LEE R. WEST, District Judge.
Plaintiff Hitch Enterprises, Inc. ("Hitch"), filed the petition (hereafter "complaint") in this action on December 6, 2010, in the District Court of Texas County, Oklahoma, on its own behalf and on behalf of all other persons similarly situated, and sought relief for alleged "underpayment or non-payment of royalties on natural gas and/or constituents of the gas stream produced from wells in Oklahoma through improper accounting methods...." Doc. 1-2 at 1, ¶ 1.
Hitch identified "Cimarex Energy Co. (including affiliated predecessors and successors),"
Id. ¶ 7.
Hitch described itself as a "royalty owner in Oklahoma wells owned in part or operated by [d]efendant," id. at 1, ¶ 2, and in particular, the owner of "royalty interests in the Hitch JR 1-20 and the Hitch Trust 2-29 wells in Texas County, Oklahoma." Id. at 2, ¶ 5. Hitch alleged that the "[d]efendant owns a working interest in and pays royalty to ... [Hitch] on each of these [two] wells." Id. ¶ 6.
Cimarex removed the matter to this Court on January 5, 2011, and the matter came before the Court on Cimarex's Motion to Dismiss filed pursuant to Rules 8, 10 and 12(b)(6), F.R.Civ.P. In considering Cimarex's challenges to the complaint, the Court addressed only certain issues which it found dispositive of Cimarex's motion.
The Court first found that Hitch's complaint did not satisfy the requirements of Rule 10(a), F.R.Civ.P., which commands that "[e]very pleading must have a caption with [inter alia] ... a title ...," and further commands that "[t]he title ... must name all the parties...." Relying on Murrah v. EOG Resources, Inc., 2011 WL 227652 (W.D.Okla. January 21, 2011), the Court held that "the use of th[e] generic phrase [`including predecessors and successors' in the caption] violate[d] Rule 10(a)," id. at *1. and dismissed the allegations in Hitch's complaint that referred to the unnamed "affiliated predecessors and successors." See Doc. 22 at 3.
Cimarex had also sought dismissal of Hitch's complaint under Rules 12(b)(6) and 8 to the extent that Hitch had sought to impose liability on Cimarex due to the actions of unidentified affiliated predecessors and successors or to impose liability on Cimarex due to its own actions. The Court found that Hitch's conclusory allegations that Cimarex may be liable because of the acts and/or omissions of an unidentified entity were insufficient under Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). Hitch had set forth no factual allegations in its complaint that would support the imposition of liability on Cimarex for the acts and/or omissions of any unidentified affiliated predecessor or successor, and Cimarex was therefore entitled to dismissal of those allegations in Hitch's complaint that attempted to hold Cimarex liable as the predecessor or successor of another entity. See Doc. 22 at 4.
Finally, the Court considered those allegations in the complaint that sought to impose liability on Cimarex due to Cimarex's own actions. Hitch's claims against Cimarex were grounded on the following conclusory allegation:
Doc. 1-2 at 2, ¶ 5.
The leases, see Docs. 10-1, 10-2, allegedly giving rise to Hitch's entitlement to royalties however did not reveal any connection between Cimarex and Hitch. Because "`a complaint ... must contain either direct or inferential allegations respecting all the material elements necessary to sustain a recovery under some viable legal theory,'" Bryson v. Gonzales,
Hitch amended its complaint against Cimarex, see Doc. 32, and joined as additional party plaintiffs, David D. Duncan, the owner of royalty interests in the Duncan Clarence 1-16 well in Custer County, Oklahoma, and Sagacity, Inc. ("Sagacity"), the owner of royalty interests in thirty-two (32) wells in Marshall County, Oklahoma.
In addition to Cimarex Energy Co. ("Cimarex Energy"), Hitch named as party defendants, Key Production Company, Inc. ("Key"), Gruy Petroleum Management Company (n/k/a Cimarex Energy of Colorado, Inc.) ("Gruy"), Prize Energy Resources, L.P. ("Prize") and Magnum Hunter Production Inc. ("Magnum Hunter").
Key is alleged to hold the lease and operate the Hitch JR 1-20 and the Hitch Trust JR 2-29 wells and to have contracted with Cimarex Energy to pay the royalty to Hitch on these wells.
Prize and/or Magnum Hunter is alleged to hold one or more of the thirty-two (32) leases in which Sagacity is involved. Gruy is alleged to operate one or more of these wells, and Prize, Magnum Hunter and Gruy are alleged to have contracted with Cimarex Energy to pay the royalty on these wells to Sagacity.
The matter now comes before the Court on the defendants' Motion to Dismiss First Amended Complaint filed pursuant to Rule 12(b)(6), supra. The plaintiffs have responded, and the defendants have filed a reply. Based upon the record, the Court makes its determination.
In Twombly, the United States Supreme Court set forth the standards that this Court must use in determining whether dismissal, as the defendants have requested, is warranted under Rule 12(b)(6). The Supreme Court held in accordance with Rule 8 that to withstand a motion to dismiss, a complaint
The Court's task therefore at this stage is to determine whether "there are wellpleaded factual allegations," Iqbal, 129 S.Ct. at 1950, in the first amended complaint, and if so, the "[C]ourt should assume their veracity and then determine whether they plausibly give rise to an entitlement to relief." Id.
