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Running Foxes Petroleum, Inc. v. Nighthawk Production LLC

United States District Court, D. Colorado

December 23, 2015

RUNNING FOXES PETROLEUM, INC., Plaintiff,
v.
NIGHTHAWK PRODUCTION LLC, Defendant.

OPINION AND ORDER ADOPTING RECOMMENDATION, GRANTING IN PART AND DENYING IN PART MOTION TO DISMISS, AND REVERSING AND VACATING ORDER ON MOTION TO COMPEL PRODUCTION

MARCIA S. KRIEGER CHIEF UNITED STATES DISTRICT JUDGE.

THIS MATTER comes before the Court on the Defendant Nighthawk Production LLC’s Motion to Dismiss First Amended Complaint (#59), the Plaintiff Running Foxes Petroleum, Inc.’s Response (#75), and the Defendant’s Reply (#79). The Magistrate Judge issued a Report and Recommendation (#94) that the motion be denied. The Defendant filed timely Objections (#99) to the Recommendation, and the Plaintiff filed a Response (#101).

Also before the Court are the Plaintiff’s Objections (#98) to the Magistrate Judge’s September 8, 2015 Opinion and Order (#94, 95) denying its Motion to Compel Production of Title Opinions (#68), and the Defendant’s Response (#100) to the Objections.

I. Background

The following facts are derived from the allegations set forth in the Amended Complaint (#58). Over the course of several years, the Plaintiff Running Foxes Petroleum, Inc. and the Defendant Nighthawk Production LLC entered into a series of contracts pertaining to oil and gas operations on land in Colorado. As relevant here, in 2007, the parties entered into a joint operating agreement for the Middle Mist Project (the Middle Mist JOA), an oil and gas development project in Washington and Lincoln Counties. The Middle Mist JOA governed the parties’ obligations to one another with respect to several jointly owned oil and gas leases. The agreement also required any party who acquired “a renewal or replacement” oil and gas lease located within the agreement area to offer to the other party the right to acquire their proportionate share of such lease.

One of the leases subject to the Middle Mist JOA was known as the Knutson Bottom Lease. The Plaintiff initially acquired a 100% working interest in this lease. Subsequently, through a series of assignments, the Plaintiff assigned portions of its working interest in the lease to the Defendant. The Plaintiff alleges, however, that in a document known as Assignment No.3, it retained for itself an overriding royalty interest in the Knutson Bottom Lease and in any “extension, renewal, or substitute lease.”

Later, the Defendant acquired a new lease, known as the Knutson Top Lease, which covered some of the same lands as the Knutson Bottom Lease. The Defendant did not give Plaintiff sufficient notice of new lease or an opportunity to purchase a proportionate share of the lease. The Defendant also has not paid the Plaintiff any proceeds from oil produced on lands covered by the Knutson Top Lease.

The Plaintiff alleges that the Defendant breached the Middle Mist JOA by failing to give proper notice or an opportunity to purchase. The Plaintiff also alleges that the Defendant breached the implied covenant of good faith and fair dealing in the Middle Mist JOA by intentionally choosing not to drill on lands covered by the Knutson Bottom Lease, allowing that lease to expire, and then acquiring the Knutson Top Lease solely for the purpose of avoiding having to pay the Plaintiff royalty proceeds. Finally, the Plaintiff alleges that it owns an overriding royalty interest in the Knutson Top Lease because it is an “extension, renewal, or substitute lease” under the terms of Assignment No. 3.

II. Standard of Review

When a magistrate judge issues a recommendation on a dispositive motion, the parties may file specific, written objections within fourteen days after being served with a copy of the recommendation. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b). Here, the Defendant filed timely Objections to the Report and Recommendation on the Motion to Dismiss. The Court therefore reviews the Defendant’s Motion to Dismiss de novo. U.S. v. One Parcel of Real Prop. Known as 2121 E. 30th St., 73 F.3d 1057, 1060 (10th Cir. 1996).

Under Fed.R.Civ.P. 72(a), the Court reviews a magistrate judge’s ruling on non-dispositive motions under the “clearly erroneous or contrary to law” standard. 28 U.S.C. § 636(b)(1)(A); Hutchinson v. Pfeil, 105 F.3d 562, 56 (10th Cir. 1997); Ariza v. U.S. West Communications, Inc., 167 F.R.D. 131, 133 (D.Colo. 1996). Accordingly, the Plaintiff’s Objections to the Magistrate Judge’s Order denying its Motion to Compel Production will be overruled unless the Court finds that the Magistrate Judge abused his discretion or, if after viewing the record as a whole, the Court is left with a “definite and firm conviction that a mistake has been made.” Ariza, 167 F.R.D. at 133 (citing Ocelot Oil Corp. v. Sparrow Indus., 847 F.2d 1458, 1464 (10th Cir. 1988)).

III. Analysis

A. Motion to Dismiss

The Complaint (#5), as originally filed, asserted claims for (1) breach of contract for failure to notify the Plaintiff of the Knutson Top Lease as required by the Middle Mist JOA; (2) breach of the implied covenant of good faith and fair dealing in the Middle Mist JOA for not drilling on lands covered by the Knutson Bottom Lease; (3) “specific performance” of the Defendant’s obligation under the Middle Mist JOA to offer the Plaintiff a share in the Knutson Top Lease; (4) declaratory relief in the form of a judgment declaring that Plaintiff holds an interest in the Knutson Top Lease and ordering the Defendant to pay proceeds on that interest; (5) breach of fiduciary duty for failing to give notice of the ...


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