United States District Court, W.D. Louisiana, Shreveport Division
J. FLEET OIL & GAS CORPORATION, L.L.C., ET AL.
CHESAPEAKE LOUISIANA, L.P., ET AL.
HORNSBY MAGISTRATE JUDGE.
MAURICE HICKS, JR., CHIEF JUDGE.
the Court is Defendants Chesapeake Louisiana, L.P.;
Chesapeake Operating, L.L.C.; Chesapeake Energy Corporation;
and Chesapeake Energy Marketing, L.L.C.'s (collectively,
“Chesapeake”) “Motion for Partial Summary
Judgment” (Record Document 34). Chesapeake seeks to
dismiss certain claims asserted by J. Fleet Oil and Gas
Production Company, L.L.C (“J. Fleet”) and Martin
Producing, L.L.C. (“Martin”) (collectively
“Plaintiffs”). For the reasons which follow,
Chesapeake's “Motion for Partial Summary
Judgment” is hereby GRANTED.
AND PROCEDURAL BACKGROUND
around the summer of 2004, J. Fleet and Martin marketed the
Martin/J. Fleet Prospect to a number of oil and gas companies
as an opportunity to acquire a large contiguous block of
leased acreage in which the oil and gas company could acquire
a 100% working interest position in the leased acreage and
have full operational control of the exploration and
development of the multiple potentially productive zones and
formations within the Martin/J. Fleet Prospect. On August 23,
2004, Chesapeake entered into a Participation Agreement (the
“Agreement”) with Martin. See Record
Document 34-2 at 1. The Agreement established an area of
mutual interest (“AMI”) comprised of lands in
Caddo Parish, Louisiana. See id. As part of the
Agreement, Martin agreed to assign the oil and gas leases
within the AMI to Chesapeake, respectively reserving an
overriding royalty interest (“ORRI”) on each
lease assigned in a percentage amount equal to the difference
between the lessor's royalty and 28%, thus providing
Chesapeake with a net revenue working interest percentage in
each lease within the AMI of not less than 72%. See
id. Identified in Exhibit “B” to the
Agreement, the assignment reads as follows:
Assignor hereby reserves an overriding royalty interest
applicable to each lease, equal to the difference between the
lease royalty and 28% of all oil, gas and casinghead gas
produced, saved and marketed from the lands covered by said
leases. It is the intent that Assignor (Plaintiffs) shall
deliver not less than a 72% net revenue interest to Assignee
(Chesapeake) on each of the leases.
See id. at 10. All parties recognized that Martin
would transfer or assign one-half of the Martin/J. Fleet ORRI
to J. Fleet and that Martin was acting for itself and on
behalf of J. Fleet.
Agreement was first amended on November 17, 2004, to modify
and expand the AMI. See id. at 13. On April 4, 2007,
the Agreement was amended a second time to reduce the amount
of ORRIs owned by J. Fleet in the AMI. See id. at
16. Pursuant to the Agreement, Chesapeake entered into seven
contracts of assignment with J. Fleet, whereby Chesapeake
assigned an ORRI in the AMI to J. Fleet. See Record
Document 34-3. Each of the seven assignments to J. Fleet
contained the following express provision:
Proceeds of production attributable to the overriding royalty
interest assigned herein shall be due Assignee from date of
first production attributable to the particular lease
Said overriding royalty interest shall be free of all
development, production, and operating expense of any wells
drilled on the subject lands or land pooled therewith. Said
overriding royalty interest shall bear and pay its portion of
gross production taxes, pipeline taxes, and all other taxes
assessed against the gross production subject to said
overriding royalty interest.
See id. Exhibits B-O.
Fleet alleges that from the beginning of payment of J.
Fleet's ORRI Chesapeake was improperly deducting various
costs and expenses from J. Fleet's ORRI in violation of
the specific contractual agreements among the parties.
See Record Document 1 at 15. J. Fleet alleges the
improper deductions include costs such as compression costs,
fuel usage and gathering costs as well as other costs or
expenses incident to the production and sale of the oil and
gas including, but not limited to, costs and expense of
exploration, drilling, development, operating, marketing and
all other costs. See id. Chesapeake allegedly
deducted these costs without always disclosing what
deductions were being made. See id. J. Fleet alleges
Chesapeake is in breach of their contractual obligation to
pay J. Fleet its ORRI from Chesapeake's working interest
without any such deductions. See id. J. Fleet
asserts Chesapeake's violations have resulted in
Chesapeake improperly claiming in excess of $1 million for
itself at the expense of and damage to J. Fleet. See
id. at 16.
about December 17, 2013, J. Fleet sent a demand letter to
Chesapeake demanding full and proper payment for all ORRI
payments due and owing on all wells and units under the
Agreement and the seven contracts of assignment. See
Record Document 1-1 at 104. On February 28, 2014, Chesapeake
responded to J. Fleet's demand letter admitting it was
deducting post-production costs from J. Fleet's ORRI.
See id. at 113. Chesapeake refused to cease
deducting development, production, and operating expenses or
costs from J. Fleet's ORRIs, resulting in J. Fleet filing
the instant suit on October 2, 2015. See Record
Document 1. J. Fleet seeks: (1) a declaratory judgment
pursuant to 28 U.S.C. § 2201; (2) a judgment of
accounting; (3) a prohibitory injunction; (4) damages for
Chesapeake's intentional, bad-faith breach of contract;
and (5) damages for Chesapeake's intentional breach of
fiduciary duties owed to J. Fleet. See id. at 17-21.
Martin filed a Motion to Intervene on May 2, 2016, and was
added to the lawsuit on May 3, 2016. See Record
Document 17. Chesapeake filed a Motion for Partial Summary
Judgment on August 25, 2016, seeking to dismiss
Plaintiffs' claim that Chesapeake improperly deducted
post-production costs. See Record Document 34.
of the F.R.C.P. governs summary judgment. This rule provides
that the court “shall grant summary judgment 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.” F.R.C.P. 56(a). Also, “a party
asserting that a fact cannot be or is genuinely disputed must
support the motion by citing to particular parts of materials
in the record, including ... affidavits ... or showing that
the materials cited do not establish the absence or presence
of a genuine dispute, or that an adverse party cannot produce
admissible evidence to support the fact.” F.R.C.P.
56(c)(1)(A) and (B). “If a party fails to properly
support an assertion of fact or fails to properly address
another party's assertion of fact as required by Rule
56(c), the court may ... grant summary judgment.”
summary judgment motion, “a party seeking summary
judgment always bears the initial responsibility of informing
the district court of the basis for its motion, and
identifying those portions of the pleadings ... [and]
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, 106 S.Ct. 2548, 2553
(1986) (internal quotations and citations omitted). If the
movant meets this initial burden, then the non-movant has the
burden of going beyond the pleadings and designating specific
facts that prove that a genuine issue of material fact
exists. See Celotex, 477 U.S. at 325, 106 S.Ct. at
2554; see Little v. Liquid Air Corp., 37 F.3d 1069,
1075 (5th Cir. 1994). A non-movant, however, cannot meet the
burden of proving that a genuine issue of material fact
exists by providing only “some metaphysical doubt as to
the material facts, by conclusory allegations, by
unsubstantiated assertions, or by only a scintilla of
evidence.” Little, 37 F.3d at 1075.
in deciding a summary judgment motion, courts “resolve
factual controversies in favor of the nonmoving party, but
only when there is an actual controversy, that is when both
parties have submitted evidence of contradictory
facts.” Id. Courts “do not, however, in
the absence of any proof, assume that the nonmoving party
could or would prove the necessary facts.” Id.