Spring Creek Exploration & Production Company, LLC v. Hess Bakken Invenstment II, LLC et al

Filing 48

ORDER. ORDERED that Defendants Statoil and Hess Bakken's Motions to DismissPursuant to Fed. R. Civ. P. 12(b)(6) [Docket Nos. 7 and 13] are each GRANTED in part and DENIED in part. ORDERED that Plaintiffs third, fourth, fifth and sixth claims for relief are dismissed with prejudice by Judge Philip A. Brimmer on 09/05/14.(jhawk, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Philip A. Brimmer
Civil Action No. 14-cv-00134-PAB-KMT
SPRING CREEK EXPLORATION & PRODUCTION COMPANY, LLC,
Plaintiff,
v.
HESS BAKKEN INVESTMENT II, LLC f/k/a TRZ Energy, LLC, and
STATOIL OIL & GAS, LP f/k/a Brigham Oil & Gas, LP,
Defendants.

ORDER

This matter is before the Court on the Motion to Dismiss [Docket No. 13] filed by
defendant Hess Bakken Investments II, LLC (“Hess Bakken”) and the Motion to Dismiss
Pursuant to FRCP 12(b)(1), 12(b)(2) and 12(b)(6) [Docket No. 7] filed by defendant
Statoil Oil & Gas LP (“Statoil”).1 This case arises out of a 2009 contract between Spring
Creek and Hess Bakken. The Court has jurisdiction pursuant to 28 U.S.C.
§ 1332(a)(1).

1

Statoil’s motion to dismiss was filed jointly with defendant Statoil US Holdings,
Inc. However, on March 6, 2014, the parties stipulated to the dismissal of Statoil US
Holdings Inc. and to the withdrawal of that defendant’s motion to dismiss pursuant to
Federal Rule of Civil Procedure 12(b)(1). Docket No. 30. The parties also stipulated to
the withdrawal of Statoil’s motion to dismiss pursuant to Rule 12(b)(2). Id. The Court
granted the parties’ stipulated motion the following day. Docket No. 31. Accordingly,
the only part of Docket No. 7 that is currently pending before the Court is Statoil’s
motion to dismiss pursuant to Rule 12(b)(6). Id.

I. BACKGROUND
The complaint sets forth the following allegations, which, for the purpose of ruling
on the instant motions to dismiss, the Court takes as true. See Alvarado v. KOB-TV,
LLC, 493 F.3d 1210, 1215 (10th Cir. 2007) (“We must accept all the well-pleaded
allegations of the complaint as true and must construe them in the light most favorable
to the plaintiff.”).
Spring Creek is a Colorado company that engages in oil and gas exploration in
the State of North Dakota. Docket No. 3 at 2, 3 ¶¶ 1, 8. Spring Creek owns or
previously owned oil and gas interests in North Dakota, some of which are located in an
energy-rich area known as the Tomahawk Prospect. Id. at 3, ¶ 9.
On October 8, 2009, Spring Creek entered into an agreement (the “Agreement”)
to sell its oil and gas interests in the Tomahawk Prospect to Hess Bakken. Docket No.
3 at 3, ¶ 10. As part of the Agreement, Spring Creek agreed not to acquire any
additional interests in the Tomahawk Prospect and Hess Bakken agreed that it would
assign Spring Creek an overriding royalty interest2 in all current and future leases it held
in the Tomahawk Prospect. Id. Spring Creek and Hess Bakken also entered into an
Area of Mutual Interest Agreement (“AMI”) in which Spring Creek agreed to refrain from
securing additional oil and gas leases in the Tomahawk Prospect and Hess Bakken
agreed to “immediately notify” Spring Creek of any new leases it acquired. Id. at 4,
¶¶ 13-14. The AMI included a confidentiality clause, barring the parties from disclosing

2

An overriding royalty is a “share of either production or revenue from production
(free of the costs of production) carved out of a lessee’s interest under an oil-and-gas
lease.” Black’s Law Dictionary 1839 (9th ed. 2009).
2

the AMI to any third party. Id. at 4-5, ¶ 16. Through November 5, 2010, Hess Bakken
continued to acquire new leases in the Tomahawk Prospect and to assign an overriding
royalty interest in those leases to Spring Creek. Id. at 5, ¶ 17.
In April 2010, Hess Bakken sold certain of its leases in the Tomahawk Prospect
to Statoil as part of an agreement not to obtain additional leases and to refrain from
competing with Statoil in the Tomahawk Prospect. Docket No. 3 at 5, ¶ 18 (the
“Hess/Statoil Agreement”). As part of this agreement, Statoil purchased the leases
subject to Spring Creek’s overriding royalty interest. Id. at 6, ¶24. A Bill of Sale for this
transaction was recorded with the Clerk and Recorder for the County of Williams, North
Dakota. Id. at 6, ¶ 23 (“Bill of Sale”).
During the course of its negotiations with Statoil, Hess Bakken disclosed the
terms of the AMI to Statoil. Docket No. 3 at 5, ¶ 19. Neither Statoil nor Hess Bakken
informed Spring Creek that it was entering into an agreement. Id. at 5, ¶ 20. Statoil
and Hess Bakken agreed to keep their agreement hidden from Spring Creek and
intentionally concealed the fact that Hess Bakken would not be entering into new leases
in the Tomahawk Prospect, so that Statoil would be free to obtain new leases in the
area without competition from Spring Creek. Id. at 5-6, ¶¶ 21-22.
Statoil has honored the Agreement, at least in part, by paying Spring Creek
royalties on the leases in the Tomahawk Prospect that Hess Bakken already owned
when Statoil and Hess Bakken entered into their agreement. Docket No. 3 at 6, ¶ 27.
However, Statoil has since acquired new oil and gas leases in the Tomahawk Prospect
without assigning overriding royalty interests to Spring Creek. Id. at 6, ¶ 28.

