2015 COA 28
Colo. Ct. App.2015Background
- Beginning in the 1970s roughly 4,000 royalty owners (Royalty Owners) leased gas to BP; leases required payment of 1/8 of market value or proceeds at the mouth of the well and did not expressly authorize deduction of post‑production costs.
- Royalty Owners also signed division and transfer orders that, on their face, allowed deductions for compressing/transporting/making gas merchantable or alternatively used a federally fixed price if regulated.
- During deregulation in the 1980s–90s BP began using a netback method and deducted post‑production costs from royalty payments without disclosing those deductions on statements; Royalty Owners alleged fraudulent concealment and sued for underpayment for the class period 1986–1997.
- Procedural history: class certification was granted after remands from the Colorado Supreme Court; jury found breach and fraudulent concealment, awarding damages; district court denied BP’s JNOV and added statutory prejudgment interest; BP appealed and cross‑appealed several pretrial and trial rulings.
- Key legal disputes on appeal: (1) whether Royalty Owners could recover moratory (enhanced) interest under §5‑12‑102(1)(a); (2) whether fraudulent concealment and equitable tolling could be proven class‑wide; (3) whether the gas was marketable at the well such that post‑production costs could be deducted; (4) class decertification and jury instruction issues.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Moratory interest under §5‑12‑102(1)(a) (pretrial C.R.C.P. 56(h)) | Royalty Owners sought an enhanced interest award by showing BP realized a gain/benefit from withholding royalties and could be awarded moratory interest above statutory 8% | BP argued plaintiffs failed to show a causal link between the withheld funds and any actual gain by BP (funds were commingled and not traced to specific profitable uses) | Court granted BP’s 56(h): plaintiffs failed to prove a specific, non‑speculative link between withheld royalties and BP’s actual gain; statutory 8% applied |
| Directed verdict / JNOV on fraudulent concealment and tolling | Royalty Owners argued concealment was common, they were ignorant and reasonably relied on BP, permitting class‑wide tolling | BP argued many class members knew or should have known (industry participants, division orders) so concealment and tolling could not be proven class‑wide | Court denied directed verdict/JNOV: sufficient circumstantial evidence supported jury finding of fraudulent concealment and tolling for the class |
| Marketability at the well / allocation of post‑production costs | Royalty Owners contended gas was not marketable at wellhead; processing at BP plants was necessary, so BP bore post‑production costs | BP argued a wellhead market existed in the DJ Basin, so costs incurred to enhance value could be shared and deductions were proper | Court held marketability was a fact question; reasonable jurors could find gas not marketable at wellhead, so BP could not as a matter of law justify all deductions |
| Jury instruction that signing a contract bars denying its contents | BP sought an instruction that signers are presumed to know contract terms to rebut ignorance element of fraudulent concealment | Royalty Owners: ignorance element adequately instructed; highlighting contract reading would mislead and improperly emphasize specific evidence | Court refused to give BP’s instruction: existing instructions adequately covered ignorance and tendered instruction risked confusing jury and emphasizing specific evidence |
| Decertification after additional depositions | BP argued new testimony showed many class members knew of deductions or used netback themselves, defeating predominance and class tolling inference | Royalty Owners argued new evidence did not show BP told owners wells were deregulated or that BP used netback on their royalties; common issues still predominated | Court exercised discretion to deny decertification: district court performed a rigorous analysis and common issues still predominated for class treatment |
Key Cases Cited
- Rogers v. Westerman Farm Co., 29 P.3d 887 (Colo. 2001) (framework for when gas is first marketable and allocation of post‑production costs)
- Garman v. Conoco, Inc., 886 P.2d 652 (Colo. 1994) (lessee’s implied duty to market and lessor not required to share costs to make gas marketable)
- BP Am. Prod. Co. v. Patterson, 263 P.3d 103 (Colo. 2011) (class certification tolling and fraudulent concealment issues; Supreme Court precedent governing prior appeals)
- Patterson v. BP Am. Prod. Co., 159 P.3d 634 (Colo. App. 2006) (panel decision on notice and concealment later discussed in Supreme Court rulings)
- Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138 (10th Cir. 2000) (requirement of specific proof of gain from withheld funds for enhanced interest)
- Echo Acceptance Corp. v. Household Retail Servs., Inc., 267 F.3d 1068 (10th Cir. 2001) (reiterating need to specifically prove defendant actually benefited from withheld funds)
- Great W. Sugar Co. v. KN Energy, Inc., 778 P.2d 272 (Colo. App. 1989) (awarding moratory interest where plaintiff linked withheld funds to defendant’s profit)
- E.B. Jones Constr. Co. v. City & County of Denver, 717 P.2d 1009 (Colo. App. 1986) (absence of proof of defendant’s gain limits interest to statutory rate)