Anderson Living Trust v. WPX Energy Production, LLCAnderson Living Trust v. WPX Energy Production, LLC
MEMORANDUM OPINION AND ORDER
THIS MATTER comes before the Court on the Defendants’ Motion to Dismiss Claims in Plaintiffs’ Fourth Amended Complaint, filed October 18, 2013 (Doe. 145)(“MTD”). The Court held a hearing on February 21, 2014. The primary issues are: (i) whether the Court, should convert the MTD into a motion for summary judgment, and whether it should consider check stubs attached by the Defendants or deposition transcripts and miscellaneous exhibits attached by the Plaintiffs in ruling on the MTD; (ii) whether the Court should dismiss the first, second, fifth, eleventh, and twelfth claims in the Plaintiffs’ Fourth
FACTUAL BACKGROUND
This matter arises from a dispute over the royalty payments that the Defendants, producers of oil and gas in New Mexico and Colorado, and working interest holders on oil and gas leases belonging to the Plaintiffs, owe to the Plaintiffs, royalty interest holders on the leases.
The San Juan Basin, one of the largest natural gas producing fields located in northwest New Mexico and southwest Colorado, was originally developed in the early 1950’s by El Paso Natural Gas Company.... The natural gas produced in the San Juan Basin is conventional gas which contains methane (natural gas) and entrained natural gas liquids (“NGLs”), such as ethane and butane. In order to make the gas safe to enter the interstate pipeline, the NGLs must be removed from the gas stream.
Elliott Indus. LP v. BP Am. Prod. Co.,
The Plaintiffs in this matter all own interests in hydrocarbons derived from wells in the States of New Mexico and Colorado. See FAC ¶¶ 1-7, at 2-3. The Plaintiffs reside in the southwestern part of the United States of America, specifically, in the states of Utah (Anderson Living Trust), Colorado (Pritchett Living Trust), Texas (Sadler), and New Mexico (Scanlon Living Trust and Robert Westfall). See FAC ¶¶ 1-7, at 2-3. Defendants WPX Energy Production, LLC, fik/a WPX Energy San Juan LLC, Williams Production Company, LLC, and WPX Energy Rocky
The Plaintiffs, or their predecessors, acquired their interests in the hydrocarbon revenues from the subject wells through executing oil-and-gas mining leases or permits with the Defendants. See FAC ¶ 11, at 4. All the leases were executed between October 17, 1945, and October 6, 1948, see FAC ¶ 26, at 10-12, meaning that the most recent lease was executed over sixty-three years before the Plaintiffs filed this lawsuit, see First Amended Complaint for Underpayment of Oil and Gas Royalties, filed in state court on December 5, 2011, filed in federal court on January 12, 2012 (Doc. 1-1). Under the leases, the Defendants owe the Plaintiffs a “duty to pay royalties on all hydrocarbons” for the value or price which the Defendants do or should receive from the “arm’s length” sale of the hydrocarbons. FAC ¶ 12, at 5. The leases give the Plaintiffs a right to royalties in the “drip cqndensate,” a liquid product which is recovered during the Defendants’ oil and gas mining processes.
The Defendants have not credited the Plaintiffs with the revenue derived from the drip condensate. See FAC ¶ 29, at 13. Currently, the Defendants calculate the Plaintiffs’ royalty interests on the sale price received from the Defendants’ affiliated intermediaries for hydrocarbons from wells in which the Plaintiffs own royalty interests, mixed with hydrocarbons from other wells in which the Plaintiffs do not own royalty interests. See FAC ¶¶ 33-34, at 14. The Defendants’ affiliated intermediaries sell the hydrocarbons at a significant profit, a profit which the Defendants do not pass on to the Plaintiffs. See FAC ¶ 33, at 14. Additionally, the Defendants’ royalty payments to the Plaintiffs have not been consistent. On “numerous instances,” the Defendants have waited longer than forty-five or even ninety days after receiving revenue from the Plaintiffs’ shares to pay the Plaintiffs their royalty interest. FAC ¶¶ 57-60, at 20-21.
. The Defendants have not always disclosed to the Plaintiffs the gross volume of gas produced from the Plaintiffs’ wells, the gross revenue or value the Defendants obtain from the gross production of gas, and the extent of costs that are deducted from the Plaintiffs’ royalty payments. See FAC ¶ 38, at 15-16. One such cost that is deducted from the Plaintiffs’ royalty payments is the cost of rendering marketable the natural gas and other hydrocarbons taken from the subject wells. See FAC ¶ 51, at 18.
PROCEDURAL BACKGROUND
The Plaintiffs assert nine causes of action that are either new to the FAC or have survived dismissal, see Memorandum Opinion, filed June 28, 2013 (Doc. 108)(“Memo. Opinion”), and are carried over from previous iterations of the complaint: (i) the first cause of action, “failure to pay royalty on volumes of hydrocarbons, including drip condensate,” FAC ¶¶ 22-30, at 10-13 (title case omitted); (ii) the second cause of action, “breach of the duty of good faith and fair dealing,” FAC ¶¶ 31^42, at 14-17 (title case omitted); (iii) the fourth cause of action, “violation of the New Mexico Oil and Gas Proceeds Payment Act” N.M. Stat. Ann. §§ 70-10-1 _to - 6 (“NMOGPPA”), a pre-existing claim, and “interest due under Colorado law,” a new claim the Plaintiffs raise for the first time in the FAC, FAC ¶¶ 56-61, at 20-21 (title case omitted); (iv) the fifth cause of action, “bad faith, breach of contract,” FAC ¶¶ 62-66, at 21-22 (title case omitted); (v) the sixth cause of action, a claim for declaratory relief, which is new.and unique to the FAC, see FAC ¶¶ 67-70(b), at 22-23; (vi) the ninth cause of action, “fraudulent concealment,” a new claim unique to the FAC, FAC ¶¶ 84-92, at 26-28 (title case omitted); (vii) the tenth cause of action, “estop-pel and continuing wrong,” a new claim unique to the FAC, FAC ¶¶ 93-97, at 28-29 (title case omitted); (viii) the eleventh
1. The Defendants File the MTD.
The Defendants filed their MTD pursuant to rule 12(b)(6) of the Federal Rules of Civil Procedure to dismiss, in part, the “Plaintiffs’ first, second, fourth, fifth, eleventh, and twelfth causes of action” based upon the applicable statutes of limitations. See MTD at 1 (title case omitted). The MTD also seeks the dismissal of the Plaintiffs’ twelfth cause of action in its entirety for failure to state any claim upon which relief can be granted, contending that under the Tenth Circuit’s interpretation of New Mexico law in Elliott Industries LP v. BP America Production Co., the Defendants have not breached the implied duty to market hydrocarbons. See MTD at 1, 21-24 (citing Elliott Indus. LP v. BP Am. Prod. Co.,
The Defendants argue that the statutes of limitations bar: (i) all of the Plaintiffs’ claims founded upon breach of written contracts — to the extent that the claims seek relief for any such breach occurring on or before October 20, 2005, i.e., more than six years before the Plaintiffs filed their initial complaint on October 20, 2011 — because New Mexico has a six-year statute of limitations on actions based on a written contract, see MTD at 2 (citing N.M. Stat. Ann. § 37-1-3); and (ii) all of the Plaintiffs’ claims founded upon violation of the NMOGPPA, breach of the duty to market under Colorado law, breach of the implied covenant to market under New Mexico law, the claim for “interest due under Colorado law,” and breach of the implied covenant of good faith and fair dealing — to the extent that the claims seek relief for any such violation occurring on or before October 20, 2007, ie., more than four years before the Plaintiffs filed their initial complaint — because New Mexico has a four-year statute of limitations for actions on unwritten contracts and actions whose limitation period is not otherwise specified by statute, MTD at 2 (citing N.M. Stat. Ann. § 37-1-4). The Defendants contend that New Mexico law supplies the controlling statutes of limitations even for the “interest due under Colorado law” component of the fourth cause of action and the eleventh and twelfth causes of action, which the Defendants assert all arise under Colorado law, see MTD at 4, because “ ‘[a] federal court hearing a diversity action applies the statute of limitations which would be applied by a court of the forum state,’ ” and “ ‘[u]nder New Mexico choice of law principles, a statute of limitations is procedural,’ ... [and] applies ‘even where the applicable substantive law is that of another state.’ ” MTD at 3, 3^4 (first and second alterations in original)(quoting Porcell v. Lincoln Wood Prods., Inc.,
The Defendants contend that all of the claims that arise under Colorado law are subject to the shorter four-year limitation period set out by N.M. Stat. Ann. § 37-1-4, see MTD at 4, because the eleventh and twelfth causes of action allege breach of the implied covenant to market, and “the New Mexico Supreme Court made explicitly clear that it has ‘held that the implied
The Defendants next argue that, “[u]n-der New Mexico law, the statute of limitations in a breach of contract action ... ‘begins to run from the time of the breach.’ ” MTD at 7 (quoting Welty v. W. Bank of Las Cruces,
The Defendants assert that “New Mexico applies the ‘discovery rule,’ which means that the statute of limitations ‘commences when an injury manifests itself and is ascertainable.’ ” Great Am. Ins. Co. v. Crabtree, No. CIV 11-1129,
Under the discovery rule, when a defendant “makes a prima facie showing that a claim is time barred,” ... “a plaintiff attempting to invoke the discovery rule has the burden of ‘demonstrating] that if [he or] she had diligently investigated the problem [he or] she would have been unable to discover’ the facts underlying the claim.”
MTD at 9 (alterations in original)(quoting Butler v. Deutsche Morgan Grenfell, Inc.,
The Defendants then argue that the Plaintiffs, “[h]aving ignored the discovery rule entirely, ... have resorted instead ... to allegations of fraudulent concealment, equitable estoppel, and continuing
The Defendants argue that they had no special duty to disclose, and attempt to rebut what they maintain is the FAC’s contention that such a duty “arose ‘by virtue "of the superior knowledge available to Williams [sic]- all material times,’ ” MTD at 11 (alteration in original)(quoting FAC ¶ 85, at 26), and because the Plaintiffs’ “ ‘placed trust and reliance in Williams,’ ” MTD at 11 (quoting FAC ¶ 85, at 26). The Defendants contend that, “[u]nder New Mexico law, ‘absent a fiduciary duty to speak on the part of the defendants ..'. silence, nondisclosure, or denial of alleged fraudulent concealment so as to toll a statute of limitations.’ ” MTD at 11 (quoting Cont’l Potash, Inc. v. Freeport-McMoran, Inc.,
The Defendants argue that the allegation that they misrepresented deducted expenses in check-stubs.sent to the Plaintiffs is not pled with the specificity that rule 9(b) requires. See MTD at 14 (citing FAC ¶ 87, at 27). They contend that the Plaintiffs must allege “ ‘who, what, when, where and how1 ” the fraud occurred, MTD at 14 (quoting United States ex rel. Sikkenga v. Regence Bluecross Blueshield of Utah,
The Defendants also argue that the Plaintiffs have failed to adequately allege equitable estoppel. See MTD at 17. The Defendants contend that
equitable estoppel “assumes that the plaintiff is aware of the facts underlying his or her cause of action, but is persuaded to forego filing suit by virtue of the defendant’s actions.” Accordingly, equitable estoppel applies in the situation where the plaintiff is induced [by the defendant] not to file the complaint sooner.
MTD at 17 (quoting Skyberg v. United Food & Commercial Workers Int’l Union,
The Defendants further argue that the continuing wrong doctrine does not apply, primarily because it applies only “ ‘in the context of tort liability,’ and not in breach of contract cases.” MTD at 18-19 (quoting Jeffers v. Butler,
Last, the Defendants contend that the Plaintiffs failed to state a proper claim in their twelfth cause of action. See MTD at 21. The contend that the Memo. Opinion and Elliott Industries LP v. BP America Production Co. foreclose relief. See Memo. Opinion; Elliott Indus. LP v. BP Am. Prod. Co.,
previous allegations concerning “unreasonable expenses” were not “specifically addressed” in the Memorandum Opinion ..., the allegations on which Plaintiffs’ Twelfth Cause of Action depends were specifically addressed by the Tenth Circuit in Elliott Indus. LP v. BP America Prod. Co., on which this Court specifically relied when it dismissed Plaintiffs’ claim for breach of the implied covenant to market, and which specifically requires dismissal of Plaintiffs’ repetitious implied covenant to market claim in the” FAC.
MTD at 22 (emphasis in original) (citation omitted). They assert that the Court “expressly held that oil and gas lessees who, like WPX in this case, ‘were and are actively producing gas, processing the gas, and selling the refined natural gas and NGLs,’ are in compliance ‘with the implied duty to market as articulated by the New Mexico courts.’ ” MTD at 24 (emphasis in original)(quotation unattributed).