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In the fall of 2012, Spring Creek realized that it had not been receiving new
royalty interests and that Statoil had acquired a number of new leases in the Tomahawk
Prospect. Docket No. 3 at 6, ¶ 28. On September 18, 2012, Spring Creek sent a letter
to Hess Bakken and Statoil, raising its concerns that the parties were not complying
with the terms of the Agreement or the AMI. Id. at 7, ¶ 29. On October 30, 2012,
Spring Creek received a response from Statoil in which it admitted that it was aware of
the terms of the AMI and that it would continue to pay royalties on those leases that
Hess Bakken sold to Statoil. Id. at 7, ¶ 30. However, Statoil stated that it was not a
party to the AMI and not obligated to assign an interest in new leases to Spring Creek.
Id.
On December 13, 2013, Spring Creek filed a complaint in the District Court for
the City and County of Denver, Colorado, asserting claims against Hess Bakken and
Statoil for breach of contract, fraudulent concealment, and civil conspiracy. Docket No.
3. The complaint attaches the Agreement, including the AMI, as well as the Bill of Sale,
id. at 12, 27, 35, but not the entire Hess/Statoil Agreement.
II. STANDARD OF REVIEW
The Court’s function on a Rule 12(b)(6) motion for failure to state a claim upon
which relief can be granted is not to weigh potential evidence that the parties might
present at trial, but to assess whether the plaintiff’s complaint alone is sufficient to
plausibly state a claim. Fed. R. Civ. P. 12(b)(6); Dubbs v. Head Start, Inc., 336 F.3d
1194, 1201 (10th Cir. 2003) (citations omitted). A district court may take into account
“documents referred to in the complaint if the documents are central to the plaintiff’s

4

claim and the parties do not dispute the documents’ authenticity.” Alvarado, 493 F.3d
at 1215 (citation and quotation marks omitted).
The “plausibility” standard requires that relief must plausibly follow from the facts
alleged, not that the facts themselves are plausible. Bryson v. Gonzales, 534 F.3d
1282, 1286 (10th Cir. 2008). However, “where the well-pleaded facts do not permit the
court to infer more than the mere possibility of misconduct, the complaint has
alleged–but it has not shown–that the pleader is entitled to relief.” Ashcroft v. Iqbal, 556
U.S. 662, 679 (2009) (internal quotation marks and alteration marks omitted).
III. ANALYSIS
A. Claims Against Hess Bakken
1. Breach of Contract
Spring Creek alleges that Hess Bakken breached the Agreement and the AMI
by:
1) failing to disclose to Spring Creek all leases it acquired within the
Tomahawk Prospect, 2) failing to acquire new leases within the Tomahawk
Prospect during the entire period of the AMI, 3) disclosing the AMI and/or the
terms of the AMI to third parties, and 4) failing to honor the Override Interests
on the Existing Leases.
Docket No. 3 at 7, ¶ 36. Hess Bakken contends that these allegations fail to state a
claim for breach of contract because (1) there are no allegations of fact to support the
general allegation that Hess Bakken acquired, but did not disclose, a lease interest
during the term of the AMI, Docket No. 7 at 4; (2) the AMI does not require Hess
Bakken to acquire new leases, only to assign Spring Creek an interest in those leases it
does acquire, Docket No. 7 at 4-5; (3) Hess Bakken did not breach the contract by

5

disclosing the AMI to Statoil if, as Spring Creek alleges, Hess Bakken assigned its
rights and obligations under the AMI to Statoil, Docket No. 7 at 5; (4) Spring Creek
waived its right to argue that Hess Bakken breached the confidentiality clause because
Spring Creek subsequently disclosed the terms of the AMI to Statoil, Docket No. 7 at 5;
and (5) there are no factual allegations to support the general allegation that Hess
Bakken failed to honor Spring Creek’s overriding royalty interest in the leases. Docket
No. 7 at 6.
In Colorado, a claim for breach of contract has four elements: (1) the existence
of a contract; (2) plaintiff’s performance or some justification for nonperformance;
(3) defendant’s failure to perform; and (4) resulting damages to the plaintiff.3 W. Distrib.
Co. v. Diodosio, 841 P.2d 1053, 1058 (Colo. 1992).
Contract construction is generally a matter of law for the Court to decide. Union
Ins. Co. v. Houtz, 883 P.2d 1057, 1061 (Colo. 1994). The primary goal in construing a
contract is to “give effect to the intention of the parties.” Town of Minturn v. Tucker, 293
P.3d 581, 590 (Colo. 2013). “Whenever possible, this intent should be ascertained
from the plain language of the [contract] alone.” Mid-Century Ins. Co. v. Robles, 271
P.3d 592, 594 (Colo. App. 2011). Courts construe undefined terms according to their
“plain meaning, avoiding strained and technical interpretations.” Fire Ins. Exchange v.
Sullivan, 224 P.3d 348, 351 (Colo. App. 2009). “The court should interpret a contract in
its entirety with the end in view of seeking to harmonize and to give effect to all

