Rodgers et al v. Southwestern Energy Company et al
Filing
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MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN PART WITHOUT PREJUDICE CHESAPEAKE APPALACHIA, LLC AND CHESAPEAKE ENERGY CORPORATION'S MOTION TO DISMISS AND GRANTING PLAINTIFFS' LEAVE TO FILE MOTION TO AMEND COMPLAINT: Granting in part and Denying in part Without Prejudice 6 Motion to Dismiss for failure to State a Claim; Count V is Dismissed without prejudice; Pltffs may refile Motion to Amend. Signed by District Judge John Preston Bailey on 6/13/16. (soa)
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA
WHEELING
DOUGLAS RODGERS and
WILLIAM RODGERS,
Plaintiffs,
v.
Civil Action No. 5:16-cv-54
(BAILEY)
SOUTHWESTERN ENERGY COMPANY,
SOUTHWESTERN ENERGY, SOUTHWESTERN ENERGY
PRODUCTION COMPANY, CHESAPEAKE
APPALACHIA, L.L.C., and
CHESAPEAKE ENERGY CORPORATION,
Defendants.
MEMORANDUM OPINION AND ORDER GRANTING IN PART AND DENYING IN
PART WITHOUT PREJUDICE
CHESAPEAKE APPALACHIA, LLC AND CHESAPEAKE ENERGY
CORPORATION’S MOTION TO DISMISS AND GRANTING PLAINTIFFS LEAVE TO
FILE
MOTION TO AMEND COMPLAINT
Currently pending before this Court is Defendants Chesapeake Appalachia, L.L.C.’s
and Chesapeake Energy Corporation’s (collectively, “Chesapeake”) Motion to Dismiss
[Doc. 6], filed on April 25, 2016. Plaintiffs Douglas Rodgers and William Rodgers filed a
Response in Opposition to Chesapeake’s Motion and an Alternative Motion to Amend
Plaintiffs’ Complaint [Doc. 11] on May 9, 2016. Chesapeake subsequently filed a Reply to
Plaintiffs’ Response [Doc. 13] on May 16, 2016. The matter is now ripe for adjudication.
For the reasons set forth below, this Court hereby grants Chesapeake’s Motion to Dismiss
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in part [Doc. 6] and grants plaintiffs leave to file a motion to amend their Complaint
pursuant to Fed. R. Civ. P. 15.
I. BACKGROUND:
Plaintiffs filed their Complaint in the Circuit Court of Ohio County on March 16, 2016
[Doc. 1-1], wherein they allege that they leased certain oil and gas interests in Ohio County,
West Virginia, to Chesapeake and its successor, Southwestern [Doc. 1-1 at ¶ 12]. Plaintiffs
contend that pursuant to the terms of the lease, Chesapeake agreed to pay 18% of the
gross proceeds realized for oil and gas produced and sold from plaintiffs’ land without costs
or fees deducted [Id. at ¶ 14; Doc. 11-2 at 2]. Instead, Chesapeake has allegedly paid a
lesser percentage than agreed upon, and calculated their payments based upon the net
instead of the gross proceeds [Doc. 1-1 at ¶ 14].
Plaintiffs purportedly advised
Chesapeake of this error by letter, but it has done nothing to correct the same [Id.]. This
cause of action followed, wherein plaintiffs assert four causes of action and a claim for
damages: (1) breach of contract; (2) conversion; (3) breach of covenant of good faith and
fair dealing; (4) failure to maintain/diminution of property value;1 and (5) a claim for
damages [Doc. 1-1 at 3-7].
On April 18, 2016, Chesapeake removed this matter pursuant to 28 U.S.C. §§ 1332,
1441, and 1446 and invoked this Court’s diversity jurisdiction [Doc. 1]. Chesapeake then
filed their Motion to Dismiss on April 25, 2016 [Doc. 6]. In support of their Motion to
Dismiss, Chesapeake argues that all of the plaintiffs’ claims should be dismissed pursuant
1
This Court notes that Count IV is mistakenly transposed as Count VI. In the event
an Amended Complaint is ultimately filed, this Court is confident the plaintiffs will correct
this scrivener’s error.
