Three Stars Production Company, LLC v. BP America Production Company

Filing 42

ORDER. Ordered that the Motion of Defendant BP America Production Company Pursuant to Fed.R.Civ.12(b)(7) and Fed.R.Civ.P19 10 is Granted. Plaintiff Three Stars Production Company, LLC must join the Department of interior and the Souther Ute Indian Tribe as parties to this action through the filing of an Amended Complaint, or if they cannot be joined, dismiss the action by Chief Judge Wiley Y. Daniel on 01/06/12.(jjh, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Chief Judge Wiley Y. Daniel
Civil Action No. 11-cv-01162-WYD-MJW
THREE STARS PRODUCTION COMPANY, LLC,
an Oklahoma Limited Liability Company,
Plaintiff,
v.
BP AMERICA PRODUCTION COMPANY,
a Delaware Corporation, f/k/a Amoco Production Company,
Defendant.

ORDER

I.

INTRODUCTION
THIS MATTER is before the Court on the Motion of Defendant BP America

Production Company (“BP”) Pursuant to Fed. R. Civ. P. 12(b)(7) and Fed. R. Civ. P. 19
filed on May 23, 2011 (ECF No. 10). A response was filed on June 15, 2011 (ECF No.
14), and a reply on July 5, 2011 (ECF No. 16). In addition, Plaintiff Three Stars
Production Company, LLC (“Three Stars”) filed a surreply on July 15, 2011 (ECF No.
24), and BP filed a response to the surreply on July 25, 2011 (ECF No. 27).
II.

BACKGROUND
This case involves a dispute over proceeds derived from an oil and gas well,

designated as the Southern Ute 53-1 Well (“Well”), located within the exterior
boundaries of the Southern Ute Indian Tribe Reservation in La Plata County, Colorado.
The land is owned by the United States in trust for the Southern Ute Indian Tribe

(“Tribe”). Three Stars alleges that the Well lies within an established 320-acre drilling
and spacing unit, yet Defendant BP has wrongfully distributed the proceeds from the
Well on a 240-acre basis. Three Stars has recently acquired the leasehold interest in
the 80 acres allegedly within the drilling unit but not included in Defendant’s 240-acre
distribution area. Three Stars is suing for 25 percent of the proceeds from the Well
dating back to 1992, when the Well first became operational, and a constructive trust
that would provide for 25 percent of the proceeds going forward. Compl., ECF No. 1,
¶¶ 103-104, 106, 139, 143.
BP argues that the Department of the Interior (“DOI”), the Tribe, and the other
owners of interest in the Well are indispensable parties in this action, and therefore
must be joined or the action dismissed pursuant to Fed. R. Civ. P. 19. BP also requests
an order pursuant to Fed. R. Civ. P. 12(b)(7) requiring Three Stars to file an amended
complaint joining these parties to this action. Further, BP contends that the Southern
Ute Indian Tribal Court (“Tribal Court”) has already determined that the DOI is an
indispensable party in this dispute, and thus the doctrine of issue preclusion, also
known as collateral estoppel or res judicata, prohibits Plaintiff from relitigating the issue
here.1 BP also alleges that the absence of mineral development on the subject lands
resulted in the title to those mineral acres reverting back to the Tribe in 1966, well

1

The previous action, commenced by Three Stars in February 2010, involved the same parties,
dispute, and claims for relief. The Tribal Court issued an order in July 2010 finding the DOI to be an
indispensable party and dismissing the case after the DOI declined to voluntarily join the litigation, stating,
“Any order purporting to pool or communitize non-Indian and Indian mineral leases must be approved by
the United States Department of Interior....The Southern Ute Tribal Court could not render an enforceable
judgment without the participation of the United States Department of the Interior.” The Southwest
Intertribal Court of Appeals for the Southern Ute Tribal Court affirmed the decision in May 2011. BP’s Mot.
to Dismiss, ECF No. 10, at 2-3.

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before Three Stars obtained the leases for the subject lands via a default judgment
proceeding in a Colorado state district court in September 2009. BP’s Mot. to Dismiss,
ECF No. 10, at 6 n.2; BP’s Reply in Supp. of Mot. to Dismiss, ECF No. 16, at 5.
Plaintiff Three Stars counters by arguing that issue preclusion does not apply in
this case and that Rule 19 does not require joinder of any additional parties. Pl.’s Resp.
to Def.’s Mot. to Dismiss, ECF No. 14, at 7-8, 13-17. Three Stars further contends that
BP’s argument regarding the alleged reversion of title to the subject acres is without
merit and is belied by the Tribe and BP’s previous statements regarding the subject
acres. Pl.’s Surreply to Def.’s Reply in Supp. of Mot. to Dismiss, ECF No. 24, at 5-10.
For the reasons stated below, I find that the Tribe and the DOI are indispensable
parties in this action, and, therefore, that BP’s Motion Pursuant to Fed. R. Civ. P.
12(b)(7) and Fed. R. Civ. P. 19 (ECF No. 10) should be granted and this case
dismissed for failure to join an indispensable party.2
III.

