Lee et al v. ConocoPhillips Company

Filing 148

ORDER denying 95 Motion to Dismiss Plaintiffs Amended Complaint; denying as moot 103 Motion to Dismiss. Signed by Honorable Timothy D. DeGiusti on 12/30/16. (ml)

IN THE UNITED STATES DISTRICT COURT FOR THE
WESTERN DISTRICT OF OKLAHOMA
ROBERT E. LEE, JR., et al.,
Plaintiffs,
v.
CONOCOPHILLIPS COMPANY,
Defendant,
v.
MARVIN R. MATHIS,
Counterclaim
Defendant.

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Case No. CIV-14-1391-D

ORDER
Before the Court is Defendant’s Partial Motion to Dismiss Plaintiffs’
Amended Complaint [Doc. No. 95], to which Plaintiffs have filed their response in
opposition [Doc. No. 98] and Defendant has replied [Doc. No. 100]. The matter is
fully briefed and at issue.1

1

Defendant also filed a Motion to Dismiss Counterclaim Defendant Marvin
Mathis’ Amended Counterclaim [Doc. No. 103]. However, on December 13, 2016,
Mathis advised the settlement magistrate judge that he and Defendant had executed
a written agreement settling their claims [Doc. No. 135]. Accordingly, Defendant’s
motion as it relates to Mathis’ counterclaim is deemed moot.

BACKGROUND 2
The present case stems from the parties’ dispute over Plaintiffs’ rights under
long held leases to take natural gas, free of charge, from Defendant’s wells.
Defendant contends that it was not obligated to continue providing the natural gas
under the leases and it could turn off, disconnect, or otherwise “disenable” the
“farm taps” that allowed Plaintiffs to take such gas. Plaintiffs, conversely,
contended that Defendant’s intended shut-off of the farm taps violated its
contractual obligations under the leases. Plaintiffs sought, among other things, an
injunction prohibiting Defendant from shutting off the taps. On January 5, 2016,
the Court denied Plaintiffs’ request for a preliminary injunction, finding that
Plaintiffs failed to prove the critical element of irreparable harm, Memorandum
Opinion and Order at 20-21 [Doc. No. 87], and on June 7, 2016 Defendant
disconnected Plaintiffs’ taps. Plaintiffs filed an Amended Complaint [Doc. No. 92]
in which they alleged (1) Defendant’s stated reasons for disconnecting the farm
taps were false; (2) the disconnecting of their farm taps constituted breach of
contract; and (3) Defendant should be enjoined from refusing to provide Plaintiffs
natural gas, free of charge, as contemplated under the leases.

2

The Court assumes the parties’ familiarity with the facts underlying this action.
For a more comprehensive statement of those facts and this case’s procedural
history, reference should be made to the Court’s Memorandum Opinion and Order
denying Plaintiff’s Motion for Preliminary Injunction [Doc. No. 87].
2

Defendant moves to dismiss Plaintiffs’ fraud claim and request for
attorney’s fees. Defendant contends that (1) Plaintiffs’ fraud claim is not pleaded
with particularity as required under Rule 9(b) of the Federal Rules of Civil
Procedure; (2) Plaintiffs’ fraud claim is barred under the applicable statute of
limitations; and (3) the “discovery rule” is not pleaded and does not apply to this
action. Mot. at 2. Defendant also contends Plaintiffs’ request for attorney’s fees
fails to state a claim upon which relief can be granted because Plaintiffs neither
have pled nor have available to them any exception to the American Rule that
would allow them to recover fees for their claims. Id.
STANDARD
Pursuant to the seminal decisions of Bell Atlantic Corp. v. Twombly, 550
U.S. 544 (2007) and Ashcroft v. Iqbal, 556 U.S. 662 (2009), to survive a motion to
dismiss, a complaint must contain enough allegations of fact, taken as true, “to
state a claim to relief that is plausible on its face.” Khalik v. United Air Lines, 671
F.3d 1188, 1190 (10th Cir. 2012) (quoting Twombly, 550 U.S. at 570). Under this
revised standard, “the mere metaphysical possibility that some plaintiff could prove
some set of facts in support of the pleaded claims is insufficient; the complaint
must give the court reason to believe that this plaintiff has a reasonable likelihood
of mustering factual support for these claims.” Robbins v. Oklahoma, 519 F.3d

