Elliott Industries Ltd. Partnership v. BP America Production Co.

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
MAY 10 2005
UNITED STATES COURT OF APPEALS
PATRICK FISHER
Clerk
TENTH CIRCUIT

ELLIOTT INDUSTRIES LIMITED
PARTNERSHIP, a New Mexico
limited partnership,

Plaintiff-Counter-
Defendant-Appellant,

v.

BP AMERICA PRODUCTION
COMPANY, a Delaware corporation,
No. 04-2006
and BP ENERGY COMPANY, a
Delaware corporation,

Defendants-Appellees,

and

CONOCOPHILLIPS COMPANY *, a
Delaware corporation,

Defendant-Counter-
Claimant-Appellee.

-----------------------------------------

Amoco Production Company has changed its name to “BP America
*

Production Company;” Amoco Energy Trading Corp. has changed its name to “BP
Energy Company;” and Conoco, Inc. has changed its name to “ConocoPhillips
Company,” as stated in the Corporate Disclosure Statement for these parties.
LAURA DICHTER; ROMERO
FAMILY LIMITED PARTNERSHIP,
J. GLEN TURNER,

Intervenors.

----------------------------------------

ATTORNEY GENERAL FOR THE
STATE OF NEW MEXICO,

Amicus Curiae.

ELLIOTT INDUSTRIES LIMITED
PARTNERSHIP, a New Mexico
limited partnership,

Plaintiff-Counter-
Defendant-Appellee,

v.
No. 04-2014
BP AMERICA PRODUCTION
COMPANY, a Delaware corporation,
and BP ENERGY COMPANY, a
Delaware corporation,

Defendant-Appellee,

and

CONOCOPHILLIPS COMPANY, a
Delaware corporation,

Defendant-Counter-
Claimant-Appellee.

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----------------------------------------

LAURA DICHTER; ROMERO
FAMILY LIMITED PARTNERSHIP,
J. GLENN TURNER,

Intervenors-Appellants.

Appeal from the United States District Court
for the District of New Mexico
(D.C. No. CIV-00-655 LH/WDS)

Kerry C. Kiernan, Eaves, Bardacke, Baugh, Kierst & Larson, P.A., Albuquerque,
New Mexico (John M. Eaves, Paul Bardacke, Derek V. Larson, Eaves, Bardacke,
Baugh, Kierst & Larson, P.A., Albuquerque, New Mexico; Mary E. Walta, White,
Koch, Kelly & McCarthy, P.A., Santa Fe, New Mexico; William E. Snead, Law
Offices of William E. Snead, P.C., Albuquerque, New Mexico, with him on the
briefs), for Plaintiff-Counter-Defendant-Appellant and Plaintiff-Counter-
Defendant-Appellee.

Scott S. Barker, Holland & Hart, LLP, Denver, Colorado (Marcy G. Glenn,
Holland & Hart, LLP, Denver, Colorado; Arnold R. Thomas, Holland & Hart,
LLP, Greenwood Village, Colorado, with him on the briefs), for Defendant-
Appellees.

Michael B. Campbell, Michael H. Feldewert, Tanya M. Trujillo, Holland & Hart,
LLP, Santa Fe New Mexico, on the briefs for Defendant-Counter-Claimant-
Appellee.

Michael J. Condon (J. E. Gallegos, with him on the briefs), Gallegos Law Firm,
P.C., Santa Fe, New Mexico, for Intervenors and Intervenors-Appellants.

Patricia A. Madrid, Attorney General, State of New Mexico, Santa Fe, New
Mexico, filed an amicus curiae brief for the Attorney General for the State of
New Mexico.

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Before SEYMOUR, McKAY, and MURPHY Circuit Judges.

MURPHY, Circuit Judge.

I. INTRODUCTION

This case involves the payment of royalties on oil and gas leases. Plaintiff-

appellant Elliott Industries Limited Partnership, as an individual and as class

representative, is appealing the district court’s grant of summary judgment in

favor of Defendants-appellees ConocoPhillips Company, BP America Production

Company, and BP Energy Company. A group of third-party litigants, Laura

Dichter, Romero Family Limited Partnership, and J. Glenn Turner, appeal the

denial of their motion to intervene and the district court’s ruling in favor of

defendants asserting that the district court lacked subject matter jurisdiction; they

also seek to intervene on appeal. The appeals and the motion to intervene are

consolidated and addressed in this opinion. In addition, the State of New Mexico

has filed a brief as amicus curiae in support of plaintiffs’ claims under New

Mexico statutes.

This court exercises jurisdiction over these related appeals pursuant to 28

U.S.C. § 1291. In Case No. 04-2006, this court remands the claims of the class

to the district court with instructions to vacate the final judgment with respect to

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the unnamed members of the plaintiff class, decertify the class, and dismiss the

claims of the class without prejudice. As to Elliott Industries in its capacity as an

individual plaintiff, the district court’s judgment on the merits in favor of

defendants is affirmed. The motion of the third-party litigants to intervene in the

appeal of Case No. 04-2006 is granted and the appeal in Case No. 04-2014 is

dismissed.

II. BACKGROUND

A. Facts

Elliott Industries Limited Partnership (“Elliott”) is a New Mexico limited

partnership with its principal place of business in Roswell, New Mexico. Elliott

is the owner of royalty and/or overriding royalty interests in certain oil and gas

units, leases, and wells owned or operated by ConocoPhillips Company and/or

Amoco Production Company in the San Juan Basin. ConocoPhillips Company is a

corporation organized and operated under the laws of Delaware with its principal

places of business in Oklahoma and Texas. ConocoPhillips Company is the

successor by merger to Conoco, Inc. [hereinafter “ConocoPhillips” unless

otherwise specified]. Amoco Production Company and Amoco Energy Trading

Corporation are corporations organized and operated under the laws of Delaware

with their principal places of business in Illinois and Texas. The Amoco

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defendants are the predecessors in interest to BP America Production Company

and BP Energy Company [hereinafter “BP” unless otherwise specified].

The San Juan Basin, one of the largest natural gas producing fields located

in northwest New Mexico and southwest Colorado, was originally developed in

the early 1950’s by El Paso Natural Gas Company (“El Paso”). The natural gas

produced in the San Juan Basin is conventional gas which contains methane

(natural gas) and entrained natural gas liquids (“NGLs”), such as ethane and

butane. In order to make the gas safe to enter the interstate pipeline, the NGLs

must be removed from the gas stream. ConocoPhillips and BP [hereinafter and

collectively, “Appellees” unless otherwise specified] own and operate a natural

gas processing plant called the San Juan New Blanco Gas Processing Plant (the

“Plant”). The Plant is a state-of-the-art cryogenic facility that processes natural

gas by extracting the NGLs from the natural gas stream. Appellees are each 50%

owners of the Plant.

As a result of prior litigation between El Paso, Conoco, and Amoco’s

predecessor in interest, Tenneco Oil Company (“Tenneco”), those parties entered

into a settlement agreement in 1984. Under the settlement, El Paso assigned

leases to Conoco and Tenneco who jointly built the Plant straddling El Paso’s

pipeline. In return, Conoco and Tenneco obtained a guaranteed gas supply from

El Paso, which together with their own gas, would fully supply the Plant for at

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least twenty years. As part of the settlement, El Paso and Tenneco entered into a

Gas Plant Straddle and Processing Agreement whereby Conoco and Tenneco, as

owners of the Plant, would retain 39% of all of the NGLs recovered from El

Paso’s gas as a fee for processing El Paso’s gas. Furthermore, Conoco and

Tenneco entered into a Construction and Operating Agreement under which they

agreed to retain, as compensation for operating the Plant, 39% of the NGLs

removed from the natural gas stream, whether or not the gas originated from El

Paso’s pipeline.

Appellees are owners of working interests in numerous oil and gas leases

and wells located within the San Juan Basin, New Mexico. Appellees operate a

number of the leases and wells in which they own working interests. The working

interests owned by Appellees in their oil and gas units, leases, and wells are

burdened by royalty and overriding royalty interests owned by many parties,

including members of the class and Elliott. All of ConocoPhillips’ contracts with

Elliott and the class and nearly all of BP’s contracts are governed by royalty

instruments which require Appellees to remit royalty either on the “market value

of the gas at the well” or “in the same manner as royalty is payable to the United

States.” 1 Appellees provide an accounting on a monthly basis to the owners of

1
The royalty calculation for this particular type of lease–the “same as fed”
lease–is not relevant to the issues on appeal.

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royalty and overriding royalty interests burdening their own working interests. To

approximate the value of the gas at the wellhead, upon which the “at the well”

royalty is based, Appellees deduct their post-production costs, including

processing, marketing, transportation, and fractionation costs, from the value of

the refined natural gas products. This method of calculation is often referred to

as the net-back or work-back methodology. 2 Under this methodology, the “at the

well” royalty paid to Elliott and the class members has been calculated based on

the value of the refined natural gas products net of various post-production costs

specifically including the 39% in-kind assessment retained by Appellees as

compensation for processing the gas.

This litigation centers on the 39% of NGLs recovered from gas processed at

the Plant that Appellees retain as a fee for processing the gas. Elliott claims this

39% in-kind fee is not a legitimate post-production cost and, by reducing the

volume of NGLs and thereby Elliott’s share of the gas stream, this hidden

“charge” results in the underpayment of royalties owed to Elliott. Appellees

argue that the royalties are based on the contracts creating each royalty interest

2
Under the net-back or work-back methodology “value at the point of
valuation is determined by taking the downstream sales price and deducting from
it the costs incurred by the working interest owner [here Appellees] to move the
gas from the point of valuation to the actual point of sale.” Bruce M. Kramer,
Royalty Interest in the United States: Not Cut from the Same Cloth, 29 Tulsa L.J.
449, 461 (1994).

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and dispute Elliott’s characterization of the 39% as a “charge,” insisting the 39%

adjustment is a legitimate post-production cost that is deductible for purposes of

calculating the value of the gas at the wellhead.

In addition to the dispute over the 39% processing charge or deduction, the

parties dispute whether there is an active market at the wellhead for conventional

natural gas. Elliott also alleges that even assuming the processing fee is a

legitimate post-production cost, the 39% fee charged here is unreasonable and

exceeds the actual cost incurred for processing the gas. 3

With regard to the royalties calculated in the “same manner as the federal

government,” until 1996 ConocoPhillips failed to pay those royalty owners in

such a manner. Elliott alleges that ConocoPhillips has been unable to verify that

after December 1996, it corrected all underpayments of “same as fed” royalty

owners with interest back to 1991 and thereafter paid them correctly. In addition,

BP sent a letter to the class in April 2002 admitting that it determined that the

“same as fed” royalty owed to some overriding royalty owners had been

3
Elliott further alleged below that BP charges an undisclosed ½ cent
marketing fee related to the disposition of the NGLs and that BP deducts “transfer
price” charges for fractionation and transportation service fees which are not
disclosed to the class. We do not address the issues of the marketing fee and the
“transfer price” deduction because Elliott makes no argument regarding these
prior assertions on appeal.

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improperly calculated yet it has not, according to Elliott, made any retroactive

adjustments.

B. Procedural History

In May 2000, Elliott filed suit in federal district court alleging (1) violation

of the New Mexico Unfair Trade Practices Act, N.M. Stat. Ann. § 57-12-1, et seq.

(2004) (the “UPA”); (2) violation of the New Mexico Oil and Gas Proceeds

Payment Act, N.M. Stat. Ann. § 70-10-1, et seq. (2004) (the “Payment Act”); (3)

breach of an implied duty of good faith and fair dealing; (4) breach of an implied

duty to market; (5) conversion; (6) constructive fraud; (7) fraud; (8) unjust

enrichment; and (9) violation of the Sherman Act, 15 U.S.C. §§ 1, 2.

ConocoPhillips filed a counterclaim, seeking a declaratory judgment that it had

performed its contractual obligations under its leases. In its answer, BP asserted

that the express provisions of the royalty instruments barred Elliott’s claims.