3

Hess Bakken moves to dismiss under Colorado law and does not dispute that
the choice of law provision in the AMI, Docket No. 3 at 29, ¶ 7, governs Spring Creek’s
claims against it. See Docket No. 13 at 3.
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provisions so that none will be rendered meaningless.” Copper Mountain, Inc. v.
Industrial Systems, Inc., 208 P.3d 692, 697 (Colo. 2009) (quotation marks omitted).
Discerning the meaning of an ambiguous contract provision is the responsibility
of the finder of fact. Miller v. City and County of Denver, 315 P.3d 1274, 1277 n.5
(Colo. App. 2013). A contract provision is ambiguous if “it is susceptible of more than
one reasonable interpretation.” Sachs v. Am. Family Mut. Ins. Co., 251 P.3d 543, 546
(Colo. App. 2010).
Hess Bakken does not dispute that it entered into valid contracts with Spring
Creek, namely, the Agreement and the AMI. The parties’ dispute primarily concerns
whether Hess Bakken performed its contractual obligations.
a. Failing to Disclose New Leases
Spring Creek asserts that the complaint “specifically alleg[es] that after
November 2011, Statoil acquired new leases in the Tomahawk Prospect and that
neither Hess [Bakken] nor Statoil ever disclosed those leases to Spring Creek.” Docket
No. 33 at 3-4. In support of this assertion, Spring Creek cites paragraph 28 of the
complaint, which alleges:
Since entering into the Hess/Statoil Agreement, Statoil has acquired
numerous new oil and gas leasehold interests within the Tomahawk
Prospect (the “New Leases”). Neither Statoil US, Statoil, or Hess, however,
have assigned any Override Interests to Spring Creek, as required by the
AMI, for the New Leases. Statoil has conceded that they are obligated to
honor Spring Creek’s Override Interests in the Existing Leases.
Docket No. 3 at 6, ¶ 28. The cited paragraph does not allege that Hess Bakken failed
to disclose newly acquired leases, only that it failed to assign Spring Creek an
overriding royalty interest in newly acquired leases. See id. Moreover, Spring Creek’s
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reliance on paragraph 34 of the complaint is unpersuasive, since that paragraph
similarly alleges no failure to disclose. Id. at 7, ¶ 34. Accordingly, Spring Creek fails to
state a claim for breach of contract based on Hess Bakken’s failure to disclose leases
acquired by either Statoil or Hess Bakken after April 2010.
b. Failing to Acquire New Leases
Hess Bakken contends that it was not obligated under the Agreement or the AMI
to acquire new leases, but only to assign Spring Creek a royalty interest in any leases
that it happened to acquire in the Tomahawk Prospect during the relevant time period.
Docket No. 13 at 4. Hess Bakken further argues that, even if had some general
obligation to pursue new leases, it was not required to obtain a minimum number of
leases nor was it required to pursue new leases during a particular time frame. Id.
Hess Bakken cites the use of the word “if” in the second sentence of the following
section of the AMI as an indication that it was not obligated to pursue new leases:
During the term of the AMI, only [Hess Bakken] may proceed to lease or
otherwise acquire interests within the AMI. If, during the term of the AMI,
[Hess Bakken] should acquire any oil and gas lease, leasehold interest or
mineral interest, [Hess Bakken] shall offer such interest to Coachman in the
following proportions, [Hess Bakken] (90%), Coachman (10%), pursuant to
that certain Participation Agreement dated October 8, 2009, by and between
[Hess Bakken] and Coachman. Furthermore, for any oil and gas lease
acquired by [Hess Bakken] in the AMI, [Hess Bakken] shall immediately
notify Spring Creek and Gold Coast in writing of such acquisition and Spring
Creek and Gold Coast shall be entitled to an overriding royalty interest . . . .
for the Spring Creek [overriding royalty interest], Spring Creek and Gold
Coast, or their affiliates shall not be entitled to acquire any interest or
otherwise compete with [Hess Bakken] within the AMI.
Docket No. 3 at 27, ¶ 1.
Spring Creek does not identify a specific provision of the Agreement or the AMI
that requires Hess Bakken to pursue leases and to do so throughout the three-year
8

term of the AMI. Docket No. 33. Instead, Spring Creek argues that, reading the
Agreement and the AMI as a whole, it is clear that such an obligation was contemplated
by the parties–otherwise, many provisions of these contracts would be rendered
meaningless. Docket No. 33 at 5. For example, the AMI provides that Hess Bakken
“shall endeavor to retain Diamond Resources as a lease broker to acquire interests
within the AMI,” but that if Hess Bakken is “unable to retain Diamond Resources, or if
for any reason [Hess Bakken] is unsatisfied with their performance, [Hess Bakken] may
select and retain a different lease broker in [Hess Bakken’s] sole discretion.” Docket
No. 3 at 28, ¶ 3.4 Spring Creek further argues that the “use of the term ‘if,’ in the
context of the Agreement, is clearly an acknowledgment that neither party can
guarantee a land/mineral owner will sign a lease.” Docket No. 33 at 5. Finally, Spring
Creek argues that, under the AMI, it gave up the right to pursue its own leases in the
Tomahawk Prospect in exchange for Hess Bakken’s agreement to pursue such leases
and assign Spring Creek an interest in any leases it obtained. Id.
Neither the Agreement nor the AMI, or both considered together, explicitly
obligates Hess Bakken to acquire new leases. See generally Docket No. 3 at 12, 27.
Spring Creek is unable to point to any language in either agreement that creates such
an obligation. The language in the AMI that refers to leasing is inconsistent with any
obligation for Hess to acquire new leases: “If, during the term of the AMI, [Hess] should
acquire any oil and gas lease. . . .” Docket No. 3 at 27. Rather than evidencing an

4

This language is not rendered meaningless by interpreting the AMI in the way
Hess Bakken suggests. Regardless of whether Hess Bakken had an obligation to
acquire new leases or not, this provision is simply a non-binding broker preference.
9

intent of the parties to require Hess to acquire additional leases, the AMI reflects an
agreement to define Hess Bakken’s obligations in the event that it did acquire a new
lease.5 This interpretation, which is the only reasonable interpretation, does not render
any of the language of the AMI meaningless. Spring Creek fails to state a breach of
contract claim based on Hess Bakken’s failure to acquire new leases in the Tomahawk
Prospect.
c. Confidentiality Provision
Spring Creek alleges that Hess Bakken breached the confidentiality provision in
the AMI by “disclos[ing] the terms of the AMI to Statoil prior to entering into the
Hess/Statoil Agreement. Accordingly, at the time Hess and Statoil entered into the
Hess/Statoil Agreement, Statoil was fully aware that Spring Creek was [] not actively
pursuing new leasehold interests within the Tomahawk Prospect.” Docket No. 3 at 5,
¶ 19.
The AMI provides that “[t]he terms of this Agreement are confidential and no
Party, nor any of its respective affiliates or representatives shall furnish this Agreement,
or disclose any of its contents, to any third party.” Docket No. 3 at 29, ¶ 5.
Hess Bakken’s counter-arguments miss the point. Spring Creek alleges that
Hess Bakken disclosed the terms of the AMI before Hess Bakken entered into an
agreement and thus before Statoil allegedly became Hess Bakken’s assignee for the
5

