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Matthews v. Ankor Energy, LLC

United States District Court, S.D. Alabama, Southern Division

August 13, 2018

HOOPER W. MATTHEWS, III, et al., Plaintiffs,
ANKOR ENERGY, LLC, et. al., Defendants.



         This matter is before the Court on the May 2, 2018 Report and Recommendation of the Magistrate Judge (Doc. 38), Plaintiff's motion to reconsider paragraph III (i) of the Report and Recommendation (Doc. 39), the objections to the Report and Recommendation filed by Defendant Ankor Energy, LLC and Ankor E&P Holdings Corp. (collectively “Ankor”) (Doc. 41) and Defendant GS E&R America Offshore, LLC (“GS”) (Doc. 42) and the responses and replies to the motion to reconsider and to the objections (Docs. 40, 43, 44, 45, 46). After due and proper consideration of all portions of this file deemed relevant to the issues raised, and a de novo determination of those portions of the recommendation to which Plaintiff has moved for reconsideration and to which objection is made, the Court deems it proper to sustain Plaintiffs' objection regarding the dismissal of Count Five and to overrule Defendants' objections and adopts the Report and Recommendation, as modified in this Order and Opinion.

         I. Background

         The Magistrate Judge's Report and Recommendation sets forth the circumstances that gave rise to this action as well as the parties' contentions and the parties do not appear to object to those statements. As the Report and Recommendation notes, Defendant Ankor moved for dismissal on a number of grounds:

(1) the Oil and Gas Board of Alabama has primary jurisdiction to establish whether waste has occurred; (2) Plaintiffs have failed to exhaust their administrative remedies; (3) Plaintiffs are not permitted to collaterally attack the applicable production orders issued by the Oil and Gas Board; (4) the claims asserted by the Kelly Plaintiffs are barred by res judicata; (5) Plaintiffs' claims are barred because they failed to give proper notice of any alleged breaches at issue; (6) Plaintiffs have failed to satisfy a condition precedent for alleging a violation of Ala. Code § 9-17-1 or a violation of any rule, regulation, or order promulgated by the Oil and Gas Board; (7) Plaintiffs' negligence and wantonness claims are barred by the statute of limitations; (8) Plaintiffs cannot assert any tort claims because the duties allegedly breached arise under the leases; (9) the terms and provisions of the Oil and Gas Board are incorporated, by reference, into the lease agreements; (10) Plaintiffs' statutory waste claims are not cognizable under Alabama law, and their common-law waste claim fails as a matter of law; (11) Plaintiffs failed to allege a sufficient basis for punitive damages under Ala. Code § 6-11-20; (12) the Oil and Gas Board has not made a finding of waste as defined under Alabama law, but has instead found that Defendant Ankor's operations were in conformance with the applicable orders, which would prevent waste; and (13) Plaintiffs do not own the underground oil and gas, if any, under Alabama law. (Docs. 24, 25).

(Doc. 38, pp. 4-5). Defendant GS adopted Ankor's arguments and also asserted that it does not own, and has never owned, any interest in the wells at issue or the leases at issue, and that it did not operate any of the wells at issue. The Magistrate Judge discussed all of the above bases and concluded that Defendants' motions should only be Granted as to their contention that Count Five should be dismissed because no statutory claim for waste exists under Ala. Code § 9-17-19 (paragraph III (i)). The Magistrate Judge concluded that the motions to dismiss should be denied as to Defendants' other bases. Plaintiffs now moves for reconsideration[1] of paragraph III(i) (which found that Count Five should be dismissed) and the Defendants object to the Magistrate Judge's finding that the motion should be denied as to the remaining bases.

         II. Standard of Review

         In reviewing a Magistrate Judge's report and recommendation, the district court “shall make a de novo determination of those portions of the report or specified proposed findings or recommendations to which objection is made.” 28 U.S.C. § 636(b)(1). “‘Parties filing objections to a Magistrate Judge's report and recommendation must specifically identify those findings objected to. Frivolous, conclusive, or general objections need not be considered by the district court.'” United States v. Schultz, 565 F.3d 1353, 1361 (11th Cir. 2009) (per curiam) (quoting Marsden v. Moore, 847 F.2d 1536, 1548 (11th Cir. 1988)). Absent objection, the district judge “may accept, reject, or modify, in whole or in part, the findings and recommendations made by the Magistrate Judge, ” 28 U.S.C. § 636(b)(1), and “need only satisfy itself that there is no clear error on the face of the record in order to accept that recommendation, ” Fed.R.Civ.P. 72, Advisory Committee Note 1983 Addition, Subdivision (b). Further, “the district court has broad discretion in reviewing a Magistrate judge's report and recommendation” -it “does not abuse its discretion by considering an argument that was not presented to the Magistrate judge” and “has discretion to decline to consider a party's argument when that argument was not first presented to the Magistrate judge.” Williams v. McNeil, 557 F.3d 1287, 1290-92 (11th Cir. 2009).

         III. Discussion

         A. Ankor's Objections

         The Magistrate Judge granted Ankor's motion to dismiss only to the extent Plaintiff claimed a private right of action under § 9-17-19 and rejected all of Ankor's other arguments. Ankor now objects to the Magistrate Judge's conclusion that its other bases for dismissal fail. Ankor's objections generally repeat the arguments it asserted in its motion to dismiss. Ankor asserts that its motion should be granted because: (1) this Court should defer primary jurisdiction to the State oil and Gas Board of Alabama (the “Board”), (2) Plaintiffs have not exhausted their administrative remedies, (3) Plaintiffs' complaint is an improper collateral attack on the Board's Orders, (4) Plaintiffs' complaint is barred by res judicata, (5) Plaintiffs failed to comply with the notice requirements in the lease, (6) Plaintiff cannot maintain their tort claims because they arise from duties created by the leases, (7) The Board's orders supersede the contractual terms, and (8) Plaintiffs cannot maintain punitive damage claims because their claims sound in contract.