ANALYSIS
I begin my analysis by examining BP’s claim of issue preclusion. If I conclude

that the doctrine of issue preclusion applies, my analysis will be complete. However, if I
conclude that issue preclusion does not apply, I will continue my analysis by applying
Rule 19 to the facts of the case to determine whether the DOI, the Tribe, or any other
owners of interest in the Well are required parties to this action.

2

I note that on September 15, 2011, Defendant BP filed an unopposed motion for oral argument
on its motion under Rules 12(b)(7) and 19. (ECF No. 31). BP’s motion is denied as I find that oral
argument is not necessary for resolution of the motion under Rules 12(b)(7) and 19.

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A.

Issue Preclusion

BP argues that the doctrine of issue preclusion bars Three Stars from relitigating
the question of whether the DOI is an indispensable party in this action because the
issue was already considered and decided by the Tribal Court. Issue preclusion “bars a
party from relitigating an issue once it has suffered an adverse determination on the
issue, even if the issue arises when the party is pursuing or defending against a
different claim.” Park Lake Res. LLC v. United States Dep't of Agric., 378 F.3d 1132,
1136 (10th Cir. 2004). Issue preclusion applies when:
(1) the issue previously decided is identical with the one presented in the
action in question, (2) the prior action has been finally adjudicated on the
merits, (3) the party against whom the doctrine is invoked was a party, or
in privity with a party, to the prior adjudication, and (4) the party against
whom the doctrine is raised had a full and fair opportunity to litigate the
issue in the prior action.
Id. (quoting Ashe v. Swenson, 397 U.S. 436, 443 (1970)).
Given that Plaintiff Three Stars asserted essentially the same claims arising from
the same dispute in a separate action before the Tribal Court, Compl., ECF No. 1,
¶¶ 11-12, the first, third, and fourth elements of the issue preclusion analysis have been
satisfied. However, since the Tribal Court granted a motion to dismiss in that prior
action based on Three Stars’ failure to join an indispensable party pursuant to Rule 19,
the prior action was not adjudicated on the merits.3 Thus, I conclude that the doctrine of
issue preclusion does not apply in this case.

3

See Fed. R. Civ. P. 41(b) (stating that “any dismissal not under this rule – except one for lack of
jurisdiction, improper venue, or failure to join a party under Rule 19 – operates as an adjudication on the
merits.” (emphasis added)).

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B.

Rule 19 Analysis

Federal Rule of Civil Procedure 12(b)(7) allows for dismissal for failure to join a
person under Rule 19. Rule 19 requires that I perform a two step analysis before
dismissing a claim for failure to join an indispensable person. See Davis ex rel. Davis v.
United States, 343 F.3d 1282, 1288 (10th Cir. 2003). First, I must determine whether
the absent person is a necessary party to the lawsuit. Id.; Fed. R. Civ. P. 19(a). A
necessary party must be joined if joinder is feasible. Id.
If a party is necessary but joinder is not feasible, I must determine whether the
party is indispensable. Rishell v. Jane Phillips Episcopal Mem'l Med. Ctr., 94 F.3d
1407, 1411 (10th Cir. 1996). This inquiry requires me to consider “whether, in equity
and good conscience, the action should proceed among the existing parties or should
be dismissed.” Fed. R. Civ. P. 19(b). In addition, “The standards set out in Rule 19 for
assessing whether an absent party is indispensable are to be applied in a practical and
pragmatic but equitable manner.” Rishell, 94 F.3d at 1411.
1.

Whether the DOI, the Tribe, or the Other Owners of Interest in
the Well are Necessary Parties under Rule 19(a)

A party is deemed necessary when:
(A) in that person’s absence, the court cannot accord complete relief
among existing parties; or (B) that person claims an interest relating to the
subject of the action and is so situated that disposing of the action in the
person's absence may: (I) as a practical matter impair or impede the
person’s ability to protect the interest; or (ii) leave an existing party subject
to a substantial risk of incurring double, multiple, or otherwise inconsistent
obligations because of the interest.
Fed. R. Civ. P. 19(a)(1).

