CRB Resources Inc v. Newfield Exploration Mid-Continent Inc

Filing 94

ORDER granting 74 Defendant's Partial Motion to Dismiss, denied Motion to Strike, as more fully set out. Signed by Honorable David L. Russell on 8/28/18. (jw)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF OKLAHOMA
CRB RESOURCES INC.,
Plaintiff,
v.
NEWFIELD EXPLORATION
MID-CONTINENT INC.,
A Delaware Corporation,
Defendant.

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Case No. CIV-16-1270-R

ORDER
This matter comes before the Court on Defendant’s Partial Motion to Dismiss
(Doc.No. 74) addressing certain claims in Plaintiff’s Second Amended Complaint. Plaintiff
responded in opposition to the motion and Defendant filed a reply brief in support of its
position. (Doc.Nos. 92, 93). Having considered the parties’ submissions, the Court finds
as follows.
The following allegations are set forth in the Second Amended Complaint:
Plaintiff is the operator, lessee and majority working interest owner in the Priebe
No. 1 well in Kingfisher County, Oklahoma. The well has been producing since April 7,
1979. On or about June 12, 2015, Defendant commenced drilling a multi-unit horizontal
well, Patrick 1H-28X, pursuant to Order 648063 of the Oklahoma Corporation
Commission. The wellbore of the Patrick Well was placed approximately 216 feet from
the wellbore of Plaintiff’s well, and ultimately interfered with the Priebe No. 1. As a result,
Plaintiff contends that it suffered the total loss of production from its well, including any

leasehold or working interest therein. Plaintiff further complains that Defendant
miscalculated Plaintiff’s ownership interest in the Priebe No. 1 Well and its non-wellbore
leasehold rights outside of that well. Plaintiff alleges Defendant’s activities invaded the
common source of supply and that Plaintiff was not properly compensated for its interest.
Plaintiff also alleges that Defendant’s filings with the Oklahoma Corporation Commission
related to the Patrick Well were improper.
Plaintiff alleges a claim of trespass by virtue of Defendant’s drilling operations,
specifically that Newfield’s drilling resulted in migration of deleterious substances onto
Plaintiff’s property. (First Claim). Plaintiff alleges negligent injury to its real property by
Defendant’s multi-unit horizontal development, in part because Defendant drilled the
Patrick Well too close to the Priebe well, without consent (Claim Two). In Claim Three
Plaintiff alleges unjust enrichment, asserting that the Patrick Well operations “are being
conducted with the sole purpose of maximizing profits and without regard to the law and
without regard to Plaintiff’s correlative or other rights.” (Doc. No. 63, ¶ 27).
In its Fourth Claim for Relief Plaintiff alleges Defendant converted certain leasehold
and/or working interest rights in the unit that includes the Patrick Well and failed to pay
Plaintiff for its interests. Plaintiff’s Fifth Claim for Relief alleges negligent supervision
with regard to ownership reports and opinions regarding Plaintiff’s rights in the Priebe No.
1 Well or with regard to the information upon which Defendant relied in making its filings
to the Oklahoma Corporation Commission, which error is reflected in the Commission’s

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Order.1 In the Sixth Claim, Plaintiff alleges a private nuisance with regard to the location,
drilling and operation of the Patrick Well.
The Seventh Claim for Relief alleges breach of contract based on Defendant’s
alleged violation of the Commission’s Pooling Order for the relevant Unit by not paying
Plaintiff the amount due under the Order. Plaintiff seeks relief on a theory of negligence
per se for the alleged violation of the Production Revenue Standards Act, via underpayment
of the leasehold or the overriding royalty interest pursuant to the Pooling Order. Plaintiff
seeks an Accounting and Disgorgement in the Ninth Claim for Relief seeking a share of
the proceeds of production from the Patrick Well as well as a bonus payment it contends
Defendant failed to pay. Plaintiff also seeks an accounting of the well to assist in assessing
its lost revenues due to loss of production in the Priebe No. 1 well. Plaintiff’s Tenth, and
final, claim asserts a cause of action for fraud, which will be discussed subsequently herein.
A motion to dismiss pursuant to Rule 12(b)(6) tests the sufficiency of the allegations
within the complaint, accepting those allegations as true. To withstand a motion to dismiss
pursuant to Rule 12(b)(6), “a complaint must contain enough allegations of fact ‘to state a
claim to relief that is plausible on its face.’” Robbins v. Oklahoma, 519 F.3d 1242, 1247
(10th Cir. 2008) (quoting Bell Atlantic Co. v. Twombly, 550 U.S. 544, 570 (2007)); see also
Shero v. City of Grove, Okla., 510 F.3d 1196, 1200 (10th Cir. 2007) (“The complaint must
plead sufficient facts, taken as true, to provide ‘plausible grounds’ that discovery will