Elliott brought its claims on its own behalf and as a representative of the

putative class. The proposed class consisted of all present and former owners of

royalty and overriding royalty interests 4 in Appellees’ leases and wells in the San

Juan Basin. The class comprises approximately 4859 ConocoPhillips royalty and

4
An “overriding royalty” is “a royalty carved out of a working interest
created by an oil, gas, or mining lease.” Cont’l Potash, Inc. v. Freeport-
McMoran, Inc., 858 P.2d 66, 69 n.2 (N.M. 1993) (citing 2 Howard R. Williams &
Charles J. Meyers, Oil and Gas Law § 418, at 344 (1992)).

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overriding royalty interest owners and 5894 BP royalty and overriding royalty

interest owners, including the State of New Mexico. Elliott asserted jurisdiction

under 28 U.S.C. §§ 1331, 1337 and 15 U.S.C. § 15 with regard to the antitrust

claims, and under 28 U.S.C. § 1332 with regard to the state-law claims, alleging

that Plaintiffs had a good faith belief that they satisfied the amount in controversy

requirement.

Appellees opposed class certification and filed a motion to dismiss for lack

of subject matter jurisdiction arguing that Elliott, the named Plaintiff, and a

substantial majority of the class members could not satisfy the $75,000 amount in

controversy requirement necessary to vest the federal court with diversity

jurisdiction pursuant to 28 U.S.C. § 1332. Appellees also sought dismissal of the

antitrust claim.

In an order dated January 10, 2001, the district court dismissed Elliott’s

antitrust claim, thereby eliminating any basis for federal question jurisdiction. In

an order dated March 7, 2001, the court concluded that Elliott met the amount in

controversy requirement and that diversity jurisdiction thereby existed over

Elliott’s state-law claims. Subsequently, in September 2001, the district court

certified a class and concluded that the amount in controversy requirement for

diversity jurisdiction over the class was satisfied by aggregating damages. This

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court refused to review the class certification order and the issue of subject matter

jurisdiction on an interlocutory basis.

Appellees moved for summary judgment on the UPA and Payment Act

claims. The district court originally denied this motion in an order dated July 1,

2002. This order was subsequently vacated in December 2003. Dist. Ct. Order

No. 4. Elliott moved for partial summary judgment on its implied duty claims.

Appellees opposed that motion and filed a cross-motion for summary judgment on

the implied duty to market claim and on the meaning of their royalty obligations

under the “at the well” lease provisions. ConocoPhillips requested summary

judgment on both the extent of its royalty obligations under its “same as fed”

leases and its compliance with those obligations. Elliott moved for partial

summary judgment on its fraud and constructive fraud claims. Appellees sought

summary judgment on all three tort claims and the unjust enrichment claim.

In a series of five orders issued on December 30, 2003, the district court

entered summary judgment against Elliott and the class on all of its remaining

claims and entered final judgment in favor of Appellees, concluding that the

relationship between the parties was governed solely by the express terms of the

leases and that the non-contract claims necessarily failed. Elliott challenges on

appeal all of the orders, including the earlier dismissal of the antitrust claim.

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 Shortly after Elliott filed suit in federal district court, a separate group of

litigants, unnamed members of the certified class, filed a state class action in

Santa Fe District Court which was stayed pending resolution of the federal matter.

In August 2000, the state litigants, Laura Dichter, Romero Family Limited

Partnership, and J. Glenn Turner [hereinafter and collectively, “Dichter”], filed a

motion to intervene for the limited purpose of opposing Elliott’s attempt to seek

an injunction prohibiting Appellees and Dichter from entering into a settlement

agreement in the state court action. When Elliott withdrew its motion for an

injunction, Dichter withdrew its motion to intervene. In addition, when Appellees

sought an interlocutory appeal of the district court’s decision concluding that

subject matter jurisdiction existed and of the district court’s order certifying the

class, Dichter moved to join in that request by filing an Amicus Curiae Brief.

This court denied the motion for an interlocutory appeal.

After the district court entered final judgment for Appellees on December

30, 2003, Dichter filed a motion on January 7, 2004 to intervene in order to

challenge subject matter jurisdiction. Elliott filed its notice of appeal on January

15, 2004 (Case No. 04-2006). The district court entered an order denying

Dichter’s motion to intervene on January 26, 2004. The court suggested that the

motion was not timely but concluded that it lacked jurisdiction to address the

motion since the district court was divested of jurisdiction upon the filing of

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Elliott’s notice of appeal. Dichter filed a “Motion to Confirm Party Status or,

Alternatively, to Intervene and Establish a Briefing Schedule” in Elliott’s appeal,

Case No. 04-2006. This court denied Dichter party status in Elliott’s appeal in an

order dated March 22, 2004. In that order the court said the alternative request to

allow intervention in Elliott’s appeal would be decided by the panel. Dichter has

also filed a separate appeal, Case No. 04-2014, challenging the denial of their

motion to intervene and challenging the class certification order and final

judgment based on a lack of subject matter jurisdiction. Appellees have moved to

dismiss the portions of Dichter’s appeal not related to the district court’s denial of

Dichter’s motion to intervene.

III. DISCUSSION

A. Motion to Intervene

Intervention as a matter of right is governed by Rule 24(a) of the Federal

Rules of Civil Procedure. Although the Federal Rules of Civil Procedure apply

only in the district court, “the policies underlying intervention may be applicable

in appellate courts.” UAW Local 283 v. Scofield, 382 U.S. 205, 216 n.10 (1965).

Accordingly, a party seeking intervention on appeal must satisfy the prerequisites

of Rule 24(a). See, e.g., Warren v. Comm’r, 302 F.3d 1012, 1014-15 (9th Cir.

2002); Bldg. and Constr. Trades Dep’t v. Reich, 40 F.3d 1275, 1282-83 (D.C. Cir.

1994). Under Rule 24(a), an applicant may intervene as a matter of right if (1)

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the application is timely, (2) the applicant claims an interest relating to the

property or transaction which is the subject of the action, (3) the applicant’s

interest may be impaired or impeded, and (4) the applicant’s interest is not

adequately represented by existing parties. Coalition of Ariz./N.M. Counties for

Stable Econ. Growth v. Dep’t of Interior, 100 F.3d 837, 840 (10th Cir. 1996).

The Tenth Circuit generally follows a liberal view in allowing intervention under

Rule 24(a). Nat’l Farm Lines v. ICC, 564 F.2d 381, 384 (10th Cir. 1977). When

intervention was not sought below, however, intervention on appeal will be

permitted “only in an exceptional case for imperative reasons.” Hutchinson v.

Pfeil, 211 F.3d 515, 519 (10th Cir. 2000) (quotations omitted).

The requirements of Rule 24(a) are satisfied under the circumstances of this

case. Dichter, as an unnamed member of the putative class and as a litigant in the

state court action, has a sufficient interest in the transactions underlying this

action to justify intervention. See Fed. R. Civ. P. 24(a); Coalition of Ariz./N.M.

Counties, 100 F.3d at 840 (noting that the interest must be “direct, substantial,

and legally protectable” (quotations omitted)). Dichter is seeking to intervene

solely to challenge the existence of subject matter jurisdiction over the class.

Appellees consistently contested the existence of federal subject matter

jurisdiction. Upon entry of final judgment, however, it was no longer in

Appellees’ interest to challenge class certification by raising jurisdictional

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questions. Neither is Elliott, who continues to argue in support of the existence

of subject matter jurisdiction over the class, able to represent Dichter’s interest.

If Dichter is correct that there is no subject matter jurisdiction over the class, any

adverse judgment would not be binding on the class. Because, at this stage in the

litigation, neither party has an interest in contesting subject matter jurisdiction,

Dichter’s interest may be harmed if Dichter is not permitted to intervene on

appeal. See Fed. R. Civ. P. 24(a).

“The timeliness of a motion to intervene is assessed in light of all the

circumstances, including the length of time since the applicant knew of his

interest in the case, prejudice to the existing parties, prejudice to the applicant,

and the existence of any unusual circumstances.” Utah Ass’n of Counties v.

Clinton, 255 F.3d 1246, 1250 (10th Cir. 2001) (quotation omitted). Prior to the

district court’s entry of final judgment it was reasonable for Dichter to rely on

Appellees to argue the issue of subject matter jurisdiction. 5 Cf. United Airlines,

5
When the district court certified the class, Appellees sought an
interlocutory appeal in this court and Dichter attempted to file an amicus brief in
support of Appellees. After this court denied the motion for an interlocutory
appeal, Dichter’s intervention at that point would have been futile because the
issue of subject matter jurisdiction had been settled in the district court.
Moreover, as noted above, it was in the interest of Appellees to continue to
contest class certification until the district court ruled in their favor on the merits.
Elliott argues that Dichter could have exercised its right to opt-out of the
class. The district court, however, certified the class under Rules 23(b)(1), (2),
and (3). Unlike certification under Rule 23(b)(3), certification under Rules
23(b)(1) and (2) carries no right to opt-out. See Fed. R. Civ. P. 23(c)(2)(B).

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Inc. v. McDonald, 432 U.S. 385, 394-96 (1977) (holding that post-judgment

application for intervention was timely). Although Elliott asserts that allowing

Dichter to intervene will cause additional delay and expense, any prejudice to

either party resulting from Dichter’s intervention on appeal is minimal compared

with the importance of addressing the question of subject matter jurisdiction.

Thus, Dichter’s motion to intervene is timely. Dichter has therefore satisfied the

requirements of intervention under Rule 24(a).

The imperative reason advanced by Dichter in its argument that it should be

permitted to intervene on appeal is that neither of the parties will raise or

adequately address the issue of subject matter jurisdiction. The issue of subject

matter jurisdiction is essential to this court’s review and while we would address

it without regard to whether the parties dispute its existence, our inquiry is aided

by the presence of an interested party like Dichter. 6 Cf. Duplan v. Harper, 188

F.3d 1195, 1203 (10th Cir. 1999) (permitting intervention to challenge subject

matter jurisdiction). Additionally, as discussed above, it is not in the interests of

either Elliott or Appellees to argue the lack of subject matter jurisdiction over the

6
In an order dated October 25, 2004, this court granted Dichter five minutes
at oral argument to discuss “the party status, intervention and jurisdictional
issues.” In addition to the arguments made in its motion to intervene, Dichter
substantively briefed the question of subject matter jurisdiction in its own appeal
(Case No. 04-2014) and the other parties responded to those arguments. We treat
all briefing related to the existence of subject matter jurisdiction as part of
Dichter’s motion to intervene on appeal.

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class. Because Dichter has satisfied the Rule 24(a) requirements and advanced an

imperative reason to justify intervention at this stage of the litigation, Dichter’s

motion to intervene on appeal for the sole purpose of challenging the existence of

subject matter jurisdiction over the class is granted. In light of our disposition of

Dichter’s motion to intervene on appeal, Dichter’s appeal of the district court’s

denial of its motion to intervene for the limited purpose of challenging subject

matter jurisdiction is dismissed as moot.

B. Subject Matter Jurisdiction

In concluding that it had subject matter jurisdiction over the class action,

the district court said:

The putative Class members may aggregate their damages
when they have united to enforce a single title or right in which they
have a common and undivided interest. Snyder v. Harris, 394 U.S.
332, 335 (1969). Plaintiff has alleged and demonstrated a single title
or right in which putative class members have a common and
undivided interest because the putative class members hold common
and undivided interests in the properties, leases and units producing
gas, which is then processed from a single commingled stream by
Defendants, and the pool of commingled NGLs, such that damages
can be aggregated class-wide.
Thus, I find that, considering historical damages and
prospective relief, together with the aggregation of claims against
both Defendants, the joint liability of Defendants, disgorgement,
statutory penalties, punitive damages, and attorneys’ fees, the
Plaintiff has shown the Class members had a good faith basis for
pleading the amounts in controversy at the time the action was
commenced and that it would not be legally impossible for the Class
members to recover the minimum jurisdictional amount.

