Phelps Oil and Gas, LLC v. Noble Energy, Inc. et al

Filing 85

ORDER approving and adopting 55 Recommendation of the United States Magistrate Judge. That DCP Midstream, LP's Motion To Dismiss Pursuant to Fed. R. Civ. P. 12(b)(6) 24 is granted. Defendant DCP Midstream, LP is dropped as a party to this action. By Judge Robert E. Blackburn on 9/22/2015.(mlace, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
Civil Case No. 14-cv-2604-REB-CBS
PHELPS OIL AND GAS, LLC, on behalf of itself
and a class of similarly situated royalty owners,
Plaintiff,
v.
NOBLE ENERGY, INC. and
DCP MIDSTREAM, LP,
Defendants.

ORDER ADOPTING RECOMMENDATION OF THE
UNITED STATES MAGISTRATE JUDGE
Blackburn, J.
The matters before me are: (1) DCP Midstream, LP’s Motion To Dismiss
Pursuant to Fed. R. Civ. P. 12(b)(6) [#24]1 filed October 14, 2014; and (2) the
corresponding recommendation of the United States Magistrate Judge [#55] filed April
24, 2015. The recommendation was stated by the magistrate judge from the bench at
the conclusion of a hearing on the motion to dismiss. A transcript of that hearing,
including the recommendation, can be found at [#67]. The plaintiff filed objections [#65]
to the recommendation, defendant DCP Midsteam, LP filed a response [#68], the
plaintiff filed a reply [#73], and DCP Midstream filed a sur-reply [#77]. I overrule the
objections and approve and adopt the recommendation.

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“[#24]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s case management and electronic case filing system (CM/ECF). I use this
convention throughout this order.

As required by 28 U.S.C. § 636(b), I have reviewed de novo all portions of the
recommendation to which the plaintiff objects. I have considered carefully the
recommendation, the objections, the other filings in this case, and the applicable case
law.
The plaintiff, Phelps Oil and Gas, LLC, receives royalties from the natural gas
drilling operations of defendant Noble Energy, Inc. on certain mineral leases. Those
royalties are also the subject of a class action settlement agreement under which
Phelps and others receive royalties from the natural gas drilling operations of Noble.
Co-defendant, DCP Midstream, LP, provides post-wellhead services to Noble under a
series of contracts between DCP and Noble. DCP buys natural gas from Noble,
processes the gas to make it ready for sale, and then sells the gas. Under percentageof-proceeds agreements (POP agreements) between Noble and DCP, Noble receives
from DCP a percentage of the proceeds from the sale of the gas subject to the POP
agreements. Some of the gas that is subject to the agreements between Phelps and
Noble goes through the DCP post-wellhead services prior to sale.
In its complaint, Phelps alleges that DCP has failed to pay to Noble the proper
amounts due to Noble under the POP agreements between DCP and Noble. As a
result, Phelps alleges, Noble has not paid Phelps the full amount of royalties due to
Phelps under the contracts between Phelps and Noble. On this basis, Phelps alleges
against DCP a claim for breach of contract, with Phelps claiming to be a third-party
beneficiary of the POP agreements between DCP and Noble. Phelps also asserts a
claim seeking declaratory judgment for a determination of rights under the POP
agreements between DCP and Noble. In the alternative, Phelps alleges a claim for
unjust enrichment against DCP.
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After a thorough review of the complaint [#7], the briefs of the parties, and the
apposite law, the magistrate judge recommends that the motion to dismiss of DCP be
granted. The magistrate judge concludes that the facts alleged by Phelps, including the
content of the relevant POP contracts, are insufficient to state a claim for breach of
contract because the allegations and the POP contracts do not show that Phelps or the
class of royalty interests it seeks to represent are third-party beneficiaries of the POP
contracts between DCP and Noble. On this basis, the magistrate judge recommends
that the claim for breach of contract against DCP and the closely related claim for
declaratory judgment against DCP be dismissed with prejudice.
Turning to the claim for unjust enrichment against DCP, the magistrate judge
recommends that this claim be dismissed because the allegations in the complaint in
support of this claim are conclusory and are not sufficient to satisfy the standards for
pleading of Fed. R. Civ. P. 12(b)(6). Finding that it is conceivable that Phelps could
allege facts in support of such a claim against DCP, the magistrate judge recommends
that this claim be dismissed without prejudice.
In the objections [#65], response [#68], reply [#73], and sur-reply [#77], the
parties again argue the applicable law as applied to the allegations in the complaint and
the terms of the POP contracts between DCP and Noble. DCP contends, contrary to
the recommendation, that the claim for unjust enrichment should be dismissed with
prejudice.
The magistrate judge provides in the recommendation a thorough description of
relevant allegations and the terms of the POP agreements. In addition, he provides an
accurate application of the law to those allegations and contract terms. Properly, the
magistrate judge concludes that the motion to dismiss of DCP should be granted, the
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claims for breach of contract and declaratory judgment should be dismissed with
prejudice as to DCP, and the claim for unjust enrichment against DCP should be
dismissed without prejudice. Nothing in the objections [#100] of the plaintiff vitiates the
reasoning and conclusions of the magistrate judge. Therefore, I overrule the objections,
approve and adopt the recommendation [#55] as stated in the transcript [#67] and grant
the motion to dismiss.
THEREFORE, IT IS ORDERED as follows:
1. That the recommendation of the United States Magistrate Judge [#55] filed
April 24, 2015, as stated in the transcript [#67], is approved and adopted as an order of
this court;
2. That DCP Midstream, LP’s Motion To Dismiss Pursuant to Fed. R. Civ. P.
12(b)(6) [#24] filed October 14, 2014, is granted;
3. That the claims for breach of contract claim and the declaratory judgment of
the plaintiff against defendant DCP Midstream, LP are dismissed with prejudice;
4. That the claim for unjust enrichment of the plaintiff against defendant DCP
Midstream, LP is dismissed without prejudice; and
5. That defendant DCP Midstream, LP is dropped as a party to this action, and
the caption shall be so amended.
Dated September 22, 2015, at Denver, Colorado.
BY THE COURT:

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