United States District Court, D. New Mexico
MEMORANDUM OPINION AND ORDER
C. BRACK, SENIOR U.S. DISTRICT JUDGE
matter is before the Court on Encana Oil & Gas (USA)
Inc.'s (Defendant) Motion to Dismiss Plaintiff's
Complaint. (Doc. 5.) Having considered the parties'
arguments and the relevant law, the Court will grant
in part and deny in part the
April 7, 2016, Epic Energy LLC (Plaintiff), a New Mexico
company, entered into a Purchase and Sale Agreement (PSA)
with Defendant, a Delaware corporation with its principal
place of business in Colorado (see Doc. 1 at 2), to
purchase Defendant's interest in certain oil wells and
oil tank batteries in New Mexico. (See Doc. 1-1
(Compl.) ¶¶ 1-2, 5, 15.) After signing two
Amendments, the parties agreed that the PSA's effective
date would be on or before July 1, 2016. (Id. ¶
15; see also Doc. 1-1-B at 13-19.) The PSA included
an oil tank battery the parties refer to as the Federal I
tank battery (Federal I). (Id. ¶¶ 4-5,
December 8, 2015, a tank valve in Federal I froze and leaked
oil into the soil. (See id. ¶¶ 5-6;
see also Doc. 1-1-A.) Under regulations promulgated
by the New Mexico Oil Conservation Commission, Defendant was
obligated to verbally report the leak to the Oil Conservation
Division (the Division) within 24 hours and to file a C-141
form within 15 days. (See Compl. ¶¶
10-11.) See also 184.108.40.206-10 NMAC. Defendant
verbally reported the leak to a Division inspector on
December 14, 2015, and sent an incomplete C-141 form to the
Division on December 15, 2015, asserting that “[a]ll
liquids and contaminated soil were removed and disposed of in
accordance with State rules.” (See Compl.
¶¶ 8, 12 (quoting Doc. 1-1-A).) According to the
allegations in the Complaint, Defendant's assertion was
false-it had not properly remediated the oil release.
(See Id. ¶¶ 12, 14.) The Division sent two
requests to Defendant asking it to “prove remediation
had actually taken place by submitting soil sample data and
evidence that [the] contaminated soil had been disposed of[,
]” but Defendant did not comply with either request.
(Id. ¶ 13.) “On April 13, 2016[, ] a
Division inspector visited the Federal I tank battery and
found that the oil release had not been remediated as
represented . . . .” (Id. ¶ 14.)
of the parties' negotiations prior to the PSA's
effective date, Plaintiff inspected the Federal I tank
battery on April 19, 2016. (Id. ¶ 16.) While it
was obvious that Defendant had performed recent dirt work at
the site, “[t]here was no visible evidence of an oil
spill or leak in and around the Federal I.”
(Id.) Defendant never disclosed information to
Plaintiff about the oil release or the failed remediation
efforts during the parties' negotiations. (Id.
was effective on August 1, 2016. (See Doc. 1-1-B at
13.) On July 27, 2016, the Division formally recognized
Plaintiff as the new operator of the wells. (Id.
¶ 19.) In September 2017 the Division notified Plaintiff
that Defendant had not complied with its request to provide
soil samples in connection with the incomplete C-141 form.
(Id. ¶ 20.) Representatives from both parties
“and the Division obtained a witnessed soil sample on
or about September 6, 2017.” (Id.) Testing of
the soil sample established that oil remained in the soil; in
other words, Defendant had not completed remediation.
(Id. ¶ 21.)
the Division recognizes Plaintiff as the operator of the
wells, the Division is holding Plaintiff responsible for
remediation. (Id. ¶ 22.) Plaintiff has formally
asked the Division to hold Defendant responsible for the
remediation (see Doc. 1-1-C), but the Division
continues to hold Plaintiff liable for compliance with all
applicable regulations (see Doc. 1-1-D-2; Compl.
¶¶ 23-24). See also 220.127.116.11,
18.104.22.168, 22.214.171.124 NMAC. Accordingly, Plaintiff has
developed a remediation plan. (See Compl. ¶ 25;
see also Doc. 1-1-E.) The remediation plan
“will cost approximately $150, 000 to perform.”
(Compl. ¶ 26.)
filed suit in the Eleventh Judicial District Court, State of
New Mexico, on January 11, 2019. (See Id. at 1.)