Id. at 1949 (citations omitted). "[T]he Twombly/Iqbal standard recognizes that a plaintiff should have at least some relevant information to make the claims plausible on their face." Khalik v. United Air Lines, 671 F.3d 1188, 1193 (10th Cir.2012). However, "`[t]he nature and specificity of the allegations required to state a plausible claim will vary based on context.'" Id. at 1191 (quoting Kansas Penn Gaming, LLC v. Collins, 656 F.3d 1210, 1215 (10th Cir.2011)) (further citation omitted).
The defendants have first challenged Count I of the first amended complaint wherein the plaintiffs have complained that the defendants have breached the oil and gas leases.
Doc. 32 at 24, ¶ 71.
The plaintiffs have further alleged that "[t]he leases also place upon [d]efendants the obligation to properly account for and pay royalty interest to royalty owners under the mutual benefit rule." Id. The plaintiffs have complained that while they have performed their obligations under the leases, the defendants have breached the foregoing implied covenants.
The defendants have asserted two arguments in support of their request for dismissal of Count I. The first argument, which the Court finds dispositive, is grounded on the defendants' contention that the plaintiffs have not described the relevant leases in, or attached copies of the leases to, their amended pleading. The defendants have posited that the Court is charged with "fix[ing] the rights and
In Chieftain Royalty Co. v. Dominion Oklahoma Texas Exploration & Production, Inc., No. CIV-11-344-R (W.D.Okla. July 14, 2011), the Honorable David R. Russell, United States District Judge for the Western District of Oklahoma, held
Id. slip op. at 5 (citation omitted).
To prevail on a claim for breach of contract, a plaintiff must prove inter alia the existence of a contract between the parties. Mindful that Twombly and Iqbal prohibit "[t]hreadbare recitals of the elements of a cause of action, supported by mere conclusory statements," Iqbal, 129 S.Ct. at 1949 (citing Twombly, 550 U.S. at 570, 127 S.Ct. 1955), the Court finds based upon Chieftain Royalty that the allegations in the first amended complaint with regard to the identity of the leases that the defendants allegedly breached do not satisfy the pleadings requirements of Twombly and Iqbal.
Because the instant plaintiffs failed to "identify or describe their individual leases... or attach copies thereof and describe the royalty terms there[in] so as to raise the existence of leases between the individual [p]laintiffs and [d]efendant[s]," Chieftain Royalty, slip op. at 5 (citation omitted), the Court finds the first amended complaint fails "to state plausible claims for breach of oil and gas leases by breach of the duty to market implied therein under Twombly. supra." id., and that the defendants are therefore entitled to dismissal of Count I.
The defendants have next challenged the plaintiffs' claim for unjust enrichment as set forth in Count II of the first amended complaint on the grounds that the plaintiffs as royalty owners cannot sue for unjust enrichment because their entitlement to royalty payments is dependent upon underlying oil and gas leases that expressly obligate the defendants to pay royalties and thus, the plaintiffs have an adequate remedy at law to recoup any damages they may have sustained.
The Oklahoma Supreme Court has described "unjust enrichment" as
In an attempt to satisfy the pleading standards of Twombly and Iqbal in connection with this claim for relief, the plaintiffs have alleged in Count II that the "[d]efendants received the benefit of or retained monies due and owing to [p]laintiffs ...," Doc. 32 at 24, ¶ 76, and that the "[d]efendants were thereby able to use for their own purpose monies that in equity and good conscious, and as a matter of law, belonged to royalty owners." Id. The plaintiffs have further alleged that the defendants' retention of these monies caused "an immediate and measurable increase in [d]efendants' cash, revenue, and profits." Id. ¶ 77.
Count I, where the plaintiffs had sought damages for the defendants' alleged breach of implied covenants in the oil and gas leases, is grounded upon these same facts. Because the Court's dismissal of Count I is without prejudice and subject to amendment by the plaintiffs, the plaintiffs have the opportunity to assert an alternative claim for relief based upon contract and potentially have an adequate and available remedy at law for their alleged damages. E.g., Elliott Industries Ltd. Partnership v. BP America Production Co., 407 F.3d 1091, 1117 (10th Cir.2005)(if contracts between parties exist, claim for underpayment of royalties must be grounded in parties' contractual relationship; equitable claim for unjust enrichment fails); Naylor Farms, Inc. v. Anadarko OGC Co., No CIV-08-668-R, slip op. at 4 (W.D. Okla. June 15, 2011)(where enforceable contract governs parties' relationship, quasi-contractual remedies such as unjust enrichment not available).
