Bailey v. Shell Western E&P, Inc.

Case: 08-20313 Document: 00511143589 Page: 1 Date Filed: 06/16/2010

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit

FILED
June 16, 2010

No. 08-20313 Lyle W. Cayce
Clerk

GERALD O BAILEY, for himself and on behalf of United States
of America, State of Colorado, and Montezuma County, Board
of Commissioners; MONTEZUMA COUNTY COLORADO; UNITED
STATES OF AMERICA; STATE OF COLORADO

Plaintiffs - Appellants
v.

SHELL WESTERN E&P INC, now known as SWEPI LP, doing business
as Shell Western E&P, KINDER MORGAN CO2 COMPANY LP,
formerly known as Shell CO2 Company Ltd; SHELL OIL COMPANY

Defendants - Appellees
------------------------------------------------------------------------------------------------

UNITED STATES OF AMERICA; STATE OF COLORADO;
GERALD O BAILEY; HARRY PTASYNSKI

Plaintiffs - Appellants

v.

KINDER MORGAN CO2 COMPANY LP, A Texas limited partnership;
RICHARD TIMOTHY BRADLEY

Defendants - Appellees

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No. 08-20313

HARRY PTASYNSKI

Plaintiff - Appellant

v.

KINDER MORGAN GP INC

Defendant - Appellee

Appeal from the United States District Court
for the Southern District of Texas

Before JONES, Chief Judge, and GARZA and STEWART, Circuit Judges.
CARL E. STEWART, Circuit Judge:
In 1998, Shell Western E&P Inc. (“Shell”) sued Gerald Bailey in Texas
state court for a declaration regarding the proper calculation method for
royalties on carbon dioxide (“CO 2”) in the McElmo Dome. Bailey counterclaimed.
In 2005, the case was removed to federal court in the Southern District of Texas.
The District of Colorado then transferred a similar action, Ptasynski v. Kinder
Morgan G.P., Inc., to the Southern District of Texas, where it was consolidated
with the Shell case. The district court granted summary judgment in favor of
Shell, and Bailey and Ptasynski appealed. We AFFIRM.
I. FACTUAL BACKGROUND 1
In the 1970s, due to the rising costs of oil, petroleum companies began to
investigate the use of CO 2 to increase oil output from older fields. They
discovered that when CO 2 is injected under sufficient pressure into an older
field, it mixes with oil underground, dislodging it from the surrounding rock and

1
The factual background of this case, set forth by this Court in 2002, remains the same.
See Ptasynski v. Shell Western E&P, Inc., No. 99-11049, 2002 WL 32881277, at *1 (5th Cir.
2002) (“Ptasynski I”).

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enhancing its recovery. This process is known as tertiary or enhanced oil
recovery (“EOR”). Oil fields in West Texas were considered prime candidates for
EOR.
The largest CO 2 field capable of supplying these West Texas fields was the
McElmo Dome area, located in Montezuma and Dolores counties, Colorado.
Together, Shell and Mobil Producing Texas & New Mexico Inc. (“MPTN”) owned
87% of the total working interest in the McElmo Dome area. Shell and MPTN
believed that the abundant CO 2 reserves of the McElmo Dome area could be
harvested more efficiently if the area was operated as a single unit. A
partnership was formed to construct, own, and operate a 500-mile pipeline that
would carry CO 2 from McElmo Dome to fields in West Texas.
Shell filed an application with the Colorado Oil & Gas Commission
(“Commission”) to operate the McElmo Dome area as a single unit. The
Commission preliminarily approved Shell’s application, but required Shell to
obtain the consent of 80% of the non-cost bearing royalty interest owners. In
order to obtain such consent, Shell sent a package of materials to the royalty
interest owners. The package included: 1) a brochure entitled “A Program for
Unit Operations,” which was designed to provide an overview of the project; 2)
the Unit Agreement for the proposed McElmo Dome Unit; and 3) a ratification
form by which the royalty interest owners could manifest their assent to the
Unit Agreement. The brochure contained information in the form of questions
and answers. Among these was the following:
“Will the royalty owners of interest in this unit have to pay for the
pipeline, transportation or injection of CO 2 in West Texas? No.”
Bailey and Ptasynski are both independent geologists with decades of
experience in the oil and gas industry. Each holds overriding royalty interest in
the McElmo Dome Unit, and each received Shell’s package and signed and
returned the ratification form. Ultimately, Shell obtained the consent of 92.5%

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of the total royalty interest. As a result, the McElmo Dome Unit became effective
and production of CO 2 began in December 1983.
Bailey and Ptasynski have been receiving royalties from the McElmo
Dome Unit production since 1984. Such royalties were based on the CO 2’s value
at the “tailgate” of the McElmo Dome plant, before being transported via
pipeline to West Texas. Shell determined this value by subtracting the cost of
transportation from the delivered sales price.
II. PROCEDURAL HISTORY
The parties have a long and tortured history of litigation over payment of
royalties flowing from the McElmo Dome.
A. Previous Cases
1. Class Actions
In 1996, the CO 2 Coalition—seventy owners of varying interests in
McElmo Dome—brought a putative class action against Shell, Kinder Morgan,
Mobil, and Cortez Pipeline in Colorado federal district court. In 2000, three other
class actions were filed in that court by classes of (a) land owners, (b) royalty
owners, and (c) non-operating working interest owners. In September 2001, the
four cases were settled. Ninety-six percent of the royalty interest owners joined
in the settlement
Both Bailey and Ptasynski declined to join in the settlement, instead filing
cases in the Northern District of Texas in 1997.
2. Bailey I
Bailey sued Shell in 1997, asserting state law claims and one federal
claim: that the 1099 tax forms Shell sent them were fraudulent and violated 26
U.S.C. § 7434. Bailey v. Shell Western E&P, Inc., No. 3-97-0518-R, 1998 WL
185520, at *1 (N.D. Tex. Apr. 14, 1998). The district court held the tax claim was
not viable and dismissed it with prejudice. Id. at *3. The district court declined