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to F. R. Civ. P. 12(b)(6) for failure to state a claim and because the lease in question was
not attached to the Complaint [Doc. 7 at 1]. On May 9, 2016, plaintiffs then filed a
Response to Chesapeake’s Motion to Dismiss [Doc. 11]. In the alternative, plaintiffs
requested a period of discovery to evaluate these claims or a motion to amend the
plaintiffs’ Complaint [Id.]. In their Response, plaintiffs’ attached the lease in question and
Chesapeake’s division orders [Doc. 11-2; Doc. 11-3]. In their Reply, Chesapeake reiterates
many of the same arguments from its Memorandum in Support of Motion to Dismiss and
again assert that plaintiffs’ claims should be dismissed [Doc. 13]. They also argue that the
motion to amend the complaint should not be granted because plaintiffs did not adhere to
the Local Rules of Civil Procedure regarding amending pleadings for failing to attach the
proposed Amended Complaint [Id. at 7-8]. The arguments made in those various pleadings
will be discussed more extensively below.
II. LEGAL STANDARD:
A complaint must be dismissed if it does not allege “‘enough facts to state a claim
to relief that is plausible on its face.’ Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1974
(2007) (emphasis added).” Giarratano v. Johnson, 521 F.3d 298, 302 (4th Cir. 2008).
When reviewing a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure, the Court must assume all of the allegations to be true, must resolve all doubts
and inferences in favor of the plaintiffs, and must view the allegations in a light most
favorable to the plaintiffs. Edwards v. City of Goldsboro, 178 F.3d 231, 243-44 (4th Cir.
1999).
When rendering its decision, the Court should consider only the allegations
contained in the Complaint, the exhibits to the Complaint, matters of public record, and
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other similar materials that are subject to judicial notice. Anheuser-Busch, Inc. v.
Schmoke, 63 F.3d 1305, 1312 (4th Cir. 1995). In Twombly, the Supreme Court, noting
that “a plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires more
than labels and conclusions, and a formulaic recitation of the elements of a cause of action
will not do,” Id. at 1964-65, upheld the dismissal of a complaint where the plaintiffs did not
“nudge[ ] their claims across the line from conceivable to plausible.” Id. at 1974.
III. DISCUSSION:
A.
Plaintiffs’ Breach of Contract Claim Must be Amended to Address the Specific
Issues in Controversy and Comport with Pleading Requirements.
Chesapeake first moves to dismiss plaintiffs’ breach of contract claim, arguing that
the claim has not been sufficiently pled [Doc. 7 at 4]. Chesapeake notes that the plaintiffs
did not attach the lease at issue or identify the date, acreage, parties, any language
regarding royalty provisions, the amounts paid or underpaid, or any other specific details
regarding the contract [Id.]. As a result, Chesapeake argues that Count I does not provide
them with “fair notice” or the basis for this claim [Id. at 5]. See Twombly, 550 U.S. at 555.
In their Response, plaintiffs argue that they have properly alleged the required
elements for breach of contract, including the existence of a contract with the inclusion of
Exhibits B, C, and D [Doc.11 at 2-3, 6]. Plaintiffs further argue that they properly alleged
that they performed their contractual duties in the Complaint, because their only duty was
to lease their interests and the Complaint clearly states the plaintiffs “have leased their oil
and gas interest to Chesapeake” and there have been no denials contending the fact [Doc.
1-1 at ¶ 12; Doc. 11 at 6].
Of note, plaintiffs, for the first time, attached the lease in question as Exhibit B [Doc.
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11-2]. The lease shows that the agreement is that plaintiffs will receive 18% “of the gross
proceeds realized by Lessee for all Oil and Gas produced and sold from Leased Premises”
[Id. at 2]. Plaintiffs also included division orders, showing Chesapeake calculations of
payments to plaintiffs using 14% instead of 18% [Doc. 11-3 at 1-3].
