Fout et al v. EQT Production Company

Filing 13

MEMORANDUM OPINION AND ORDER DENYING IN PART AND GRANTING IN PARTDEFENDANTS PARTIAL MOTION TO DISMISS: EQTs partial motion todismiss 5 is GRANTED IN PART and DENIED IN PART. Signed by Senior Judge Frederick P. Stamp, Jr on 6/16/15. (jss)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
JOHN FOUT and NANCY FOUT,
Plaintiffs,
v.

Civil Action No. 1:15CV68
(STAMP)

EQT PRODUCTION COMPANY,
a Pennsylvania corporation,
Defendant.
MEMORANDUM OPINION AND ORDER
DENYING IN PART AND GRANTING IN PART
DEFENDANT’S PARTIAL MOTION TO DISMISS
I.

Background

This civil action concerns the royalty payments that the
plaintiffs believe defendant EQT Production Company (“EQT”) failed
to pay them.

The plaintiffs own an undivided interest in oil and

natural

in

gas

Wetzel

County,

West

Virginia.

EQT

and

the

plaintiffs entered into a lease agreement, under which EQT would
pay a flat-rate royalty payment in exchange for both development
and production rights.

In their complaint, the plaintiffs contend

that EQT has underpaid the plaintiffs and incorrectly applied
certain deductions to their royalty payments. In addition to those
actions, the plaintiffs also believe that EQT failed to provide a
“full and truthful accounting of the production from Plaintiffs’
minerals and the manner in which [the] royalty [payment] was
calculated.” ECF No. 1. The plaintiffs assert six counts in their
complaint,

which

are

the

following:

(1)

failure

to

properly

account, (2) breach of contract, (3) breach of fiduciary duties,
(4)

fraud,

(5)

negligent

misrepresentation,

and

(6)

punitive

damages.

EQT then filed a partial answer and a partial motion to

dismiss.

ECF Nos. 4 and 5, respectively.

partial motion to dismiss.

At issue now is EQT’s

ECF No. 5.

In its partial motion to dismiss, EQT seeks to dismiss Counts
III and IV of the complaint, which are claims of breach of
fiduciary duties and fraud (respectively). Regarding the fiduciary
duties claim, EQT asserts that no fiduciary duty exists between a
lessor and lessee in the oil and gas lease context. Concerning the
plaintiffs’ fraud claim, EQT argues that the plaintiffs failed to
state that claim with sufficient particularity, as required under
West Virginia law and Rule 9 of the Federal Rules of Civil
Procedure.

For those reasons, EQT seeks dismissal of Counts III

and IV.
The plaintiffs then filed a response in opposition.
9.

ECF No.

In that response, the plaintiffs first state that they do not

oppose dismissal of the claims asserted in Count III, which is the
breach of fiduciary duties claim.

As to their fraud claim,

however, the plaintiffs believe that they have sufficiently pleaded
that claim.

In particular, the plaintiffs point to the following

facts, which are found within the complaint: (1) EQT sends the
royalty checks to the plaintiffs; (2) that those checks are mailed
monthly; (3) those checks list deductions and charges that EQT

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improperly applied; and (4) EQT prepares the royalty checks, which
are signed by an EQT employee.

Those facts allegedly demonstrate

the time of the fraud, the place of the fraud, the content of the
misrepresentations,

and

the

identity

of

who

made

the

misrepresentations.

Because the complaint contains the above-

listed facts, the plaintiffs argue that they satisfy the pleading
standard under Rule 9 of the Federal Rules of Civil Procedure.

In

addition to the standard under Rule 9, the plaintiffs also argue
that they satisfy the pleading standard pursuant to West Virginia
law.

Therefore, for those reasons, the plaintiffs believe that

EQT’s partial motion to dismiss as to Count IV should be denied.
EQT then filed a reply in support of its partial motion to
dismiss.

ECF No. 12.