Spring Creek does not ask the Court to interpret the AMI to contain an implied
“best efforts” clause. While such clauses are commonly read into exclusive dealing
contracts, see Kolbe & Kolbe Health and Welfare Ben. Plan v. Med. Coll. of Wis., Inc.,
742 F.3d 751, 754 (7th Cir. 2014) (noting that best efforts clauses are commonly
implied in exclusive dealing contracts), the Court is unaware of any authority that
supports implying such a clause in an Area of Mutual Interest agreement.
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purpose of the AMI. Docket No. 3 at 5, ¶19. The fact that Spring Creek alleges that
Statoil subsequently became Hess Bakken’s assignee does not contradict or undermine
this breach of contract claim.
Hess Bakken argues that Spring Creek waived any claim to confidentiality of the
AMI by disclosing the AMI and its terms to Statoil in September 2012. Docket No. 13 at
5. But Spring Creek alleges that Hess Bakken disclosed the confidential terms of the
AMI before entering into the Hess/Statoil Agreement in April 2010. Docket No. 3 at 5,
¶¶ 18-19. Spring Creek did not disclose the terms of the AMI until September 2012,
more than two years after Hess Bakken’s alleged breach. Id. at 7, ¶ 29. “[I]t is a
condition of each party’s remaining duties to render performances to be exchanged
under an exchange of promises that there be no uncured material failure by the other
party to render any such performance due at an earlier time.” Restatement (Second) of
Contracts § 237 (1981); see also Colo. Interstate Gas Co. v. Chemco, Inc., 854 P.2d
1232, 1239 (Colo. 1993) (citing § 237); Converse v. Zinke, 635 P.2d 882, 887 (Colo.
1981) (“If one party has failed to perform the bargained for exchange, the other party
may be relieved of a duty to continue its own performance, where the failure is material
and unexcused.”). A party’s material breach of a contract discharges a counter-party’s
duty to perform, even if the counter-party is unaware of the breach, and gives rise to a
claim for damages. Restatement (Second) of Contracts § 237 cmt. c. “Whether a
breach of a contract is material, and therefore excuses further performance by the other
party, is a question of fact.” Kaiser v. Market Square Discount Liquors, Inc., 992 P.2d
636, 640 (Colo. App. 1999).

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Spring Creek alleges that it breached the confidentiality provision only after Hess
Bakken did so more than two years earlier. Docket No. 3 at 7, ¶ 29. The Court cannot
determine on a motion to dismiss that Hess Bakken’s alleged breach was immaterial.
See Kaiser, 992 P.2d at 640. Accordingly, the Court finds that Spring Creek has stated
a claim for breach of contract based on the allegation that Hess Bakken breached the
promise to keep the terms of the AMI confidential.
d. Failing to Honor Royalty Interests in Existing Leases
Hess Bakken argues that there are no “factual allegation[s] to support the theory
that [Hess Bakken] breached the AMI Agreement by ‘failing to honor Spring Creek’s
Override Interests in the Existing Leases.’” Docket No. 13 at 6.
Spring Creek responds by citing paragraph 27 of the complaint, which alleges
that, “[t]o date, Statoil, as successor in interest to Hess, has at least in part been
honoring the terms of the Agreement, including the AMI, by paying Spring Creek its
Override Interests on a portion of the Existing Leases.” Docket No. 3 at 6, ¶ 27. Spring
Creek also alleges that, “[n]otwithstanding the Hess/Statoil Agreement, and Hess’
agreement with Statoil to breach the Agreement, Hess remains subject to and
responsible for its obligations under the Agreement.” Id. at 7, ¶ 34.
“Unless the obligee agrees otherwise, neither delegation of performance nor a
contract to assume the duty made with the obligor by the person delegated discharges
any duty or liability of the delegating obligor.” Restatement (Second) of Contracts
§ 318; see also Club Telluride Owners Ass’n, Inc. v. Mitchell, 70 P.3d 502, 504 (Colo.
App. 2002) (citing the Restatement (Second) of Contracts for the principle that “[a]n

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obligor may effectively delegate performance to another who is willing to perform the
delegated duty, but the obligor remains liable as surety unless the obligee consents to
the delegation.”).
Spring Creek alleges that Statoil, as assignee of Hess Bakken’s rights under the
AMI, has been paying interest on only a “portion of the Existing Leases.” Docket No. 3
at 6, ¶ 27. Hess Bakken does not argue that Spring Creek consented to any delegation
of its obligations under the AMI. The complaint alleges that Statoil has not fully
performed on the contractual obligation to pay royalties on existing leases and that
Hess Bakken is liable for this non-performance. This is sufficient to state a claim for
breach of contract.
2. Breach of Implied Covenant of Good Faith and Fair Dealing
In Colorado, “every contract contains an implied duty of good faith and fair
dealing.” Amoco Oil Co. v. Ervin, 908 P.2d 493, 498 (Colo. 1995). The duty to act in
good faith applies when the parties, at the time of contract formation, defer a decision
regarding certain terms of performance (such as quantity, price, or time) leaving one
party with discretion to set such terms during the course of its performance. Id. Good
faith performance under such circumstances entails “faithfulness to an agreed common
purpose and consistency with the justified expectations of the other party.” Id. (citation
omitted). “A party’s justified expectations are violated if evidence indicates it would not
have signed the contract had it known of the manner in which the party given discretion
would exercise its discretion to determine open terms under a contract.” ADT Security
Servs., Inc. v. Premier Home Protection, Inc., 181 P.3d 288, 293 (Colo. App. 2007).

