Clark v. Blackbrush Oil & Gas, L.P., 18-08019

Background

The Burns family owns mineral and royalty rights to a 24,824.78-acre tract and executed three controlling oil-and-gas leases in 2010 with BB‑II and Chesapeake; multiple assignments later gave various lessees (including Goodrich and EP Energy) working interests.
From 2013 the Burns audited royalties and alleged significant underpayments by Goodrich; Burns demanded assurances and entered a letter agreement for delinquent royalty payments and reimbursement of audit/collection costs.
Goodrich paid some royalties but failed to fund the agreed escrow reimbursement; Burns withheld consent to Goodrich’s proposed assignment to EP Energy and ultimately filed an adversary proceeding seeking declaratory relief, lease termination rights, and attorneys’ fees.
EP Energy moved to dismiss under Rule 19, arguing that other parties to the original leases (the “Additional Defendants”) were necessary because they contractually are entitled to 25% of disputed royalties.
The court ordered joinder/amendments to bring in the Additional Defendants; those parties filed cross-claims against the lessees seeking their share of unpaid royalties and moved to be realigned as plaintiffs.
The bankruptcy court found the Additional Defendants are adverse to the original lessees, have assumed the burden of proof by asserting cross-claims, and realigned them as plaintiffs to reflect their true position.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether nominally "Additional Defendants" should be realigned as plaintiffs	Burns and Additional Defendants contend Additional Defendants are pursuing the same remedy and are aligned with plaintiffs	Original lessees argued Additional Defendants were properly defendants/necessary parties and should not be realigned	Court realigned Additional Defendants as plaintiffs because they are adverse to lessees and have asserted cross-claims
Whether antagonism exists between original plaintiff and nominal defendants (touchstone for realignment)	Burns/Additional Defendants: antagonism exists as Additional Defendants assert claims against lessees	Lessees: portrayed Additional Defendants as non-antagonistic necessary parties	Court found clear antagonism—Additional Defendants filed cross-claims against lessees
Which party should bear burdens of proof/production once parties asserted claims	Additional Defendants argue they should not be saddled with defendant burdens if they are pursuing affirmative claims	Lessees likely argued party labels should remain	Court determined Additional Defendants have assumed burden by filing cross-claims and thus realignment is appropriate to reflect responsibilities
Whether realignment is proper beyond jurisdictional contexts (i.e., to reflect substantive positions)	Additional Defendants sought realignment to avoid pleading anomalies and reflect true positions	Lessees did not prevent realignment	Court approved realignment for accuracy of parties’ positions and allocation of burdens

Key Cases Cited

Zurn Indus., Inc. v. Acton Const. Co., Inc., 847 F.2d 234 (5th Cir. 1988) (courts may look beyond pleadings to realign parties according to actual sides in the dispute)
City of Indianapolis v. Chase Nat’l Bank, 314 U.S. 63 (1941) (courts examine parties’ real interests, not labels, when determining alignment)
Ferko v. Nat’l Ass’n of Stock Car Racing, Inc., 216 F.R.D. 392 (E.D. Tex. 2003) (realignment analysis centers on whether antagonism exists between nominal parties)
Smith v. Sperling, 354 U.S. 91 (1957) (antagonism between parties is key to party alignment inquiry)
In re Imel, 169 B.R. 37 (Bankr. W.D. Tex. 1994) (realignment appropriate where party asserting the claim should bear plaintiff’s burdens of proof)