2. The Plaintiffs File Their Response and Supplemental Brief.
The Plaintiffs responded to the MTD twenty days later. See Plaintiffs’ Response to Defendants’ Motion to Dismiss Claims in Plaintiffs’ Fourth Amended Complaint, filed November 8, 2013 (Doc. 156)(“Response”). They first argue that the MTD is more aptly styled as a motion for summary judgment under rule 56, because it “requests] the Court to consider and evaluate evidentiary materials that were not made a part of, or incorporated into,” the FAC. Response at 2. They contend that the Court should deny the MTD. See Response at 3. They assert that “[t]he inclusion of the check stub in Defendants’ motion may affect the Court’s determination of the merits of the motion.” Response at 4. Although they acknowledge that “the Court may consider on a motion to dismiss ‘undisputed documents central to the allegations in Plaintiffs’ complaint,” they contend that, because “there are potentially thousands of check stubs that will be examined at trial and that no one, single check stub is ‘central’ to the case,” what is really happening is that the Court is being asked to consider extrinsic evidence. Response at 5. They argue that, if the Court chooses to convert the motion into one for summary judgment, it should also consider the five documents they attach to their Response: (i) the Affidavit of Bradley Brickell Pursuant to Fed.R.Civ.P. 56(d) in Support of Plaintiffs’ Response to
The Plaintiffs also argue that they have pled sufficient facts for a jury to reasonably conclude that the statutes of limitations have been tolled and attempt to justify all three tolling doctrines. See Response at 7. In this brief, they do not dispute that New Mexico law supplies all the relevant statutes of limitations. See Response at 7 n. 2. They assert that the FAC alleges fraudulent concealment by alleging that the Plaintiffs “placed trust and reliance on Defendants as lessees of the oil and gas leases,” and that the Defendants’ “ ‘superior knowledge’ regarding their production of hydrocarbons from Plaintiffs’ wells” imparts an obligation of “a ‘full and fair disclosure of the true and complete facts of all hydrocarbons produced from the subject wells.’ ” Response at 7 (quoting FAC ¶85, at 26). They further assert that the Defendants affirmatively concealed facts underlying the causes of action in their monthly statements, which: (i) “contain ‘erroneous and misinformation about the volumes, values, prices, and types of hydrocarbons produced, used or sold from [the] subject wells,’” Response at 7-8 (alteration in original)(quoting FAC ¶ 86, at 26); (ii) do not represent “ ‘the values of hydrocarbons based on arms’ length transfers/contracts,’ ” Response at 8; and (iii) “misrepresent ] and omit[] that ‘certain types and amounts of expenses were deducted for certain services,’ ” Response at 8 (quoting FAC ¶ 87, at 27).
The Plaintiffs also argue that they have properly pled equitable estoppel. See Response at 8. They support this contention by pointing to allegations in the FAC and by characterizing the delivery of false monthly statements as a “ ‘continuing wrong.’ ” Response at 8-9 (quoting FAC ¶ 94, at 28). They point to the contention in the FAC that “the class members ‘did not discovery [sic] and could not have reasonably discovered their claims as alleged herein of underpayments,’ ” as a properly pled allegation of due diligence. Response at 9.
The Plaintiffs additionally rely upon the discovery rule, which they contend “is raised more in the context of tort cases, [but] can certainly be used in eases of fraudulent concealment and in other cases involving fraudulent concealment, as pled herein.” Response at 9-10. They assert that they properly “allege that they did not discover Defendants’ wrongful conduct until they filed suit as a result of Defendants’ fraudulent concealment and principles of equitable estoppel, which toll the statute of limitations.” Response at 10. The Plaintiffs argue that they have also pled fraudulent concealment under the similar Colorado law. See Response at 10-11.
The Plaintiffs argue that the question whether they exercised reasonable diligence to ascertain the facts that underlie their claims is fundamentally a question for the jury, is inappropriate on summary judgment, and certainly not appropriate on
Last, the Plaintiffs argue that they have stated a proper claim for breach of the implied covenant of marketability. See Response at 13. They contend that,
contrary to the Defendants’ assertion in the moving papers, Elliott Indus. LP v. BP America Prod. Co.,407 F.3d 1091 (10th Cir.2005), does not support dismissal. Elliott does not hold that a producer can charge unreasonable expenses. Nothing in the Elliott decision precludes a party, from claiming breach of the implied duty to market when the royalties paid the mineral owners are based on unreasonable or phantom expenses and deductions. The Elliott court did not reach the issue of reasonableness of the defendant’s expenses because the Elliott plaintiff dismissed its claim for breach of contract. The court found that the plaintiff [sic] failure to assert a cause of action for breach of contract rejects “the very foundation” of its relationship with the lessee.
Response at 14 (emphasis in original). They further assert- that “the New Mexico Supreme Court in ConocoPhillips Co. v. Lyons,
3. The Defendants File Their Reply.
The Defendants replied to the Plaintiffs’ Response before the Plaintiffs filed the supplement to their Response. See Defendants’ Reply in Support of Motion to Dismiss Claims in Plaintiffs’ Fourth Amended Complaint, filed December 4, 2013 (Doc. 172)(“Reply”). The Defendants argue that the Court may consider the exhibit they attached to their MTD, “as it is central to Plaintiffs’ claims,” but that the Court should disregard the extrinsic materials submitted by the Plaintiffs “in a transparent effort to convert this motion into one for summary judgment.” Reply at 1-2. They contend that, under Tenth Circuit law, “if a document ‘is referred to in the complaint and is central to the plaintiffs claim, a defendant may submit an indisputably authentic copy to the court to be considered on a motion to dismiss.’ ” Reply at 3 (quoting GFF Corp. v. Associated Wholesale Grocers, Inc.,
The Defendants then argue that the Court should not convert the MTD into one for summary judgment. Reply at 6. They address what they characterize as an attempt by the Plaintiffs to convert the motion by way of documents attached to their Response:
Plaintiffs further argue that they may effect conversion of Defendants’ motion into one for summary judgment simply by their submission of materials outside the pleadings.... “[B]ecause the Court is asked to consider extrinsic evidence (■including deposition testimony and interrogatory answers Plaintiffs attach in opposition to the motion), the motion must be converted into one for summary judgment.” •
Reply at 6 (emphasis in original)(quoting Response at 5). They assert that this attempt is “in clear conflict with the Tenth Circuit’s decision in Geras v. IBM Corp.,
The Defendants next address the equitable tolling doctrines that the Plaintiffs allege apply in the case. See Reply at 8. They state that, “[although Plaintiffs label these allegations as ‘causes of action,’ in this case they are not.” Reply at 8-9. See Reply at 9 & n. 1. The Defendants contend that equitable estoppel is inapposite, because “a central.element to any assertion of equitable estoppel is the plaintiffs awareness of his cause of action,” and the FAC not only fails to allege this knowledge, but “it does exactly the opposite.” Reply at 10 (citing FAC ¶ 96, at 29). They repeat their contention from the MTD that the continuing wrong doctrine applies only in tort cases. See Reply at 10-11. They oppose the Plaintiffs’ allegations of fraudulent concealment on the ground that the allegations are not plead with particularity as rule 9(b) requires, see Reply at 15, and on four substantive grounds: (i) that they fail to allege a fiduciary relationship between the Plaintiffs and the Defendants, .see Reply at 11-13; (ii) that the Plaintiffs have not alleged an affirmative act of concealment, which the Defendants contend is necessary to make out a claim of fraudulent concealment in the absence of a fiduciary relationship, see Reply at 13-14; (iii) that the Plaintiffs have not alleged how they exercised the due diligence that the Defendants contend is an essential element of a fraudulent concealment claim, see Reply at 14; and (iv) that BP America Production Co. v. Patterson is inapposite, because the procedural posture of that case “was an appeal of a class certification decision under the Colorado rule corresponding to Rule 23,” and has “no relevance to the question whether Plaintiffs have properly pled fraudulent concealment in this case,” Reply at 15-16 (citing BP Am. Prod. Co. v. Patterson,
The Defendants address the viability of the Plaintiffs’ twelfth cause of action by arguing that the “‘conception of the implied duty to market’ ” upon which the Plaintiffs rely “‘finds no support within New Mexico case law.’ ” Reply at 17 (quoting Elliott Indus. LP v. BP Am. Prod. Co.,
The Defendants also counter Plaintiffs’ “seeming reliance” on ConocoPhillips Co. v. Lyons,
Last, the Defendants contend that the “Plaintiffs’ submission of a Rule 56(d) affidavit and their assertion that the determination of Defendants’ motion to dismiss would be ‘premature’ is improper and should be disregarded,” because the MTD “ ‘tests the sufficiency of the allegations within the four corners of the complaint.’ ”• Reply at 20 (quoting Mobley v. McCormick,
4. The Court Holds a Hearing on the MTD.
The Court held a hearing on the MTD a week before the Plaintiffs submitted their Response Supp. See Transcript of Hearing at 12-80, taken February 21, 2014 (“Tr.”).
The Court first clarified with the Defendants that what they mean when they refer to dismissing claims “in part” is “just cutting off damages” past four-to-six years before the filing of the case; the Defendants confirmed this characterization. Tr. at 17:8-14 (Court, Sheridan). As the Defendants outlined their analysis, starting with what they contend are the applicable six-year and four-year statutes of limitations, the Plaintiffs for the first time — as this hearing was before the Response Supp. was filed — asserted that Colorado law might supply the statutes of limitations for the claims under Colorado law. See Tr. at 19:9-20:22 (Court, Briekell).
The discussion then turned to the tolling doctrines, see Tr. at 25:6-7 (Court), and the Defendants first addressed equitable estoppel, arguing again that the doctrine “assumes that the plaintiff is aware of the facts underlying his or her cause of action, but is persuaded to forego filing suit by virtue of the defendant’s actions.” Tr. at 26:4-7 (Sheridan)(purporting to quote Ti-beri v. Cigna Corp.,
The Plaintiffs stated that they “have a totally different read of the [Tiberi v. Cigna Corp.] case.” Tr. at 28:1-2 (Brickell). They assert that, in “paragraph 31,”
The Defendants responded first by voicing their displeasure at the Plaintiffs raising an issue that they seemingly forfeited in their Response, noting that, although they “know that this Court ... places great importance on making the right answer, ... it seems to [them] that it’s not appropriate to be making arguments ...
The Defendants then moved to the doctrine of continuing wrong, which they asserted “is not a tolling doctrine as such, [but rather] relates to when a statute of limitations actually begins to run as opposed to being tolled, and it is a tort law doctrine.” Tr. at 33:2-6 (Sheridan). They assert that Tiberi v. Cigna Corp. “[specifically mentions that where a tort involves a continuing or repeated injury,” the continuing wrong doctrine applies. Tr. at 33:9-10 (Sheridan). They noted that in McNeill v. Rice Engineering & Operating, Inc.,
situations] in which the defendant has a repeating obligation of performance of one type or another, [such as to] make contribution[s] to[ ] a pension plan ... [or a] health care benefits [fund], ... the cause of action accrues with the first time, with the decision when the defendant failed to make the payment.
Tr. at 34:18-35:4 (Sheridan).
The Plaintiffs half-heartedly defended the FAC’s assertion of the continuing wrong doctrine:
We have pled the continuing wrong doctrine in order to ... make sure that we have completely pled the issues that concern fraudulent concealment. In some instances it has been referred to as a continuing wrong doctrine, and therefore I feel like it falls under fraudulent concealment in this particular case. Such as announced in [CJontinental [P]ot. [AJsh. As this Court analyzed in the Great American case and those issues. I just did not want to leave that stone unturned as some courts refer to that as a continuing wrong if it occurs on numerous occasions which we’ve alleged it occurs every month, and so that’s why we characterize that cause of action [as a] continuing wrong. I don’t know if per se that is, maybe the correct nomenclature for it or not, but if it calls under a number of fraudulent concealment then I’m prepared to address that right now.
Tr. at 36:17-37:10 (Brickell). When asked if they “kn[e]w of any Supreme Court ease in New Mexico that applies the continuing wrong to a contract case,” the Plaintiffs answered that they “do not.” Tr. at 37:23-38:1 (Court, Brickell). The Plaintiffs asserted, however, that Oklahoma has applied the continuing wrong doctrine to contract cases, see Tr. at 39:2-3 (Brickell), and cited without discussing a case called Tull v. City of Albuquerque,
Turning to the fraudulent concealment issue, the Defendants first argued that the FAC “is wholly lacking in the who, what, when, where, how, and why allegations necessary to properly alleged fraudulent concealment to equitably toll a statute of limitations,” but “[bjeyond the pleading failures, ... there are some substantive problems as well.” Tr. at 41:19-41:24 (Sheridan). They contend that, “to the extent that it is based upon a nondisclosure, ... [i]n the absence of a duty to disclose, there cannot be fraudulent concealment.” Tr. at 41:25-42:3 (Sheridan). They assert that the Plaintiffs rely upon ■this theory in ¶ 85 of the FAC, which they characterize as stating that the “class members have placed trust and reliance in Williams by virtue of the superior knowledge available to Williams[;] at all material times plaintiffs [and] class members are owed a full and fair disclosure.” Tr. at 42:6-10 (Sheridan). The Defendants contend that a duty to disclose arises only from a fiduciary relationship and that “there are two types of fiduciary duties”: “there are duties which are fiduciary as a matter of law, [such as] a situation involving a lawyer and a client, a doctor and a patient, priest and penitent, [or a] principal and agent”; and “[t]here are other situations where a relationship between parties can rise to the level of being a fiduciary duty in fact” — “those are relationships that are typically the subject of special trust and confidence,” with the “classic example [being] the widow and the housekeeper where the housekeeper attend[s] to all of the widow’s needs[,] living with her 24 hours a day[,] tak[ing] care of her[,] and then the widow changes her will and leaves everything to the housekeeper[,] disinheriting the children.” Tr. at 42:18-43:8 (Sherfdan). The Defendants assert that there is no legally recognized fiduciary duty between an oil lessee and lessor, and that “[t]here are no facts alleged ... that in any way establish any kind of relationship of special trust or confidence.” Tr- at 43:12-14 (Sheridan). They asserted that “[a]ll of the plaintiffs have received their interest subsequently” — i.e., none of them were the original signatories to their leases — and “almost every case through inheritance.” Tr. at 46:16-22 (Sheridan). They concluded their nondisclosure argument by noting that “there is simply nothing that’s alleged ... that creates any sort of special trust or confidence between somebody who gets a check once a month 45[] years after the contract was entered into and the parties sending the check.” Tr. at 46:23-47:2 (Sheridan).