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BP contends that if Three Stars prevails in its claims, it would result in a reallocation of the revenue distribution from the Well on the basis of 320 acres instead of
the current 240-acre distribution. Thus, current owners of interests in the Well, including
the Tribe, the DOI, and various others, stand to lose 25 percent of the proceeds they
would otherwise accrue moving forward. BP’s Mot. to Dismiss, ECF No. 10, at 7-8.
Moreover, BP maintains that any decision concerning pooling of mineral interests or the
execution of a communitization agreement on tribal lands requires the participation of
the Tribe and approval of the DOI; therefore, they are both required parties. BP’s Mot.
to Dismiss, ECF No. 10, at 10 (citing Jicarilla Apache Tribe v. Hodel, 821 F.2d 537, 540
(10th Cir. 1987)); see also Petrogulf Corp. v. Arco Oil & Gas Co., 92 F. Supp. 2d 1111,
1111 (D. Colo. 2000).
Three Stars responds to these claims by first arguing that because all of the
owners of interest in the Well have profited from BP’s allegedly wrongful distribution of
Well proceeds, they are akin to joint tortfeasors, which are not required parties under
Rule 19. Pl.’s Resp. to Def.’s Mot. to Dismiss, ECF No. 14, at 13. Second, Three Stars
contends that BP, as the operator of the Well, is the only party liable for Plaintiff’s
damages, so there is no basis for Three Stars to name any other parties in the suit. Id.
at 14. Third, Three Stars argues that if it prevails on its claims, BP would potentially
have an independent cause of action for indemnification against the other owners of
interest in the Well, and potential indemnitors are never considered to be necessary
parties. Id. at 15. Finally, Three Stars insists that it is not seeking to pool or
communitize its lease with the Tribal Lease, but rather has brought causes of action for

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continuing trespass and drainage, conversion, civil theft, unjust enrichment, and
constructive trust. Id. at 8-10.
I find Three Stars’ arguments to be unpersuasive. Clearly, if Three Stars prevails
on its claims and a constructive trust is imposed on its alleged proportionate share of
the proceeds from the Well, the interests of the DOI, the Tribe, and all other owners of
interest in the Well will be substantially affected. Further, I agree with both the BP and
the Tribal Court that, in effect, Three Stars is seeking retroactive and prospective
pooling or communitization of its alleged mineral interest with those of BP, the Tribe,
and the other owners of interest in the Well. BP’s Mot. to Dismiss, ECF No. 10, at 7;
BP’s Reply in Supp. of Mot. to Dismiss, ECF No. 16, at 7. Approval of communitization
agreements falls within the discretion of the Secretary of the Interior pursuant to 25
U.S.C. § 396d.4 See also Woods Petroleum Corp. v. U.S. Dept. of Interior, 18 F.3d 854,
858 (10th Cir. 1994) (“The Secretary has the discretion to approve or disapprove
Communitization or Unit Agreements based on a determination of whether approval
would be in the best interests of the Indian lessor.”); Coosewoon v. Meridian Oil Co., 25
F.3d 920, 923 (10th Cir. 1994); Cheyenne-Arapaho Tribes of Oklahoma v. U.S., 966
F.2d 583, 588 (10th Cir. 1992); Kirkpatrick Oil & Gas Co. v. United States, 675 F.2d
1122, 1125 (10th Cir. 1982); 25 C.F.R. § 211.28. Therefore, this Court cannot provide
Three Stars with the remedy it seeks without the participation of the DOI in the litigation.
4

The statute states: “All operations under any oil, gas, or other mineral lease issued pursuant to
the terms of sections 396a to 396g of this title or any other Act affecting restricted Indian lands shall be
subject to the rules and regulations promulgated by the Secretary of the Interior. In the discretion of the
said Secretary, any lease for oil or gas issued under the provisions of sections 396a to 396g of this title
shall be made subject to the terms of any reasonable cooperative unit or other plan approved or
prescribed by said Secretary prior or subsequent to the issuance of any such lease which involves the
development or production of oil or gas from land covered by such lease.”

