United States District Court, N.D. Oklahoma
KUNNEMAN PROPERTIES, LLC, on behalf of itself and all others similarly situated, Plaintiff,
MARATHON OIL COMPANY, including affiliated predecessors and affiliated successors, Defendant.
OPINION AND ORDER
GREGORY K. FRIZZELL, UNITED STATES DISTRICT JUDGE
matter comes before the court on the Motion to Dismiss [Doc.
21] of defendant Marathon Oil Company. For the reasons set
forth below, the motion is granted in part and denied in
a dispute regarding the alleged underpayment, late payment,
or non-payment of royalties and oil and gas production
proceeds from gas-producing wells operated by defendant
Marathon Oil Company. Plaintiff Kunneman Properties, LLC owns
royalty interests in Marathon-operated wells and purports to
bring this action on behalf of itself and others similarly
situated, although class certification issues pursuant to
Fed.R.Civ.P. 23(c) are not yet at issue. Plaintiff’s
Original Class Action Complaint (“Complaint”),
the operative pleading in this matter, includes allegations
with respect to two separate classes: (1) Class I, defined to
include all persons who own or owned minerals in Oklahoma
subject to an oil and gas lease from September 1, 2011 to
present wherein Marathon improperly reduced royalty payments
by charging the owners for the cost of marketing, gathering,
compressing, dehydrating, treating, processing, or
transporting hydrocarbons produced, and (2) Class II, defined
to include all persons or entities who received untimely
payments from defendant or its designee for oil and gas
proceeds from Oklahoma wells, and whose payments did not
include interest required by statute.
respect to Class I, the Complaint includes the following
claims: (1) breach of lease, (2) breach of fiduciary duty;
(3) fraud; (4) deceit; (5) constructive fraud; and (6)
tortious breach of lease. Class II claims are: (1) breach of
statutory obligation to pay interest; (2) fraud; (3)
accounting and disgorgement; and (4) injunctive relief.
Defendant seeks dismissal of all claims pursuant to
Fed.R.Civ.P. 12(b)(6). See [Doc. 21].
Motion to Dismiss Standard
Rule of Civil Procedure 12(b)(6) permits a court to dismiss a
claim that “fail[s] to state a claim upon which relief
can be granted.” “To survive a motion to dismiss
under Rule 12(b)(6), a plaintiff must plead sufficient
factual allegations ‘to state a claim to relief that is
plausible on its face.’” Brokers’
Choice of Am., Inc. v. NBC Universal, Inc., 861 F.3d
1081, 1104 (10th Cir. 2017) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). “A claim is
facially plausible ‘when the plaintiff pleads factual
content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct
alleged.’” Id. (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009)). “Mere
‘labels and conclusions’ and ‘a formulaic
recitation of the elements of a cause of action’ are
insufficient.” Estate of Lockett ex rel. Lockett v.
Fallin, 841 F.3d 1098, 1107 (10th Cir. 2016) (quoting
Twombly, 550 U.S. at 555). The court accepts as true
all factual allegations, but the tenet is inapplicable to
legal conclusions. Iqbal, 556 U.S. at 678.
“Dismissal is appropriate if the law simply affords no
relief.” Commonwealth Prop. Advocates, LLC v.
Mortg. Elec. Registration Sys., Inc., 680 F.3d 1194,
1202 (10th Cir. 2011). A putative class action complaint is
properly dismissed if the named plaintiff’s claims fail
to state a plausible claim for relief. See Robey v.
Shapiro, Marianos & Cejda, L.L.C., 434 F.3d 1208,
1213 (10th Cir. 2006).
previously stated, plaintiff seeks certification of two
separate classes and asserts claims specific to each class.
The court first considers the claims related to the improper
reduction of royalties brought on behalf of Class I.
Class I Claims
purports to assert the following claims on behalf of Class I:
breach of lease; breach of fiduciary duty; fraud; deceit;
constructive fraud; and tortious breach of lease. The court
separately considers each claim.
Breach of Lease
alleges that plaintiff fails to state a plausible claim for
breach of lease because plaintiff does not identify,
describe, reference, or attach the applicable oil and gas
lease(s). Citing two decisions by the U.S. District Court for
the Western District of Oklahoma, defendant contends that
Oklahoma courts have “repeatedly required” named
plaintiffs in royalty underpayment cases to specifically
allege the pertinent lease provision(s) to satisfy Rule
12(b)(6) or, alternatively, to attach a copy the lease(s) to
the pleading. See [Doc. 21, pp. 22-23 (citing
Hitch Enters., Inc. v. Cimarex Energy Co., 859
F.Supp.2d 1249 (W.D. Okla. 2012); Chieftain Royalty Co.
v. Dominion Okla. Tex. Expl. & Prod., Inc., No.
