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MARLIN ENERGY, INC. v. SORLING

February 7, 2003

MARLIN ENERGY, INC. A FLORIDA CORPORATION, AND MARLIN GAS TRANSPORT, INC., AN INDIANA CORPORATION, PLAINTIFFS,
v.
SORLING, NORTHRUP, HANNA, CULLEN AND COCHRAN, LTD., AN ILLINOIS LIMITED PARTNERSHIP, AND SCOTT HELMHOLZ, DEFENDANTS.



The opinion of the court was delivered by: Jeanne E. Scott, United States District Judge

ORDER

This matter comes before the Court on the parties' cross-motions for partial summary judgment and on Plaintiffs' Motion to Strike the Affidavit of Paul Croegaert and Any References to His Opinions in Defendants' Motion for Partial Summary Judgment. Defendant Sorling, Northrup, Hanna, Cullen and Cochran, Ltd. (Sorling) filed a lien against Plaintiffs Marlin Energy, Inc. and Marlin Gas Transport, Inc. (collectively Marlin) as the operator of certain gas wells located in Macoupin County, Illinois, pursuant to the Illinois Oil and Gas Lien Act of 1989, 770 ILCS 70/1 et seq. (Act).*fn1 The Act authorizes parties that provide labor and services, under an agreement with the well operator (or a subcontractor of the operator), for operating gas wells to file a lien against the wells and proceeds from the wells for payment of such labor and services. Marlin filed this action to void the lien. Marlin also alleges additional claims against Sorling for damages resulting from the filing of the lien, and for legal malpractice. Sorling counterclaimed for its fees and to foreclose the lien. The parties have filed cross-motions for partial summary judgment regarding whether the lien is valid. For the reasons set forth below, the Court allows the Plaintiffs' Motion to Strike the Affidavit of Paul Croegaert and Any References to His Opinions in Defendants' Motion for Partial Summary Judgment. The Court further determines that the lien is valid to the extent of the value of Sorling's lienable services. The Court reserves ruling on the value of the services for later proceedings in this matter.

STATEMENT OF FACTS

On December 20, 1998, Western Illinois Pipeline Group, Inc. (Western) assumed the rights of another company called SMTV, Inc. as the lessee of wells at the Plainview gas field located in Macoupin County, Illinois. Several different lessors leased the oil and gas rights to different portions of the Plainview field to SMTV and its assignee Western. The leases entitled the lessors to royalties of one-eighth of the sale price for all gas produced from the field.*fn2 Western and SMTV are owned by the same individual, Donald Reid. The wells existed for some time prior to the 1998 assignment between SMTV and Western, but no gas had been produced because the Plainview field was not connected to a pipeline or other distribution system. SMTV had been paying shut-in fees to the lessors. Such fees are necessary to keep the leases from expiring.

On April 2, 1998, Western and Marlin entered into a Gas Purchase Agreement (Agreement). Plaintiffs' Memorandum (d/e 138) Ex. A to Ex. 2. Under the Agreement, Marlin agreed to purchase gas from Western under certain conditions. The Agreement contemplated that Marlin would compress and dehydrate the gas on-site with its own equipment and then transport the gas by truck from the field to an end-user. Western agreed to pay Marlin a $20,000.00 set-up fee to cover the cost of installing Marlin's equipment on the site. Marlin retained 33 percent of the funds due Western under the Agreement until the set-up fee was paid. Agreement § II. 7.

Western agreed to install gathering pipes in the fields to deliver gas from at least three of the wells in the field to a central point in the field:

Prior to installation of Buyer's transportation, compression and treatment equipment, Seller agrees to install a gathering system to a central delivery point as defined herein as the point of delivery from at least three (3) of Seller's wells along with an all weather loading site.
Agreement § II. 9.

The Agreement defined "point of delivery" as follows:

V. POINT OF DELIVERY

1. The point of delivery of the gas to be delivered by Seller to Buyer hereunder shall be at a mutually agreeable point on a good all-weather road surface on Seller's leases in size and proportion as acceptable to Buyer. Seller understands that Buyer's tractor-trailer vehicles are 80,000 pounds gross weight each and such delivery point loading pad shall be constructed to appropriately accommodate Buyer loading operations.
2. As between the parties hereto, Seller shall be in exclusive control and possession of the gas deliverable hereunder and responsible for any damage or injury caused thereby until the same shall have been delivered to Buyer, after which delivery, Buyer shall be deemed to be in exclusive control and possession thereof and responsible for any injury or damage caused thereby. Title to the gas delivered hereunder shall pass at each point of delivery.
Agreement § V.

According to the Agreement, Marlin would then truck the gas to an end-user. Marlin paid Western a percentage of the price Marlin received from the end-user:

(a) The actual well head price for natural gas to be paid by Buyer to Seller (Seller's Price) for each Mcf of gas delivered by Buyer to Buyer's ultimate market shall be a percentage of the price actually paid to Buyer by Buyer's ultimate market (Buyer's Price) . . .
(c) It is further agreed that Buyer shall have the right to suspend payment of any portion of the price otherwise payable by Buyer hereunder in the event payment to Buyer is suspended by Buyer's ultimate market.
(d) It is also agreed that in the event any money paid to Seller by Buyer which is later excluded and/or disallowed by means of a rate reduction by Buyer's ultimate market shall be promptly refunded to Buyer by Seller, together with interest thereon at a rate of 12% from the date such payment was made by Buyer.
Agreement § X. 1(a).*fn3 The percentage of Buyer's Price paid to Western increased as the volume of gas produced increased. Id. Marlin metered and calculated the volumes of gas produced and sold. Id. at § VII. The entire Agreement was conditioned on Marlin successfully negotiating a contract with an end-user, located within 40 miles of the point of delivery, that would pay Marlin at least $2.80 Mcf for the gas. Id. at § II. 10.

Beginning in April 1998, Marlin and Western extracted gas from wells located on the northwestern side of a railroad track that cut across the Plainview gas field. Marlin had negotiated an agreement to deliver gas to a facility operated by the Olin Corporation (Olin). Western installed a gathering system of pipes and equipment to de-water the gas. Marlin installed and operated the compressors and dehydrators, metering, and the truck loading equipment.

In December 1998, Western assigned its rights as operator of the field to Marlin. In December 1999, Western withdrew this assignment. The operations on the northwest side of the railroad track ...


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