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Crichton v. Augustus Energy Resources, L.L.C.

United States District Court, D. Colorado

October 26, 2017

MELISSA CLARKE CRICHTON, and CRISTY HEDGPETH, individually and on behalf of all others similarly situated, Plaintiffs,
v.
AUGUSTUS ENERGY RESOURCES, L.L.C., Defendant.

          ORDER

          KRISTEN L. MIX MAGISTRATE JUDGE

         This matter is before the Court on Defendant's Motion to Dismiss [#60][1] (the “Motion”). Plaintiffs filed a Memorandum in Opposition to the Motion [#62] (the “Response”), and Defendant filed a Reply [#67]. Plaintiffs thereafter filed a Supplement to the Memorandum in Opposition to the Motion [#68] (the “Supplement”), to which Defendant filed a Response to the Supplement [#69] (the “Supplement Response”). The Court has reviewed all briefing on the Motion [#60], the entire case file, and the applicable law, and is sufficiently advised in the premises. For the reasons set forth below, the Motion [#60] is DENIED.[2]

         I. Background

         Plaintiffs Melissa Clarke Crichton and Cristy Hedgpeth represent a class of similarly situated persons pursuant to Fed.R.Civ.P. 23(b)(3), and filed this action in state court on March 12, 2015. Compl. [#3] at 1. Defendant Augustus Energy, LLC is an oil and gas production company that has paid Plaintiffs royalties on natural gas produced from wells in Yuma County, Colorado. Motion [#60] at 2. Plaintiffs allege that Defendant has improperly deducted costs from royalty payments due to Plaintiffs. Id. Specifically, Plaintiffs contend that Defendant improperly imposed costs between the time that the gas was produced from the wellhead and when the gas was rendered marketable. Id. at 3. Therefore, Plaintiffs assert, Defendant has breached implied provisions of the royalty agreement by “failing to properly calculate and pay royalties to the Plaintiffs and the Class . . . .” Second Am. Compl. [#5] at 7. Plaintiffs seek an award of prejudgment interest on all royalty underpayments arising from Defendant's alleged improper method of royalty calculation. Id. at 10.

         The issue presented in the Motion [#60] is purely legal. Defendant seeks dismissal of all claims pursuant to Fed.R.Civ.P. 12(b)(1) for lack of subject matter jurisdiction on the basis that Plaintiffs failed to exhaust administrative remedies before the Colorado Oil and Gas Conservation Commission (the “COGCC”) prior to filing this action. Motion [#60] at 1. In support of the Motion [#60], Defendant contends that because the underlying issue of whether Defendant properly calculated and paid royalties is a question of fact, the COGCC possessed jurisdiction over the claim and, therefore, Plaintiffs were required to exhaust all administrative remedies. Id. at 2. Thus, Defendant contends, this Court lacks subject matter jurisdiction over the dispute pursuant to Fed.R.Civ.P. 12(b)(1) and all claims must be dismissed as a matter of law. Id. In the Response [#62], Plaintiffs argue that the underlying dispute is rooted in contract and, therefore, the COGCC lacks jurisdiction over the dispute. Response at 1. Due to the COGCC's lack of jurisdiction over the dispute, Plaintiffs assert, exhaustion before the COGCC was not required and their claims must not be dismissed. Id.

         II. Analysis

         A. Fed.R.Civ.P. 12(b)(1) Motion to Dismiss

         Pursuant to Fed.R.Civ.P. 12(b)(1), a party may assert a lack of subject matter jurisdiction by motion as a defense. Before a federal court may assert subject matter jurisdiction over a claim, a claimant must first exhaust all administrative remedies. Minor v. Gunja, No. CIVA05CV01382PSFCBS, 2006 WL 1795128, at *6 (D. Colo. June 27, 2006). “To survive a Rule 12(b)(1) motion, [p]laintiff must demonstrate total exhaustion. That is, if each and every claim in the [c]omplaint is not exhausted through the administrative remedy process, the entire [c]omplaint should be dismissed.” Id. (citing Ross v. Cty. of Bernalillo, 365 F.3d 1181, 1184 (10th Cir. 2004)). In the present case, it is undisputed that Plaintiffs did not assert their claims before the COGCC prior to filing this action. See Motion [#60] at 1; Response [#62] at 4. Therefore, if the COGCC possessed jurisdiction over Plaintiffs' claims, as Defendant contends, Plaintiffs' Second Amended Complaint [#5] must be dismissed for failure to exhaust.

         B. COGCC Jurisdiction

         Jurisdiction to adjudicate certain disputes is conferred upon the COGCC by the Colorado Oil and Gas Conservation Act. See Colo. Rev. Stat. § 34-60-105. With respect to disputes arising from a contract, Colo. Rev. Stat. § 34-60-118.5(5.5) states:

Before hearing the merits of any proceeding regarding payment of proceeds pursuant to this section, the oil and gas conservation commission shall determine whether a bona fide dispute exists regarding the interpretation of a contract defining the rights and obligations of the payor and payee. If the commission finds that such a dispute exists, the commission shall decline jurisdiction over the dispute and the parties may seek resolution of the matter in district court.

         Thus, the COGCC is precluded from exercising jurisdiction over any controversy involving a bona fide dispute regarding contract interpretation. Id.

         In support of the Motion [#60], Defendant contends that “[d]etermining the proper allocation of post-production costs does not require interpretation of the contract, but instead requires a factual analysis about where production first became marketable.” Reply [#67] at 4. Defendant relies principally on a Colorado Supreme Court case, asserting that “[u]nder Rogers v. Westerman Farm Co., questions regarding marketability are issues of fact . . . . Thus, in this case, determining the proper allocation of post-production costs does not require the interpretation of disputed contractual terms . . . .” Motion [#60] at 9; Rogers v. Westerman Farm Co., 29 P.3d 887 (Colo. 2001). In opposition, Plaintiffs contend that Grynberg v. Colorado Oil and Gas Conservation Commission, 7 P.3d 1060 (Colo.App. 1999), “expressly holds that royalty owners who have a post-production cost contract dispute with an oil and gas producer . . . are not required to exhaust their administrative remedies with [the COGCC].” Response [#62] at 2.

         In Rogers, gas was produced by an oil and gas developer from approximately two hundred wells, and was sold either at the well site or at a connection to an interstate pipeline. Id. at 891. The leases, referring to point of marketability, stated that royalties would be paid based on gas values “at the well” or “at the mouth of the well.” Rogers, 29 P.3d at 887. The court addressed whether these express terms in the oil and gas leases were sufficiently clear to guide the cost allocations between parties. Id. The court concluded that “[a]bsent express lease provisions addressing allocation of costs, the lessee's duty to market requires that the lessee bear the expenses incurred in obtaining a marketable product.” Id. at 906. The court further held that “the determination of marketability is a question of fact.” Id. at 905. Defendant relies principally upon this “question of fact” ...


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