Court Opinion: 10th Circuit Court of Appeals Opinion for Sept. 19

The 10th Circuit Court of Appeals

Editor’s Note: Law Week Colorado edits court opinion summaries for style and, when necessary, length.

Phelps Oil and Gas, LLC v. Noble Energy Inc., et al.

In this appeal, the 10th Circuit Court of Appeals affirmed the district court’s denial of a motion to remand the underlying action to state court.

This case is a class action involving oil and gas royalties. Through leases with Phelps Oil and Gas and others, Noble Energy produces natural gas and other products. But before the gas can be sold, it must be processed. Noble sells its gas to DCP Midstream for processing. After processing, DCP sells the gas, keeps a share of the proceeds and pays the rest to Noble.

Noble owes royalties to Phelps and the other class members on 100% of cash payments it receives from processors like DCP. It also owes royalties on 50% of the cash proceeds retained by the processors. It further owes royalties on 50% of the value of any volumes of natural gas and natural gas liquids retained by a processor, used up in production or otherwise lost or unaccounted for.

Following an audit of DCP, Noble claimed DCP had underpaid it by roughly $35.4 million. Noble and DCP ultimately reached a settlement. Under the settlement, DCP agreed to spend $17.5 million to improve its own infrastructure.

Phelps filed this class action in Colorado state court against Noble and DCP, seeking damages for lost royalties related to DCP’s alleged underpayments to Noble. DCP removed the case to the federal district court, claiming diversity jurisdiction. Phelps moved to remand the case to state court, but the district court denied the motion. So the case moved forward in federal court, and Phelps filed an amended complaint. The amended complaint retained several claims from the original complaint and added claims for civil theft and conversion against DCP.

The federal district court ultimately entered judgment against Phelps. On appeal, the 10th Circuit concluded the amount in controversy didn’t support diversity jurisdiction and reversed the denial of Phelps’s motion to remand the case to state court.

Following the appeal, the federal district court vacated its judgment and other orders “addressing the substance of the claims.” But it declined to vacate other orders, including its order granting Phelps leave to file a revised amended complaint. It then remanded the case to state court.

DCP soon removed the case to federal court once again, this time relying on the Class Action Fairness Act, 28 U.S. Code 1332(d), a provision giving federal district courts jurisdiction over class actions if the class has at least 100 members, the parties are minimally diverse and the amount in controversy exceeds $5 million — see U.S.C. 1332(d)(2),(5)(B) and Dart Cherokee Basin Operating Co. v. Owens

Phelps again moved to remand the case back to state court, alleging the federal court lacked subject-matter jurisdiction. Phelps targeted the amount-in-controversy requirement. A dispute arose over which complaint should determine the amount in controversy — the original complaint filed in state court, or the amended complaint filed in federal court before the remand to state court. Phelps argued its original complaint filed in state court should control, while Noble and DCP argued the amended complaint filed in federal court should determine the amount in controversy. Noble and DCP alternatively argued both the original complaint and the amended complaint put more than $5 million in controversy.

The district court denied the motion to remand for two reasons. First, it concluded the amended complaint should determine the amount in controversy because it was the operative complaint when DCP removed the case the second time. Phelps didn’t dispute the amended complaint putting more than $5 million in controversy. Second, the court concluded Phelps had “claimed and attempted to prove” damages exceeding $5 million “based on the claims asserted in the original complaint.” 

Phelps sought permission to appeal the denial of its motion to remand, and the 10th Circuit granted permission.

According to the opinion, after evaluation, regardless of which complaint was operative when the second removal occurred, the district court had subject-matter jurisdiction. 

The 10th Circuit affirmed the denial of Phelps’s motion to remand the case to state court; granted both pending motions for leave to file a supplemental appendix; and granted Phelps’s unopposed motion for leave to file its supplemental appendix under seal.

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