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Spring Creek Exploration & Production Company, LLC v. Hess Bakken Investment II, LLC

United States District Court, D. Colorado

September 5, 2014

SPRING CREEK EXPLORATION & PRODUCTION COMPANY, LLC, Plaintiff,
v.
HESS BAKKEN INVESTMENT II, LLC f/k/a TRZ Energy, LLC, and STATOIL OIL & GAS, LP f/k/a Brigham Oil & Gas, LP, Defendants.

ORDER

PHILIP A. BRIMMER, District Judge.

This matter is before the Court on the Motion to Dismiss [Docket No. 13] filed by defendant Hess Bakken Investments II, LLC ("Hess Bakken") and the Motion to Dismiss Pursuant to FRCP 12(b)(1), 12(b)(2) and 12(b)(6) [Docket No. 7] filed by defendant Statoil Oil & Gas LP ("Statoil").[1] This case arises out of a 2009 contract between Spring Creek and Hess Bakken. The Court has jurisdiction pursuant to 28 U.S.C. § 1332(a)(1).

I. BACKGROUND

The complaint sets forth the following allegations, which, for the purpose of ruling on the instant motions to dismiss, the Court takes as true. See Alvarado v. KOB-TV, LLC, 493 F.3d 1210, 1215 (10th Cir. 2007) ("We must accept all the well-pleaded allegations of the complaint as true and must construe them in the light most favorable to the plaintiff.").

Spring Creek is a Colorado company that engages in oil and gas exploration in the State of North Dakota. Docket No. 3 at 2, 3 ¶¶ 1, 8. Spring Creek owns or previously owned oil and gas interests in North Dakota, some of which are located in an energy-rich area known as the Tomahawk Prospect. Id. at 3, ¶ 9.

On October 8, 2009, Spring Creek entered into an agreement (the "Agreement") to sell its oil and gas interests in the Tomahawk Prospect to Hess Bakken. Docket No. 3 at 3, ¶ 10. As part of the Agreement, Spring Creek agreed not to acquire any additional interests in the Tomahawk Prospect and Hess Bakken agreed that it would assign Spring Creek an overriding royalty interest[2] in all current and future leases it held in the Tomahawk Prospect. Id. Spring Creek and Hess Bakken also entered into an Area of Mutual Interest Agreement ("AMI") in which Spring Creek agreed to refrain from securing additional oil and gas leases in the Tomahawk Prospect and Hess Bakken agreed to "immediately notify" Spring Creek of any new leases it acquired. Id. at 4, ¶¶ 13-14. The AMI included a confidentiality clause, barring the parties from disclosing the AMI to any third party. Id. at 4-5, ¶ 16. Through November 5, 2010, Hess Bakken continued to acquire new leases in the Tomahawk Prospect and to assign an overriding royalty interest in those leases to Spring Creek. Id. at 5, ¶ 17.

In April 2010, Hess Bakken sold certain of its leases in the Tomahawk Prospect to Statoil as part of an agreement not to obtain additional leases and to refrain from competing with Statoil in the Tomahawk Prospect. Docket No. 3 at 5, ¶ 18 (the "Hess/Statoil Agreement"). As part of this agreement, Statoil purchased the leases subject to Spring Creek's overriding royalty interest. Id. at 6, ¶24. A Bill of Sale for this transaction was recorded with the Clerk and Recorder for the County of Williams, North Dakota. Id. at 6, ¶ 23 ("Bill of Sale").

During the course of its negotiations with Statoil, Hess Bakken disclosed the terms of the AMI to Statoil. Docket No. 3 at 5, ¶ 19. Neither Statoil nor Hess Bakken informed Spring Creek that it was entering into an agreement. Id. at 5, ¶ 20. Statoil and Hess Bakken agreed to keep their agreement hidden from Spring Creek and intentionally concealed the fact that Hess Bakken would not be entering into new leases in the Tomahawk Prospect, so that Statoil would be free to obtain new leases in the area without competition from Spring Creek. Id. at 5-6, ¶¶ 21-22.

Statoil has honored the Agreement, at least in part, by paying Spring Creek royalties on the leases in the Tomahawk Prospect that Hess Bakken already owned when Statoil and Hess Bakken entered into their agreement. Docket No. 3 at 6, ¶ 27. However, Statoil has since acquired new oil and gas leases in the Tomahawk Prospect without assigning overriding royalty interests to Spring Creek. Id. at 6, ¶ 28.

In the fall of 2012, Spring Creek realized that it had not been receiving new royalty interests and that Statoil had acquired a number of new leases in the Tomahawk Prospect. Docket No. 3 at 6, ¶ 28. On September 18, 2012, Spring Creek sent a letter to Hess Bakken and Statoil, raising its concerns that the parties were not complying with the terms of the Agreement or the AMI. Id. at 7, ¶ 29. On October 30, 2012, Spring Creek received a response from Statoil in which it admitted that it was aware of the terms of the AMI and that it would continue to pay royalties on those leases that Hess Bakken sold to Statoil. Id. at 7, ¶ 30. However, Statoil stated that it was not a party to the AMI and not obligated to assign an interest in new leases to Spring Creek. Id.

On December 13, 2013, Spring Creek filed a complaint in the District Court for the City and County of Denver, Colorado, asserting claims against Hess Bakken and Statoil for breach of contract, fraudulent concealment, and civil conspiracy. Docket No. 3. The complaint attaches the Agreement, including the AMI, as well as the Bill of Sale, id. at 12, 27, 35, but not the entire Hess/Statoil Agreement.