13

The implied covenant cannot, however, be used to impose obligations that conflict with
the express terms of the agreement or to “inject substantive terms into the contract.” Id.
Spring Creek alleges that Hess Bakken breached the implied covenant of good
faith and fair dealing by “entering into an agreement that prohibited [Hess Bakken] from
acquiring any new leases within the Tomahawk Prospect, failing to disclose those
terms, and failing to make efforts to obtain new leases.” Docket No. 3 at 8-9, ¶ 47.
Hess Bakken argues that Spring Creek is attempting to insert a “best efforts” clause into
the AMI for which the parties did not bargain. Docket No. 13 at 7.
As discussed above, the AMI only defines Hess Bakken’s obligations in the
event that it acquires new leases. Docket No. 3 at 27. It does not obligate Hess
Bakken to acquire any additional leases, or to continue pursuing leases in perpetuity.
Spring Creek also alleges that Hess Bakken breached the implied covenant of
good faith and fair dealing by failing to disclose the terms of the Hess/Statoil Agreement
to Spring Creek. Docket No. 3 at 8-9, ¶ 47. But Spring Creek alleges no facts that
suggest a justified expectation that Hess Bakken would disclose the terms of all future
agreements that affected its interests in the Tomahawk Prospect. Accordingly, Spring
Creek has failed to state a claim for breach of the implied covenant of good faith and
fair dealing.
3. Fraudulent Concealment
Spring Creek alleges that Hess Bakken breached its “duty to disclose to Spring
Creek the fact that Hess was no longer acquiring new leases within the Tomahawk
Prospect and that [it] had no intention of assigning Spring Creek its Override Interests in
the New Leases” acquired by Statoil. Docket No. 3 at 9, ¶ 57. Spring Creek further
14

alleges that Hess Bakken fraudulently concealed this information in order to prevent
Spring Creek from acquiring its own leases in the Tomahawk Prospect and that Spring
Creek did in fact refrain from acquiring its own leases in reliance on its justified
expectation that Hess Bakken was continuing to acquire leases. Id. at 10, ¶¶ 59-60.
Hess Bakken argues that Spring Creek’s fraudulent concealment claim is barred by the
economic loss doctrine. Docket No. 13 at 8-9.
The tort of fraudulent concealment has five elements:
(1) the concealment of a material existing fact that in equity and good
conscience should be disclosed; (2) knowledge on the part of the party
against whom the claim is asserted that such a fact is being concealed;
(3) ignorance of that fact on the part of the one from whom the fact is
concealed; (4) the intention that the concealment be acted upon; and
(5) action on the concealment resulting in damages.
BP America Production Co. v. Patterson, 263 P.3d 103, 109 (Colo. 2011) (citation
omitted).
The economic loss doctrine is a judicially-created rule under which “a party
suffering only economic loss from the breach of an express or implied contractual duty
may not assert a tort claim for such a breach absent an independent duty of care under
tort law.” Haynes Trane Serv. Agency, Inc. v. Am. Standard, Inc., 573 F.3d 947, 962
(10th Cir. 2009) (citing Town of Alma v. AZCO Constr., Inc., 10 P.3d 1256, 1259-62
(Colo. 2000)). A duty is considered independent of a contract when two conditions are
satisfied: “[f]irst, the duty must arise from a source other than the relevant contract”; and
“[s]econd, the duty must not be a duty also imposed by the contract.” Id. at 962.
The Colorado Supreme Court has identified three policy reasons to support the
application of the economic loss rule between commercial parties: (1) maintaining the
15

distinction between contract and tort law; (2) enforcing expectancy interests of the
parties so that they can reliably allocate risks and costs during bargaining; and
(3) encouraging parties to build cost considerations into contracts since they will not
recover economic damages in tort. BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 72
(Colo. 2004).
A claim for fraudulent concealment sounds in tort. Barfield v. Hall Realty, Inc.,
232 P.3d 286, 292 (Colo. App. 2010). In order to recover on this claim, Spring Creek
must show that Hess Bakken had a duty to Spring Creek to disclose certain information
about its agreement with Statoil that is independent of the Agreement and the AMI.
See Haynes Trane, 573 F.3d at 962. Spring Creek argues that Hess Bakken had an
independent duty because it was “in a position of superior knowledge [vis-à-vis Spring
Creek] and used that knowledge to [its] advantage.” Docket No. 33 at 11.
Spring Creek’s reasoning is circular. If a duty to disclose arose whenever a
contractual party has superior information that it does not disclose, then there would be
no need for courts to determine whether a party had an independent duty to disclose.
Such a holding would be equivalent to a blanket finding that the economic loss doctrine
does not bar fraudulent concealment claims. Colorado courts have resisted articulating
such a broad rule. Instead, they have held that an alleged misrepresentation that
relates to the ongoing performance of a contract and occurs after the parties have
“bargained for the allocation of risks, duties, and remedies” is barred by the economic
loss rule. BRW, Inc. v. Dufficy & Sons, Inc., 99 P.3d 66, 75 (Colo. 2004); A Good Time
Rental, LLC v. First Am. Title Agency, Inc., 259 P.3d 534, 541 (Colo. App. 2011)

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(negligent misrepresentation claim barred by economic loss doctrine where defendant
falsely represented that it was performing a contractual obligation); Rees v. Unleaded
Software, Inc., --- P.3d ----, 2013 WL 6354532, at *3-4 (Colo. App. Dec. 5, 2013)
(fraudulent misrepresentation claim based on party’s failure to perform contractual
duties was barred by the economic loss doctrine because parties were “sophisticated
business entities” that “had the ability to account for the risk of nonperformance”).
Furthermore, although a relationship of trust and confidence can arise when one
party occupies a position superior to the other, see First Nat’l Bank of Meeker v. Theos,
794 P.2d 1055, 1060-61 (Colo. App. 1990), “superiority” in this context inheres in the
structure of the parties’ relationship. See United Fire & Cas. Co. v. Nissan Motor Corp.
in U.S.A., 433 P.2d 769, 770-71 (Colo. 1967) (“A confidential relationship has been
defined as one ‘between two persons when it is established that one occupies a
superior position over the other–intellectually, physically, governmentally or
morally–with the opportunity to use that superiority to the other’s disadvantage.”).
Spring Creek does not allege that Hess Bakken occupied a superior position
“intellectually, physically, governmentally or morally,” see id., only that it had superior
information that it did not disclose to Spring Creek.
Spring Creek does not allege misrepresentations or omissions on Hess Bakken’s
part that fraudulently induced Spring Creek to enter into a contract, but rather alleges
that Hess Bakken fraudulently concealed the fact that it was not performing its duties
under an existing contract. Docket No. 3 at 9, ¶ 56. This claim is barred by the
economic loss doctrine because the alleged misrepresentation took place while the

