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Chieftain Royalty Co. v. BP America Production Co.

United States District Court, E.D. Oklahoma

November 2, 2017

CHIEFTAIN ROYALTY COMPANY, Plaintiff,
v.
BP AMERICA PRODUCTION COMPANY, Defendant.

          OPINION AND ORDER

          JAMES H. PAYNE UNITED STATES DISTRICT JUDGE.

         Before 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.

         BACKGROUND

         Plaintiff 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.

         BP has 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.

         DISCUSSION

         I. Standard of Review

         In 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, 557).

[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)).

         II. Class Action Allegations

         Chieftain 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.

         (Doc. 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.[1] Therefore, this Court should preclude Plaintiff here from attempting to take yet another “bite at the apple.” (Doc. No. 32, at 3).

         In 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.

         The 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).

         In 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. ...


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