To properly state a claim for breach of contract under West Virginia law, the plaintiff
must allege: (1) the existence of a valid, enforceable contract; (2) that plaintiff has
performed its own contractual duties; (3) that defendant has breached or violated its duties
under the contract; and (4) that plaintiff has been injured as a result of defendant’s violation
of contractual duty. See Wince v. Easterbrooke Cellular Corp., 681 F.Supp.2d 688, 693
(N.D. W.Va. 2010).
Because plaintiffs filed a motion to amend their complaint, this Court will not address
whether the claim for breach of contract is sufficiently pled, and instead grants the plaintiffs
leave to amend their complaint. Plaintiffs have appended a Motion to Amend the Plaintiffs
Complaint to their Response [Doc. 11 at 9].2 However, as Chesapeake correctly notes, this
Court’s L. R. Civ. P. 15.01 requires that, “any party filing a motion to amend a pleading that
requires leave of court to file shall attach to that motion a signed copy of the proposed
amended pleading.” See L.R. Civ. P. 15.01. Plaintiffs did not attach a copy of the
proposed amended complaint to their Response. Accordingly, this Court cannot grant the
Motion to Amend. However, this Court has broad discretion to allow plaintiffs to amend
2
This Court reminds plaintiffs that, pursuant to Fed. R. Civ. P. 15(a)(1)(b), a given
plaintiff has “21 days after service of a motion under Rule 12(b)” to amend their complaint.
Plaintiffs would have done well to amend the instant complaint and attach copies of the
contract at issue after this Motion was filed in the interests of judicial economy and the
convenience of the parties.
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their Complaint in order to meet the pleading requirements even after the 21 day “grace
period” ends. See F. R. Civ. P. 15(a)(2) (“The court should freely give leave when justice
so requires.”). Accordingly, plaintiffs are granted leave to re-file their Motion to Amend the
Complaint with the proposed amended complaint attached as required by L. R. Civ. P.
15.01.
B.
The Claim for Conversion Should Be Dismissed Because the “Gist of the
Action” Doctrine Bars Recovery in Tort When a Claim is Rooted in a Breach
of Contract Claim.
Chesapeake next moves to dismiss the conversion claim. Plaintiffs claim that
defendants have willfully interfered with plaintiffs’ mineral rights and deprived plaintiffs of
their property [Doc. 1-1 at ¶¶ 24-25]. Plaintiffs claim defendants have taken control over
plaintiffs’ property and converted as defendants’ own, contrary to law. [Id. at ¶¶ 25-26].
Plaintiffs claim, as a direct and proximate consequence of defendants’ actions, they have
suffered damages [Id. at ¶ 25].
Chesapeake argues that the “gist of the action” doctrine bars any recovery in tort
where the breach is grounded in a contractual relationship [Doc. 7; citing Gaddy
Engineering Co. v. Bowles Rice McDavid Graff & Love, 231 W.Va. 577, 586, 746 S.E.2d
568, 577 (2013)]. Chesapeake argues that since the plaintiffs are seeking recovery from
an alleged breach of contract, a claim of conversion cannot be sustained. In the plaintiffs’
Response, they argue that every time Chesapeake pays less than the plaintiffs’ contractual
share, Chesapeake is using the plaintiffs’ gas, oil, or money as their own [Doc. 11 at 7].
In their Reply, Chesapeake again argues the “gist of the action” doctrine and argues that
the plaintiffs did not provide supporting law that their conversion claim can be sustained
[Doc. 13 at 6].
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The “gist of the action doctrine” applies where one of the following four factors is
present:
“(1) where liability arises solely from the contractual relationship between the
parties; (2) where the alleged duties breached were grounded in the contract
itself; (3) where any liability stems from the contract; and (4) when the tort
claim essentially duplicates the breach of contract claim or where the
success of the tort claim is dependent on the success of the breach of
contract claim.”
Gaddy Eng'g Co., 231 W.Va. at 586, 746 S.E.2d at 577 (2013). In short, to determine
whether a tort claim can be sustained separate from the breach of contract claim, the court
must examine “whether the parties’ obligations are defined by the terms of the contract.”
Id.
