United States District Court, D. Colorado
Crystal Hathaway, Dios Del Mar Petroleum Company, Inc., Plaintiffs,
Avi Dan, Alpha Energy Group, LLC, Defendants.
RAYMOND P. MOORE United States District Judge.
case involves determination of the scope of royalty
interests, if any, transferred between the parties with
respect to certain oil and gas wells. It is before the Court
upon review of Defendants' Motion to Dismiss (Motion, ECF
No. 23; Reply, ECF No. 27), to which Plaintiffs responded.
(Response, ECF No. 25.) Magistrate Judge Hegarty considered
the Motion and recommended that it be granted in part and
denied in part, finding that every claim should remain except
for Count One, which asserts breaches of contract and of the
covenant of good faith and fair dealing. (Recommendation, ECF
No. 28, at 12-15; see also Am. Compl., ECF No. 18
¶ 95- 103.) Plaintiffs filed the only objection, arguing
that dismissal of Count One would be improper. (Objection,
ECF No. 29, at 1.) Defendants did not respond.
Court has reviewed these filings, together with the relevant
portions of the record. Upon consideration of the Motion,
Response, Court file, Recommendation, and the applicable law,
the Court adopts the Recommendation for the reasons that
Court takes the following facts from the Amended Complaint
(ECF No. 18) and attachments to the Motion
briefing in the light most favorable to Plaintiff.
Hathaway's Companies and Their Oil & Gas
are two types of oil and gas ownership interests relevant
here: working interests and overriding royalty interests.
Working interests are true ownership interests in a lease or
well and require payment of expenses to drill and operate the
well. By contrast, overriding royalty interests are carved
out of working interests; they entitle their owner to
production revenue without her having to drill or otherwise
operate the underlying well. (Am. Compl. ¶ 10.)
Crystal Hathaway owned working and royalty interests in oil
and gas wells in Weld County, Colorado and controlled two
entities: Malu Lani Oil & Gas Company (“Malu
Lani”) and Plaintiff Dios Del Mar Petroleum Company,
Inc. (“DDM”). (Id. ¶¶ 9, 12.)
She had all her royalty interests in Malu Lani and all her
working interests in DDM (except for a portion of royalty
interests in “Wells Ranch, ” which remained in
DDM). (Id. ¶¶ 11-12, 35.) In August 2012,
DDM sold 91% of its working interests to third-party 1280
Horizons, LLC, who assigned some of those working interests
to Defendant Avi Dan. (Id. ¶¶ 13, 15.) DDM
transferred the remaining 9% of its working interests to Malu
Lani. (Id. ¶ 14.)
August 2014, Ms. Hathaway instructed her personal assistant
to transfer the remaining working interests from Malu Lani
back to DDM, but to leave untouched the royalty interests
held in Malu Lani. (Id. ¶¶ 23-24.) On
October 24, 2014, contrary to those directions, the assistant
recorded a form conveyance that transferred to DDM “one
hundred percent of [Malu Lani's] working interests . . .
and any other interests of any kind and nature . . . in Weld
County, Colorado.” Id. ¶ 26.
Plaintiffs' First Transaction with Defendants
October 2014, Dan contacted Hathaway about selling the
remaining working interests that she held in DDM, and they
discussed a potential purchase price of $450, 000.00.
(Id. ¶¶ 19- 20.) Hathaway clarified that
she did not wish to sell her royalty interests. (Id.
¶ 21.) From November 2014 to January 2015, Hathaway and
Dan discussed sale of the working interests over the phone.
(Id. ¶¶ 33-35.) In each call, Hathaway
reiterated, and Dan acknowledged, that the deal would involve
only working interests. (Id. ¶¶ 33-37.)
Before they reached a final agreement, Dan performed a title
search and learned that the October 24, 2014 conveyance from
Malu Lani to DDM transferred both the royalty interests and
the working interests. (Id. ¶ 40.)
Notwithstanding this knowledge, Dan informed Hathaway that
his title search revealed that her royalty interests remained
in Malu Lani. (Id. ¶ 41.)
several third-party well operators-keeping track of title in
order to collect operating expenses and make revenue
payments-contacted Hathaway's assistant to inquire
whether Hathaway intended to include the royalty interests in
the October 24, 2014 conveyance. (Id. ¶¶
29-30.) Although Hathaway's assistant informed them that
only the working interests had been transferred, Hathaway
executed a correction conveyance between Malu Lani and DDM on
January 20, 2015 to clarify that Malu Lani did not transfer
its royalty interests to DDM. (Id. ¶ 31.) The
conveyance was recorded on January 30, 2015
(“Corrective Conveyance”). (Id. ¶
January 2015, Hathaway and Dan reached a final agreement to
sell the working interests for $450, 000.00. (Id.
¶ 39.) On January 21, 2015, Dan flew to Denver and asked
Hathaway to meet him at a hotel immediately to execute the
sale and transfer documents and that he would cancel the sale
if she did not meet him that afternoon. (Id.
¶¶ 44-45.) When Hathaway arrived, Dan orally
confirmed that he was purchasing Hathaway's remaining
working interests. (Id. ¶ 48.) He then told
Hathaway that he had to travel for business, so he drafted a
quick letter agreement memorializing the terms of the sale.
(Id. ¶ 52.) The letter agreement stated that
Hathaway and DDM agreed to sell Dan and Defendant Alpha
Energy Group, LLC “100% of the working interests and
all rights and title [to royalty interests] owned by [DDM and
Hathaway] in [ ] Weld County.” (Id. ¶ 53;
January 21, 2015 Letter, ECF No. 23-2.) Hathaway objected to
that language as broadly including royalty interests and
expressed that she needed to have an attorney read the
agreement. (Am. Compl. ¶ 55.) Dan responded that there
was no such need because, to his knowledge, DDM only held
working interests (other than the Wells ranch royalty
interests), so there were no other interests being conveyed.
(Id. ¶ 59.) He reassured Hathaway that he would
help her to fix title in the event any non-working interests
had been inadvertently conveyed by DDM pursuant to the letter
agreement. (Id. ¶ 60.) Relying on these
statements, Hathaway executed the January 21, 2015 Letter.
(Id. ¶ 61.) The parties then executed an
assignment reflecting transfer from DDM to Alpha Energy
“all right, title and interest” in the
aforementioned properties. (Original Assignment, ECF No.
Plaintiffs' Second ...