Dist. Ct. Order dated Sept. 6, 2001, at 4.

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 The rule in this circuit is that each plaintiff in a diversity-based class action

must meet the required jurisdictional amount in controversy. Leonhardt v. W.

Sugar Co., 160 F.3d 631, 641 (10th Cir. 1998). Thus, jurisdiction over the class

is not established merely because the named plaintiff can meet the $75,000

requirement. Id. Before the district court, Appellees questioned whether the

individual unnamed class members could satisfy the $75,000 amount in

controversy requirement of 28 U.S.C. § 1332(a). The ruling of the district court

finding the existence of subject matter jurisdiction over the class claims relies

solely on a theory of aggregation to meet the amount in controversy requirement

of 28 U.S.C. § 1332(a). The ultimate question of whether diversity jurisdiction

exists is a mixed question of law and fact to be reviewed de novo, with any

factual findings of the district court reviewed for clear error. Aves ex rel. Aves v.

Shah, 997 F.2d 762, 766 (10th Cir. 1993).

The general rule is that “separate and distinct claims of two or more

plaintiffs cannot be aggregated in order to satisfy the jurisdiction amount

requirement.” Snyder v. Harris, 394 U.S. 332, 335 (1969). Aggregation is only

permitted when a single plaintiff seeks to aggregate two or more of its own claims

against a defendant or “in cases in which two or more plaintiffs unite to enforce a

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single title or right in which they have a common and undivided interest.” 7 Id.

The paradigm cases for permitting the aggregation of claims “are those which

involve a single indivisible res, such as an estate, a piece of property (the classic

example), or an insurance policy. These are matters that cannot be adjudicated

without implicating the rights of everyone involved with the res.” Gilman v. BHC

Sec., Inc., 104 F.3d 1418, 1423 (2d Cir. 1997) (quotation omitted). However,

[i]t is not enough that the dispute involve a common piece of
property–the class members must also share a common interest in the
collection of a single liability. An identifying characteristic of a
common and undivided interest is that if one plaintiff cannot or does
not collect his share, the shares of the remaining plaintiffs are
increased.

Kessler v. Nat’l Enters., Inc., 347 F.3d 1076, 1079 (8th Cir. 2003) (quotation

omitted) (rejecting aggregation when the class members were attempting to

enforce rights under individual contracts involving a single timeshare property);

see also Thomson v. Gaskill, 315 U.S. 442, 447 (1942) (“Aggregation of

plaintiffs’ claim cannot be made merely because the claims are derived from a

7
Contrary to Elliott’s suggestion, the availability of aggregation does not
depend upon under which particular subsection of Rule 23 class certification is
granted. Snyder v. Harris, 394 U.S. 332, 336 (1969) (“The doctrine that separate
and distinct claims could not be aggregated was never, and is not now, based
upon the categories of old Rule 23 or of any rule of procedure. That doctrine is
based rather upon this Court’s interpretation of the statutory phrase ‘matter in
controversy.’”).

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single instrument or because the plaintiffs have a community of interest.”

(citations omitted)).

Here, the class members’ claims do not involve a single indivisible res. On

the contrary, each class member is the owner of a separate and distinct royalty

interest. As such, each royalty owner has an individual claim for any

underpayment of royalties which would have no effect on the claims of the other

class members. While it is true that the individual claims have in common many

questions of fact and law, and the royalty owners have a shared interest in the

manner in which the gas is collected and the royalty is calculated, the royalty

owners do not possess a “common and undivided interest” in either the royalty

payments or the natural gas supply. See Kary v. ExxonMobil Corp., No. A1-03-

009, 2002 WL 32067456 at *4 (D.N.D. Mar. 19, 2002); see also Coulter v.

Anadarko Petroleum Corp., No. 98-1413-WEB, 1999 WL 1253031 at *3 (D. Kan.

Oct. 8, 1999) (acknowledging the court’s consistent rejection of attempts at

aggregating the claims of oil and gas royalty owners). Cf. Craig v. Champlin

Petroleum Co., 421 F.2d 236, 240 (10th Cir. 1970) (recognizing as impermissible

the aggregation of claims seeking to recover royalties allegedly due under oil and

gas leases). But see Williams v. Humble Oil & Ref. Co., 234 F. Supp. 985, 988

(E.D. La. 1964) (noting that because the claims are joint or common between

mineral and royalty owners the claim of each class member may be aggregated).

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As a consequence, permitting the class members to sue individually to enforce

their own royalty rights would have no effect on the royalty rights of other

putative class members.

Elliott relies heavily on Rocket Oil and Gas Co. v. Arkla Exploration Co.,

435 F. Supp. 1303 (W.D. Okla. 1977), to support its aggregation theory. The

district court in Rocket Oil held that under an Oklahoma statute,

each lessee selling gas is required to pay 1/8 of the proceeds of its
sale of gas to all of the royalty owners in the unit. Therefore, it
appears that the class members have a common and undivided
interest in the 1/8 royalty interest in all gas produced from the pooled
formation by virtue of the communitization of their fractional
mineral interests under the polling order.

Id. at 1305. As another district court in this circuit noted, however, Rocket Oil

“is clearly predicated on the existence of a unique ‘pooling order’” which is

distinct from the situation here in which the gas producer must “pay each of the

royalty owners according to their individual royalty interests in their respective

leases.” Leroy Cattle Co. v. Fina Oil & Chem. Co., No. 93-1286-MLB, 1994 WL

151105 at *6 (D. Kan. Mar. 2, 1994). Rocket Oil is thus distinguishable and does

not support the district court’s use of aggregation in this case.

In the present case the district court erred when it relied on a theory of

aggregation to conclude that unnamed class members could meet the amount in

controversy requirement of 28 U.S.C. § 1332(a). We therefore remand the claims

-22-
of the class to the district court with instructions to vacate the final judgment as

to the unnamed members of the plaintiff class, decertify the class, and dismiss the

claims of the class without prejudice. 8 Cf. Rector v. City & County of Denver,

348 F.3d 935, 949-50 (10th Cir. 2003). There is no barrier, however, to

considering Elliott’s claims as an individual plaintiff, thus the district court’s

disposition of Elliott’s claims in favor of Appellees is addressed below.

C. Elliott’s Appeal

1. Standard of Review

This court conducts de novo review of the district court’s dismissal for

failure to state a claim and the district court’s grant of summary judgment,

applying the same legal standard as the district court. Hartman v. Kickapoo Tribe

Gaming Comm’n, 319 F.3d 1230, 1234 (10th Cir. 2003). A motion to dismiss for

8
Before the district court, Elliott argued that the members of the class
satisfied the amount in controversy requirement whether damages were
aggregated or assessed on an individual basis. The question of whether the
unnamed members of the class could satisfy the amount in controversy
requirement individually was contested by Appellees and both sides submitted
evidence in support of their arguments. The district court, however, made no
factual findings regarding whether the class members could individually satisfy
the amount in controversy requirement and we decline to do so on appeal. In
addition, because we affirm the district court’s dismissal of Elliott’s antitrust
claim for failure to state a claim, see discussion infra Part III.C.2.h, there is no
basis for federal question jurisdiction. Cf. United Mine Workers of Am. v. Gibbs,
383 U.S. 715, 726 (1966) (noting that “if the federal claims are dismissed before
trial, even though not insubstantial in a jurisdictional sense, the state claims
should be dismissed as well”).

-23-
failure to state a claim “admits all well-pleaded facts in the complaint as

distinguished from conclusory allegations.” Mitchell v. King, 537 F.2d 385, 386

(10th Cir. 1976). When applying the de novo standard of review to the district

court’s grant of summary judgment, we “view the evidence and draw all

reasonable inferences therefrom in the light most favorable to the party opposing

summary judgment.” Martin v. Kansas, 190 F.3d 1120, 1129 (10th Cir. 1999).

2. Elliott’s Argument

Elliott challenges the 39% processing charge on two grounds: (1) the

extraction of NGLs is not a post-production cost legitimately deducted in

calculating the value at the wellhead; and (2) even if it is a legitimate post-

production cost, the fee is neither actual nor reasonable. The purpose of the

challenge to the processing fee is to establish underpayment of royalties. Elliott,

however, has never asserted an unequivocal and straight-forward contract claim

alleging a breach of Appellees’ express obligations to pay royalties. 9 In fact,

9
See Dist. Ct. Order No. 1 at 2 (“Elliott makes claims under various
theories, none of which is a breach of contract theory.”); Dist Ct. Order No. 4 at 6
(“Despite the contractual nature of the relationship of the parties, Plaintiffs have
not filed a claim for breach of contract.”); Dist. Ct. Order No. 5 at 4 (“If there is
one common thread throughout Plaintiffs’ arguments in this case, it is that
Plaintiffs do not want to pursue the obvious claim to recover from Defendants for
their alleged failure to pay appropriate royalties. Plaintiffs have filed three
complaints, yet have not plead breach of contract.”); Aplt.’s Opening Br. at 24
(“Defendants’ liability for th[eir] conduct does not turn upon the express contract
terms contained in the royalty interests of the Class members.”); see generally
(continued...)

-24-
Elliott steadfastly disclaims any cause of action for breach of an express

contract. 10

While not retracting its unequivocal disclaimer of a cause of action for

breach of an express contract, Elliott attempts to ameliorate the possible

(...continued)
9

Second Amended Complaint.
10
At oral argument Elliott reiterated its rejection of a claim for breach of
express contract, saying that because the royalty obligations do not have language
addressing processing costs or the allocation of those costs, such a claim is
impossible. Elliott even went so far as to disclaim reliance on a theory of breach
of express contract for its claim under the Payment Act.
Elliott’s avoidance of a breach of contract claim may be rooted in its
attempt to secure class certification. See Aplt.’s Opening Br. at 24 (noting that
because this case is about the “conduct” of ConocoPhillips and BP, Defendants
failed in their attempt to defeat class certification by pointing out the huge
number of individual contracts at issue). Presumably, pleading a breach of
contract claim on behalf of approximately 10,000 royalty owners would have
made class certification less likely. See Fed. R. Civ. P. 23(a)(2) (commonality).
Under New Mexico contract law, for example,

even if the language of the contract appears to be clear and
unambiguous, a court may hear evidence of the circumstances
surrounding the making of the contract and of any relevant usage of
trade, course of dealing, and course of performance, in order to
decide whether the meaning of a term or expression contained in the
agreement is actually unclear.

Mark V, Inc. v. Mellekas, 845 P.2d 1232, 1235 (N.M. 1993) (quotation omitted).
The disrict court recognized that Elliott’s choice to avoid pleading a breach of
contract claim was a strategic one and noted that the court was “impressed that all
of Plaintiffs’ claims have been constructed to avoid being constrained by its
contracts and by New Mexico interpretation of such documents as contained in
Creson v. Amoco Production Co., 10 P.3d 853 (N.M. Ct. App. 2000), and the
cases upon which Creson relies.” Dist. Ct. Order No. 5 at 4.

-25-
consequences of this strategic decision by suggesting that its claims are at least

contextually contractual and that an express contract claim is impossible because

the royalty provisions are silent with respect to the 39% fee. That the royalty

instruments make no mention of a 39% figure, however, does not preclude an

express contract claim. Oil and gas leases are interpreted like any other contract.

Harvey E. Yates Co. v. Powell, 98 F.3d 1222, 1229-30 (10th Cir. 1996). If a

contract is ambiguous, the jury or the court must engage in factfinding to

determine the meaning of the contract. 11 See Allsup’s Convenience Stores, Inc. v.