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to exercise supplemental jurisdiction over the state law claims. Id. This Court
affirmed. Bailey v. Shell Western E&P, Inc., 170 F.3d 184 (5th Cir. 1999).
3. Ptasynski I
Ptasynski sued Shell and Mobil on the same theories as Bailey, also in
1997. The district court dismissed the tax fraud and fraudulent concealment
claims on summary judgment. Ptasynski v. Shell Western E&P, Inc., No.
3:97-CV-1208-R, 1999 WL 423022, at *8 (N.D. Tex. June 16, 1999). After a bench
trial, the court ruled for the defendants on all but the negligent
misrepresentation and declaratory judgment claims. This Court rendered
judgment entirely for the defendants. Ptasynski I, 2002 WL 32881277, at *14.
B. This Case
1. The Original Declaratory Action
This lawsuit began in 1998 as a declaratory judgment action in state court
in Harris County, Texas. Shell sued Bailey for a declaration that it had been
paying royalties properly. Bailey asserted state law counterclaims, including
breach of contract, fraud, and breach of fiduciary duty. By March 2001, the state
court had resolved all issues by summary judgment in favor of Shell except the
fraud-based counterclaims.
Meanwhile, other cases about McElmo Dome CO 2 royalties were pending
against Shell in the statutory probate court of Denton County, Texas. In March
2001, the probate judge took this case under section 5B of the Texas Probate
Code. In August 2002, the Texas Supreme Court held the transfer was void and
returned the case to Harris County. In re SWEPI, L.P., 85 S.W.3d 800 (Tex.
2002). The case was then abated until March 2004.
In June 2004, Bailey filed his Eighth Amended Counterclaims in this case,
alleging False Claims Act (“FCA”) claims substantively identical to those he
asserted in a lawsuit filed in Colorado in April 2004 (the “First Colorado
Lawsuit”). The Eighth Amended Counterclaims were filed under seal. The state

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court unsealed the Eighth Amended Counterclaims in November 2004, after the
government declined to intervene.
On March 24, 2005, Bailey removed the declaratory judgment action from
state court to the Federal District Court for the Southern District of Texas.
2. The First Colorado Lawsuit
In April 2004, Bailey and Ptasynski filed the First Colorado Lawsuit in the
Federal District Court for the District of Colorado, a sealed action about the
same royalty issues at issue in Texas state court. They asserted individual
claims and qui tam FCA claims for the United States and allegedly for Colorado
and Montezuma County, Colorado. The case remained sealed until April 2005.
In May 2005, the Colorado district court ordered the First Colorado
Lawsuit transferred to the Southern District of Texas. United States v. Kinder
Morgan Co., No. 04-CV-00716-WDM, 2005 WL 3157998, at *3 (D. Colo. Nov. 21,
2005). After the Colorado court’s transfer of the First Colorado Lawsuit to Texas,
Bailey and Ptasynski, in December 2005, petitioned for mandamus in the Tenth
Circuit. Ptasynski v. Kinder Morgan G.P., Inc., 220 F. App’x 876 (10th Cir. 2007).
Mandamus and certiorari were denied.
3. Proceedings in the Southern District of Texas
Upon removing the declaratory judgment action from state court to the
Southern District of Texas in March 2005, Bailey filed under seal an ex parte
motion to transfer venue to Colorado. The district court did not transfer the case,
instead ordering Bailey to move to transfer the year-old First Colorado Lawsuit
to Texas.
Bailey then petitioned the Fifth Circuit for mandamus based on the
district court’s refusal to transfer this case to Colorado. This Court summarily
denied mandamus; the Supreme Court denied certiorari. In July 2005, Bailey
and Ptasynski also unsuccessfully sought an anti-suit injunction in the First
Colorado Lawsuit, trying to shut down this Texas case.

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Once the First Colorado Lawsuit’s transfer was final, Ptasynski tried to
voluntarily dismiss his claims without prejudice. The district court declined to
dismiss the case. When it was clear that litigation was continuing, Ptasynski
refused service copies of documents sent by mail. The district court then granted
summary judgment on all issues in favor of Shell on April 22, 2008.
C. Additional Litigation
Ptasynski filed yet another lawsuit in Colorado in April 2006. The case
was promptly transferred to Texas. Ptasynski both voluntarily dismissed his
claims and appealed the transfer. The appeal was dismissed as moot. Ptasynski
v. Kinder Morgan G.P., Inc., 220 F. App’x 876 (10th Cir. 2007).
III. DISCUSSION
Bailey and Ptasynski appeal the district court’s grant of summary
judgment in favor of Shell. They raise claims based on jurisdiction, choice-of-law
determinations, Texas law, and discovery rules. Ptasynski raises two claims on
appeal: (1) his voluntary dismissal under Federal Rule of Civil Procedure 41(a)
immediately divested the district court of jurisdiction, and (2) the district court
improperly applied the substantive law of Texas rather than Colorado law.
Bailey appeals on two jurisdictional and three non-jurisdictional grounds: (1) the
district court lacked jurisdiction pursuant to the local action doctrine and the
FCA’s first-to-file rule; (2) the district court erred in concluding that Bailey is not
an “original source” under the FCA’s jurisdictional requirements; (3) the district
court improperly applied the substantive law of Texas rather than Colorado law;
(4) the district court erred by granting summary judgment on Bailey’s claims
under Texas law; and (5) the district court incorrectly failed to exclude evidence
that allegedly was not produced by Shell as required under Federal Rule of Civil
Procedure 26.

