Wuellner Oil & Gas, Inc. v. EnCana Oil & Gas (USA) Inc.

• Citation: 861 F.Supp.2d 775
• Decision Date: 12 March 2012
• Docket Number: Civil Action No. 10–cv–01686.
• Court: U.S. District Court — Western District of Louisiana
• Parties: WUELLNER OIL & GAS, INC., et al. v. EnCANA OIL & GAS (USA) INC., Marshall Oil & Gas, Inc., Texas Gas Development, L.P., and Jarratt Enterprises, L.L.C.

861 F.Supp.2d 775

WUELLNER OIL & GAS, INC., et al.

v.EnCANA OIL & GAS (USA) INC., Marshall Oil & Gas, Inc., Texas Gas Development, L.P., and Jarratt Enterprises, L.L.C.

Civil Action No. 10–cv–01686.

United States District Court,

W.D. Louisiana,

Shreveport Division.

March 12, 2012.

Philip E. Downer, III, Amy Burford McCartney, Downer Huguet & Wilhite, Shreveport, LA, for Wuellner Oil & Gas, Inc., et al.

John Tucker Kalmbach, Herschel E. Richard, Jr., Cook Yancey et al., Shreveport, LA, for EnCana Oil & Gas (USA) Inc.

MEMORANDUM OPINION

ELIZABETH ERNY FOOTE, District Judge.

Plaintiffs, Wuellner Oil & Gas, Inc., Marshall Oil & Gas, Inc., Texas Gas Development, L.P., and Jarratt Enterprises L.L.C. (collectively “Plaintiffs”), claim that Defendant EnCana Oil & Gas (USA) Inc.'s (“EnCana”) breached obligations owed to them by failing to allow Plaintiffs to participate in leases taken by EnCana within two geographic prospects. Before the Court are EnCana's Motion for Partial Dismissal [Record Document 21]; Plaintiffs' Motion for Leave to File First Supplemental and Amended Petition [Record Document 23]; and EnCana's Motion To Strike [Record Document 32]. Oral argument was held on these motions on December 5, 2011 at 9:30 a.m. in open court. For the reasons stated herein, the Court: 1) GRANTS in part and DENIES in part Plaintiffs' Motion for Leave to File First Supplemental and Amended Petition [Record Document 23]; 2) GRANTS EnCana's Motion for Partial Dismissal [Record Document 21]; and 3) DENIES EnCana's Motion to Strike [Record Document 32];

I. Factual and Procedural Background

Plaintiffs assert two claims in this suit. First, Plaintiffs seek an accounting, damages, and payment of overriding mineral royalty interests from Defendant EnCana as the assignee of certain mineral leases on land located within defined geographicalprospect areas. As to these leases, Plaintiffs' rights derive from written contracts granting the mineral interests. Second, Plaintiffs seek to extend their rights against Defendant EnCana to include the right to participate in ANY and ALL leases taken by or assigned to Defendant within the defined prospect areas. As to this second set of leases, Plaintiffs allege that their rights derive from certain Letter Agreements entered into between Plaintiffs' predecessor-in-interest and Will–Drill Resources, Inc. (“Will–Drill”) which Letter Agreements obligate Will–Drill to assign to Plaintiffs a royalty interest in any lease that it may obtain within the prospect areas. Thus, Plaintiffs seek to impose on Defendant the personal obligation of Will–Drill. It is this second claim which is the subject of Defendant's Motion for Partial Dismissal. In order to resolve Defendant's Motion for Partial Dismissal, the Court is called upon to analyze the contracts in question. Thus, a detailed review of the undisputed factual background and the contracts themselves provides a necessary backdrop to the Court's opinion.

Marshall–Wuellner, Inc. (predecessor-in-interest to the current Plaintiffs) and Will–Drill entered into two Letter Agreements in November 2003. [Record Document 1–2, pp. 8–12, 13–17].¹ These Letter Agreements governed the manner in which the two companies would explore and develop two prospect areas. ² At oral argument, Counsel for Plaintiffs explained that these two prospects were the “brainchild” of Marshall–Wuellner and Will–Drill, implying that these two companies performed the work that was necessary in order to determine that these geographical areas had potential for mineral production.

Under the Letter Agreements, Will–Drill was solely responsible for acquiring “oil, gas and mineral interests within the Contract Area.” Id. at 8–9. The Letter Agreements provided that Marshall-Wuellner “shall receive an assignment of overriding royalty from Will–Drill ... on any lease acquired by Will–Drill within the Contract Area.” Id. The Letter Agreements further specify the manner by which Marshall–Wuellner would receive the royalty interest to which they were entitled: “Will–Drill will execute and deliver to M–W the aforementioned assignment within ninety (90) days of M–W's written request therefore.” Id. Finally, clause nine of the Letter Agreements provides that the prospects will constitute an “Area of Mutual Interest between the parties hereto.” Id. at 11. Clause Nine lays out a scheme that effectively gives each party an option to purchase “its share of the acquired interest” if the other party acquires an interest within the prospect. It creates a series of deadlines for the party acquiring the interest to notify the other party and then for the other party to decide whether to exercise its option to purchase its share of that interest. Id. In summary, the provisions of the Letter Agreements lay out how Marshall–Wuellner and Will–Drill would share in the duties and benefits involved in transforming the two prospects into producing oil fields.