3

1242, 1247 (10th Cir. 2008) (quoting Ridge at Red Hawk, L.L.C. v. Schneider, 493
F.3d 1174, 1177 (10th Cir. 2007)).
However, long before the pleading modifications in Twombly and Iqbal, the
Federal Rules of Civil Procedure imposed specific pleading obligations in fraud
cases. Rule 9(b) provides that “[i]n alleging fraud or mistake, a party must state
with particularity the circumstances constituting fraud or mistake.” Id.
Nonetheless, “[t]he requirements of Rule 9(b) must be read in conjunction with the
principles of Rule 8, which calls for pleadings to be ‘simple, concise, and
direct[.]’” Schwartz v. Celestial Seasonings, Inc., 124 F.3d 1246, 1252 (10th Cir.
1997) (citations omitted). 3 Thus, in fraud cases, it is insufficient for a pleader to
generally outline the nature of the pleader’s claim. Rather, “[a]t a minimum, Rule
9(b) requires that a plaintiff set forth the ‘who, what, when, where and how’ of the
alleged fraud, and 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.” United States ex rel. Sikkenga v. Regence Bluecross
Blueshield of Utah, 472 F.3d 702, 726 (10th Cir. 2006) (internal citation omitted).

3

This principle remains true even post-Twombly. See, e.g., Peacock v. AARP, Inc.,
181 F.Supp.3d 430, 435 (S.D. Tex. 2016); McWilliams v. Ballard, Inc. v. Level 2
Dev., 697 F.Supp.3d 101, 108 (D.D.C. 2010); Degirmenci v. Sapphire-Fort
Lauderdale, LLLP, 693 F.Supp.2d 1325, 1344 (S.D. Fla. 2010) (“Rule 9(b) must
be read in conjunction with Rule 8(a) so as to not ‘abrogate the concept of ... notice
pleading.’ ”) (citation omitted).
4

DISCUSSION
I.

Fraud
The Amended Complaint states:
7.

In 2003 Defendant began acting on its initiative to “buy out”
the remaining natural gas taps in the Oklahoma panhandle. In
attempting to do so Defendants represented to Plaintiffs on
multiple occasions that there were unsafe levels of H2S gas in
the wells.

8.

However, Defendant’s motive behind removing these farm taps
is believed to be based upon Defendant’s own financial gain as
opposed to the reasons given.

9.

In 2005 Defendant began threatening to remove the taps from
Plaintiffs’ property due to Defendant’s allegations that H2S
(hydrogen sulfide) was present in the gas at unsafe levels, when
Defendant knew or should have known this not to be true.
Defendant also cited allegedly new and onerous federal
regulations that would allegedly prevent continued use of the
farm taps. Defendant made these allegations with the intent that
Plaintiffs would rely and act upon the false representations.

10.

At the time of making these fraudulent representations to
Plaintiffs, Defendants knew or should have known that such
representations were false.

11.

Relying upon Defendant’s representation that unsafe levels of
H2S gas were present in the wells, Plaintiffs, at their own
expense, installed “scrubbers” or “sweeteners” to purge the gas
of H2S.

14.

In February 2015, Defendant produced evidence to Plaintiffs
showing that H2S was not actually present in the wells and/or
was not present at levels approaching unsafe levels.

15.

Plaintiffs relied upon the representations of Defendant and
suffered the detriment of installing additional safeguards at their
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own cost, despite Defendant being legally responsible for such
costs.
21.

On multiple occasions Defendant represented to Plaintiffs that
H2S was present in unsafe levels in the wells. Defendant
threatened to disconnect the taps if Plaintiffs did not install
“scrubbers” at their own expense.

22.

At the time of making these representations, Defendant knew or
should have known that such representations were untrue.

23.

Plaintiffs relied upon these representations and suffered
detriment through being forced to install “scrubbers” on the
wells at their own expense.

24.

Plaintiffs discovered these fraudulent misrepresentations of
Defendant through documents produced in this lawsuit in
February 2015.

25.

Plaintiffs are entitled to actual damages, compensatory
damages, punitive damages, interest, attorneys’ fees and costs.

