Pennaco Energy, Inc. v. Kd Company Llc, a Wyoming Close Limited Liability Company
363 P.3d 18
Wyo.2015Background
- Pennaco Energy entered surface-use and produced-water agreements with ranch landowners in northeastern Wyoming to access land for coalbed methane operations; agreements required annual damage/payments and post-operations reclamation.
- Pennaco assigned part of its lease and the surface/water rights to CEP-M, which re-assigned to High Plains Gas; after assignment, payments and reclamation stopped.
- Landowners (KD and the Hollcrofts) sued Pennaco, CEP-M, and High Plains Gas for breach; CEP-M and High Plains defaulted. District courts granted summary judgment to landowners against Pennaco for unpaid amounts and awarded attorney fees; Pennaco appealed.
- Pennaco argued the agreements created covenants running with the land, so liability attaches only to successors in privity of estate (assignees), and assignment relieved the original obligor. Landowners relied on contract law (assignment/delegation) saying an obligor remains liable absent an express release or novation.
- The Supreme Court of Wyoming analyzed whether the agreements were contractual obligations (delegable but not discharging assignor) or servitudes (covenants running with the land) and concluded the contracts manifested intent that Pennaco’s obligations survive assignment. Judgment affirmed.
Issues
| Issue | Plaintiff's Argument (Landowners) | Defendant's Argument (Pennaco) | Held |
|---|---|---|---|
| Whether Pennaco remains liable for contractual obligations after assigning its interests | Assignment/delegation does not discharge the delegating obligor; Pennaco expressly promised payments and reclamation until specified completion events | Agreements are covenants running with the land; once Pennaco ceased to hold the relevant estate (privity of estate ended), it was released from future obligations | Court held Pennaco remains liable; the agreements show contractual intent that obligations (payments, reclamation) continue until termination events, and no release on assignment was included |
| Whether attorney fees and costs were properly awarded | Prevailing parties entitled to fees under contract clauses for default/enforcement; fees include appeal | Pennaco contended it was not in default and thus fees improper | Court held Pennaco was in default for unpaid payments and fees/costs awards were proper (including appellate fees) |
Key Cases Cited
- Seagull Energy E&P, Inc. v. Eland Energy, Inc., 207 S.W.3d 342 (Tex. 2006) (assignor of oil-and-gas operating obligations remains liable absent express release; general contract assignment/delegation principles applied)
- Ultra Resources, Inc. v. Hartman, 226 P.3d 889 (Wyo. 2010) (delegation of performance does not discharge original obligor; contractual context controls)
- Mathisen v. Thunder Basin Coal Co., LLC, 169 P.3d 61 (Wyo. 2007) (elements for covenant running with the land; omission of successors/assigns language evidences personal obligation)
- Jacobs Ranch Coal Co. v. Thunder Basin Coal Co., LLC, 191 P.3d 125 (Wyo. 2008) (similar analysis to Mathisen; surface-royalty language held personal to original obligor)