Acting in conformity with its obligations under the Letter Agreements, Will–Drill acquired certain leases within the two prospect areas and assigned overriding royalty interests (“ORRIs”) in those leases to Marshall–Wuellner on August 22, 2005. [Record Document 1–2, pp. 18–23, 24–44]. Then, on August 25, 2005, Will–Drill assigned certain leases within the two prospect areas to Pride Oil (“Pride”).³ [Record Document 1–2, p. 28]. As is discussed in greater detail below, Pride was acting on behalf of EnCana in receiving these assignments.

Paragraph Four of the Assignment reads in pertinent part:

Assignee [Pride] takes the Subject Properties subject to and agrees to faithfully and timely perform the terms, conditions and provisions of the Leases and any other contract burdening the same including specifically, but not limited to

a) the certain Farmout Agreement dated September 1, 2004, by and between Marathon Oil Company, as Farmor, and Will–Drill Resources, Inc., as Farmee, and

b) those certain Assignments of Overriding Royalty Interest from Will–Drill Resources, Inc., as Assignor to Marshal l-Wuellner, Inc., as Assignee, executed on August 22, 2005 ...

Assignee assumes and agrees to pay, perform, fulfill and discharge all claims, costs, expenses liabilities and obligations accruing or relating to the owning, developing, exploring, operating or maintaining of the Subject Properties after the Effective Date, including specifically, but without limitation, the obligation to legally plug and abandon any well listed on Exhibit A.

Id. at 29 (emphasis added).

As noted above, it is undisputed that when it entered into the Assignment of leases with Will–Drill, Pride was acting as an agent for Defendant EnCana, although at the time of the transaction Pride did not disclose the identity of its principal—making it a partially disclosed mandatary. [Record Document 20, p. 1; Record Document 31, p. 12, Record Document 29, p. 9]. On March 13, 2007, Pride assigned to EnCana the leases it had acquired from Will–Drill. [Record Document 1–3, p. 8]. Later in the year 2007, EnCana assigned a fifty-percent interest in many of the leases to SWEPI LP. [Record Document 23–2, p. 1]. Finally, on January 13, 2010, Marshal l-Wuellner assigned to the Plaintiffs in this action the ORRIs it had acquired from Will–Drill on August 22, 2005. [Record Document 1–2, p. 37].

Plaintiffs filed suit on October 1, 2010 in state court. Defendants removed to this Court on November 5, 2010. On March 3, 2011, Defendants moved to dismiss Plaintiffs' claims related to their right to participate in additional leases acquired by EnCana within the defined prospect areas. On March 28, 2011, the deadline for joinder of parties and amendment of the pleadings, Plaintiffs moved for leave to amend their petition in order to add claims against Pride Oil and SWEPI LP.

The Court will address Defendant's Motion for Partial Dismissal first, as the resolution of the question of whether of Plaintiffs' “right to participate” claims against EnCana state a cause of action upon which relief can be granted has consequences for the determination of whether Plaintiffs' motion to amend their complaint to add Pride Oil as a Defendant should be granted.

II. EnCana's Motion for Partial Dismissal [Record Document 21]

In its Motion for Partial Dismissal, EnCana argues that Plaintiffs' claim that EnCana assumed Will–Drill's obligations under the Letter Agreements, “vesting in them the right to demand from EnCana the Assignment of additional overriding royalty interests in every other lease EnCana owns in the defined prospect areas” fails to state a claim upon which relief may be granted. [Record Document 21–2, p. 9]. Defendant's argument progresses through two stages. Defendant first argues that Plaintiffs' alleged right to participate in additional leases acquired by Defendant within the two prospects is a personal, as opposed to a real, right. Next, Defendant argues that the language in the Assignment claimed by Plaintiffs to effectuate the alleged assumption of obligations, whereby Defendants “take the Subject properties subject to ... any other contract burdening the same,” is insufficient as a matter of law to create a stipulation pour autrui in favor of Plaintiffs. [Record Document 1–2, p. 29]. The Court is persuaded that Defendant has carried its burden with respect to both stages of its argument.

A. Standard for Motion to Dismiss under Rule 12(b)(6)

Federal Rule of Civil Procedure 12(b)(6) provides for dismissal of any claim that fails “to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). In order to survive a Rule 12(b)(6) motion to dismiss, a “complaint must allege sufficient factual matter, accepted as true, to state a claim that is plausible on its face.” Hershey v. Energy Transfer Partners, L.P, 610 F.3d 239, 245 (5th Cir.2010). While a complaint attacked by a Rule 12(b)(6) motion need not contain detailed factual allegations, it must at least allege plausible grounds from which one could...