North River Ins. Co., 976 P.2d 1, 12 (N.M. 1999). Indeed, courts routinely

address claims for underpayment of royalties based upon royalty instruments

which do not specify the allocation of costs. 12 Contrary to Elliott’s

11
The determination of whether a contract is ambiguous is a question of
law. Sanchez v. Borrego, 86 P.3d 617, 619 (N.M. Ct. App. 2004). A contract is
ambiguous if it is “reasonably and fairly susceptible of different constructions.”
Id. “[I]n determining whether a term or expression to which the parties have
agreed is unclear, a court may hear evidence of the circumstances surrounding the
making of the contract and of any relevant usage of trade, course of dealing, and
course of performance.” C.R. Anthony Co. v. Loretto Mall Partners, 817 P.2d
238, 242-43 (N.M. 1991) (footnote omitted). “Further, the language of the entire
agreement should be construed together.” Allsup’s Convenience Stores, Inc. v.
North River Ins. Co., 976 P.2d 1, 12 (N.M. 1999).
12
See, e.g., Atlantic Richfield Co. v. Farm Credit Bank of Wichita, 226 F.3d
1138, 1152-53 (10th Cir. 2000) (recognizing that analysis of whether certain
expenses qualify as deductible transportation costs depends, at least in part, on
the language of the lease contracts); Harvey E. Yates Co. v. Powell, 98 F.3d 1222,
1229-30, 1236 (10th Cir. 1996) (finding the royalty clause directing the lessee to
(continued...)

-26-
remonstrations, its strategy in forsaking any claim for breach of express contract

is significant. Elliott’s refusal to pursue such a contract claim is a rejection of the

very foundation of its relationship with Appellees giving rise to any duties,

including the core duty of royalty payment. Elliott’s choice has effectively

preempted the question of whether the express royalty provisions are ambiguous

and, if so, how the ambiguity is to be resolved, a rather pedestrian matter to

resolve in a contract dispute. See supra n.11.

In lieu of a claim for breach of an express contract, Elliott has asserted

claims such as breach of implied covenants, conversion, fraud, and unjust

enrichment. Each of these alternative claims is built upon and dependent on the

underlying express contractual obligation to pay royalties. As a consequence, it is

impossible to fully adjudicate the claims in the absence of a claim for breach of

12
(...continued)
“pay the lessor as royalty one-eighth of the cash value of the gas . . . produced
and saved from the leased premises” to be unambiguous and concluding that
lessee must pay royalties on certain portions of settlement proceeds); Piney
Woods Country Life Sch. v. Shell Oil Co., 726 F.2d 225, 240 (5th Cir. 1984)
(determining the propriety of processing deductions under a “market value at the
well” royalty clause); Martin v. Glass, 571 F. Supp. 1406, 1410-11, 1415-16
(N.D. Tex. 1983) (interpreting royalty provisions to permit deduction of
compression charges); Creson, 10 P.3d at 859 (holding that the “net proceeds
derived from the sale of Carbon Dioxide Gas at the well” clause is not
ambiguous); Cont’l Potash, Inc., 858 P.2d at 80-81 (construing royalty contracts).
But see Rogers v. Westerman Farm Co., 29 P.3d 887, 896 (Colo. 2001) (en banc)
(reaching the implied duty to market claim after first concluding that the “at the
well” leases were silent as to the allocation of post-production costs).

-27-
an express contract to pay royalties. Most importantly, our evaluation of these

alternative claims to determine whether they are consistent or inconsistent with

the underlying contracts is further hampered by the condition of the record. The

record contains no royalty instruments and only a few examples of overriding

royalty instruments which were submitted by Appellees. 13 Regardless of whether

this is a result of Elliott’s strategic choice not to allege an express contract claim

or disputes over discovery, it further illustrates the difficulty of considering

Elliott’s claims premised on implied covenants, fraud, conversion, and unjust

enrichment.

a. Meaning of “At the Well”

The district court granted Appellees’ motion for summary judgment on its

“at the well” obligations under the royalty contracts. Dist. Ct. Order No. 1 at 2.

The court concluded that the meaning of the “at the well” language is clear and

unambiguous: under Creson v. Amoco Production Co., 10 P.3d 853 (N.M. Ct.

App. 2000), royalties are “to be paid on the value of the gas in its unprocessed

state as it comes to the surface at the mouth of the well before it is transported

and processed.” Id. at 7. The “adjustment” for removing the NGLs so the gas is

marketable, the district court said, is consistent with the “at the well” language of

the royalty obligations. Id. at 8.

13
Appellees assert that Elliott owns only overriding royalty interests.

-28-
 On appeal Elliott argues that the district court erred in reading the terms of

the royalty obligations as consistent with the 39% processing charge. Elliott

argues that the district court erroneously read Creson as holding that the “net

proceeds/work-back” method is “the approved method” of calculating royalty

payments in New Mexico. Moreover, Elliott contends the district court wrongly

decided that, in calculating the royalties owed to Elliott under the work-back

method, Appellees could deduct a fictitious 39% fee that was never actually

incurred in processing the gas. Elliott asserts that only those “actually incurred

and reasonable costs” can be deducted in calculating the royalty owed. Elliott

further argues that, as part of its erroneous decision, the district court improperly

concluded that the gas in this case was marketable at the wellhead.

Appellees counter that the royalty instruments contain express language

governing Appellees’ royalty obligations to Elliott. Appellees assert that under

the “at the well” language they are required to pay royalties based on the value of

the refined natural gas products less any post-production costs. One of the

alleged post-production costs which Appellees deduct from the value of the

refined natural gas products is the 39% charge for processing the gas at their

jointly-owned Plant. Appellees argue that the district court correctly concluded

that New Mexico law does not support Elliott’s theory that only those “actually

incurred and reasonable” costs can be deducted. Royalties, Appellees argue, are

-29-
owed only on the value of the gas as it emerges from the wellhead. Furthermore,

Appellees argue that royalty payments are a matter of contract and not dependent

upon whether the gas is marketable.

As indicated, the posture of this case is unusual in that Elliott declined to

bring and affirmatively disclaims a breach of contract claim. Yet, it appears

impossible to resolve this case without assessing the meaning of the “at the well”

contractual language. All parties agree that the royalty instruments contain

language that requires royalties to be paid based on “the market value of the gas

at the well as produced” (unless they require payment based on a “same as fed”

basis) and nowhere do these instruments specifically mention the 39% figure.

The district court did not err in relying on Creson for guidance in

determining the meaning of “at the well.” In Creson, the Court of Appeals of

New Mexico recognized that “[a] royalty or other nonoperating interest in

production is usually subject to a proportionate share of the costs incurred

subsequent to production where the royalty or nonoperating interest is payable at

the well.” 10 P.3d at 857 (quotations omitted). The Creson court reasoned that

the phrase “net proceeds derived from the sale of Carbon Dioxide Gas at the well”

is “unambiguous and means that Plaintiffs are entitled to royalties based on the

value of the carbon dioxide gas as it emerges at the wellhead.” Id. Under this

language, the Creson court held that “royalties for gas sold downstream were

-30-
subject to deductions for post-production, value-enhancing costs.” Id. at 862.

Although the instruments in the present case refer to “market value” as opposed

to “net proceeds,” the Creson court used the terms interchangeably and cited with

approval a Fifth Circuit case, Piney Woods Country Life School v. Shell Oil Co.,

726 F.2d 225 (5th Cir. 1984), which interpreted the meaning of “market value.” 14

Creson, 10 P.3d at 858. The Creson court therefore appeared to see no difference

between the terms “net proceeds” and “market value,” but rather focused on the

fact that the “at the well” language means that post-production costs are deducted

from the value of the processed carbon dioxide gas in arriving at the proper

royalty valuation. Id.

The district court concluded that because the phrase “at the well” means

that royalty is paid on the value of unprocessed gas as it emerges at the wellhead,

the challenged “adjustments result in royalty payments consistent with the value

of the gas ‘as it emerges at the wellhead.’” 15 Dist. Ct. Order No. 1 at 8. The “at

14
The court in Piney Woods interpreted “market value” to mean current
value at the time of production, not actual proceeds less expenses. Piney Woods
Country Life Sch., 726 F.2d at 235-36. The Piney Woods court went on to
describe several methods used to calculate market value, including deducting
processing costs from the sales of processed gas. Id. at 238-41.
15
Appellees argued before the district court that “the applicable law
demonstrates [they] are entitled to summary judgment both as to the nature of
their royalty obligations as well as their compliance with those unambiguous
obligations.” The district court apparently agreed, relying on its conclusion with
(continued...)

-31-
the well” royalty obligations do require royalty payments based on the

unprocessed gas as it emerges at the wellhead. Whether Appellees’ complied

with these “at the well” royalty obligations, however, depends upon whether the

39% “charge” is a post-production cost that may properly be deducted under the

net-back or work-back methodology in order to arrive at the correct “at the well”

value. To determine compliance, there would appear to be at least three questions

which must be answered: (1) whether the 39% fee is properly characterized as a

“processing cost” such that it is a post-production cost subject to deduction; (2)

whether such deductible costs must be “actual and reasonable” 16 and, if so,

whether the 39% is an “actual and reasonable” cost; and (3) whether the gas is in

fact marketable at the wellhead. In Creson, these issues were not disputed. 10

P.3d at 856, 859 (noting that plaintiffs did not dispute the type of cost deducted or

whether the costs were not the actual costs or were inflated; plaintiffs conceded

the carbon dioxide gas was marketable at the wellhead).

15
(...continued)
regard to the meaning of the “at the well” leases to determine Appellees were
“acting in conformity with contractual provisions.” Dist. Ct. Order No. 2 at 5.
16
The Fifth Circuit in Piney Woods, for example, agreed with plaintiffs that
“the processing costs, under both the ‘market value’ and ‘amount realized’
provisions, must be reasonable.” 726 F.2d at 241.

-32-
 Without resolution of these issues, which are substantially factual

questions, 17 it is not possible to determine whether the challenged “adjustments

result in royalty payments consistent with the value of the gas ‘as it emerges at

the wellhead.’” Dist. Ct. Order No. 1 at 8. It was therefore improper for the

district court to decide that Appellees complied with their “at the well” royalty

obligations. This, however, does not affect our disposition of Elliott’s claims.

“Only disputes over facts that might affect the outcome of the suit under the

governing law will properly preclude the entry of summary judgment. Factual

disputes that are irrelevant or unnecessary will not be counted.” Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Elliott’s noncontractual claims do

not depend upon or require construction or interpretation of the “at the well”

language of the royalty obligations. Indeed, Elliott’s claims fail as a matter of

law regardless of the meaning of the “at the well” language. Thus, these

outstanding factual questions regarding the proper construction and application of

the “at the well” royalty obligations are neither genuine nor material issues. See

Fed. R. Civ. P. 56(c). The district court’s grant of summary judgment in favor of

Appellees is therefore affirmed. See United States v. Sandoval, 29 F.3d 537, 542

n.6 (10th Cir. 1994) (“We are free to affirm a district court decision on any

17
Of the three questions posed, only the first part of No. 2 is a question of
law.

-33-
grounds for which there is a record sufficient to permit conclusions of law, even

grounds not relied upon by the district court.” (quotations omitted)).

b. Implied Covenants

The district court concluded that the royalty instruments creating the

obligations between the parties required the rejection of any claims of implied

covenants between the parties. Dist. Ct. Order No. 2 at 3. The court held that

because Appellees paid the royalty obligations owed to Elliott pursuant to

methodologies approved by New Mexico courts, it was impossible to conclude

that Appellees violated any implied covenant of good faith and fair dealing. Id. at

5. Thus, the district court denied Elliott’s summary judgment motion on the

implied covenant of good faith and fair dealing and sua sponte dismissed that

count as moot. The court granted Appellees’ summary judgment motion on

Elliott’s implied duty to market claim and dismissed Count 4. The court

concluded that an implied duty to market “cannot co-exist with express covenants

that specifically cover the same subject matter.” Id. at 6.

On appeal Elliott urges that because the royalty instruments are silent on

the calculation of the royalty owed by Appellees, implied covenants govern how

the royalties should be calculated. These implied covenants, Elliott asserts, do

not permit Appellees to deduct costs incurred before a gas is in a marketable

-34-
condition nor do the implied covenants permit Appellees to deduct costs that are

not actually incurred or are unreasonable.