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The Court infers from the Second Amended Complaint that Plaintiff believes Defendant misrepresented, either
intentionally or negligently, CRB’s ownership interest within its Application for Pooling Order to the Corporation
Commission. Plaintiff does not allege that it did not receive notice of the application or specify the disparity between
its actual interest and what Defendant represented in its application to the Commission.

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reveal evidence to support the plaintiff’s allegations.” (quoting Twombly, 550 U.S. at
570)). “A pleading that offers labels and conclusions or a formulaic recitation of the
elements of a cause of action will not do. Nor does a complaint suffice if it tenders naked
assertion[s] devoid of further factual enhancement.” Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009). (brackets in original; internal quotation marks omitted). Defendant also requests
that the Court strike portions of the Second Amended Complaint pursuant to Rule 12(f),
because the allegations therein are impertinent and inflammatory.
At the outset the Court rejects Plaintiff’s repeated argument that the Motion to
Dismiss is premature because of ongoing discovery or discovery allegedly obstructed by
Defendant’s counsel. A motion to dismiss challenges the pleadings, not the evidence. A
pleading filed without sufficient factual allegations is not permitted to ripen into a claim
by permitting discovery. Rather, it is incumbent on the Plaintiff to identify the facts in
support of its theories of recovery. Additionally, the facts in support of the claims must be
contained in the pleading, they cannot be contained in the response to the motion to dismiss.
Defendant challenges Plaintiff’s conversion claim on the basis that CRB’s leasehold
and/or working interest rights allegedly converted by Newfield are real property rights not
subject to conversion under Oklahoma law. Rather, conversion only applies to personal
property.
Conversion is defined by Oklahoma law as “any act of dominion wrongfully
exerted over another's personal property in denial of or inconsistent with his
rights therein.” Steenbergen v. First Fed. Sav. & Loan of Chickasha, 1987
OK 122, ¶ 9, 753 P.2d 1330, 1332. This definition does not include intangible
property. It does require that “some form of wrongful possession or act of
control over the property must occur.” Installment Fin. Corp. v. Hudiburg
Chevrolet, Inc., 1990 OK 55, ¶ 10, 794 P.2d 751, 753.
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Am. Biomedical Grp., Inc. v. Techtrol, Inc., 374 P.3d 820, 825 (Okla. 2016). In response
to the motion to dismiss, Plaintiff disavows that it is seeking to recover for the alleged
conversion of its leasehold interest. Rather, it argues that Defendant should have focused
on the language in paragraph 31 of the Second Amended Complaint alleging that
Defendant “failed to provide payment to Plaintiff for such interests pursuant to any contract
or agreement, including but not limited to any applicable orders of the OCC.”
The clarification by Plaintiff does not salvage its conversion claim. It is well
established in Oklahoma law that conversion does not lie for a debt, and only tangible
personal property may be converted. Welty v. Martinaire of Oklahoma, Inc., 867 P.2d 1273,
1275 (Okla. 1994). In Tarrant v. Capstone Oil & Gas Co., 178 P.3d 866 (Okla. Civ.
App.2008), the plaintiff royalty owners sued to recover royalties the Defendant had
improperly retained. Id. at 871. The Court concluded that the trial court erred in submitting
the conversion claim to the jury. Noting that conversion does not lie for a debt, and that the
failure to pay royalties created a debt, not the deprivation of personal property, the court
concluded that there was no support for a conversion claim. Id. at 872. Plaintiff’s response
to the motion to dismiss asserts that Defendant has “stolen” funds, however, it is apparent
from Plaintiff’s filings that Plaintiff believes Defendant failed to pay money owed to it,
that is, a debt, which will not support a claim for conversion. Accordingly, Defendant’s
motion is granted as to Plaintiff’s Fourth Claim.2