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A. Refusal to Dismiss under Rule 41(a)(1)(A)
Ptasynski argues that the district court erred in entering summary
judgment because he filed a notice of dismissal pursuant to Federal Rule of Civil
Procedure 41(a).2 He maintains that the filing of the Rule 41(a) dismissal
immediately divested the district court of jurisdiction. This question of law is
reviewed de novo. Abraham v. State Farm Mut. Auto. Ins. Co., 465 F.3d 609, 611
(5th Cir. 2006).
Rule 41(a)(1)(A)(i) provides that without a court order,
a plaintiff may dismiss an action without a court order by filing: a notice
of dismissal before the opposing party serves an answer or motion for
summary judgment. . .
F ED. R. C IV. P. 41(a)(1)(A)(i).
After Ptasynski filed the notice of voluntary dismissal, Shell filed a
response in opposition to the dismissal and Ptasynski did not file a reply. The
district court then conducted a conference on January 18, 2006. Although the
district court did not issue an order specifically denying dismissal, the record
from the conference reflects the district court’s reasoning and ruling:
The court: . . . [T]hey haven’t withdrawn until I have blessed their
withdrawal. This is a very unusual suit. This is not one party and
another party and one party abandoning it. This is one party
vigorously litigating it in three or four forums and then we
transferred somebody else trying to cut and run, only to refile again.
...
Counsel for Ptasynski: . . . [T]hey told me they wanted to be
dismissed totally from the case and directed me to file the notice of
dismissal, which I did.
The court: All right. Well, you need to do one more thing. Tell them
that they are not dismissed. The only way they may be dismissed is
if they dismiss their claims against everybody and everything in

2
Ptasynsky’s Notice of Voluntary Dismissal referred only to Rule 41(a). The Court
notes that Ptasynsky’s voluntary dismissal is governed by Rule 41(a)(1)(A)(i).

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connection with the McElmo Dome with prejudice, or they commit
that if they ever file anything again, they file it here. But they can’t
do that and I’m not confident they are doing it.
Counsel for Ptasynski: Your Honor, they are doing it.
The court: . . . [T]hey will be in here until I get a commitment from
them about what their plans are for this—and by this litigation, I
don’t mean any particular civil action number. I mean the guerilla
warfare that’s gone on for a decade about the McElmo Dome. So I’ll
be happy to dismiss them with prejudice, but I’m not going to let
them sneak off from this case after everything that’s gone on, only
to file it in Panola County, Mississippi next week. And so you need
to convey that to them that they are active members of this case
until I dismiss them.
Generally, Rule 41(a)(1) dismissal results in immediate termination of the
suit. Harvey Specialty & Supply, Inc. v. Anson Flowline, 434 F.3d 320, 324 (5th
Cir. 2005) (“The plaintiff has an ‘absolute right’ to a Rule 41(a)(1) dismissal, and
‘[t]he effect of [a Rule 41(a)(1)] dismissal is to put the plaintiff in a legal position
as if he had never brought the first suit.’”) (internal citations omitted). Dismissal
under Rule 41(a)(1) is “a matter of right running to the plaintiff and may not be
extinguished or circumscribed by adversary or court.” Am. Cyanamid Co. v.
McGhee, 317 F.2d 295, 297 (5th Cir. 1963).
The district court erred in its treatment of Ptasynski’s attempted Rule
41(a)(1) dismissal by imposing the condition that the dismissal be with prejudice.
In light of Ptasynski’s claims pursuant to the FCA, however, that error is
harmless.
The FCA provides that:
A person may bring a civil action for a violation of section 3729 for
the person and for the United States Government. The action shall
be brought in the name of the Government. The action may be
dismissed only if the court and the Attorney General give written
consent to the dismissal andtheir reasons for consenting.

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31 U.S.C. § 3730(b). Thus, Ptasynski could not dismiss his qui tam action
without written consent of the court and the Attorney General, which he did not
obtain.
Ptasynski asks the Court to carve out an exception from the § 3730(b)
consent requirement for plaintiffs who wish to withdraw from multi-plaintiff qui
tam actions. The consent requirement for dismissal of a qui tam action
safeguards the government’s interests; it “encourag[es] the government to
monitor relators’ actions and step in when a relator is not acting in the best
interest of the public.” Searcy v. Philips Elecs. N. Am. Corp., 117 F.3d 154, 159
(5th Cir. 1997). “For more than 130 years, Congress has instructed courts to let
the government stand on the sidelines and veto a voluntary [dismissal]. It would
take a serious conflict within the structure of the FCA or a profound gap in the
reasonableness of the provision for us to be able to justify ignoring this
language.” Id. at 160. Like the Searcy court, here “we can find neither.” Id.
As Ptasynski argues, the dismissal of one plaintiff from a multi-plaintiff
case will not result in dismissal of the entire action. But dismissal of one plaintiff
may nonetheless impair the government’s interests even where another plaintiff
remains in the suit to litigate on behalf of the government. Additionally, seeking
the written consent of the government and the court in no way constitutes a
significant burden for a plaintiff—if the government’s interests are not impacted,
then consent will surely be freely granted. The language of § 3730(b) “is as
unambiguous as one can expect” and we will not erode the statutory protection
of the government’s interest simply for the sake of convenience. Id. at 159.
Nor could Ptasynski have dismissed just his individual claims, as he now
suggests. Rule 41(a) dismissal only applies to the dismissal of an entire action—
not particular claims. Exxon Corp. v. Md. Cas. Co., 599 F.2d 659, 662 (5th Cir.
1979) (“[W]hen Rule 41(a) refers to Dismissal of an ‘action’, there is no reason to
suppose that the term is intended to include the separate claims which make up

