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Ness v. Samson Resources

United States District Court, D. North Dakota

February 15, 2019

Mr. and Mrs. Lloyd Odell Ness Plaintiffs,
Samson Resources, Samson Investments, KKR Kravis, Kohlberg, Roberts, Magnum Hunter, Bakken Hunter, ONEOK Partners, ONEOK, and OKS, Defendants.



         Plaintiffs in this action seek a litany of damages and other relief based on largely conclusory allegations that defendants have engaged in an industry-wide scheme to defraud royalty and other mineral interest owners of the correct amounts owed to them on the production of natural gas, including from oil and gas wells in which plaintiffs have an interest. Plaintiffs are proceeding pro se despite the court's urging that they retain counsel.

         Following the first of several motions to dismiss, plaintiffs filed a document entitled “Amendment of Complaint.” But, rather than restating and amending the allegations of the original complaint, plaintiffs' amendment attempts to expand upon the parties that plaintiffs claim they are suing and plead additional acts committed in furtherance of the purported fraud- at least as best this court can decipher it.

         Finally, and to complicate matters further, several of the defendants filed for bankruptcy before the court could get to the motions to dismiss. This resulted in the court staying the entire action for a considerable period of time while plaintiffs pursued claims in one of the bankruptcy cases. When the court finally lifted its stay of this action, it allowed the parties to supplement the pending motions to dismiss based upon the events that had transpired. What is now before the court are defendants' motions to dismiss as well as certain other motions filed by plaintiffs.

         I. BACKGROUND

         A. Plaintiffs' complaint

         1. Plaintiffs' interests

         Plaintiffs allege in the complaint that they have an interest in the production from a number of wells that have been drilled in Divide County, North Dakota. The complaint alleges that defendant Samson Resources is the operator of all but one of the wells and defendants Bakken Hunter and Magnum Hunter are the operators of the remaining well.

         While alleging that they have an interest in the production from the wells, plaintiffs have not alleged the basis of their claimed interests, e.g., making reference to any deeds, leases, wills, pooling orders, or pooling agreements that might give rise to and govern the scope of their interests. Also, plaintiffs have not alleged the amount of their interests. These points are of some significance later.

         2. Plaintiffs' claims for relief

         It is difficult to tell from the complaint's rambling and conclusory allegations what plaintiffs' claims are. However, the general thrust appears to be plaintiffs' belief that they have not been fully compensated for amounts owed on their interests in the production of gas from the wells in which they have an interest because of an industry-wide conspiracy to defraud royalty owners by deducting from amounts payable on their interests expenses that are improper or inflated and using “accounting chicanery” to cover it up. There are also vague and conclusory allegations that the gas from the wells was sold for less than market value and that defendants have in some unexplained fashion managed to limit the market for the sale of the gas. In addition, there are conclusory allegations that one or more of the defendants was receiving “kickbacks” as purported incentives for their participation in the fraud.

         As the basis of their entitlement to relief, plaintiffs allege that the purported fraudulent conduct violated the Sherman Anti-Trust Act, the Sarbanes-Oxley Act of 2002, the Racketeer Influenced and Corrupt Organizations Act (“RICO'), and “The Securities Act” (which they claim is also known as “the truth in securities” Act). Plaintiffs also allege that defendants' purported fraudulent and wrongful acts violated “North Dakota state laws and codifications” but without expressly identifying which ones.

         As discussed later, plaintiffs do not appear to have pled any state law causes of action other than, perhaps, fraud. This reading of the complaint is consistent with how plaintiffs themselves have characterized the causes of action being asserted. In the Civil Cover Sheet that plaintiffs completed with the complaint, they stated in both the first and second pages that the causes of action being asserted are for Antitrust, Racketeering, Securities Act fraud and accounting fraud. (Doc. No. 1-1). Also, there are no allegations making reference to specific instruments or agreements that would give rise to a state law claim for breach of contract.

         3. Allegations pertaining to the court's jurisdiction

         The only basis explicitly alleged in the complaint for the court's jurisdiction is that based on diversity of citizenship. This is consistent with Civil Cover Sheet prepared by plaintiffs in which they checked the box stating that the basis for the court's jurisdiction is “Diversity” and did not check the box for “Federal Question” jurisdiction. (Doc. No. 1-1). Nevertheless, the complaint does allege violations of federal law and whether those allegations are sufficient to provide “federal question” jurisdiction under 28 U.S.C. § 1331 is addressed later.