Amended Complaint, ¶¶ 7-11, 14-15, 21-25 [Doc. No. 92]. 4
“Fraud is a generic term embracing the multifarious means which human
ingenuity can devise so one can get advantage over another by false suggestion or
suppression of the truth.” Dani v. Miller, 2016 OK 35, ¶ 25, 374 P.3d 779, 791
(citations omitted). The elements of actionable fraud are (1) a false
misrepresentation, (2) made as a positive assertion which is either known to be
false or is made recklessly without knowledge of the truth, (3) with the intention
that it be acted upon, and (4) which is relied upon by the other party to his or her
4

Plaintiffs were granted leave to file a Second Amended Complaint [Doc. No.
143]. However, their fraud allegations remain the same.
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own detriment. Bowman v. Presley, 2009 OK 48, ¶ 13, 212 P.3d 1210, 1218. The
statute of limitations for fraud actions is two years; a claim for fraud accrues when
a plaintiff ascertains or discovers each element of the claim. See 12 OKLA. STAT. §
95(A)(3); Horton v. Hamilton, 2015 OK 6, ¶ 18, 345 P.3d 357, 363 (“A claim for
fraud accrues when a person discovers the fraud. A party discovers fraud when he
or she ascertains each element of the claim.”) (citation omitted). All elements of
fraud must be present; absence of any one is fatal to the plaintiff’s claim. McCain
v. Combined Commc’n Corp. of Okla., Inc., 1998 OK 94, ¶ 11, 975 P.2d 865, 867.
“Fraud is never presumed and each of its elements must be proved by clear
and convincing evidence.” Bowman, 212 P.3d at 1218 (citations omitted); Combs
v. Shelter Mut. Ins. Co., 551 F.3d 991, 999 (10th Cir. 2008). The “clear and
convincing” standard is “the highest standard of proof that the law imposes in civil
cases.” Kupersteinn v. Hoffman-Laroche, 457 F. Supp. 2d 467, 471 (S.D.N.Y.
2006); see also Liberty Mut. Fire Ins. Co. v. J.T. Walker Indus., Inc., No. 2:082043, 2014 WL 6773517, at *3 (D.S.C. Dec. 2, 2014) (clear and convincing
standard is “the highest burden of proof known to the civil law.”). “Also, the
reliance referred to must be justifiable.” State ex rel. S.W. Bell Tel. Co. v. Brown,
1974 OK 19, ¶ 19, 519 P.2d 491, 495. “[T]he gist of fraudulent misrepresentation
is the production of a false impression ... and damage sustained as the natural and
probable consequence of the acts charged.” Id. (citations omitted).
7

Guided by the above standard and governing law, the Court finds Plaintiffs
have provided in sufficient detail the source, time, place, manner and content of the
alleged misrepresentations and material omissions of fact and the consequences
thereof in the aforementioned paragraphs of the Amended Complaint. Plaintiffs
contend Defendant misrepresented the levels of H2S in its wells in order to achieve
financial gain. Plaintiffs allege they relied upon said misrepresentations by
installing “scrubbers” and “sweeteners” on the taps at their own expense. In the
Court’s view, such allegations satisfy Rule 9(b) in that they provide Defendant fair
notice of Plaintiffs’ fraud claim and the grounds upon which it rests. George v.
Urban Settlement Services, 833 F.3d 1242, 1255 (10th Cir. 2016) (“Rule 9(b)’s
purpose is ‘to afford [a] defendant fair notice’ of a plaintiff’s claims and the factual
grounds supporting those claims.”) (citing Schwartz, 124 F.3d at 1252).
Defendant’s motion is therefore denied on this issue.
II.

Statute of Limitations
Moreover, the Court finds Defendant’s argument that Plaintiffs’ fraud claim

is barred by the statute of limitations should also be denied. Defendant’s motion
asks the Court to do what it is prohibited from doing in reviewing a motion to
dismiss, which is to weigh the evidence. See 2002 Lawrence R. Buchalter Alaska
Trust v. Philadelphia Fin. Life Assur. Co., 96 F.Supp.3d 182, 201 (S.D.N.Y. 2015)
(“Motions to dismiss on statute of limitations grounds are treated as other motions
8

to dismiss; courts merely are to ‘determine whether the complaint itself is legally
sufficient’ to survive the affirmative defense, ‘not to weigh the evidence that may
be presented at a trial.’”). As stated above, the Court has determined Plaintiffs have
alleged a plausible claim for fraud that falls within the applicable limitations
period. Conflicting evidence has been presented in the briefs on when Plaintiffs
discovered the alleged falsity of Defendant’s statements concerning H2S levels.
Any disposition on this issue is thus better reserved for summary judgment or a
trial on the merits.
III.

