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JJK Mineral Company, LLC v. Noble Energy, Inc.

United States District Court, N.D. West Virginia

June 20, 2017

JJK MINERAL COMPANY, LLC, a Pennsylvania limited liability company, Plaintiff,
v.
NOBLE ENERGY, INC., a Delaware corporation, CNX GAS COMPANY, LLC, a Virginia limited liability company, COLUMBIA ENERGY VENTURES, LLC, f/k/a NiSource Energy Ventures, LLC, a Delaware limited liability company, and COLUMBIA GAS TRANSMISSION, LLC, a Delaware limited liability company, Defendants.

         MEMORANDUM OPINION AND ORDER CONFIRMING PRONOUNCED ORDER OF THE COURT GRANTING IN PART AND DENYING IN PART DEFENDANT NOBLE ENERGY, INC.'S MOTION FOR PARTIAL DISMISSAL, GRANTING DEFENDANT CNX GAS COMPANY, LLC'S MOTION FOR PARTIAL DISMISSAL AND DENYING DEFENDANT COLUMBIA VENTURES, LLC'S MOTION FOR PARTIAL DISMISSAL

          FREDERICK P. STAMP, JR. UNITED STATES DISTRICT JUDGE

         This is a breach of contract and declaratory judgment suit arising out of an oil and gas lease known as the “Crow Lease.” The defendants have filed separate motions for partial dismissal of Counts II and III under Federal Rule of Civil Procedure 12(b)(6). For the following reasons, the defendants' motions are granted as to Count II and denied as to Count III.

         I. Background

         The Crow Lease covers the oil and gas rights to land in Marshall County, West Virginia. The plaintiff, JJK Mineral Company, LLC (“JJK”), is the lessor, defendants Columbia Energy Ventures, LLC, and Columbia Gas Transmission, LLC (collectively “Columbia”) are the lessees, and defendants Noble Energy, Inc. (“Noble”), and CNX Gas Company LLC (“CNX”) are sublessees. The Crow Lease did not originally include a pooling or unitization clause.

         In 2013, Noble approached JJK to amend the Crow Lease to include pooling rights. That April, JJK executed two documents, the Amendment and Ratification of Oil and Gas Lease (“the Amendment”) and the Supplemental Agreement and Ratification of Oil and Gas Lease (“the Supplement”). The Amendment modified the lease to include pooling rights and increased JJK's royalty interest to 15%. The defendants did not sign the Amendment. The Supplement was a contract between JJK, CNX, and Noble providing that CNX and Noble would pay JJK $1, 500 per net acre as a non-refundable signing bonus when JJK executed the Amendment. It also provided that Noble and CNX would suspend royalty payments until JJK cleared its title to the Crow Lease in a West Virginia civil action that was pending at the time. That civil action has now been resolved in JJK's favor. Neither Noble nor CNX executed the Supplement. That Fall, Noble notified JJK that CNX and Columbia did not agree with the terms of the Amendment and Supplement and that they refused to execute them.

         Nevertheless, Noble and CNX then pooled the Crow Lease into two units, the Sand Hill 8 Unit and the Webster 22 North Unit. They drilled wells on these units and began producing natural gas. The defendants have not paid any royalties to JJK for that production, even after JJK cleared its title. Further, JJK alleges that Noble and CNX have intentionally withheld royalty payments in an attempt to force JJK into executing versions of the Amendment and the Supplement that are more favorable to the lessees. JJK alleges that Noble admitted at its Rule 30(b)(6) deposition that it had no right to withhold royalties after title was cleared, and JJK alleges that CNX is bound by this admission as a joint venturer with Noble.

         JJK originally filed this civil action against only Noble for misappropriation and conversion, unjust enrichment, and for an accounting. JJK then amended its complaint to add CNX and Columbia as defendants. JJK now alleges claims for willful breach of the Crow Lease (Count I) and breach of good faith and fair dealing under the Crow Lease (Count II) against Noble and CNX, and a request for a declaration that the Amendment and the Supplement are invalid, that the defendants do not have pooling rights, that the defendants owe royalties to JJK, and that the Crow Lease has been rescinded by willful breach (Count III). JJK also requests an accounting of all unpaid royalties (Count IV). Noble filed a motion to dismiss Counts II and III (ECF No. 31), CNX filed a motion to dismiss Count II (ECF No. 37), and Columbia filed a motion to dismiss Count III (ECF No. 42).

         On May 26, 207, the parties appeared before this Court for oral argument on the motions to dismiss. At oral argument, this Court granted Noble and CNX's motions to dismiss as to Count II and denied Noble and Columbia's motions to dismiss as to Count III. This memorandum opinion serves to confirm this Court's pronounced order.

         II. Applicable Law

         To survive a motion to dismiss under Rule 12(b)(6), “a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.'” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). This plausibility standard requires a plaintiff to articulate facts that, when accepted as true, demonstrate that the plaintiff is plausibly entitled to relief. Francis v. Giacomelli, 588 F.3d 186, 193 (4th Cir. 2009) (citing Iqbal, 556 U.S. at 678; Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “The plausibility standard is not a probability requirement, but asks for more than a sheer possibility that a defendant has acted unlawfully.” Hall v. DirectTV, 846 F.3d 757, 765 (4th Cir. 2017). “[C]ourts must accept as true all of the factual allegations contained in the complaint and draw all reasonable inferences in favor of the plaintiff.” Id. “[A] complaint is to be construed liberally so as to do substantial justice.” Id. (internal quotation marks omitted).

         III. Discussion

         A. Count II - Breach of Duty of Good Faith and Fair Dealing

         Noble and CNX each seek dismissal of Count II in separate motions. They argue that West Virginia does not recognize independent claims for breaches of implied covenants. After initially challenging this assertion in response to Noble's motion to dismiss, JJK concedes ...


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