United States District Court, D. New Mexico
SDF, L.L.C., a New Mexico Limited Liability Company, Plaintiff,
CONOCOPHILLIPS COMPANY and HILCORP SAN JUAN, L.P., Defendants.
MEMORANDUM OPINION AND ORDER
C. BRACK UNITED STATES DISTRICT JUDGE
of limitations, legally-imposed time limits on when a
plaintiff may bring certain claims, “are intended to
put defendants on notice of adverse claims and to prevent
plaintiffs from sleeping on their rights . . . .”
See Crown, Cork & Seal Co., Inc. v. Parker, 462
U.S. 345, 352 (1983) (citations omitted). But these
legally-imposed time limits can create inequitable results, a
reality that spurred New Mexico courts to adopt the doctrine
of equitable recoupment over twenty years ago. Equitable
recoupment reduces the inequity of statutes of limitations by
allowing a party to assert a time-barred claim as a defense
against another party's factually-related claims.
plaintiff in this case, SDF LLP, asks the Court to recognize
for the first time in New Mexico an “illegal
recoupment” claim when a party wrongfully invokes the
doctrine of equitable recoupment. As there is no good reason
to recognize such a claim, and such a claim would eviscerate
New Mexico's equitable recoupment doctrine, the Court
declines to recognize the proposed illegal recoupment claim.
SDF is a limited liability company whose sole member is
Samuel L. Dazzo Jr., a citizen of New Mexico. (See
Doc. 1 at 2.) SDF owns the right to receive about 1/4th of
7/8th (or about 7/32) of the oil and gas revenue from certain
federal leases in Rio Arriba County, New Mexico.
(See Doc. 1, Ex. 1 at 2.) SDF refers to this 7/32
royalties interest as “Subject Overrides.”
1990, Defendant ConocoPhillips Company (COP), a Delaware
corporation with its principal place of business in Texas,
has paid Subject Overrides to SDF. (Id. at 1, 4.)
But in May 2016, COP stopped paying Subject Overrides.
(Id. at 7.) According to COP, it was only
contractually obligated to pay Subject Overrides for the
months when it extracted, on average, more than 500, 000
cubic feet (500 Mcf) of gas per well each day. (See
Id. at 3, 7.) COP has never met the 500 Mcf threshold,
so from its perspective it had unnecessarily paid Subject
Overrides since 1990. (See Id. at 4, 7.)
halting Subject Override payments, COP sold its interest in
the federal leases burdened by the Overrides to Defendant
Hilcorp San Juan, L.P. (See Id. at 7.) Hilcorp, a
limited partnership with no partners in New Mexico, then took
over COP's obligation to pay Subject Overrides to SDF.
(See Doc. 1 at 2; Doc. 1, Ex. 1 at 8.) Like COP,
Hilcorp believes that Subject Override payments are only
necessary for the months when it extracts a daily average of
500 Mcf of gas per well. (See Doc. 1, Ex. 1 at 8.)
disagrees with COP and Hilcorp's interpretation of their
obligation to pay Subject Overrides. (See Id. at 5.)
It sued COP and Hilcorp (collectively,
“Defendants”) in New Mexico state court, asking
the court to declare that Defendants had to pay the Subject
Overrides regardless of whether they met the 500 Mcf
threshold. (See Id. at 8.) SDF also alleged that,
among other things, Defendants were guilty of breach of
contract and “illegal recoupment.” (See
Id. at 10-11.)
removed the case to this Court, (see Doc. 1 at 1),
and now ask the Court to dismiss SDF's illegal recoupment
claim, (Doc. 8 at 1).
Federal Rule of Civil Procedure 12(b)(6), defendants may ask
a court to dismiss any part of a plaintiff's complaint
that fails to state a viable claim for relief. See
Fed. R. Civ. P. 12(b)(6). When considering whether to dismiss
the challenged portion of a plaintiff's complaint based
on a 12(b)(6) motion, the court examines the plausibility of
the complaint, accepting all of the plaintiff's
well-pleaded allegations as true and construing the
allegations in the light most favorable to the plaintiff.
Alvarado v. KOB-TV, L.L.C., 493 F.3d 1210, 1215
(10th Cir. 2007) (quotations and citations omitted).
arises under 28 U.S.C. § 1332 as the amount in
controversy exceeds $75, 000, and there is complete diversity
between the plaintiff and defendants. Venue is proper in the
District of New Mexico because the District embraces the
state court where the action was pending. See 28
U.S.C. § 1441(a); see also Polizzi v. Cowles
Magazines, Inc., 345 U.S. 663, 665-66 (1953) (explaining
that in removal actions, venue is governed by 28 U.S.C.
§ 1441(a) instead of 28 U.S.C. § 1391, the general
argue that SDF's illegal recoupment claim is not a
legitimate claim for relief in New Mexico. The validity of an
illegal recoupment claim has never been addressed by the New
Mexico Supreme Court-the highest court of the state. As such,
this Court must predict how the New Mexico Supreme Court
would rule on the ...