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To the extent Plaintiff’s response is arguing that bonus payments are personal property, the response to the motion
fails to cite to any authority to support this proposition and the Court would disagree. Furthermore, Plaintiff’s reliance
on Steenbergen v. First Fed.Sav. & Loan of Chickasha, 753 P..2d 1330, 1332 (Okla. 1987), is misplaced. In
Steenbergen, the court “recognized that once an account matures, a bank's withholding of a check which represented

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Defendant next seeks dismissal of Plaintiff’s negligent supervision/hiring claim.
Plaintiff objects to dismissal, asserting that the information necessary to support such a
claim is contained in discovery that Defendant has heretofore failed to produce, despite
Plaintiff’s repeated requests.
An employer may be held liable in Oklahoma for negligent hiring, supervision, or
retention of an employee. See Escue v. N. Okla. Coll., 450 F.3d 1146, 1156 (10th Cir. 2006)
(applying Oklahoma law); N.H. v. Presbyterian Church (U.S.A.), 998 P.2d 592, 600 (Okla.
1999). Liability attaches, “if—at the critical time of the tortious incident—the employer
had reason to believe that the person would create an undue risk of harm to others.
Employers are held liable for their prior knowledge of the servant's propensity to commit
the very harm for which damages are sought.” Presbyterian Church (U.S.A.), 998 P.2d at
600. None of the factual allegations in the Second Amended Complaint supports Plaintiff’s
contention that Defendant was negligent with regard to its hiring, training, or supervision
of its employees or agents. Here Plaintiff’s Second Amended Complaint alleges no facts
from which any prior knowledge can be ascertained by Defendant with regard to either its
hiring decisions or its supervision of its employees or agents. Plaintiff makes no attempt in
the Second Amended Complaint to identify by name the person or persons allegedly
responsible for any tortious conduct, much less how the supervision of such persons was
negligent.3 Furthermore, although Plaintiff argues Defendant has failed to provide relevant

specifically identified and designated sums belonging to the depositor, and its use of the check in an unauthorized
manner constitute[d] conversion. See also Beshara v. S. Nat'l Bank, 928 P.2d 280, 289–90 (Okla.1996) (citing
Steenbergen ).Steenbergen and similar cases are limited to actions between banks and their depositors.
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Plaintiff lists persons at page 7 of its response brief, however not in the pleading, nor does merely identifying people
by name provide a basis for holding Defendant liable for negligent hiring and supervision.

