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XTO Energy, Inc. v. Furth

United States District Court, D. New Mexico

November 27, 2017

XTO ENERGY, INC., Plaintiff,
v.
JOHN L. FURTH, KENNETH P. LABAN, and HENRY A. PERLES, as Co-Trustees for THE TRUST U/W ANNE BAXTER KLEE F/B/O KATRINA HODIAK; THE TRUST U/W ANNE BAXTER KLEE F/B/O MELISSA GALT; and THE TRUST U/W ANNE BAXTER KLEE F/B/O MAGINAL GALT, Defendants.

          MEMORANDUM OPINION AND ORDER

         This case concerns a claim for unjust enrichment based on overpayment of an oil and gas interest. Plaintiff XTO Energy (Plaintiff or XTO) asks the Court to order restitution of the overpayments it made to Defendants John L. Furth, Kenneth P. Laban, and Henry A. Perles (collectively, Defendants or Trustees) as co-trustees of three testamentary trusts that held an interest in a federal oil and gas lease assigned to Plaintiff.[1] Both parties have moved for summary judgment, and those motions have been fully briefed.[2]

         On November 15, 2017, the Court held a hearing on the cross motions for summary judgment. Plaintiff was represented by attorneys John Anderson and Julia Broggi, and Defendants were represented by attorney Eugene Gallegos. Based on the briefing and on the oral arguments, the Court concludes that the facts are largely undisputed and that Plaintiff's claim is not barred as a matter of law. However, the Court finds that Plaintiff has not shown that it is entitled to equitable relief at the summary judgment stage. Accordingly, the Court will deny both motions.

         I. BACKGROUND[3]

         In 1964, D. Klee acquired a federal oil and gas lease for 920 acres of land in Eddy County, New Mexico. Klee assigned his lease to Jack Russell ten years later, but in the assignment Klee reserved for himself a production payment interest of $1000 per acre for a total of $920, 000. This production payment was to be paid out of 5% of the market value of all the oil and gas produced. When Klee died, the production interest became the property of his wife, Anne Baxter Klee. Upon her death in 1985 the production interest passed through her will to three testamentary trusts established for the benefit of her three daughters: Katrina Hodiak, Melissa Galt, and Maginal Galt. Defendants were appointed by the will as co-trustees of each of these three trusts. But the trustees did not possess a copy of the lease or the assignment from Klee to Russell, and they were not aware of the details of the production interest or its payout limit of $920, 000.

         The federal lease passed from Russell to various other lessees, eventually being acquired by Strata Production Company. Strata contacted Defendants in 2002, advised them of the production interest, and began making payments to the trusts. Plaintiff asserts that Strata paid the trusts a total of $468, 643.44. Defendants do not deny that Strata made payments on the interest, but they dispute the amount alleged by Plaintiff and argue that the precise amount paid by Strata has not been established by competent evidence.

         In October 2006, Plaintiff XTO acquired Strata's interest in the federal lease and assumed responsibility for making the production payments. Plaintiff is a large energy company that was founded in Fort Worth in 1986, holds interests in approximately 40, 000 producing oil and gas wells nationwide, and merged with Exxon Mobil Corporation in 2010. Setting up payments made on production interests so that they can be tracked is common practice in the oil and gas industry. Nevertheless, Plaintiff neglected to properly set up the production payment interest in its accounting system. Plaintiff made the production payments but did not subtract the amounts paid from its total payout obligation. At least some XTO employees were aware by the end of May, 2007, that the payments might not have been set up to be tracked by accounting. In 2010, an XTO employee specifically contacted the accounting department in an attempt to get information on whether the payments were being tracked. The employee noted that the production interest would terminate when the total amount had been paid, but he was unable to get any information as to the status of the payment obligation.

         It was not until December of 2014 or January of 2015 that Plaintiff realized that payout had been reached and stopped making payments to the trusts. By then, the trusts had been overpaid. Plaintiff paid $1, 938, 184.37 to the three trusts, which were entitled to receive only $920, 000.00. Plaintiff maintains that this resulted in an overpayment of $1, 486, 827.80 when the $468, 643.44 previously paid to Defendants by Strata is deducted from the $920, 000.00 owed on Defendants' interest. Plaintiff brought a claim for unjust enrichment and now asks for summary judgment ordering restitution of its alleged $1, 486, 827.80 overpayment.[4]

         Defendants do not contest the amount paid by Plaintiff, nor do they dispute the fact that they were overpaid. However, Defendants do not agree on the amount of the overpayment because they dispute Plaintiff's right to subtract payments made by Strata from the amount owed to Defendants, and they contend that the amount of Strata's payments has not been established by competent evidence. Further, Defendants do not agree that restitution is warranted at all. Defendants assert that the equitable remedy of restitution is not available to Plaintiff because the overpayment was due to Plaintiff's own negligence. Defendants argue that this completely bars Plaintiff's claim, and they ask the Court to enter summary judgment in their favor.

