Synergy Resources Corporation v. Briller, Inc. et al

Filing 98

ORDER granting in part 63 Motion for Partial Summary Judgment. by Judge R. Brooke Jackson on 5/5/16.(jdyne, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge R. Brooke Jackson
Civil Action No 15-cv-01337-RBJ
SYNERGY RESOURCES CORPORATION, a Colorado corporation,
Plaintiff/Counterclaim Defendant,
and
EDWARD HOLLOWAY, an individual, and
CRAIG D. RASMUSON, an individual,
Counterclaim Defendants,
v.
BRILLER, INC., Nebraska corporation,
R.W.L. ENTERPRISES, and
ROBERT W. LOVELESS,
Defendants/Counterclaim Plaintiffs,

ORDER on CROSS MOTION FOR SUMMARY JUDGMENT

Defendant’s cross-motion for what amounts to partial summary judgment, ECF No. 63, is
granted for the reasons discussed in this order.
BACKGROUND
The Court set forth the background facts and history in its order of March 10, 2016
concerning two motions to dismiss, ECF No. 74, and will repeat only so much of the story as is
necessary to resolve the pending motion.

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Defendant Briller, Inc. is the lessee of two oil and gas leases on land in Weld County,
Colorado, referred to as the 1982 and 1985 leases. The 1982 lease had a primary term of three
years. It provided, however, that it would continue beyond the primary term as long as oil or gas
continued to be produced but would terminate if production ceased unless lessee resumed
operations for re-working or drilling a well within sixty (60) days from such cessation.” ECF
No. 27-1 at ¶¶2, 12. The 1985 lease had a primary term of 10 years. Like the 1982 lease it
provided that the lease would continue beyond the primary term as long as oil or gas continued
to be produced but would terminate if production ceased unless the lessee commenced additional
drilling or re-working operations within 90 days. ECF No. 27-2 at ¶1.
Based on its review of Briller’s records in the public file at the Colorado Oil & Gas
Commission the plaintiff, Synergy Resources Corporation, became convinced that both leases
appeared to have terminated under their respective cessation of production clauses. It notified
Briller of its position, attempted unsuccessfully to obtain confirming records from Briller, and
apparently made some unsuccessful attempts to negotiate a deal with Briller. Ultimately,
Synergy obtained leases from the individuals and entities that it believed were the owners of the
relevant mineral rights and proceeded with exploration and development activities, including the
drilling of eight horizontal wells that crossed through the lands that had been subject to the
Briller leases.
Briller was not pleased. It asserts that its leases had not expired, and that Synergy was
trespassing on its leaseholds. In this suit, removed from the Weld County District Court,
Synergy seeks a declaratory judgment as to whether the 1982 and 1985 Briller leases expired by
their terms (and a second claim seeking damages caused by defendants’ alleged interference with
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Synergy’s contracts with the mineral owners from whom Synergy obtained leases). Verified
Complaint, ECF No. 11. Defendants counterclaimed for a declaration that the leases had not
expired, and defendant Briller added counterclaims against Synergy and two of its principals,
Edward Holloway and Craig D. Rasmuson, for damages and injunctive relief based on theories
of trespass, bad faith trespass and conversion. ECF No. 10. Later, after Synergy filed an
Amended Complaint, Briller expanded its counterclaims to add a claim for civil theft. ECF No.
37 at 66.
During the initial scheduling conference on October 30, 2015 the parties agreed that the
first step would be to resolve whether the two Briller leases had expired due to cessation of
production. Briller was about to produce its production records, but Synergy was skeptical about
the bona fides of those records. The parties agreed, however, that the answer could probably be
found in the records of a third party, DCP Midstream, which purchased the production from the
Greeley Tech Center #41-5 Well. The records were later obtained, but the dispute was not
resolved.
Defendants filed a motion in which they argued that Synergy is not a real party in
interest, and that more than 40 mineral owners from whom Synergy obtained leases must be
joined as additional parties to this case. ECF No. 36. The Court denied it. ECF No. 74.
Counterclaim defendants Holloway and Rasmussen filed a motion to dismiss the claims against
them personally. ECF No. 47. The Court granted it. ECF No. 74. That left pending defendants’
motion for summary judgment, ECF No. 63, which has been fully briefed. Both parties have
made the briefing more complicated than it needed to be. The simple question posed, and that
the Court now answers, is whether either or both Briller leases expired.
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ANALYSIS
A. The 1982 Lease.
Reversing its initial position, defendants now contend that the 1982 lease did expire by its
terms. ECF No. 63 at 10. Synergy agrees. ECF No. 68 at 8. I need not discuss it further.
B. The 1985 Lease.
The original 10-year term has long since expired. However, it is undisputed that
production continued thereafter. It is also undisputed that production ceased from April 22, 2004
to July 20, 2004, a period of 90 days. Defendants argue that the period of cessation totaled “no
more than 90 days.” ECF No. 63 at 8. That argument goes nowhere, because for resumption of
production to rescue the lease from the cessation clause, production must resume “within 90
days.” ECF No. 27-2 at ¶1. It did not. In fact, Briller’s own evidence suggests that the well was
re-started on July 22, 2004. ECF No. 63-18, discussed below.
However, the cessation clause provides, “this lease shall not terminate if Lessee
commences additional drilling or re-working operations within ninety (90) days from the date of
cessation of production or from the date of completion of any dry hole.” ECF No. 27-2 at ¶1.
(emphasis added). Defendants argue that the lessee did commence reworking operations within
the 90-day period and support this argument with the following:
•