17

parties were performing the contract and pertained to Hess Bakken’s alleged breach of
the contract, not to the circumstances that initially induced Spring Creek to enter into
the contract. See BRW, 99 P.3d at 75; A Good Time Rental, 259 P.3d at 541.
B. Claims Against Statoil
As a threshold matter, in addressing plaintiff’s claims against Statoil, the Court
must decide which state’s laws govern. In a diversity case, a federal court must apply
the choice of law rules of the forum state. Klaxon Co. v. Stentor Electric Mfg. Co., 313
U.S. 487 (1941); Tucker v. R.A. Hanson Co., Inc., 956 F.2d 215, 217 (10th Cir. 1992).
Statoil argues for the first time in its reply that North Dakota law applies to Spring
Creek’s allegations against it because North Dakota is the situs of the real property at
issue. Docket No. 34 at 1-2. In a surreply filed to address choice of law issues, Spring
Creek argues that its claims do not relate directly to leases in property, but rather to the
performance of obligations under the Agreement as well as the circumstances
surrounding the agreement between Hess Bakken and Statoil. Docket No. 47 at 3.
Spring Creek is correct that North Dakota law does not apply to all of its claims
simply because the real property at issue is located in that state. The cases cited by
Statoil stand only for the proposition that claims involving “the rights and titles” to real
property are governed by the law of the situs. Wolf v. Burke, 32 P. 427, 429 (Colo.
1893); see also Clarke v. Clarke, 178 U.S. 186, 191 (1900) (“It is a principle firmly
established that to the law of the state in which the land is situated we must look for the
rules which govern its descent, alienation, and transfer”) (emphasis added). Spring
Creek’s breach of contract and tort claims do not involve rights and title to real property.

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Accordingly, the Court looks to Colorado’s choice of law rules to determine which law
governs Spring Creek’s respective claims.
As Spring Creek points out in its surreply, the AMI contains a choice of law
provision that provides that Colorado law governs the agreement. Docket No. 3 at 29, ¶
7. For contract claims, Colorado courts apply the law chosen by the parties “unless
there is no reasonable basis for their choice or unless applying the law of the state so
chosen would be contrary to the fundamental policy of a state whose law would
otherwise govern.” Hansen v. GAB Bus. Servs., Inc., 876 P.2d 112, 113 (Colo. App.
1994) (citing Restatement (Second) of Conflict of Laws § 187 (1971)). Here, there was
a reasonable basis for selecting Colorado law because Spring Creek is a Colorado
limited liability company, notices under the AMI are directed to each of the signatories in
Colorado, and the Agreement appears to have been negotiated in Colorado.
Accordingly, the Court will apply Colorado law to Spring Creek’s breach of contract
claim.
With respect to its tort claims, Spring Creek argues first that the Court lacks
sufficient facts to determine choice of law on a motion to dismiss, Docket No. 47 at 4-5
(citing Susquehanna Inv. Group v. Amgen Boulder, Inc., 918 F. Supp. 326, 329 (D.
Colo. 1996)), and, in the alternative, that Colorado law should apply based on
application of the “most significant relationship” test. Id. at 6. Because neither party
has demonstrated a substantial difference between the laws of Colorado and North

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Dakota with respect to Spring Creek’s tort claims, it is unnecessary to decide which
state’s law should apply to those claims at this time.6
1. Breach of Contract
Spring Creek alleges that Statoil, as assignee of the AMI, breached the AMI by
1) failing to disclose to Spring Creek all leases it acquired within the Tomahawk
Prospect, 2) failing to assign to Spring Creek its Override Interests in the New
Leases acquired by Statoil, and 3) failing to honor Spring Creek’s Override
Interests on all of the Existing Leases.
Docket No. 3 at 8, ¶ 41. Statoil contends that Spring Creek fails to state a claim upon
which relief can be granted because (1) it is not an assignee of the AMI and thus is not
liable for any of the obligations that arise under it, and (2) Spring Creek’s claims with
respect to existing leases are too conclusory to state a claim for breach of contract.
Docket No. 34 at 3-5.
a. Assignment of the AMI
Because the obligations to acquire new leases in the Tomahawk Prospect and to
notify Spring Creek of any newly-acquired leases arise from the AMI, Docket No. 3 at 4,
¶ 14, and because Statoil is not a signatory to the AMI, Spring Creek’s first two breach
of contract theories against Statoil–failure to disclose all leases acquired within the
Tomahawk Prospect and failure to assign override interests in newly-acquired

6

See Excell, Inc. v. Sterling Boiler & Mech., Inc., 106 F.3d 318, 320-21 (10th Cir.
1997) (finding it unnecessary to determine choice of law issue where state law and
federal common law were substantially similar); see also Klocek v. Gateway, Inc., 104
F. Supp. 2d 1332, 1337 (D. Kan. 2000) (finding it unnecessary to determine choice of
law matter on a motion to dismiss where “the [c]ourt discerns no material difference
between the applicable substantive law”).
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leases–depend on Statoil being an assignee of that agreement. Section 328 of the
Restatement (Second) of Contracts provides:
(1) Unless the language or the circumstances indicate the contrary, as in an
assignment for security, an assignment of “the contract” or of “all my rights under
the contract” or an assignment in similar general terms is an assignment of the
assignor’s rights and a delegation of his unperformed duties under the contract.
(2) Unless the language or the circumstances indicate the contrary, the
acceptance by an assignee of such an assignment operates as a promise to the
assignor to perform the assignor’s unperformed duties, and the obligor of the
assigned rights is an intended beneficiary of the promise.
Statoil argues that the Bill of Sale contains no language purporting to assign the AMI.
Docket No. 34 at 3-4. In response, Spring Creek argues that “other well-pled
allegations in the Complaint” explain that “the Hess/Statoil Bill of Sale is one part of the
larger Hess/Statoil Agreement, portions of which had not been disclosed to Spring
Creek, wherein Hess assigned all of its rights and obligations under the Agreement to
Statoil.” Docket No. 47 at 11-12 (citing Docket No. 3 at 6, ¶¶ 23-26) (emphasis in
original).
The Court finds that Spring Creek has plausibly pled that Statoil is the Assignee
of the Agreement and AMI. Although Spring Creek has not attached or alleged the
contents of the entire Hess/Statoil Agreement, the complaint contains “direct or
inferential allegations respecting all the material elements necessary to sustain a
recovery under some viable legal theory.” Bryson, 534 F.3d at 1286 (alteration and
quotation omitted). While the Bill of Sale contains no language that references the AMI,
Spring Creek alleged that the Bill of Sale was only “part of th[e] transaction” between
Hess Bakken and Statoil. Docket No. 3 at 6, ¶ 23. Spring Creek further alleged that