         Plaintiffs' allegations with respect to jurisdiction based upon diversity under 28 U.S.C. § 1332 are also problematic in two respects. The first has to do with whether the allegations sufficiently demonstrate the existence of “complete diversity” of citizenship between plaintiffs and all of the defendants. The only reasonable construction of the complaint is that plaintiffs are claiming they are citizens of the state of Arizona.[1] As for the defendants, the complaint sets forth addresses that, variously, are in the states of New York, Texas, and Oklahoma. But, one of the problems with this is other evidence before the court which makes clear that several of the defendants are limited liability companies or limited partnerships. As to these defendants, plaintiffs have not accounted for the fact that their citizenship is that of their members or partners. This point will be returned to later.[2]

         The second problem with respect to plaintiffs' allegations of diversity of citizenship are its threadbare allegations that the amount-in-controversy is between $75, 000 and $1, 000, 000. Given the lack of pled facts setting forth the amount of plaintiffs' interests in the gas production as well as facts that would provide some indication of the delta between what plaintiffs believe they should have received versus what they were actually paid, it cannot be determined from the face of the complaint whether the $75, 000 threshold for diversity of jurisdiction could be reached, particularly without the help of plaintiffs' being able to claim attorney's fees or some form of enhanced or penalty damages. In most cases this is not a problem given that it does not take much these days to satisfy § 1332's monetary threshold. But, in this case, there is evidence from the one of the bankruptcy proceedings that plaintiffs' interests in the production from the wells in question is relatively small-as compared to the totality of the Ness family interests that plaintiffs are not permitted to represent. Given the small size of plaintiffs' interests, the evidence in the bankruptcy proceeding is that the expenses that were the primary basis for t h e c l a i m s o f f r a u d w e r e l e s s t h a n t w o thousand dollars for the wells operated by Sansom Resources during the time frame relevant to that proceeding. This probably means that any similar expenses would be even smaller for the one well operated by Bakken Hunter/Magnum Hunter. And, while there is a conclusory allegation that the gas was marketed at below market prices, the gas prices appear to have been depressed thereby reducing any potential damage.

         4. The defendants named in the complaint

         It is apparent from the record now before the court that the names of the defendants in the complaint are not legally precise, so some judgment must be used to determine the identity of the entities plaintiffs have sued. With that said, and for purposes of the analysis that follows, the individual defendants named in the complaint fall within one of the following four groups:

         a. The “Samson defendants”

         Two of the entities that plaintiffs have named as defendants are “Samson Resources” and “Samson Investments” (collectively herein the “Samson defendants”). The Samson defendants state in their corporate disclosure statement and their renewed motion to dismiss that there is a Samson Resources Company (an Oklahoma corporation) and a Samson Resources Corporation (a Delaware corporation). They presumes that plaintiffs have intended to sue Samson Resources Company, since that is the company that is engaged in the production of oil and gas from wells located in Divide County, North Dakota and the complaint makes references to “Samson Resource Company” as being the operator of all but one of the wells in which plaintiffs claim an interest. The Samson defendants further state that the correct name for “Samson Investments” is Samson Investment Company, which they state is the parent of Samson Resources Company.

         As discussed in more detail later, the named Samson defendants, along with other affiliated Samson companies, filed voluntary petitions for relief pursuant to Chapter 11 of the Bankruptcy Code on September 16, 2015. The Samson defendants contend that plaintiffs' claims in this action have either been discharged in the bankruptcy action or are now barred on the grounds of res judicata based upon plaintiffs having litigated their claims in the bankruptcy court and that court having determined they lacked merit.

         b. The “ONEOK defendants”

         Plaintiffs also name as defendants ONEOK Partners, ONEOK, and OKS (hereinafter collectively the “ONEOK defendants”). The ONEOK defendants state in their initial motion to dismiss that: (1) the correct name of ONEOK Partners is ONEOK Partners, L.P., (2) the correct name of ONEOK is ONEOK, Inc.; and (3) that OKS is not an entity of any kind, but rather is the New York Stock Exchange symbol for ONEOK Partners, L.P. Based on the record before the court, the only reasonable conclusion is that the actual identities of the defendants named in the complaint are ONEOK, Inc. and ONEOK Partners, L.P. (herein “ONEOK Partners”), which, collectively, will be referred to as the “ONEOK defendants.”

         The evidence before the court is that, at the time of the filing of the complaint, ONEOK Partners was a publicly-traded master limited partnership with unit holders in Arizona. The fact that the presence of ONEOK Partners in this action destroys diversity jurisdiction unless corrected is discussed later.

         c. Bakken Hunter and Magnum Hunter

         Plaintiffs also name as defendants “Bakken Hunter” and “Magnum Hunter.” Bakken Hunter and Magnum Hunter state in their initial joint pleading that they assume plaintiffs are intending to sue Bakken Hunter, LLC, and Magnum Hunter Resources Corporation. According to a later motion to dismiss filed by these entities, Bakken Hunter is an indirect subsidiary of Magnum Hunter, which has since changed its name to Blue Ridge Mountain Resources, Inc.

