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Decker v. Statoil USA Onshore Properties, Inc.

United States District Court, N.D. West Virginia

June 7, 2017

DEAN PATRICK DECKER, III and LORETTA DECKER, Plaintiffs,
v.
STATOIL USA ONSHORE PROPERTIES, INC., a Delaware corporation and PETROEDGE ENERGY, LLC, a Delaware limited liability company, Defendants, and EQT PRODUCTION COMPANY, Intervenor-Defendant.

         MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DEFERRING IN PART DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT, GRANTING DEFENDANT'S SUPPLEMENTAL MOTION FOR PARTIAL SUMMARY JUDGMENT, DEFERRING RULING ON PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND DEFERRING RULING ON INTERVENOR-DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

          FREDERICK P. STAMP, JR. UNITED STATES DISTRICT JUDGE.

         This is a commercial contract dispute arising out of a joint venture for the acquisition, exploration, and development of oil and gas leases. The parties have filed cross-motions for partial summary judgment. For the following reasons, the defendant's motion for partial summary judgment is granted in part and deferred in part and the defendant's supplemental motion for partial summary judgment is granted. This Court defers ruling on the plaintiffs' motion for partial summary judgment and the intervenor-defendant's motion for partial summary judgment pending those parties' settlement of Count Two.

         I. Facts

         The plaintiffs, Dean Patrick Decker and Loretta Decker ("the Deckers"), claim entitlement to overriding royalty interests in oil and gas leases held by defendant Statoil USA Onshore Properties, Inc. ("Statoil") and intervenor-defendant EQT Production Company ("EQT") . The Deckers' claims arise out of a 2011 agreement between Decker Energy, LLC ("Decker Energy") and PetroEdge Energy, LLC ("PetroEdge") called the "Participation Agreement." ECF No. 143-3. Dean Decker was the sole member of Decker Energy. ECF No. 146-1 at 59 (providing a signature line for Decker Energy listing Dean Decker as Decker Energy's "Sole Member") . At that time, Decker Energy held oil and gas leases in Tyler County, West Virginia and was investigating title to leases in properties in Tyler and Wetzel Counties for later acquisition. ECF Nos. 143-1 at 2; 145-1. Through the Participation Agreement, Decker Energy and PetroEdge sought to cooperate in the acquisition and development of these leases. ECF No. 145-1 at 2.

         The Participation Agreement had three principal parts. First, Decker Energy agreed to sell to PetroEdge interests in a set of oil and gas leases held by Decker Energy called the "Initial Leases, " identified in Exhibit A-l to the Participation Agreement. ECF No. 143-3 at 5, 10, 12, 14. For each Initial Lease, Decker Energy was to transfer 90% of its working interest[1] to PetroEdge while retaining 10% of its original working interest. Id. at 6. Further, Decker Energy would receive an overriding royalty interest[2] called the "Initial Lease ORRI." Id. at 10. If Decker Energy held more than an 83% working interest in an Initial Lease, Decker Energy was entitled to an overriding royalty interest in the amount of the percentage difference between the percentage of Decker Energy's working interest and 83%. Id. Thus, if Decker Energy held an 87% working interest in an Initial Lease, it would be entitled to an overriding royalty interest of 4% in that lease. See ECF No. 204-6 at 7. Decker Energy was also "entitled to assign the Initial Lease ORRI or cause the Initial Lease ORRI to be paid to [the Deckers]." ECF No. 143-3 at 23.

         Second, Decker Energy and PetroEdge agreed that PetroEdge would investigate certain properties identified in Exhibit A-3 to the Participation Agreement, called the "Target Leases." Id. at 33. PetroEdge could then acquire the Target Leases. Id. Upon acquiring a Target Lease, PetroEdge was to "assign to Decker [Energy] an undivided working interest in such Target Lease" and an overriding royalty interest in that lease. Id. As with the Initial Lease ORRI, Decker Energy was "entitled to assign such overriding royalty or cause such overriding royalty to be paid to [the Deckers]." Id.

         Third, Decker Energy and PetroEdge agreed to create an "Area of Mutual Interest" ("the AMI"), which included the Initial Leases, the Target Leases, and other adjacent properties. Id. at 6, 34. The parties agreed that if one of them sought to acquire a lease within the AMI, the other party would have a right of first refusal to acquire that lease on the same terms. Id. at 34-35. In effect, this prevented Decker Energy and PetroEdge from competing for leases within the AMI.

         PetroEdge later pooled and unitized a set of leases, including one of the Initial Leases called "the Welch Lease, "[3] into a pooled unit known as "the Ball Unit." ECF Nos. 145-2, 146-5 at 4. PetroEdge then drilled a well on the Ball Unit known as "Ball Unit 1H" and began making royalty payments directly to the Deckers. ECF Nos. 145-2 at 2-3; 143-6 at 1. There is no evidence of a written assignment from Decker Energy to the Deckers or of a written invocation of Decker Energy's right to cause the payments to be directed to the Deckers. Rather, the parties informally understood that the royalties would be paid directly to the Deckers. ECF No. 204-6 at 9.