21

“[t]hrough the Hess/Statoil Agreement, Statoil became the successor and/or assignee
of Hess for the Agreement. Id. at 5, ¶ 18.
b. Failing to Disclose New Leases
Spring Creek alleges no facts that support a breach of contract theory based on
failure to disclose new leases. As discussed above in regard to Spring Creek’s breach
of contract claims against Hess Bakken, the complaint alleges only that Statoil has not
assigned override interests for the new leases to Spring Creek, not that it has failed to
disclose the leases it has acquired. See Docket No. 3 at 6, ¶ 28. Accordingly, Spring
Creek fails to state a claim for breach of contract against Statoil with respect to alleged
failure to disclose new leases.
c. Failing to Assign Override Interests In New Leases
Statoil does not contest that if it were an assignee of the AMI, it would be
obligated to satisfy Hess Bakken’s contractual obligation to assign override interests in
newly-acquired leases to Spring Creek. See generally Docket No. 34 at 3-4. Because
Spring Creek has sufficiently alleged that Statoil is an assignee of the Agreement
(including the AMI), Spring Creek has also adequately pled that Statoil breached the
Agreement by failing to assign override interests in its newly-acquired leases.
Specifically, Spring Creek alleged that, after entering into the Hess/Statoil agreement,
Statoil “has acquired numerous new oil and gas leasehold interests within the
Tomahawk Prospect” and that “[n]either . . . Statoil, or Hess . . . have assigned any
Override Interests to Spring Creek, as required by the AMI, for the New Leases.”

22

Docket No. 3 at 6, ¶ 28. These allegations are sufficient to state a claim for breach of
contract.
d. Failing to Honor Royalty Interests in Existing Leases
Spring Creek alleges that Statoil failed to honor Spring Creek’s override interests
in all of the existing leases. Docket No. 3 at 8, ¶ 41. Statoil argues that Spring Creek
did not plead “what agreement Statoil breached” in relation to those leases, and
provided only “conclusory allegations concerning an alleged breach or resulting
damages.” Docket No. 34 at 5-6.7 While Spring Creek’s allegations with respect to
existing leases are cursory, the Court finds that they are plausible and sufficient to put
Statoil on notice of its claim. Spring Creek has alleged that Statoil took Hess’s
leasehold interests subject to Spring Creek’s overriding royalty interests. Docket no. 3
at 6, ¶ 24. Spring Creek further alleged that Statoil failed to honor all of those interests.
Id. at 8, ¶ 41. Thus, Spring Creek has stated a claim for failure to honor royalty
interests in existing leases.
2.

Tortious Interference with Contract

Spring Creek alleges that Statoil interfered with the Agreement and AMI by (1)
“induc[ing] Hess to enter into an agreement that prohibited Hess from acquiring any
new oil and gas leases in the Tomahawk Prospect,” Docket No. 3 at 9, ¶ 50; (2)
insisting that Hess not disclose the terms of the Hess/Statoil Agreement to Spring
Creek, id. ¶ 52; and (3) intentionally structuring its agreements with Hess so that it could
7

Statoil raises this argument for the first time in its reply brief. Although parties
should generally refrain from raising new arguments in support of dismissal in their
reply papers, the Court finds that Spring Creek had sufficient opportunity to respond in
its surreply and will consider Statoil’s argument.
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claim it was not obligated to honor the terms of the AMI. Id. ¶ 53. Spring Creek further
alleges that Statoil was aware of the terms of the Agreement and knew that Hess
Bakken would be in breach of the Agreement if it entered into the Hess/Statoil
Agreement. Id. ¶ 51.
In Colorado:
“[o]ne who intentionally and improperly interferes with the performance of a
contract (except a contract to marry) between another and a third person by
inducing or otherwise causing the third person not to perform the contract, is
subject to liability to the other for the pecuniary loss resulting to the other from
the failure of the third person to perform the contract.”
Memorial Gardens, Inc. v. Olympian Sales & Management Consultants, Inc., 690 P.2d
207, 210 (Colo. 1984) (quoting Restatement (Second) of Torts § 766 (1977)) (emphasis
in original).
Statoil notes that protection of contractual relations is not absolute and must be
“balanced against other interests including the ability to engage in business and
compete with others.” Docket No. 7 at 12. While there is a degree of protection for
business competition, where a contract is not terminable at will “the parties have a legal
right to the future performance of the contract, and the interests of the parties to the
contract outweigh the interests in competition.” Memorial Gardens, 690 P.2d at 211.
Thus, interference with a contract not terminable at will is considered “improper.” Id.
Statoil does not argue that the Agreement was terminable at will, and in fact argues the
opposite. In opposing Spring Creek’s claim for breach of contract, Statoil
acknowledges that the AMI was for a term of three years. Docket No. 7 at 10; see also
Docket No. 3 at 27 (providing that “[t]he term of the AMI shall be three (3) years”).