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an action. When Dismissal of a claim is intended, as in Rule 41(b), that concept
is spelled out in plain language.”).
B. Denial of Transfer to Colorado
Bailey claims that the Southern District of Texas lacked subject matter
jurisdiction over this case and erred by denying transfer to the District of
Colorado. When addressing a determination of subject matter jurisdiction, we
review application of law de novo and disputed factual findings for clear error.
United States ex rel. Branch Consultants v. Allstate Ins. Co., 560 F.3d 371, 376
(5th Cir. 2009).
1. Jurisdiction under the FCA
Bailey asserts that the District of Colorado had sole jurisdiction over the
FCA action pursuant to the first-to-file bar of § 3730(b)(5), and the Southern
District of Texas therefore lacked subject matter jurisdiction.
The FCA provides:
Any action under section 3730 may be brought in any judicial
district in which the defendant or, in the case of multiple
defendants, any one defendant can be found, resides, transacts
business, or in which any act proscribed by section 3729 occurred.
...
When a person brings an action under this subsection, no person
other than the Government may intervene or bring a related action
based on the facts underlying the pending action.
31 U.S.C. §§ 3732(a), 3730(b)(5).
Shell filed this lawsuit in Texas state court in 1998, Bailey and Ptasynski
filed the Colorado lawsuit alleging qui tam claims in April 2004, and Bailey
added qui tam counterclaims in this case in November 2004. Although the qui
tam action was filed in Colorado prior to being added to the Texas case, the
district courts did not err in determining that the Southern District of Texas was
a proper forum for the FCA action. We agree with the reasoning of the District
of Colorado court when ordering the transfer to the Southern District of Texas:

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the first-to-file bar “does not apply when the same plaintiff, for whatever reason,
files the same claim in a different jurisdiction as the Plaintiffs did here.” Kinder
Morgan Co., 2005 WL 3157998, at *2. As we recently noted in Branch
Consultants, if an FCA claim “ha[s] already been filed by another, the district
court lack[s] subject matter jurisdiction . . . .” 560 F.3d at 376 (emphasis added).
The two competing policy goals of § 3730(b) are to encourage
whistleblowing and to discourage opportunistic behavior. Id. Neither of the
statutory purposes are served when the same plaintiff makes the same claim in
a different jurisdiction.3 Kinder Morgan Co., 2005 WL 3157998, at *2. We
therefore construe the first-to-file bar of § 3730(b)(5) as inapplicable to one
plaintiff who files the same claim in multiple jurisdictions.
2. 28 U.S.C. §§ 1392, 1631, and the Local Action Doctrine
Bailey asserts that the Southern District of Texas lacked subject matter
jurisdiction pursuant to the local action doctrine,4 and § 1631 therefore required
transfer of the case back to Colorado.
Section 1631 provides that:
Whenever a civil action is filed in a court . . . and that court finds
that there is a want of jurisdiction, the court shall, if it is in the
interest of justice, transfer such action or appeal to any other such
court in which the action or appeal could have been brought at the
time it was filed or noticed . . .

3
In fact, Plaintiffs’ attempts at forum shopping constitute the opportunistic and
parasitic behavior that the FCA seeks to preclude. See Branch Consultants, 560 F.3d at 376
(“the provisions seek to discourage opportunistic plaintiffs from filing parasitic lawsuits”). In
the District of Colorado, the plaintiffs relied on the prohibition of § 3730(b)(5) to resist the
motion to transfer from Colorado to Texas. Yet they also knowingly violated the same
prohibition when filing their qui tam counterclaim in the Texas case, for the apparent purpose
of obtaining federal jurisdiction.
4
This Court has noted that questions remain as to whether the local action doctrine
runs to the jurisdiction or the venue of a court. Trust Co. Bank v. U.S. Gypsum Co., 950 F.2d
1144, 1149 n. 7 (5th Cir. 1992). The Court need not resolve these questions for purposes of this
appeal.

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28 U.S.C. § 1631.
The local action doctrine requires that “a local action involving real
property can only be brought within the territorial boundaries of the state where
the land is located.” Hayes v. Gulf Oil Corp., 821 F.2d 285, 287 (5th Cir. 1987)
(citing Ellenwood v. Marietta Chair Co., 158 U.S. 105, 107 (1895)). The question
of whether an action is local or transitory depends on the law of the forum state.
Id. at 287-88.
Under Texas law, actions that seek adjudication of title to real property
are local in nature and must be brought where the land is situated. Id. at 287;
Miller v. Miller, 715 S.W.2d 786, 788 (Tex. App.—Austin 1986, writ ref’d n.r.e.).
“It is well-settled that a royalty interest in an oil and gas lease is an interest in
real property, held to have the same attributes as real property.” Kelly Oil Co.
Inc. v. Svetlik, 975 S.W.2d 762, 764 (Tex. App.—Corpus Christi 1998, pet.
denied); see also Hayes, 821 F.2d at 288 (“Under Texas law, it is clear that an
interest in land under an oil and gas lease constitutes real estate, and that
Hayes’ action to terminate Gulf’s interest [in a lease] is an action to try title to
real property located in Colorado.”). When applying the local action doctrine to
disputes surrounding royalty interests in oil and gas leases, however, Texas
courts distinguish actions that involve questions of title from those that lack
“any legitimate dispute regarding the ownership of the interests held in the real
property.” Kelly Oil Co. Inc., 975 S.W.2d at 764; see, e.g., Hartman v. Sirgo
Operating, Inc., 863 S.W.2d 764, 766-67 (Tex. App.—El Paso 1993, writ denied)
(“The trial court was not required to determine ownership of land in New Mexico
nor was any relief sought requiring the transfer of title to land in New Mexico.
The declaratory judgment suit was only seeking to determine obligations under
a contract . . .”).
Bailey and Ptasynski’s claims do not require any adjudication of title to
real property and therefore do not fall within the scope of the local action