The plaintiffs however at this stage of the litigation are permitted to plead alternative theories and demand relief in the alternative. E.g., Rule 8(d), F.R.Civ.P. Thus, while the plaintiffs will not be permitted to receive double recovery, assuming they choose to amend their first amended complaint and reassert their breach of contract action, they will be permitted to pursue these alternative theories of recovery and seek both legal and equitable relief at this stage. E.g., McKnight v. Linn Operating, No. CIV-10-30-R, slip op. 1t 10-11 (W.D.Okla. April 1, 2010)(party may allege equitable claim as alternative to contract-based claim as long as party not permitted double recovery on same injury). The defendants are therefore not entitled to dismissal of Count II.
The defendants have also challenged the plaintiffs'"claim" for accounting and disgorgement. In Count III of the first amended complaint, the plaintiffs have sought "an equitable accounting of [the] ... monies [wrongfully retained and used by the defendants] and a disgorgement of such monies...." Doc. 32 at 25, ¶ 80.
Accounting is an equitable remedy, e.g., Fleet v. Sanguine, Ltd., 854 P.2d 892 (Okla.1993), available if a party has prevailed on a theory of recovery. Disgorgement is also an equitable remedy, the purpose of which is not to compensate an aggrieved party, but to deprive the alleged wrongdoer of any ill-gotten gains. E.g., Oklahoma Department of Securities ex rel. Faught v. Blair, 231 P.3d 645, 654 (Okla. 2010).
Because certain theories of recovery survive the defendants' instant request for dismissal — theories for which equitable remedies are also available — and because the Court cannot determine at this stage whether these equitable remedies are "necessary to afford the parties complete relief," Fleet, 854 P.2d at 902 (footnote omitted), the Court finds that the defendants are not entitled at this juncture to
The plaintiffs have also sought relief in the first amended complaint for fraud, deceit and constructive fraud. These causes of action as set forth in Counts IV, V and VI are based on the plaintiffs' contentions that the defendants misrepresented information on monthly royalty payment check stubs and that the monthly check stubs "concealed or failed to disclose facts about the price, volume, value, various products produced, and deductions, which [d]efendants had a duty to disclose...." Doc. 32 at 27, ¶ 93.
While Rule 12(b)(6) "does not require that [a] plaintiff establish a prima facie case in [the] ... complaint, the elements of each alleged cause of action help to determine whether [the][p]laintiff has set forth a plausible claim." Khalik *3 (citations omitted). Accordingly, in Oklahoma, to ultimately prevail on a claim for actual fraud or deceit, the plaintiffs for purposes of the instant lawsuit "`must show a material false representation, made with knowledge of its falsity or recklessly without knowledge as to its truth or falsity, as a positive assertion, with the intention that it be acted upon by another, who does act in reliance thereon, to his injury.'" Roberts v. Wells Fargo AG Credit Corp., 990 F.2d 1169, 1172 (10th Cir.1993)(quoting Varn v. Maloney, 516 P.2d 1328, 1332 (Okla.1973)); e.g., 15 O.S. § 58 (actual fraud defined); 76 O.S. §§ 2 (damages for deceit), 3 (deceits defined and classed).
"`While actual fraud [or deceit] is `the intentional misrepresentation of concealment of a material fact which substantially affects another person,' constructive fraud [which the plaintiffs have also alleged] involves the `breach of either a legal or equitable duty.'" Manokoune v. State Farm Mutual Automobile Insurance Co., 145 P.3d 1081, 1086 (Okla.2006)(quoting Patel v. OMH Medical Center, Inc., 987 P.2d 1185, 1199 (Okla.1999)). "Constructive fraud `does not necessarily involve any moral guilt, intent to deceive, or actual dishonesty of purpose [and] may be defined as any breach of a duty which ... gains an advantage for the actor by misleading another to his prejudice.'" Id. at 1086-87 (quoting Patel, 987 P.2d at 1199); e.g., 15 O.S. § 59. To be actionable, however, constructive fraud like actual fraud "require[s] detrimental reliance by the ... complaining [parties]." Howell v. Texaco Inc., 112 P.3d 1154, 1161 (Okla.2004) (citation omitted).
The defendants have argued that the plaintiffs' allegations of intent in connection with the claims of fraud and deceit are insufficient.
In their first amended complaint, the plaintiffs have contended that the "[d]efendants undertook to represent to [p]laintiffs... on a monthly basis on their check stubs that a proper accounting had been made," Doc. 32 at 21, ¶ 65, and that the
Finally, the plaintiffs have alleged that the defendants'
Id. at 27-28, ¶ 98.
The Court finds the plaintiffs' allegations of intent in the case-at-bar surpass those allegations deemed insufficient in Iqbal. In that case, the plaintiffs allegations of discriminatory intent were found lacking where the plaintiff pleaded only that the defendants "knew of, condoned, and willfully and maliciously agreed to subject [him] to harsh conditions of confinement...." Iqbal. 129 S.Ct. at 1951.
In the instant case, the allegations underlying the plaintiffs' claims for fraud and deceit provide a factual basis for inferring the knowledge the defendants allegedly possessed and for inferring that the defendants knew that the monthly check stubs either "failed to accurately account to [p]laintiffs," Doc. 32 at 26, ¶ 90, "were at least ambiguous," id. at 27, ¶ 95, or "created a false impression of the actual facts to the royalty owners." Id.