         On December 15, 2015, Bakken Hunter and Magnum Hunter filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code, but have since emerged from bankruptcy. Unlike the Samson defendants, neither Bakken Hunter nor Magnum Hunter contend that any claims that plaintiffs may have in this action were discharged in those bankruptcy actions.

         Finally, since Bakken Hunter appears to be a limited liability company, the citizenship of its members at the time of the filing of the complaint would have to be determined to ensure that the court has complete diversity if this action was to continue.

         d. KKR

         Plaintiffs have also named as a defendant in the complaint “KKR (Kravis, Kohlberg, Roberts).” This defendant states in its motion to dismiss that there is no entity named “KKR (Kravis, Kohlberg, Roberts)” and presumes plaintiffs have intended to sue Kohlberg Kravis Roberts & Co. L.P. (herein “KKR”). KKR states it is an investment advisor for investment funds that make private equity and real asset investments. KKR states it led a consortium of oil and gas investors that acquired Samson Investment Company in 2011 through an entity organized for purposes of the acquisition, which originally was named Tulip Acquisition Corporation but changed its name to Samson Resources Corporation. KKR claims that, as an investment advisor, it did not own any equity interest in the Samson defendants and that, while equity interests in the Samson defendants were previously owned by affiliates of KKR, including certain investment funds managed by KKR, KKR did not operate or manage the business of the Samson defendants. KKR further states that, following the Samson defendant bankruptcies, KKR does not own any equity in or have any relationship with the Samson defendants.

         KKR states there is also KKR & Co. L.P., which is KKR's parent company and a publicly-traded master limited partnership. KKR states that KKR & Co. L.P. may very well have had unit owners residing Arizona at the time of the filing of the complaint since it was publicly traded, which also would destroy diversity. For purposes of what follows, the court will presume that the only entity properly named and served is KKR (i.e., Kohlberg Kravis Roberts & Co. L.P.) and not KKR & Co. L.P. However, it does not make a difference because all of the reasons set forth below for why KKR must be dismissed would also apply to KKR & Co. L.P. Further, if this action was permitted to continue as to either KKR or KKR & Co. L.P., or both, the court would have to determine the citizenship of their general and limited partners at the time of the filing of the complaint in order to ensure that the requirement for complete diversity would be satisfied.

         Finally, plaintiffs repeatedly make reference in the complaint to “Samson KKR.” Apparently, this reflects their speculation that KKR exercised actual control over the operations of the Samson defendants. Plaintiffs conclusory and speculative allegations that KKR and the Samson defendants were acting in concert do not make a difference in terms of the resolution of the motions to dismiss.

         B. Plaintiffs' “Amendment to Complaint

         After the first motion to dismiss was filed, plaintiffs attempted to amend their complaint by filing a fourteen-page “amendment.” (Doc. No. 30). As already noted, the amendment does not restate and amend the original complaint. Rather, it is clear from the pleading that plaintiffs intend that it be a supplement.

         In the amendment, plaintiffs attempt to expand upon the defendants they claim are being sued by setting forth a long list of entities, purportedly related to either KKR or the Samson defendants, who have never been served and who have otherwise not appeared in this action. Aside from that, the fourteen-page amendment sets forth additional allegations with respect to the purported interrelationships among the original defendants and those that plaintiffs intend to add along with repeating a number of the conclusory allegations of fraud and wrongdoing on the part of the entities.

         In responding to plaintiff's pleadings, most of the defendants have taken the position that, while they believe the attempted amendment was not proper, it does not make a difference since the complaint would have to be dismissed as to them even if the attempted amendment was given effect. Bakken Hunter and Magnum, on the other hand, argue that the only viable pleading is the amendment and, since the amendment (as opposed to the complaint) contains no specific allegations directed to them, they must be dismissed from the action for that reason alone.

         C. The Samson defendants bankruptcy actions

         On September 16, 2015, the named Samson defendants (along with several other affiliated Samson companies) filed voluntary petitions for bankruptcy in the District of Delaware under the reorganization provisions of Chapter 11 of Title 11. The separate bankruptcy proceedings were jointly administered in the case entitled In re Samson Resources Corp., No. 15-11934 (Bankr. D. Del.) (hereinafter “bankruptcy action” or “In Re Samson Resources Corp.”).

         Plaintiff Lloyd Ness (“Ness”) appeared pro se in the bankruptcy action, including filing a proof of claim for “royalties owed” contending that the amount of the claim with interest at 18% was between $75, 000 and $1, 000, 000 (the “Ness claim”).[3] (In Re Samson Resources Corp, Doc No. 677-3, p. 2). The Samson defendants filed an objection to the Ness claim and discovery ensued. On July 6, 2016, the bankruptcy court conducted an evidentiary hearing on the Samson defendants' objection to the Ness claim. (Id., Doc. No. 1151). The transcript of the ...

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