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doctrine. The claims alleged in Ptasynski’s Complaint and Bailey’s Amended
Complaint reveal that ownership of the royalty interests was never at issue.
Both Ptasynski and Bailey principally claimed that Shell violated its obligations
under the Unit Agreement by improperly deducting transportation charges from
royalty payments. Nor does either appellant seek any relief that would require
transfer of title to royalty interests. Additionally, Shell never claims that Bailey
or Ptasynski do not own the overriding royalty interests in the McElmo Dome
Unit that form the basis for this litigation. Thus, the parties do not contest title
or ownership of interest in mineral rights; the suit “was only seeking to
determine obligations under a contract.” Hartman, 863 S.W.2d at 767. Because
parties only dispute Shell’s obligations under a contract related to real property,
the local action rule does not control.
Bailey also claims that 28 U.S.C. § 1392 required transfer of the case to
Colorado. Section 1392 provides that “any civil action, of a local nature, involving
property located in different districts in the same State, may be brought in any
of such districts.” 28 U.S.C. § 1392. As we have just determined, this action is
not “of a local nature,” therefore § 1392 does not apply. Regardless, § 1392
governs intrastate transfers of venue rather than interstate transfers.
C. Res Judicata
The district court determined that Ptasynski’s claims were barred by res
judicata and Ptasynski has not appealed that determination. Issues not briefed
on appeal are waived. Askanase v. Fatjo, 130 F.3d 657, 668 (5th Cir. 1997).
Because res judicata “constituted an independent ground for dismissal below,
appellant [was] required to raise it to have any chance of prevailing in this
appeal.” Atwood v. Union Carbide Corp., 847 F.2d 278, 280 (5th Cir. 1988). The
dismissal of all of Ptasynski’s claims is therefore affirmed on the basis that he
waived appeal of the res judicata determination.

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D. Application of Texas Law 5
Bailey argues that the district court committed reversible error by
applying Texas law rather than Colorado law. This Court reviews conflicts of law
questions de novo, but the district court’s factual determinations are reviewed
for clear error. Abraham, 465 F.3d at 611.
Federal courts apply the forum state’s conflicts-of-law rules to determine
what law governs state-law claims. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S.
487, 496 (1941). Texas courts initially determine whether there is a conflict
between Texas law and the other potentially applicable law. See Sava
Gumarskain Kemijska Industria D.D. v. Advanced Polymer Sciences, Inc., 128
S.W.3d 304, 314 (Tex. App.—Dallas 2004, no pet.) (“[W]e should first determine
if the laws are in conflict. If the result would be the same under the laws of
either jurisdiction, there is no need to resolve the choice of law question.”);
Vandeventer v. All Am. Life & Cas. Co., 101 S.W.3d 703, 711-12 (Tex. App.—Fort
Worth 2003, no pet.) (“In the absence of a true conflict, we need not undertake
a choice-of-law analysis.”). Where there is a conflict of laws, Texas follows the
“most significant relationship” test of the Restatement (Second) of Conflict of
Laws § 188 to determine the law applicable to a contract dispute. Minn. Mining
& Mfg. Co. v. Nishika Ltd., 953 S.W.2d 733, 735 (Tex. 1997). Section 188(2)
states the following:
In the absence of an effective choice of law by the parties (see § 187),
the contacts to be taken into account in applying the principles of §
6 to determine the law applicable to an issue include:
(a) the place of contracting,
(b) the place of negotiation of the contract,
(c) the place of performance,
(d) the location of the subject matter of the contract, and

5
Ptasynski’s appeal raises the same choice of law arguments propounded by Bailey.
However, because Ptasynski’s dismissal is affirmed on res judicata grounds, the Court
addresses choice of law issues only with respect to Bailey.

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(e) the domicile, residence, nationality, place of
incorporation and place of business of the parties.
These contacts are to be evaluated according to their relative
importance with respect to the particular issue.
R ESTATEMENT (S ECOND) OF C ONFLICT OF L AWS § 188 (1971). Application of the
most significant relationship analysis turns on the qualitative nature of the
particular contacts with a state rather than the mere number of those contacts.
Gutierrez v. Collins, 583 S.W.2d 312, 319 (Tex. 1979).
1. Fiduciary Duties of Operators
Bailey points to only two areas in which, he argues, Texas and Colorado
law would arrive at different outcomes on his claims: fiduciary duty and post-
production costs.
Bailey first asserts that Colorado and Texas law conflicts regarding the
imposition of fiduciary duties on operators of oil, gas, and CO 2 units. “Texas law
has never recognized a fiduciary relationship between a lessee and royalty
owners.” HECI Exploration Co. v. Neel, 982 S.W.2d 881, 888 (Tex. 1998). Nor
have Texas courts ever stated that such a fiduciary relationship would never be
recognized. See In re Bass, 113 S.W.3d 735, 744 (Tex. 2003) (“[A] grantee, after
executing a mineral lease, owes a duty of the utmost fair dealing to protect the
amount of the grantor’s royalty.”); Schlumberger Tech. Corp. v. Swanson, 959
S.W.2d 171, 177 (Tex. 1997) (“[W]hile a fiduciary or confidential relationship
may arise from the circumstances of a particular case, to impose such a
relationship in a business transaction, the relationship must exist prior to, and
apart from, the agreement made the basis of the suit.”).
Colorado’s law is similar and does not conflict with that of Texas. As the
Tenth Circuit has interpreted Colorado law, “a lessee-lessor relationship, even
if it encompasses the operation of an oil and gas unit, does not automatically
create fiduciary responsibilities,” but “that a fiduciary duty does not necessarily
arise from a lessee-lessor relationship does not mean a fiduciary duty never