Defendant removed the lawsuit to this Court on February 15,
2019, on the basis of diversity. (See Doc. 1 at 1.)
reviewing a motion to dismiss under Fed.R.Civ.P. 12(b)(6),
the Court “must accept all the well-pleaded allegations
of the complaint as true and must construe them in the light
most favorable to the plaintiff.” In re Gold Res.
Corp. Sec. Litig., 776 F.3d 1103, 1108 (10th Cir. 2015)
(citation omitted). “To survive a motion to dismiss,
” the complaint does not need to contain
“detailed factual allegations, ” but it
“must contain sufficient factual matter, accepted as
true, to ‘state a claim to relief that is plausible on
its face.'” Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009) (quoting Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555, 570 (2007)).
has asserted claims for: (1) declaratory judgment and
injunctive relief pursuant to N.M. Stat. Ann. §§
70-2-2, 70-2-3(B), and 70-2-29 (1978) (Compl. ¶¶
27-33); (2) breach of contract and warranties (id.
¶¶ 34-37); (3) fraud and deceit (id.
¶¶ 38-41); and (4) breach of contract with respect
to taxes (id. ¶¶ 42-46). Defendant moves
to dismiss all four claims. (Doc. 5.) The Court begins by
examining the claim for breach of contract and warranties.
Plaintiff has alleged facts sufficient to state a claim for
breach of contract pursuant to Section 6(b) of the PSA but
may not maintain its claim for breach of warranties pursuant
to Section 11.
second claim for relief, Plaintiff (the Buyer) asserts that
Defendant (the Seller) breached the parties' PSA and the
warranties therein, including the following two provisions:
6. Apportionment of Liabilities. . . .
b. Seller's Retention of Liabilities. Seller
shall retain and shall pay, perform, fulfill and discharge .
. . (2) any fines, penalties or monetary sanctions imposed by
any governmental authorities as a result of violations or
non-compliance with law as a result of the ownership, use or
operation of the Assets prior to the Effective Date for which
a claim has been made, filed, or initiated as of the Closing
Date . . . .
11. Seller's Representations and Warranties.
Seller represents and warrants to Buyer as of the date of
this Agreement and the Closing Dated: . . . (vi) no suit,
action or other proceeding is pending (including
environmental claims) or, to the Knowledge of Seller,
threatened against or affecting the Assets; (vii) to
Seller's knowledge, the Assets have been operated in
compliance with all applicable laws, including environmental
laws, and Seller has not received notice of any alleged
violations or liability under environmental laws or with
respect to the environmental condition of the Assets . . . .
(Compl. ¶¶ 35-36 (quoting Doc. 1-1-B at 21, 22).)
Plaintiff contends that Defendant knew of the oil release,
submitted an incomplete form to the Division that falsely
represented that the spill had been properly cleaned, and
falsely represented to Plaintiff that it had complied with
all applicable laws and had not received notice of any
violations. (See Id. ¶¶ 7, 12-13, 17, 36;
see also Doc. 7 at 13.) Thus, Plaintiff argues that
Defendant's representations regarding the Federal I tank
battery were false and breached the PSA and its warranties to
Plaintiff has stated a claim for breach of Section 6(b)
because the remediation plan qualifies as
first contends that “no
‘fines, penalties or monetary sanctions' have been
imposed by any governmental authority” pursuant to
Section 6(b) of the PSA. (Doc. 5 at 15.) Plaintiff responds
that Defendant inadequately remediated the 2015 oil release
in violation of Division rules and falsely reported complete
remediation. (Doc. 7 at 13.) Section 126.96.36.199 NMAC
provides that “[t]he responsible party must remediate
all releases regardless of volume[, ]” and
“[u]nless remediation is completed, and a final closure
report submitted, within 90 days of discovery of the release,
the responsible party must complete division-approved
remediation for releases either pursuant to a remediation
plan approved pursuant to 188.8.131.52 NMAC or pursuant to an
abatement plan . . . .” 184.108.40.206(A)-(B)(1) NMAC. As
Defendant did not comply with these rules, Plaintiff contends
that the cost of the remediation plan is a “monetary
sanction imposed by [a] governmental authorit[y] as a
result of violations or non-compliance with law . . . prior
to the Effective Date . . . for which a claim has been . . .
initiated as of the Closing Date” in violation of
Section 6(b). (Doc. 7 at 13.)
disagrees and offers four reasons to reject Plaintiff's
construction of the term “monetary sanction.”
