Denbury Onshore v. Christensen
15-8106
| 10th Cir. | Jan 5, 2018Background
- Denbury Onshore, LLC is the operator of the Hartzog Draw Unit (federally certified); the Christensens own surface rights to ~16,000 acres above the Unit where >100 wells and many roads already sit.
- Parties are bound by a 1983 Surface Damage Agreement (SDA) between Cities Service (predecessor) and the Christensens; the SDA lists existing wells/roads with specified annual payments and provides that Exhibits A/B “may” be amended by written approval of both parties to add future sites.
- Denbury adopted a new policy (2013) offering one‑time lump‑sum payments for new operations rather than annual payments and declined to negotiate annual payments for five proposed wells and a connector road (Section 3); Christensens refused Denbury’s offers.
- Denbury began work without an amended SDA and without posting federal/state bond for some operations; Christensens asserted trespass and sued back with counterclaims including breach of the implied covenant of good faith and fair dealing, trespass, and declarations under the Wyoming Split‑Estate Act (WSEA).
- A jury found Denbury breached the implied covenant and trespassed, awarding $1,751,991 in contract damages and $801 in trespass damages; the district court denied Denbury’s Rule 50/59 motions.
- The Tenth Circuit reversed as to the implied‑covenant claim and the $1,751,991 contract award—holding the SDA’s amendment language was permissive so Denbury’s conduct conformed to the contract—but affirmed the remainder of the judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Denbury breached the SDA’s implied covenant of good faith by refusing annual payments and offering lump sums (and thus is liable for contract damages) | Christensens: SDA contemplated amendments for future sites; Denbury had a duty to negotiate in good faith and not to undercut the SDA’s purpose and expectations (industry practice of annual payments) | Denbury: SDA’s amendment clauses are permissive—amendment requires mutual satisfaction; Denbury had no duty to agree to or to offer particular payment terms and acted within clear contract language | Reversed: No breach as a matter of law. SDA’s language allowed either party to refuse amendment; Denbury’s offers and refusal to amend conformed with the contract, so judgment and contract damages vacated. |
| Whether Denbury’s broad declaratory claim (right to reasonable use of all Christensen surface in Unit) presented a justiciable controversy | Denbury: sought clarification of its surface‑use rights across the Unit | Christensens: dispute had narrowed to specific sites (Section 3/14); broad declaration would not resolve present concrete disputes | Affirmed dismissal: claim too broad; actual controversy concerned compliance with WSEA preconditions and specific sites. |
| Whether the Unit Agreement satisfied SRHA’s written‑consent requirement (thus precluding some challenges to Denbury’s entry) | Denbury: Unit Agreement + unitization entitle Denbury to reasonable surface use and fulfill SRHA written‑consent obligations | Christensens: Denbury must meet SRHA/WSEA preconditions; factual disputes exist | Court declined to decide on appeal (alternative WSEA‑based grounds were adequate); district court denial of summary judgment stands. |
| Whether the district court abused discretion by refusing to stay the case for BLM primary‑jurisdiction (BLM to decide whether Section 3 road was reasonable/necessary) | Denbury: BLM has primary expertise and regulatory role over onshore federal lease operations; primary jurisdiction appropriate | Christensens: reasonableness of a short dirt connector road is a judicial question fit for the jury | Affirmed: primary‑jurisdiction stay not warranted; question was not a technical/policy issue reserved to agency. |
Key Cases Cited
- Entek GRB, LLC v. Stull Ranches, LLC, 763 F.3d 1252 (10th Cir.) (unit operator may enter surface reasonably incident to mining in any leasehold in unit)
- Ultra Res., Inc. v. Hartman, 226 P.3d 889 (Wyo. 2010) (Wyoming recognizes implied covenant of good faith and fair dealing in commercial contracts)
- Scherer Constr., LLC v. Hedquist Constr., Inc., 18 P.3d 645 (Wyo. 2001) (implied covenant cannot create new duties beyond contract language; breach is a fact question tied to contract terms)
- Wolfgang v. Mid‑Am. Motorsports, Inc., 111 F.3d 1515 (10th Cir. 1997) (in diversity cases, forum state substantive law controls)
- Bristol v. Board of County Commissioners, 312 F.3d 1213 (10th Cir. 2002) (standard for judgment as a matter of law)
- Nationwide Emerging Managers, LLC v. Northpointe Holdings, LLC, 112 A.3d 878 (Del. 2015) (implied covenant cannot be used to obtain in court what was not bargained for)