Appellees argue that their royalty obligations are governed solely by the

express provisions of the royalty instruments themselves and any implied

covenants cannot alter Appellees’ obligations. In addition, Appellees argue that

implied duties do not provide independent claims for relief because such implied

covenants are, by definition, implied in contracts and they may only be asserted as

part of a breach of contract claim. Even if Elliott is correct that implied

covenants exist in this case, Appellees assert that the implied covenant of good

faith and fair dealing and the implied duty to market do not support Elliott’s

“actually incurred and reasonable” theory of the deductibility of post-production

costs.

In New Mexico, oil and gas leases are interpreted like any other contract.

Harvey E. Yates Co., 98 F.3d at 1229-30; see also Cont’l Potash, Inc. v. Freeport-

McMoran, Inc., 858 P.2d 66, 80 (N.M. 1993) (“In interpreting mining agreements,

courts generally have applied the rules for interpreting contracts and leases.”).

“The primary objective in construing a contract is to ascertain the intention of the

parties.” Cont’l Potash, Inc., 858 P.2d at 80 (quotation omitted). The intent of

the parties is “deduced from the language employed by them.” Id.

-35-
 “[W]hen parties reduce their agreements to writing, the written
instrument is presumed to embody their entire contract, and the court
should not read into the instrument additional provisions unless this
be necessary in order to effectuate the intention of the parties as
disclosed by the contract as a whole. An implied covenant must rest
entirely on the presumed intention of the parties as gathered from the
terms as actually expressed in the written instrument itself, and it
must appear that it was so clearly within the contemplation of the
parties that they deemed it unnecessary to express it, and therefore
omitted to do so, or it must appear that it is necessary to infer such a
covenant in order to effectuate the full purpose of the contract as a
whole as gathered from the written instrument. It is not enough to
say that an implied covenant is necessary in order to make the
contract fair, or that without such a covenant it would be improvident
or unwise, or that the contract would operate unjustly. It must arise
from the presumed intention of the parties as gathered from the
instrument as a whole.”

Id. (quoting Kingsley v. W. Natural Gas Co., 393 S.W.2d 345, 350-51 (Tex. Civ.

App. 1965)). The Supreme Court of New Mexico went on to say that

implied covenants are not favored in law, especially when a written
agreement between the parties is apparently complete. The general
rule is that an implied covenant cannot co-exist with express
covenants that specifically cover the same subject matter.
When it is clear, however, from the relevant parts of the
contract taken together and considered with the facts and
circumstances surrounding the execution of the agreement, that the
obligation in question was within the contemplation of the parties or
was necessary to effect their intention, then such obligation may be
implied and enforced. But when the contract between the parties
speaks to the obligation sought to be implied, the courts will not
write that implied obligation into the contract. Stated conversely,
there may be an implied covenant on the part of the lessee (in the
absence of any expressed on the subject as in the lease). [18]

18
In Cont’l Potash, Inc., the New Mexico Supreme Court concluded that
(continued...)

-36-
Id. (citations, alterations, and quotation omitted). See also Nearburg v. Yates

Petroleum Corp., 943 P.2d 560, 569 (N.M. Ct. App. 1997) (holding that “courts

cannot imply covenants which are inconsistent with express provisions”). Thus,

in accordance with New Mexico law, any analysis of implied covenants between

parties that have a contractual relationship must be linked to an examination of

the contractual agreements themselves.

i. Implied Duty to Market

New Mexico has long recognized “an implied covenant on the part of the

lessee (in the absence of any expressed on the subject as in [the] lease) that after

production of oil and gas in paying quantities is obtained, he will thereafter

continue the work of development for production of oil and gas with reasonable

diligence as to the undeveloped portion of the leased land.” Libby v. DeBaca, 179

P.2d 263, 265 (N.M. 1947). In addition, the lessee “must proceed with reasonable

diligence, as viewed from the standpoint of a reasonably prudent operator, having

in mind his own interest as well as that of the lessor, to market the product.” Id.

In Libby the court said that this duty to market included building a plant to

convert the gas into dry ice because that was the only way the gas could be sold.

18
(...continued)
because the contract provisions granted defendants exclusive discretion and
control in the mining operations, the court was precluded from reading any
implied covenants into the contract. 858 P.2d at 81.

-37-
Id. The New Mexico Supreme Court later characterized the implied duty to

market as an “implied covenant to make diligent efforts to market the production

in order that the lessor may realize on this royalty interest.” Darr v. Eldridge,

346 P.2d 1041, 1044 (N.M. 1959) (quotation omitted). In Darr the court was

faced with a situation where the lessee was holding onto the property without

selling the minerals. Id.

Elliott argues that Appellees are obligated under this implied duty to market

to pay royalties on the actual price received by Appellees for the gas and NGLs

and that Appellees’ conduct in taking excessive cost deductions and failing to pay

royalties on the best price reasonably possible breached that duty. Elliott,

however, is unable to demonstrate that such an implied duty exists in this case.

Elliott’s assertion that the 39% “processing charge” is not addressed in the royalty

leases is unavailing. In a situation where, as here, the parties have reduced their

agreement to writing in the form of an oil and gas lease or other royalty

instrument, it is to that agreement that we must turn to decide whether any

implied duty to market was intended by the parties or would contradict the

express provisions of that agreement. Cont’l Potash, Inc., 858 P.2d at 80. Elliott,

however, attempts to divorce its implied duty to market claim from its contractual

relationship with Appellees and, in fact, explicitly disclaims reliance on the

express provisions of the royalty agreements. This court cannot speculate as to

-38-
what those various agreements contain or how to construe the scope of any

implied covenant to market that may exist.

Even if we were to ignore Elliott’s strategic choice to avoid reliance on the

express contractual language, Elliott’s implied duty to market claim would still

fail. Elliott relies on this implied duty to supplement the royalty provisions and

the “at the well” language, but under New Mexico law, covenants are not implied

for subjects that are treated in express provisions. See id. at 80 (“[I]mplied

covenant[s] cannot co-exist with express covenants that specifically cover the

same subject matter.”). Moreover, Elliott has failed to suggest how, under New

Mexico law, Appellees have breached the implied duty to market. Appellees were

and are actively producing gas, processing the gas, and selling the refined natural

gas and NGLs. Thus, Appellees have complied with the implied duty to market as

articulated by the New Mexico courts. See Darr, 346 P.2d at 1044. Elliott

contends that under the implied duty to market Appellees bear the burden of all

costs incurred to put the gas in a marketable condition including the cost of

removing the NGLs from the gas. Thus, Elliott argues any 39% processing fee

should not be borne by the royalty owners. This conception of the implied duty to

market finds no support within New Mexico case law. 19 Nor is the claim saved by

Elliott relies on Rogers, 29 P.3d 887, for support of its argument. Rogers
19

is inapposite for two distinct reasons. First, the Rogers court reached the implied-
(continued...)

-39-
Elliott’s assertion that the 39% fee is a production cost that must be borne by

Appellees because there is no market for the unprocessed gas at the wellhead.

This duty imagined by Elliott is inconsistent with New Mexico law because the

express terms of the royalty obligations direct the royalty to be paid on the value

of the gas “at the well.” See Cont’l Potash, Inc., 858 P.2d at 80 (no implied

covenants when subject matter addressed in contract); Creson, 10 P.3d at 856, 859

(marketability goes to issue of compliance with royalty obligations).

Elliott, therefore, has failed to present any analysis demonstrating that the

implication of an unexpressed duty to market is necessary or appropriate. Thus,

the district court correctly concluded that no genuine issue of material fact exists

with respect to Elliott’s claim of a breach of an implied duty to market.

ii. Implied Covenant of Good Faith and Fair Dealing

In Continental Potash, the New Mexico Supreme Court said:

Whether express or not, every contract in New Mexico imposes the
duty of good faith and fair dealing upon the parties in the
performance and enforcement of the contract. The breach of this
covenant requires a showing of bad faith or that one party wrongfully

(...continued)
19

duty-to-market issue by first concluding that the “at the well” leases were silent
as to the allocation of post-production costs. Rogers, 29 P.3d at 896. As noted
above, Elliott has specifically disclaimed any contract claim and has not placed
the royalty documents in the record. Second, reliance on Rogers, which involved
Colorado law, for this proposition would create tension with Creson. See Creson,
10 P.3d at 859 (royalty based on “net proceeds” at the well allows for deduction
of “post-production, value-enhancing costs”).

-40-
 and intentionally used the contract to the detriment of the other party.

858 P.2d at 82 (citation omitted). Elliott’s good faith and fair dealing claim,

however, suffers from much the same problem as the implied duty to market claim.

“[T]he implied covenant of good faith and fair dealing depends upon the existence

of an underlying contractual relationship . . . .” Azar v. Prudential Ins. Co. of Am.,

68 P.3d 909, 925 (N.M. Ct. App. 2003). Despite its assertion to the contrary,

Elliott cannot decouple its claim for breach of the implied covenant of good faith

and fair dealing from the contract because the contractual relationship is the only

relationship that exists between the parties. See id. at 927 (“The implied covenant

of good faith and fair dealing . . . requires the existence of an underlying contract

and may not be used to override the express provisions of an integrated, written

contract.”)

The manner in which Elliott has framed this issue makes it impossible to

discuss, let alone determine, what the possible parameters of an implied covenant

of good faith and fair dealing would involve.

Generally, in the absence of an express provision on the subject, a
contract contains an implied covenant of good faith and fair dealing
between the parties. Under the implied covenant of good faith and
fair dealing, courts can award damages against a party to a contract
whose actions undercut another party’s rights or benefits under the
contract. Our Supreme Court has nevertheless refused to apply this
implied covenant to override an express at-will termination provision
in an integrated, written contract.

-41-
Kropinak v. ARA Health Servs., Inc., 33 P.3d 679, 681 (N.M. Ct. App. 2001)

(citations omitted). While Elliott asserts that Appellees’ conduct is not governed

by the contracts between the parties and that the contracts are silent as to the

conduct at issue, it provides no contractual analysis suggesting that the implication

of an unexpressed covenant of good faith and fair dealing is necessary to

effectuate the express provisions for the payment of royalties. 20 See, e.g., Allsup’s

Convenience Stores, Inc., 976 P. 2d at 14 (“The concept of the implied covenant of

good faith and fair dealing requires that neither party do anything that will injure

the rights of the other to receive the benefit of their agreement.” (quotation

omitted)); Gilmore v. Duderstadt, 961 P.2d 175, 182 (N.M. Ct. App. 1998)

(“Whether there has been a breach of the covenant of good faith and fair dealing is

a factual inquiry that focuses on the contract and what the parties agreed to.”

(citations omitted)); Bourgeous v. Horizon Healthcare Corp., 872 P.2d 852, 856

(N.M. 1994) (“This concept of the duty of good faith initially developed in

contract law as a kind of ‘safety valve’ to which judges may turn to fill gaps and

qualify or limit rights and duties otherwise arising under rules of law and specific

A breach of an implied covenant of good faith and fair dealing can also
20

sound in tort, but Elliott does not claim the existence of a fiduciary relationship
(such as that which exists between an insurer and an insured) and supplies no
alternative source for the duties that Appellees allegedly breached. See
Bourgeous v. Horizon Healthcare Corp., 872 P.2d 852, 857 (N.M. 1994). Thus
any such tort claim also fails.

-42-
contract language.” (quotations omitted)). The district court, therefore, did not err

in dismissing Elliott’s claim of breach of an implied covenant of good faith and

fair dealing.

c. Tort Claims

The district court granted summary judgment in favor of Appellees on all of

Elliott’s tort claims. Dist. Ct. Order No. 3 at 2. The court concluded that Elliott’s

constructive fraud claim failed because the contractual relationship between the

parties does not impose the requisite duty to disclose. The court rejected the fraud

claim because there was no duty to disclose and, to the extent the claim rested on

allegations of misrepresentations, Elliott failed to show detrimental reliance.

