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St. George Coal Co., Inc. v. G3 Operating LLC

United States District Court, D. Montana, Great Falls Division

March 2, 2015

ST. GEORGE COAL CO., INC., a Montana Corporation, SUNSHINE PACIFIC CORP., a Wyoming Corporation, Plaintiffs,
v.
G3 OPERATING LLC, HALCÓN RESOURCES CORPORATION, HRC OPERATING LLC, and JOHN DOES 1 through X, Defendants.

ORDER ADOPTING FINDINGS AND RECOMMENDATIONS OF UNITED STATES MAGISTRATE JUDGE

BRIAN MORRIS, District judge.

United States Magistrate Judge Keith Strong entered Findings and Recommendations in this matter on December 4, 2015. (Doc. 67). Halcón, formerly known as G3 Operating, LLC, sought summary judgment on counts two, three, and eight. Plaintiffs submitted a cross-motion for summary judgment on counts two, three, and eight, and moved for summary judgment on counts one, four, and six. Judge Strong recommends that summary judgment be entered in favor of Halcón on counts two, three, and eight. Judge Strong recommends that Plaintiffs' motion for summary judgment be denied on counts one, four, and six.

Upon service of a magistrate judge's findings and recommendations, a party has 14 days to file written objections. 28 U.S.C. § 636(b)(1). Plaintiffs timely filed objections on December 18, 2014. Halcón responded to Plaintiffs' objections on January 15, 2015. Plaintiffs' objections require this Court to make a de novo determination of those portions of the Findings and Recommendations to which objections apply. 28 U.S.C. § 636(b)(1).

Plaintiffs argue that Judge Strong mistakenly determined that a contract existed between the parties that obligated Plaintiffs to pay a proportionate share of all the costs associated with the development of the Wheeler Ranch 9-16 well. (Doc. 68 at 11). Plaintiffs further argue that Judge Strong incorrectly determined that the Montana royalty statutes do not apply to Plaintiffs' "overriding royalty interests." Plaintiffs finally argue that Plaintiffs' motion for summary judgment for count four, conversion, should be granted.

Standard

A party is entitled to summary judgment if it can demonstrate 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). This Court will grant summary judgment where the documentary evidence produced by the parties permits only one conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). Only disputes over facts that might affect the outcome of the lawsuit will preclude entry of summary judgment. Factual disputes that are irrelevant or unnecessary to the outcome are not considered. Anderson, 477 U.S. at 247-48.

Count 2: Declaratory Judgment

Plaintiffs seek a declaratory judgment that Plaintiffs have no obligation to pay Halcón any amount greater than the proportionate share referenced in the Authorization for Expenditure (AFE). Plaintiffs argue, in the alternative, that Plaintiffs have no obligation to pay any amount after the "completion date" of the well.

Plaintiffs and Halcón executed two separate types of documents. Plaintiffs each signed an Election to Participate letter (ETP). The ETP signed by Plaintiff Sunshine Pacific Corporation states

As set forth in the enclosed AFE, the estimated drilling and completion costs for this operation are $2, 882, 200. According to our drilling title opinion, you will have a 12.50% participation working interest in this well and associate expenses. Should you choose to participate in the captioned well, your proportionate share of the cost would be $322, 119.

(Doc. 36-6 at 2). The AFE lists a cost of $322, 119. The AFE further states, however, that "the above cost is an estimate. The actual cost may be greater or less." (Doc. 36-6 at 5; Doc. 67 at 5-6).

Plaintiffs contend that the amount listed in the AFE represents a sum certain, rather than an estimate. Plaintiffs argue that the parties agreed that Plaintiffs would pay only a proportionate share of the cost listed in the AFE. Plaintiffs contend that the agreement required Halcón to obtain further approval for any additional expenditures beyond the amount listed in the AFE. Plaintiffs contend that the ETPs do not represent enforceable agreements. Plaintiffs instead argue that the AFE represents the contract.

Plaintiffs offer no explanation for why the AFE declares that the amount represented "an estimate. The actual cost may be greater or less." (Doc. 36-6 at 5; Doc. 67 at 5-6). Plaintiffs argue only that they negotiated the specific dollar figure within the AFE. Plaintiffs argue that this negotiation establishes that the amount in the AFE represents a sum certain rather than an estimate.

Plaintiffs argue in the alternative that they authorized expenditures only up to the estimated amount. Plaintiffs contend that any additional expenditures required a supplemental authorization for expenditure. Plaintiffs point to no language in ...


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