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arises from such a relationship.” Atl. Richfield Co. v. Farm Credit Bank of
Wichita, 226 F.3d 1138, 1162 (10th Cir. 2000).
2. Contractual Allocation of Post-Production Costs
In his second conflict of laws argument, Bailey argues that, unlike Texas
law, Colorado law requires that post-production costs incurred to make the gas
marketable are to be borne solely by the lessees.
Where leases are silent with respect to the allocation of costs, “the implied
covenant to market obligates the lessee to incur those post-production costs
necessary to place gas in a condition acceptable for market. Overriding royalty
interest owners are not obligated to share in these costs.” Rogers v. Westerman
Farm Co., 29 P.3d 887, 902 (Colo. 2001) (quoting Garman v. Conoco, 886 P.2d
652, 659 (Colo. 1994)). After concluding that the “deductability of costs is
determined by whether gas is marketable, not by the physical location or
condition of the gas,” the Colorado Supreme Court then defined marketability.
Id. at 900-01. The court adopted the following definition:
Gas is marketable when it is in the physical condition such that it
is acceptable to be bought and sold in a commercial marketplace,
and in the location of a commercial marketplace, such that it is
commercially saleable in the oil and gas marketplace. The
determination of whether gas is marketable is a question of fact, to
be resolved by a fact finder.
Id. at 906. Thus, the working interest owner must bear the costs of getting the
gas to a marketable condition and marketable location, but once the gas is
marketable, additional costs to improve or transport the gas must be shared
proportionately between the working interest owner and the royalty interest
owner.
By contrast, in Texas “[a]lthough it is not subject to the costs of production,
royalty is usually subject to post-production costs, including taxes, treatment
costs to render it marketable, and transportation costs.” Heritage Res., Inc. v.
NationsBank, 939 S.W.2d 118, 122 (Tex. 1996). Therefore, Colorado and Texas

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law conflict with respect to the default rule for allocation of post-production costs
incurred before gas is marketable.
3. Most Significant Relationship Factors
Because Texas and Colorado law conflict in areas relevant to Bailey’s
claims, we proceed to analyze the most significant relationship factors. On
balance, we conclude that the most significant relationship factors weigh in favor
of applying Colorado law.6
Bailey acquired the leases in the McElmo Dome via instruments executed
in various states, including Arizona, Georgia, Colorado, Ohio, and Illinois. The
assignments from Bailey to Bridwell Oil were executed in Colorado. The
assignments from Bridwell Oil to Shell, that created Bailey’s overriding royalty
interests, were executed in Texas. The contract most pertinent to this dispute,
the Unit Agreement, was sent by Shell from Texas to New Mexico, where it was
ratified by Bailey in 1983. However, “[s]tanding alone, the place of contracting
is a relatively insignificant contact.” R ESTATEMENT (S ECOND) OF C ONFLICT OF
L AWS § 188 cmt. e.
To the extent that negotiations occurred, they took place in the states
where the parties signed the agreements—Shell negotiated from Texas, and
Bailey from Colorado, Texas, and New Mexico. The place of negotiation,
however, “is of less importance when there is no one single place of negotiation
and agreement, as, for example, when the parties do not meet but rather conduct
their negotiations from separate states by mail . . . .” Id.
The place where the contract was to be performed is the most important
factor under the most significant relationship test, and may be “conclusive in
determining what state’s law is to apply.” Maxus Exploration Co. v. Moran Bros.,
Inc., 817 S.W.2d 50, 54 (Tex. 1991) (quoting DeSantis v. Wackenhut, 793 S.W.2d

6
Neither the Unit Agreement nor the leases incorporated choice of law provisions
applicable to Bailey.

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670, 679 (Tex. 1990)). Shell argues that the performance at issue is payment by
Shell: Shell calculates value and makes payments from Texas; Bailey has
received payments in Texas, Colorado, and New Mexico. But the gas interests
governed by the assignments, leases, and Unit Agreement are located in
Colorado and production necessarily takes place in Colorado. More specifically,
the disputed transportation costs are incurred in moving the gas from Colorado
to Texas.
With respect to the location of the subject matter of the contract, the place
of production is undisputedly the McElmo Dome in Colorado. Bailey argues that
this factor weighs so heavily in his favor as to be dispositive of the choice of law
analysis. Shell claims that the actual dispute is money, not real property, and
the valuation of royalties takes place in Texas. The Restatement (Second) of
Conflicts of Laws § 188 comment (e) notes that:
When the contract deals with a specific physical thing, such as land
. . . the state where the thing or the risk is located will have a
natural interest in transactions affecting it. Also the parties will
regard the location of the thing . . . as important. Indeed, when the
thing . . . is the principal subject of the contract, it can often be
assumed that the parties, to the extent that they thought about the
matter at all, would expect that the local law of the state where the
thing . . . was located would be applied to determine many of the
issues arising under the contract.
Moreover, in the 1998 declaratory judgment action filed by Shell in state court,
which ultimately resulted in this appeal, Shell alleged that “the determination
of the proper method of royalty calculation in this case is a question of Colorado
law” because “[t]he lands covered by Defendants’ overriding royalty interests are
located in Colorado” and “[t]he CO 2 on which royalty is paid is produced in
Colorado.” We therefore conclude that this factor weighs in favor of applying
Colorado law.

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At the time that he signed the Unit Agreement, Bailey resided in New
Mexico; at the time this lawsuit was initially filed by Shell, Bailey resided in
Texas; Bailey currently resides in Colorado. Shell’s principal office is in Texas.
“Although the parties did not express a choice of what state’s law would
govern their agreement, they should have expected that [Colorado] law would
at least be invoked.” Maxus Exploration Co., 817 S.W.2d at 57. Here, the third
and fourth factors are ultimately determinative of the choice of law issue. Under
the most significant relationship test, Colorado law governs Bailey’s state law
claims. The district court erred by summarily concluding—without applying the
Texas choice of law analysis—that “[t]his case will be decided under Texas law.”
E. State Law Claims
Bailey further claims that the district court improperly granted summary
judgment on his claims of breach of contract, fraud, breach of fiduciary duty, civil
theft, unfair practices, civil conspiracy, and antitrust. Having concluded that
Colorado, rather than Texas law applies, we evaluate Bailey’s state law claims
de novo under Colorado law, and conclude that the choice of law error was
harmless because under Colorado law the outcome would be no different.7
1. Breach of Contract
As discussed above, Colorado law and Texas law differ in their default
rules for allocation of post-production costs incurred before gas is marketable
where a lease is silent with respect to the allocation of such costs. Thus, the
difference in Texas and Colorado law is determinative only if the leases at issue
here are silent.

