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Mack Energy Co. v. Red Stick Energy, LLC

United States District Court, W.D. Louisiana

September 20, 2019

MACK ENERGY COMPANY, Plaintiff
v.
RED STICK ENERGY, LLC, ET AL., Defendants

         SECTION "E" (1)

          ORDER AND REASONS

          SUSIE MORGAN UNITED STATES DISTRICT JUDGE.

         Before the Court is a Rule 12(b)(6) Motion To Dismiss For Failure To State A Claim For Which Relief Can Be Granted, Or. Alternatively Motion For Summary Judgment, As To Mack Energy Co.’s Fifth Amended And Superseding Complaint filed by Defendant Main Pass 21, L.L.C. (“Main Pass”).[1] Mack Energy Co. (“Mack”) opposes this motion.[2]Main Pass filed a reply.[3] Mack filed a supplemental opposition.[4] For the following reasons, Main Pass’s motion is DENIED.

         BACKGROUND

         This case arises out of the drilling of an oil and gas well in the Main Pass 21 Prospect (the “Prospect”).[5] Mack alleges Red Stick Energy, LLC (“Red Stick”) purchased a 26.5% interest in the Main Pass 21 Prospect and entered into a participation agreement (“PA”) and a joint operating agreement (“JOA”) with Mack.[6] According to Mack, Red Stick executed the agreements with the understanding that an entity to be formed in the future, Main Pass, would be formed with Natrona Resources, L.L.C.[7] and Red Stick as its members, and Red Stick would then assign its interest in the Prospect to that entity.[8] Mack “paid the costs incurred in drilling, testing, plugging and abandoning the Subject Well, ” and, “because Burnett and Gunther, Jr. had not yet completed the anticipated assignment of Red Stick’s interest to Main Pass, Mack issued joint interest billing statements to Red Stick for its respective share of said costs.”[9] A portion of the joint interest billing statements sent to Red Stick remains unpaid.[10]

         On December 8, 2016, Mack filed the instant lawsuit to recover the costs of drilling, testing, plugging, and abandoning the dry hole. In its original complaint and first two amended complaints, with respect to Main Pass, Mack alleged, among other things:

Main Pass acquired ninety (90%) percent of Red Stick’s interest in the Main Pass 21 Prospect and corresponding PA and JOA and is therefore liable directly to Mack.[11]

         Mack’s third amended complaint brings claims solely against Gunther, Jr. and Martha Gunther, as trustees of RE Trustee, and does not alter the allegations against Main Pass.[12]

         During a telephone status conference on May 13, 2019, Mack informed the Court and the other parties:

[Mack] will file a voluntary dismissal with prejudice by no later than Monday, May 20, 2019 of its claims against Defendants Main Pass 21, L.L.C., Dixie Management Services, L.L.C., Albert W. Gunther, Jr., individually and as trustee of the RE trust, Natrona Resources, L.L.C., Old South Mechanical, L.L.C., Old South Ventures, L.L.C., Albert W. Gunther, III, and Martha Gunther, individually and as trustee of the RE trust, for breach of contract and piercing the corporate veil.[13]

On May 20, 2019, Mack filed an Unopposed Motion of Voluntary Dismissal, stating:

Mack hereby moves that the Court dismiss with prejudice Mack’s claims against Defendants Main Pass 21, L.L.C., Dixie Management Services, L.L.C., Albert W. Gunther, Jr., individually and as trustee of the RE trust, Natrona Resources, L.L.C., Old South Mechanical, L.L.C., Old South Ventures, L.L.C., Albert W. Gunther, III, and Martha Gunther, individually and as trustee of the RE trust, under theories of breach of contract and piercing the corporate veil.[14]

         The Court granted this unopposed motion, ordering:

Defendants Main Pass L.L.C., Dixie Management Services, L.L.C., Albert W. Gunther, Jr., individually and as trustee of the RE trust, Natrona Resources, L.L.C., Old South Mechanical, L.L.C., Old South Ventures, L.L.C., Albert W. Gunther, III, and Martha Gunther, individually and as trustee of the RE trust, under theories of breach of contract and piercing the corporate veil be dismissed with prejudice.[15]