The Defendants then argued that the FAC alleges no. affirmative act of concealment. See Tr. at 47:8-9 (Sheridan). They contended that “[w]hat has to be concealed is the cause of action,” Tr. at 47:13-14 (Sheridan), “[a]nd there aren’t any allegations in the complaint to show that the cause of action could not have been discovered by the exercise of due diligence,” Tr. at 48:14-16 (Sheridan). The Defendants last contended that, under Tenth Circuit law, “the absence of an allegation regarding how and when [the plaintiff] learned of the alleged misconduct forecloses a claim that defendantsf] fraudulent concealment prevented [the plaintiff] from discovering defendant’s involvement.” Tr. at 49: 13-17 (Sheridan) (citing Dummar v. Lummis,
The Plaintiffs contended that the Defendants took on a special duty to disclose when they started sending monthly statements to the Plaintiffs. See Tr. at 51:11— 20 (Brickell). They acknowledged that “[t]here may not have been a duty to send
And what I’d like to do, Your Honor[,] is direct your attention to the check stub that Your Honor recognized as part of their motion to dismiss the complaint, which is the very last page or denoted as Exhibit A. All right, now if I can direct the Court’s attention to the ... middle of the page there are certain letter initials that are used to describe certain things within the check stub itself. You’ll notice, Your Honor, that the second definition is called G gas. C, condensate. Tax, taxes, TRN, field transportation. Now, Your Honor if I can walk you across one of the check stub lines here, let’s just take, now, this is a very small check stub, so a lot of the numbers are very small on this thick one, but believe me there are a lot bigger ones than this. But let’s look at this one here on the ... [GJubenator Number 1 MV, and it shows for first' of all the date of sale, it says is September of 2003. And then, Your Honor, as you come across, you see the next thing which says PC at the top column and you come down it’s a G for gas. Your Honor, we’re alleging that that is not all gas. That initial that month they ... sold natural gas liquids but failed to inform Mr. Anderson about that. Let’s go over to the price. 4 dollars 63 [cents]. Your Honor, we are alleging that that is not the value that was received in that sale by the defendants Williams [Production Coley which by the way Your Honor is a name change into WPX the current defendant name. We allege that that is some initial index or posted price, not reflective of what they received for the gas, much less the natural gas liquids that were processed out of that gas. Your Honor, the reason why we know that there were natural gas liquids that month is because we see after the word [G]ubenator Number 1, we see an MV. The MV stands for Mesa Verde. Your Honor, that’s a conventional gas zone and that area is productive of ... gas that will contain inert quantities of large amounts of natural gas liquids. We come on across and we see that they’ve combined the price and the quantity of 366.00 to come up with a value of 1693.42. Your Honor, we’re alleging that that 366 is not the true quantity of gas that was produced at the wellhead. In fact, that it was larger than that; that they are not informing Mr. Anderson of what ... the volume of gas that was produced from his well was. And that is not the quantity of gas that was actually sold or used by the defendant. Next, we come on across and we see that there is a TRN deduction of 6 cents. Now, 6 cents doesn’t seem like much. But when you look at it in the context of the total value on this very small interest on this particular check stub of 59 cents, you can see that’s 10 percent. We are alleging that in fact that 6 cents was not a transportation charge but that is a number made up by the Williams companies that they have just decided that that’s the amount they’re going to charge, and including things like home office overhead, including things like return on investment is the way that is calculated. As we then state in paragraph number 40 [and] 39on page 16, Williams intended for the plaintiffs to rely upon its written statements sent to plaintiffs. These statements knowingly failed to disclose excessive and impermissible charges. That’s what I’m talking about, Judge, depreciation, profit, return on investment. And reductions imposed by Williams payment methods as well as the gross volume, value and type of all hydrocarbons produced, used, sold or traded indirect violation of Williams’ statutory and common law ditties to properly report the same and to act in good faith and fair dealing. The same constitutes fraudulent concealment. Your Honor, in this particular instance, this is their own attachment is a good illustration of what we are saying constitutes fraudulent concealment and it shows the specific nature of our allegations, and how exactly specific we are.
Tr. at 53:7-56:7 (Briekell). The Plaintiffs also argued that, even though none of the Plaintiffs were the original signatories to their leases, they are parties by succession and should be treated the same as if they had signed the leases themselves. See Tr. at 60:23-61:4 (Briekell).
The Defendants, after providing a brief summary of what they considered “this case is about,” Tr. at 65:7-66:20 (Sheridan), argued that “fraudulent breach of a contract does not give rise to an action for fraud,” Tr. at 67:3-4 (Sheridan). They further argued: “There is a difference between fraud in^the inducement and fraud in the performance of a contract, okay. There is no cause of action for fraud in the performance of a contract. You have a claim for breach of contract.” Tr. at 67:12-16 (Sheridan)(citing Brick v. Cohn-Hall-Marx Co.,
The Court interjected to opine that, as far as it could tell, “this isn’t really a nondisclosure] case.... [T]he duty is sort of a red herring here. Once you start sending out the statements you’ve got to be accurate. That’s what the case is about, isn’t it, it’s not a nondisclosure, it’s not a duty.” Tr. at 71:24-25 (Court); id. at 72:8-12 (Court). The Defendants responded that “[i]t has to rise to the level of being fraudulent.” Tr. at 72:12-15 (Sheridan). They last argued that, because the Court had previously dismissed the standalone claim for fraud, the same facts could not suffice to toll the. statute by way of fraudulent concealment. See Tr. at 72:17-73:2 (Sheridan). The Court stated that it would take the matter under advisement. See Tr. at 79:12-14 (Court).
5. The Plaintiffs File a Supplement to Their Response.
The Plaintiffs filed a supplemental brief to their Response a week after the hearing and almost three months after the Defendant filed their Reply. See Supplemental Brief in Response to Defendants’ Motion to Dismiss — Application of Forum State’s Statute of Limitations, filed February 28, 2014 (Doc. 215)(“Response Supp.”). The Response Supp. first argues that the Court “should determine whether it would be fundamentally unfair to apply the New Mexico statute of limitations to the Plaintiffs’ and Class Members’ claims under wells in Colorado,” Response Supp. at 2 (citing Lujan v. Regents of the Univ. of Cal.,
LAW REGARDING RULE 12(b)(6)
Rule 12(b)(6) authorizes a court to dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). “The nature of a Rule 12(b)(6) motion' tests the sufficiency of the allegations within the four corners of the complaint after taking those' allegations as true.” Mobley v. McCormick,
A complaint need not set forth detailed factual allegations, yet a “pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action” is insufficient. Ashcroft v. Iqbal,
To survive a motion to dismiss, a plaintiffs complaint must contain sufficient facts that, if assumed to be true, state a claim to relief that is plausible on its face. See Bell Atl. Corp. v. Twombly,
“[Plausibility” in this context must refer to the scope of the allegations in a complaint: if they are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs “have not nudged their claims across the line from conceivable to plausible.” The allegations must be enough that, if assumed to be true, the plaintiff plausibly (not just speculatively) has a claim for relief.
Robbins v. Oklahoma,
Although affirmative defenses must generally be pled in the defendant’s answer, not argued on a motion to dismiss, see Fed.R.Civ.P. 8(c), there are exceptions where: (i) the defendant asserts an immunity defense — the courts handle these cases differently than other motions to dismiss, see Glover v. Gartman,
LAW REGARDING THE USE OF DOCUMENTS OUTSIDE THE PLEADINGS IN A RULE 12(b)(6) MOTION
Generally, the sufficiency of a complaint must rest on its contents alone. See Casanova v. Ulibarri,
The Court has previously ruled that, when a plaintiff references and summarizes statements from defendants in a complaint for the purpose of refuting the statements in the complaint, the Court cannot rely on documents the defendants attach to a motion to dismiss which contain their un-redacted statements. See Mocek v. City of Albuquerque, No. CIV 11-1009 JB/KBM,
LAW REGARDING CHOICE-OF-LAW AND STATUTES OF LIMITATIONS
The Supreme Court has held that a federal court sitting in diversity should apply the same statute of limitations that a state court of the forum state would apply. See Guaranty Trust Co. v. York,
New Mexico courts have held that “ ‘the law of the forum governs matters of procedure.’ ” Estate of Gilmore,
Each state has local law rules prescribing the procedure by which controversies are brought into its courts and by which the trial of these controversies is conducted. These rules for conducting lawsuits and administering the courts’ processes vary from state to state. The forum has compelling reasons for applying its own rules "to decide such issues even if the case has foreign contacts and even if many issues in the case will be decided by reference to the local law of another state. The forum is more concerned with how its judicial machinery functions and how its court processes are administered than is any other state. Also, in matters of judicial administration, it would often be disruptive or difficult for the forum to apply the local law rules of another state. The difficulties involved in doing so would not be repaid by a furtherance of the values that the application of another state’s local law is designed to promote.
Estate of Gilmore,
The Supreme Court of New Mexico has adopted the First Restatement approach to choice-of-law analyses, see United Wholesale Liquor Co. v. Brown-Forman Distillers Corp.,
LAW REGARDING NEW MEXICO STATUTES OF LIMITATIONS AND THE DISCOVERY RULE
“Although a statute of limitations bar is an affirmative defense, it'may be resolved on a Rule 12(b)(6) motion to dismiss ‘when the dates given in the complaint make clear that the right sued upon has been extinguished.’ ” Torrez v. Eley,
New Mexico applies the “discovery rule,” which means that the statute of limitations period “begins to run when the claimant has knowledge of sufficient facts to constitute a cause of action.” Gerke v. Romero,
LAW REGARDING THE CONTINUING WRONG DOCTRINE
“Under the continuing wrong doctrine ..., ‘where a tort involves a continuing or repeated injury, the cause of action accrues at, and the limitations begin to run from, the date of the last injury.’ ” Tiberi v. Cigna Corp.,
The common-law continuing tort doctrine may be applied, for statute of limitations purposes, when no single incident in a chain of tortuous activity can fairly or realistically be identified as the cause of significant harm. A continuing violation or tort is occasioned by continuing unlawful acts and conduct, not by continual ill effects from an initial violation. Thus, where there is a single overt act from which subsequent damages may flow, the statute begins to run on the date the defendant invaded the plaintiffs interest and inflicted injury, and this is so despite the continuing nature of the injury.
54 C.J.S. Limitations of Actions § 223 (2014)(footnotes omitted).
Although the doctrine has its origins in tort law, the New Mexico courts have never explicitly held that the doctrine is inapplicable to breach-of-contract actions. The Court of Appeals of New Mexico has, however, declined to apply the continuing wrong doctrine to contract cases in each of the few cases in which the argument was made. See Bishop v. Evangelical Lutheran Good Samaritan Soc’y, No. 25,510,
Tull v. City of Albuquerque is the seminal case on continuing wrong doctrine in the contract context in New Mexico. See, e.g., Village of Angel Fire v. Bd. of Cnty. Comm’rs of Colfax Cnty., 2010-NMCA-
The Plaintiffs’ continuing-wrong theory has been applied in a number of cases involving contracts that require periodic payments, including some cases arising in the employment context. Those cases are distinguishable. For example, in Miller v. Beneficial Management Corp.,977 F.2d 834 (3d Cir.1992), an employee claimed her employer discriminated against her by putting off her request for promotion and eventually denying the request. The court ruled the alleged conduct constituted a continuing wrong.977 F.2d at 844 . In Hart v. International Telephone & Telegraph Corp.,546 S.W.2d 660 (Tex.Ct.App.1977), an employee sued for commissions allegedly earned under an oral contract that called for quarterly payments of commissions. The court held the plaintiff had a separate cause of action for each quarter-'of the year in which commissions were earned but not paid.546 S.W.2d at 662 .
Tull v. City of Albuquerque,
The Court of Appeals of New Mexico appears to define the doctrine’s tolling effects — at least in the contract context— differently than the Tenth Circuit and Corpus Juris Secundum do in the tort context. As traditionally employed, the continuing wrong doctrine provides that the statute of limitations on an entire tortious course of action does not commence until the course of action is complete. For example, if a statute of limitations for a tort is five years, and a defendant engages in a continuing wrong for fifteen years, the plaintiff would be able to seek damages for the entire fifteen-year period, not merely the most-recent five years. The Court of Appeals of New Mexico appears to be using an alternative definition — one that would allow the plaintiff to collect on the damages incurred in the most-recent five years, but not in the preceding ten. When conceived this way, the doctrine only does work if the wrongful course of action would otherwise be analyzed as a single, discrete wrong that occurred at the beginning of the fifteen-year period, out of reach of the statute of limitations.