In that reply, EQT first points to the

plaintiffs’ concession as to Count III. EQT then contends that the
plaintiffs have not satisfied the pleading requirements for their
fraud claim.

More specifically, EQT believes that the plaintiffs

failed to allege “an affirmative material or false act or a
concealment of fact,” and thus do not satisfy the applicable
standard.
For the reasons set forth below, EQT’s partial motion to
dismiss is granted in part and denied in part.
II.

Applicable Law

In assessing a motion to dismiss for failure to state a claim
under Rule 12(b)(6) of the Federal Rules of Civil Procedure, a

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court must accept all well-pled facts contained in the complaint as
true.

Nemet Chevrolet, Ltd v. Consumeraffairs.com, Inc, 591 F.3d

250, 255 (4th Cir. 2009). However, “legal conclusions, elements of
a cause of action, and bare assertions devoid of further factual
enhancement fail to constitute well-pled facts for Rule 12(b)(6)
purposes.”
(2009)).

Id. (citing Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949
This

Court

also

declines

to

consider

“unwarranted

inferences, unreasonable conclusions, or arguments.”

Wahi v.

Charleston Area Med. Ctr., Inc., 562 F.3d 599, 615 n.26 (4th Cir.
2009).
It has often been said that the purpose of a motion under Rule
12(b)(6) is to test the formal sufficiency of the statement of the
claim for relief; it is not a procedure for resolving a contest
about the facts or the merits of the case.

5B Charles Alan Wright

& Arthur R. Miller, Federal Practice and Procedure § 1356 (3d ed.
1998).

The Rule 12(b)(6) motion also must be distinguished from a

motion for summary judgment under Federal Rule of Civil Procedure
56, which goes to the merits of the claim and is designed to test
whether there is a genuine issue of material fact.

Id.

For

purposes of the motion to dismiss, the complaint is construed in
the

light

essentially

most
the

favorable
court’s

to

the

inquiry

party
is

making

directed

the
to

claim

and

whether

the

allegations constitute a statement of a claim under Federal Rule of
Civil Procedure 8(a).

Id. § 1357.

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A complaint should be dismissed “if it does not allege ‘enough
facts to state a claim to relief that is plausible on is face.’”
Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008) (quoting
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007)). “Facial
plausibility is established once the factual content of a complaint
‘allows the court to draw the reasonable inference that the
defendant is liable for the misconduct alleged.’” Nemet Chevrolet,
591 F.3d at 256 (quoting Iqbal, 129 S. Ct. at 1949).

Detailed

factual allegations are not required, but the facts alleged must be
sufficient “to raise a right to relief above the speculative
level.”

Twombly, 550 U.S. at 555.
III.

Discussion

As mentioned earlier, the plaintiffs do not oppose dismissal
of Count III of their complaint.

ECF No. 9, n.1.

That count

asserted that EQT breached a fiduciary duty allegedly owed to the
plaintiffs.

Based on the concession by the plaintiffs, EQT’s

partial motion to dismiss as to Count III is granted.

Therefore,

the only remaining count that EQT seeks to dismiss is Count IV,
which is the plaintiffs’ claim of fraud. For the reasons set forth
below, EQT’s motion as to Count IV of the complaint must be denied.
Rule 9(b) of the Federal Rules of Civil Procedure states that
“[i]n

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

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may be alleged generally.”

Further, the United States Court of

Appeals for the Fourth Circuit has noted that the “‘circumstances’
required to be pled with particularity under Rule 9(b) are ‘the
time, place, and contents of the false representations, as well as
the identity of the person making the misrepresentation and what he
obtained thereby.’”

