Tear Drop Cattle Company v. Devon Energy Production

Summarized by Jaden Banks , Nyemaster Goode, P.C.
7 months 1 week ago

Case Type:

Business

Case Status:

Affirmed

Citation:

24-8001 (10th Circuit, Jul 14,2025) Not Published

Tag(s):

Ruling:

The Court of Appeals for the Tenth Circuit affirmed the United States District Court for the District of Wyoming dismissal of a landowner's breach of contract claim as moot after the assignee of the contract paid their debt to the landowner and affirmed entry of summary judgment determining the original obligor remained liable under its agreements with the landowner regardless of its assignment of those agreements.

Procedural context:

Between 2000 and 2008, Tear Drop Cattle Company LLC ("Tear Drop") entered into a series of agreements with Devon Energy Production Company LP ("Devon") authorizing Devon to perform coal bed methane operations and entitling landowner to payment for use of its land. In 2016, Devon assigned the agreements to U.S. Real Powder River, LLC f/k/a Moriah Powder River, LLC and Moriah's affiliate Carbon Creek Energy LLC. In October 2019, Moriah filed for bankruptcy protection and in 2020 Tear Drop notified Devon of the default under the agreements and filed suit in Wyoming state court. Devon removed the case to federal court and filed a counterclaim seeking declaratory judgment regarding its liability under the agreements as a result of its assignment to Carbon Creek and Moriah. Tear Drop initially moved for summary judgment on its breach of contract claims, which the District Court granted and entered a final judgment, before later rescinding the judgment after realizing other claims remained pending. Tear Drop then moved for summary judgment against Devon, and while the motion was pending Carbon Creek paid the amounts due the Tear Drop and Devon thereafter moved to dismiss Tear Drop’s claims and its own claims as moot. The District Court dismissed Tear Drops claims as moot, but denied dismissal of Devon's own counterclaim and further declined to vacate its earlier summary judgment order determining that Devon remained liable for future payments under the agreements. Devon appealed and argued that the District Court (1) erred by denying Devon's motion to dismiss its counterclaim as moot, (2) argued that the District Court erred in refusing to vacate its prior summary judgment order, and (3) argued that the District Court erred by entering summary judgment because a summary judgment was precluded by a genuine factual dispute. The Court of Appeals affirmed the District Court, agreeing that the counterclaim remained a live controversy, that the District Court properly exercised its discretion by refusing to vacate its summary judgement order, and that no genuine dispute of fact existed and so Devon failed to meet the essential elements of its defenses.

Facts:

Between 2000 and 2008, Tear Drop and Devon entered into several agreements including a surface use agreement, treatment-site agreement, produced-water agreement, discharge-line-road agreement and road use agreement, designed to allow Devon to perform coalbed methane operations and facilitate that oil and gas extraction. In 2016, Devon assigned the agreements to Moriah and Carbon Creek, which initially paid the amounts due under the agreements but stopped payment in May 2019. Moriah filed for bankruptcy protection in October 2019. Tear Drop sent Devon notice of the default in February 2020 and thereafter pursued suit against Devon. Tear Drop sought judgment against Devon for breach of contract and Devon removed to federal court and counterclaimed seeking declaratory judgment that Carbon Creek assumed and was responsible of all obligations under the agreements, that Carbon Creek must indemnify and hold Devon harmless for all damages and costs and any future obligations from the agreements, and declaration that Devon was not liable for any future liabilities or breaches under the agreements because the agreements were cancelled and terminated as to Devon. Tear Drop moved for summary judgment on its claims against Devon and the District Court granted that motion in February 2022 and entered final judgment but later rescinded its judgment after realizing other claims remained pending. Tear Drop then moved for summary judgment on Devon’s counterclaim, and while that motion was pending Carbon Creek paid the amounts due to Tear Drop but defaulted again a few months later. Devon moved to dismiss both Tear Drop’s claims and its woen counter claim as moot, and based on its belief that the case was moot, Devon requested the District Court vacate its February 2022 summary judgment order. The District Court granted Devon’s motion to dismiss Tear Drops claims as mott but denied Devon’s motion to dismiss its own counterclaim, holding that Devon’s future liability and Tear Drop’s potential to bring future claims on the agreements meant Devon’s counter claim remained a live controversy. The District Court further concluded that because the counterclaim was viable, the denial of Devon’s request to vacate the February 2022 summary judgment order was appropriate because that order was relevant and ultimately dispositive of Devon’s counterclaim. Later the same day the District Court granted Tear Drop’s motion for summary judgement on Devon’s counterclaim, holding that Devon remained liable for future payments due under the agreements including statutory late payment penalties. The Court of Appeals observed that regardless of Devon's arguments to the contrary, the counterclaims was not moot because there was a good chance that Tear Drop could sue Devon under the agreements in the future regardless of Devon's position that it was no longer party to the agreements, given that Carbon Creek again failed to tender payments due under the agreements and Moriah remained in a bankruptcy. Despite, Carbon Creek's payment of the prior outstanding claims only mooted Tear Drop’s breach of contract claims but did not resolve Devon's counterclaim regarding whether Devon and Tear Drop were parties to an existing contract. The Court of Appeals also observed that though Tear Drop’s claim became moot due to Carbon Creek’s payment during the district court case, that action merely permitted the District Court to exercise its discretion to vacate its previous summary judgment order. The District Court's decision not to vacate its order which was relevant to the issues before it and dispositive of Devon's counterclaim was not an abuse of discretion. The Court of Appeals then turned to Devon's challenge to the merits of the District Court's summary judgment order and Devon's assertion that questions of fact remained as to whether Devon was relieved of its obligations by virtue of assignment or novation, and whether Devon was subject to statutory penalties under Wyoming's Split Estate Act. The Court of Appeals observed that under Wyoming law, surface use agreements related to oil and gas extractions were contracts with obligations that could not be delegated to assignees unless the agreement included an exculpatory clause or the landowner agreed to a novation. The agreements between Devon and Tear Drop reflected that Devon's rights and obligations were time limited and nothing within the agreement terminated Devon's obligations upon assignment. In particular certain obligations under the agreements provided for Devon’s extraction of coal and methane from Tear Drop’s land which resembled the obligations contained in oil and natural gas leases, including the requirement that Devon continue to pay unti it reclaimed (restore) Tear Drop’s land and as such those obligations did not run with the land and any assignment would not relieve Devon of its responsibilities. The Court of Appeals also concluded that Devon failed to meet the necessary elements of novation, in that no reasonable factfinder could infer that Devon, Moriah, Carbon Creek and Tear Drop entered into a new contract regarding use of Tear Drop’s real estate nor that the original agreements were extinguished, rather Moriah and Carbon Creek adherence to the original agreements was insufficient for novation. Finally, the Court of Appeals concluded that because Devon remained responsible for reclamation of Tear Drops land it qualified as an oil and natural gas operator subject to the Wyoming Split Estate Act and that any other conclusion would contravene public policy if a an oil and gas operator were to be able to escape damages for nonpayment to landowners by simply leaving their operations priori to default or by assigning theri interest to an insolvent entity.

Judge(s):

Matheson, Moritz and Federico

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