II. STANDARD OF REVIEW

The Court's function on a Rule 12(b)(6) motion for failure to state a claim upon which relief can be granted is not to weigh potential evidence that the parties might present at trial, but to assess whether the plaintiff's complaint alone is sufficient to plausibly state a claim. Fed.R.Civ.P. 12(b)(6); Dubbs v. Head Start, Inc., 336 F.3d 1194, 1201 (10th Cir. 2003) (citations omitted). A district court may take into account "documents referred to in the complaint if the documents are central to the plaintiff's claim and the parties do not dispute the documents' authenticity." Alvarado, 493 F.3d at 1215 (citation and quotation marks omitted).

The "plausibility" standard requires that relief must plausibly follow from the facts alleged, not that the facts themselves are plausible. Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir. 2008). However, "where the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not shown-that the pleader is entitled to relief." Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009) (internal quotation marks and alteration marks omitted).

III. ANALYSIS

A. Claims Against Hess Bakken

1. Breach of Contract

Spring Creek alleges that Hess Bakken breached the Agreement and the AMI by:

1) failing to disclose to Spring Creek all leases it acquired within the Tomahawk Prospect, 2) failing to acquire new leases within the Tomahawk Prospect during the entire period of the AMI, 3) disclosing the AMI and/or the terms of the AMI to third parties, and 4) failing to honor the Override Interests on the Existing Leases.

Docket No. 3 at 7, ¶ 36. Hess Bakken contends that these allegations fail to state a claim for breach of contract because (1) there are no allegations of fact to support the general allegation that Hess Bakken acquired, but did not disclose, a lease interest during the term of the AMI, Docket No. 7 at 4; (2) the AMI does not require Hess Bakken to acquire new leases, only to assign Spring Creek an interest in those leases it does acquire, Docket No. 7 at 4-5; (3) Hess Bakken did not breach the contract by disclosing the AMI to Statoil if, as Spring Creek alleges, Hess Bakken assigned its rights and obligations under the AMI to Statoil, Docket No. 7 at 5; (4) Spring Creek waived its right to argue that Hess Bakken breached the confidentiality clause because Spring Creek subsequently disclosed the terms of the AMI to Statoil, Docket No. 7 at 5; and (5) there are no factual allegations to support the general allegation that Hess Bakken failed to honor Spring Creek's overriding royalty interest in the leases. Docket No. 7 at 6.

In Colorado, a claim for breach of contract has four elements: (1) the existence of a contract; (2) plaintiff's performance or some justification for nonperformance; (3) defendant's failure to perform; and (4) resulting damages to the plaintiff.[3] W. Distrib. Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo. 1992).

Contract construction is generally a matter of law for the Court to decide. Union Ins. Co. v. Houtz, 883 P.2d 1057, 1061 (Colo. 1994). The primary goal in construing a contract is to "give effect to the intention of the parties." Town of Minturn v. Tucker, 293 P.3d 581, 590 (Colo. 2013). "Whenever possible, this intent should be ascertained from the plain language of the [contract] alone." Mid-Century Ins. Co. v. Robles, 271 P.3d 592, 594 (Colo.App. 2011). Courts construe undefined terms according to their "plain meaning, avoiding strained and technical interpretations." Fire Ins. Exchange v. Sullivan, 224 P.3d 348, 351 (Colo.App. 2009). "The court should interpret a contract in its entirety with the end in view of seeking to harmonize and to give effect to all provisions so that none will be rendered meaningless." Copper Mountain, Inc. v. Industrial Systems, Inc., 208 P.3d 692, 697 (Colo. 2009) (quotation marks omitted).

Discerning the meaning of an ambiguous contract provision is the responsibility of the finder of fact. Miller v. City and County of Denver, 315 P.3d 1274, 1277 n.5 (Colo.App. 2013). A contract provision is ambiguous if "it is susceptible of more than one reasonable interpretation." Sachs v. Am. Family Mut. Ins. Co., 251 P.3d 543, 546 (Colo.App. 2010).

Hess Bakken does not dispute that it entered into valid contracts with Spring Creek, namely, the Agreement and the AMI. The parties' dispute primarily concerns whether Hess Bakken performed its contractual obligations.

a. Failing to Disclose New Leases

Spring Creek asserts that the complaint "specifically alleg[es] that after November 2011, Statoil acquired new leases in the Tomahawk Prospect and that neither Hess [Bakken] nor Statoil ever disclosed those leases to Spring Creek." Docket No. 33 at 3-4. In support of this assertion, Spring Creek cites paragraph 28 of the complaint, which alleges:

Since entering into the Hess/Statoil Agreement, Statoil has acquired numerous new oil and gas leasehold interests within the Tomahawk Prospect (the "New Leases"). Neither Statoil US, Statoil, or Hess, however, have assigned any Override Interests to Spring Creek, as required by the AMI, for the New Leases. Statoil has conceded that they are obligated to honor Spring Creek's Override Interests in the Existing Leases.

Docket No. 3 at 6, ¶ 28. The cited paragraph does not allege that Hess Bakken failed to disclose newly acquired leases, only that it failed to assign Spring Creek an overriding royalty interest in newly acquired leases. See id. Moreover, Spring Creek's reliance on paragraph 34 of the complaint is unpersuasive, since that paragraph similarly alleges no failure to disclose. Id. at 7, ¶ 34. Accordingly, Spring Creek fails to state a claim for breach of contract based on Hess Bakken's failure to disclose leases acquired by either Statoil or Hess Bakken after April 2010.

b. Failing to Acquire New Leases

Hess Bakken contends that it was not obligated under the Agreement or the AMI to acquire new leases, but only to assign Spring Creek a royalty interest in any leases that it happened to acquire in the Tomahawk Prospect during the relevant time period. Docket No. 13 at 4. Hess Bakken further argues that, even if had some general obligation to pursue new leases, it was not required to obtain a minimum number of leases nor was it required to pursue new leases during a particular time frame. Id. Hess Bakken cites the use of ...


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