Court Opinions: 10th Circuit Court of Appeals Opinion for Dec. 28

The 10th Circuit Court of Appeals

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


Grayden v. Spring Creek Energy, et al.

Kimberly Grayden claimed Spring Creek Energy misled her into selling one-third of her overriding royalty interests in three oil and gas leases on land in Weld County, Colorado. She alleged Spring Creek misrepresented there were no producing wells on the land. The district court granted summary judgment to Spring Creek, holding county property records put Grayden on notice of producing wells, so her reliance on Spring Creek’s misrepresentations wasn’t justified. Finding genuine issues of material fact as to what the records showed, and exercising jurisdiction, the 10th Circuit Court of Appeals reversed. 

In 2016, Grayden inherited overriding royalty interests in three oil and gas leases located on land in Weld County and operated by Noble Energy. These royalty interests entitled her to a portion of the proceeds from the production of oil and gas on the land subject to these leases.

The three leases originated in 1970 or 1971 and remain in effect. Their primary terms ended in 1975 or 1976. They have been extended into the indefinite secondary term. In 2018, the leases were amended to allow for pooling. Some of the land subject to these leases has since been pooled.

In 2018, Spring Creek asked Grayden whether she would be interested in selling her royalty interests. She repeatedly told Spring Creek she would not sell any portion of her royalty interests in leases associated with then-producing oil and gas wells. She believed at the time there were none. Spring Creek told her there were no then-producing wells on the land. In March 2020, Grayden ultimately agreed to sell one-third of her royalty interests for $401,535.50. 

Grayden alleged she agreed to this sale based on Spring Creek’s misrepresentations. 

In January 2021, Grayden filed a diversity action in the District of Colorado against Spring Creek, asserting fraudulent concealment, unjust enrichment, unilateral mistake and civil theft claims. Her “core claim is that [Spring Creek] intentionally misled her … about the state of oil and gas activity on the land in which she inherited overriding royalty interests in Weld County, Colorado.” 

Spring Creek moved for summary judgment on all claims. A magistrate judge recommended granting summary judgment for Spring Creek on Grayden’s unjust enrichment claim and denying summary judgment on the other claims. Before the district court, Spring Creek objected to the magistrate judge’s recommendation. It asked the court to take judicial notice of affidavits of extension and pooling documents filed by Noble with the county recorder. 

In its request for judicial notice, Spring Creek asserted “[p]ursuant to Colorado law, an owner of real property is on constructive notice of filings with the clerk and recorder’s office affecting the title to such property,” and Grayden was on constructive notice of these documents.

The district court took judicial notice of the documents. It also allowed the parties to file supplemental summary judgment briefs. The court then granted summary judgment for Spring Creek. It held the county records put Grayden on constructive notice of producing wells, so her reliance on Spring Creek’s misrepresentations wasn’t justified.

Grayden appealed the summary judgment. While that appeal was pending, Spring Creek filed a motion asking the 10th Circuit to take judicial notice of the underlying oil and gas leases, which were not in the district court record. Grayden initially opposed this request, but the parties eventually jointly moved to supplement the appendix with the leases. They also stipulated to the leases’ existence and recording.

The 10th Circuit granted the request to supplement the appendix. The three leases — all from 1970 or 1971 — contain similar terms. On appeal, Grayden argued the district court erred in granting summary judgment to Spring Creek, contending the district court erred in concluding her claims were barred as a matter of law due to constructive notice that there was ongoing oil and gas production on the land.

The 10th Circuit reviewed the district court’s grant of summary judgment de novo, applying the same standards as the district court. It assumed Grayden was on constructive notice of the county records and resolve the appeal based on the text of the records.

The appeals court addressed whether the records indicated ongoing oil and gas production. It concluded there’s a genuine issue of material fact as to whether the 2012 and 2019 affidavits of extension show the wells were producing when Grayden sold her royalty interests. The court determined the 2012 and 2019 affidavits of extension are ambiguous as to whether the wells were producing. They state that a well has “been drilled and completed” and is “producing or capable of producing oil and/or gas.” Either a well “is producing” oil and gas, or it is not producing but is “capable of producing” oil and gas. A well that is capable of producing oil and gas is not necessarily a then-producing well. 

The court determined Spring Creek’s arguments to the contrary are unpersuasive. It asserts “[t]he affidavits of lease extension showed that the leases had been extended by production.” The 10th Circuit disagreed. Filing an affidavit of extension does not necessarily indicate ongoing production. Rather than show the leases were extended by production, the affidavits show there were wells on the land either currently producing or not currently producing but capable of doing so.

Spring Creek also contended “the underlying leases would have expired without ongoing production.” Again, the 10th Circuit disagreed. The leases provide for continuation of the indefinite secondary term without ongoing production. It found the leases don’t terminate if production stops.

The appeals court also concluded there’s a genuine issue of material fact as to whether the pooling amendments and declarations show ongoing production.

It found the amendments to the leases adding a right to pool land and interests don’t show ongoing oil and gas production. The amendments allow a right to pool or unitize land and interests subject to the lease, and they explain that pooling is accomplished by the lessee executing and filing of record a declaration. But they don’t assert any facts about ongoing production on the land subject to the leases.

The 10th Circuit found the declarations of pooling and unitization from 2018 and 2020 also don’t show ongoing oil and gas production. Each declaration states it “does hereby pool, combine and designate the following lands and the leasehold, mineral and royalty rights thereunder, as a Unit for the drilling and production of oil and gas from the [well].” Saying the lands are pooled “for the drilling and production of oil and gas” doesn’t show current oil and gas production at the time of the declaration.

Nor is the act of filing of a pooling declaration indicative of ongoing production, the 10th Circuit ruled. Its legal effect is a declaration that land has been aggregated into “drilling units of specified size and shape.” It doesn’t necessarily indicate ongoing production as opposed to planned future production.

The amendments to the declarations of pooling and unitization from 2018 and 2020 also don’t allege ongoing production, the 10th Circuit found. Each adds an exhibit listing the “lands, leases, and interests lying within the pooled area.” But these amendments are silent about production.

The 10th Circuit reversed summary judgment for Spring Creek.

Previous articleTruth or Consequentials: The NLRB Expands Make-Whole Relief
Next articleAttorney General Releases Second Draft of Colorado Privacy Act

LEAVE A REPLY

Please enter your comment!
Please enter your name here