         II. LEGAL STANDARD

         The Court has jurisdiction over this matter under 28 U.S.C. § 1332 due to the diverse citizenship of the parties and the $1, 486, 827.80 in controversy. In a diversity action, the Court will apply federal procedural law and the substantive law of the forum state-here New Mexico, where the oil and gas leases are located. Jones v. United Parcel Service, Inc., 674 F.3d 1187, 1195 (10th Cir. 2012). Summary judgment may be granted if the moving party shows “there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). “When applying this standard, [the Court] view[s] the evidence and draw[s] reasonable inferences therefrom in the light most favorable to the nonmoving party.” Scull v. New Mexico, 236 F.3d 588, 595 (10th Cir. 2000) (internal quotation marks omitted). On cross-motions for summary judgment the Court is entitled “to assume that no evidence needs to be considered other than that filed by the parties, but summary judgment is nevertheless inappropriate if disputes remain as to material facts.” Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d 1138, 1148 (10th Cir. 2000). The Court will analyze each motion individually and on its own merits. See Buell Cabinet Co. v. Sudduth, 608 F.2d 431, 433 (10th Cir. 1979) (explaining that “[c]ross-motions for summary judgment are to be treated separately; the denial of one does not require the grant of another.”).

         III. DISCUSSION

         To prevail on its claim for unjust enrichment Plaintiff must prove that Defendants were knowingly benefitted at Plaintiff's expense and that it would be unjust for Defendants to retain the benefit. City of Rio Rancho v. Amrep Southwest Inc., 2011-NMSC-037, ¶ 54, 150 N.M. 428, 260 P.3d 414. “A person who receives any sort of advantage, such as possession of or some other interest in money, has been conferred a benefit.” Sunwest Bank of Albuquerque v. Colucci, 1994-NMSC-027, ¶ 10, 117 N.M. 373, 872 P.2d 346. “A person who receives a benefit has been enriched.” Id. The parties agree that Plaintiff overpaid Defendants, but do not agree on the amount of the overpayment.

         Plaintiff asserts that when it acquired the lease, Strata had already paid Defendants a total of $468, 643.44, leaving only $451, 356.56 owed by Plaintiff on Defendants' interest. Plaintiff therefore claims that its payment of $1, 938, 184.37 to the three trusts resulted in an overpayment of $1, 486, 827.80. Defendants argue first that Plaintiff is not entitled to benefit from payments made by Strata. However, Defendants' interest was limited to payment of $920, 000.00, and if Strata paid a portion of this amount when it was in possession of the lease, those payments would reduce the remaining amount owed. Defendants present no legal argument to the contrary.

         Defendants next contend that Plaintiff has not presented competent evidence of the amount paid by Strata. Plaintiff supports its claim with an affidavit from Mitch Krakauskas, the Land Manager for Strata since 2009. Mr. Krakauskas averred that, although he did not work for Strata at the time Plaintiff acquired the lease, he had reviewed Strata's business records, was familiar with the payment history on Defendants' interest, and knew that Strata had paid Defendants a total of $468, 643.44. See Doc. No. 58-2, Ex. B, Affidavit of Mitch Krakauskas. Mr. Krakauskas attached to his affidavit two documents provided to Plaintiff by Strata, one of which lists the total amount of Defendants' interest as $920, 000.00 but shows nothing having been paid, and another that lists total amounts in three columns labeled “gross revenue, ” “taxes, ” and “net revenue.” The total taxes and net revenue add up to the total gross revenue, which is listed as $468, 643.44, equivalent to the amount of payment stated by Mr. Krakauskas. Below that total is the original payment amount of $920, 000.00 and a remaining balance on payout of $451, 356.56, which seems to reflect the original obligation minus the gross revenue.

         Defendants have not formally moved to strike Mr. Krakauskas' affidavit, but they argue in their response to Plaintiff's motion for summary judgment that Mr. Krakauskas' affidavit should be stricken for lack of personal knowledge and because it is based on a summary exhibit. However, Mr. Krakauskas' affidavit is based on his personal review of Strata's business records in his position as Land Manager, and as such the Court concludes that it is based on personal knowledge. See Bryant v. Farmers Ins. Exchange, 432 F.3d 1114, 1123-24 (10th Cir. 2005) (affidavit premised on review of records was based on personal knowledge). Additionally, the documents attached are not summary exhibits within the meaning of Federal Rule of Evidence 1006 because they were previously created by Strata unrelated to this litigation, not as a means to summarize other evidence in this case. They are business records regularly kept by Strata, and as such are admissible under Federal Rule of Evidence 803(6). ...


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