United States District Court, D. Colorado
ROBERT R. DUFRESNE, a Trustee of the Dufresne Family Trust; MICHAEL A. GAFFEY, as Trustee of the Michael A. Gaffey and JoAnne M. Gaffey Living Trust dated March 2000; RONALD GLICKMAN, a Trustee of the Glickman Family Trust est. August 29, 1994; JEFFREY SCHULEIN, a Trustee of the Schulein Family Trust est. March 29, 1989; and WILLIAM MCDONALD, as Trustee of the William J. and Judith A. McDonald Living Trust est. April 16, 1991, Plaintiffs,
PDC ENERGY, INC., a Delaware corporation, in its capacity as the General Partner of the Rockies Region 2006 Limited Partnership and the Rockies Region 2007 Limited Partnership; BART R. BROOKMAN, JR., an individual as the Chief Executive Officer of the defendant PDC Energy, Inc.; LANCE A. LAUCK, an individual as the Executive Vice President of defendant PDC Energy, Inc.; JEFFREY C. SWOVELAND, an Individual; ANTHONY J. CRISAFIO, an Individual; and DAVID C. PARKE, an Individual, Defendants, and ROCKIES REGION 2006 LP, a West Virginia limited partnership; and ROCKIES REGION 2007 LP, a West Virginia limited partnership, Nominal Defendants.
ORDER ON MOTION TO DISMISS
BROOKE JACKSON, UNITED STATES DISTRICT JUDGE
matter is before the Court on defendants PDC Energy, Inc.
(“PDC”), Bart Brookman, Jr., Lance Lauck, Jeffrey
Swoveland, Anthony Crisafio, and David Parke's
(“individual defendants”) motion to dismiss [ECF
No. 39] plaintiffs' second amended complaint
(“SAC”) [ECF No. 37]. For reasons stated below,
the motion is GRANTED in part and DENIED in part.
a publicly traded oil and gas company headquartered in
Denver, Colorado. SAC, ECF No. 37 at ¶¶3, 23. It
owns, operates, and manages oil and gas properties primarily
in Colorado, Texas, and West Virginia. Id. at
¶3. In the mid-1980s until 2007, PDC formed dozens of
limited partnerships to raise capital to finance the
acquisition and development of additional oil and gas
properties. Id. PDC served as the managing general
partner for the limited partnerships, and it used the
millions invested to drill new wells. Id. at
76 limited partnerships that PDC formed, there are just two
at issue in this case: the Rockies Region 2006 Limited
Partnership and Rockies Region 2007 Limited Partnership
(collectively, the “Partnerships”). Id.
at ¶4. The Partnerships owned the rights to multiple oil
and gas properties, including rights in the Wattenberg Field
in Colorado. Id. According to plaintiffs, the
Wattenberg Field is one of PDC's most profitable
properties. Id. As such, this field became a central
figure in the alleged wrongful scheme to deprive the
Partnerships of their interests.
alleged scheme began at some point prior to 2010. Plaintiffs
allege that PDC decided to divest itself of its obligations
to the numerous partnerships, including the Partnerships
involved in this case, because PDC wanted to solely benefit
from the production of oil and gas that the Wattenberg Field
produced. Id. at ¶5. So, PDC devised a scheme
to purchase the Partnerships and their associated assets
below market value. Id. Mr. Lauck was the supposed
“mastermind” of the plan. Id. Plaintiffs
believe that PDC concealed the wrongful scheme under the
guise of a “shift in corporate strategy” away
from the partnership model to a more traditional oil and gas
model. Id. at ¶6.
to the SAC, PDC's alleged scheme went into action when it
started merging earlier partnerships formed between 2002 and
2005. Id. at ¶7. This sparked a separate class
action lawsuit against PDC in the Central District of
California, where plaintiff Schulein served as the lead
plaintiff. Id. (citing Schulein v. Petroleum
Dev. Corp., No. SACV 11-1891 AG ANX, 2014 WL 114520, at
*1 (C.D. Cal. Jan. 6, 2014)). In that case, the district
court ultimately approved a $37 million settlement.
Id. As a result, plaintiffs assert that PDC halted
the alleged scheme to purchase the 2006 and 2007
Partnerships. Id. at ¶8.