         On the same date Mack filed its unopposed motion of voluntary dismissal, Mack also filed its fourth amended complaint.[16] In its fourth amended complaint, Mack names Main Pass as a defendant and appears to bring only a detrimental reliance claim against Main Pass.[17]

         On June 18, 2019, Mack filed its fifth amended and superseding complaint, in which it brings a breach of contract claim against Red Stick and a detrimental reliance claim against Gunther, Jr.[18] Additionally, Mack names Main Pass as a Defendant and alleges:

Main Pass assumed the obligations of Red Stick under the PA and JOA. Therefore, Main Pass is solidarily liable with Red Stick and Gunther, Jr. to Mack for outstanding amounts, contractual interest, and reasonable attorney’s fees and costs associated with Mack’s efforts to collect the amounts due under the JOA and PA.[19]

         In the instant motion, Main Pass argues “even if Mack can succeed in proving Main Pass 21, L.L.C. assumed the obligations, Mack has no claim against Main Pass 21, L.L.C. for breach of the assumed contracts” because “the underlying claim of Mack’s ‘assumption’ claim is a breach of contract claim, which Mack previously dismissed.”[20] In response, Mack argues its assumption of obligations claim is based on Louisiana Civil Code article 1821, and a claim under article 1821 “is a claim in equity, not breach of contract.”[21]

         LEGAL STANDARD

         Pursuant to Federal Rule of Civil Procedure 12(b)(6), a district court may dismiss a complaint, or any part of it, for failure to state a claim upon which relief may be granted if the plaintiff has not set forth factual allegations in support of his claim that would entitle him to relief.[22] “To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’”[23]“A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.”[24] The court, however, does not accept as true legal conclusions or mere conclusory statements, and “conclusory allegations or legal conclusions masquerading as factual conclusions will not suffice to prevent a motion to dismiss.”[25] “[T]hreadbare recitals of elements of a cause of action, supported by mere conclusory statements” or “naked assertion[s] devoid of further factual enhancement” are not sufficient.[26]

         In summary, “[f]actual allegations must be enough to raise a right to relief above the speculative level.”[27] “[W]here the well-pleaded facts do not permit the court to infer more than the mere possibility of misconduct, the complaint has alleged-but it has not show[n]’-that the pleader is entitled to relief.”[28] “Dismissal is appropriate when the complaint ‘on its face show[s] a bar to relief.’”[29]

         LAW AND ANALYSIS

         Main Pass moves to dismiss Mack’s complaint on the basis that Mack dismissed with prejudice its breach of contract claims against Main Pass, and “[t]he claim of ‘assumption and solidary liability’ is nothing other than a veiled breach of contract claim.”[30] In effect, Main Pass asks the Court to hold that res judicata, an affirmative defense ordinarily required to be raised in an answer pursuant to Federal Rule of Civil Procedure 8(c), bars Mack from bringing this action against Main Pass. The Court first addresses whether it may consider res judicata on a motion to dismiss, and relatedly, whether the Court must convert such a motion to dismiss as a motion for summary judgment. The Fifth Circuit has explained that a 12(b)(6) motion to dismiss properly raises res judicata when “the facts are admitted or not controverted or are conclusively established.”[31] “When all relevant facts are shown by the court's own records, of which the court takes notice, the defense [of res judicata] may be upheld on a Rule 12(b)(6) motion without requiring an answer.”[32] A court need not convert a motion to dismiss to a motion for summary judgment, “[e]ven though a court permits affidavits and other evidence to be entered into the record, as long as the court does not base its judgment on matters outside of the pleading.”[33] Notably, federal courts are permitted to refer to matters of public record when deciding a 12(b)(6) motion to dismiss without converting the motion to a motion for summary judgment.[34]

         In this case, any facts necessary for the Court to decide the applicability of res judicata are agreed upon by the parties.[35] The parties have not submitted evidence outside the pleadings pertaining to applicability of res judicata, and the Court need not consider any facts outside the Court’s own records, of which the Court takes judicial notice. Mack has not objected to the Court considering the motion as a motion to dismiss rather than a motion for summary judgment.[36] Accordingly, it is appropriate for the Court to consider Main Pass’s motion as a motion to dismiss.[37]

