Sabre Energy Corp. v. Gulfport Energy Corp.

Sabre Energy Corporation, Plaintiff, v. Gulfport Energy Corporation, et al., Defendants.

No. 2:19-cv-5559

United States District Court, S.D. Ohio, Eastern Division

July 2, 2021

Deavers, Magistrate Judge.

OPINION AND ORDER

JAMES L. GRAHAM, United States District Judge.

Plaintiff Sabre Energy Corporation brings this breach of contract action alleging that it is owed royalty payments on oil and gas production from “horizontal deep wells” which are operated by defendants Gulfport Energy Corporation and Antero Resources Corporation. This matter is before the court on Antero's motion to dismiss. Antero seeks dismissal of the complaint on the grounds that Sabre failed to join required parties under Rule 19, Fed.R.Civ.P. Antero further seeks dismissal of Sabre's equitable accounting claim on the grounds that fact discovery relating to the breach of contract claim will provide an adequate means to determine any royalties that are owed. For the reasons stated below Antero's motion is denied as to the joinder argument but granted as to the accounting claim.

I. Background

In 1992 Sabre obtained Overriding Royalty Interests (ORRIs) in 25 oil and gas leases relating to wells in Belmont, Guernsey, Monroe and Noble Counties in eastern Ohio. Sabre obtained the ORRIs through two separate assignments made by the TransAtlantic Management Company, which held the underlying oil and gas leases. The first assignment related to 17 leases and the second to 8. Both assignments provided that the ORRIs pertained to the “wells and drilling units associated therewith.” For 24 of the 25 leases, Sabre's ORRI was set at 2% of production; for the 25th, it was set at 1%.

According to the complaint, a “drilling unit” is a term of art in the oil and gas industry which means that the interest extends from the surface to the core of the earth. Sabre alleges that the assignments did not otherwise contain any restrictions at to geological strata or depth.

Gulfport and Antero are the successors to TransAtlantic. The complaint alleges that Gulfport and Antero have drilled additional oil and gas wells on the acreage subject to the underlying leases and to Sabre's ORRI. These wells have been drilled to a depth known as the Utica Shale/Point Pleasant formation and are called “horizontal deep wells.”

Sabre notified Gulfport and Antero of its ORRI and asserted a right to payment from the production of the horizontal deep wells at issue. Gulfport and Antero both took the position that Sabre was not entitled to royalties from the horizontal deep wells because they believed that the assignments were limited to “shallow wells.”

Sabre filed this suit, invoking the court's diversity jurisdiction. It asserts a claim for breach of contract, alleging that Gulfport and Antero have failed to make payment of the ORRI due to Sabre under the assignments. Sabre also asserts a claim for equitable accounting, alleging that it is entitled to obtain all of the information from which an accurate calculation of its royalties can be made.

Gulfport filed an answer denying Sabre's claims. On November 23, 2020, Gulfport submitted a notice that it had filed a petition for bankruptcy in the United States Bankruptcy Court for the Southern District of Texas. The Bankruptcy Court approved a Chapter 11 plan of reorganization, which became effective on May 17, 2021 and thereby lifted the automatic stay, 11 U.S.C. § 362(a), of any claims against Gulfport which had not been discharged.

Antero has filed a motion to dismiss that is twofold. First, Antero argues that Sabre's assertion of an ORRI in the horizontal deep wells is adverse to the interests of certain non-parties - specifically, two trusts which exist under Ohio law and which hold valid ORRIs in the wells. Antero contends that if Sabre receives a 2% ORRI, then the royalties received by the trusts will be reduced or eliminated. In Antero's view, the trusts are necessary and indispensable parties to this action but cannot be joined because doing so would destroy diversity jurisdiction. Antero thus argues that the suit must be dismissed.

Second, Antero argues that the claim for an accounting must be dismissed because Ohio law does not recognize such a claim when discovery related to other causes of action provides an adequate legal remedy for determining how much money is owed to plaintiff.

II. Joinder under Rule 19

A. Legal Standard

A party may move to dismiss a complaint under Rule 12(b) for “failure to join a party under Rule 19.” Fed.R.Civ.P. 12(b)(7). The joinder analysis under Rule 19 involves three steps. See Keweenaw Bay Indian Cmty. v. State, 11 F.3d 1341, 1345-46 (6th Cir. 1993). First the court determines whether the absent party is a “required party” under Rule 19(a). See Republic of Philippines v. Pimentel, 553 U.S. 851, 859, 862 (2008) (noting that an amendment to Rule 19 had replaced the old terminology of “necessary” and “indispensable” parties). Second, if an absent party is a required party, the court determines whether their joinder is feasible. See Fed. R. Civ. P. 19(b); Glancy v. Taubman Centers, Inc., 373 F.3d 656, 666 (6th Cir. 2004). Third, if the required party cannot be joined, the court must analyze four factors under Rule 19(b) to determine whether the court should “in equity and good conscience” proceed among the existing parties. Fed.R.Civ.P. 19(b); Glancy, 373 F.3d at 666.