plaintiffs allege at least four specific wrongful acts
committed by PDC as part of the broader scheme. First,
plaintiffs allege that defendants failed to assign the
Partnerships 32-acre spacing units as required by the
agreement. SAC, ECF No. 37 at ¶53. The terms of the
Partnership Agreement required PDC to assign to the
Partnerships “prospects, ” which the agreement
defines as a “drilling or spacing unit on which [a]
well will be drilled by the Partnership which is the minimum
area permitted by state law or local practice on which one
well may be drilled.” Id. at ¶16; Ex. 2,
ECF No. 37-2 at 18. Because at the time the minimum drilling
or spacing unit for a vertical well in the Wattenberg Field
was 32 acres, plaintiffs assert that PDC was obligated to
transfer 32-acre spacing units to the Partnership. SAC, ECF
No. 37 at ¶16. So, when PDC assigned the Partnerships
lesser “wellbore” interests-which is simply the
shaft of a vertical well drilled by the Partnerships-instead
of the full 32-acre spacing units, plaintiffs assert that PDC
breached its contractual obligations. Id. at
¶16. Plaintiffs primarily object to this decision
because it allowed PDC to drill horizontal wells through the
spacing units in the Wattenberg Field assigned to the
Partnerships, which effectively drained the oil and gas from
the Partnerships' existing vertical wells and thus
drained plaintiffs' expected revenue. Id. at
plaintiffs allege that defendants failed to take proper steps
to maximize the profits of the Partnerships' property. To
start, plaintiffs allege that PDC represented to investors
that it would “recomplete or refracture” the
Partnerships' existing wells within five or six years
after the initial drilling. Id. at ¶12. Despite
this alleged representation, PDC ultimately decided to
“plug and abandon” most of the Partnerships'
vertical wells. Id. at ¶¶12, 17.
Plaintiffs further allege that defendants refused to drill
additional infill wells on the Partnerships' spacing
units when in 2009 Colorado reduced the minimum spacing unit
for a vertical well from 32 to 20 acres. Id. at
¶16. Finally, plaintiffs allege that PDC failed to
maximize the Partnerships' profits by failing to utilize
other standard procedures to develop Partnership prospects,
such as farmouts or pooling. Id. at ¶14.
plaintiffs allege PDC breached its fiduciary duties when it
profited from the drilling of horizontal wells that passed
through the Partnerships' spacing units in the Wattenberg
Field without compensating the Partnerships. Id. at
¶15. And lastly, plaintiffs allege yet another breach of
fiduciary duty by PDC when it entered into an agreement with
Noble Energy, Inc. (“Noble”) by which it traded
to Noble a portion of the Partnerships' spacing acreage
for other acreage in the Wattenberg Field that is adjoining
PDC's own acreage. Id. This allowed PDC to drill
longer and more profitable horizontal wells for its own
benefit and at the expense of the Partnerships' interest.
tell a different story. They contend that after paying
significant distributions to plaintiffs for many years, the
productivity of the Partnerships' wells naturally
declined with age. ECF No. 39 at 3. In fact, defendants
allege that the costs to maintain plaintiffs' wells
started to exceed revenues by hundreds of thousands of
dollars per year. Id. This loss required PDC to plug
or abandon the Partnerships' wells beginning in October
2017. Id. Further, defendants allege that
plaintiffs' only beef with them is that they want a share
of the profits PDC has earned from the horizontal wells that
it operated in the same area as the Partnerships' wells.
Id. at 2. However, defendants refuse to share in
their profits from the horizontal wells because the original
investment offerings concerned only the original wells; any
additional wells that PDC drilled were explicitly not part of
the agreement. Thus, defendants believe that the Partnerships
have no rights to any subsequently drilled wells.
plaintiffs Dufresne, Gaffey, and Schulein (“derivative
plaintiffs”), on behalf of the Partnerships, brought
their initial complaint on December 20, 2017. ECF No. 1.
Derivative plaintiffs amended their complaint on April 26,
2018 to add class claims. ECF No. 26. Plaintiffs Glickman and
McDonald are the “class plaintiffs.” SAC, ECF No.
37 at 2 n.1. Plaintiffs subsequently filed a second amended
complaint on July 10, 2018. ECF No. 37. Defendants filed
their motion to dismiss on July 31, 2018. ECF No. 39.
Plaintiffs responded on August 21, 2018, ECF No. 41, and
defendants filed a reply brief shortly thereafter, ECF No.
42. The motion is now ripe for review.
STANDARD OF REVIEW
survive a Fed.R.Civ.P. 12(b)(6) motion to dismiss, the
complaint must contain “enough facts to state a claim
to relief that is plausible on its face.” Ridge at
Red Hawk, L.L.C. v. Schneider, 493 F.3d 1174, 1177 (10th
Cir. 2007) (quoting Bell Atlantic Corp. v. Twombly,
550 U.S. 544, 570 (2007)). A plausible claim is a claim that
“allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.”
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While
the Court must accept the well-pleaded allegations of the
complaint as true and construe them in the light most
favorable to the plaintiff, Robbins v. Wilkie, 300
F.3d 1208, 1210 (10th Cir. 2002), conclusory allegations are
not entitled to be presumed true. Iqbal, 556 U.S. at 681.
However, so long as the plaintiff offers sufficient factual
allegations such that the right to relief is raised above the
speculative level, he has met the threshold pleading
standard. See, e.g., Twombly, 550 U.S. at 556;
Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir.