Chieftain Royalty Company v. Marathon Oil Company

Filing 52

OPINION AND ORDER by Magistrate Judge Steven P. Shreder DENYING 49 Partial MOTION to Dismiss Plaintiffs' Second Amended Complaint. (ndd, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF OKLAHOMA
CHIEFTAIN ROYALTY COMPANY; )
KELSIE WAGNER, TRUSTEE OF THE )
KELSIE WAGNER TRUST; AND
)
KELSIE WAGNER, SUCCESSOR
)
TRUSTEE OF THE WADE COSTELLO )
TRUST,
)
)
Plaintiffs,
)
)
v.
)
)
MARATHON OIL COMPANY.
)
)
Defendant.
)

Case No. CIV-17-334-SPS

OPINION AND ORDER
This matter comes before the Court on motion by Defendant Marathon Oil
Company (“Marathon”) for partial dismissal of the Plaintiffs’ Second Amended Complaint
for failure to state a claim. For the reasons set forth below, the Court finds that the
Defendant’s Partial Motion to Dismiss Plaintiff’s Second Amended Complaint and Brief
in Support [Docket No. 49] should be hereby DENIED.
BACKGROUND
The Plaintiff Chieftain Royalty Company (“Chieftain”) is an Oklahoma Corporation
that owns mineral interests as well as oil and/or gas wells, including a well in Blaine
County, Oklahoma, described as Boeckman 1-13H. Plaintiff Kelsie Wagner, as Trustee of
the Kelsie Wagner Trust, and as Successor Trustee of the Wade Costello Trust, also owns
mineral interests and is an Owner in Oklahoma Well 3R 1-34H. The Defendant Marathon

Oil Company is the operator of these wells. The Plaintiffs contends that Marathon, as the
operator, is obligated to pay oil and gas production proceeds to them within certain time
periods described by state statute but that Marathon has failed to comply with this
obligation, and instead engages in the practice of delaying payment of proceeds and
denying interest payments.
In addition to the personal allegations, Plaintiffs assert that they are acting as
representatives of a class defined as:
All non-excluded persons or entities:
(1) who received, or during the pendency of this action will receive,
Untimely Payments from Defendant for O&G Proceeds from Oklahoma
Wells and whose payments did not also include the statutory interest
prescribed by the Act;
(2) whose O&G Proceeds have been, or during the pendency of this action
will have been, paid over by Defendant to various state agencies as
unclaimed or abandoned property without the payment of statutory
interest prescribed by the Act; or
(3) who currently are, or become during the pendency of this action, Owners
legally entitled to O&G Proceeds held by Defendant in Suspense
Accounts (for reasons of unmarketable title, unknown addresses, and/or
other reasons) for more than the applicable time periods prescribed in the
Act, without the payment by Defendant of statutory interest prescribed by
the Act for the benefit of such Owners.
The persons or entities excluded from the Class are: (1) agencies,
departments or instrumentalities of the United States of America;
(2) Commissioners of the Land Office of the State of Oklahoma (CLO);
(3) publicly traded oil and gas companies and their affiliates; (4) persons or
entities (and their affiliates) who are the Oklahoma Corporation Commission
(OCC) designated operator of more than fifty (50) Oklahoma wells in the
month when this Class definition was originally filed; (5) persons or entities
that Plaintiff’s counsel may be prohibited from representing under Rule 1.7
of the Oklahoma Rules of Professional Conduct; and (6) officers of the court,
and (7) Owners in regard to whom Defendant is required by the PRSA to pay
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O&G Proceeds annually for the 12 months accumulation of Proceeds totaling
less than $100.00, provided, however, this exclusion of so-called “minimum
pay” Owners does not apply to interest claims for other 12 month periods
accumulation of Proceeds when the same Owner was entitled to $100 or
more and thus not in a “minimum pay” status.
Docket No. 49, p. 5, ¶ 19. The class allegations indicate that the common questions of fact
include: (a) whether Plaintiffs and the Class own legal interests in the Oklahoma Wells for
which Defendant has an obligation to pay O&G Proceeds; (b) whether, under Oklahoma
law, Defendant owed interest to Plaintiffs and the Class on any Untimely Payments, either
received or not yet received; (c) whether Defendant had a duty to promptly investigate
whether Plaintiffs and the Class were owed interest and, if so, to properly pay the interest
owed to the Plaintiff and the Class; (d) whether Defendant’s failure to pay interest to
Plaintiffs and the Class on any Untimely Payments, either received or not yet received,
constitutes a violation of the Act; (e) whether Defendant defrauded Plaintiffs and the Class
by knowingly withholding statutory interest; and (f) whether Defendant is obligated to pay
interest on future Untimely Payments, either received or not yet received. See Docket No.
47, pp. 5-6, ¶ 21.
On December 12, 2017, Plaintiff Chieftain Royalty Company filed the First
Amended Complaint which contained the following causes of action:

(I) breach of

statutory duty to pay O&G Proceeds and interest, (II) breach of duty to investigate and pay,
(III) fraud, and (IV) accounting and disgorgement, and (V) injunctive relief.

The

Defendant moved for dismissal of all claims. See Docket Nos. 25-26. This Court denied
the motion as to Counts I, II, IV, and V, but granted the motion as to Count III, the fraud
claim, dismissing it without prejudice and giving Plaintiffs fourteen days to amend the
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Complaint. See Docket No. 41. Plaintiffs then filed their Second Amended Complaint,
which sets out the following enumerated causes of action: (I) breach of statutory obligation
to pay interest, (II) breach of duty to investigate and pay, (III) fraud, (IV) accounting and
disgorgement, and (V) injunctive relief. The Defendants have again moved to dismiss
Count III, the claim of fraud, for failure to state a claim for relief.
ANALYSIS
Marathon asserts that the Plaintiffs’ claim of fraud in the Second Amended
Complaint again fails to state a claim for relief. Specifically, Marathon argues that the
Plaintiffs have failed to allege facts sufficient to establish each of the elements of fraud
(either actual or constructive), but particularly the element of detrimental reliance.
Marathon thus asserts that the Plaintiffs’ claim of fraud should be dismissed with prejudice.
Under Fed. R. Civ. P. 9(b), “In alleging fraud or mistake, a party must state with
particularity the circumstances constituting fraud or mistake. Malice, intent, knowledge,
and other conditions of a person’s mind may be alleged generally.” In this case, Chieftain
alleges, inter alia, that Marathon
took on the duties [to pay oil and gas proceeds to owners in accordance with
Oklahoma law] . . . with the intent to deceive Owners and not pay the full
O&G Proceeds owed. Specifically, Defendant knew it owed interest on
Untimely Payments, but knowingly and intentionally suppressed the fact that
interest was owed to Plaintiff and the Class members. Further, Defendant
intended to avoid its obligation to pay the statutorily mandated interest and
only pay when an Owner specifically requests payment of the statutory
interest. Owners have no knowledge that Defendant has held their O&G
Proceeds in suspense with no intention of paying statutory interest. Owners
have no knowledge that Defendant has paid over to various states their O&G
Proceeds with no payment of statutory interest earned pursuant to the Act.
The Act gives Owners a right to be accurately informed of the facts and
Defendant has a duty to accurately inform Owners of the facts on which their
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royalty payments are based. On its check stubs, Defendant failed to inform
Owners that they were entitled to statutory interest. Further, Defendant failed
to inform Owners on their check stubs whether statutory interest was
included in the checks, the amount of such interest, or the rate by which it
was calculated. Defendant maintains all of the information necessary to
determine when an Owner is entitled to interest and the proper amount under
the Act. As such, Defendant knowingly and intentionally deprives Owners
of money to which Defendant knows they are legally entitled.
Docket No. 47, pp. 12-13, ¶¶ 60-64. Plaintiffs allege that Marathon does not inform
Owners of this practice “until it receives a written request from an Owner,” and that
“checks and check stubs Defendant sen[ds] to Plaintiffs and the Class are the common
means by which Defendant communicates with Plaintiffs and the Class.” Id., p. 13, ¶¶ 6667. Plaintiffs assert that this “failure to include statutory interest in the amount of royalty
proceeds paid to Plaintiffs and the Class constitutes an omission of material fact.” Id., p.
13, ¶ 68. Moreover, Plaintiffs assert that:
Defendant could have easily included information on unpaid statutory
interest when it sent checks to Owners. Defendant intentionally chose not to
disclose the fact that it was not paying Owners the statutory interest it owed
on Untimely Payments, and Defendant obtained the result it intended,
namely, ensuring Owners’ lack of knowledge. . . . Defendant’s failure to pay
the interest it owes to Plaintiffs and the Class is a result of Defendant’s actual
knowing and willful intent: (a) to deceive the members of the Class, and/or
(b) to deprive such interest from persons the Defendant knows, or is aware,
are legally entitled thereto.
Id., pp. 13-14, ¶¶ 70, 72. Furthermore, Plaintiffs allege that “Plaintiffs and the Class relied
on and trusted Defendant to pay them the full O&G proceeds” and that they “acted in
reliance on Defendant’s failure to disclose and pay statutory interest owned to them by not
disputing Defendant’s calculations of the amount paid to them.” Id., p. 13, ¶¶ 65, 69. They

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thus assert that “Plaintiffs and the Class have been damaged by Defendant’s actions and
violations of law.” Id., p. 14 at ¶ 71.
As this Court stated in its previous Order, see Docket No. 41, in the Tenth Circuit,
a Complaint alleging fraud must “set forth the time, place and contents of the false
representation, the identity of the party making the false statements and the consequences
thereof.” Koch v. Koch Industries, Inc., 203 F.3d 1202, 1236 (10th Cir. 2000), quoting
Lawrence National Bank v. Edmonds (In re Edmonds), 924 F.2d 127, 180 (10th Cir. 1991).
The purpose of this requirement is to provide the Defendants with “fair notice of plaintiff’s
claims and the factual ground upon which [they] are based.” Id. at 1236-1237 (citations
omitted). Additionally, “[u]nder the Supreme Court’s plausibility standard, the plaintiffs
were required to plead sufficient facts to create a reasonable inference of reliance.” Hitch
Enterprises, Inc. v. Cimarex Energy Co., 859 F. Supp. 2d 1249, 1261 (W.D. Okla. 2012),
citing Iqbal, 556 U.S. at 678, and Bryson v. Gonzales, 534 F.3d 1282, 1286 (10th Cir.
2008) (“[A] complaint still must contain either direct or inferential allegations respecting
all the material elements necessary to sustain a recovery under some viable legal theory.”)
(quotation omitted).
As to the Plaintiffs’ Second Amended Complaint, the Court finds that Plaintiffs have
met these standards at this early stage of the litigation and in light of the allegedly uneven
positions of the parties with regard to information. See Reirdon v. Cimarex Energy Co.,
2016 WL 4991552, at *3 (E.D. Okla. Sept. 16, 2016) (“At this early stage of the litigation,
Plaintiff minimally sets forth the facts surrounding the alleged fraud, given the factual basis
for the claims. . . . Given the allegedly uneven positions of the parties with regard to the
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information upon which the claim of fraud is based, Plaintiff has plead as particularly as
the facts allow.”). See also Cecil v. BP America Production Co., 2017 WL 2987174, at *3
(E.D. Okla. March 20, 2017) (“In fact, Plaintiff alleged each element, including detrimental
reliance.”).
CONCLUSION
Consequently, IT IS ORDERED that the Defendant’s Partial Motion to Dismiss
Plaintiff’s Second Amended Complaint and Brief in Support [Docket No. 49] is hereby
DENIED.
DATED this 26th day of September, 2018.

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