United States District Court, E.D. Arkansas, Western Division
CLAUDE D. WALLACE, Individually and as Trustee of the CLAUDE D. WALLACE LIVING TRUST dated July 31, 2005; HAROLD BRUMLEY and NELDA BRUMLEY, Individually and as Trustees of the BRUMLEY LIVING TRUST, dated December 1, 2011; and RODNEY LONG, On Behalf Of Themselves And All Others Similarly Situated, Plaintiffs,
XTO ENERGY, INC. and EXXON MOBIL CORPORATION, Defendants.
KRISTINE G. BAKER, District Judge.
On October 24, 2013, plaintiffs filed this class action suit for underpayment of royalties against defendants XTO Energy, Inc. ("XTO") and Exxon Mobil Corporation ("Exxon") (Dkt. No. 1). Plaintiffs assert claims for breach of their respective oil and gas leases, as well as various tort, common law, and statutory claims. XTO and Exxon filed separate motions to dismiss for failure to state a claim (Dkt. Nos. 8, 10). All parties submitted several filings addressing the pending motions (Dkt. Nos. 15-17, 20). The Court grants in part and denies in part defendants' motions to dismiss.
I. Factual Background
Plaintiffs allege that defendants engaged in a variety of deceptive and fraudulent practices to reduce improperly and secretly royalty payments owed to plaintiffs and potential class members under their oil and gas leases with XTO. Plaintiffs allege that Exxon is the parent company of XTO. Specifically, plaintiffs allege that defendants use improper accounting methods, such as starting with a price that is too low and taking deductions for marketing, gathering, compression, and dehydration, which are collectively referred to as "post-production expenses" ("PPEs").
II. Legal Standard
"To survive a motion to dismiss, a complaint 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, 570 (2007)). A claim is facially plausible "when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556). "While a complaint attacked by a [Federal] Rule [of Civil Procedure] 12(b)(6) motion to dismiss does not need detailed factual allegations, a plaintiff's obligation to provide the grounds' of his entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly, 550 U.S. at 555 (alteration in original) (citations omitted). "When ruling on a motion to dismiss, the district court must accept the allegations contained in the complaint as true and all reasonable inferences from the complaint must be drawn in favor of the nonmoving party." Young v. City of St. Charles, 244 F.3d 623, 627 (8th Cir. 2001).
A. Fraud, Fraudulent Concealment, And Arkansas Deceptive Trade Practices Act Claims
Plaintiffs' fraud and Arkansas Deceptive Trade Practices Act ("ADTPA") claims are subject to Federal Rule of Civil Procedure 9(b), which requires plaintiffs to state with particularity the circumstances constituting the alleged fraud. "To satisfy the particularity requirement of Rule 9(b), the complaint must plead such facts as the time, place, and content of the defendant's false representations, as well as the details of the defendant's fraudulent acts, including when the acts occurred, who engaged in them, and what was obtained as a result." United States ex rel. Joshi v. St. Luke's Hosp., Inc., 441 F.3d 552, 556 (8th Cir. 2006).
Defendants argue that plaintiffs' fraud and ADTPA claims fail to satisfy Rule 9(b)'s particularity requirement. Here, plaintiffs set forth particular factual allegations that defendants engaged in fraudulent conduct. Specifically, plaintiffs in their complaint allege that, beginning around October 31, 2006, and continuing through today, defendants "secretly carried out [their] scheme" to take improper deductions from and underpay plaintiffs' royalty payments through a variety of tactics (Dkt. No. 1, at 6-7, 11-12). Defendants' tactics allegedly include "a series of common omissions and misrepresentation in fact, " such as misrepresenting on plaintiffs' check stubs that a proper accounting was made, starting with a price that was too low, and omitting that PPEs were deducted ( Id. ). Taken as true, plaintiffs' allegation that defendants engaged in fraudulent conduct survives a motion to dismiss. See Drobnak v. Anderson Corp., 561 F.3d 778, 783-84 (8th Cir. 2009) (holding that allegations pleaded on information and belief meet Rule 9(b)'s particularity requirement when the facts constituting the fraud are peculiarly within the opposing party's knowledge and if accompanied by a statement of facts on which the belief is founded); see also Rath v. BHP Billiton Petroleum (Ark.), Inc., No. 4:13-cv-00602 BSM, slip op. at 2-3 (E.D. Ark. Jan. 16, 2014); Collins v. SEECO, Inc., No. 4:11-cv-761-DPM, 2012 WL 2309080, *2 (E.D. Ark. June 18, 2012).
Next, defendants argue that plaintiffs do not plead any cognizable tort claim, including fraud and conversion, because the alleged underpayment of royalties is merely a claim for breach of contract and, under Arkansas law, "a breach of contract is not turned into a tort even if the breach is malicious." See JRT, Inc. v. TCBY Sys., Inc., 52 F.3d 734, 738 (8th Cir. 1995) (citing Quinn Cos., Inc. v. Herring-Marathon Grp., Inc., 773 S.W.2d 94 (Ark. 1989)). However, in Quinn Companies, the Arkansas Supreme Court explained that, although "a plaintiff may not transform a breach of contract action into a tort claim by alleging the breach was motivated by malice, " "if the facts warrant, a party to a contract may sue on an independent tort claim." 773 S.W.2d at 432. "The breach itself simply is not a tort, " but, the court made clear, "the same conduct may give rise to either an action in tort or in contract." Id. Thus, if plaintiffs sufficiently state a claim for a particular tort, as the Court determines plaintiffs have done for fraud, that tort claim can be brought alongside a contract claim.
Defendants also argue that plaintiffs' ADTPA claim fails because: (1) the standard of conduct allegedly breached by defendants is contractual; (2) plaintiffs' alleged conveyances of leasehold interests to XTO involve real property, not goods and services; and (3) plaintiffs plead no facts showing that they purportedly suffer from physical infirmity, ignorance, illiteracy, or inability to understand (Dkt. No. 9, at 21). The Court rejects defendants' arguments.
First, as with plaintiffs' tort claims, plaintiffs may bring an ADTPA claim alongside their contract claims. See Rath, No. 4:13-cv-00602 BSM, slip op. at 2-3; Collins, 2012 WL 2309080, *2; Vanoven v. Chesapeake Energy Corp., No. 4:10-cv-0158 BSM, 2011 WL 1042251, at *5-6 (E.D. Ark. Mar. 22, 2011); see also Butler & Cook, Inc. v. CenterPoint Energy Gas Transmission Co., No. 2:12-2107, 2012 WL 4195906, *5 (W.D. Ark. Sept. 18, 2012) (dismissing ADTPA claim because defendant's alleged wrongs were an "ordinary breach of a contract" where plaintiff did not allege facts showing that defendant engaged in unconscionable, false, or deceptive act or practice in business commerce or trade).
Second and third, plaintiffs need not allege all of the deceptive and unconscionable trade practices listed in Arkansas Code Annotated § 4-88-107 to bring an ADTPA claim; plaintiffs must only allege one. Under § 4-88-107(a)(10), plaintiffs may merely allege that defendants engaged in an "unconscionable, false, or deceptive act or practice in business, commerce, or trade." Accordingly, a claim under the ADTPA need not involve goods or services or a consumer who is reasonably unable to protect his or her interest. See Collins, 2012 WL 2309080, *2 (finding that allegations of several specific deceptive trade practices make a plausible case that defendants engaged in deceptive business practices within the catch-all provision of Arkansas Code Annotated § 4-88-107(a)(10)); Vanoven, 2011 WL 1042251, at *5-6 ("[T]he ADTPA protects the business community at large, providing its members with ...