Finally, the court granted summary judgment on Elliott’s conversion claim because

“[t]here are no facts on which the Court could conclude that [Appellees]

unlawfully exercised dominion and control over [Elliott’s] royalty rights” or that

“[Appellees’] acts constituted an unauthorized and injurious use of Elliott’s

property.” In addition to rejecting each individual tort claim, the district court,

relying on Isler v. Texas Oil and Gas Corp., 749 F.2d 22 (10th Cir. 1984), agreed

with Appellees that Elliott’s assertion that Appellees failed to pay royalty can be a

breach of no duty other than one created by contract. This, the court concluded,

provided an additional basis for dismissal of the claims of constructive fraud,

fraud, and conversion.

-43-
 On appeal Elliott argues that the district court misapplied New Mexico law

when it suggested tort claims are barred simply because the parties have a

contractual relationship. Elliott further asserts that its fraud claims are viable

because it has established that Appellees were under a duty to disclose the 39%

charge and with regard to Appellees’ alleged misrepresentations, Elliott contends

it has shown the requisite detrimental reliance. 21 Appellees counter that the

district court properly concluded that Isler compelled dismissal of Elliott’s tort

claims. In addition, Appellees argue that they had no duty to disclose information

concerning the 39% processing deduction, thus Elliott cannot pursue claims for

constructive fraud and fraud. Finally, Appellees argue that the court correctly

concluded that there was no evidence of Elliott’s reliance on Appellees’ alleged

misrepresentations.

In Isler v. Texas Oil and Gas Corp., plaintiffs sought to maintain a

negligence action against defendant for failure to make rental payments despite a

provision in the contract that limited liability for failure to make such payments.

749 F.2d at 22. This court reversed a judgment in favor of plaintiffs on their tort

claim because “the facts alleged in plaintiffs’ tort claim are precisely the same as

21
In its opening brief Elliott makes no argument regarding its conversion
claim beyond contending that the district court erred when it concluded Isler was
a basis to dismiss all the tort claims. Failure to raise an issue in an opening
appellate brief waives the issue. State Farm Fire & Cas. Co. v. Mhoon, 31 F.3d
979, 984 n.7 (10th Cir. 1994).

-44-
those alleged in their contract claim.” 749 F.2d at 24. Relying on New Mexico

case law, we reasoned that when a “contract specifically define[s] the rights and

duties of the parties” any claimed breach of an “extracontractual tort duty” is

precluded. Id. This is because parties should “be bound by the terms of written

agreements to which they freely commit themselves.” Rio Grande Jewelers

Supply, Inc. v. Data General Corp., 689 P.2d 1269, 1271 (N.M. 1984). The rule in

New Mexico is that “the concept of freedom of contract and notions of

contractually assumed duties and liabilities can act to limit general tort liability in

certain circumstances when limited liability is expressly bargained for.” State ex

rel. Udall v. Colonial Penn Ins. Co., 812 P.2d 777, 785 (N.M. 1991).

Isler and corresponding New Mexico case law stand for the proposition that

the existence of any tort liability cannot conflict with any contractual duties

between the parties. See Hess Oil Virgin Islands Corp. v. UOP, Inc., 861 F.2d

1197, 1200 (10th Cir. 1988) (noting that Isler holds “no tort duty can be imposed

on a party where that party’s same duties and rights are specifically defined by

contract”). While the relationship between the parties in the instant case is rooted

in contract, Elliott has failed to provide this court with any analysis of its tort

claims in the context of the express contracts obligating Appellees to pay royalties.

As a consequence, this court can only speculate as to the interrelationships of

Appellees’ express contractual duties and the purported duties alleged to have

-45-
been breached in Elliott’s tort claims. Elliott’s unsupported conclusory allegations

regarding the nature of Appellees’ obligations untethered to any discussion of the

contractual duties governing the parties’ relationship do not create a genuine issue

of material fact. The district court’s grant of summary judgment is therefore

affirmed.

d. Unjust Enrichment

The district court relied on Ontiveros Insulation Co. v. Sanchez, 3 P.3d 695

(N.M. Ct. App. 2000), in granting Appellees’ motion for summary judgment on

Elliott’s unjust enrichment claim. The court concluded under Ontiveros that

because the claim arises in equity it cannot exist where, as here, the parties are in

privity of contract. On appeal Elliott argues that the court misread Ontiveros to

automatically bar unjust enrichment claims where a contractual relationship

between the parties exists. Moreover, Elliott suggests that even if Ontiveros does

bar claims where a contractual provision governs, it does not prevent Elliott from

bringing its unjust enrichment claim because there is no express contractual

provision related to the 39% processing fee at issue. Appellees respond that the

district court properly read and applied Ontiveros and Elliott’s argument that its

unjust enrichment claims should stand because there is no express contractual

provision related to the 39% fee is untenable.

-46-
 In Ontiveros, the New Mexico Court of Appeals said that “equity does not

take the place of remedies at law, it augments them; in this regard, an action in

contract would be preferred to one in quasi-contract.” 3 P.3d at 699. Consistent

with the district court’s interpretation of Ontiveros to mean that the presence of a

contract bars a claim for unjust enrichment,

the hornbook rule [is] that quasi-contractual remedies . . . are not to
be created when an enforceable express contract regulates the
relations of the parties with respect to the disputed issue. Courts
have recognized this principle and have stated their unwillingness to
resort to the doctrine of unjust enrichment to override a contractual []
provision.

Member Services Life Ins. Co. v. Am. Nat’l Bank & Trust Co. of Sapula, 130 F.3d

950, 957 (10th Cir. 1997) (citations omitted) (involved ERISA case). See also 26

Richard A. Lord, Williston on Contracts § 68:5 (4th ed. 2004) (“Where the

plaintiff has no alternative right on an enforceable contract, the basis of the

plaintiff’s recovery is the unjust enrichment of the defendant.”). Elliott’s unjust

enrichment claim fails, like Elliott’s other extracontractual claims addressed

above, because the claim for underpayment of royalties is grounded in the parties’

contractual relationship. Elliott asserts that “there is no express contractual claim

based on the 39% in-kind processing fee deductions because the parties have no

such contract” and thus they should be permitted to bring a claim for unjust

-47-
enrichment. 22 Elliott mistakes form for function. The contracts may not delineate

any specific deductions, yet the contracts control how royalties are to be paid.

Indisputably, there are contracts between the parties, thus any claim for

underpayment of royalties, including a claim for unjust enrichment, must begin

with those contracts. The district court’s grant of summary judgment to Appellees

on Elliott’s unjust enrichment claim is therefore affirmed.

e. New Mexico Unfair Practices Act

Appellees moved for partial summary judgment on Elliott’s statutory claims,

including Elliott’s claim under the New Mexico Unfair Practices Act, which the

district court originally denied. Later, Appellees again moved for partial summary

judgment on Elliott’s punitive damages and UPA claim. The district court vacated

the previous order denying Appellees’ summary judgment motion and granted

Appellees’ motion, dismissing Count 1 of the Second Amended Complaint. The

22
The case law Elliott cites to support this argument is unavailing. As
Appellees correctly note, Elliott mischaracterizes Central Security and Alarm Co.
v. Mehler, 918 P.2d 1340 (N.M. Ct. App. 1996), because that case involved the
proper measure of damages. Elliott also cites Klein v. Arkoma Production Co., 73
F.3d 779, 786 (8th Cir. 1996), to support its argument that because there is no
express clause in the lease agreements relating to the 39% processing charge
Elliott should be permitted to bring a claim for unjust enrichment. Although the
case involved royalty interest owners, Klein recognized that “[n]ormally when an
express contract exists between the parties, unjust enrichment is not available as a
means of recovery.” Id. The Eighth Circuit concluded in that case that the leases
at issue did not address whether a third party transaction fits within the definition
of “market value of gas.” Id. Additionally, the primary defendants were not
parties to the leases. Id. These are not the facts of the present case.

-48-
district court concluded that Elliott, as a royalty owner, is neither a purchaser nor

seller of royalty gas, nor does the case involve the sale, lease, rental, or loan of

goods and services as required by the UPA.

On appeal Elliott argues that the district court erred by ignoring that Elliott

is an involuntary purchaser of processing services under the UPA. Elliott argues

that Appellees violated the UPA by charging Elliott inflated rates for processing

services and misrepresenting the amount (39% in-kind fee) charged for such

services. The State of New Mexico, as amicus curiae, supports Elliott’s argument,

asserting that Appellees’ conduct falls within the ambit of the UPA. The State

argues that Appellees’ retention of 39% of the NGLs is “in connection with” the

processing services at the Plant. Appellees counter that real estate interests,

including oil and gas leases, are not “goods or services” under the UPA, and,

under New Mexico law, royalty instruments do not result in purchases or sales of

either oil and gas or post-production services.

The UPA provides that “[u]nfair or deceptive trade practices and

unconscionable trade practices in the conduct of any trade or commerce are

unlawful.” N.M. Stat. Ann. § 57-12-3. Trade or commerce includes “the

advertising, offering for sale or distribution of any services and any property and

any other article, commodity or thing of value, including any trade or commerce

-49-
directly or indirectly affecting the people of this state.” Id. at § 57-12-2(C). An

unfair or deceptive trade practice

means an act specifically declared unlawful pursuant to the Unfair
Practices Act . . ., a false or misleading oral or written statement,
visual description or other representation of any kind knowingly
made in connection with the sale, lease, rental or loan of goods or
services or in the extension of credit or in the collection of debts by a
person in the regular course of his trade or commerce, which may,
tends to or does deceive or mislead any person . . . . [23]

Id. at § 57-12-2(D). An unconscionable trade practice is similarly defined as

an act or practice in connection with the sale, lease, rental or loan, or
in connection with the offering for sale, lease, rental or loan, of any
goods or services, including services provided by licensed
professionals, or in the extension of credit or in the collection of
debts which to a person’s detriment:

(1) takes advantage of the lack of knowledge, ability,
experience or capacity of a person to a grossly unfair
degree; or

(2) results in a gross disparity between the value
received by a person and the price paid.

Id. at § 57-12-2(E). “Because the Unfair Practices Act constitutes remedial

legislation, [courts] interpret the provisions of this Act liberally to facilitate and

accomplish its purposes and intent.” State ex rel. Stratton v. Gurley Motor Co.,

737 P.2d 1180, 1185 (N.M. Ct. App. 1987).

23
The UPA defines “person” to include “natural persons, corporations,
trusts, partnerships, associations, cooperative associations, clubs, companies,
firms, joint ventures or syndicates.” N.M. Stat. Ann. § 57-12-2(A).

-50-
 This circuit recently recognized that the UPA “‘does not apply to sales of

real estate.’” Kysar v. Amoco Prod. Co., 379 F.3d 1150, 1157 (10th Cir. 2004)

(quoting McElhannon v. Ford, 73 P.3d 827, 832 (N.M. Ct. App. 2003)). Kysar

held that misrepresentations in connection with a mineral lease regarding rights of

access were unconnected to a good or service and therefore did not constitute a

violation of the UPA. Id. In concluding that a completed house is a form of realty

and therefore cannot be goods or services under the UPA, the McElhannon court

said, “[t]he word goods is generally understood to mean personal estate as

distinguished from realty,” and “[t]he word services is generally understood to

mean work done by one person at the request of another.” 73 P.3d at 832

(quotations, citations, and alterations omitted). The court further reasoned that

“[t]o the extent goods and services are combined to create a structure that is

permanently affixed to realty, they are understood to have been ‘converted’ to

realty.” Id.

Elliott is a royalty interest owner alleging, at the core of its case,

underpayment of royalties.

The term royalty or royalty interest, as used in oil and gas parlance to
define a mineral interest in land, has a well known and commonly
accepted meaning. It means a share (usually 1/8th) in the oil and gas
reserved to the landowner from an oil and gas lease, which when
produced is delivered to the purchaser free of cost to the landowner.

