March 2, 2021
The saga of J.B. Turner v. XTO Energy, Inc. reached another milestone on Feb. 25, 2021, when the 8th U.S. Circuit Court of Appeals granted summary judgment in favor of XTO Energy on Turner's claims of breach of contract and conversion. The case, previously appealed from the U.S. District Court for the Western District of Arkansas, offers important insights for energy companies going forward.
In 1980, the “Arkansas Oil and Gas Commission (Commission) permitted XTO Energy's predecessors in interest to drill a well on Turner's drilling unit” in Franklin County, Arkansas. Such a designation ensures that all mineral owners potentially impacted by the producing well will receive proper compensation. “The Turner No. 1 Well was drilled to extract gas from two different geologic formations — the Hale Formation and the deeper Viola Formation — through the casing zone and the tubing zone respectively.… Under the Commission's order, the gas from the two zones [was] not to be commingled because Turner's interests in the extracted gas differ[ed] depending on the formation from which it is extracted.”
By 2016, Turner alleged, “the gas from the two zones was … impermissibly commingled.” The Commission then “ordered that the well cease production until the alleged commingling could be corrected. After the well was shut in, testing revealed that the pressures between the tubing zone and casing zone were equalized, suggesting that gas was flowing into the surface pipeline from both zones.” Notably, “it is undisputed that the well has continued to extract gas from the Hale Formation through the casing zone since the well was drilled.”
Turner filed suit in Arkansas state court for breach of contract and conversion of payment, asserting that “the equalized pressures between the zones are evidence that the Viola Formation is still producing gas through the Turner No. 1 Well and that he has not been paid for those extractions.” XTO Energy removed the case to federal court, arguing “diversity jurisdiction and … that the well ceased producing gas from the Viola Formation through the tubing zone in 1982.” Following discovery, XTO Energy successfully moved for summary judgment when the district court determined there was no valid dispute that the Viola Formation was not capable of production after 1982.
In this latest appeal, XTO Energy prevailed before the 8th Circuit for several important reasons. First and foremost, what is noticeably clear is the absolute importance of developing industry expert witnesses — even in breach of contract/conversion cases. The defendant’s expert testimony proved to be a critical element of executing a veritable defense strategy. Expert witnesses are important to many cases and, in particular, cases involving the energy industry, where deep subject matter expertise communicated in a way that is immediately understandable is imperative to the outcome of the matter. In this case, the expert testimony of the defense offered an understanding of complex, nuanced information, and thus, credibility in solidifying its position.
In addition, a decided lack of tangible evidence from the plaintiff ultimately affirmed the defendant’s position. The 8th Circuit continued to uphold that disputed facts be “properly supported by the record” rather than just based on ipse dixit arguments developed from a few stray facts.
Furthermore, removing this case to federal court was an essential strategic maneuver in realizing a favorable defense result because it allowed the Fed. R. Civ. P. 12(b)(6) standard to be implemented through the development of Ashcroft v. Iqbal.