CIV-11-344-R, 2011 WL 9527717 (W.D. Okla. July 14, 2011))].
Dominion Oklahoma, the court dismissed a claim for
“breach of lease” because plaintiff “failed
to identify, describe, reference in any way or attach to
their pleading as exhibit(s) any oil and gas lease(s) that
they claim the Defendants have breached, and have failed to
include sufficient allegations concerning the terms of the
alleged lease(s).” Dominion Okla. Tex. Expl. &
Prod., Inc., 2011 WL 9527717, at *2. The court concluded
Rule 12(b)(6) requires a plaintiff in a royalty case to
“identify or describe their individual leases in which
Defendant . . . is the lessee . . . or attach copies
thereof” and, further, to “describe the royalty
terms thereof so as to raise the existence of leases
between the individual Plaintiffs and Defendant . . . and
alleged breach by Defendant of the implied duty to market and
thus Plaintiffs’ right to relief beyond the speculative
level.” Id. (emphasis added) (citing
Hall v. Witteman, 584 F.3d 859, 863 (10th Cir.
2009)); see also Hitch Enters., Inc., 859 F.Supp.2d
at 1257 (emphasis added) (“[T]he Court finds based upon
Chieftain Royalty that the allegations in the first
amended complaint with regard to the identity of the
leases that the defendants allegedly breached do not
satisfy the pleadings requirements of Twombly and
Oklahoma and Hitch are distinguishable. Unlike
in those cases, plaintiff identifies the applicable leases:
oil and gas leases dated January 26, 1973 (recorded at Book
469, Pages 143-144 in the Kingfisher County, Oklahoma
records), and June 19, 2014 (recorded at Book 2721, Pages
220-222 in the Kingfisher County, Oklahoma records). [Doc. 2,
¶ 4]. Thus, plaintiff’s allegations raise the
existence of leases between plaintiff and defendant beyond
the speculative level. Further, the Complaint includes
allegations that the leases “include implied covenants
requiring [defendant] to prepare the gas and its constituent
parts for market at [defendant’s] sole cost” and
that “[t]he leases also place upon [defendant] the
obligation to properly account for and pay royalty interests
to royalty owners under the mutual benefit rule and good
faith and fair dealing.” [Id. ¶ 62]. In
cases subsequent to Dominion Oklahoma and
Hitch, other Oklahoma federal courts have concluded
that similar allegations sufficiently identified the royalty
terms of the leases to satisfy Rule 12(b)(6). See Harris
v. Chevron U.S.A., Inc., No. CIV-15-94-C, 2015 WL
3746989, at *2 (W.D. Okla. June 15, 2015); Cecil v. BP
Am. Prod. Co., No. CIV-16-410-RAW, 2017 WL 2987174, at
*3 (E.D. Okla. Mar. 20, 2017). These more recent, factually
analogous cases are persuasive, and the court concludes that
plaintiff has sufficiently alleged the relevant lease
language. Finally, the Complaint includes allegations from
which the court may infer that defendant breached its royalty
obligations under the leases, including specific averments
regarding royalty payments for residue gas, natural gas
liquids (NGLs), drip condensate, and helium, liquid nitrogen,
and other products. [Doc. 2, ¶ 54]. Thus, the Complaint
includes sufficient factual allegations to plausibly state
the existence and breach of the lease
next argues that plaintiff’s breach of lease claim must
be dismissed because plaintiff fails to include any facts as
to the “marketable condition” of the gas on which
it received payments. However, defendant provides the court no
authority requiring facts as to the marketability of the gas
in order to survive a motion to dismiss. Rather, defendant
relies on principles of law articulated in the context of
motions for class certification, a proceeding with entirely
separate substantive and procedural considerations. See,
e.g., Chieftain Royalty Co. v. XTO Energy, Inc., 528 F.
App’x 938, 943 (10th Cir. 2013). Defendant’s
motion to dismiss with respect to this issue may be denied
for this reason alone. Finally, the Complaint includes
allegations from which the court may reasonably infer that
the gas at issue requires gathering, compression,
dehydration, treatment, and processing (“GCDTP”)
to be made marketable. See [Doc. 2, ¶ 19
(“The members of Class I own royalty interests in wells
that produce gas and constituents that are
transformed into marketable products and sold into the
established commercial markets for those products.”)