Plaintiffs contend that a new breach of contract occurs with each paycheck that does not include the raise to which they were entitled. Consequently, Plaintiffs maintain that they can recover damages for all paychecks not including such a raise during the three-year period preceding the filing of their complaint and for all paychecks issued since the complaint was filed. Plaintiffs concede, however, that the statute of limitations has run on any paycheck issued prior to June 30, 1991, which was three years before the complaint was filed. We shall term this argument the “continuing-wrong” theory.
The City, on the other hand, maintains there is only one breach of contract alleged, the initial failure, in 1987, to give Plaintiffs a raise in conjunction with their assumption of expanded job duties. For purposes of this appeal, the City accepts the allegation that the initial breach of contract has continuing effects in that each paycheck issued to Plaintiffs is lower than it might otherwise have been if Plaintiffs had received the raise they expected. The City argues, however, that these continuing consequences have no effect on the statute of limitations and that, for limitations purposes, the only triggering event is the initial breach of contract. We refer to thisargument as the “single-wrong with continuing effects” theory.
Tull v. City of Albuquerque,
Thus, it appears that the Court of Appeals of New Mexico may be talking about something different when it refers to the continuing wrong doctrine in the contract context-defining it as a doctrine that allows for cut-off damages rather than no damages at all, not as a doctrine that allows for complete damages rather than cut-off damages.
NEW MEXICO LAW REGARDING EQUITABLE TOLLING OF NEW MEXICO STATUTES OF LIMITATIONS
Equitable tolling applies before a complaint was filed when the litigant was prevented from filing suit because of “extraordinary events beyond his or her control.” Ocana v. Am. Furniture Co.,
NEW MEXICO LAW REGARDING FRAUDULENT CONCEALMENT
New Mexico law, under principles of equitable estoppel, recognizes the doctrine of fraudulent concealment as a means of tolling a statute of limitations. See Garcia ex rel. Garcia v. La Farge,
LAW REGARDING RULE 9(b)’S HEIGHTENED PLEADING REQUIREMENT
Normally, a plaintiff need plead only “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a)(2). Fraud claims, however, must meet more stringent standards. “In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge, and other conditions of a person’s mind may be alleged generally.” Fed.R.Civ.P. 9(b). See Two Old Hippies, LLC v. Catch the Bus, LLC,
With respect to rule 9(b)’s scope, a court should require parties to plead a cause of action with particularity when that cause of action contains allegations grounded in fraud. See 2 James Wm. Moore, Jeffrey A.- Parness, & Jerry Smith, Moore’s Federal Practice § 9.03(l)(d), at 9-20 (3d ed.2008). On the other hand, claims based on negligent or innocent misrepresentation, to the extent those claims do not require proof of fraud, may be pled in accordance with the more relaxed standards of rule 8(a). See Moore, supra § 9.03(1)(d), at 9-21; Vess v. Ciba-Geigy Corp. USA,
The primary motives that animate rule 9(b) help illuminate the reason for limiting the rule’s reach to claims grounded in fraud. First, the requirement of pleading with particularity protects defendants’ reputations from the harm attendant to accusations of fraud or dishonest conduct. See Guidry v. Bank of LaPlace,
The Tenth Circuit has fleshed out the components necessary to a successful rule 9(b) pleading. In Sheldon v. Vermonty,
adequately met Rule 9(b) requirements. First, as the district court acknowledged, the Complaint alleged misrepresentations with background information as to date, speaker, and the medium of communication.... Second, certain of the alleged misrepresentations involved profitable expectations arising from an unowned and inoperable meat-packing plant, a nonexistent lumber company, and fabricated contracts. Accepting Sheldon’s allegations as true, these are patently false statements of present fact. The district court erred in determining they were mere conclusory allegations of falsity and in characterizing them as fraud by hindsight.... Third, the allegations of scienter were sufficient. In securities fraud cases, although speculation and conclusory allegations will not suffice, great specificity is not required if the plaintiff alleges enough facts to support a strong inference of fraudulent intent.
NEW MEXICO LAW REGARDING THE IMPLIED COVENANT TO MARKET OIL AND GAS
Oil and gas leases are construed “like any other contracts.” Elliott Indus. LP v. BP Am. Prod. Co.,
In 2005, in Elliott Industries LP v. BP America Production Co., the Tenth Circuit addressed various obligations that oil-and-gas lessors owe the royalty interest owners on their leases under New Mexico law. The plaintiffs in Elliott Industries LP v. BP America Production Co. were royalty owners who sued ConocoPhillips, the working interest owner, to collect additional royalties. The production subject to the plaintiffs’ claim in Elliott Industries LP v. BP America Production Co. was conventional gas. The gas contained NGLs that are removed through processing before the residue is generally acceptable for transportation on interstate pipeline transmission systems. See
The Tenth Circuit, in an opinion authored by the Honorable Michael R. Murphy, United States Circuit Judge, determined that the district court properly granted ConocoPhillips summary judgment on the plaintiffs’ allegation that Co-nocoPhillips’ royalty payment practices violated the implied duty to market. The plaintiffs alleged that ConocoPhillips was obligated under the implied duty to market to pay royalties based upon the best price reasonably available for the gas-and-oil products, and not the actual price minus reasonable or actual cost deductions.
The Tenth Circuit also noted that there was no implied-in-fact marketable condition rule term in the royalty provisions in the plaintiffs’ leases, because the royalty provisions expressly covered how Conoco-Phillips was to calculate the plaintiffs’ royalty payments. See
From the time of the Tenth Circuit’s decision in Elliott Industries LP v. BP America Production Co., the Supreme Court of New Mexico has, twice, expressly declined to decide whether a marketable condition rule is implied as a matter of law in oil and gas leases. In Davis v. Devon Energy Corp.,
In ConocoPhillips v. Lyons, the issue before the Supreme Court of New Mexico was whether ConocoPhillips properly eal-culated the State of New Mexico’s royalty payments as required under the statutes creating New Mexico’s leases. See
entitled to deduct all costs that are incurred subsequent to production, including those necessary to transport the gas to a downstream market and those costs, such as dehydrating, treating, and processing the gas, that are necessary to make the gas saleable in that market or that increase the value of the gas.
New Mexico also alleged that Conoco-Phillips’ calculation of royalty payments breached the implied covenant to market. New Mexico asserted that the implied covenant to market required' ConocoPhillips to “place the gas in a marketable condition and requires that the expenses incurred in obtaining a marketable product ... be borne by Lessees.”
The Court will not dismiss any of the claims on limitations grounds, because the Plaintiffs have alleged facts that might reasonably establish that the discovery rule delayed the accrual of the statutes of limitations: it is plausible that the Plaintiffs’ reasonable diligence either was or would have been inadequate to uncover the Defendants’ alleged misconduct; and the Plaintiffs did not actually discover the misconduct until recently enough to put their suit within the statute. The Court will, however, dismiss the ninth cause of action without prejudice for failure to plead with particularity pursuant to rule 9(b)’s heightened pleading requirement. The Court will also dismiss the tenth cause of action with prejudice, because it is not an independent claim upon which relief can be granted, but rather an attempt to recite facts to establish two tolling doctrines. Last, the Court will dismiss the twelfth cause of action, because the Tenth Circuit has held that it has no basis in New Mexico law.
I. THE COURT WILL NOT CONVERT THE MTD INTO A MOTION FOR SUMMARY JUDGMENT, BUT
WILL CONSIDER THE CHECK STUBS.
Before ruling on the substantive issues that the MTD presents, the Court must decide whether to convert the MTD into a motion for summary judgment, and, at the same time, whether to consider any or all of the various documents, extrinsic to the FAC, offered by each side. The Defendants request that the Court analyze their motion under rule 12(b)(6), but that the Court consider the check stubs it attached to its MTD; the Plaintiffs ask that the Court convert the MTD into a motion for summary judgment under rale 56, and that it consider various affidavits and deposition excerpts in ruling on the motion. The Court will let the Defendants be masters of their own motion and thus will not convert their rale 12(b)(6) motion into one for summary judgment. The Court will, however, consider the check stubs that the Defendants attached to the MTD, as it agrees with the Defendants that the check stubs satisfy the three-prong inquiry fashioned by the Tenth Circuit in Jacobsen v. Deseret Book Co., because they: (i) are “documents referred to in the complaint,” see FAC ¶¶ 86, 87, at 26-27; id. ¶ 95, at
II. THE COURT WILL NOT DISMISS ANY OF THE CLAIMS ON LIMITATIONS GROUNDS, BUT IT WILL DISMISS THE TWO CLAIMS — THE NINTH AND TENTH PAUSES OF ACTION— THAT THE PLAINTIFFS BRING IN AN ATTEMPT TO TOLL THE STATUTE.
The Court will not dismiss any of the claims on limitations grounds, because, assuming the truth of the factual allegations in the FAC, a jury could reasonably conclude that the statutes of limitations did not accrue until October 20, 2007,
A. NEW MEXICO LAW SUPPLIES ALL STATUTES OF LIMITATIONS: SIX YEARS FOR THE FIRST, FIFTH AND SIXTH CAUSES OF ACTION; FOUR YEARS FOR THE SECOND, FOURTH, ELEVENTH, AND TWELFTH CAUSES OF ACTION.
New Mexico’s six-year statute of limitations for claims founded upon written contracts, see N.M. Stat. Ann. § 37-1-3, controls the Plaintiffs’ first, fifth, and sixth causes of actions; their second, fourth, eleventh, and twelfth causes o'f action are subject to New Mexico’s four-year Statute of limitations for actions upon unwritten contracts and miscellaneous actions,
1. New Mexico Law, Not Colorado Law, Supplies All Statutes of Limitations.
New Mexico law supplies the controlling statutes of limitations for all claims, including the eleventh cause of action, which arises under Colorado substantive law, because of the following reasons. First, a federal court sitting in diversity jurisdiction must apply the same statutes of limitations that a state court of the forum state would apply to the case. See Guaranty Trust Co. v. York,
a. The Colorado Statute of Limitations Applicable to Breach of the Duty to Market Hydrocarbons Bars Merely the Remedy, Not the Riyht.
The Plaintiffs half-heartedly argue that, if “it would be fundamentally unfair to apply the New Mexico statute of limitations to the Plaintiffs’ and Class Members’ claims under wells in Colorado,” the Court should apply the Colorado statutes of limitations. Response Supp. at 2 (citing Lujan v. Regents of the Univ. of Cal.,
The Second Restatement offers the following guidance to determine whether a statute of limitations bars the right or merely the remedy:
[I]t is for the forum courts to determine whether a foreign statute of limitations bars the right and not merely the remedy. The almost invariable prerequisite is that the liability sought to be enforced must have been created by statute. Once this requirement has been met, the usual test is whether, in the opinion of the forum, the limitation provision was directed to the right “so specifically as to warrant saying that'it qualified the right.” Davis v. Mills,194 U.S. 451 , 454 [24 S.Ct. 692 ,48 L.Ed. 1067 ] (1904). Other tests have at times been employed, such as whether the statute of limitations has attributes in the state of its enactment which the forum would characterize as substantive, as that the defense need not be pleaded or that the obligation cannot be revived after the statutory period has elapsed.
The most common illustration of a situation where a statute of limitations will usually be held to bar the right is when a statute creates but a single right of action and also contains a provision limiting the time in which actions under the statute may be brought. Wrongful death statutes are typical examples of statutes of this sort.
Second Restatement § 143 cmt. c.
The Court must next identify which statutes of limitations to analyze. The Plaintiffs appear to ask, not merely that the Court apply the Colorado statute of limitations, class-wide, to the one claim arising under Colorado state law, but rather that, the Court should apply Colorado statutes of limitations to all claims — including the eight claims arising under New Mexico law — as to all wells located in Colorado.
The Plaintiffs contend that the applicable statute is the “six year statute of limitations that exists for breach of contracts in Colorado,” Response Supp. at 4, apparently referring to Colo.Rev.Stat. Ann. § 13-80-103.5 (providing a six-year limitations period for “actions to recover a liquidated debt,” “actions for arrears of rent,” “actions by the public employees’ retirement association to collect unpaid contributions from employers,” and actions to recover damages arising from the passing of bad checks (citing Colo.Rév.Stat. Ann. § 13-21-109 (providing for the “[r]eeovery of damages for checks, drafts, or orders not paid upon presentment”))). The Court concludes that the applicable statute of limitations for the implied-duty-to-márket claim is the two-year statute of limitations provided in Colo.Rev.Stat. Ann. § 13-80-102. That section provides the limitations period for “[a]ll other actions of every kind for which no other period of limitation is provided”; after examining Article 80 of Title 13 of the Colorado Statutes, the Court concludes that no other statute of limitations specifically applies to breach of the implied duty to market hydrocarbons. Colo.Rev.Stat. Ann. § 13-80-102(1)®. Even if the claim sounds in contract, however, the Plaintiffs misidentify the appropriate statute — Colorado has a three-year limitation on breach-of-contract actions. See Colo.Rev.Stat. Ann. § 13-80-101(l)(a) (providing a three-year limitations period for “[a]ll contract actions”).