The defendants have also contended that they are entitled to dismissal of the plaintiffs' claims for fraud, deceit and constructive fraud because the plaintiffs have failed to adequately allege in the first amended complaint the essential element of reliance or show "exactly how they acted in reliance on the information in the check stubs, or ... whether they changed their positions to their detriment based upon the information." Doc. 40 at 15.
In their first amended complaint, the plaintiffs have merely contended that the defendants made misrepresentations on the monthly check stubs and that the
Doc. 32 at 26, ¶ 92.
Under the Supreme Court's plausibility standard, the plaintiffs were required to plead sufficient facts to create a reasonable inference of reliance. E.g., Iqbal, 129 S.Ct. at 1949; Bryson, 534 F.3d at 1286 (complaint must contain either direct or inferential allegations respecting all material elements necessary to sustain recovery under some viable legal theory).
The plaintiffs' allegation of reliance is conclusory and lacking factual specificity. Allegations are not entitled to be assumed to be true when they merely restate the essential elements of a claim rather than provide specific facts to support those elements. The plaintiffs'"obligation to provide the `grounds' of [their]... `entitle[ment] to relief,' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citation omitted). Accordingly, the plaintiffs' claims of fraud, deceit and constructive fraud — each of which requires the essential element of reliance — are not "well-pleaded," id., with regard to the element of reliance and Counts IV, V and VI do not therefore "plausibly
The defendants have also challenged the plaintiffs' claim for constructive fraud because the defendants had no duty to disclose information other than the information required by title 52, section 570.12(A) of the Oklahoma Statutes and further because the plaintiffs did not request information about any additional deductions.
The Production Revenue Standards Act ("PRSA"), 52 O.S. § 570.1 et seq., as the defendants have argued, not only dictates the disclosures to be made, e.g., id. § 570.12(A)(1)-(A)(9),
However, as the Oklahoma Supreme Court noted in Howell, "[t]he PRSA provisions give the royalty owners a right to be accurately informed of the facts and place a legal duty on the [defendants] ... to accurately inform the plaintiffs of the facts on which the royalty payments are based." 112 P.3d at 1161. The instant plaintiffs have alleged that in making the disclosures as required by the PRSA, the defendants "concealed or failed to disclose facts about the price, volume, various products produced, and deductions, which [d]efendants had a duty to disclose to avoid presenting half-truths or misrepresentations." Doc. 32 at 27, ¶ 93. The plaintiffs have further alleged the "[d]efendants undertook the duty to properly account by making the statements in the check stubs on a monthly basis to royalty owners," id. ¶ 94, and by doing so, the "[d]efendants had a duty to make full and fair disclosure of all relevant facts." Id.
"Constructive fraud is the concealment of a material fact by one who has a [legal or equitable] duty to disclose." Howell, 112 P.3d at 1161 (citations omitted). Because a claim of constructive fraud becomes actionable "where one undertakes to speak and conveys only partial information," Roberts Ranch Co. v. Exxon Corp., 43 F.Supp.2d 1252, 1259 n. 12 (W.D.Okla.1997) (citation omitted), and because "[o]ne conveying a false impression by the disclosure of some facts and the concealment of others is guilty of fraud... since concealment is in effect a false representation that what is disclosed is the whole truth," id. (citation omitted), the Court finds that the plaintiffs' allegations in support of their claim for constructive fraud are sufficient both factually and legally and that the defendants are therefore not entitled to dismissal of the plaintiffs' claim for constructive fraud based upon this argument.
The defendants have also argued that they are entitled to dismissal of the plaintiffs' claim for breach of fiduciary duty as set forth in Count VII of the first amended complaint. In support of this count, the plaintiffs have alleged that they have wells that have been statutorily unitized and that a fiduciary duty has been imposed on the defendants as a result thereof as well as by
Doc. 32 at 29, ¶ 105.
The plaintiffs have further alleged that the "`defendants are the unit operator by appointment from the [OCC] ... for [p]laintiffs' wells," id. ¶ 106, that the defendants therefore owe a fiduciary duty to the plaintiffs under the PRSA, 52 O.S. § 570.10(A), and that the defendants have breached this duty "by failing to properly report, account for, and distribute gas proceeds to [p]laintiffs ... for their proportionate royalty share of gas production." Doc. 32 at 29, ¶ 108.
First, in connection with the latter allegations, it is clear under extant case law
As to the plaintiffs' claims for breach of fiduciary duty grounded in the unitization orders, the Court finds that the plaintiffs are entitled to pursue such claims because they "have pled [they] own[ ] royalty interests which are subject to [OCC] unitization orders," Morrison v. Anadarko Petroleum Corp., 2010 WL 2721397 *2 (W.D.Okla. July 6, 2010); see Doc. 32 at 29, ¶ 104, and further finds that the allegations advanced in support of these claims are sufficient to survive the defendants' request for dismissal. E.g., id.; McKnight, slip op. at 2-4 (April 1, 2010).
