Charles W Brown and Patty N Brown LLC v. Newfield Exploration Mid-Continent Inc, 5:19-cv-00600

Background

Brown owns mineral interests in Section 19, T1N R4W, Stephens County, Oklahoma, and leased them to Heritage under written oil-and-gas leases.
Oklahoma Corporation Commission issued a pooling order for Section 19; Newfield became the operator of record and drilled multiple horizontal wells that include Brown’s minerals.
Brown alleges Newfield has paid royalties to Heritage but failed to pay Brown royalties "free of all costs except taxes," instead deducting costs (e.g., transportation and fractionation); Brown received a February 20, 2020 payment covering June 1, 2018–Dec. 1, 2019.
Second Amended Complaint asserts breach of contract, violation of the Oklahoma Production Revenue Standards Act, negligence, and unjust enrichment; Brown seeks accounting, damages, and fees.
Newfield moved to dismiss under Rule 12(b)(6) arguing (1) no contract between Brown and Newfield (so breach fails), (2) negligence inadequately pleaded, and (3) Brown failed to give fair notice of all alleged improper deductions.
Court dismissed Brown’s breach-of-contract claim without prejudice; denied dismissal as to allegations of improper deductions insofar as they support non-contract claims; and allowed Brown’s negligence claim to proceed.

Issues

Issue	Brown's Argument	Newfield's Argument	Held
Whether Newfield can be liable for breach of Brown’s lease obligations	Newfield, as unit operator and payor on division orders, must honor lease terms and pay royalties free of costs	Newfield is not a party to Brown’s leases and no assignment/assumption alleged, so no contractual obligation	Dismissed — Brown failed to plausibly plead a contract between Brown and Newfield; breach claim dismissed without prejudice
Whether complaint fairly notifies Newfield of the specific improper deductions	Alleged transportation and fractionation deductions and other costs; discovery is needed to identify all deductions	Complaint is too vague; Brown must identify specific deductions to give fair notice	Denied as to non-contract claims — allegations (transportation/fractionation example) suffice at pleading stage to raise a non-speculative claim
Sufficiency of negligence claim (duty, breach, causation, damages)	Unit operator owes duty to operate prudently, protect correlative rights, and properly pay royalties; Brown alleges breaches and damages	Allegations are conclusory and do not show how duty was breached or damages caused by Newfield	Denied — negligence adequately pleaded to permit claim to proceed
Whether division orders or operator status create privity/contract at pleading stage	Division orders and operator payment practice establish Newfield’s obligation to comply with lease terms	Division orders and operator status do not, by themselves, create contractual privity or make Newfield a party to Brown’s lease	Court rejects Brown’s contention; division orders do not establish privity or a plausible contract claim against Newfield

Key Cases Cited

Burnett v. Mortgage Elec. Registration Sys., Inc., 706 F.3d 1231 (10th Cir.) (Rule 12(b)(6) pleading standard discussion)
Khalik v. United Air Lines, 671 F.3d 1188 (10th Cir.) (plausibility and pleading analysis)
Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (complaint must raise claims above speculative level)
Ashcroft v. Iqbal, 556 U.S. 662 (2009) (legal conclusions require supporting factual allegations)
Cates v. Integris Health, Inc., 412 P.3d 98 (Okla.) (elements of breach of contract under Oklahoma law)
Wells Fargo Bank v. Heath, 280 P.3d 328 (Okla.) (contracts bind only parties thereto)
James Energy Co. v. HCG Energy Corp., 847 P.2d 333 (Okla.) (oil-and-gas lease principles)
Fransen v. Conoco, Inc., 64 F.3d 1481 (10th Cir.) (unit operator duties to protect correlative rights)
Krug v. Helmerich & Payne, Inc., 320 P.3d 1012 (Okla.) (operator duties and related principles)
Krokowski v. Henderson Nat’l Corp., 917 P.2d 8 (Okla.) (elements of negligence under Oklahoma law)