-51-
Shinn v. Buxton, 154 F.2d 629, 632 (10th Cir. 1946). In New Mexico “a grant or

reservation of the underlying oil and gas, or royalty rights provided for in a

mineral lease as commonly used in this state, is a grant or reservation of real

property.” Duvall v. State, 213 P.2d 212, 215 (N.M. 1949). “[I]t matters not

whether the production from a mineral well is claimed or whether a portion of the

fund resulting from the sale of the production is claimed; in New Mexico, both

assets are realty.” Fullerton v. Kaune, 382 P.2d 529, 533 (N.M. 1963). Because

the payment of royalties, including any associated deductions for post-production

costs, is not connected to goods or services but to realty, Elliott’s claim does not

fall within the ambit of the UPA. The district court’s grant of summary judgment

is therefore affirmed.

f. New Mexico Oil and Gas Proceeds Payment Act

The relevant language of the New Mexico Oil and Gas Proceeds Payment

Act reads:

The oil and gas proceeds derived from the sale of production
from any well producing oil, gas or related hydrocarbons in New
Mexico shall be paid to all persons legally entitled to such payments,
commencing not later than six months after the first day of the month
following the date of first sale and thereafter not later than forty-five
days after the end of the calendar month within which payment is
received by payor for production unless other periods or
arrangements are provided for in a valid contract with the person
entitled to such proceeds.

N.M. State. Ann. § 70-10-3 (2004).

-52-
 i. Meaning of Legal Entitlement

In the Second Amended Complaint, Elliott asserted that Appellees’

underpayment of royalties is a failure to make full payments to Elliott for their pro

rata share of proceeds from the sale of NGLs within the requisite forty-five day

period. As such, Elliott seeks payment of all unpaid amounts and interest

calculated at the rate of eighteen percent per year on the unpaid balance. The

district court granted summary judgment to Appellees on Elliott’s Payment Act

claim because the court concluded the claim necessarily failed once the court

rejected all of Elliott’s other theories of potential liability.

On appeal, Elliott argues that in addition to the numerous theories

supporting Appellees’ liability for underpayment of royalties, Elliott can proceed

independently under the Payment Act. The State of New Mexico, as amicus

curiae, supports Elliott’s argument, declaring that by requiring Elliott to “have an

independent contract or tort claim in order to proceed under the Payment Act, the

District Court has fabricated a limitation upon the availability of the Payment Act

to injured payees which the Legislature clearly did not intend, and has emasculated

the remedial nature of the Payment Act.”

Elliott cites to no legal authority for its position that the Payment Act

supplies an independent statutory basis for relief. Cf. Phillips v. Calhoun, 956

F.2d 949, 954 (10th Cir. 1992) (holding that failure to develop a legal argument

-53-
supporting a claim results in waiver of the claim). Although the State provides a

more extensive legal argument for its position, its entire argument rests on the

assumption that Elliott has in fact been underpaid by Appellees. A claim for

underpayment of royalties may very well fall within the provisions of the Payment

Act. Elliott and the State misread the district court’s order to suggest otherwise.

The district court did not hold that Elliott must assert a certain type of

claim–contract or tort, for example–in order to bring a claim under the Payment

Act. Instead, based on the plain language of the statute, the district court properly

concluded that in order to maintain a Payment Act claim, Elliott must allege a

potentially successful claim for underpayment of royalties or theory of liability

showing that it is “legally entitled to such payments,” N.M. State. Ann. § 70-10-3

(2004), independent of any claim under the Act itself. 24 Because we agree with the

district court that Elliott has failed to demonstrate any potentially successful

theory of liability, Elliott’s claim under the Payment Act fails and the district

court’s grant of summary judgment is affirmed.

ii. BP’s “Same as Fed” Lease Obligations

Elliott also argues that because BP admitted it had underpaid its “same as

fed” overriding royalty owners, summary judgment should have been granted in

At oral argument, Elliott specifically rejected the suggestion that its
24

Payment Act claim is grounded on the contractual royalty obligations.

-54-
favor of Elliott on its Payment Act claim against BP. Appellees respond that the

question of BP’s liability under its “same as fed” leases was not an issue in this

case. Appellees contend that only ConocoPhillips’ “same as fed” leases are at

issue because only ConocoPhillips asserted a counterclaim and thereafter moved

for summary judgment on its compliance with those leases. Even if BP’s “same as

fed” leases were at issue, Appellees argue that Elliott’s Payment Act claim lacks

merit because Elliott affirmatively prevented BP from correcting the payment

error.

The district court granted summary judgment to ConocoPhillips on its “same

as fed” royalty obligations without any reference to BP’s “same as fed” leases.

Dist. Ct. Order No. 1 at 10. In a subsequent order, the district court, without any

reference to BP’s “same as fed” leases, rejected Elliott’s Payment Act claim

because no theories of potential liability remained. 25 Dist. Ct. Order No. 4. Elliott

had moved for summary judgment against BP under the Payment Act because of

alleged underpayment of royalties on BP’s “same as fed” leases. Elliott filed its

motion for summary judgment after members of the class received a letter from BP

The district court vacated the previous memorandum opinion and order in
25

which the court had denied Appellees’ motion for summary judgment on Elliott’s
statutory claims (including the Payment Act claim) and thereafter granted
Appellees’ earlier motion.

-55-
admitting underpayment. 26 Appellees are correct, however, that BP’s “same as

fed” leases were never a part of Elliott’s case. 27

Generally, failure to set forth in the complaint a theory upon which the

plaintiff could recover does not bar a plaintiff from pursuing a claim. Green

Country Food Market, Inc. v. Bottling Group, LLC, 371 F.3d 1275, 1279 (10th Cir.

26
The letter dated April 19, 2002 was addressed to overriding royalty
interest owner[s]. It stated:

BP America Production Company has determined that, in
certain New Mexico San Juan Basin properties, your overriding
royalty value should be calculated on the same basis as Federal
royalty. This means your overriding royalty calculation should be
based on the same allowance rates for processing and transportation
costs as Federal royalty rather than certain contract based rates. The
current valuation method will change effective with February 2002
production.
We are in the process of determining any additional overriding
royalty amount you may be entitled to for the past periods due to this
difference in valuation. . . .

27
In BP’s response to Elliott’s motion for summary judgment as to liability
on the Payment Act claim, it argued that “the Class has never asserted a breach of
contract claim, but has consistently denied that the contractual instruments
(creating the royalty interests and containing express language governing
Defendants’ royalty payment of obligations) are even at issue in this case.” BP
went on to argue that in this motion “the Class claims, for the first time in this
lawsuit, that [BP’s] voluntary decision to make a prior-period adjustment to
royalties previously paid to royalty owners entitled to be paid under the same as
fed methodology somehow violates the Act. Obviously, under Rule 56(a) a party
cannot move for summary judgment on a nonexistent, non-pleaded claim.”
Moreover, BP noted that “[i]t never occurred to the Class to make the same as fed
payments an issue in this case until after [BP] voluntarily stepped forward to
fulfill the same as fed royalty payment obligations required by the leases.”

-56-
2004). “The liberalized pleading rules, however, do not permit plaintiffs to wait

until the last minute to ascertain and refine the theories on which they intend to

build their case.” Id. This is particularly true if permitting a plaintiff to change

its theory will prejudice the other party in maintaining its defense. Id. In this

instance Elliott, in its summary judgment motion, attempted to assert an entirely

new factual basis for relief which had not heretofore been a part of the case. 28 The

thrust of Elliott’s entire case had been Appellees’ underpayment of royalties based

on the 39% in-kind deduction charged to “at the well” royalty owners. The letter

sent by BP indicates that it was erroneously treating some overriding royalty

interest owners under the “at the well” methodology as opposed to the “same as

fed” methodology. Elliott had never asserted in its complaint that this was a basis

for liability and to permit Elliott to make this claim at such a late stage in the

proceedings would risk prejudicing BP.

28
ConocoPhillips did file counterclaims seeking a declaratory judgment that
it complied with its “same as fed” contractual obligations and moved for summary
judgment on its compliance with its “same as fed” obligations. BP specifically
declined to join in ConocoPhillips’ summary judgment motion “because it d[id]
not believe that these ‘same as fed’ instruments [we]re at issue in this case.” BP
argued that one of the reasons the “same as fed” issues were not part of the case
is because the federal processing allowance, to which “same as fed” royalty
interest owners’ royalties are subject, is lower than the 39% processing deduction
that BP applies in other contracts. Although the district court did recognize that
BP’s letter to class members involved the calculation of royalty payments which
is “related to this lawsuit,” this was presumably heavily influenced by
considerations of preventing confusion among unnamed class members.

-57-
 The district court properly rejected Elliott’s Payment Act claim because it

concluded no potentially successful theory of liability remained. One of the

theories of potential liability was BP’s alleged underpayment of royalties on its

“same as fed” leases. This was not, however, a theory that was ever raised by

Elliott prior to its summary judgment motion. The district court thus appropriately

denied Elliott’s motion for summary judgment on the Payment Act claim.

g. ConocoPhillips’ “Same as Fed” Lease Obligations

The district court granted ConocoPhillips’ motion for summary judgment on

its contractual duty under its “same as fed” royalty obligations concluding that

Elliott failed to rebut the evidence submitted by ConocoPhillips. ConocoPhillips

relied upon the testimony of Danny Frizzell and Curtis Bradley to support its

position that ConocoPhillips has paid royalties to its “same as fed” royalty owners,

including Elliott, in accordance with its contractual obligations. Elliott responded

with an affidavit from Stephen Elliott. On appeal Elliot argues without any

citations to the record that it successfully raised genuine questions of material fact

and that the district court erred in deciding those disputed facts in favor of

ConocoPhillips. “Without a specific reference, we will not search the record in an

effort to determine whether there exists dormant evidence which might require

submission of the case to a jury.” Gross v. Burggraf Constr. Co., 53 F.3d 1531,

1546 (10th Cir. 1995) (quotation omitted).

-58-
 We agree with the district court’s rejection of the Elliott affidavit based on

its conclusory statements. See, e.g., Matthiesen v. Banc One Mortgage Corp., 173

F.3d 1242, 1247 (10th Cir. 1999) (rejecting testimony of an expert as conclusory

for summary judgment). As the district court noted, “[Stephen] Elliott does not

identify the properties to which he refers, making it impossible for

[ConocoPhillips] or for this Court to address or evaluate his assertions.” Because

Elliott came forward with no other evidence to rebut ConocoPhillips’ motion, the

district court’s grant of summary judgment in favor of ConocoPhillips is affirmed.

See United States v. Simons, 129 F.3d 1386, 1388 (10th Cir. 1997) (“Where a

movant has met the initial burden required to support summary judgment, the

non-movant then must either establish the existence of a triable issue of fact under

Fed.R.Civ.P. 56(e) or explain why he cannot . . . under Rule 56(f).” (quotation

omitted)).

h. Antitrust Claims

In its Second Amended Complaint Elliott alleged that Appellees’ conduct is

a per se violation of Sections 1 and 2 of the Sherman Antitrust Act, or, in the

alternative, an unreasonable restraint of trade in violation of Section 1 of the

Sherman Antitrust Act. Elliott seeks to recover treble damages plus attorneys’

fees and costs of litigation pursuant to 15 U.S.C. § 15. In addition, Elliott seeks a

-59-
permanent injunction to stop Appellees from engaging in the alleged illegal acts,

as provided by Section 16 of the Clayton Act, 15 U.S.C. § 26.