Regardless whether the two-year statute in section 102 or the three-year statute in section 101 applies, the Court concludes that both statutes merely cut off remedies, vice extinguishing rights. “The almost invariable prerequisite [for concluding that a statute of limitation bars a right] is that the liability sought to be enforced must have been created by statute.” Second, Restatement § 143 cmt. c. Here, the right sued upon is a creature of the common law, attributed by the Plaintiffs to Rogers v. Westerman Farm Co.,
whether ... the limitation provision was directed to the right so specifically as to warrant saying that it qualified the right.... The most common illustration ... is when a statute creates but a single right of action and also contains a provision limiting the time in which actions under the statute may be brought.
Second Restatement § 143 cmt. c. The statute here presents the opposite scenario: it applies to the eleventh cause of action only by way of a catch-all provision; or, if § 13-80-101 applies, by an ambiguous reference to “contract actions,” read to encompass all implied-in-law covenants and judicially crafted duties. Colo.Rev. Stat. Ann. § 13 — 80—101(l)(a). The Colorado statute of limitations applicable to breach of the implied duty to market hydrocarbons, therefore, bars merely the remedy, not the right, and thus cannot be
b. Application of the New Mexico Statutes of Limitations Is Not Fundamentally Unfair, Because Statutes of Limitations Are Procedural, and, Thus, New Mexico’s Statutes of Limitations Would Control the Suit Even if It Were Not a Class Action.
The “fundamentally unfair” language used by the Plaintiffs harks back to Phillips Petroleum Co. v. Shutts, in which the Supreme Court reversed a Kansas state court’s decision to apply Kansas substantive law to all the claims in an oil and gas lease class action, even though over ninety-nine percent of the leases and ninety-seven percent of the class members had no connection with the state of Kansas.
Here, the New Mexico statute of limitations would be appropriately applied even if this case were not complex, and the Phillips Petroleum Co. v. Shutts inquiry is thus inapposite. If the Plaintiffs may validly sue under New Mexico substantive law, and if a New Mexico court is a valid forum in which to hear the case — and no party has objected to either condition-then New Mexico statutes of limitations would govern all claims based on the analysis the Court has already conducted.
2. The Causes of Action Founded upon Breach of Express, Written Contractual Obligations Are Subject to a Six-Year Limitations Period; Those Founded upon Statutory Rights or Implied-in-Law Covenants Are Subject to a Four-Year Limitations Period.
The Court concludes that the Plaintiffs’ first, fifth, and sixth causes of action are founded upon breach of written contract, and are thus subject to the six-year limitations period outlined in N.M. Stat. Ann. § 37-1-3. The fourth cause of action, violation of the NMOGPPA, is subject to the four-year limitations period that N.M. Stat. Ann. § 37-1-4 provides for “all other actions not herein otherwise provided for,” because the NMOGPPA has no internal provision or specified external provision setting forth a limitations period. See N.M. Stat. Ann. §§ 70-10-1 to -6. Section 37-1-4’s four-year statute of limitations also controls the second, eleventh, and twelfth causes of action, which each allege breach of an implied duty attendant to a contract, because the Court concludes that those claims fall under either the section’s provision for actions “founded upon accounts and unwritten contracts,” or its provision covering “all other actions not
The Court’s conclusions align with the Defendants’ contentions. See MTD at 3-6. In their initial response, the Plaintiffs wrote that, “[f]or the purposes of this response, Plaintiffs do not dispute the limitation periods assigned to these claims but assert ... that any applicable statute has been tolled.” Response at 7 n. 2. The Plaintiffs now argue that Colorado law might, possibly, supply the limitations periods, see Response Supp. at 1-4, but do not argue that New Mexico’s longer, six-year statute, for actions on written contracts, should apply to their claims for breach of good faith and the implied duty to market, see Response at 7-13; Response Supp. at 1-5. The Court could view this argument as waived, but, even upon independent examination of the statute and case law, the Court concludes that breaches of the implied duty of good faith and the implied duty to market come under the four-year statute.
Although judicially implied-in-law duties are said to be part of a contract, and do not exist in the absence of a contractual relationship, they do not require the existence of a written contract, and are themselves, of course, always unwritten. From an evidentiary perspective, implied covenants are more similar to statutory obligations and unwritten contractual terms— an implied duty could be said to be a blend of both — both of which § 37-1-4 governs, than they are to written contractual terms. While the Court can see some utility in applying a single limitations period to all claims surrounding a written instrument, it is not overly difficult to administer a situation where, as would happen here if the Court were to cut off damages, the Plaintiffs are entitled to six years’ worth of damages on breach of the written terms, and four years’ worth of damages on breach of the implied terms.
There is a dearth of case law from the New Mexico courts on this issue,
We look to “[t]he nature of the right sued upon, and not the form of action or relief demanded,. [to] determine[ ] the applicability of the statute of limitations” to a cause of action. Rito Cebolla Invs., Ltd. v. Golden W. Land Corp.,1980-NMCA-028 , ¶ 28,94 N.M. 121 ,607 P.2d 659 , 664-65 (citation omitted). In order for a cause of action “[t]o come within the six year limitation period ‘founded upon any ... contract in writing,’ ” which Gallegos argues should apply to the TPFA [the Trade Practices and Frauds Act], “[the] action must be brought for breach of contract, one which requires a policy to do the things for the non[-]performance of which the action is brought.”1980-NMCA-028 , ¶ 29,607 P.2d at 665 (second alteration in original) (citations omitted). Thus, in order for us to apply the six-year statute of limitations to the third-party right of action under the TPFA, the nature of the right sued upon must be. based on the breach or nonperformance of a term in a written contract.
B. THE DISCOVERY RULE PREVENTS THE DEFENDANTS FROM PREVAILING ON THEIR LIMITATIONS DEFENSE AT THE MOTION-TO-DISMISS STAGE; THUS, THE COURT WILL NOT DISMISS ANY PART OF ANY OF THE CLAIMS ON LIMITATIONS GROUNDS.
Accepting all factual allegations in the FAC as true and drawing all reasonable inferences in the Plaintiffs’ favor,
The mechanics of the discovery rule— namely, which party carries the burden of proof at various stages of the case — are not well defined. The rule is an exception to an affirmative defense, and, when overlaid with procedural standards of rule 12(b)(6), is susceptible to numerous different implementations. It is not even clear whether, under Erie R.R. Co. v. Tompkins,
1. The Plaintiffs Are Not Obligated to Plead with Particularity Facts Activating the Discovery Rule.
The Defendants’ argument misapprehends the requirements of notice pleading, and the scrutiny and burden-allocation of the rule 12(b)(6) inquiry. The crux of their argument is buried deep within the MTD:
In the [FAC], although Plaintiffs avoid alleging the specific dates on which they contend they first suffered injury in fact by reason of any breach of the express royalty terms, breach of any implied in law covenants, or any statutory violation by Defendants, their artful pleading is insufficient to avoid dismissal of the claims barred by the applicable statutes of limitations.
MTD at 7 (emphasis added). The Defendants extend this logic — that, because limitations defenses can sometimes be adjudicated at the motion-to-dismiss stage, the burden is on the Plaintiffs to plead facts that permit a full adjudication of the limitations issue — to the discovery rule as well, arguing that, because the Plaintiffs do not plead the reasonable diligence issue to the Defendants’ satisfaction, the Defendants are entitled to a win by default.
While there are obvious efficiencies to disposing of clearly time-barred claims at the motion-to-dismiss stage, not all limitations defenses are open-and-shut cases; genuine factual disputes can exist, and a rule 12(b)(6) motion is not the place to decide them. Unless it is essential to the establishment of the prima facie elements of a claim or the claim is for fraud or mistake, see Fed.R.Civ.P. 9(b), a plaintiff is under no obligation to plead specific or identifiable dates at all. Another court in the Tenth Circuit has concluded, applying Supreme Court precedent, that
the Court is confined to “the four corners” of the amended complaint. Thus, when a defendant seeks dismissal based on the statute of limitations, the time-bar must be apparent on the face of the complaint.24 The Supreme Court has explained:
A complaint is subject to dismissal for failure to state a claim if the allegations, taken as true, show the plaintiff is not entitled to relief. If the allegations, for example, show that relief is barred by the applicable statute of limitations, the complaint is subject to dismissal for failure to state a claim; that does not make the statute of limitations any less an affirmative defense. Whether a particular ground for opposing á claim may be the basis for dismissal for failure to state a claim depends on whether the allegations in the complaint suffice to establish that ground, not on the nature of the ground in the abstract.
Jones v. Bock,549 U.S. 199 , [215]127 S.Ct. 910 [166 L.Ed.2d 798 (2007) ] (citations omitted).
[The] Defendant ... appears to assume that even when he relies on an affirmative defense,25 the Plaintiff mustidentify the relevant dates in the complaint and that his silence requires dismissal. [He] presents no authority for this remarkable proposition, and none exists. If [he] did not include the date of his arrest, the Court cannot dismiss the action based on the statute of limitations. 26
Honeycutt v. Mitchell, No. CIV 08-140 W,
The introduction of the discovery rule into the calculus only tilts the scales further in the plaintiffs favor. The Court can conceive of several possible ways to allocate the burden of production at the motion-to-dismiss stage, which will be listed in descending order of favorability to the plaintiff. First, the Court could require that the defendant definitively establish,
For better or worse, the Tenth Circuit has borrowed from New Mexico state court procedure to require some form of burden-shifting whenever the discovery rule comes into play at the pleading stage:
A plaintiff invoking the discovery rule must “demonstrate that if she had diligently investigated the problem she would have been unable to discover the cause of her injury.” Martinez v. Showa Denko, K.K., [1998-NMCA-111 , ¶ 22],125 N.M. 615 ,964 P.2d 176 , 181 (1998). See also Blea v. Fields, [2005-NMSC-029 , ¶ 28],138 N.M. 348 ,120 P.3d 430 , 440 (2005)(holding that to toll statute of limitations for fraudulent concealment, plaintiff must prove that she “lacked knowledge of her cause of action and could not have discovered it by exercising reasonable diligence during the statutory period”). A plaintiff has this burden to defeat either a motion for summary judgment or a motion to dismiss. Butler v. Deutsche Morgan Grenfell, Inc., [2006-NMCA-084 , ¶ 28],140 N.M. 111 ,140 P.3d 532 , 539.
Elm Ridge Exploration Co., LLC v. Engle,
The general rule is that “[t]he defense of the statute of limitations may be raised by motion to dismiss where it is clearly apparent on the face of the pleading that the action is barred.” Apodaca v. Unknown Heirs of the Tome Land Grant, [1982-NMSC-100 , ¶ 14],98 N.M. 620 ,651 P.2d 1264 , 1267-68. However, where there are disputed facts, it is generally the province of a jury to determine the date on which a plaintiff became aware or should have become aware of the facts underlying his or her claim. If such factual disputes exist, granting a motion to dismiss on statute of limitations grounds would be improper.
The issue we confront here is what a plaintiff must plead in order to invoke the discovery rule, thereby precluding the district court from granting a motion to dismiss on statute of limitations grounds. When a defendant makes a prima facie showing that a claim is time barred, a plaintiff attempting to invoke the discovery rule has the burden of “demonstrat[ing] that if [he or] she had diligently investigated the problem [he or] she would have been unable to discover” the facts underlying the claim. Martinez v. Showa Denko, K.K,1998-NMCA-111 , ¶ 22, 964 P.2d [at 181-82], We acknowledge that Martinez involved a motion for summary judgment rather than a motion to dismiss. However, we hold that even at the motion to dismiss stage, a plaintiff must have alleged in the complaint, or must respond to the motion to dismiss with, factual allegations that, if proved, would support application of the discovery rule. All such well-pleaded allegations are to be taken as true, and great specificity is not required.
Butler v. Deutsche Morgan Grenfell, Inc.,
The Court concludes that option (ii)— requiring the plaintiff to bolster what would, without the activation of the discovery rule, be a facially time-barred claim with allegations that, if proven at trial, could convince a reasonable jury to reject the limitations defense — is the most faithful to precedent. The Court arrives at this conclusion by separately examining the dictates of Butler v. Deutsche Morgan Grenfell, Inc.: (i) the burden-shifting is triggered “[w]hen a defendant makes a prima facie showing that a claim is time barred”; the Court interprets “prima fa-cie” to mean that the defendant need establish only that the facts giving rise to the cause of action occurred outside the limitations period, not that its discovery did; the Court interprets “showing” to mean that the defendant can definitively establish this fact using only the facts in the complaint and any other documents the Court may properly consider in a rule 12(b)(6) motion; (ii) when the burden shifts to the plaintiff to argue or present evidence for the application of the discovery rule, the statement that “great specificity is not required” strongly indicates that the heightened pleading standard of rule 9(b) does not control the form of the plaintiffs rebuttal; (iii) the statement that the plaintiff “must have alleged in the complaint, or must respond to the motion to dismiss with, factual allegations” indicates that while the complaint need not be amended — assertions in the response may suffice — the limitations defense must be rebutted with facts, and not with mere argument; (iv) the requirement that the plaintiff allege facts that “would support” application of the discovery rule implies that the plaintiff need not defínitély establish that the discovery rule applies, but, at most, need only allege facts upon which a reasonable jury could find that the discovery rule applies; and (v) the Court of Appeals of New Mexico’s equation of the motion-to-dismiss and summary-judgment standards implies that, although courts are to accept all factual assertions as true, the facts must establish the elements of the discovery rule, not merely render their establishment plausible.
