standards set out in Rule 19 for assessing whether an absent party is indispensable are to be applied in a practical and pragmatic but equitable manner." Rishell, 94 F.3d at 1411.

1. Whether the DOI, the Tribe, or the Other Owners of Interest in the Well are Necessary Parties under Rule 19(a)

A party is deemed necessary when:

(A) in that person's absence, the court cannot accord complete relief among existing parties; or (B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may: (I) as a practical matter impair or impede the person's ability to protect the interest; or (ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

Fed. R. Civ. P. 19(a)(1).

BP contends that if Three Stars prevails in its claims, it would result in a reallocation of the revenue distribution from the Well on the basis of 320 acres instead of the current 240-acre distribution. Thus, current owners of interests in the Well, including the Tribe, the DOI, and various others, stand to lose 25 percent of the proceeds they would otherwise accrue moving forward. BP's Mot. to Dismiss, ECF No. 10, at 7-8. Moreover, BP maintains that any decision concerning pooling of mineral interests or the execution of a communitization agreement on tribal lands requires the participation of the Tribe and approval of the DOI; therefore, they are both required parties. BP's Mot. to Dismiss, ECF No. 10, at 10 (citing Jicarilla Apache Tribe v. Hodel, 821 F.2d 537, 540 (10th Cir. 1987)); see also Petrogulf Corp. v. Arco Oil & Gas Co., 92 F. Supp. 2d 1111, 1111 (D. Colo. 2000).

Three Stars responds to these claims by first arguing that because all of the owners of interest in the Well have profited from BP's allegedly wrongful distribution of Well proceeds, they are akin to joint tortfeasors, which are not required parties under Rule 19. Pl.'s Resp. to Def.'s Mot. to Dismiss, ECF No. 14, at 13. Second, Three Stars contends that BP, as the operator of the Well, is the only party liable for Plaintiff's damages, so there is no basis for Three Stars to name any other parties in the suit. Id. at 14. Third, Three Stars argues that if it prevails on its claims, BP would potentially have an independent cause of action for indemnification against the other owners of interest in the Well, and potential indemnitors are never considered to be necessary parties. Id. at 15. Finally, Three Stars insists that it is not seeking to pool or communitize its lease with the Tribal Lease, but rather has brought causes of action forcontinuing trespass and drainage, conversion, civil theft, unjust enrichment, and constructive trust. Id. at 8-10.

I find Three Stars' arguments to be unpersuasive. Clearly, if Three Stars prevails on its claims and a constructive trust is imposed on its alleged proportionate share of the proceeds from the Well, the interests of the DOI, the Tribe, and all other owners of interest in the Well will be substantially affected. Further, I agree with both the BP and the Tribal Court that, in effect, Three Stars is seeking retroactive and prospective pooling or communitization of its alleged mineral interest with those of BP, the Tribe, and...