More specifically, Elliott claims that BP and ConocoPhillips have combined

and conspired to illegally fix the price charged for processing gas extracted from

the San Juan Basin by charging a 39% processing fee. By charging this

“exorbitant” 39% processing fee, Elliott alleges Appellees have contracted,

combined and conspired to illegally depress the wellhead price. Additionally,

Elliott alleges that Appellees have entered into an illegal tying arrangement

whereby gas in which Elliott owns an interest must be processed at the Plant as a

condition of entry to the interstate market. The effect of this tying arrangement,

Elliott asserts, is to fix prices and depress values paid to Elliott. Not only does

Elliott argue that Appellees have fixed the price of royalties paid to Elliott, but

further alleges that Appellees’ conduct suppresses interstate competition among

sellers, purchasers, or users of gas and NGLs.

Appellees moved to dismiss Elliott’s antitrust claim for failure to state a

claim because Elliott’s injury, if any, does not constitute an “antitrust injury” and

Elliott does not have standing to pursue an antitrust claim. Appellees further

alleged that Elliott added the antitrust claim only to provide a new basis for

federal jurisdiction under 28 U.S.C. § 1331.

-60-
 The district court granted Appellees’ motion to dismiss. The court

concluded that because Elliott failed to show “that they have been damaged by an

anticompetitive effect of defendants’ actions,” Elliott has not demonstrated an

antitrust injury or that it has standing to bring an antitrust claim.

On appeal Elliott argues that the district court erred in concluding it did not

suffer an antitrust injury and did not have standing to bring its antitrust claims.

Elliott argues that it is a captive consumer in the market for gas processing

services and Appellees, in violation of Section 1 of the Sherman Act, formed a

cartel to horizontally fix prices for gas processing services at anticompetitive

levels and injured the class. Secondly, in violation of Section 2, Elliott claims that

it was injured as a supplier of raw natural gas with entrained NGLs because only

one purchaser, Appellees, exercised monopolistic power to use their excessive gas

processing to drive down the amount the class receives as payment for the natural

gas and NGLs supplied to the marketplace.

The legal sufficiency of a complaint is a question of law; therefore, a Rule

12(b)(6) dismissal is reviewed de novo. Sutton v. Utah State Sch. for Deaf &

Blind, 173 F.3d 1226, 1236 (10th Cir. 1999).

[A]ll well-pleaded factual allegations in the . . . complaint are
accepted as true and viewed in the light most favorable to the
nonmoving party. A 12(b)(6) motion should not be granted unless it
appears beyond doubt that the plaintiff can prove no set of facts in
support of his claim which would entitle him to relief.

-61-
Id. (quotations and citation omitted). Under this standard of review, we affirm the

district court’s dismissal of Elliott’s antitrust claims.

Section 1 of the Sherman Act declares illegal “[e]very contract, combination

in the form of trust or otherwise, or conspiracy, in restraint of trade of commerce

among the several States, or with foreign nations.” 29 15 U.S.C. § 1. Section 2 of

the Sherman Act provides that “[e]very person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other person or persons, to

monopolize any part of the trade or commerce . . . shall be deemed guilty of a

felony . . . .” 30 15 U.S.C. § 2.

29
Under Section 1 agreements “may be illegal if (1) their purpose or effect
is to create an unreasonable restraint of trade, or (2) they constitute a per se
violation of the statute.” Cayman Exploration Corp. v. United Gas Pipe Line Co.,
873 F.2d 1357, 1359-60 (10th Cir. 1989). To make out a claim of horizontal
price-fixing, Elliott must allege “(1) the existence of an agreement, combination
or conspiracy, (2) among actual competitors (i.e., at the same level of
distribution), (3) with the purpose or effect of raising, depressing, fixing,
pegging, or stabilizing the price of a commodity (4) in interstate or foreign
commerce.” Id. at 1361 (quotation omitted). To show an illegal tying
arrangement whereby one party agrees to sell one product, the tying product, only
on condition that the buyer also purchase a second product, the tied product, the
buyer must demonstrate that the seller has appreciable economic power in the
tying product market and the arrangement affects a substantial volume of
commerce in the tied product market. Multistate Legal Studies, Inc. v. Harcourt
Brace Jovanovich Legal and Prof’l Publ’ns, Inc., 63 F.3d 1540, 1546 (10th Cir.
1995).

“Conduct violates this section where an entity acquires or maintains
30

monopoly power in such a way as to preclude other entities from engaging in fair
competition.” TV Communications Network v. Turner Network Television, Inc.,
(continued...)

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 Under Section 4 of the Clayton Act, “any person who shall be injured in his

business or property by reason of anything forbidden in the antitrust laws may sue

therefor . . . , and shall recover threefold the damages by him sustained, and the

cost of suit, including a reasonable attorney’s fee.” 15 U.S.C. § 15(a). Despite the

broad language of Section 4, a private plaintiff must have suffered an antitrust

injury and must have standing to bring an antitrust claim. Atlantic Richfield Co. v.

USA Petroleum, Co., 495 U.S. 328, 344 (1990); see also Sharp v. United Airlines,

Inc., 967 F.2d 404, 406 (10th Cir. 1992). Antitrust injury and antitrust standing

are overlapping concepts; “[s]tanding cannot be established without an antitrust

injury, but the existence of an antitrust injury does not automatically confer

standing.” Sharp, 967 F.2d at 406 (quotation omitted). 31

30
(...continued)
964 F.2d 1022, 1024-25 (10th Cir. 1992) In a Section 2 monopoly claim a
plaintiff must show: “(1) the possession of monopoly power in the relevant
market and (2) the willful acquisition or maintenance of that power as
distinguished from growth or development as a consequence of a superior
product, business acumen, or historic accident.” Id. at 1025 (quoting United
States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)).

Demonstrating an antitrust injury is an element of antitrust standing. This
31

court has held that, under Supreme Court precedent, courts should consider
numerous factors in evaluating antitrust standing including:

(1) the causal connection between the antitrust violation and the
plaintiff’s injury; (2) the defendant’s intent or motivation; (3) the
nature of the plaintiff’s injury–i.e. whether it is one intended to be
redressed by the antitrust laws; (4) the directness or the indirectness
(continued...)

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 “An antitrust injury is an injury of the type the antitrust laws were intended

to prevent and that flows from that which makes defendant’s acts unlawful.”

Reazin v. Blue Cross & Blue Shield of Kansas, Inc., 899 F.2d 951, 962 n.15 (10th

Cir. 1990) (quotation omitted). The Sherman Act was designed to protect market

participants from anticompetitve behavior in the marketplace. See Associated Gen.

Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 530

(1983). Thus, “[t]he antitrust injury requirement ensures that a plaintiff can

recover only if the loss stems from a competition-reducing aspect or effect of the

defendant’s behavior.” Atlantic Richfield Co., 495 U.S. at 344.

The injury alleged by Elliott is the underpayment of royalties. The alleged

underpayment is a result of the 39% fee charged by Appellees to process gas. Any

injury that Elliott has suffered from this fee is not an antitrust injury because it has

no adverse effect on competition or consumers. Id. at 337. Indeed, Elliott appears

to recognize the problem with its antitrust claim and tries to implicate

competition/consumers by casting itself in the role of either a “consumer” or a

“supplier.” Elliott, however, is neither a consumer of Appellees’ products, nor a

31
(...continued)
of the connection between the plaintiff’s injury and the market
restraint resulting from the alleged antitrust violation; (5) the
speculative nature of the damages sought; and (6) the risk of
duplicative recoveries or complex damages apportionment.

Sharp v. United Airlines, 967 F.2d 404, 406-07 (10th Cir. 1992).

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competitor of Appellees in producing gas and Elliott makes no allegation of any

harm other than the economic loss which Elliott itself allegedly suffered.

Fundamentally, although Elliott tries to characterize itself as a consumer of gas

processing services and also as a supplier of natural gas and NGLs, Elliott is a

royalty interest owner in a lease to Appellees.

Mere injury as a landlord or lessor entitled to royalties would not by
itself be the kind of injury to competition that the antitrust laws are
designed to prevent. The requirement that the alleged injury be
related to anticompetitive behavior requires, as a corollary, that the
injured party be a participant in the same market as the alleged
malefactors.

R.C. Dick Geothermal Corp. v. Thermogenics, Inc., 890 F.2d 139, 148 (9th Cir.

1989) (en banc) (quotation omitted). Thus, Appellees’ alleged conduct does not

harm competition or consumers.

Even assuming that Appellees’ conduct harmed competition, Elliott’s injury

is not a result of this alleged anticompetitive behavior. See, e.g., Pool Water

Prods. v. Olin Corp., 258 F.3d 1024, 1033 (9th Cir. 2001). An anticompetitive

injury would exist if, for example, Elliott alleged that Appellees were conspiring

with gas purchasers to keep downstream sales prices artificially low, such that

Elliott’s resulting royalty payments were reduced. See, e.g., Mandeville Island

Farms, Inc. v. Am. Crystal Sugar Co., 334 U.S. 219, 223-24, 227 (1948)

(concluding beet growers properly stated an antitrust claim by alleging sugar

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refiners agreed to pay uniform prices for sugar beets). This is not Elliott’s

allegation. Nor is it Elliott’s allegation that the effect of Appellees’ charging the

39% fee is anticompetitive by in some way limiting Elliott’s participation in the

natural gas market. See, e.g., Telecor Communications, Inc. v. Southwestern Bell

Tel. Co., 305 F.3d 1124, 1128-29 (10th Cir. 2002) (describing Southwestern Bell’s

actions making it more difficult for competitors to enter the Oklahoma pay phone

market). Elliott’s allegation is that Appellees are improperly calculating the

royalty payment due Elliott–either by charging an unreasonable fee for a legitimate

post-production cost or by charging a fee for an illegitimate post-production cost.

Even assuming Appellees’ conduct is anticompetitive, Elliott’s claimed injury does

not stem from the “competition-reducing aspect or effect of [Appellees’]

behavior.” Atlantic Richfield Co., 495 U.S. at 344.

Because we conclude that Elliott has not alleged an antitrust injury, its

antitrust claims necessarily fail. Sharp, 967 F.2d at 406. The district court thus

properly dismissed Elliott’s antitrust claims for failure to state a claim.

D. Dichter’s Appeal

In addition to appealing the denial of their motion to intervene, which we

have dismissed as moot, see discussion supra Part III.A, Dichter, not a party to the

original proceeding, is attempting to appeal the final judgment entered in favor of

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Appellees. 32 “The rule that only parties to a lawsuit, or those that properly become

parties, may appeal an adverse judgment is well settled.” Marino v. Ortiz, 484

U.S. 301, 304 (1998) (per curiam). In Devlin v. Scardelletti, the Supreme Court

excepted from this general rule unnamed class members who have objected to a

class settlement at the fairness hearing because “[t]o hold otherwise would deprive

nonnamed class members of the power to preserve their own interests in a

settlement that will ultimately bind them, despite their expressed objections before

the trial court.” 536 U.S. 1, 10 (2002); see also In re Integra Realty Res., Inc.,

354 F.3d 1246, 1256-58 (10th Cir. 2004) (discussing the import of Devlin).

Dichter is not objecting to a class settlement but instead attempting to challenge

subject matter jurisdiction. This court must address subject matter jurisdiction

regardless of Dichter’s appeal, thus the rationale behind the exception in Devlin

does not apply. Moreover, because we have already granted Dichter’s motion to

intervene in Elliott’s appeal and also determined that the district court erroneously

relied on a theory of aggregation when it concluded subject matter jurisdiction

existed over the putative class, Dichter’s primary argument in support of their

right to appeal is, as a practical matter, moot. The motion to dismiss those

Dichter’s appeal of the denial of its motion to intervene and its appeal of
32

the final judgment involve Case No. 04-2014.

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portions of Dichter’s appeal that do not relate to the district court’s denial of

Dichter’s motion to intervene is therefore granted.

IV. CONCLUSION

For the foregoing reasons, the district court’s judgment is AFFIRMED with

respect to Elliott’s claims as an individual plaintiff. The claims of the class are

REMANDED to the district court with instructions to vacate the judgment against

the class, to decertify the class, and to dismiss the claims without prejudice.

Dichter’s motion to intervene on appeal in the first instance is GRANTED and

Dichter’s appeal is DISMISSED.

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