A Texas woman may now have a jury decide whether she was duped into selling her royalty rights in Weld County when a buyer allegedly lied to her that no oil and gas production was occurring on the land in question.

Last week, the U.S. Court of Appeals for the 10th Circuit reinstated the lawsuit of Kimberly S. Grayden against Spring Creek Energy Partners, LLC and its managing partner, Jason L. Eddington. According to the lawsuit, Eddington purchased some of Grayden’s royalty interests, then turned around and sold them at a profit, only because he misled her into thinking there were no active wells at the time.

A trial judge initially sided with Spring Creek, finding Grayden should have been on notice from publicly-filed records that there were fossil fuel-producing wells attached to her royalty interests. But a three-judge panel for the 10th Circuit reversed that decision, believing the text of the documents did not actually alert Grayden she was about to relinquish something of higher value.

Specifically, an “affidavit of extension” filed with the Weld County Clerk and Recorder’s Office stated that wells on the land “are producing or capable of producing oil and/or gas.” Even if Grayden had seen the affidavit, the appellate panel concluded, it would not have contradicted Eddington’s alleged claim that no active wells were associated with Grayden’s royalty interests.

“A well that is capable of producing oil and gas is not necessarily a then-producing well,” wrote Judge Scott M. Matheson Jr. in the Dec. 28 order. A jury, he added, could find Grayden “would have needed more information beyond what the affidavits state to be on notice of ongoing oil and gas production.”

Although the panel based its decision on the phrase “capable of producing,” that statement was not a focus of the parties’ arguments. In fact, Grayden’s lawyer told the appellate judges during oral arguments that Colorado law treats a well “capable of producing” oil and gas the same as an actually-producing well.

“Colorado is a commercial discovery rule state, which means ‘production’ means either, in fact, producing or capable of producing,” said attorney John K. Crisham. “So you need to go and look whether an operator is, in fact, producing oil and gas in commercially-viable quantities or whether that oil and gas rig is capable of doing so.”

Attorneys for Spring Creek declined to react to the 10th Circuit’s rationale.

“We were disappointed by the court’s decision, as I am sure you can imagine, and we are evaluating our next steps. It would not be appropriate to say more at this time,” said Christopher Hayes.

Crisham did not respond to a request for comment.

Following the death of a relative in 2015, Grayden inherited certain Weld County royalty interests for oil and gas leases. According to her lawsuit, Eddington contacted her in 2018 to inquire if Grayden was interested in selling her rights to him. 

“Ms. Grayden made explicitly and repeatedly clear to Eddington – in both telephone calls and in emails – that she refused to sell any overriding royalty interests in any leases for tracts of land with producing oil-or-gas wells,” Chrisham wrote to the 10th Circuit.

Only after Eddington allegedly assured her on multiple occasions that no producing wells were implicated did Grayden agree to sell one-third of her interests for over $400,000. Spring Creek then quickly sold the rights to another company for $566,000.

The parties continued to discuss the sale of Grayden’s remaining interests, but she received a call from Noble Energy, the operator for the oil and gas leases. There had been confusion at the company about who should receive the royalty payments on Grayden’s inherited rights. In reality, Grayden learned, there were active wells on the land and Noble Energy was in the process of drilling new ones.

Gradyen alleged that Spring Creek and Eddington had known those facts and had actively misled her. She filed a lawsuit against them for fraudulent concealment and civil theft.

Initially, U.S. Magistrate Judge N. Reid Neureiter recommended allowing Grayden’s claims to proceed to trial. While recognizing the defendants would not have done anything wrong by simply staying silent and not correcting Grayden’s own misconceptions about the oil and gas production, Neureiter pointed out Grayden had claimed Eddington was an active participant in the concealment.

“A jury could find that, if Defendants actually made the misleading statements as Ms. Grayden claims, there was an affirmative duty to correct her misunderstanding,” Neureiter wrote in his recommendation to U.S. District Court Judge Raymond P. Moore.

But the defendants asked Moore to look at publicly-filed documents related to the oil and gas leases, which included the extension affidavits stating the wells were producing or “capable of producing” oil and gas. Moore agreed to consider the records and concluded they effectively put Grayden on notice of active oil and gas wells, regardless of what Eddington told her. He then threw out the lawsuit.

On appeal, the parties largely focused on whether the public records did put Grayden on notice, with the defendants arguing Grayden could not “use her own ignorance to unwind a deal” and Grayden countering that Colorado law does not obligate sellers to ensure no document exists to contradict a buyer’s statements.

The panel assumed Grayden should have been on notice of the documents. However, because the phrase “capable of producing” was ambiguous, Grayden would not have automatically known about the active wells from the records alone.

The case is Grayden v. Spring Creek Energy Partners, LLC et al.