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S Bar B Ranch, A Montana Corporation v. Omimex Canada

April 29, 2013

S BAR B RANCH, A MONTANA CORPORATION, PLAINTIFF,
v.
OMIMEX CANADA, LTD., A DELAWARE CORPORATION, DEFENDANT.



The opinion of the court was delivered by: Richard F. Cebull Senior U. S. District Judge

ORDER

Introduction

On March 20, 2013, the Court held a hearing on Plaintiff S Bar B Ranch Inc.'s (S Bar B) Motion to Certify Class (Doc. 35). At that hearing, the parties agreed that the Court ought to decide Defendant Omimex Canada, Ltd.'s (Omimex) Motion for Summary Judgment on Statute of Limitations and Laches (Doc. 38) before deciding the certification motion. The Court finds Omimex's argument availing on the statute of limitations issue and therefore need reach neither the issue of laches nor certification.

S Bar B admits that the entire case is governed by a narrow legal issue. Namely, whether the Montana Supreme Court case of Montana Power Co. v. Kravik, 179 Mont. 87, 586 P.2d 298, 303 (1978) adopts the "at the well rule" in allowing a lessee to deduct post-production costs prior to calculating royalty. S Bar B states that if the Court were to apply that approach "the class will lose." See Reply at 6. As discussed infra, that issue also becomes relevant in determining whether S Bar B's claims are barred by the statute of limitations.

Factual Background

S Bar B is a gas royalty interest owner in Chinook, MT. S Bar B is a lessor in certain oil and gas lease agreements with Omimex. S Bar B alleges that Omimex cheated it (and other putative class members) out of millions of dollars in royalty payments because of certain unreported post-production withholdings which S Bar B argues present an artificial wellhead price to calculate the royalty payment.*fn1 These charges are for gathering, compressing and transporting the gas to market. Most of the gathering, compression and processing systems are co-owned by Omimex and a company called J.K. Petroleum.

S Bar B has identified at least 1,217 leases which comprise Omimex's Montana operations. While the leases fall into four categories with different terms, none specifically authorize withholding of any deductions from the royalty payment. Nothing in the royalty statement to lessors delineates the post-production deductions which are calculated in Omimex's sole discretion. The royalty statement includes an "Other Deduction Amount" which was left blank.

In its motion for summary judgment, Omimex argues that S Bar B's claims are barred by the statute of limitations and laches because it was aware of its claims by virtue of another class action lawsuit (Devon Litigation) in which S Bar B was a class member.

Jack Davies, president of of S Bar B, was the director of the Montana Land and Mineral Owners Association (MLMOA) from 1997-2002. During that time, he became concerned about undisclosed deductions from royalty check statements, including post-production deductions being improperly taken from royalty checks. In 2001, he lobbied the Montana legislature to encourage legislation requiring full disclosure of deductions. Eventually, the MLMOA entered into a lawsuit against Devon Energy which both parties agree is "remarkably similar" to the present litigation. S Bar B was a class member in the Devon Litigation.

Interestingly, the attorneys in the Devon litigation are the same in the present case. In the Devon litigation, the MLMOA moved for class certification which was opposed by Devon. Before the Reply brief was filed, MLMOA filed a notice that the parties had tentatively settled. See MLMOA v. Devon Energy Inc., 05-30-RKS (Doc. No. 100). Devon opposed class certification on all grounds during the "litigation phase" of the case but, before the court ruled, stipulated to the adequacy of the plaintiffs to represent the class for purposes of settlement. See Doc. 110, p4, FN 1.

Legal Standard

Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). The movant bears the initial responsibility of informing the Court of the basis for its motion, and identifying those portions of "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Material facts are those which may affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute as to a material fact is genuine if there is sufficient evidence for a reasonable fact-finder to return a verdict for the nonmoving party. Id.

Statute of Limitations

Mont Code Ann. ยง 27--2--203 ...


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