24

Because the AMI was for a defined term and thus does not appear to be terminable at
will, interfering with the AMI could be improper under the balancing test applied by
Colorado courts.
Here, Spring Creek has failed to state a claim for tortious interference with
contractual relations. As discussed above, the AMI cannot reasonably be interpreted to
require Hess Bakken to acquire new leases. As such, Statoil correctly argues that it
cannot have interfered with a contractual obligation that did not exist. Docket No. 7 at
12. With respect to the claim that Statoil caused Hess Bakken to keep the terms of the
Hess/Statoil Agreement secret, Spring Creek identifies no provision in the Agreement
that Hess Bakken breached as a result of Statoil’s alleged actions. Likewise, the claim
that Statoil is liable for tortious interference with contractual relations for structuring the
Hess/Statoil Agreement so that it would have a plausible claim that it was not obligated
to assign its override interests to Spring Creek fails to identify how this conduct caused
a breach on Hess Bakken’s part. Under well-established law, parties to an assignment
agreement are free to apportion rights and obligations under the assigned contract
however they please. See Restatement (Second) of Contracts, § 328 (1981) (providing
that an assignment of the whole contract operates as a delegation of unperformed
duties under that contract “[u]nless the language or the circumstances indicate the
contrary”) (emphasis added).8
8

Statoil argues in its reply that North Dakota law requires a showing that
interference with contractual relations was not “justified.” Docket No. 34 at 6. The
Court finds that the laws of the two states are substantially similar, and the slight
differences in the articulation of the elements of tortious interference with contractual
relations between North Dakota and Colorado do not alter its analysis. In North Dakota,
actions are justified if they are done for “legitimate business concerns and did not
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3. Fraudulent Concealment
Spring Creek alleges that Statoil breached a “duty to disclose to Spring Creek
the fact that Hess [Bakken] was no longer acquiring new leases within the Tomahawk
Prospect and that [it] had no intention of assigning Spring Creek its Override Interests in
the New Leases” acquired by Statoil. Docket No. 3 at 9, ¶ 57. Statoil argues that it had
no duty to disclose this information to Spring Creek. Docket No. 7 at 13.
Colorado courts look to the Restatement to determine whether “the
circumstances of a particular case give rise to a duty to disclose in ‘equity or good
conscience.’” Mallon Oil Co. v. Bowen/Edwards Associates, Inc., 965 P.2d 105, 111
(Colo. 1998) (citing Restatement (Second) of Torts § 551 (1977)). For a claim of
fraudulent concealment, the Restatement contemplates a duty to disclose between
parties to a transaction, and then only before the transaction is completed. See
Restatement (Second) of Torts §§ 551(1) (“[o]ne who fails to disclose to another a fact
that he knows may justifiably induce the other to act or refrain from acting in a business
transaction” may be liable) (emphasis added); 551(2) (“[o]ne party to a business
transaction is under a duty to exercise reasonable care to disclose to the other before
the transaction is consummated...”) (emphasis added). Spring Creek alleges that
Statoil had a duty to disclose the facts of the Hess/Statoil agreement to Spring Creek, a
non-party to the alleged agreement. Docket No. 3 at 9, ¶ 57. Spring Creek cites no

maliciously seek to damage the plaintiff.” Thimjon Farms P’ship v. First Int’l. Bank &
Trust, 837 N.W.2d 327, 334 (N.D. 2013). In Colorado, courts are directed to “examine
various factors,” including the “nature of the actor’s conduct” and the “actor’s motive.”
Memorial Gardens, 690 P.2d at 210, n.7 (citing Restatement (Second) of Torts §§ 766767 (1977).
26

case, and the Court is aware of none, that has found a duty to disclose the terms of a
contract to non-parties who may be affected by the agreement. See Plateau Supply
Co. v. Bison Meadows Corp., 500 P.2d 162, 165 (Colo. App. 1972) (no liability for
failure to disclose in the absence of a “confidential relationship” between the parties).
Because it alleges no facts that support a duty to disclose the terms of the Hess/Statoil
Agreement, Spring Creek has failed to state a claim for fraudulent concealment against
Statoil.
C. Civil Conspiracy Against Hess Bakken And Statoil
Spring Creek alleges that Hess Bakken and Statoil engaged in an unlawful
scheme to “commit the tortious acts identified in th[e] Complaint.” Docket No. 3 at 10, ¶
63. Defendants argue that Spring Creek cannot prove any underlying tort claim, and
therefore the derivative claim of civil conspiracy must also fail. Docket No. 7 at 14;
Docket No. 13 at 9.
The elements of a civil conspiracy are: “(1) two or more persons, and for this
purpose a corporation is a person; (2) an object to be accomplished; (3) a meeting of
the minds on the object or course of action; (4) one or more unlawful overt acts; and (5)
damages as the proximate result thereof.’” Jet Courier Serv., Inc. v. Mulei, 771 P.2d
486, 502 (Colo. 1989) (quoting More v. Johnson, 568 P.2d 437, 439-40 (Colo. 1977));
see Walker v. Van Laningham, 148 P.3d 391, 396 (Colo. App. 2006).
Because Spring Creek failed to state a claim against either defendant for
fraudulent concealment and has failed to state a claim against Statoil for tortious
interference with contractual relations, it cannot maintain a derivative cause of action for

27

civil conspiracy with respect to its underlying tort claims. See Vickery v. Evelyn V.
Trumble Living Trust, 277 P.3d 864, 871 (Colo. App. 2011) (if “the acts alleged to
constitute the underlying wrong provide no cause of action, then there is no cause of
action for the conspiracy itself”) (citation and quotation omitted).
IV. CONCLUSION
For the foregoing reasons, it is
ORDERED that Defendants Statoil and Hess Bakken’s Motions to Dismiss
Pursuant to Fed. R. Civ. P. 12(b)(6) [Docket Nos. 7 and 13] are each GRANTED in part
and DENIED in part. It is further
ORDERED that Plaintiff’s third, fourth, fifth and sixth claims for relief are
dismissed with prejudice. It is further
ORDERED that Plaintiff’s first claim for relief is dismissed with prejudice with
regard to the theories that Hess Bakken failed to disclose leases acquired after April
2010 and failed to acquire new leases. Plaintiff may proceed with his first claim for
relief based on Hess Bakken’s alleged breach of the confidentiality provision and failure
to honor royalty interests in existing leases. It is further
ORDERED that Plaintiff’s second claim for relief is dismissed with prejudice with
regard to failure to disclose all leases acquired by Statoil. Plaintiff may proceed with its
second claim for relief based on Statoil’s alleged failure to assign override interests in
new leases to Spring Creek and failure to honor royalty interests in existing leases.

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DATED September 5, 2014.
BY THE COURT:

s/Philip A. Brimmer
PHILIP A. BRIMMER
United States District Judge

29