Stern et al v. Columbia Gas Transmission, LLC et al

Filing 128

MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFFS' MOTION FOR LEAVE TO FILE FIFTH AMENDED COMPLAINT. The Clerk is DIRECTED to file as the plaintiffs fifth amended complaint. ECF No. 122-1. Signed by Senior Judge Frederick P. Stamp, Jr. on 3/2/2017. (copy to counsel via CM/ECF) (nmm)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
GARY STERN and SUSAN STERN,
Plaintiffs,
v.

Civil Action No. 5:15CV98
(STAMP)

COLUMBIA GAS TRANSMISSION, LLC,
CHESAPEAKE APPALACHIA, LLC,
COLUMBIA ENERGY VENTURE, LLC and
SWN PRODUCTION COMPANY, LLC,
Defendants.
MEMORANDUM OPINION AND ORDER
GRANTING PLAINTIFFS’ MOTION FOR
LEAVE TO FILE FIFTH AMENDED COMPLAINT
After this Court granted in part and denied in part the
defendants’

motion

to

dismiss

the

plaintiffs’

fourth

amended

complaint, the plaintiffs filed a motion for leave to file a fifth
amended complaint.

The defendants oppose that motion.

For the

following reasons, the plaintiffs’ motion for leave to file a fifth
amended complaint is granted.
I.

Procedural History

This is a breach of contract case arising out of two oil and
gas leases.

Columbia Gas Transmission, LLC and Columbia Energy

Venture, LLC (collectively “Columbia”) hold oil and gas leases in
the plaintiffs’ two tracts (“the subject leases”). Columbia sublet
the subject leases to Chesapeake Appalachia, LLC (“Chesapeake”).
Chesapeake has since assigned all of its rights and interests in
the subject leases to SWN Production Company, LLC (“SWN”).

The plaintiffs (“the Sterns”) originally alleged that the
subject leases do not allow for pooling or unitization of their
properties with neighboring lands. Chesapeake included portions of
the Sterns’ properties in a pooled unit known as the “Ray Baker
Unit.”

Chesapeake drilled and began operating a well known as the

“Ray Baker #1H” on property, other than the Sterns’, in the Ray
Baker Unit.

The Sterns allege that the Ray Baker #1H well is

producing gas from the Sterns’ properties through drainage.

After

Chesapeake assigned all of its rights and interests in the subject
leases to SWN, SWN has continued producing gas from the Sterns’
properties through the Ray Baker #1H well.

The Sterns allege that

after they filed this civil action, SWN issued a First Amended
Declaration and Notice of Pooled Unit for the Ray Baker Unit,
“reconfigur[ing] the boundaries of the Ray Baker Unit . . . to
exclude the portion of [the Sterns’] . . . tracts which had
previously been included in the Unit by Chesapeake.”

ECF No. 76

at 8.
The Sterns’ claims against Columbia have been settled and
dismissed.

However, in their fourth amended complaint, the Sterns

continued to allege claims against both Chesapeake and SWN for
breach

of

contract,

breach

of

the

implied

covenant

against

drainage, and fraudulent extraction of gas in Count II, trespass
and conversion in Counts III and IV, and bad faith pooling and
breach of the implied covenant of good faith and fair dealing in

2

Counts V, VI, and VII. Chesapeake and SWN filed motions to dismiss
under Rule 12(b)(6).
This Court granted in part and denied in part those motions to
dismiss.
leases

Specifically, this Court concluded that the subject

did

include

the

right

to

pool

the

Sterns’

property,

eliminating Counts II, III, and IV of the fourth amended complaint.
However, this Court concluded that the plaintiffs’ bad faith
pooling and breach of the implied covenant of good faith and fair
dealing claims in Counts V, VI, and VII were not dismissed in so
far as they allege breaches not dependent upon the defendants’
right to pool.

The Sterns have now filed a motion for leave to

file a fifth amended complaint.

The defendants filed separate

oppositions, and the Sterns filed a reply.
The Sterns’ proposed fifth amended complaint includes three
counts.

Count I alleges that Chesapeake included the Sterns’

properties in the Ray Baker Unit but failed to pay the Sterns
royalties as required by the subject leases, the subleases, and
West Virginia Code § 22-6-8(e), and that Chesapeake’s inclusion of
the Sterns’ properties in the Ray Baker Unit resulted in an
oversized unit in violation of the terms of the subleases.
allege that these actions constitute bad faith pooling.

They

Count II

alleges that SWN also failed to pay royalties and that SWN’s
removal of the Sterns’ properties from the Ray Baker Unit violated
the subleases’ unitization provisions, and that these actions

3

constitute bad faith pooling.

Count III alleges that Chesapeake

and SWN’s actions constitute breach of the covenant of good faith
and fair dealing.
II.

Applicable Law

Where a party seeks to amend its pleadings after the deadline
for such amendments in the scheduling order has passed, the party
must show good cause under Federal Rule of Civil Procedure 16(b)(4)
for why the party failed to timely file a motion to amend.
Nourison Rug Corp. v. Parvizian, 535 F.3d 295, 298 (4th Cir. 2008).
Good cause requires that the party has been diligent in seeking to
abide by deadlines.
Cir. 2012).

Cook v. Howard, 484 F. App’x 805, 815 (4th

If the party demonstrates good cause, the court must

then apply the liberal standard for amending provided by Rule
15(a)(2).

Johnson v. Oroweat Foods Co., 785 F.2d 503, 509 (4th

Cir. 1986).
III.
A.