For the foregoing reasons, the Court will require the Plaintiffs to assert facts that, if proven at trial, could lead a reasonable jury to conclude that reasonable diligence would most likely have been futile in discovering the causes of action.
2. The Plaintiffs Have Adequately Pled The Reasonable Diligence Element of the Discovery Rule.
“Reasonable diligence” is defined, in the first instance, by the New Mexico courts, and any uncertainty that remains in the definition is reserved for the jury room. The courts have done almost nothing to pare down jury discretion by providing a more concrete definition,
The Plaintiffs have alleged facts in their FAC that, if proven at trial, could convince a reasonable jury that reasonable diligence would not have uncovered the causes of action:
(i) “Plaintiffs and class members have placed trust and reliance in Williams” on the basis of the “superior knowledge available to Williams all material times.” FAC ¶ 85, at 26. This allegation suggests that scrutinizing the materials from the Defendants was itself reasonable diligence, because the Defendants’ superior knowledge and involvement in the production, transport, sale, and accounting functions rendered it the objectively best source of information from which the Plaintiffs could obtain information about their leases.
(ii) ‘Williams has issued monthly statements to the Plaintiffs and Class Members which contain erroneous and mis-information.” FAC ¶ 86, at 26. Far from ignoring their leases, which would not constitute reasonable diligence, the Plaintiffs kept track of their profitability by way of the mechanism the Defendants provided — the only economically-feasible mechanism.
(iii) “Williams has a duty to disclose completely and truthfully all material facts pertaining to transactions reflected on its monthly statements, ie., check stubs.” FAC ¶ 86, at 26. Although a plaintiffs conclusory legal assertion carries no weight, if the allegation is restyled as a statement of the Plaintiffs’ then-existing belief, then their reliance on Williams seems all the more reasonable.
(iv) “Williams has represented in said check stubs, that certain type[s] and amounts of expenses were deducted for certain services. These representations were false, misleading, or omitted by Williams.” FAC ¶ 87, at 27. Although many of these facts were intended to support the fraudulent concealment claim, to the extent that they speak to the “reasonable reliance” prong or the requirement that “the concealment was successful,” they support a discovery rule argument, as well.
(v) “Plaintiffs and Class Members relied upon the misrepresentations and omissions of Williams to their detriment.” FAC ¶ 88, at 27.
(vi) “If such facts and circumstances had been revealed accurately and truthfully by Williams, the Plaintiffs and Class Members would have known of Williams intentional, continual, and repeated underpayment.” FAC ¶ 89, at 27.
(vii) The Plaintiffs had a “lack of knowledge ... and ... lack of ability to reasonably discover” the causes of action. FAC ¶ 90, at 27-28. This allegation highlights that the Plaintiffs are ordinary people, who often do not live near their leased land, have little or no experience in the oil and gas industry, and are, in every case, uninvolved in ■ all but one aspect — receiving the royalty— of the process of drilling, transporting, producing, and selling the oil removed from their land.
(viii) ‘Williams[ ] failed to accurately report and pay the Plaintiffs and Class Members for their share of revenues ... and the same failure ... occurred each and every month, from the date that Williams ... first initiated delivery of the monthly statements to the Plaintiffs and Class Members, up to the present.” FAC ¶ 94, at 28. As the Plaintiffs became accustomed to receiving what they thought to be reliable feedback from the Defendants, their reliance on the Defendants became more reasonable over time. Even if it was not reasonable initially — if, at some point in the life of the lease, this reliance went from being unreasonable to reasonable — then damages would be cut-off before that point; a jury would be needed to make the determination of when that point in time was.
(ix) “Each month, these statements/check stubs have been relied upon by the Plaintiffs and ... Williams intended that the monthly statements ... would be relied upon to fully, accurately and truthfully state the true volumes, types, values, and amounts of hydrocarbons produced, used and sold.” FAC ¶¶ 95-96, at 29.
(x) “The Plaintiffs and Class Members did not discover and could not have reasonably discovered their claims as alleged herein ... due to the omissions and misreporting of Williams as herein alleged.” FAC ¶ 96, at 29.
In sum, the Plaintiffs argue: (i) that they exercised reasonable diligence, because there was nothing more, within reason, they could do to verify the information reported to them by the Defendants, who were in a much better position to collect knowledge about the financial circumstances of each well; and (ii) that their exercise of reasonable diligence, and their subsequent inability regardless to discover the causes of action, proves the futility of reasonable diligence, and satisfies that element of the discovery rule. The injury to any given Plaintiff in this case is very low — thus why this case is being brought as a class action — and expensive methods of auditing or independently verifying the information reported by the Defendants would almost certainly have been costlier than they were worth. Even now, when the Plaintiffs know for certain that potential causes of action exist — something that is not known when considering whether to invest money in investigating the performance and disclosures of a lessor — the suit might not be economically viable if the Court does not certify a class action.
It is not clear what more the Defendants want. They offer no concrete examples of
The Defendants largely contend that the check stub was enough to put the Plaintiffs on notice. In the end, the check stub tells an investor little. Royalty owners are terribly dependent on their working interest owners. If the Defendants were not accurate and truthful, there was little an investor could do to know whether it had a cause of action. In the Court’s view, the merits of the cause of action are intertwined with the statute of limitations defense. In sum, it is for a jury to decide whether the Plaintiffs should have discovered that they were being wronged.
C. THE PLAINTIFFS HAVE NOT PLED FRAUDULENT CONCEALMENT WITH PARTICULARITY, AND THE COURT WILL THEREFORE DISMISS THE NINTH CAUSE OF ACTION WITHOUT PREJUDICE.
Although the Plaintiffs pled fraudulent concealment in an attempt to toll the statute of limitations, not to seek additional damages, and the Defendants have not moved for the dismissal of this claim, the Court will dismiss the ninth cause of action for failure to plead with particularity pursuant to rule 9(b). Fed.R.Civ.P. 9(b). To satisfy the rule 9(b) standard, “[a]t a minimum, ... a plaintiff [must] set forth the who, what, when, where and how of the alleged fraud.” United States ex rel. Schwartz v. Coastal Healthcare Group, Inc.,
The Plaintiffs gain nothing from a limitations perspective by including a fraudulent concealment claim, as fraudulent concealment contains all the elements of the discovery rule, plus other substantive elements, and additionally requires heightened pleading. The Court will dismiss the ninth cause of action without prejudice, so the Plaintiffs may re-file if they please, but the Court recommends that they do not, unless they are prepared to satisfy the rigorous pleading requirements the Court has set forth. The Court will not strike the factual allegations enumerated under
D. THE FACTS ALLEGED IN THE FAC DO NOT ESTABLISH EQUITABLE ESTOPPEL ÓR A CONTINUING WRONG, AND-AS THOSE DOCTRINES ARE NOT INDEPENDENT CLAIMS— THE COURT WILL DISMISS THE TENTH CAUSE OF ACTION WITH PREJUDICE.
Neither equitable estoppel nor continuing wrong is a claim upon which relief can be granted; they are merely tolling doctrines. See 28 Am. Jur.2d Estop-pel and Waiver § 30 (2011)(stating that estoppel acts “always as a shield, never as a sword” and “does not ... give a cause of action”). As such, the Court will dismiss the tenth cause of action with prejudice.
The Court will not strike the factual allegations supporting the cause of action, but, even as tolling doctrines, equitable estoppel and continuing wrong are inapplicable in the case. Equitable estop-pel requires that the Plaintiffs were aware of their cause of action, but the Defendants persuaded them not to file suit. See Tiberi v. Cigna Corp.,
The continuing wrong doctrine—as it is traditionally conceived, and as the Plaintiffs assert it—strongly appears to only apply in tort cases. Although New Mexico courts have purported to consider the doctrine’s application in the breach-of-contraet context, they appear to be talking about something different: allowing a plaintiff to sue on the portion of a long-term, contract-breaching course of conduct that falls within the six years immediately preceding the lawsuit—the portion within the limitations period—but not before. See Tull v. City of Albuquerque,
III. THE COURT WILL DISMISS THE TWELFTH CAUSE OF ACTION, BECAUSE THE TENTH CIRCUIT HAS HELD THAT NEW MEXICO DOES NOT RECOGNIZE THE MARKETABLE CONDITION RULE.
The Plaintiffs assert that the Defendants, in rendering the hydrocarbons marketable, deducted costs that were unreasonably high and sometimes deducted costs that they did not actually incur from the royalties that they owed the Plaintiffs. Although these facts may—and do—make out other causes of action, they do not establish a breach of the implied duty to market hydrocarbons as the Supreme Court of New Mexico has articulated, and as the Tenth Circuit interpreted in Elliott Industries LP v. BP America Production Co.,
The Court already dismissed a similar claim for breach of the implied duty to market, the Plaintiffs’ original third cause of action. See Memo. Opinion at 128-36; FAC ¶¶ 43-55, at 17-19. That claim alleged, not that unreasonably or fraudulently deducting expenses was a breach of the implied duty to market, but that by de
The Court need not rely on abstract principles, however, to dismiss the Plaintiffs’ claim. The claim that the Tenth Circuit dismissed in Elliott Industries LP v. BP America Production Co. did not, like
[T]hat the Plaintiffs have put their leases at issue in this case does not provide them a safety-hatch from the Tenth Circuit’s explanations of New Mexico law in Elliott Industries LP v. BP American Production Co.]. The Tenth Circuit stated in Elliott Industries LP v. BP American Production Co.], that a construction of the implied duty to market that would require lessees to bear all post-production costs “finds no support within New Mexico case law.”
Memo. Opinion at 132 (quoting
Last, the Court notes that it has already dismissed at least part of the claim that the Plaintiffs now style as the twelfth cause of action. See Memo. Opinion at 128-36. In their ill-fated third cause of action, the Plaintiffs alleged — likely as a fallback in case the Court did not adopt the expansive reading of the marketable condition rule they pushed for — that “[a]t all material times, Williams has deducted revenues ... greater than the actual or original cost of transforming [hydrocarbons] into a marketable product(s).” FAC ¶ 51, at 18. When the Court dismissed the third cause of action in its entirety, it recognized that, even if the Court accepted as true the allegation that the Defendants passed on nonexistent charges to the Plaintiffs, that set of facts does not state a proper claim for breach of the implied duty to market. The Plaintiffs’ twelfth cause of action contains an additional allegation— that the Defendants passed on expenses that, although actually incurred, were unreasonable. The Court cannot see how a claim for unreasonable expenses can be viable if a claim for phantom expenses is not. It is much more invidious to assess fabricated claims against a royalty owner than it is to assess unreasonable ones, because the unreasonableness of expenses is kept naturally in check by the simple fact that the Defendants must actually incur them.
For the foregoing reasons, the Court will dismiss the Plaintiffs’ twelfth cause of action with prejudice. On the other hand, while the Court does not believe it can, under Elliott Industries LP v. BP America Production Co., find that unreasonable expenses violate the implied duty to market, it is not convinced that there is no claim for unreasonable or fabricated expenses. There may be an implied condition that expenses and deductions must be reasonable, and so a breach-of-contract claim may protect the royalty owner from unreasonable royalty reductions. Also, the implied covenant of good faith and fair dealing may protect royalty owners from
IT IS ORDERED that the Defendants’ Motion to Dismiss Claims in Plaintiffs’ Fourth Amended Complaint, filed October 18, 2013 (Doc. 145)(“MTD”), is granted in part and denied in part. The Court will dismiss the ninth cause of action without prejudice, and the tenth and twelfth causes of action with prejudice. The Court will otherwise deny the MTD.
Notes
."Conventional natural gas” differs from "unconventional natural gas” in the manner, ease and cost associated with extracting the resources. Conventional & Unconventional, Canadian Association of Petroleum Producers, http://www.capp.ca/CANADAINDUSTRY/ NATURALGAS/CONVENTIONAL-UNCONVENTIONAL/Pages/default.aspx (last visited Apr. 24, 2012). Conventional natural gas is produced from "relatively highly porous and permeable sandstone or carbone geologic formations.” Natural Gas: A Primer, Natural Resources Canada, (last modified Jan. 18, 2011), http://www.nrcan.gc.ca/ energy/sources/natural-gas/ 1233# conventional. Unconventional natural gas is produced from “coal seams (... CBM), low permeability rocks ..., or shale....” Id.
The Fruitland Coal formation is "one of the most prolific sources of U.S. coalbed methane reserves.” Mesa Royalty Trust: Topics: San Juan Basin Fruitland Coal Drilling, wikinvest (April 24, 2013, 11:14 AM EDT), http://www. wikinvest. com/stock/Mesa_Royalty_ Trust_-MTR. /S an_Juan_B asin_Fruitland_CoaL Drilling. CBM natural gas is natural gas extracted from coal beds. See Coalbed Methane, Wikipedia (Apr. 23, 2013), http://en.wikipedia. org/wiki/Coalbed_methane.
