Charles W Brown and Patty N Brown LLC v. Newfield Exploration Mid-Continent Inc

UNITED STATES DISTRICT COURT

FOR THE WESTERN DISTRICT OF OKLAHOMA

CHARLES W. BROWN AND )

PATTY N. BROWN, LLC, )

)

Plaintiff, )

)

v. ) Case No. CIV-19-600-G

)

NEWFIELD EXPLORATION )

MID-CONTINENT, INC., )

)

Defendant. )

ORDER

Now before the Court is the Partial Motion to Dismiss (Doc. No. 25) filed by

Defendant Newfield Exploration Mid-Continent, Inc. Plaintiff has responded in opposition

(Doc. No. 27) and Defendant has replied (Doc. No. 29). Having reviewed the parties’

submissions and the relevant record, the Court makes its determination.

SUMMARY OF THE PLEADINGS

Plaintiff initiated this action on June 11, 2019, in the District Court of Stephens

County, Oklahoma. Following removal, Plaintiff filed an Amended Complaint asserting

claims for breach of contract, negligence, unjust enrichment, and violation of Oklahoma’s

Production Revenue Standards Act, Okla. Stat. tit. 52, § 570.1 et seq. (“PRSA”). See Am.

Compl. (Doc. No. 24).

Plaintiff alleges that it is the owner of certain mineral interests located in Section

19, Township 1 North, Range 4 West, Stephens County, Oklahoma (“Section 19”). See

id. ¶ 5. During the relevant period, Plaintiff leased its mineral interests to nonparty

Heritage Resources – NonOp, LLC (“Heritage”) pursuant to certain oil and gas lease

agreements attached to the pleading (the “Lease Agreements”). Id. ¶ 6. Under the terms

of the Lease Agreements, Plaintiff is entitled to receive one quarter of the gross proceeds

from the hydrocarbons produced from its leased premises, free of all costs except taxes.

Id. ¶ 8.

Defendant completed multiple horizontal wells in Section 19. Id. ¶¶ 9, 10. Plaintiff

alleges that Defendant, as the operator of the wells, was responsible for paying Plaintiff’s

royalties but initially did not pay any royalties to Plaintiff and then misidentified Plaintiff’s

royalty interest as a one-eighth rather than a one-fourth interest. Id. ¶¶ 11-12. Though

Defendant has since corrected its error and remitted payment, Plaintiff contends that

Defendant failed to include the mandatory interest for untimely payments required under

the PRSA. Id. ¶¶ 13-15.

Defendant initially sought dismissal of Plaintiff’s claims for breach of contract,

negligence, unjust enrichment, and (to the extent such a claim is alleged) underpayment of

royalties based on improper cost deductions. See Def.’s Mot. (Doc. No. 25), at 4-7.

Following the Motion’s submission, however, Defendant advised the Court that the parties

had reached a resolution on the PRSA, negligence, and unjust enrichment claims; thus, the

only claims remaining for consideration are the breach-of-contract and cost-deductions

claims. See Notice (Doc. No. 31).

STANDARD OF DECISION

In analyzing a motion to dismiss under Rule 12(b)(6), the court “accept[s] as true

all well-pleaded factual allegations in the complaint and view[s] them in the light most

favorable to the plaintiff.” Burnett v. Mortg. Elec. Registration Sys., Inc., 706 F.3d 1231,

1235 (10th Cir. 2013). A complaint fails to state a claim on which relief may be granted

when it lacks factual allegations sufficient “to raise a right to relief above the speculative

level on the assumption that all the allegations in the complaint are true (even if doubtful

in fact).” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007) (citation omitted); see also

Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir. 2008) (“[T]o 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.” (internal quotation marks omitted)). Bare legal conclusions in a

complaint are not entitled to the assumption of truth; “they must be supported by factual

allegations” to state a claim for relief. Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009).

DISCUSSION

I. Breach of Contract

Defendant contends that Plaintiff fails to state a cognizable claim for breach of

contract because it has not identified a contract to which Defendant is a party. See Def.’s

Mot. at 4 (arguing that “the Complaint does not identify a contract between Plaintiff and

[Defendant] that was allegedly breached,” but instead “alleges that [Defendant] breached

the terms of Plaintiff’s lease with Heritage by failing to pay Plaintiff” the amount due under

that lease). Plaintiff does not dispute that Defendant is not a signatory to the Lease

Agreements but contends that Defendant is “the operator of record pursuant to the

[Oklahoma Corporation Commission’s] orders” and that Defendant thereby “agreed to, or

otherwise assumed, the obligation to comply with the terms of the contract (i.e. [Plaintiff’s]

lease with Heritage).” Pl.’s Resp. (Doc. No. 27) at 8.

To establish a breach-of-contract claim under Oklahoma law, Plaintiff must show

“(1) the formation of a contract, (2) breach of the contract, and (3) damages as a result of

that breach.” Cates v. Integris Health, Inc., 412 P.3d 98, 103 (Okla. 2018); see CRB Res.

Inc. v. Newfield Expl. Mid-Continent Inc., No. CIV-16-1270-R, 2018 WL 4101523, at *4

(W.D. Okla. Aug. 28, 2018). As relevant here, “[c]ontracts are binding only upon those

who are parties thereto.” Wells Fargo Bank, N.A. v. Health, 280 P.3d 328, 334 (Okla.