The plaintiffs have also asserted in Counts VIII
"Tort recovery for bad faith is one of the two remedies provided for breach of the implied duty to deal fairly and in good faith in the performance of a contract." Embry v. Innovative Aftermarket Systems LP., 247 P.3d 1158, 1160 (Okla.2010) (citation omitted). Liability "depends upon the existence of a `special relationship,'" id.(citation omitted), between the contracting parties that "is marked by (1) a disparity in bargaining power where the weaker party has no choice of terms .... and (2) the elimination of risk." Id. (citation omitted).
The Oklahoma Supreme Court has "expressed [its] reluctance to extend tort recovery for bad faith beyond the insurance field," id. (citation omitted), and courts in this judicial district have held that the lessee-royalty owner relationship does not qualify as the type of "special relationship" necessary to support these causes of action. E.g., Chieftain Royalty Co., slip op. at 5-7 (July 14, 2011)(plaintiffs have not alleged facts showing requisite special relationship, i.e., that leases were adhesion contracts which eliminates risk; court doubts oil and gas leases could give rise to such special relationships); Morrison, slip op. at 3-4 (July 6, 2010); McKnight, slip op. at 10 (April 1, 2010)(although courts have recognized special relationship in context of royalty owners and operators, court does not conclude upon review of Oklahoma
The defendants have also challenged the plaintiffs' claim for conversion as set forth in Count X, wherein the plaintiffs have alleged that "[b]y failing to properly pay [p]laintiffs ... for royalty, [d]efendants are liable for conversion." Doc. 32 at 31, ¶ 124. This claim is grounded on the plaintiffs' allegation that pursuant to "[section] 570.10(A), the proceeds of the sale of oil and gas attributable to a royalty owner's interest are considered specifically identifiable monies owned by the royalty owner and held in trust for him by [d]efendants...." Id. ¶ 23.
As Judge Russell found in McKnight, the plaintiffs' allegations "place this case squarely in the realm of the debtor-creditor relationship, for which a conversion claim does not lie." McKnight, slip op. at 7 (April 1, 2010)(footnote omitted). The Court further finds that the plaintiffs' reliance on section 570.10(A)
McKnight, slip op. at 8 (April 1, 2010). But see Foster v. Merit Energy Co., No. CIV-10-758-F (W.D.Okla. October 22, 2010). Accordingly, the defendants are entitled to dismissal of the plaintiffs' conversion claims as set forth in Count X.
The defendants have also challenged the "[p]laintiffs' scatter-shot attempt to hold each [d]efendant liable for all other [d]efendants' alleged actions...." Doc. 40 at 22. In the first amended complaint, the plaintiffs have alleged that "Cimarex Energy is the parent company of Prize, Magnum Hunter, [Gruy] ..., and Key, and is sued ... as a lessee, operator, payor of royalty, and marketer of gas." Doc. 32 at 4, ¶ 9 (footnote omitted). The plaintiffs have further alleged that
Id. at 6, ¶ 18.
Based upon these and additional allegations, the plaintiffs have sought to hold Cimarex Energy liable as the agent for Prize, Magnum Hunter, Gruy and Key, see id. at 6-7, ¶¶ 19-22, to hold each named defendant liable as a joint venturer, see id. at 7, ¶¶ 23-25, and to hold each named defendant liable as the alter ego of each other named defendant. See id. 7-8, ¶¶ 26-28. Finally, the plaintiffs have alleged in the alternative, should the defendants be considered "separate and distinct entities," id. at 8, ¶ 29, that the defendants "engage[d] in a civil conspiracy to short-change
In support of their contention that Cimarex Energy is the agent of the other named defendants, the plaintiffs have asserted
As case law teaches, "[c]orporations are distinct legal entities, and generally one corporation will not be held responsible for the acts of another." Gilbert v. Security Finance Corporation of Oklahoma, Inc., 152 P.3d 165, 175 (Okla.2006)(footnote omitted). However, "[o]ne corporation may be held liable for the acts of another [corporation] ... if ... one corporation is merely an ... agent of the other." Id. (footnote omitted).
The defendants have conceded that "[a] principal may be held liable for an agent's conduct if done within the scope of the agency relationship," Doc. 40 at 23 (citing Ponca Tribe of Indians v. Continental Carbon Co., 2008 WL 5205679 *3 (W.D.Okla. December 11, 2008)), and that the "agent also may be held individually liable for its conduct that falls outside of the scope of the agency relationship." Id. (citing Carter v. Schuster, 227 P.3d 149, 155 (Okla.2009)).
