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Reirdon v. Cimarex Energy Co.

United States District Court, E.D. Oklahoma

September 27, 2017



          Steven P. Shreder, United States Magistrate Judge.

         This matter comes before the Court on motion by Defendants Cimarex Energy Company and Cimarex Energy Co. of Colorado (together, “Cimarex”) for partial dismissal of the Plaintiff's Complaint for failure to state a claim. For the reasons set forth below, the Court finds that the Defendants' Partial Motion to Dismiss Plaintiff's Original Complaint for Failure to State and Claim and Brief in Support [Docket No. 25] should be hereby GRANTED IN PART and DENIED IN PART.


         The Plaintiff alleges in his Complaint that he is a resident of Texas and owns mineral interests in Oklahoma wells operated by Cimarex Energy Co. of Colorado. He contends that Cimarex used, caused to be used, and/or allowed third parties to use natural gas from Oklahoma wells, but that despite express provisions in the oil and gas leases, Cimarex “knowingly and systematically underpaid royalty” to him through a policy of not paying royalties, and that Cimarex failed to disclose on monthly royalty checkstubs that it “was not paying royalty on the full volume and value of production from the Oklahoma wells.” Docket No. 2, pp. 1-2, ¶¶ 1-6.

         In addition to the personal allegations, the Plaintiff asserts that he is acting as representative of a class defined as:

All non-excluded persons or entities who are or were royalty owners in Oklahoma wells where Cimarex, including its predecessors or affiliates, is or was the well operator and working interest owner (or, as a non-operating working interest owner, Cimarex separately marketed gas), and who, from January 1, 2013 are or were entitled to share in royalty proceeds payable under oil and gas leases that contain an express provision stating that royalty will be paid on gas used off the lease premises and/or in manufacture of products.
The persons or entities excluded from the Class are: (1) agencies, departments or instrumentalities of the United States of America and the State of Oklahoma; (2) officers of the Court involved in this action; (3) publicly traded oil and gas exploration companies and their affiliates; and (4) persons or entities that Plaintiff's counsel is, or may be prohibited from representing under Rule 1.7 of the Oklahoma Rules of Professional Conduct.

Docket No. 2, pp. 3-4, ¶ 15. The class allegations indicate that the common questions of fact include: (a) whether, under express terms of the oil and gas leases under which Reirdon and the putative Class are entitled to be paid royalty, Cimarex has or had a duty to pay royalty on Fuel Gas; (b) whether Cimarex has paid the full amount of royalty owed on Fuel Gas; and (c) whether Cimarex's uniform royalty payment methodology breaches Cimarex's express duties to pay royalty on Fuel Gas. See Docket No. 2, pp. 4-5, ¶ 19.

         The Plaintiff's Complaint sets out the following enumerated causes of action: (I) breach of contract, (II) tortious breach of contract, (III) unjust enrichment, and (IV) fraud (actual and constructive) and deceit, as well as enumerated claims for (V) an accounting and (VI) an injunction. The Defendants have moved to dismiss Counts II through VI.


         A complaint must contain “a short and plain statement of the claim showing that the pleader is entitled to relief[.]” Fed.R.Civ.P. 8(a)(2). Detailed factual allegations are not required, but the statement of the claim under Rule 8(a)(2) must be “more than an unadorned, the-defendant-unlawfully-harmed-me accusation.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007), citing Papasan v. Allain, 478 U.S. 265, 286 (1986). “A pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked assertion[s] devoid of further factual enhancement . . . To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 678, quoting Twombly, 550 U.S. at 555-557, 570 [internal quotation marks omitted]. “While legal conclusions can provide the framework of a complaint, they must be supported by factual allegations.” Iqbal, 556 U.S. at 679. “While the 12(b)(6) standard does not require that Plaintiff establish a prima facie case in h[is] complaint, the elements of each alleged cause of action help to determine whether Plaintiff has set forth a plausible claim.” Khalik v. United Air Lines, 671 F.3d 1188, 1192 (10th Cir. 2012). This requires a determination as to “whether the complaint sufficiently alleges facts supporting all the elements necessary to establish an entitlement to relief under the legal theory proposed.” Lane v. Simon, 495 F.3d 1182, 1186 (10th Cir. 2007), quoting Forest Guardians v. Forsgren, 478 F.3d 1149, 1160 (10th Cir. 2007).

         Tortious Breach of Contract.

         Cimarex first asserts that the Plaintiff's Count II (Tortious Breach of Contract) should be dismissed for failure to state a claim, and the Court agrees that it should be dismissed. “Oklahoma courts recognize tortious breach of contract only in limited circumstances, such as in the context of certain special relationships.” Davis v. PMA Companies, Inc., 2013 WL 866893, at *4 (W.D. Okla. March 7, 2013). “The ‘special relationship' that gives rise to tort liability for bad faith is marked by (1) a disparity in bargaining power where the weaker party has no choice of terms, also called an adhesion contract, and (2) the elimination of risk. Tort liability is allowed in these types of contracts, because bad faith, or more properly, breach of the implied duty to deal fairly and in good faith, precipitates the precise economic hardship the contract was intended to avoid.” Embry v. Innovative Aftermarket Systems, L.P., 2010 OK 82, ¶ 7, 247 P.3d 1158 (internal citations omitted).

         However, this “special relationship” is usually applied in the insurance contract context, and courts are generally hesitant to expand it to include oil and gas leases, as demonstrated by a line of cases from the Western District of Oklahoma. See, e. g., Hitch Enterprises, Inc. v. Cimarex Energy Co., 859 F.Supp.2d 1249, 1263-1264 (W.D. Okla. 2012) (“The Oklahoma Supreme Court has ‘expressed [its] reluctance to extend tort recovery for bad faith beyond the insurance field, ' and courts in this judicial district have held that the lessee-royalty owner relationship does not qualify as the type of ‘special relationship' necessary to support these causes of action. Accordingly, the defendants are entitled to dismissal of these claims for relief.”), citing Chieftain Royalty Co. v. Dominion Oklahoma Texas Exploration & Production, Inc., 2011 WL 9527717, at *3 (W.D. Okla. July 14, 2011) (dismissing for failure to state a claim where “Plaintiffs have not alleged facts showing the requisite special relationship here, i. .e., that the leases were adhesion contracts which eliminated risk and the Court doubts that an oil and gas lease could give rise to such a special relationship.”), and Morrison v. Anadarko Petroleum Corp., 2010 WL 2721397, at *3-4 (W.D. Okla. July 6, 2010). While the Court acknowledges that the Plaintiff has alleged that a special relationship exists here, the Plaintiff's allegation simply states, “The relationship of oil and gas lessor-lessee is a special relationship under Oklahoma law[, ]” and that Cimarex's actions are more than a breach of contract. See Docket No. 2, p. 9, ¶¶ 44-45. Such conclusory allegations do not establish the Plaintiff's claim. See McKnight v. Linn Operating, Inc., 2010 WL 9039794, at *5-6 (W.D. Okla. April 1, 2010) (“The special considerations at ...

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