Harrison v. Westinghouse Savannah River Co.,

176 F.3d 776, 784 (4th Cir. 1999) (internal citations omitted). As
also stated in Harrison, “A court should hesitate to dismiss a
complaint under Rule 9(b) if the court is satisfied (1) that the
defendant has been made aware of the particular circumstances for
which she will have to prepare a defense at trial, and (2) that
plaintiff has substantial prediscovery evidence of those facts.”
In cases involving allegations of fraud relating to “an omission
instead

of

an

affirmative

particularity is required.”

misrepresentation,”

however,

“less

In Town Hotels Ltd. Partnership v.

Marriot Int’l, Inc., 246 F. Supp. 2d 469, 487 (S.D. W. Va. 2003)
(citing Shaw v. Brown & Williamson Tobacco Corp., 973 F. Supp. 539,
552 (D. Md. 1997)).
In addition to the standards under Rule 9, West Virginia law
provides the following essential elements in a fraud claim: “(1)
that the act claimed to be fraudulent was the act of the defendant
or induced by him; (2) that it was material and false; (3) that
plaintiff relied on it and was justified under the circumstances in
relying upon it; and (4) that he was damaged because he relied on

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it.”

Syl. Pt. 5, Folio v. City of Clarksburg, 655 S.E.2d 143 (W.

Va. 2007) (internal citations omitted). Further, West Virginia law
recognizes that as a “general principle[,] [] an action for fraud
can arise by the concealment of truth.”

Teter v. Old Colony Co.,

441 S.E.2d 728, 734 (W. Va. 1994) (quoting Thacker v. Tyree, 297
S.E.2d 885, 888 (W. Va. 1982)).
Under

the

law

discussed

above,

the

plaintiffs

have

sufficiently pleaded their claim of fraud under both Rule 9 and
West Virginia law.

As to the standard set forth under Rule 9, the

plaintiffs adequately pleaded the necessary facts.

The plaintiffs

point out that EQT has developed and sold natural gas from the
plaintiffs’ property.

By pleading those facts, the plaintiffs

identify who made the misrepresentation, which allegedly was EQT.
Next, the plaintiffs state that EQT concealed material information
in

its

monthly

royalty

payments.

That

material

information

included the price EQT received from production and the amount of
the allegedly unauthorized deductions. Those facts demonstrate the
time of the fraud and the contents of the misrepresentations.
Therefore, the plaintiffs satisfy the pleading requirements under
Rule 9 by pleading the ‘the time, place, and contents of the false
representations, as well as the identity of the person making the
misrepresentation and what he obtained thereby.’”
F.3d at 784 (internal citations omitted).

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Harrison, 176

In addition to meeting the requirements pursuant to Rule 9,
the plaintiffs also satisfy the pleading standard under West
Virginia law.

The plaintiffs first state that EQT “intentionally

and knowingly concealed and/or misrepresented material information”
regarding the royalty payments.

By pleading that fact, the

plaintiffs point out that the defendant, EQT, concealed material
information from them.

Next, the plaintiffs state that they

“relied on the truthfulness of the royalty payments” paid by EQT.
Further,

they

pleaded

that

they

incurred

damages

by

EQT’s

misconduct because they “were denied royalties they were properly
due.” Those alleged facts indicate that the plaintiffs justifiably
relied on EQT’s statements and were damaged because of their
reliance.

The above facts in the complaint satisfy the pleading

standard for a claim of fraud under West Virginia law.
Folio, 655 S.E.2d at Syl. Pt. 5.

Syl. Pt. 5,

Because the plaintiffs have

satisfied the pleading standards under both Rule 9 and West
Virginia law, EQT’s partial motion to dismiss as to Count IV must
be denied.
IV.

Conclusion

For the reasons set forth above, EQT’s partial motion to
dismiss (ECF No. 5) is GRANTED IN PART and DENIED IN PART.
IT IS SO ORDERED.
The Clerk is DIRECTED to transmit a copy of this memorandum
opinion and order to counsel of record herein.

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DATED:

June 16, 2015

/s/ Frederick P. Stamp, Jr.
FREDERICK P. STAMP, JR.
UNITED STATES DISTRICT JUDGE

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