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Finally, concerning BP’s claim that the 80 mineral acres reverted back to the
Tribe prior to Three Stars obtaining leases to those lands, the merits of the claim are
irrelevant at this stage of the litigation. Rule 19 is concerned with “claimed” interests;
“[t]he underlying merits of the litigation are irrelevant” to the Rule 19 inquiry unless the
claimed interest is “patently frivolous.” Davis, 343 F.3d 1282, 1291 (10th Cir. 2003)
(quoting Citizen Potawatomi Nation v. Norton, 248 F.3d 993, 998 (10th Cir. 2001)).
Because the Tribe asserted title to the minerals under the subject acres in the previous
action before the Tribal Court, and as I do not find these claims to be frivolous, I
conclude that the Tribe has an interest in the subject mineral acres, and that the Tribe’s
ability to protect that interest could be impaired if this action was disposed of in the
Tribe’s absence.
For the foregoing reasons, I find that the DOI, the Tribe, and the other owners of
interest in the Well all have interests in the subject matter of this case that may be
impaired by their lack of involvement in the litigation, and are, therefore, all necessary
parties pursuant to Rule 19(a).
2.

Whether the DOI, the Tribe, or the Other Owners of Interest in
the Well are Indispensable Parties under Rule 19(b)

In deciding whether a party is indispensable, I consider four factors:
(1) the extent to which a judgment rendered in the person’s absence might
prejudice that person or the existing parties; (2) the extent to which any
prejudice could be lessened or avoided by: (A) protective provisions in the
judgment; (B) shaping the relief; or (C) other measures; (3) whether a
judgment rendered in the person’s absence would be adequate; and (4)
whether the plaintiff would have an adequate remedy if the action were
dismissed for nonjoinder.
Fed. R. Civ. P. 19(b). This list of factors is not exclusive. Davis, 343 F.3d at 1289.
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Factor 1: Prejudice to the Absent Parties
Given that the Tribe, the DOI, and the other owners of interest in the Well stand
to lose 25 percent of their future proceeds from Well production should Plaintiff Three
Stars prevail in the lawsuit, there is a clear risk that each could be prejudiced if the suit
moves forward in their absence. However, the potential prejudice to an absent party
“may be minimized if the absent party is adequately represented in the suit.” Rishell, 94
F.3d at 1411 (quoting Makah Indian Tribe v. Verity, 910 F.2d 555, 558 (9th Cir. 1990)).
Three Stars argues that BP and the other owners of interest in the Well have
identical interests in keeping it from acquiring a portion of the proceeds from the Well,
and BP—as one of the largest companies in the world—is more than capable of
representing the interests of the other owners. Pl.’s Resp. to Def.’s Mot. to Dismiss,
ECF No. 14, at 6-17. I am inclined to agree with Three Stars concerning the other
owners of interest in the Well; however, both the Tribe and the DOI have interests
involved in this case that are not shared by BP. Both the Tribe and the DOI have an
interest in overseeing mineral production and communitization on tribal lands, and the
Tribe has an interest in its alleged title to the subject mineral acres. Thus, I find that this
factor weighs in favor of requiring joinder of the Tribe and the DOI, and against joinder
of the other owners of interest in the Well.
Factor 2: Whether the Prejudice Could be Reduced
Concerning the second factor, Three Stars argues that the Court could shape a
remedy in such a way that the Tribe/DOI’s portion of the proceeds would not be
disturbed but that would allow Three Stars to collect its alleged portion of the proceeds

