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Synergy Resources Corp. v. Briller, Inc.

United States District Court, D. Colorado

March 10, 2016

SYNERGY RESOURCES CORPORATION, a Colorado corporation, Plaintiff/Counterclaim Defendant,
v.
BRILLER, INC., Nebraska corporation, R.W.L. ENTERPRISES, and ROBERT W. LOVELESS, Defendants/Counterclaim Plaintiffs, and EDWARD HOLLOWAY, an individual, and CRAIG D. RASMUSON, an individual, Counterclaim Defendants,

ORDER ON MOTIONS TO DISMISS

R. BROOKE JACKSON, UNITED STATES DISTRICT JUDGE.

This order addresses two motions to dismiss, one filed by the defendants and the other filed by the two individuals named by defendant Briller as defendants to its counterclaims. ECF Nos. 36 and 47. A third dispositive motion, ECF No. 63, just became ripe and will be addressed in a later order.

BACKGROUND

In 1993 Briller, Inc., a Nevada corporation with its principal place of business in California, acquired two oil and gas leases on land in Weld County, Colorado. The parties refer to the leases as the 1982 and 1985 leases. The 1982 lease had a primary term of three years and as long thereafter as oil or gas continued to be produced from the leased land or lands with which the leased land is consolidated. It further provided that even if production ceased after the primary term, “this lease shall not terminate provided lessee resumes operations for re-working or drilling a well within sixty (60) days from such cessation.” ECF No. 27-1 at ¶¶2, 12. The 1985 lease had a primary term of 10 years and as long thereafter as oil or gas continued to be produced from the leased land or acreage pooled with the leased land. It had a cessation of production clause similar to that in the 1982 lease except that the lease would not terminate if the lessee commenced additional drilling or re-working operations within 90 days. ECF No. 27-2 at ¶1.

Based on its review of Briller’s records in the public file at the Colorado Oil & Gas Commission the plaintiff, Synergy Resources Corporation, determined that both leases appeared to have terminated under their respective cessation of production clauses. Synergy alleges that between August 2014 and April 2015 it provided Briller and Briller’s owner, Robert W. Loveless, several notices of its position that the leases had terminated. Beginning in August 2014 Synergy also requested that Briller provide production records documenting production sufficient to prevent the termination of the two leases, if such production had occurred, but that Briller did not provide the requested documentation. In September 2014 Synergy obtained leasehold interests from the individuals and entities that it believed did own the mineral interests and began operations for the exploration and development of oil and gas by drilling eight horizontal wells that crossed through the lands that had been subject to the Briller leases.

The dispute arises from Briller’s contention that notwithstanding what the Commission’s public records might have shown, there was in fact production from the Greeley Tech Center #41-5 Well that prevented its leases from expiring, and the production was reported to the Commission. Synergy filed this lawsuit in the Weld County District Court on June 1, 2015 seeking a declaratory judgment as to whether the 1982 and 1985 Briller leases expired by their terms (and a second claim seeking damages caused by defendants’ alleged interference with Synergy’s contracts with the mineral owners from whom Synergy obtained leases). Verified Complaint, ECF No. 11. Defendants removed the case to this Court on the basis of diversity of citizenship jurisdiction. ECF No. 1. Defendants then filed an answer, and defendant Briller added counterclaims against Synergy and two of its principals, Edward Holloway and Craig D. Rasmuson. ECF No. 10. The counterclaims asserted trespass, bad faith trespass and conversion and sought damages and injunctive relief. Briller sought both monetary and injunctive relief. ECF No. 10. Later, after Synergy filed an Amended Complaint, Briller expanded its counterclaims to add a claim for civil theft. ECF No. 37 at 66.

When I met with counsel on October 30, 2015 for an initial scheduling conference the parties agreed that the first step would be to resolve whether the two Briller leases had expired due to cessation of production. Briller was about to produce its production records, but Synergy apparently was skeptical about the bona fides of those records. The parties agreed, however, that the answer could be found in the records of a third party, DCP Midstream, that purchased the production from the Greeley Tech Center #41-5 Well. Counsel suggested that they could probably resolve the dispute about the validity of the Briller leases once they obtained the DCP Midstream records. The records have been obtained, but the anticipated resolution of the lease expiration issue did not occur.[1]

MOTIONS TO DISMISS

A. Defendants’ Motion to Dismiss, ECF No. 36.

This motion has the lengthy title, “Objection that Plaintiff is Not the Real Party in Interest to Determine Lease Validity. Motion to Dismiss Amended Complaint for Failure to Join Necessary Parties, Motion to Realign Necessary Parties as Plaintiffs, and Motion to Dismiss Amended Complaint for Failure to State a Claim Upon Which Relief Can be Granted.” The motion is not as complicated as the title, but before addressing it, some additional background is necessary.

1. Facts.

The original lessors of the 1982 and the 1985 leases were six gentlemen doing business as the Greeley Tech Center joint venture. The original lessee of the 1982 lease was an individual named Thomas H. Morgan. The original lessee of the 1985 lease was a company, Rival Drilling, Inc. The leases were later assigned to Mr. Loveless or his proprietorship, R.W.L. Enterprises and reassigned to Briller as the lessee.

The ownership of the property also evolved over time. Greeley Tech Center apparently sold its interest in the property, including mineral rights, to a developer called Ciera Dawn, LLC. It appears that Ciera Dawn then developed the property.[2] Apparently there are some 44 private homes, a golf course, and perhaps other improvements on the property today. As I understand it, Briller has continued to make royalty payments to Ciera Dawn. I am not aware whether Ciera Dawn has passed the royalties through to the present owners.

In any event, when Synergy became convinced that the 1982 and 1985 leases had expired, it contacted most if not all of the present owners and attempted to obtain leases from each of them. Exhibit C to Synergy’s Amended Complaint, ECF No. 27-3, is a chart listing the homeowners and others from whom Synergy had obtained leases when the chart was prepared. It lists leases dated September 1, 2014 from 42 lessors, nearly all of whom appear to be homeowners. In addition, the chart shows two leases from Ciara Dawn, LLC dated September 12, 2014.

2. Conclusions.

In the pending motion defendants argue that Synergy is not the real party in interest because it is not a party to the 1982 and 1985 leases and has no right to seek damages from the defendants for their alleged failure to pay royalties to the 44 homeowners (and anyone else who owns mineral interests in the Subject Lands). ECF No. 36 at 5-6. However, Synergy is not attempting to seek damages based on failure to pay royalties. The Amended Complaint does allege, “on information and belief, ” that defendants failed to fulfill their royalty payment obligations under ...


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