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information in discovery, the Court is concerned with what factual basis the Plaintiff has
for its claims prior to the initiation of litigation, not what the evidence might establish. If
the Court awaited discovery before ruling on motions to dismiss, Rule 12(b)(6) motions
would become obsolete.
Defendant next seeks dismissal of Plaintiff’s breach of contract claim, Claim Seven.
Therein Plaintiff alleges Defendant’s failure to tender payments due it pursuant to Pooling
Order 646542 is a breach of contract. Defendant moves to dismiss the claim arguing that a
pooling order, the only potential “contract” cited in the pleading, is not actually a “contract”
subject to such a claim. Plaintiff contends in response that the pooling order created a
contractual relationship between the parties hereto.
Under Oklahoma law, the elements of a breach of contract claim are: “(1) the
formation of a contract, (2) breach of the contract, and (3) damages as a result of that
breach.” Cates v. Integris Health, Inc., 412 P.3d 98, 103 (Okla. 2018). As noted by
Defendant in its Reply, Plaintiff cites no authority in support of its contention that a pooling
order creates a contract between the operators and the owners within the relevant unit.
Furthermore, the Court’s independent research revealed no basis for permitting a breach of
contract claim for the alleged violation of a pooling order. In issuing Pooling Order 646542
the Corporation Commission utilized its police powers, Crest Resources and Exploration
Corp. v. Corporation Commission, 617 P.2d 215 Okla. 1980); it did not create a contract
between Plaintiffs and Defendant. Accordingly, Plaintiffs have failed to plead the most
basic requirement for a breach of contract claim -- existence of a contract -- and the Seventh
Claim for Relief is therefore subject to dismissal.
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Finally, Defendant seeks dismissal of Plaintiff’s Tenth Claim for Relief- Fraud.
Under Oklahoma law a Plaintiff alleging fraud must establish: “(1) a false material
misrepresentation; (2) made as a positive assertion which is either known to be false, or
made recklessly without knowledge of the truth; (3) with the intention that it be acted upon;
and (4) which is relied upon by a party to one's detriment.” Gay v. Akin, 766 P.2d 985, 989
(Okla. 1988) (citations omitted). In nearly thirty paragraphs of the Second Amended
Complaint Plaintiff recites portions of the history of this case, referencing deficiencies in
Defendant’s discovery responses, settlement proposals by Defendant, and focusing on
Defendant’s failure to provide title opinions used by Newfield to calculate Plaintiff’s
ownership interest in the Priebe No. 1 Well. Plaintiff alleges, “Defendant has intentionally
withheld the existence of evidence of other title opinions to Plaintiff, despite the express
statements of Defendant to the contrary on multiple occasions, in addition to intentionally
withholding the name and identity of those person(s) who actually authored or were
responsible for various ownership information utilized by Defendant, including the
ownership report’ referred to in the June 1st, 2018 email from Defendant’s counsel.” Doc.
No. 63, ¶ 69. Defendant moves for dismissal of Plaintiff’s fraud claim, arguing that Plaintiff
has failed to plead the elements of fraud, including a materially false statement upon which
Plaintiff allegedly relied to its detriment. Silk v. Phillips Petroleum Co., 760 P.2d 174, 176–
77 (Okla. 1988)(elements of fraud are a material false representation that defendant knew
was false, made with the intention that it should be acted upon by plaintiff, who did so rely
to its detriment).

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Having reviewed the entire Second Amended Complaint specifically seeking to
identify factual allegations to support Plaintiff’s fraud claim, the Court concludes that
Plaintiff has failed to sufficiently allege a claim of fraud. The alleged misrepresentations
that can be identified therein were statements to the Oklahoma Corporation Commission
stating the Plaintiff’s interest in the unit. 4 Despite Plaintiff’s arguments to the contrary, the
best interpretation of the fraud claim is, as characterized by Defendant, that Plaintiff is
seeking relief for alleged discovery abuses, which does not support a claim for fraud.
Accordingly, Claim Ten is hereby dismissed.
Defendant also asks the Court to strike portions of the Second Amended Complaint
as immaterial and impertinent, specifically paragraphs 52 through 76. Plaintiff argues
against the motion. This Court possesses discretion in whether to grant a motion to strike.
[F]ederal judges have made it clear, in numerous opinions they have
rendered in many substantive contexts, that Rule 12(f) motions to strike on
any of these grounds are not favored, often being considered purely cosmetic
or “time wasters,” there appears to be general judicial agreement, as reflected
in the extensive case law on the subject, that they should be denied unless the
challenged allegations have no possible relation or logical connection to the
subject matter of the controversy ....
5C C. Wright & A. Miller, Federal Practice & Procedure § 1382, at 433–36 (3d. ed.
2004)(footnotes omitted). Although the allegations contained in the paragraphs cited by
Defendant could be stricken, the allegations are merely repetitive of other allegations
peppered in filings throughout this litigation; their presence does not alter anything in the

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The first factual paragraph in the Tenth Claim for Relief states:
At no time prior to the November 2, 2015 issuance of Pooling Order No. 646542, or anytime
thereafter, has Defendant acknowledged the miscalculation and inaccurate payment to Plaintiff
made thereunder, or contacted Plaintiff concerning the same.
The remaining allegations contained in the Tenth Claim for Relief focus on post-filing issues between the parties.

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case and striking them would be of no true impact given the nature of the previous filings
by Plaintiff outlining the same alleged shortcomings. Accordingly, the Court denies
Defendant’s motion to strike.
Defendant’s Partial Motion to Dismiss is hereby GRANTED; the Motion to Strike
encompassed therein is DENIED.
IT IS SO ORDERED this 28th day of August 2018.

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