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from BP and the other owners of interest in the Well. Pl.’s Resp. to Def.’s Mot. to
Dismiss, ECF No. 14, at 18-19. In other words, the Tribe/DOI receives approximately
18 percent of the proceeds currently; Three Stars is arguing that, should it succeed in
the case without having joined the DOI or the Tribe, the court could fashion a remedy
that would include only Three Stars’ share of the remaining 82 percent of the total
proceeds. This would theoretically not prejudice BP or the other owners of interest
because their resultant shares of the total proceeds would be the same as they would
have been had the DOI and Tribe been joined.
The creative remedy outlined by Three Stars would protect the Tribe and the DOI
from reduced future proceeds from the Well, but would not address their interests in
overseeing gas and oil production on tribal lands or their oversight of communitization
agreements. In addition, and perhaps more importantly, this proposed remedy does not
address the Tribe’s alleged interest in the subject mineral acres. For these reasons, I
find that this factor ultimately weighs in favor of granting BP’s motion vis-à-vis the Tribe
and the DOI.
Factor 3: Adequacy of the Judgment
As noted above, Three Stars insists that an adequate remedy would be possible
if it prevailed and was awarded its alleged proportion of the proceeds currently
distributed to BP and the other owners of interest in the Well. This would, according to
Three Stars, provide it with 82 percent of its actual damages. Pl.’s Resp. to Def.’s Mot.
to Dismiss, ECF No. 14, at 19. However,
[t]he Supreme Court has explained that Rule 19(b)’s third factor is not
intended to address the adequacy of the judgment from the plaintiff’s point
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of view.... The concern underlying this factor is not the plaintiff's interest
“but that of the courts and the public in complete, consistent, and efficient
settlement of controversies,” that is, the “public stake in settling disputes
by wholes, whenever possible.”
Davis, 343 F.3d at 1293-94 (quoting Provident Tradesmens Bank & Trust Co. v.
Patterson, 390 U.S. 102, 111 (1968)). Accordingly, the Tenth Circuit has held that a
judgment rendered in the absence of an Indian tribe that could lead to further litigation
and possible inconsistent judgments is inadequate. Id. at 1294.
With this understanding of the “adequacy” of judgments made in the absence of
necessary parties, I find that any judgment rendered in the absence of the Tribe or the
DOI would be inadequate in that it would address neither the issue of communitization
nor the Tribe’s purported interest in the 80 mineral acres.
Factor 4: Other Potential Remedies
As to the final factor, Three Stars contends that “the fact that BP paid wrongfully
obtained proceeds from the Southern Ute 35-1 Well to the Tribe should not leave Three
Stars without a remedy and should not insulate BP from liability for the damages it has
caused to Three Stars.”5 Pl.’s Resp. to Def.’s Mot. to Dismiss, ECF No. 14, at 20. In
this vein, the Tenth Circuit has observed that “[t]he absence of an alternative forum
would weigh heavily, if not conclusively against dismissal.” Rishell, 94 F.3d at 1413.

5

The parties dispute whether an administrative remedy exists for Three Stars to pursue. BP
claims that Three Stars may seek approval from the DOI for a communitization agreement. Def.’s Mot. to
Dismiss, ECF No. 10, at 4. The DOI also acknowledged this possibility. Id. at Ex. C. Three Stars
disagrees, however, arguing that “[b]ecause BP... refuses to sign a communitization agreement, there is
no administrative remedies available to Three Stars to pursue and exhaust.” Pl.’s Resp. to Def.’s Mot. to
Dismiss, ECF No. 14, at 9. Because I find that the Tribe and the DOI to be indispensable parties even in
the absence of any alternative forum, I need not determine whether such an administrative remedy exists.

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On the other hand, the Tenth Circuit has recognized that “the plaintiff’s inability to
obtain relief in an alternative forum is not as weighty a factor when the source of that
inability is a public policy that immunizes the absent person from suit.” Davis, 343 F.3d
at 1293-94. In fact, the Court has stated that “[w]hen...a necessary party...is immune
from suit, there is very little room for balancing of other factors set out in Rule 19(b),
because immunity may be viewed as one of those interests compelling by themselves.”
Enter. Mgmt. Consultants, Inc. v. U.S. ex rel. Hodel, 883 F.2d 890, 894 (10th Cir. 1989).
Given that the Tribe6 and the DOI7 enjoy sovereign immunity, Plaintiff’s alleged
lack of any other forum within which to litigate its claim does not weigh heavily against
joinder of the Tribe or the DOI. It is, however, a significant factor to consider in regard
to the other owners of interest in the Well.
IV.

CONCLUSION
Based on the foregoing and after consideration of all the relevant factors, I find

that the other owners of interest in the Well are necessary but not indispensable parties
to the action. I do, however, find that the Tribe and the DOI are indispensable parties
pursuant to Rule 19. Accordingly, it is
ORDERED that the Motion of Defendant BP America Production Company
Pursuant to Fed. R. Civ. P. 12(b)(7) and Fed. R. Civ. P. 19 filed on May 23, 2011 (ECF
No. 10) is GRANTED. Plaintiff Three Stars Production Company, LLC must join the

6

Indian tribes possess “the common-law immunity from suit traditionally enjoyed by sovereign
powers.” Santa Clara Pueblo v. Martinez, 436 U.S. 49, 58 (1978).
7

The United States and its agencies are immune from suits to which the United States has not
consented. Smith v. United States, 507 U.S. 197, 200 (1993); United States v. Sherwood, 312 U.S. 584,
586 (1941).

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Department of Interior and the Southern Ute Indian Tribe as parties to this action
through the filing of an Amended Complaint, or if they cannot be joined, dismiss the
action.
Dated: January 6, 2012
BY THE COURT:
.
s/ Wiley Y. Daniel
Wiley Y. Daniel
Chief United States District Judge

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