Here, obvious from the briefs filed by both parties, the central issue of this case is
predicated upon an alleged breach of contract. Plaintiffs claim that Chesapeake has not
paid the proper amount to plaintiffs, as obligated by their lease. Plaintiffs then argue that
since they are being underpaid, Chesapeake is keeping the plaintiffs’ money, using the
plaintiffs’ money, or using the oil and gas. That, plaintiffs argue, constitutes a conversion.
Assuming this is a valid conversion claim, the claim is still more appropriately categorized
as a breach of contract claim because it derives from a failure to perform contractual duties
and the plaintiffs even admit that the “crux of the complaint is that the plaintiffs and
defendants made an agreement for an oil and gas lease” [Doc. 11 at 2].
Plaintiffs are essentially attempting to recast their breach of contract claim as a
separate conversion claim, which is prohibited by the “gist of the action” doctrine. The gist
of the action doctrine was intended to “prevent the recasting of a contract claim as a tort
claim.” Covol Fuels No. 4, LLC v. Pinnacle Min. Co., LLC, 785 F.3d 104, 115 (4th Cir.
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2015) (quoting Gaddy Eng'g Co., 231 W.Va. at 586, 746 S.E.2d at 577 (2013)). By
bringing a conversion claim, plaintiffs are trying to do exactly what the “gist of the action”
doctrine was designed to avoid. Accordingly, Count II is dismissed because the claim for
conversion arises from an alleged breach of a contractual obligation.
C.
Count III for Claim of Breach of Covenant of Good Faith and Fair Dealing is
Dismissed Because West Virginia Does Not Acknowledge This Claim as a Separate,
Independent Claim.
Chesapeake moves to dismiss Count III, a claim for breach of covenant of good faith
and fair dealing. Plaintiffs argue there is an implied covenant of good faith and fair dealing
between defendants and plaintiffs based on their contractual relationship [Doc.1-1 at ¶¶ 2728]. Plaintiffs claim defendants breached the covenant of good faith and fair dealing by not
abiding by the terms of the contract [Id. at ¶ 31].
Chesapeake argues that it is “well-established” that West Virginia does not
acknowledge an independent cause of action for a breach of covenant of good faith [Doc.
7 at 6]. In the Plaintiffs’ Response, plaintiffs argue that Chesapeake’s breach of covenant
of good faith and fair dealing is “so inappropriate that it merits spelling it out in a separate
claim” and that the Court should allow the count to proceed, further refining the breach of
contract claim [Doc. 11 at 8]. Chesapeake, in their Reply, reiterate the point that West
Virginia does not acknowledge this as an independent claim [Doc. 13 at 4]. They further
argue that the proper way to “refine” plaintiffs’ breach of contract claim is to include the
necessary facts within their breach of contract claim, not by asserting a separate claim [Id.
at 5].
It is well-established that the West Virginia Supreme Court of Appeals does not
recognize a breach of the implied covenant of good faith and fair dealing as its own
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independent claim. See Highmark W. Virginia, Inc. v. Jamie, 221 W.Va. 487, 492, 655
S.E.2d 509, 514 (2007) (“[W]e recognize that it has been held that an implied covenant of
good faith and fair dealing does not provide a cause of action apart from a breach of
contract claim[.]”). See also, Evans v. United Bank, Inc., 235 W.Va. 619, 628, 775 S.E.2d
500, 509 (2015) (citing Jamie); Gaddy Eng'g Co. v. Bowles Rice McDavid Graff & Love,
LLP, 231 W.Va. 577, 587, 746 S.E.2d 568, 578 (2013) (citing Jamie). The Court agrees
with Chesapeake and the count for breach of covenant of good fath and fair dealing is
dismissed because West Virginia does not recognize a breach of the covenant of Good
Faith and Fair Dealing as a claim separate and independent of a breach of contract claim.
D.
Count IV for Failure to Maintain and Diminution in Property Value is
Dismissed As To Chesapeake Because the Claim is Against Southwestern
and Not Chesapeake.
Chesapeake moves to dismiss the claim for failure to maintain/diminution in property
value. Plaintiffs claim defendants have a duty to maintain the installations on plaintiffs’
property and a duty to confine their operations to the right of way [Doc. 1-1 at ¶ 34].