. The Plaintiffs exclude from the FAC "any claims previously asserted in prior cases in which such claims were determined by final judgment and/or settled by final order approving settlement at the time of this filing between the parties hereto, inclusive of putative Class Members.” FAC ¶21, at 9. The Plaintiffs also exclude from the proposed class definition all "interests owned by any federal, state or municipal governmental bodies, as well as any interest held in trust by the federal government for any Indian tribe or organization.” FAC ¶ 21, at 9.
. Drip condensate is a "high-grade liquid which is sold like oil, that comes off of the production....” Transcript of Hearing at 20:10-15, taken June 19, 2012, filed July 5, 2012 (Doc. 54)(Brickell). Drip condensate is
any condensate recovered downstream of the facility measurement point without resorting to processing. Drip condensate includes condensate recovered as a result of its becoming a liquid during the transportation of the gas removed from the lease or recovered at the inlet of a gas processing plant by mechanical means, often referred to as scrubber condensate.
64 F.R. 43506-01.
. The Honorable M. Christina Armijo, Chief United States District Judge, was elevated to Chief Judge of the United States District Court for the District of New Mexico in 2012. See Biographical Directory of Federal Judges: Armijo, M. Christina, Federal Judicial Center, http://www.fjc.gov/servleVnGetInfo?jid= 2898&cid =999&ctype=na&instate=na.
. The Defendants do not specifically address the claim for “interest due under Colorado law,” except to assert that it is substantively similar to the claim — also in the fourth cause of action — for a violation of the NMOGPPA. See MTD at 3 (citing N.M. Stat. Ann. §§ 70-10-1 to -6)("Plaintiffs’ Fourth Cause of Action alleged violation of the New Mexico Proceeds Payment Act, and purportedly similar unspecified Colorado law.” (citation omitted)).
. The Court's citations to the transcript of the hearing refer to the court reporter's original, unedited version. Any final transcript may contain slightly different page and/or line numbers.
. Tiberi v. Cigna Corp. is a Tenth Circuit case, and is not organized by paragraphs. See
. Gossett v. Barnhart is an unpublished opinion, but the Court can rely on an unpublished opinion to the extent its reasoned analysis is persuasive in the case before it. See 10th Cir. R. 32.1(A), 28 U.S.C. ("Unpublished decisions are not precedential, but may be cited for their persuasive value.”). The Tenth Circuit has stated:
In this circuit, unpublished orders are not binding precedent, ... and we have generally determined that citation to unpublished opinions is not favored. However, if anunpublished opinion or order and judgment has persuasive value with respect to a material issue in a case and would assist the court in its disposition, we allow a citation to that decision.
United States v. Austin,
. The two (out-of-state) cases referenced in . the quoted passage in Tull v. City of Albuquerque provide varying levels of support for the Court of Appeals of New Mexico’s interpretation of the continuing wrong doctrine. Hart v. International Telephone & Telegraph Corp. contains a similar analysis to the one contemplated, but ultimately rejected, by the Court of Appeals of New Mexico in Tull v. City of Albuquerque: the Court of Civil Appeals of Texas allowed a plaintiff to pursue cut-off damages relating to a contract that was to be paid out in installments, where the plaintiff alleged that it had been shorted on each of the installments; the Texas court permitted the plaintiff to sue on the installmetits paid inside the limitations period, but not outside of it. See
The other case referenced in Tull v. City of Albuquerque, Miller v. Beneficial Management Corp., applied the "continuing violation” doctrine, but it did so in the manner traditionally contemplated, allowing for the recovery of full, versus merely cut-off, damages where an employee had faced a pattern of long-term discrimination in the workplace. See
. The Supreme Court of New Mexico elects its Chief Justice — from among the Justices elected to the Supreme Court of New Mexico, not appointed — every two years. See N.M. Stat. Ann. § 34-2-1 (C). Justice Chavez has served on the Supreme Court of New Mexico from 2003 to present, and served as Chief Justice from 2008 to 2010. See Kathy Woods, New Mexico Supreme Court Has New Chief Justice, Legal Newsline Legal J. (Apr. 8, 2010, 2:31 PM), http://legalnewsline.com/news/ 226546-new-mexico-supreme-court-has-newchief-justice.
. Justice-Maes has served on the Supreme Court of New Mexico from 1998 to present, and served as Chief Justice from 2003 to 2005, and again from 2012 to 2014. See Biographical Profile: Honorable Petra Jimenez Maes, New Mexico Supreme Court, https:// nmsupremecourt.nmcourts.gov/bios/maes. php.
. Although the Court is bound by the Tenth Circuit's interpretation of New Mexico law, the Court is not convinced that the Elliott Industries LP v. BP America Production Co.’s plaintiffs’ "conception of the implied duty to market finds no support within New Mexico case law.”
The Court believes that, if and when the Supreme Court of New Mexico determines that the existence of the marketable condition rule is ripe for review, it will find that the rule is included in oil-and-gas contracts as part of the implied duty to market. Colorado, Wyoming, Kansas, and Oklahoma have all adopted a version of the marketable condition rule. The Supremé Court of Colorado announced its adoption of the marketable condition rule in Gorman v. Conoco, Inc.,
The Supreme Court of Kansas based its formulation of the marketable condition rule on Colorado’s. In Kansas, the rule currently requires a lessee of an oil-and-gas lease to “bear the entire expense of producing the gas at the wellhead pursuant to the terms of the oil and gas lease. Additionally, the lessee must bear the entire cost of putting the gas in condition to be sold pursuant to the court-made 'marketable condition rule.' ” Coulter v. Anadarko Petroleum Corp.,
Kansas’ interpretation of the marketable condition rule, which allows lessees to share the cost of transportation to the market with lessors may be vulnerable to attack. The Supreme Court of Kansas recognized, in Coulter v. Anadarko Petroleum Corp., that the Supreme Court of Colorado's decision in Rogers v. Westerman Farm Co.,
Similarly, the Supreme Court of Oklahoma’s adoption of the marketable condition rule is based upon the bargaining power of oil-and-gas lessees and lessors. In Wood v. TXO Prod. Corp., the Supreme Court of Oklahoma explained that "[p]art of the mineral owner's decision whether to lease or to become a working interest owner is based upon the costs involved,” and, when an interest owner agrees to relinquish operating rights and lease a well in exchange for a royalty interest, as a lessor, the interest owner has no power to control post-production costs.
Texas, on the other hand, has not adopted the marketable condition rule, but, rather, interprets oil-and-gas leases more strictly in accordance with their terms. The first case in Texas to discuss a marketable condition rule was Danciger Oil & Refineries v. Hamill Drilling Co., in which the Supreme Court of Texas interpreted a royalty clause which stated that payments were to be made out of "all the oil, gas, casinghead gas, and other minerals produced, saved and marketed at the prevailing market price paid by major companies in the Gulf Coastal area from the properties.”
The Court believes that, when the Supreme Court of New Mexico determines the existence of the marketable condition rule is ripe for review, it will find the reasoning of Colorado, Kansas, Oklahoma, and Wyoming more persuasive than that of Texas. Like Kansas and Colorado, which construe oil-and-gas leases against the lessees, the Supreme Court of New Mexico has established a "rule that an oil and gas lease is to be construed most strongly against the lessee.” Greer v. Salmon,
A critique of the marketable condition rule is that it necessarily turns on questions of fact, which the Supreme Court of Colorado recognized in Rogers v. Westerman Farm Co., because, whether a buyer is willing to purchase a product, and at what point, will vary from case to case. See Rogers v. Westerman Farm Co.,
. The Plaintiffs dispute — not in argument, but in an affidavit that one of their lawyers, Bradley Brickell, wrote — the truthfulness of the check stubs, but not their authenticity: "[I]t is clear that several entries on the Plaintiffs' check stubs are false and constitute misrepresentations." Affidavit of Bradley Bric-kell Pursuant to Fed.R.Civ.P. 56(d) in Support of Plaintiffs’ Response to Defendants’ Motion to Dismiss Claims in Plaintiffs’ Fourth Amended Complaint ¶ 6, at 3. As this assertion repeats the core factual allegation underlying the Plaintiffs’ claims, and does not challenge whether the check stubs provided are original or exact copies of the check stubs to which the FAC refers — the ones that the Defendants mailed to the Plaintiffs — the Court concludes that the Plaintiffs do not challenge the authenticity of the check stubs.
. This date represents the earliest date upon which the statute' could accrue without barring any of the Plaintiffs’ claims. It is exactly four years prior to the day, October 20, 2011, that the Plaintiffs filed their suit in First Judicial District Court of New Mexico.
. Because the Court will dismiss the ninth and tenth causes of action later in this Memorandum Opinion and Order, it will not analyze what the applicable statutes of limitations for those claims would be.
. The Second Restatement comes out the same way on this question: the statute of limitations, as a procedural device, is supplied by the forum state. See Second Restatement § 142.
. The Court is surprised at this request. Variations in applicable state law within a putative class have serious negative implications on the rule 23(b)(3) predominance and superiority analyses, and weigh heavily against certification. See Castano v. Am. Tobacco Co.,
. Even if the Court applied Colorado statutes of limitations to the claims arising under New Mexico law, Colorado — unlike New Mexico— has a borrowing statute, which would point the Court back to the New Mexico statutes of limitations. See Colo.Rev.Stat. Ann. § 13 — 80— 110 (“If a cause of action arises in another state or territory or in a foreign country and, by the laws thereof, an action thereon cannot be maintained in that state, territory, or foreign country by reason of lapse of time, the cause of action shall not be maintained in this state.”), repealing by implication Colo.Rev. Stat. Ann. § 13-82-104 (adopting the Uniform Conflict of Law — Limitations Act, and providing that Colorado uses its own statutes of limitations even when applying foreign substantive law), as recognized by Jenkins v. Panama Canal Ry. Co.,
. The bulk of the Defendants’ case law, which, for the most part, simply repeats the proposition that the duty to market and to exercise good faith are implied in law, not in fact, is not persuasive on the issue of which statute of limitations should apply. The Court also thinks the treatise to which the Defendants cite — for the "general rule” that implied covenants are subject to the statutes of limitations applicable to unwritten contracts — is referring to implied-in-fact contracts and restitution claims. MTD at 4. See 66 Am.Jur.2d, Restitution and Implied Contracts § 154 (201 l)("It is the general rule that a statute, prescribing the time to sue upon contracts, obligations, or liabilities not founded upon instruments in writing, governs an action upon an implied or quasi-contract.”).
.The Court has, additionally, considered the check stubs attached to the MTD and found that they contribute little to its analysis. It is clear from the face of the FAC that the Plaintiffs allege a course of (not necessarily continuous) conduct extending back a number of years — potentially as long ago as the mid- to late-1940’s, when the leases were executed. See FAC ¶¶ 26-29, at 10-13 (describing the leases, including their execution dates); id. ¶ 94, at 28 (alleging that “the same failure ha[s] occurred each and every month, from the date that Williams ... first initiated delivery of monthly statements”). A fair reading of the claims — let alone the broad reading the Court is required to give pleadings — is that the Defendants' unlawful course of conduct extends back at least beyond October 20, 2005, the last date the statute of limitations could accrue without barring at least some of the claims. See FAC ¶¶ 26-29, at 10-13.
If the Court were not to construct the claims in this self-evident manner, then the Plaintiffs would be unable to pursue damages they incurred before whatever arbitrary date the Court chose as being the cut-off point in its interpretation of the claims. The MTD would be irrelevant, because the remedy it seeks — cut-off damages — would already have been provided.
. This date refers to the latest date upon which the statute could accrue and all of the Plaintiffs’ claims be viable in their entirety. October 20, 2007, is the date specifically applicable to the second, fourth, eleventh, and twelfth causes of action. October 20, 2005, is the date specifically applicable to the first, fifth, and sixth causes of action. This opinion will refer to the later date, as, if the accrual of the statutes of limitations post-dates it, none of the claims are time barred.
. This statement refers to the claims’ being filed before the expiration of the limitations period. The Court will, however, dismiss the ninth, tenth, and twelfth claims for failure to state a substantive claim upon which relief can be granted.
. In choice-of-law analysis, tolling doctrines and doctrines such as the discovery rule follow the statutes of limitations to which they apply; e.g., a court would never apply the tolling doctrines of one jurisdiction to the statute of limitations of another. See State Farm Mut. Auto. Ins. Co. v. Boellstorff,
. See Miller v. Shell Oil Co.,
. "[T]he statute of limitations is an affirmative defense....” Aldrich v. McCulloch Props., Inc.,
. See Harris v. New York,
. The Court uses the term "definitively establish” to refer to meeting the so-called "third burden of proof,” the quantum of evidence at which a court will rule in favor of the party with the burden of persuasion. See Wright et al., supra § 5122 (stating that, in the trial context, the “third burden of proof” is the quantum of evidence required to entitle the plaintiff to a directed verdict or judgment as a matter of law). At the motion-to-dismiss stage, a court will accept a defendant's affirmative defense only if: (i) the facts in the complaint establish the elements of the affirmative defense; or (ii) even though the facts in the complaint do not establish the affirmative defense, there is no plausible scenario, based on the facts in the complaint, in which the elements of the affirmative defense will not be established.
