United States District Court, E.D. Oklahoma
OPINION AND ORDER
H. PAYNE UNITED STATES DISTRICT JUDGE.
the Court are Defendant's Motion to Dismiss (Doc. No.
32), Plaintiff's Response (Doc. No. 37), and
Defendant's Reply (Doc. No. 38). Plaintiff has also filed
a Notice of Supplemental Authority (Doc. No. 45), to which
Defendant filed a Response and Objection (Doc. No. 47). After
consideration of the briefs, and for the reasons stated
below, Defendant's Motion to Dismiss is GRANTED
IN PART AND DENIED IN PART.
Chieftain Royalty Company (“Plaintiff” or
“Chieftain”) filed its “Original Class
Action Complaint” (“Complaint”) on October
14, 2016, for itself and all others similarly situated,
against Defendant BP America Production Company
(“Defendant” or “BP”). Plaintiff
alleges that BP breached its express duties under oil and gas
leases to pay royalties to Plaintiff and the putative class
on “Fuel Gas”-natural gas produced from the wells
but used off the lease premises as fuel to power the
gathering system components-from wells in Oklahoma in which
the class owns mineral interests. (Doc. No. 2 (Complaint),
¶¶ 1-2). Plaintiff alleges BP knowingly and
systematically underpaid royalties to Plaintiff and the
putative class members through a policy of paying no royalty
for Fuel Gas, which BP implemented by failing to disclose to
Plaintiff and other putative class members on their monthly
royalty checkstubs that BP was not paying royalty on Fuel
Gas. (Id. ¶¶ 4-5, 21). Plaintiff seeks to
recover the royalty BP owes it and the putative class for its
breach of express covenants to pay royalties on Fuel Gas.
(Id. ¶ 6). In this case, Plaintiff brings
claims against BP for breach of contract, tortious breach of
contract, unjust enrichment, fraud (actual and constructive)
and deceit, accounting, and injunction.
now moved to dismiss the class action allegations of the
Complaint pursuant to Federal Rules of Civil Procedure
23(d)(1)(D), 12(b)(1), 12(b)(6), and 56. (Doc. No. 32). BP
additionally moves to dismiss the Complaint for failure to
state a claim pursuant to Federal Rules of Civil Procedure
8(a)(2), 9(b), 10(a), and 12(b)(6). (Id.). Plaintiff
filed a Response in opposition (Doc. No. 37), and BP filed a
Reply (Doc. No. 38). Plaintiff thereafter filed a Notice of
Supplemental Authority (Doc. No. 45), to which BP filed a
Response and Objection (Doc. No. 47). The pending motion is
fully briefed and ripe for review.
Standard of Review
considering a Rule 12(b)(6) motion, the court must accept all
well-pleaded allegations of the complaint as true, and must
construe them in the light most favorable to the plaintiff.
See Anderson v. Merrill Lynch Pierce Fenner & Smith,
Inc., 521 F.3d 1278, 1284 (10th Cir. 2008). To withstand
a motion to dismiss, a complaint must contain enough
allegations of fact “to state a claim to relief that is
plausible on its face.” Bell Atlantic Corp. v.
Twombly, 550 U.S. 544, 570 (2007). The plaintiff bears
the burden to frame “a complaint with enough factual
matter (taken as true) to suggest” that he or she is
entitled to relief. Twombly, 550 U.S. at 556.
“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.'” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Twombly, 550 U.S. at 555,
[T]he Twombly/Iqbal standard is a middle ground
between heightened fact pleading, which is expressly
rejected, and allowing complaints that are no more than
labels and conclusions or a formulaic recitation of the
elements of a cause of action, which the Court stated will
not do. In other words, Rule 8(a)(2) still lives. Under Rule
8, specific facts are not necessary; the statement need only
give the defendant fair notice of what the claim is and the
grounds upon which it rests.
Burnett v. Mortg. Elec. Registration Sys., Inc., 706
F.3d 1231, 1235-36 (10th Cir. 2013) (quoting Khalik v.
United Air Lines, 671 F.3d 1188, 1191 (10th Cir. 2012)).