Plaintiffs claim defendants have used more area than agreed upon, and that defendants
should have to pay for the increased area use because it has caused decreases in property
value [Id. at ¶¶ 34-39].
Chesapeake argues that the Complaint does not address the cause of action under
which plaintiffs are proceeding, the plaintiffs are only using conclusory statements, and do
not allege the source of the duty to maintain infrastructure or allege the source or terms
regarding the right-of-way [Doc. 7 at 8]. In the plaintiffs’ Response, they write succinctly
that the “property damage claim is against current operator Southwestern and not
Chesapeake” [Doc. 11 at 8].
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Accordingly, the claim for failure to maintain and diminution in property value is
dismissed as to Chesapeake.
E.
The Claim for Damages Is Dismissed for Failure to State a Claim
Plaintiffs claim they are entitled to damages for the aforementioned claims [Doc. 1-1
at ¶¶ 40-49]. Chesapeake moved to dismiss the claim for damages because they argue
it is just a recitation of the damages sought by plaintiffs and is not a valid independent claim
for recovery [Doc. 13 at 7]. In their Response, plaintiffs state that Count V, the claim for
damages “is not an independent count of the legal claim” for recovery, but is instead simply
stating the amount in damages plaintiffs believe they are entitled to [Doc. 11 at 9]. In their
Reply, Chesapeake argues that the proper way to set forth damages plaintiffs seek to
recover is not by asserting a separate count, and that since the plaintiffs agree that Count
V is not an independent claim that Count V should be dismissed [Doc. 13 at 7].
West Virginia does not recognize an independent cause of action for damages. See
Lyon v. Grasselli Chem. Co., 106 W.Va. 518, 146 S.E. 57, 58 (1928) (“[T]he right to
recover punitive damages in any case is not the cause of action itself, but a mere incident
thereto.”); Perrine v. E.I. du Pont de Nemours & Co., 225 W.Va. 482, 567, 694 S.E.2d
815, 900 (2010) (citing Lyon). Because West Virginia does not recognize a claim for
damages as a separate claim, Count V fails under F. R. Civ. P. 8(a)(2) for failure to state
a claim.
In order to properly state a claim for relief, plaintiffs are required to provide a “short
and plain statement of the claim” that gives defendants “fair notice of what the claim is and
the grounds upon which it rests.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.
Ct. 1955, 1965 (2007). Plaintiffs must use more than mere “labels and conclusions” to
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claim relief. Id.
Here, plaintiffs do not list out additional facts that could constitute elements of
causes of actions, but instead use various conclusory statements claiming they are entitled
to damages for reasons stated in their other counts. Plaintiffs themselves state that Count
V is not an independent claim [Doc. 11 at 9].
Accordingly, Count V, the claim for damages, is dismissed without prejudice and
plaintiffs may properly assert the damages they argue they are entitled to in their amended
complaint.
IV. CONCLUSION
For the foregoing reasons, the Court grants plaintiffs leave to amend their complaint
and finds that the Motion to Dismiss is to be granted in part for plaintiffs’ failures to state
valid claims for relief. First, the conversion claim is not a valid claim because it is a tort
claim rooted in the breach of contract. Second, the breach of covenant of good faith and
fair dealing claim is not a valid claim because it is included within the breach of contract
claim and West Virginia does not recognize it as a separate action. Third, the failure to
maintain property and diminution in property value claim is dismissed as to Chesapeake
because plaintiffs admit their claim is against Southwestern and not Chesapeake. Finally,
the claim for damages is not a valid claim because plaintiffs acknowledge that it is not an
independent claim and West Virginia does not acknowledge a claim for damages as an
independent clause of action.
This Court finds that the Defendant Chesapeake’s Motion to Dismiss [Doc. 6] is
GRANTED IN PART and DENIED IN PART. Additionally, plaintiffs may refile their Motion
to Amend [Doc. 11 at 9].
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It is so ORDERED.
The Clerk is directed to transmit copies of this Order to all counsel of record herein.
DATED: June 13, 2016.
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