Discussion

Good Cause Under Rule 16(b)(4)
“[A]fter the deadlines provided by a scheduling order have

passed, [Rule 16(b)(4)’s] good cause standard must be satisfied to
justify leave to amend [] pleadings.”

Nourison Rug Corp. v.

Parvizian, 535 F.3d 295, 298 (4th Cir. 2008).

Good cause requires

that the party has been diligent in seeking to abide by the
applicable deadlines.

Cook v. Howard, 484 F. App’x 805, 815 (4th

Cir. 2012).

4

The Sterns have demonstrated good cause for seeking an out-oftime amendment to their complaint.

The Sterns’ prior amended

complaints were based on a theory that the subject leases did not
allow the defendants to pool or unitize their properties with
others.

This Court found that the subject leases do permit the

defendants to pool or unitize the Sterns’ properties and, thus, the
Sterns’ case theory was extinguished.

However, this Court did not

dismiss the Sterns’ remaining breach of contract claims that were
not based on the lack of pooling rights.

The Sterns’ remaining

breach of contract claims vaguely stated factual bases outside of
the defendants’ right to pool or unitize. They now seek to clarify
those allegations.
The defendants argue that the Sterns were not diligent because
they were aware of the factual basis of their new claims at the
time of their prior amendments. However, the Sterns’ choice to not
include these specific allegations in prior amended complaints is
not fatal.

The Sterns demonstrate that they did not specifically

plead these additional facts because these allegations are based on
an alternative case theory, separate and distinct from the theory
they

originally

asserted.

The

Sterns

were

not

required

to

specifically plead facts regarding this alternative case theory in
their prior amendments.

However, now that this Court has found

that the defendants do have pooling or unitization rights, the

5

Sterns have good cause to clarify their remaining claims and
refocus this litigation.
B.

Leave to Amend Under Rule 15(a)(2)
The defendants argue that the Sterns’ motion should be denied

because the amendments are unnecessary, constitute entirely new
claims that will require additional discovery, and the Sterns seek
these amendments after undue delay.
Rule 15(a)(2) provides that if a party seeks to amend its
pleading more than twenty-one days after service of a responsive
pleading, it may do so “only with the opposing party’s written
consent or the court’s leave.
when justice so requires.”

The court should freely give leave

Fed. R. Civ. P. 15(a)(2).

Rule 15(a)

grants the district court broad discretion concerning motions to
amend pleadings, and leave should be granted absent some good
reason “such as undue delay, bad faith[,] or dilatory motive on the
part of the movant, repeated failure to cure deficiencies by
amendments previously allowed, undue prejudice to the opposing
party by virtue of allowance of the amendment, [or] futility of
[the] amendment.”

Foman v. Davis, 371 U.S. 178, 182 (1962); see

also Ward Elecs. Serv., Inc. v. First Commercial Bank, 819 F.2d
496, 497 (4th Cir. 1987).
First, as discussed above, the Sterns have been diligent in
complying with the deadlines in the scheduling order and have shown
good cause for why they did not seek these amendments earlier.

6

Thus, this Court does not find any undue delay or dilatory motive
on the Sterns’ part.
Second,

there

is

no

evidence

of

bad

faith.

While

the

defendants argue that the Sterns’ amendments seek to add entirely
new claims in the guise of their remaining breach of contract
claims, the latest allegations are not entirely new to the parties.
In their responses, the defendants admit that they are aware of the
factual bases of the Sterns’ claims set out in the proposed
amendment.

These

new

factual

allegations

are

all

plead

to

demonstrate how the defendants allegedly breached their duties of
good faith and fair dealing and how they breached the implied
covenant

against

bad

faith

pooling.

The

Sterns’

clarifying

amendments are not indicative of bad faith but instead serve to
spell out their remaining claims.
Third, the defendants will not be prejudiced by allowing the
Sterns’ proposed amendments.

The defendants are aware of the

factual bases of these new allegations. The issues are tied to the
parties’ performance of the subject leases via the sublease and
deal with their duties to act in good faith in relation to the
Sterns.

While some additional discovery may be necessary, the

discovery deadline of June 12, 2017 offers ample time for such
discovery. Further, if the defendants feel that additional time is
needed, they may seek an extension of the discovery deadline for
good cause.

7

Fourth, the Sterns’ amendments will not be futile.

Although

the defendants argue that the amendments are unnecessary because
the parties are fully aware of the factual bases of these new
allegations, the amendments serve to clarify the Sterns’ remaining
claims.

The Sterns’ remaining breach of contract claims provided

only vague allegations regarding the defendants’ breach of good
faith and fair dealing and breach of the implied covenant against
bad faith pooling.
necessary,

they

Thus, while the amendments may not strictly be

will

assist

the

parties

and

this

Court

in

identifying the factual disputes in this case and permit the
efficient resolution of this matter. Accordingly, this Court finds
no reason for denying the Sterns’ motion for leave to amend.
IV.

Conclusion

The Sterns have demonstrated good cause for seeking an out-oftime amendment.

Further, this Court finds no reason to not apply

Rule

liberal

15(a)(2)’s

amending

standard.

Accordingly,

the

Sterns’ motion (ECF No. 122) is GRANTED.
IT IS SO ORDERED.
The Clerk is DIRECTED to file as the plaintiffs’ fifth amended
complaint.

ECF No. 122-1.

Further, the Clerk is directed to

transmit a copy of this memorandum opinion and order to counsel of
record herein.

8

DATED:

March 2, 2017

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

9