7
All of Bailey’s claims essentially boil down to a claim for breach of contract based on
an alleged miscalculation of royalties owed on the gas produced from the McElmo Dome. Three
courts, including this one, have reached basically the same conclusions. See Ptasynski I, No.
99-11049, 2002 WL 32881277, at *14 (5th Cir. Feb. 13, 2002); Ptasynski v. Shell Western E&P,
Inc., No. CA 3:97-CV-1208-R, 1999 WL 423022, at *8 (N.D. Tex. June 16, 1999); Shell Western
E&P, Inc. v. Bailey, No. 98-28630 (215th Dist. Ct., Harris County, Tex. July 7, 2000).

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Applying Texas law,8 the district court concluded that “[t]he leases in this
case are not silent. They were incorporated into the unit agreement and say that
transportation costs may be deducted.” Bailey does not assert that the leases at
issue here are silent under Colorado or Texas law, nor does he advance alternate
interpretations of the language contained in the leases; he in fact offers no
discussion whatsoever of the language of the leases. Here there are 62 lengthy
and detailed leases at issue, and “it is not the function of the Court of Appeals
to comb the record for possible error, but rather it is counsel’s responsibility to
point out distinctly and specifically the precise matters complained of, with
appropriate citations to the page or pages in the record where the matters
appear.” United States v. Martinez-Mercado, 888 F.2d 1484, 1492 (5th Cir. 1989);
see also F ED. R. A PP. P. 28(a)(9)(A).
Further, neither the Unit Agreement nor the brochure sent by Shell
changed the terms of the royalty valuation. As Ptasynski I concluded,
the Unit Agreement expressly and unambiguously provided that it
did not change how working interest owners settle for royalty
interests and such settlements would be governed by and in
accordance with existing contracts, laws and regulations . . . The
brochure does not purport to either be contractual or to alter the
Unit Agreement or the existing contracts which governed royalty
settlement, and it is at most representational . . .”
Ptasynski I, 2002 WL 32881277, at *11. Therefore the district court did not err
by granting summary judgment on the breach of contract issue.

8
In Rogers v. Westerman Farm Co., the Colorado Supreme Court decided whether
certain leases were silent, or provided for the allocation of post-production costs between the
working interest owner and the royalty interest owner. 29 P.3d at 887. The leases
contemplated that royalties were to be computed “at the well.” Id. at 891. The court concluded
that the leases were “silent as to the allocation of all costs, including transportation costs.” Id.
at 906. The court determined that the leases were silent because they failed to “describe either
the costs or the allowable deductions,” did not “[contemplate] the sale of gas anywhere other
than at the wellhead,” and because “the intended meaning of the clause is unclear.” Id. at 897-
98.

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2. Fraud
Bailey’s fraud-based claims are grounded in representations made by Shell
in the brochure that it sent to royalty owners regarding the Unit Agreement.
Bailey asserts that the brochure that Shell sent to him along with the documents
for approval of the Unit Agreement contained a statement that Shell know to be
false, and that Shell intended for him to rely on.9
These claims lack merit because, as discussed above, the Unit Agreement
provided that it did not alter existing leases that governed royalty settlement.
As the district court stated, the brochure was superceded the Unit Agreement
that was signed by Bailey. Thus Shell did not—through its brochure or any other
manner—make false representations10 to Bailey.
3. Breach of Fiduciary Duty
Under Colorado law “[o]rdinarily, the mere reserving of an overriding
royalty in the assignment of an oil and gas lease does not create a confidential
or fiduciary relationship.” Atl. Richfield Co., 226 F.3d at 1162 (quoting
Degenhart v. Gold King Petroleum Corp., 851 P.2d 304, 306 (Colo. Ct. App.
1993)). A fiduciary duty flowing from an overriding royalty interest might result

9
The brochure contained the following statements:
• Who will pay for installing and operating this program? All installation and
operating costs will be paid by the working interest owners. There will be no
charges to the royalty owners.
• What is the price for the CO2? The sales price provided in the contract with
the Denver Unit is 90¢ per thousand cubic feet as of December 1, 1981. This
price will fluctuate up or down based on the price of west Texas crude. Based
on December, 1982 oil prices, the sales price is about 85¢ per thousand cubic
feet.
• Will the royalty owners of interest in this Unit have to pay for the pipeline,
transportation or injection of CO2 in west Texas? No.
10
Under Colorado law, to establish fraud a plaintiff must prove that: (1) a fraudulent
misrepresentation of material fact was made; (2) the plaintiff relied on the misrepresentation;
(3) the plaintiff had the right to rely on, or was justified in relying on, the misrepresentation;
and (4) the reliance resulted in damages. M.D.C./Wood, Inc. v. Mortimer, 866 P.2d 1380, 1382
(Colo. 1994) (citing Zimmerman v. Loose, 425 P.2d 803, 807 (Colo. 1967).