"Agency relationships can be formed either expressly through a contract or they can be implied from the actions of the parties," Ponca Tribe of Indians *3 (citation omitted); e.g., Farmers National Grain Corporation v. Young, 187 Okla. 298, 102 P.2d 180, 185 (1940)(whether agency in fact has been created is determined by relations of parties under their agreements or acts),
In reviewing the record, the Court finds that the plaintiffs' allegations of an agency relationship among and between the defendants are more than mere recitals or legal conclusions. In accepting the well-pleaded factual allegations as true and after construing the same in the light most favorable to the plaintiffs, the Court finds that the plaintiffs have advanced sufficient factual content in support of their theory of agency regarding their claims of underpayment and/or nonpayment of royalties
In support of their theory that the defendants may also be held liable because they "are engaged in a joint venture to produce, market, and pay royalties, and receive revenues and profits from gas and gas constituents produced from Oklahoma wells," Doc. 32 at 7, ¶ 23, the plaintiffs have alleged that "Cimarex Energy, as the parent company, annually receives the benefit of all of the revenue from its subsidiaries," id. ¶ 24, and "[a]s a result, the joint venturers are liable for the conduct of one another." Id. ¶ 25.
In Oklahoma, "[a] joint adventure is a special combination of two or more persons where, in some specific venture, a profit is jointly sought without any partnership or corporate designation ...," Price v. Howard, 236 P.3d 82, 90-91 (Okla. 2010), and "[w]hile the chief characteristic of a joint venture is the seeking of joint profits from a transaction, no single factor is sufficient to establish that the parties are engaged in a joint venture." Id. at 91 (footnote omitted). Rather, Oklahoma recognizes "three requisite elements[:] ... 1) a joint interest in property; 2) an express or implied agreement to share profits and losses of the venture; and 3) action or conduct showing cooperation in the project." Id. (footnote omitted).
While Rule 12(b)(6) does not require the plaintiffs to establish each of these essential elements at this stage of the litigation, reference to these elements is "help[ful] to determine whether [the][p]laintiff[s] ha[ve] set forth a plausible claim." Khalik, at 1192 (citations omitted). The Court finds that the plaintiffs' allegations that the defendants "are engaged in a joint venture," Doc. 32 at 7, ¶ 23, that Cimarex Energy "receives the benefit of all of the revenue from its subsidiaries," id. ¶ 24, and that the defendants together "receive revenues and profits," id. ¶ 23, are not entitled to the assumption of truth because they "are the type of conclusory and formulaic recitations disregarded by the [Supreme] Court in Iqbal." Khalik, at 1193 (citing Iqbal, 129 S.Ct. at 1949). Thus, the plaintiffs' general assertions of "joint venture," without any factual details whatsoever, are insufficient. E.g., id. (citing Erickson v. Pardus, 551 U.S. 89, 93, 127 S.Ct. 2197, 167 L.Ed.2d 1081 (2007), to hold that while specific facts not necessary, some facts are).
A "corporation may [also] be held liable for the acts of another [corporation] under the theory of alter-ego liability if ... one corporation is merely an instrumentality... of the other." Gilbert, 152 P.3d at 175 (footnote omitted). In this connection, the plaintiffs have contended that
Doc. 32 at 7, ¶ 27, and that this "control or right to control makes all of the subsidiaries in Cimarex Energy alter egos of one another." Id. at 8, ¶ 28.
In determining whether alter ego liability is applicable in this case, the Court has looked to the law of the forum, which the parties have cited, and as Oklahoma courts recognize,
Gilbert, 152 P.3d at 175 (footnotes omitted).
In Chieftain Royalty, on which the defendants have relied, Judge Russell rejected the plaintiffs' attempt to assert an alter-ego theory on the grounds that the plaintiffs had failed to allege "any facts relating to the factors which are determinative of whether one corporation is the alter ego of the other." Slip op. at 4 (July 14, 2011). The instant plaintiffs however, unlike the plaintiffs in Chieftain Royalty, have asserted
(1) that "Cimarex Energy is the parent company of Prize, Magnum Hunter, [Gruy]..., and Key ...," Doc. at 32 at 4, ¶ 9;
(2) that "[i]n 2002, Key was acquired by and merged into Cimarex Energy, and most of Key's management bec[ame] the management of Cimarex Energy," id. ¶ 10;
(3) that in 2005, "Magnum Hunter Resources, Inc., was acquired by and merged into Cimarex Energy and out of existence, but after the merger, Magnum Hunter ... became a wholly-owned subsidiary of Cimarex Energy[,]" id.;
(4) that "[a]t the same time, Prize ... and Gruy were also acquired by Cimarex Energy because they were affiliated companies of Magnum Hunter[,]" id.;
(5) that written Service Agreements "and oral agreements permit Cimarex Energy to function by using its subsidiaries as conduits as essentially one company, and all of the profits and losses of each subsidiary are coalesced into the parent company, Cimarex Energy[,]" id. at 6, ¶ 18;
(6) that "[t]o the extent the wholly owned subsidiaries, Prize, Magnum Hunter, Key, and [Gruy] ..., even have directors and officers, they are common to one another and common with Cimarex Energy," id., including "Paul Korus [who] is the [v]ice [president for all of them[,]" id.;
(7) that "Cimarex Energy pays the salaries for most of the employees performing the marketing, accounting, and payment of royalty function for all of them[,]" id.;
(8) that "[l]osses or profits of all of the subsidiaries are ultimately paid or owned by Cimarex Energy[,]" id.;
(9) that "[m]ost of the subsidiar[ies'] assets were originally merged into Cimarex Energy and then spun down into the subsidiar[ies,]" id.;
(10) that "Cimarex Energy refers to the oil and gas businesses of these subsidiaries as its own group[,]" id.; and
(11) that "Cimarex Energy dominates and controls what these subsidiaries do with respect to Oklahoma oil and gas marketing and royalty payment." Id.