Attorney’s Fees
Lastly, Defendant contends Plaintiffs failed to state a plausible entitlement to

attorney’s fees. The American Rule provides the “basic point of reference” for an
award of attorney’s fees: “Each litigant pays his own attorney’s fees, win or lose,
unless a statute or contract provides otherwise.” Baker Botts L.L.P. v. ASARCO
LLC, _ U.S. _, 135 S.Ct. 2158, 2161, 192 L.Ed.2d 208 (2015) (citations omitted).
“Because the rule is deeply rooted in the common law,” courts are not to deviate
from it “absent explicit statutory authority.” Id. To this end, Defendant contends
Plaintiffs are not entitled to attorney’s fees under 12 OKLA. STAT. § 936(A), which
provides for an award of prevailing party attorney fees in certain enumerated civil
actions:
In any civil action to recover for labor or services rendered, or on an
open account, a statement of account, account stated, note, bill,
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negotiable instrument, or contract relating to the purchase or sale of
goods, wares, or merchandise, unless otherwise provided by law or
the contract which is the subject of the action, the prevailing party
shall be allowed a reasonable attorney fee to be set by the court, to be
taxed and collected as costs.
Defendant contends § 936 does not apply to oil and gas leases and Plaintiffs are not
entitled to attorney’s fees in connection with their fraud claims. Plaintiffs contend
the subject leases are “contracts relating to the purchase or sale of goods” under
§ 936 in that they involve the payment of royalties to Plaintiffs for the sale of oil
and gas by Defendant. See Resp. to Mot. to Dismiss at 8-9. Plaintiffs further
contend they have “effectively purchased goods (domestic gas)” under the leases in
the form of consideration for the granting of the leases. Id. at 9.
Defendant’s motion on this issue is denied on two grounds. First,
Defendant’s motion is premature. Only a prevailing party is entitled to attorney’s
fees; however, no such determination has been made by the Court. Second, a
motion to dismiss is not the proper vehicle for the dismissal of a prayer for relief,
which is not part of the cause of action. Daniels v. Thomas, 225 F.2d 795, 797
(10th Cir. 1955) (“It is well settled that the prayer for relief is [not] part of the
cause of action[.]”). It has thus been stated that
[t]he sufficiency of a pleading is tested by the Rule 8(a)(2) statement
of the claim for relief and the demand for judgment is not considered
part of the claim for that purpose, as numerous cases have held. Thus,
the selection of an improper remedy in the Rule 8(a)(3) demand for
relief will not be fatal to a party’s pleading if the statement of the
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claim indicates the pleader may be entitled to relief of some other
type.
Dingxi Longhai Dairy, Ltd. v. Becwood Tech. Grp. L.L.C., 635 F.3d 1106, 1108
(8th Cir. 2011) (quoting 5 Charles Alan Wright & Arthur R. Miller, Federal
Practice and Procedure § 1255 at 508-09 (3d ed. 2004) (further citations
omitted)); see also Schoonover v. Schoonover, 172 F.2d 526, 530 (10th Cir. 1949)
(“[T]he prayer forms no part of the cause of action, and ... a pleader will be entitled
to the relief made out by the case and stated in the pleadings, irrespective of what
is asked for in the prayer.”); Douglas v. Miller, 864 F.Supp.2d 1205, 1220 (W.D.
Okla. 2012) (“[W]hether [punitive] damages are recoverable is not a proper subject
for adjudication in a Rule 12(b)(6) motion, as the prayer for relief is not a part of
the cause of action.”) (citing Hardeman v. Stewart, 195 F. App’x 706, 707 (10th
Cir. 2006) (unpublished)).
Accordingly, dismissing Plaintiffs’ prayer for relief, which includes a
request for prevailing party attorney’s fees and costs, is inappropriate at this stage
of the proceedings.
CONCLUSION
Defendant’s

Motion

to

Dismiss

Plaintiffs’

Amended

Complaint

[Doc. No. 95] is DENIED as set forth herein. Defendant’s Motion to
Dismiss

Counterclaim Defendant Marvin Mathis’ Amended Counterclaim

[Doc. No. 103] is DENIED as moot.
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IT IS SO ORDERED this 30th day of December, 2016.

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