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from “a close relationship between the parties, bad faith on the part of the lessee,
or specific language of the assignment protecting the overriding royalty
interest.” Degenhart, 851 P.2d at 306 (cited with approval by Garman v. Conoco,
Inc., 886 P.2d 652, 659 n.23 (Colo. 1994)). Shell owes no fiduciary duty to
Bailey—they are actors in an arm’s length transaction—so his claim for breach
of fiduciary duty cannot survive.
4. Antitrust
Next, Bailey fails to meet even the most basic of antitrust requirements—
he has suffered no antitrust injury and, accordingly, lacks antitrust standing.
Norris v. Hearst Trust, 500 F.3d 454, 465 (5th Cir. 2007). If Shell were to raise
the price of gas, Bailey would benefit because his royalty payment would
increase. As the district court noted, Shell’s charging in parallel with other unit
operators is a “conspiracy,” but it is a legitimate one approved by the State of
Colorado. Bailey v. Shell Western E&P, Inc., 555 F. Supp. 2d 767, 776 (S.D. Tex.
2008).
5. Civil Theft
Bailey alleges that Shell committed civil theft under § 18-4-401 of the
Colorado Revised Statutes.11 To maintain an action for civil theft, the owner of

11
The relevant portion of COLO . REV . STAT . § 18-4-401 states:
(1) A person commits theft when he knowingly obtains or exercises control over
anything of value of another without authorization, or by threat or deception,
and:
(a) Intends to deprive the other person permanently of the use or benefit
of the thing of value; or
(b) Knowingly uses, conceals, or abandons the thing of value in such
manner as to deprive the other person permanently of its use or benefit;
or
(c) Uses, conceals, or abandons the thing of value intending that such
use, concealment, or abandonment will deprive the other person
permanently of its use and benefit; or
(d) Demands any consideration to which he is not legally entitled as a
condition of restoring the thing of value to the other person.

The Rights in Stolen Property Statute, § 18-4-405 of the Colorado Revised

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property must prove all of the statutory elements of theft, defined as “knowingly
obtain[ing] or exercis[ing] control over anything of value of another without
authorization, or by threat or deception, and ... [i]ntend[ing] to deprive the other
person permanently of the use or benefit of the thing of value.” C OLO. R EV. S TAT.
§ 18-4-401(1)(a); West v. Roberts, 143 P.3d 1037, 1040 (Colo. 2006) (emphasis
added). “Theft by deception as set forth in subsection 18-4-401(1)(a) requires
proof that the victim relied on a swindler’s misrepresentations, which caused the
victim to part with something of value.” Id. (citing People v. Warner, 801 P.2d
1187, 1189-90 (Colo. 1990)).
Bailey does not assert theft by threat, and a claim of theft by deception
fails as a matter of law because it hinges on the alleged misrepresentations
made by Shell. For the reasons discussed above, the statements in the brochure
were not misrepresentations. Therefore, the district court correctly held that
here the alleged underpayment of an amount due does not result in a theft.
6. Conspiracy
To the extent Bailey alleges that Shell engaged in a conspiracy to commit
fraud, breach of fiduciary duty, or anything else, his claim fails because it is not
supported by an independent unlawful act. Bailey failed to demonstrate a fact
issue as to whether Shell committed “an unlawful overt act,” 12 therefore the civil
conspiracy claim also fails as a matter of law.

Statutes, states that “[a]ll property obtained by theft, robbery, or burglary shall be
restored to the owner.”
12
The elements for a civil conspiracy claim were set forth by the Colorado Supreme
Court in Nelson v. Elway: “To establish a civil conspiracy in Colorado, a plaintiff must show:
(1) two or more persons; (2) an object to be accomplished; (3) a meeting of the minds on the
object or course of action; (4) an unlawful overt act; and (5) damages as to the proximate
result.” 908 P.2d 102, 106 (Colo. 1995).

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F. Original Source under the FCA
The district court granted summary judgment on Bailey’s FCA claims on
the basis that Bailey did not carry his burden to prove that the allegations in his
FCA claims were not based upon prior, public disclosures—or, if they were, that
he was an original source of the information. This court reviews a district court’s
grant of summary judgment de novo. Kimberly-Clark Corp. v. Factory Mut. Ins.
Co., 566 F.3d 541, 545 (5th Cir. 2009).
The FCA provides that:
No court shall have jurisdiction over an action under this section
. . . unless the action is brought by the Attorney General or the
person bringing the action is an original source of the information
. . . ‘original source’ means an individual who has direct and
independent knowledge of the information on which the allegations
are based and has voluntarily provided the information to the
Government before filing an action under this section which is based
on the information.
31 U.S.C. § 3730(e)(4). Here, the claim is based primarily on public information
and Bailey is unable to offer evidence that he was an original source. Therefore
the district court appropriately granted summary judgment on the FCA claims.
G. Disclosures Under Rule 26
Bailey finally argues that the district court’s grant of summary judgment
improperly considered evidence that should have been excluded under Federal
Rules of Civil Procedure 26 and 37. Rule 37 provides in relevant party that a
party who fails to disclose information under Rule 26 “shall not, unless such
failure is harmless, be permitted to use as evidence at a trial, at a hearing, or on
a motion, any witness or information not so disclosed.” F ED. R. C IV. P. 37(c)(1).
In evaluating whether a violation of Rule 26 is harmless, and thus whether the
district court was within its discretion in considering the evidence, this Circuit
considers four factors: “(1) the importance of the evidence; (2) the prejudice to the
opposing party of including the evidence; (3) the possibility of curing such

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prejudice by granting a continuance; and (4) the explanation for the party’s
failure to disclose.” Texas A&M Research Found. v. Magna Transp., 338 F.3d
394, 402 (5th Cir. 2003). Bailey identifies no evidence that Shell failed to disclose
and then offered in support of its motion for summary judgment, or that the
district court considered in its decision to grant summary judgment. Accordingly,
Bailey’s argument fails.
IV. CONCLUSION
For the foregoing reasons, the district court’s grant of Shell’s motion for
summary judgment is AFFIRMED.

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