Sabre and Antero dispute the first and third steps. They agree under the second step that the absent parties cannot be joined. Sabre is an Ohio corporation and the absent parties are Ohio residents. See Doc. 1, ¶ 5; Doc. 7-1, ¶¶ 5-6. Thus, joinder of the absent parties is not feasible because it would deprive this court of diversity jurisdiction. See 28 U.S.C. § 1332; Caterpillar, Inc. v. Lewis, 519 U.S. 61, 68 (1996) (diversity jurisdiction requires complete diversity of citizenship).

B. The Trusts are not Required Parties

The first step is to determine whether there is a person or entity who is a non-party but who is required to be joined if feasible. Fed.R.Civ.P. 19(a). An absent party is required if either:

(A) in that person's absence, the court cannot accord complete relief among existing parties; or

(B) that person claims an interest relating to the subject of the action and is so situated that disposing of the action in the person's absence may:

(i) as a practical matter impair or impede the person's ability to protect the interest; or

(ii) leave an existing party subject to a substantial risk of incurring double, multiple, or otherwise inconsistent obligations because of the interest.

Fed. R. Civ. P. 19(a)(1)(A)-(B); see also Norfolk S. Ry. Co. v. Baker Hughes Oilfield Operations, LLC, 443 F.Supp.3d 877, 883 (S.D. Ohio 2020). The burden is on the moving party to establish that a non-party person or entity is required under Rule 19(a). Id. “The moving party may satisfy this burden through the production of affidavits or other relevant extra-pleading evidence.” Reilly v. Meffe, 6 F.Supp.3d 760, 774 (S.D. Ohio 2014) (internal quotations omitted).

Antero argues that two trusts are required parties: the Talmage Trust and the Haid Trust. Both of these Trusts have ORRIs in the horizontal deep wells for which Sabre claims it should be receiving royalty payments. In 2011 and 2012 the Trusts obtained ORRIs which equal “the difference between (i) eighteen percent (18%) and (ii) the sum of all burdens existing on a Lease including, without limitation, royalty, overriding royalty, net profits interests, and other similar interests of record.” Doc. 7-3 at PAGEID 103; Doc. 8 at PAGEID 281. According to Antero, the current sum of all other existing burdens on the leases at issue is 17.5%, which leaves the Trusts with a royalty of 0.5%. Were the court to determine that Sabre's claim of a 2% ORRI (or 1% for the 25th well) is valid, then the sum of existing burdens would be 19.5% and the Trusts would be left with no royalty payments. For purposes of the motion to dismiss, Sabre does not dispute these facts asserted by Antero about the nature of the Trusts' ORRI.

Antero argues that the Trusts are required parties because they have a “competing” interest which creates an “irreconcilable conflict” with Sabre's asserted claim. Antero contends that the court cannot afford complete relief among the parties because the priorities of the interests of Sabre and the Trusts cannot be adjudicated without the Trusts being present in the litigation. Antero further argues that disposing of this action in the Trusts' absence would prevent the Trusts from defending their interests against Sabre's attempt to eliminate them and would leave Antero in the position of being subject to the risk of inconsistent obligations to pay royalties both to Sabre and to the Trusts.

The court finds Antero's arguments to be without merit. The focus of Rule 19(a)(1)(A) is “on relief between the parties and not on the speculative possibility of further litigation between a party and an absent person.” Sales v. Marshall, 873 F.2d 115, 121 (6th Cir. 1989) (internal quotation marks omitted). Sabre seeks a legal determination that the language of the assignments it received from TransAtlantic included ORRIs in any horizontal deep wells drilled on the acreage subject to the leases. Gulfport and Antero are the successors to TransAtlantic and thus each of the parties to the assignments at issue are present in this litigation. The court can afford complete relief among the existing parties to this breach of contract action. See Bounty Mins., LLC v. Chesapeake Expl LLC, No. 5:17CV1695, 2019 WL 7048981, at *8 (N.D. Ohio Dec. 23, 2019) (rejecting argument that co-lessors on oil and gas leases were required parties, because plaintiff's breach of contract claim put only plaintiff...