Class Action Allegations
filed this action on its own behalf and on behalf of a class
pursuant to Federal Rule of Civil Procedure 23. Plaintiff
seeks to certify a class defined as:
All non-excluded persons or entities who are or were royalty
owners in Oklahoma wells where BP, including its predecessors
or affiliates, is or was the well operator and working
interest owner (or, as a nonoperating working interest owner,
BP separately marketed gas), and who 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 the
manufacture of products.
No. 2, ¶ 13). BP argues that Chieftain's class
claims should be dismissed on the ground of issue preclusion.
BP contends that other plaintiffs, not named in this case,
have previously attempted without success to certify a
similar class in various Oklahoma courts: Watts v. Amoco
Prod. Co., No. C-2001-73 (Okla. Dist. Ct. Pittsburg
Cty.); Rees v. BP Am. Prod. Co., No. CJ-2003-795
(Okla. Dist. Ct. LeFlore Cty.); and Consul Props., LLC v.
Unit Petroleum Co., No. 15-cv-840-R (W.D. Okla.) (the
“Implied Covenant Cases”). Specifically, BP
argues Watts, in which class certification was
denied in 2002, should be given preclusive effect to bar
Chieftain's class claims in this case. BP points out that
Rees gave preclusive effect to Watts to bar
the plaintiff's claims in that case, and the district
court in Consul recently applied issue preclusion to
bar similar class claims pursuant to Watts and
Rees. Therefore, this Court should preclude
Plaintiff here from attempting to take yet another
“bite at the apple.” (Doc. No. 32, at 3).
response, Plaintiff argues Watts cannot bar
Chieftain's claims here, because Watts involved
a breach of the implied covenant to market by deducting
post-production costs from royalties, without regard to the
express covenants in the leases. In this case, by contrast,
Plaintiff alleges BP breached an express covenant in
the class leases, which expressly requires BP to pay
royalties on Fuel Gas. Therefore, Plaintiff argues the issue
raised in this case was neither raised nor litigated in
Watts or any of the other Implied Covenant Cases.
Court agrees with Plaintiff. The Implied Covenant Cases
cannot bar Plaintiff's class claims here, because
Watts and Rees pertain exclusively to
issues of the “implied covenant to market.” In
Watts, the trial court found the “central
issue” was the same issue presented in Mittelstaedt
v. Santa Fe Minerals, Inc., 954 P.2d 1203 (Okla.
1998)-“whether the deduction of gathering, compression
and other costs incurred off the leased premises breached a
‘gross proceeds' royalty provision.”
Watts, Order Denying Plaintiff's Motion to
Certify Class Action, at 9-10 (Dec. 10, 2002) (Doc. No.
32-2). The trial court in Watts denied class
certification, concluding that Mittelstaedt
“requires an ‘individual' examination of the
marketability of gas, the reasonableness of the
post-production costs, and whether revenues from sales
transactions increased in proportion to the costs that were
incurred.” Id. at 10 (citing
Mittelstaedt, 954 P.2d at 1205). In an unpublished
opinion, the Court of Civil Appeals affirmed the lower
court's decision on the same grounds. Watts v. Amoco
Prod. Co., Case No. 98, 782 (Okla.Civ.App. Sept. 14,
2004) (Doc. No. 32-4).
Rees, the plaintiffs alleged “BP underpaid
royalties by wrongfully charging marketing fees and costs of
making the gas marketable, including costs for gathering,
treatment, compression, and dehydration, to royalty
owners.” Rees v. BP Amer. Prod. Co., 211 P.3d
910, 910 (Okla.Civ.App. 2008). The trial court found the
Rees plaintiffs were “seeking th[e] same
relief and [were] asserting essentially the same allegations
to justify this requested relief” as the plaintiffs in
Watts. Rees, Order, at 2 (Aug. 2, 2007)
(Doc. No. 32-5). Accordingly, the trial court granted
BP's motion to dismiss the plaintiff's class claims
based on issue preclusion. Id. at 4. The Court of
Civil Appeals affirmed, finding that Rees was an unnamed
member of the proposed class in Watts, and therefore
the Rees plaintiffs were bound by Watts.
Rees v. BP Amer. Prod. ...