         Decker Energy and PetroEdge then executed an "Amendment to the Participation Agreement" ("the Amendment"). ECF No. 146-2. Under the Amendment, Decker Energy was to receive a 1% overriding royalty interest in each Target Lease acquired by PetroEdge, which was to be conveyed directly to the Deckers rather than Decker Energy within ninety days of PetroEdge's acquisition of the lease. ECF No. 145-3 at 4. It also amended Exhibits A-l and A-3 identifying the Initial Leases and the Target Leases respectively. See ECF No. 155-1 at 4, 9-16.

         Statoil later acquired all of PetroEdge's West Virginia assets, including those under the Participation Agreement and the Amendment. ECF Nos. 146-3 at 18-22; 143-9. Under § 15.4 of the Participation Agreement, Decker Energy had the right to "tag along" with PetroEdge's sale to Statoil and sell its assets relating to the Participation Agreement to Statoil on the same terms as PetroEdge. ECF No. 143-3 at 40. Decker Energy exercised that right and conveyed all of its interests, including "any royalty interests, " in leases identified at Exhibit A, Schedule 1 to the parties' Purchase and Sale Agreement ("the PSA") along with Decker Energy's interests in the Participation Agreement and the Amendment. ECF Nos. 146-4 at 17-21, 66-68, 72; 143-10; 145-4. The Deckers maintain that, based on their communications with PetroEdge, Decker Energy conveyed all of its interests in the Initial Leases and Target Leases except for its overriding royalty interest and its working interest in Ball Unit 1H. ECF No. 143-10; 145-4. However, Exhibit A, Schedule 1 to the PSA lists the Welch Lease and Decker Energy's overriding royalty interest in that lease as one of the assets being purchased. ECF No. 204-4 at 66. Further, Exhibit A, Schedule 1 expressly excludes Decker Energy's 10% working interest in Ball Unit 1H. Id. at 68.

         After these acquisitions, Statoil made royalty payments to the Deckers for production from Ball Unit 1H. ECF No. 145-5 at 2-3; 143-13. However, Statoil later notified the Deckers that they were no longer entitled to royalties because Decker Energy conveyed all of its interests in the Initial Leases and the Ball Unit to Statoil, and Statoil stopped making payments to the Deckers.[4] ECF No. 143-15. Statoil later assigned to the Deckers overriding royalty interests in eighteen leases that Statoil claims are acquired Target Leases. ECF No. 145-6. Then, after the Deckers filed this civil action, EQT acquired Statoil's interests in the Target Leases. This Court has, thus, allowed EQT to intervene in this civil action as a defendant.

         The Deckers allege that PetroEdge and Statoil failed to pay royalties to the Deckers or to assign to them overriding royalty interests in the Initial Leases, Target Leases acquired by PetroEdge or Statoil, and the Ball Unit and Ball Unit 1H-Counts One, Two, and Three respectively. The Deckers also allege in Count Four a claim for unjust enrichment against Statoil. The Deckers seek a declaration that they hold or are entitled to hold overriding royalty interests in the Initial Leases, the acquired Target Leases, and the Ball Unit and Ball Unit 1H. They also seek an accounting of the development and production on each lease and the appointment of a special commissioner to execute and deliver assignments of interests in the leases to them. Further, the Deckers request a judgment for all unpaid royalties on the leases and for their unjust enrichment claim.

         Statoil seeks summary judgment as to all counts and the Deckers and EQT each seek summary judgment as to Count Two. The parties have since indicated that the Deckers and EQT have settled Count Two regarding the Target Leases pending a period of due diligence to conclude on July 3, 2017. See ECF No. 205. This Court will defer ruling on all motions as to Count Two until that time. Thus, this Court considers only Statoil's motion for partial summary judgment and supplemental motion for partial summary judgment as to Counts One, Three, and Four.

         II. Applicable Law

         Under Federal Rule of Civil Procedure 56, this Court must grant a party's motion for summary judgment if "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A fact is "material" if it might affect the outcome of the case. Anderson v. Liberty Lobby, 477 U.S. 242, 248 (1986) . A dispute of material fact is "genuine" if the evidence "is such that a reasonable jury could return a verdict for the non-moving party." Id. If the nonmoving party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial, " summary judgment must be granted against that party. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) . In reviewing the supported underlying facts, all inferences must be viewed in the light most favorable to the party opposing the motion. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) .

         The party seeking summary judgment bears the initial burden of showing the absence of any genuine issues of material fact. See Celotex, 477 U.S. at 322-23. "The burden then shifts to the nonmoving party to come forward with facts sufficient to create a triable issue of fact." Temkin v. Frederick County Comm'rs, 945 F.2d 716, 718 (4th Cir. 1991), cert, denied, 502 U.S. 1095 (1992). However, "a party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but . . . must set forth specific facts showing that there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986) . Moreover, "[t]he nonmoving party cannot create a genuine issue of material fact through mere speculation or the building of one inference upon another." Othentec Ltd. v. Phelan, 526 F.3d 135, 140 (4th Cir. 2008) (internal quotation marks omitted). The nonmoving party must produce ...


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