An affidavit of defendant Robert W. Loveless, the President of Briller, Inc. and the owner
of R.W.L. Enterprises, Inc. ECF No. 62-23. He states, “The reason the GTC Well
ceased producing from April 22, 2004 to July 20, 2004 was because there was a leak in
the separator and the gas purchaser requested that the separator be turned off. A
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separator is a tank in which gas in solution is separated from the oil as the combined
hydrocarbons are produced from the well. The separator needed to be replaced.” Id at
¶37.
•

Mr. Loveless states, “I hired Triple L Sales & Service to repair or replace the separator in
order to restore the GTC well to production. Triple L Sales & Service sold oilfield
equipment and serviced said equipment in the regular course of its business. I had a
continuing business relationship with Triple L Sales & Service for over 20 years, so I am
familiar with its business practices.” Id. at ¶38.

•

Mr. Loveless further states that James Pettyjohn was the sole owner and operator of
Triple L Sales & Service, but he is deceased, and Triple L no longer exists as a going
concern. Id. at ¶39.

•

Defendants provide an invoice from Triple L Sales & Service of Fort Morgan, Colorado
to RWL Enterprises dated July 31, 2004. ECF No. 63-18. The invoice states that on July
15, 2004 Triple L’s personnel “went to lease, disconnected old seperator [sic] crane to
remove old seperator (sic.) property & set new.” Id. The invoice further shows that on
July 20, 2004 Triple L returned to the site to “set seperator” [sic]; returned again on July
21, 2004 when they “piped up seperator [sic]; and finally on July 22, 2004 Triple L
“started well.” Id.

•

Although the invoice does not specifically identify the location or well number of the
well, Mr. Loveless represents that it reflects the work done to restore the GTC Well to
production, and that he has kept the original invoice in his possession among the business
records of RWL Enterprises since that time. Id. at ¶¶40-42.
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In their motion defendants argue, ‘“Reworking’ is any physical operation associated or
connected with the physical site of the well or unit intended to resolve whatever physical
difficulty resulted in the well ceasing production.” ECF No. 63 at 12 (citing Sheffield v. Exxon
Corp., 424 So. 2d 1297, 1303 (Ala. 1982)). Defendants also cite Pro-Chem, Inc. v. Lasseter
Petroleum, Inc., 837 P.2d 823 (Kan. App. 1990), which held that work done to reroute a
saltwater disposal line that was done to restore oil production constituted reworking. Id. at 826.
Synergy responds that defendants’ response to Synergy’s motion for partial summary
judgment, filed January 28, 2016, was Briller’s first indication that it began reworking operations
on July 15, 2004. ECF No. 68 at 8. Synergy then states,
Synergy has not had the opportunity to investigate this newly revealed
information and has not had the opportunity to depose any party surrounding this
“reworking” operation. As a result, significant questions of fact exist regarding
whether the “reworking” operation satisfies the 1985 Briller Lease’s cessation of
production clause.
Further, there remain mixed questions of fact and law regarding whether the
purported replacement of a separator qualifies as “reworking” under an oil and
gas lease sufficient to save the lease from termination. Briller cites no Colorado
case on point holding that replacement of a separator qualifies as “reworking”
operations, and Synergy is unaware of any such case law. Accordingly, Briller
has not satisfied the standard for summary judgment, and its Motion, therefore,
should be denied.
Defendants argue that Synergy’s response is insufficient to preclude summary judgment.
I agree. Defendants produced both an affidavit and a document that appear to establish that
Briller commenced re-working operations within the 90-day cessation period. At that point
Synergy was obliged either (1) to produce some evidence, such as through depositions, affidavits
or documents, indicating that the facts are genuinely disputed, Fed. R. Civ. P. 56(c); or (2) by
affidavit or declaration show why it cannot present facts essential to justify its opposition, Rule

