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Petco Petroleum Corporation and Bergman Petroleum Corporation v. Natural Gas Pipeline Company of America

June 3, 2011

PETCO PETROLEUM CORPORATION AND BERGMAN PETROLEUM CORPORATION, PLAINTIFFS,
v.
NATURAL GAS PIPELINE COMPANY OF AMERICA, DEFENDANT.



The opinion of the court was delivered by: J. Phil Gilbert District Judge

MEMORANDUM AND ORDER

This matter comes before the Court on the motion of defendant Natural Gas Pipeline Company of America ("NGPL") to dismiss Count III, a trespass claim, pursuant to Federal Rule of Civil Procedure 12(b)(6) and, alternatively, for judgment on the pleadings on Count III pursuant to Federal Rule of Civil Procedure 12(c) (Doc. 132). Plaintiffs Petco Petroleum Corporation ("Petco") and Bergman Petroleum Corporation ("BPC") (by its successor Loudon Energy Corporation) have responded to the motion (Doc. 140), and NGPL has replied to that response (Doc. 141).

I. Background

This case centers on the various parties' respective rights to and activities in subterranean geological formations beneath a parcel of land in Fayette and Effingham Counties called Loudon Field. NGPL has rights to the lower two layers (Grand Tower Dolomite and Cedar Valley Limestone, both in the Devonian Reservoir), and uses those formations to store natural gas. BPC has rights to the higher-up Carper Sand formation. The plaintiffs allege NGPL's highly pressurized gas storage practices have caused the reservoir to fracture and leak storage gas into the New Albany Shale (a layer immediately above the Cedar Valley Limestone and below the Carper Sand) and the Carper Sand and onto the land surface. They also allege NGPL's improperly capped wells are leaking gas into those layers. This migration, they claim, has prevented them from exercising their rights to explore for and produce native natural gas and oil in the New Albany Shale and Carper Sand. NGPL counters that it was the plaintiffs' drilling in the Carper Sand that caused the reservoir fracture and the migration of NGPL's gas.

In Count III, the only claim remaining in this case, the plaintiffs allege that NGPL's negligent operations in combination with natural fractures in the New Albany Shale have allowed NGPL's storage gas to migrate into the New Albany Shale and Carper Sand, which has, in turn, prevented the plaintiffs from exercising their rights to explore for and produce native gas and oil there. The plaintiffs claim the migration of NGPL's storage gas constitutes a trespass for which they are entitled to damages.

In August 2005, the Court abstained from hearing Count III under Colorado River Water Conservation District v. United States, 424 U.S. 800 (1976), pending the resolution of various state court actions involving the same question at issue in Count III: Did NGPL commit a trespass when its storage gas migrated into the New Albany Shale and Carper Sand? The last of those actions terminated on November 3, 2010, and now NGPL asks the Court to dismiss Count III on the basis of res judicata because it believes the trespass question was answered in its favor in the state court actions. It also asks the Court to dismiss Count III because the plaintiffs cannot recover on a claim of trespass where they did not yet possess the native gas and oil for which they seek damages. The Court first turns to the question of res judicata because it provides a complete resolution of Count III.

II. Res Judicata

The doctrine of res judicata, also known as claim preclusion, prevents relitigation of matters that were fully litigated in an earlier suit that resulted in a judgment on the merits. Groesch v. City of Springfield, 635 F.3d 1020, 1029 (7th Cir. 2011). Because of the Full Faith and Credit Act, 28 U.S.C. § 1738, federal courts must give a state court judgment the same preclusive effect that the court rendering the judgment would give it. Haber v. Biomet, Inc., 578 F.3d 553, 556 (7th Cir. 2009); Licari v. City of Chicago, 298 F.3d 664, 666 (7th Cir. 2002). Thus, when examining whether an Illinois court judgment bars a federal lawsuit because of res judicata, the Court looks to the preclusive effect an Illinois court would give the judgment in question. Groesch, 635 F.3d at 1029; Licari, 298 F.3d at 666. Under Illinois law, res judicata applies if the prior decision (1) was a final judgment on the merits rendered by a court of competent jurisdiction, (2) involved the same parties or their privies, and (3) constituted the same cause of action as the current suit. Nowak v. St. Rita High Sch., 757 N.E.2d 471, 477 (Ill. 2001); People ex rel. Burris v. Progressive Land Developers, Inc., 602 N.E.2d 820, 825 (Ill. 1992); Groesch, 635 F.3d at 1029. In this case, the plaintiffs challenge whether the prior state court litigation constituted the same cause of action as Count III in this case.

Illinois uses a transactional approach to determining whether different claims constitute the same cause of action for res judicata purposes. River Park, Inc. v. City of Highland Park, 703 N.E.2d 883, 893 (Ill. 1998); see Garcia v. Village of Mt. Prospect, 360 F.3d 630, 637 (7th Cir. 2004). Under the transactional approach, "separate claims will be considered the same cause of action for purposes of res judicata if they arise from a single group of operative facts, regardless of whether they assert different theories of relief." River Park, 703 N.E.2d at 891; accord Rodgers v. St. Mary's Hosp., 597 N.E.2d 616, 621 (Ill. 1992) (res judicata bars suit if "the same facts were essential to maintain both actions" or if "a single group of operative facts gives rise to the assertion of relief"). As a corollary to this rule, Illinois observes the doctrine of merger and bar which precludes the relitigation not only of claims that were actually litigated but also claims that could have been litigated. People ex rel. Burris, 602 N.E.2d at 825; River Park, 703 N.E.2d at 889 see Garcia, 360 F.3d at 639.

The defense of res judicata is properly raised in a motion for judgment on the pleadings under Federal Rule of Civil Procedure 12(c). Carr v. Tillery, 591 F.3d 909, 913 (7th Cir. 2010).

A. State Court Judgments

The state court judgments on which NGPL's motion rests occurred in Natural Gas Pipeline Company of America v. Petco Petroleum Corp. in the Circuit Court of the Fourth Judicial Circuit, Fayette County, Illinois (Case No. 00-L-21), and in the Appellate Court of Illinois for the Fifth District (Case Nos. 5-07-0050 & 5-07-0051). That case began when NGPL sued Petco and BPC alleging they were negligent in drilling an oil and gas well in the Loudon Field -- the Lydia Weaber # 8 ("LW 8") well -- that damaged the NGPL's storage reservoir at issue in this case and caused NGPL's storage gas to migrate into the New Albany Shale and Carper Sand.

Petco and BPC filed a counterclaim alleging, among other things, that NGPL was negligent in allowing its pressurized storage gas to migrate out of the reservoir. They claim that, as a result of this negligence, NGPL's storage gas "escaped into, invaded and overwhelmed" the Carper Sand. It charged that the migration of storage gas constituted a trespass by NGPL on Petco and BPC's mineral rights that caused them to lose the ...


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