         (1) Primary Jurisdiction

         As stated by the Magistrate Judge, “Primary jurisdiction is ‘a flexible doctrine to be applied at the discretion of the district court.'” (Doc. 38, p. 9, quoting Wagner & Brown v. ANR Pipeline Co., 837 F.2d 199, 201 (5th Cir. 1988)). “The court can consider various factors but ultimately should base its decision on the totality of the circumstances and the particular facts of the case.” Williams v. Ala. Dep't of Transp., 119 F.Supp.2d 1249, 1255-56 (M.D. Ala. 2000) (citation omitted). “It must be mindful of the fact that abstention, as a practical matter, often permanently deprives the plaintiff of his or her day in court.” Id. at 1256 (citation omitted).

         In the instant case, while the legislature has authorized the Board to resolve certain issues it also expressly provided that “[n]othing contained or authorized in this article and no civil action by or against the board” and no “rule, regulation or order issued under this article … shall impair or abridge or delay any cause of action for damages which any person may have or assert against any person violating any provision of this article or any rule, regulation, or order issued under this article.” Ala. Code § 9-17-19. As the Magistrate Judge noted, the Alabama Supreme Court found it appropriate in Sheffield v. Exxon Corp., 424 So.2d 1297 (Ala. 1982), to hear claims arising from an oil and gas lease even though, as here, there were prior orders issued by the Board. In Sheffield, the Court found summary judgment should be denied as to a claim that was based on implied covenants of an oil and gas lease. The Court found that the claim was “not an impermissible collateral attack on the orders of the Board”. Id. at 1304. The Sheffield Court noted that the Alabama statute provides for judicial review of Board rules, regulations and orders when an aggrieved person files a civil action within 30 days from the date of the order, rule, or regulation. Id. The Sheffield Court found that the Lessors were not precluded from litigating the issue even though the action was filed years after the date of the Board order at issue, as the activities in question occurred several years after the order. Id. The Court stated that “[t]o accord the Oil and Gas Board's express order the preemption status urged by Lessees would raise serious due process questions.” Id. Here, as in Sheffield, there are allegations that waste occurred after the orders entered by the Board. Ankor argues that because the Board has exercised jurisdiction over the issue of “waste” and it is an essential element of Plaintiffs' claims, the Court should defer jurisdiction to the Board, “at least until such time, if ever, ” that the Board determines that waste has occurred. However, while the Court would welcome the Board's expertise, there is no indication that the Board has any immediate plans to make that determination. If the Board was expected to rule on that issue in the near future, a stay of this action until the issue had been decided by the Board might be appropriate, but the parties have not made the undersigned aware of any imminent proceedings or rulings by the Board on this matter and it is not clear that the Board would necessarily ever rule on the issue. The Court also notes that if the Board were to determine waste occurred, the legal consequences of that determination would still need to be judicially determined since Plaintiffs would have no remedy for damages before the Board.[2] The Board does not have authority to adjudicate breach of contract claims. After considering the circumstances of this case, the Court agrees with the Magistrate Judge that it is not necessary to invoke primary jurisdiction of the Board.

         (2) Exhaustion of Administrative Remedies

         The Magistrate Judge found that Plaintiffs' claims should not be dismissed for failure to exhaust remedies because, as in Sheffield, much of the alleged waste is alleged to have occurred more than 30 days after the special field rules issued for the subject wells. (Doc. 38, p. 13). Ankor reiterates its argument that Plaintiffs have failed to utilize the administrative remedy available to them under Alabama Code § 9-17-15 and have “failed to exhaust the host of other administrative remedies available to them prior to initiating this action.” (Doc. 41, p. 4). However, as mentioned above, the legislature expressly provided that “any cause of action for damages which any person may have or assert against any person violating any provision of this article or any rule, regulation, or order issued under this article” shall not be impaired, abridged or delayed by anything “contained or authorized in this article.” Ala. Code § 9-17-19. In light of this express mandate as well as the conclusions of the Sheffield case discussed above, the Court agrees with the Magistrate Judge that Defendants' motions for dismissal based on lack of exhaustion should be denied.

         (3) Collateral Attack on the Board's Orders

         As previously mentioned, the Sheffield case found that the claim in that case was “not an impermissible collateral attack on the orders of the Board.” Sheffield, 424 So.2d at 1304. The Magistrate Judge found the instant case to be analogous to the Sheffield case and distinguishable from another Alabama case, Phillips Petroleum Co. v. Stryker, 723 So.2d 585 (Ala 1998). In its objection, Ankor cites as support for its objection two Louisiana cases: Trahan v. Superior Oil Co., 700 F.2d 1004 (5th Cir. 1983) and Mayer v. Tidewater Oil Co., 218 F.Supp. 611 (W.D. La. 1963). However, the applicable Louisiana statutes, contrary to the Alabama statutes, do not state that an action for damages by an aggrieved person shall not be impaired, abridged or delayed by anything contained or authorized in the article. In fact, the Louisiana ...

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