While the first amended complaint does to some extent merely parrot certain of the factors found pertinent by the Oklahoma Supreme Court in Gilbert, the Court is nevertheless constrained to find, albeit a close call under Twombly and Iqbal, that the instant plaintiffs have pled sufficient factual matter regarding the control exercised by Cimarex Energy to permit the Court to draw the reasonable necessary inferences and to deny the defendants' request for dismissal of this theory of liability at this stage.
Finally, the plaintiffs have asserted in the alternative that the defendants should be held jointly and severally liable as co-conspirators for the alleged underpayment or nonpayment of royalties that resulted through improper accounting methods.
Brock v. Thompson, 948 P.2d 279, 294 (Okla.1997)(emphasis deleted)(footnotes omitted). "In essence, a civil conspiracy claim enlarges the pool of potential defendants from whom a plaintiff may recover for an underlying tort." Id. at 294 n. 66.
In Oklahoma, the essential elements of a civil conspiracy that a plaintiff must ultimately establish
Schovanec v. Archdiocese of Oklahoma City, 188 P.3d 158, 175 (Okla.2008)(quoting Closs v. Goose Creek Consolidated Independent School District, 874 S.W.2d 859, 871 (Tex.App.1994)(further citation omitted)).
The defendants have complained that the plaintiffs' sole conclusory statement that "the Service Agreements and other unwritten agreements between ... [the defendants] are agreements in which they engage in a civil conspiracy to short-change royalty owners," Doc. 32 at 8, ¶ 29, is insufficient. The Court agrees.
As the Supreme Court stated in Twombly, "[t]he need at the pleading stage for allegations plausibly suggesting (and not merely consistent with) agreement reflects the threshold requirement of Rule 8(a)(2) that the `plain statement' possess enough heft to `sho[w] that the pleader is entitled to relief.'" 550 U.S. at 557, 127 S.Ct. 1955. "[E]ven conduct consciously undertaken," id., without more, is but a "naked assertion of conspiracy[,]" id., and its essential element of agreement.
Stallings v. White, 194 Okla. 649, 153 P.2d 813, 817 (1944)(quotation omitted). And, in determining whether any delay of the plaintiffs operated to the disadvantage of the defendants, the Court may also consider applicable and analogous limitations periods, acknowledging, however, that in certain situations, "`circumstances may call for not doing so.'" Zilkha Energy Co. v. Leighton, 920 F.2d 1520, 1525 (10th Cir.1990)(quoting Pearson v. Hall, 719 P.2d 480, 482 (Okla.App.1986)). In so doing, the Court finds that such equitable determinations, which entail more than a finding that the factual allegations of the first amendment are well-pleaded, are more appropriately resolved at a later stage in the lawsuit. Accordingly, the defendants are not entitled to dismissal of the plaintiffs' equitable claims on the grounds of timeliness.
The plaintiffs' claim for breach of the oil and gas leases is subject to a five-year statute of limitations. E.g., 12 O.S. § 95(A)(1). Hitch filed its lawsuit on December 6, 2010, and its first amended complaint on May 27, 2011; thus, at first glance, the defendants would be entitled to dismissal of any allegations that seek relief against Cimarex Energy and against Key, Magnum Hunter, Prize and Gruy for conduct occurring prior to December 6, 2005, and May 27, 2006, respectively, in connection with the breach of lease claims.
The plaintiffs have responded that there are no timeliness issues in this case since the payment of royalties involves a series of payments and adjustments and constitutes an "open account." Oklahoma courts recognize that an "outstanding and open account"
Nicholson v. Thixton, 448 P.2d 454, 455 (Okla.1968) (Checotah Hardware Co. v. Housel, 169 Okla. 112, 35 P.2d 966, 967 (1934)). Three factors must exist
Id.
In their first amended complaint, the plaintiffs have alleged that the defendants represent the royalty calculations on the monthly check stubs and that "each monthly payment was subject to correction and that [d]efendants have made prior period adjustments for years." Doc. 32 at 21, ¶ 64. The plaintiffs have further alleged that
Id.
The Court disagrees. The defendants' obligation to pay royalties arises from an express written agreement and no term of that contract remains to be settled between the parties. Cf. Globe & Republic Insurance Co. of America v. Independent Trucking Co., 387 P.2d 644, 647 (Okla.1963)(express contract that defines duties and liabilities of parties is not as a rule an open account). Accordingly, as to the plaintiffs' breach of lease claims, should such claim be amended and reasserted, Cimarex Energy is entitled to dismissal of any allegations that seek relief against it for conduct occurring prior to December 6, 2005, and Key, Magnum Hunter, Prize and Gruy are entitled to dismissal of any allegations that seek relief against them for conduct occurring prior to May 27, 2006.