2012) (internal quotation marks omitted). If a contract is assigned, the “assignee stands in

the shoes of the assignor, and acquires all of the assignor’s rights and liabilities in the

assignment.” Mountain States Fin. Res. Corp. v. Agrawal, 777 F. Supp. 1550, 1552 (W.D.

Okla. 1991).

Defendant is not a signatory to the Lease Agreements, and Plaintiff pleads no facts

plausibly suggesting an assignment or assumption of Heritage’s obligations thereunder.

See Chieftain Royalty Co. v. Dominion Okla. Tex. Expl. & Prod., Inc., No. CIV-11-344-R,

2011 WL 9527717, at *2 (W.D. Okla. July 14, 2011) (“[T]o state plausible claims for

breach of oil and gas leases . . . Plaintiffs must identify or describe their individual leases

in which Defendant . . . is the lessee or successor lessee.”); James Energy Co. v. HCG

Energy Corp., 847 P.2d 333, 338 (Okla. 1992) (“Where [an oil and gas] lease must be in

writing, the assignment of that lease must also be in writing.”); see also Sultan Oil Co. v.

Trinity Operating (USG), LLC, No. CIV-19-175-CBG, 2020 WL 3106313, at *1-2 (E.D.

Okla. June 11, 2020) (holding signatures on lease agreement unnecessary for purposes of

contractual liability where pleading alleged that the defendants had acquired the

agreements “by mesne assignments of record” and provided descriptions of the assignment

instruments (internal quotation marks omitted)). The Court rejects Plaintiff’s unsupported

contention that Defendant, simply by reason of its status as operator, may be held liable for

breach of contract based on a failure to fulfill Heritage’s contractual duties under the Lease

Agreements.

Because Plaintiff fails to plausibly allege the existence of a contractual relationship

or obligation between it and Defendant, Plaintiff’s breach of contract claim is dismissed.

II. Improper Cost Deductions

Defendant next argues that Plaintiff fails to state a plausible claim for underpaid

royalties based on improper cost deductions. The Court agrees. The sole relevant

allegation states merely that Defendant “breached the terms of [the Agreements] by failing

to pay [Plaintiff] a one-fourth (1/4) royalty on [Plaintiff’s] proportionate share of gross

production, free from deduction of costs and expenses, from the wells drilled and

completed in Section 19.” Am. Compl. ¶ 17; see Pl.’s Resp. at 11. Plaintiff does not

specify which “costs” were improperly deducted or provide any facts that might place

Defendant on notice of its alleged misconduct. See Kan. Penn Gaming, LLC v. Collins,

656 F.3d 1210, 1215 (10th Cir. 2011). Plaintiff’s solitary and unadorned reference to

“costs” fails to provide the factual context required under Twombly/Iqbal to state a

plausible claim for relief.

Moreover, Plaintiff’s improper-cost-deductions claim sounds in contract, and the

Court has already determined that Plaintiff has failed to allege a contractual relationship

with Defendant. See, e.g., Naylor Farms, Inc. v. Chaparral Energy, LLC, 923 F.3d 779,

783, 785-86 (10th Cir. 2019); Howell v. Texaco Inc., 112 P.3d 1154, 1157, 1160 (Okla.

2004).

III. Plaintiff’s Request for Leave to Amend

In its Response to Defendant’s Motion, Plaintiff requests leave to amend its

Amended Complaint, should the Court grant Defendant’s Motion. See Pl.’s Resp. at 5.

The Court’s local rules prescribe that “[a] party moving under Fed. R. Civ. P. 15(a)(2) to

amend a pleading . . . must attach the proposed pleading as an exhibit to the motion.” LCvR

15.1.

Accordingly, Plaintiff’s request for leave to amend is denied without prejudice to

the submission of a motion that complies with Local Civil Rule 15.1. In reviewing any

proposed amendment, the Court will consider whether Plaintiff “fail[ed] to cure

deficiencies by amendments previously allowed” and whether the amendment would be

futile. Hasan v. AIG Prop. Cas. Co., 935 F.3d 1092, 1101-02 (10th Cir. 2019).

CONCLUSION

For the foregoing reasons, Defendant’s Partial Motion to Dismiss (Doc. No. 25) is

GRANTED IN PART and DENIED IN PART as follows:

1) Defendant’s Motion is GRANTED as to Plaintiff’s claims for breach of contract

and underpayment of royalties based on allegedly improper cost deductions, and

the Court DISMISSES these claims without prejudice.

2) The Court DENIES as moot Defendant’s request for dismissal of Plaintiff’s

negligence and unjust enrichment claims. The parties are ADVISED that

Plaintiff’s negligence, unjust enrichment, and PRSA claims remain before the

Court pending the submission of a notice or stipulation of voluntary dismissal.

See Fed. R. Civ. P. 41(a)(1)(A).

3) Plaintiffs request for leave to amend is DENIED without prejudice. Any motion

for leave to amend shall comply with Local Civil Rule 15.1 and shall be filed no

later than March 31, 2021.

IT IS SO ORDERED this 17th day of March, 2021.

CHARLES B. GOODWIN

United States District Judge