(emphasis added)]. To the extent that the relevant gas did
not require GCDTP services to made marketable, the Complaint
alleges that Marathon underpays those “for whom
defendant is legally entitled to deduct post-production
Midstream Service Costs, by taking excessive deductions under
Midstream Services Contracts that allow excessive monopoly
charges for GCDTP services.” [Id. ¶ 55].
Accordingly, the Complaint includes allegations with respect
to marketability. Thus, defendant’s motion to dismiss
the breach of lease claim is denied.
Breach of Fiduciary Duty
argues that plaintiff’s breach of fiduciary duty claim
should be dismissed because plaintiff fails to allege facts
that plausibly demonstrate that defendant underpaid royalties
and therefore breached its fiduciary duty to plaintiff. In
opposition, plaintiff points to the allegations of paragraphs
sixty-six through seventy and contends that those paragraphs
sufficiently assert the existence of a fiduciary duty based
on unitization orders by the Oklahoma Corporation Commission
(“OCC”) pursuant to 52 Okla. Stat. Ann.
§§ 287.1-287.15 and/or 52 Okla. Stat. Ann. §
87.1. However, plaintiff’s characterization of its
allegations is overbroad. Paragraphs sixty-six through
seventy allege that Class I members have interests
in Oklahoma wells that have been united under 52 Okla. Stat.
§§ 287.1-287.15 and/or 52 Okla. Stat. § 87.1,
giving rise to a fiduciary duty. The Complaint includes no
allegations that plaintiff owns a royalty interest
subject to a unitization order of the OCC. See
Harris, 2015 WL 3746989, at *3; cf. Morrison ex rel.
Haar Family Trust v. Anadarko Petroleum Corp., No.
CIV-10-135-M, 2010 WL 2721397, at *2 (W.D. Okla. July 6,
2010); Hitch Enters., Inc., 859 F.Supp.2d at
1262-63. It is well-established under Oklahoma law that the
mere existence of an oil and gas lease does not give rise to
a fiduciary duty. 52 Okla. Stat. § 902(2); Krug v.
Helmerich & Payne, Inc., 320 P.3d 1012, 1018 (Okla.
2013) (“A royalty lease alone does not create a
fiduciary duty.”). An exception exists for royalty
owners and lessees that are parties to a unitization order.
Krug, 320 P.3d at 1018 (“A unit operator in a
unitized section owes a fiduciary duty to the royalty owners
and lessees who are parties to the unitization agreement or
order creating the unit. The duty is not created by the lease
agreement but rather by the unitization order and
agreement.”). Plaintiff does not allege that it owns
property subject to a unitization order or agreement and
therefore fails to state a plausible claim for breach of
fiduciary duty on its own behalf. Thus, dismissal of the
breach of fiduciary duty claim is appropriate. See Hitch
Enters., Inc., 859 F.Supp.2d at 1257 n.4
(“At this stage of the litigation, each named plaintiff
must plead its own cause of action. . . . Thus, each
plaintiff must meet its own procedural burden under Rule
12(b)(6) and the pleading standards of Twombly and
Fraud, Deceit, and Constructive Fraud
asserts claims for fraud, deceit, and constructive fraud.
Although numbered as separate “counts” the
supportive allegations for each claim are presented together
and therefore the court collectively considers the fraud,
deceit, and constructive fraud claims. See [Doc. 2,
¶¶ 73-85]; see also Croslin v. Enerlex,
Inc., 308 P.3d 1041, 1045 (Okla. 2013) (“This
Court has often said that fraud is a generic term embracing
the multifarious means which human ingenuity can devise so
one can get advantage over another by false suggestion or
suppression of the truth.”).
Oklahoma law, an actionable claim for fraud or deceit
requires plaintiff to establish the following elements:
“1) a false material misrepresentation, 2) made as a
positive assertion which is either known to be false or is
made recklessly without knowledge of the truth, 3) with the
intention that it be acted upon, and 4) which is relied on by
the other party to his (or her) own detriment.”
Bowman v. Presley, 212 P.3d 1210, 1218 (Okla. 2009).
Constructive fraud, on the other hand, is “the
concealment of material facts which one is bound under the
circumstances to disclose.” Bankers Tr. Co. v.
Brown, 107 P.3d 609, 613 (Okla.Civ.App. 2004) (quoting
Varn v. Maloney, 516 P.2d ...