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Ll&E Royalty Trust v. Quantum Resources Management, LLC

United States District Court, E.D. Michigan, Southern Division

July 14, 2015

THE LL&E ROYALTY TRUST, by ROGER D. PARSONS, TRUSTEE, Plaintiff,
v.
QUANTUM RESOURCES MANAGEMENT, LLC; QR ENERGY, LP; and QRE OPERATING, LLC, Defendants.

OPINION AND ORDER GRANTING DEFENDANTS' MOTION TO DISMISS (DOC. #21) AND ALLOWING PLAINTIFF 30 DAYS TO FILE AMENDED COMPLAINT

GEORGE CARAM STEEH, District Judge.

This action concerns a dispute over a royalty contract relating to the Jay Field, an oil and gas field in Florida and Alabama covering over 14, 000 acres, with more than 70 active wells. One or all of the defendants allegedly are the "working interest owners" of Jay Field, as established through the 1983 Conveyance of Overriding Royalty Interests (the "1983 Conveyance"), entered into by defendants' predecessors in interest. A working interest owner "of an oil and gas field develops and manages the operations of the field, in exchange for a portion of royalties...." Compl. ¶ 15. This includes "the right to drill for and produce oil and gas on the leased acreage." Def's. Mot. To. Dismiss at 2.

Plaintiff, The LL&E Royalty Trust, alleges that, pursuant to the 1983 Conveyance, it is entitled to 50% of certain accrued royalty payments (the "overriding royalty interests" or "royalties") that have been withheld from defendants. Specifically, plaintiff contends that it stopped receiving royalties in April 2007, at the time defendants acquired the working interest in Jay Field. Moreover, plaintiff alleges that defendants have failed to comply with auditing requirements that would allow plaintiff access to defendants' books and records in order to determine the amount of royalties owed. The complaint is in seven counts, phrased by plaintiff as follows:

Count I Breach of Contract
Count II Statutory Conversion
Count III Fraud
Count IV Breach of Fiduciary Duty
Count V Violation of the Racketeer Influenced and Corrupt organizations Act, 18 U.S.C. § 1961, et seq. ("RICO")
Count VI Accounting/Injunctive Relief
Count VII Appointment of a Receiver

Now before the court is defendants' motion to dismiss the complaint. (Doc. #21). For the reasons that follow, defendants' motion will be granted. Plaintiff shall have the opportunity to file an amended complaint to cure the deficiencies in the complaint no later than 30 days from the entry of this order.

I. BACKGROUND

On June 1, 1983, The Louisiana Land And Exploration Company (the "LL&E Company") established the plaintiff trust, a publicly traded trust. Compl. ¶¶ 12-13. The trust owns royalty rights in oil and gas producing properties in Florida and Alabama, including the Jay Field. Id. ¶¶ 13-14. The trust's interests are laid out in the 1983 Conveyance. Pursuant to the 1983 Conveyance, plaintiff and defendants share a 50-50 split of royalty payments generated from certain leases within the Jay Field.

In 2006, the working interest owners of the Jay Field were Conoco Phillips and Exxon Mobil. Id. ¶ 16. The field was operated by Exxon Mobil. Id. Defendant QRE Operating, LLC ("QRE Operating"), a Delaware limited liability company with its principle place of business in Houston, Texas, purchased all of Conoco Phillips' and Exxon Mobil's interests in 2007. Id. ¶ 17. At the time this lawsuit was filed, QRE Operating's sole member was QR Energy, LP ("QR Energy"), a Delaware Master Limited Partnership with its principal place of business in Texas, formed in September 2010. QRE Energy had limited partners ("unitholders") from multiple different states, including over 1, 300 unitholders from Michigan. Since the filing of this lawsuit, QRE Energy has been acquired by Breitburn Energy Partners, ...


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