United States District Court, D. Colorado
MELISSA CLARKE CRICHTON, and CRISTY HEDGPETH, individually and on behalf of all others similarly situated, Plaintiffs,
AUGUSTUS ENERGY RESOURCES, L.L.C., Defendant.
KRISTEN L. MIX MAGISTRATE JUDGE
matter is before the Court on Defendant's Motion
to Dismiss [#60] (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
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.
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.
Fed.R.Civ.P. 12(b)(1) Motion to Dismiss
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.
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)
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
the COGCC is precluded from exercising jurisdiction over any
controversy involving a bona fide dispute regarding contract
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.
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”