The defendants have also challenged the timeliness of the plaintiffs' claims for fraud, deceit, constructive fraud, breach of fiduciary duty and unjust enrichment, which are subject to a two-year limitations period. E.g., 12 O.S. § 95(A)(3); e.g., City of Tulsa v. Bank of Oklahoma, N.A., 280 P.3d 314, 320-21, 2011 WL 4790939 *6 (Okla.2011)(unjust enrichment claim governed by two-year limitations period). As stated, Hitch filed this lawsuit on December 6, 2010, and its first amended complaint on May 27, 2011. Cimarex Energy and Prize, Magnum Hunter, Key and Gruy have argued that they would therefore be entitled to dismissal of any allegations that seek relief for conduct underlying these claims occurring prior to December 6, 2008, and May 27, 2009, respectively.
Title 12, section 95 of the Oklahoma Statutes provides that any action seeking relief on the ground of fraud must be brought "[w]ithin two (2) years," id., "after the cause of action shall have accrued," id. § 95(A), but that "the cause of action ... shall not be deemed to have accrued until the discovery of the fraud[.]" Id. § 95(A)(3). E.g., City of Tulsa, 280 P.3d at 320, 2011 WL 4790939 *6-7 (applying discovery rule to unjust enrichment claim).
In an attempt to evade the two-year bar, the plaintiffs have contended in the first amended complaint that due to the
Doc. 32 at 23, ¶ 68.
The plaintiffs have further contended that
Id.
In Resolution Trust Corporation v. Grant, 901 P.2d 807 (Okla.1995), the Oklahoma
Id. (footnote omitted).
To the extent, if any, the plaintiffs were required to assert in their first amended complaint allegations regarding the circumstances surrounding their discovery of the defendants' alleged wrongful conduct and the reasons why the defendants'"misrepresentations, omissions, and/or general scheme to conceal its underpayments," Doc. 32 at 23, ¶ 68, or their "unlawful and improper retention and use of monies that should have been paid to [p]laintiffs," id. at 24, ¶ 78, could not have been discovered earlier, the Court finds, accepting those allegations as true for purposes of the instant motion, that the issues of discovery and diligence have been sufficiently pled at this stage of the litigation. Accordingly, as to these claims for relief, Cimarex Energy is not entitled to dismissal of those allegations describing conduct occurring prior to December 6, 2008, and Prize, Magnum Hunter, Key and Gruy are not entitled to dismissal of those allegations describing conduct occurring prior to May 27, 2009.
Finally, the defendants have sought dismissal of the plaintiffs' prayer for punitive damages. See Doc. 32 at 32, ¶ b; e.g., id. at 28, ¶ 102; id. at 30, ¶ 111; id. ¶ 117; Id. at 31, ¶ 121; id. ¶ 125. Such damages are available under the tort causes of action that either have survived the defendants' challenges or are subject to amendment. For that reason, the Court finds it premature to dismiss that portion of the plaintiffs' prayer for relief seeking such damages or to hold that the allegations in the lawsuit fail to establish a plausible entitlement to such damages.
Accordingly, the Court
(1) GRANTS the defendants' Motion to Dismiss [Doc. 40] to the extent the Court hereby DISMISSES Counts I, IV, V, VI, VII (breach of fiduciary duty under section 570.10(A)), VIII, IX and X, the plaintiffs' allegations of conspiracy and joint venture, any allegations that seek relief against Cimarex Energy for conduct (in connection with Count I) occurring prior to December 6, 2005, and any allegations that seek relief against Key, Magnum Hunter, Prize and/or Gruy for conduct (in connection with Count I) occurring prior to May 27, 2006;
(2) but FINDS that the Court's dismissal of Counts I, IV, V and VI and the plaintiffs' allegations of conspiracy and joint venture is without prejudice and that the plaintiffs should be granted the opportunity, subject to Rule 11, F.R.Civ.P., to amend their first amended complaint in accordance with Twombly and Iqbal "to frame a `complaint with enough factual matter (taken as true) to suggest' that [they are] ... entitled to relief," Robbins, 519 F.3d at 1247 (quoting 550 U.S. at 556, 127 S.Ct. 1955);
(3) DIRECTS the plaintiffs, if they intend to pursue any dismissed claims or theories of liability, to file a second amended
(4) DENIES the defendants' Motion to Dismiss in all other respects.
Doc. 32 at 22, ¶ 67.
In support of their arguments, the plaintiffs have cited in part cases addressing class actions; this case has yet to be certified as a class action, and absent any factual allegations that the named plaintiffs themselves acted in reliance on the defendants' alleged fraudulent or deceitful conduct, the Court finds this essential element has not been sufficiently pled.
Howell v. Texaco Inc., 112 P.3d 1154, 1161 (Okla.2004)(quoting 52 O.S. § 52 O.S. 570.12(A)(1)-(A)(9)).
52 O.S. § 570.10(A).