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56(d); or (3) show why the facts, even if true, do not support summary judgment as a matter of
law, Rule 56(a). Synergy has done none of those things.
Synergy has, at least by now, had a reasonable opportunity to engage in investigation and
discovery. Synergy filed this case on June 23, 2015. Both parties realized from the outset that
the first question to be decided was whether the leases had expired. During the initial scheduling
conference on October 30, 2015 counsel and the Court discussed an initial period of 45 days
without depositions followed by a limited number of depositions of the mineral interest owners
from whom Synergy had obtained leases, and an initial document discovery focus on obtaining
records from DCP Midstream. ECF No. 78 at 38-40. But that initial period has long since
concluded.
On January 7, 2016 Synergy filed a motion for partial summary judgment, claiming that
“there are no genuine issues as to any material fact regarding the expiration of the leasehold
interest claimed by Defendants.” ECF No. 56 at 1. During a telephone hearing concerning
discovery disputes approximately two weeks later the Court ordered that no further deposition
would be taken at that time. ECF No. 60. On January 28, 2016 defendants filed their response
in which they advanced the re-working argument and attached the Loveless affidavit and Triple
L invoice in support. ECF No. 61 at 13-15 and Exhibits O and S (ECF Nos. 61-18 and 61-23).
This was repeated in defendants’ pending cross-motion for summary judgment filed on February
5, 2016. ECF No. 63.
On February 9, 2016 Synergy withdrew its motion for partial summary judgment,
indicating that it had discovered that there were material issues precluding summary judgment
(on the lease expiration issue). On February 29, 2016 Synergy filed its response to the pending
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motion in which it asserted that it had not had an opportunity to investigate or take depositions
concerning the reworking issue. ECF No. 68. On the following day, March 1, 2016, the Court
lifted the stay on depositions and extended the discovery cutoff to May 27, 2016. ECF No. 69.
More than three months have now passed since Synergy claims to have learned of the
reworking issue. More than two months have passed since the stay on depositions was lifted.
But there is still no indication that Synergy has developed any facts, by further investigation or
by deposition, that would establish a genuine issue of material fact concerning the reworking
issue.
But perhaps most importantly, Synergy has not has not shown by affidavit or declaration
the reason it has not been able to present facts essential to justify its opposition, nor has it
suggested any plausible avenue that it needs to explore in order to show that the is a genuine and
material dispute of fact. The Loveless affidavit provides what appears to be a reasonable
explanation as to why production ceased production on April 22, 2004, and that the separator
needed to be replaced before the well could be started up again. It does not appear that a
deposition of Mr. Loveless would likely produce a different explanation. The invoice appears to
be genuine, and Synergy has not so much hinted at any doubt about that. The owner of Triple L
apparently is deceased, and the business no longer exists as a going concern, so it does not
appear that there is a potentially helpful deposition to be taken on that end. The Court has met
with counsel twice since Synergy’s response was filed (a discovery dispute hearing on March 8
and a status conference on April 1, 2016), and on neither occasion did Synergy’s counsel say
anything about the re-working issue or the need for more time to explore it.

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Nor has Synergy developed any argument as to why the facts do not support summary
judgment on the lease termination issue as a matter of law. In its response Synergy commented
that defendants have not cited Colorado case law indicating that replacing a separator counts as
re-working. However, Synergy has not taken issue with the cases that defendants cited on the
more general subject of what constitutes re-working, nor has Synergy cited any contrary
authority, nor has it explained why changing a separator should not be viewed as reworking.
In short, Synergy has not made, nor does is appear to this Court that Synergy has any
reasonable prospect for developing, a showing that there is a genuine dispute of fact as to
whether the work that was done on defendants’ behalf by Triple L on July 15, 2004 was
sufficient to prevent the expiration of the 1985 lease. I conclude that defendants are entitled to
partial summary judgment as a matter of law on that issue.
ORDER
Defendants/Counterclaimants Cross-Motion for Summary Judgment, ECF No. 63, is
deemed to be a motion for partial summary judgment on the issue of whether the 1982 and 1985
leases have terminated due to cessation of production. The motion is granted to the extent that
the Court declares that the 1982 lease has terminated, but the 1985 lease has not terminated.
DATED this 5th day of May, 2016.
BY THE COURT:

___________________________________
R. Brooke Jackson
United States District Judge

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