         The Court next considers the substance of Main Pass’s motion under federal law. “Federal law determines the res judicata and collateral [estoppel] effect given a prior decision of a federal tribunal, regardless of the bases of the federal court's jurisdiction.”[38]“The rule of res judicata encompasses two separate but linked preclusive doctrines: (1) true res judicata or claim preclusion and (2) collateral estoppel or issue preclusion.”[39] “Claim preclusion, or res judicata, bars the litigation of claims that either have been litigated or should have been raised in an earlier suit.”[40]

         The party raising the defense of res judicata or claim preclusion bears the burden of proving all four elements of res judicata, [41] which include: (1) the parties are identical or in privity; (2) the prior action was rendered by a court of competent jurisdiction; (3) the prior action was concluded by a final judgment on the merits; and, (4) the same claim or cause of action was involved in both actions.[42] The parties do not appear to contest the first three elements, which are easily established: (1) the parties, Mack and Main Pass, are identical; (2) the May 22, 2019 order was rendered by this Court, which has jurisdiction over this matter; and (3) the breach of contract action was concluded by a final judgment on the merits.[43] Because the parties do not dispute the first three elements are met, the question of res judicata turns on whether the fourth element is met.[44]

         With regard to the fourth element, whether the same claim or cause of action was involved in both actions, the Fifth Circuit uses the transactional test.[45] “Under the transactional test, a prior judgment’s preclusive effect extends to all rights of the plaintiff with respect to all or any part of the transaction, or series of connected transactions, out of which the original action arose.”[46] “What grouping of facts constitutes a “transaction” or a “series of transactions” must be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage.”[47] “If a party can only win the suit by convincing the court that the prior judgment was in error, the second suit is barred.”[48] The critical issue is whether the two actions are based on the “same nucleus of operative facts.”[49] Further, under the transactional test “the critical issue is not the relief requested or the theory asserted but whether the plaintiff bases the two actions on the same nucleus of operative facts.”[50] “Operative facts” differ from “factual similarities”; although factual similarities are “potentially relevant for purposes of collateral estoppel, [they] are not relevant to res judicata.”[51]

         For instance, in Test Masters, the Fifth Circuit held that, although the first and second trademark proceedings at issue “both involve potential customer confusion stemming from [the plaintiff’s] website, ” the operative facts between the two actions were not the same because:

The current action does not involve the legitimacy of [the plaintiff’s] use of the testmasters.com domain name, which was the central dispute in the previous litigation. Moreover, the nucleus of facts in the current action concerns allegations of intentional fraud and malice that did not occur at the time of the previous action.[52]

Similarly, in Sandoz v. United States, Judge Barbier of the Eastern District of Louisiana found that both the first and second litigation involved the same claim for “the alleged permanent disability of the arm and hand resulting from the October 2011 surgery performed at the VA facility in Mississippi, ” but the complaint in the second action also “raises claims based on surgeries and treatment that occurred after the filing of the original complaint in the prior action.”[53] Judge Barbier held the additional claims in the second action were not barred by res judicata, but the “claims based on the October 2011 surgery in the prior action” were barred by res judicata.[54]

         In Snow Ingredients, the plaintiff brought a RICO claim in the first action, alleging mail and wire fraud as the predicate criminal activity.[55] This claim was dismissed, and the plaintiff subsequently brought a new RICO claim in the second action, this time alleging obstruction of justice as the predicate criminal activity.[56] The Fifth Circuit explained “[t]he litigation tactics that are the substance of these claims were the same facts [the plaintiff] asserted in the [previous] Cases in support of its mail and wire fraud RICO claims.”[57] The Fifth Circuit held these claims were barred by res judicata because the plaintiff “now points to the same facts as the basis for its new RICO claims with obstruction of justice as the predicate criminal activity.”[58] In doing so, the Fifth Circuit explained: ...


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