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Atlantic Richfield Co. v. Farm Credit Bank of Wichita

ELR Citation: 31 ELR 20093
Nos. Nos. 99-1147 et al., 226 F.3d 1138/(10th Cir., 09/13/2000)

The court affirms in part and reverses in part various rulings made by a district court resolving the claims and counterclaims of a lessee and three lessors of several oil and gas leases in Huerfano County, Colorado. The lessors' general claim was that the lessee breached the lease agreements by underestimating the fair market value of gas taken and by deducting certain transportation costs from their royalty payments. The court first reverses the district court's ruling that one of the leases unambiguously permits the lessee to deduct transportation expenses from royalty payments. On remand, the district court should determine what extrinsic evidence, if any, is relevant and admissible for the purpose of clarifying the meaning of the gas pricing provision in the lease. Next, the court affirms the district court's ruling that the lease permits the lessee to use a weighted average price under the gas pricing provision, but it reverses the district court's ruling that the same provision permits the lessee to use amounts received by another company that shared ownership of a gas pipeline with the lessee to calculate the weighted average price. The court then reverses the district court's ruling that the phrase cost of transporting in a second lease unambiguously excludes interest during construction (IDC) and cost of capital (COC) costs. Again, the district court must determine on remand what extrinsic evidence, if any, is relevant and admissible for the purpose of clarifying these issues. Similarly, the district court erred in ruling that IDC and COC costs do not constitute transportation costs under a lease that was silent as to transportation costs. Unless the parties intended something to the contrary in their contracts, IDC and COC are transportation costs. Thus, if, on remand, the district court or jury determines that the lessee may deduct transportation costs, the IDC and COC costs should be included in the calculation. The court also reverses the district court's ruling permitting the lessee to deduct depreciation expenses based on the capital expenditures of the company that co-owned the pipeline. On remand, the district court must determine the amount the lessee actually contributed toward the pipeline.

The court then affirms the district court's decision as to which state statute governs the rate of prejudgment interest under the leases, and it affirms the district court's ruling that the lessors failed to specifically prove their entitlement to moratory interest. The court also affirms the district court's ruling that one of the lessors failed to state a claim for fraudulent concealment because the lessor failed to plead the element of detrimental reliance. Moreover, the court affirms the district court's ruling that another lessor failed to present or preserve a viable damages theory in support of its claim for fraud. The court next holds that the district court erred in ruling that the lessors' breach of fiduciary duty counterclaims were insufficient as a matter of law. In addition, the district court correctly excluded the testimony of one of the experts for the lessors, but the district court erred in holding certain counterclaims time barred under a state statute.

The full text of this decision is available from ELR (70 pp., ELR Order No. L-267).

Counsel for Plaintiff
Anthony J. Shaheen
Davis, Graham & Stubbs
370 17th St., Ste. 4700, Denver CO 80201
(303) 892-9400

Counsel for Defendant
Steven R. Rider
Rider & Woulf
11246 E. Mississippi Ave., Aurora CO 80012
(303) 750-2303