.This burden allocation is logically equivalent to the first option — putting the full burden on the defendant to definitively establish, based only on the facts in the complaint, that the limitations period lapsed prior to filing. It is listed here because it contains the usual
. There is a substantial body of case law and literature interpreting Texas’ discovery rule, . including its reasonable diligence prong. See HECI Exploration Co. v. Neel,
. In determining the proper weight to accord Tenth Circuit precedent interpreting New Mexico law, the Court must balance the need for uniformity between federal court and state court interpretations of state law with the need for uniformity among federal judges. If the Court adheres too rigidly to Tenth Circuit case law, ignoring changes undergone by a state's law in the ensuing years, then parties litigating state law claims will be subject to a different body of substantive law, depending on whether they litigate in state court or federal court. This result frustrates the purpose of Erie Railroad Co. v. Tompkins,
The Court must decide how to weigh Tenth Circuit case law against more-recent state court decisions, choosing a point on the spectrum between the two extremes: rigidly adhering to Tenth Circuit precedent unless there is intervening case law directly on point from the state's highest court, on one end; and independently interpreting the state law, regarding the Tenth Circuit precedent as persuasive authority, on the other. In striking this balance, the Court notes that it is generally more concerned about systemic inconsistency between the federal courts and the state courts than it is about inconsistency among federal judges. Judges, even those within a jurisdiction with ostensibly -identical governing law, sometimes interpret and apply the law differently from one another; this inconsistency is part and parcel of a common-law judicial system. More importantly, litigants seeking to use forum selection to gain a substantive legal advantage cannot easily manipulate such inconsistency: cases are assigned randomly to district judges in this and many federal districts; and, regardless, litigants cannot know for certain how a given judge
The Court further notes that district courts may be in better position than the Tenth Circuit to be responsive to changes in state law. Tenth Circuit decisions interpreting a particular state's law on a specific issue are further apart in time than the collective district courts' are. More importantly, the Tenth Circuit does not typically address such issues with the frequency that the state’s courts themselves do. As such, Tenth Circuit precedent can lag behind developments in state law — developments that the district courts may be nimble enough to perceive and adopt. Additionally, much of the benefit of having a consistent Tenth Circuit-wide interpretation of a particular state’s law is wasted. Other than Oklahoma, every state encompassed by the Tenth Circuit contains only one federal judicial district, and there is relatively little need for federal judges in Wyoming and Kansas to have a uniform body of New Mexico law to which to look. Last, the Court notes, respectfully, that district courts may be in a better position than the Tenth Circuit to develop expertise on the state law of the state in which they sit. Every federal judicial district in the nation, except the District of Wyoming, covers at most one state. It is perhaps a more workable design for each district court to keep track of legal developments in the state law of its own state(s) than it is for the Tenth Circuit to monitor separate legal developments in eight states.
Having outlined the relevant considerations, the Court thinks the proper stance on vertical stare decisis in the context of federal court interpretations of state law is as follows: the Tenth Circuit's cases are binding as to their precise holding — what the state law was on the day the opinion was published — but lack the positive precedential force that its cases interpreting a federal statute or the Constitution of the United States of America possess. A district court considering a state law issue after the publication of a Tenth Circuit opinion on point may not come to a contrary conclusion based only on state court cases available to and considered by the Tenth Circuit, but it may come to such a conclusion based on intervening state court cases. The Supreme Court of the United States has addressed what the federal courts may use when there is not a decision on point from the state’s highest court:
The highest state court is the final authority on state law, but it is still the duty of the federal courts, where the state law supplies the rule of decision, to ascertain and apply that law even though it has not been expounded by the highest court of the State. An intermediate state court in declaring and applying the state law is acting as an organ of the State and its determination, in the absence of more convincing evidence of what the state law is, should be followed by a federal court in deciding a state question. We have declared that principle in West v. American Telephone and Telegraph Co.,311 U.S. 223 ,61 S.Ct. 179 ,85 L.Ed. 139 (1940), decided this day. It is true that in that case an intermediate appellate court of the State had determined the immediate question as between the same parties in a prior suit, and the highest state court had refused to review the lower court’s decision, but we set forth the broader principle as applicable to the decision of an intermediate court, in the absence of a decision by the highest court, whether the question is one of statute or common law.
... We have held that the decision of the Supreme Court upon the construction of a state statute should be followed in the absence of an expression of a countervailing view by the State’s highest court, and we think that the decisions of the Court of Chancery [the New Jersey trial court] are entitled to like respect as announcing the law of the State.
The question has practical aspects of great importance in the proper administration of justice in the federal courts. It is inadmissible that there should be one rule of state law for litigants in the state courts and another rule for litigants who bring thesame question before the federal courts owing to the circumstance of diversity of citizenship. In the absence of any contrary showing, the rule [set forth by two New Jersey trial courts, but no appellate courts] appears to be the one which would be applied in litigation in the state court, and whether believed to be sound or unsound, it should have been followed by the Circuit Court of Appeals.
Fid. Union Trust Co. v. Field,
When interpreting state law, the Tenth Circuit does not and cannot issue a case holding that x is the law in New Mexico; it holds that the proper interpretation of New Mexico law, at the time the opinion is released, is x. Its holdings are descriptive, not prescriptive— interpretive, not normative. Because federal judicial opinions lack independent substantive force on state law issues, but possess such force regarding federal law issues, the Court thinks the following is not an unfair summary of the judicial interpretive process: (i) when interpreting federal law, the federal appellate courts consider the existing body of law, and then issue a holding that both reflects and influences the body of law; that holding subsequently becomes a part of the body of law; but (ii) when interpreting state law, the federal appellate courts consider the existing body of law, and then issue a holding that only reflects the body of law; that holding does not subsequently become a part of the body of law. The federal district courts are bound to conclude that the Tenth Circuit’s reflection of the then-existing body of law was accurate. The question is whether they should build a doctrine atop the case and use the existence of the Tenth Circuit’s case to avoid any responsibility to independently consider the whole body of state law that exists when the time comes that diversity litigants raise the issue in their courtrooms. Giving such effect to the Tenth Circuit’s interpretations of state law is at tension with Erie, giving independent substantive effect to federal judicial decisions — i.e., applying federal law — in a case brought in diversity.
The purpose of Erie is well-known and simple, and the Court should not complicate it beyond recognition: it is that the same substantive law governs litigants’ cases regardless whether they are brought in a federal or state forum. For simplicity's sake, most courts have settled on the formulation that "the federal court must attempt to predict how the states’ highest court would rule if confronted with the issue.” Moore's § 124.22[3] (citing Comm’r v. Estate of Bosch,
The Eñe doctrine results in federal cases that interpret state law withering with time. While cases interpreting federal law become more powerful over time — forming the groundwork for doctrines, growing upward from one application (Congress may create a national bank) to many (Congress may set quotas on wheat-growing for personal consumption), expanding outward from the general (states must grant criminal jury trials) to the specific (the jury need not be twelve people, nor must it be unanimous) — federal cases interpreting state law often become stale. New state court cases — even when not directly rebuking the federal court’s statement of law — alter the common-law legal landscape with their dicta, their insinuations, and their tone. The Supreme Court of the United States, which picks cases its cases sparingly and for maximum effect, almost never grants certiorari to resolve issues of state law.
The question is whether the Court should look, not to Elliott Industries LP v. BP America Production Co., but to its own interpretation of New Mexico law, and conclude that New Mexico recognizes the marketable condition rule. The issue is whether, by so doing, the Court would be jettisoning and ignoring Tenth Circuit precedent, or would be rather recognizing, after conducting the Ene-man-dated inquiry, that New Mexico law has changed since its 2005 publication. The Tenth Circuit’s snapshot of New Mexico law may have been correct at the time, but it has decayed in the ensuing years. It does not appear to have shaped New Mexico law to any discernable degree or to have been ratified as a proper interpretation: no New Mexico court has cited it, although the state courts must be aware of it; the oil companies are certain to have cited it in their briefs opposing the state courts' adoption of the marketable condition rule. When called upon to interpret New Mexico law in 2014, the’ Northern District of California — unbound by Tenth Circuit precedent — agreed with the Court’s assessment that Elliott Industries LP v. BP America Production Co. no longer accurately reflects New Mexico law. See Ellsworth v. U.S. Bank, N.A.,
The Court’s views' on Erie, of course, mean little if the Tenth Circuit does not agree. In Wankier v. Crown Equipment Corp., the Tenth Circuit said that,
[wjhere no controlling state decision exists, the federal court must attempt to predict what the state’s highest court would do. In performing this ventriloquia! function, however, the federal court is bound by ordinary principles of stare decisis. Thus, when a panel of this Court has rendered a decision interpreting state law, that interpretation is binding on district courts in this circuit, and on subsequent panels of this Court, unless an intervening decision of the state’s highest court has resolved the issue.
Wankier v. Crown Equip. Corp.,
It is difficult, to know whether Judge McConnell’s limitation of "intervening decision” to cases from the highest state court was an oversight or intentional. Most of the Tenth Circuit's previous formulations of this rule have defined intervening decisions inclusively as all subsequent decisions of "that state's courts,” a term which seems to include trial and intermediate appellate courts. Even Koch v. Koch Industries, Inc.,
In the absence of intervening Utah authority indicating that a plaintiff is not required to prove a safer, feasible alternative design, we are bound to follow the rule of Allen [v. Minnstar, Inc.,8 F.3d 1470 (10th Cir.1993), a Tenth Circuit case interpreting an issue of Utah law], as was the district court. "Following the doctrine of stare de-cisis, one panel of this court must follow a prior panel's interpretation of state law, absent a supervening declaration to the contrary by that state's courts or an intervening change in the state's law.” Koch v. Koch Indus., Inc.,203 F.3d at 1231 .
Wankier v. Crown Equip. Corp.,
Whether the decision to limit the intervening authority a district court can consider was intentional or not, the Tenth Circuit has picked it up and run with it. In Kokins v. Teleflex, Inc., the Tenth Circuit, quoting Wankier v. Crown Equipment Corp., refused to consider an opinion from the Colorado Court of Appeals holding directly the opposite of an earlier Tenth Circuit interpretation of Colorado law. See Kokins v. Teleflex, Inc.,
The Tenth Circuit has set forth a stringent restriction on its district courts' ability to independently administer the Erie doctrine. More importantly, the Tenth Circuit's view may be at tension with the above-quoted Supreme Court precedent, as well as its own prior case law. Moore’s lists the Tenth Circuit as having been, at one time, a "court [that] hold[s] that a prior federal appellate decision [interpreting state law] is persuasive.” Moore’s § 124.22[4] (citing State Farm Mut. Auto. Ins. Co. v. Travelers Indem. Co.,
Even knowing the high bar the Tenth Circuit now sets for what constitutes intervening case law, the Court is tempted to conclude that Davis v. Devon Energy Corp. directly and unequivocally overrules Elliott Industries LP v. BP America Production Co., for three broad reasons. First, the Tenth Circuit analyzed the implied duty to market as a term implied in fact, not one implied in law. An implied-in-fact term is a "real” contractual term, put there by the parties’ agreement' — albeit their unwritten and unspoken agreement. Because its origins are in the parties' agreement, direct conflict with a written term of the contract destroys the implied term. Other than having the word “implied” in them, implied-in-fact terms have little in common with implied-in-law terms, like the covenant of good faith and fair dealing, which the courts "imply” onto all contracts — without the pretense that the parties silently agreed to the term, and, in fact, often in spite of the parties' agreement. When Davis v. Devon Energy Corp. held that the marketable condition rule was an implied-in-law term, reversing the district judge who styled it as an implied-in-fact term, it undermined the logic of Elliott Industries LP v. BP America Production Co. To the extent that the Tenth Circuit's case can still be read for its narrow conclusion — now supported only by damaged logic — that there is no marketable condition rule in New Mexico, the Court will decline to ignore Elliott Industries LP v. BP America Production Co. on this ground.
Second, the Court notes that Davis v. Devon Energy Corp. may have held that there is a marketable condition rule, and its unambiguous disclaimer to the contrary, literally in all-caps and boldface type, that it "do[es] not address the marketable condition rule,” may have been mere dicta (albeit clear, and loud, dicta).
Third, and perhaps most obvious, whatever else can be said about Davis v. Devon Energy Corp. 's holding, one thing is clear: the Supreme Court of New Mexico permits, even if it does not direct, its subordinate courts to recognize and apply the marketable condition rule. The Court can, additionally, find no case holding that a district court may decline to recognize the marketable condition rule. The Court, however, is not confident this holding applies in federal court. Even if the Supreme Court of New Mexico intended to extend its invitation to adopt the marketable condition rule to the federal courts — and there is no indication that it did — New Mexico trial courts have some freedom to be a part of shaping New Mexico law, and recognizing novel or uncertain causes of action may be appropriate for them to do. The Court, on the other hand, is bound to interpret and apply the state law of New Mexico, without injecting its own policy preferences. Were it not for its opinion that the marketable condition rule already exists in New Mexico, the Court would likely not consider adopting a state cause of action that was merely permis,sive as to the state's district courts, and that being so, the Court will not allow its disagreement with the Tenth Circuit to cloud its judgment here. The Court will apply the Tenth Circuit's holding from Elliott Industries LP v. BP America Production Co., and conclude that it is not free to decide that the marketable condition rule exists under New Mexico law.