First, Defendant argues that the plain meaning of
“monetary sanction” forecloses inclusion of the
costs of remediation. “‘Monetary' means
‘of, relating to, or involving money[, ]'”
and “‘[s]anction' means ‘a penalty or
coercive measure that results from failure to comply with a
law, rule, or order.'” (Doc. 11 at 4 (quoting
Monetary & Sanction, Black's
Law Dictionary (10th Ed. 2014)).) “Thus,
‘monetary sanction' means a ‘money penalty
that results from failure to comply with a law, rule, or
order.'” (Id.) Defendant argues that
“[a]ssuming oversight for and paying a third-party
contractor to remediate historical contamination is not a
‘monetary sanction.'” (Id.) Yet, the
costs of the remediation plan stem from Defendant's
alleged failure to remediate the oil release “in
accordance with State rules” in 2015. (See
Compl. ¶¶ 12-14.) See also 220.127.116.11
NMAC. Because of Defendant's failure, Plaintiff has now
been ordered to perform remediation of the release. (Compl.
¶ 22.) Thus, the cost of performing the remediation can
be construed as a sanction that resulted from Defendant's
failure to comply with State rules that required it to
properly remedy the oil release.
Defendant argues that “Plaintiff's construction
violates the . . . principle” that
“‘[w]here general words follow an enumeration of
persons or things of a particular and specific meaning, the
general words are not construed in their widest extent but
are instead construed as applying to persons or things of the
same kind or class as those specifically
mentioned.'” (Doc. 11 at 4 (quoting Lucero v.
Richardson & Richardson, Inc., 39 P.3d 739, 745
(N.M. Ct. App. 2001)).) For example, the New Mexico Court of
Appeals held that “in interpreting the language
‘buildings, structures, trees, shrubs or other natural
features, '” the term “other natural features
included only above-ground, not subsurface, features, since
all the features listed existed above ground.”
Lucero, 39 P.3d at 745 (quoting Hartman v.
Texaco, 937 P.2d 979, 982 (N.M. Ct. App. 1997)).
Defendant argues that construing “‘monetary
sanctions' to mean ‘assume responsibility and pay
for the costs of any remediation' constitutes ‘the
widest extent' of those words, much different from the
‘same kind or class' as ‘fines and
penalties.'” (Doc. 11 at 4-5.) The Court disagrees.
The Division requires that remediation occur as a consequence
of the release-the Court finds this falls comfortably into a
“sanction” as used in the provision.
next argues that “Plaintiff's construction
ignores” Section 6(a) of the PSA, which provides
“that Plaintiff ‘shall assume, pay for and
perform all claims, taxes, costs, expenses, liabilities and
obligations accruing or relating to . . . [the Assets] . . .
including those related to the environmental condition of the
Assets.” (Id. at 5 (quoting Doc. 1-1-B at
20).) Defendant does not, however, quote the entire text of
Section 6(a), which provides:
(6) Apportionment of Liabilities.
(a) Buyer's Assumption of Liabilities.
i. Except for the Retained Liabilities and
the allocation of revenues and expenses set forth in Section
6(c), after closing Buyer shall assume, pay for and perform
all claims, taxes, costs, expenses, liabilities and
obligations accruing or relating to owning, developing,
exploring, operating or maintaining the Assets or producing,
transporting and marketing of Hydrocarbons produced from the
Assets, arising either before or after the Effective Date,
including those related to the environmental condition of the
Assets . . . .
(Doc. 1-1-B at 20 (emphasis added).) While Section 6(a)
dictates that Plaintiff generally will be responsible for all
obligations after closing, Section 6(b) carves out several
specific items that Defendant will retain
liability for, including “any fines, penalties
or monetary sanctions imposed by any governmental authorities
as a result of violations or non-compliance with law . . .
.” (Id. at 21.) Defendant explains neither how
this construction of Section 6(b) renders Section 6(a)
meaningless, nor how its own construction is superior.
Defendant argues that its “responsibility for
‘fines, penalties or monetary sanctions' is limited
to those ‘for which a claim has been made, filed, or
initiated as of the Closing Date . . . .'” (Doc. 11
at 5 (quoting Doc. 1-1-B at 21).) The Division initially
contacted Defendant about remediation prior to the closing
date; thus, the claim for remediation fits within this
limitation. For these reasons, the Court finds that Plaintiff