Abraham v. WPX Energy Production, LLC (20 F. Supp. 3d 1244, 2014)

MEMORANDUM OPINION

JAMES O. BROWNING, District Judge.

THIS MATTER comes before the Court on Williams Four Corners, LLC’s and Williams Energy Resources LLC’s Motion to Dismiss Plaintiffs’ Third Claim for Relief, filed October 30, 2012 (Doc. 18)(“MTD”). The Court held a hearing on May 1, 2013. The primary issues are: (i) whether, following New Mexico’s “actual conflict” doctrine, there is a conflict between New Mexico and Colorado law, as applied in this case; and (ii) whether, under New Mexico and Colorado law, when a plaintiff has asserted a breach-of-contract claim against one defendant, that plaintiff may also assert an unjust enrichment claim for the same subject matter against a third party with whom the plaintiff does not have a contract. Although the parties did not raise the choice-of-law issues, but discussed only New Mexico law, the Court concludes that there is no actual conflict between New Mexico and Colorado law, because the Plaintiffs’ unjust enrichment claims fail under both New Mexico and Colorado law. Thus, the Court will apply New Mexico law, grant the MTD, and dismiss the Plaintiffs’ unjust enrichment claim.

FACTUAL BACKGROUND

This matter arises from alleged royalty underpayments for wells in the San Juan Basin in New Mexico and Colorado. See Third Amended Class Action Complaint ¶¶ 13-14, at 5, filed October 29, 2012 (Doc. 15)(“TAC”). As this matter comes before the Court on a motion to dismiss, the Court will assume that all facts in the Plaintiffs’ complaints are true. See Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (stating that, to survive a motion to dismiss, “[fjactual allegations must be enough to raise a right to relief above the speculative level ... on the assumption that all the allegations in the complaint are true (even if doubtful in fact)”).

Defendant WPX Energy Production, LLC (“WPX Energy”) is in the business of exploring for and producing natural gas, and is the lessee under the leases. See TAC ¶ 3 at 2; id. ¶ 10, at 4. The Plaintiffs own royalty and overriding royalty interests burdening WPX Energy’s working interest in oil-andrgas leases in Colorado and New Mexico. See TAC ¶ 3, at 2; id. ¶ 6, at 3. The hydrocarbons at issue are produced from wells that WPX Energy owned and operated in San Juan Basin. See TAC ¶ 7, at 3; id. ¶ 13, at 5.

The San Juan Basin, one of the largest natural gas producing fields located in northwest New Mexico and southwest Colorado, was • originally developed in the early 1950’s by El Paso Natural Gas Company.... The natural gas produced in the San Juan Basin is conventional gas which contains methane (natural gas) and entrained natural gas liquids (“NGLs”), such as ethane and butane. In order to make the gas safe to enter the interstate pipeline, the NGLs must be removed from the gas stream.

Elliott Indus. LP v. BP Am. Prod. Co., 407 F.3d 1091, 1099 (10th Cir.2005) (“Elliott Indus.”). Pursuant to separate contracts between WPX Energy, the “upstream” exploration and production company, TAC ¶3, at 2, and Defendant Williams Four Corners, LLC (“WFC”), the “ ‘midstream’ enterprise,” TAC ¶ 4, at 2, WFC gathers the gas, transports it from the wells to a processing plant, and, in some instances, processes the extraction of NGLs. TAC ¶4, at 2; id. ¶ 7, at 3; id. ¶ 11, at 4; id. ¶ 25, at 9; id. ¶ 39, at 12; id. ¶ 44, at 13; id. ¶ 64, at 18-19. Defendant Williams Energy Resources, LLC (‘WER”) then markets and sells the NGLs on behalf of WPX Energy and WFC. TAC ¶ 5, at 3; id. ¶¶ 39-40, at 12; id. ¶¶42, 44, at 13; id. ¶ 64, at 18.

PROCEDURAL BACKGROUND

On October 29, 2012, the Plaintiffs filed the TAC, alleging that the combined conduct of WPX Energy, WFC, and WER has resulted in “systemic underpayment” of royalties and overriding royalties “due to the failure to pay on the burdened leaseholds’ production on NGLs and on oil and condensate, understating the liquids content of production, the improper charging of post-production expenses against production revenues, and deductions in the royalty computation of charges that are not actually incurred and are unreasonable.” TAC ¶ 14, at 5. The Plaintiffs contend that, although their contracts are with WPX Energy, WFC and WER are jointly responsible for the underpayment of royalties, because WFC extracts NGLs, and because WER disposes of the NGLs “free of royalty at a substantial financial detriment” to the Plaintiffs and the proposed class. TAC ¶ 14, at 5. The Plaintiffs’ claims against WPX Energy include breach of contract, see TAC ¶¶ 58-61, at 17-18; breach of the covenant of good faith and fair dealing, see TAC ¶¶ 62-65, at 18-19; breach of the implied covenant to market, see TAC ¶¶ 70-79, at 20-22; and violation of the New Mexico Oil and Gas Proceeds Payment Act, N.M. Stat. Ann. §§ 70-10-1 to -6, see TAC ¶¶ 86-88, at 23. The claims against WFC and WER are for unjust enrichment. See TAC ¶¶ 66-69, at 19. Against WPX Energy, WFC, and WER, the Plaintiffs request declaratory judgment, accounting for the underpayments, and an injunction for the future royalty calculations and payments. See TAC ¶¶ 80-85, at 22-23.

The Plaintiffs allege that WFC and WER were unjustly enriched from WFC’s processing contracts with WPX Energy, by retaining the value of the NGLs. See TAC ¶¶ 64, 66-69, at 18-29; MTD at 2. WFC and WER (collectively, “WFC/WER”) move the Court, pursuant to rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss the unjust enrichment claims against them in the TAC. See MTD at 1. WFC/WER argue that the Plaintiffs cannot maintain an unjust enrichment claim against WFC or WER, because the Plaintiffs have an adequate remedy at law through .the breach-of-contract claim against WPX Energy. See MTD at 3.

WFC/WER argue that the contracts between the Plaintiffs and WPX Energy govern the Plaintiffs’ NGL underpayment claims. See MTD at 3. “Elliott instructs that the Royalty Agreements are the ‘very foundation’ of the parties’ relationship, and defines the ‘core duty of a royalty payment.’ ” MTD at 3 (quoting Elliott Indus., 407 F.3d at 1108). By filing a breach-of-contract claim against WPX Energy based on the royalty agreements, WFC/WER say that the Plaintiffs recognize that the royalty agreements govern the underpayment claims. See MTD at 4. WFC/WER contend that the existence of royalty agreements precludes the Plaintiffs from asserting quasi-contractual claims against WPX Energy. See MTD at 4. WFC/WER argue that the Plaintiffs cannot maintain unjust enrichment claims, because, “[fjirst, Plaintiffs have an adequate remedy at law (breach of contract) against WPX. Second, any connection between Plaintiffs and Williams is too attenuated to give rise to a claim of unjust enrichment. And third, Plaintiffs fail to meet the requirements for unjust enrichment.” MTD at 4-5.

Regarding the first argument, WFC/ WER argue that the unjust enrichment theory evolved to provide relief when a party cannot claim relief through an existing contract or other remedy at law. See MTD at 5. WFC/WER contend that, if the parties are in privity and can pursue a contract claim, they cannot pursue unjust enrichment claims. See MTD at 5. WFC/ WER argue that New Mexico law, as the Tenth Circuit construed it in Elliott Indus., does not allow unjust enrichment claims if there is an enforceable express contract between the parties, because the Tenth Circuit stated that “ ‘the hornbook rule [is] that quasi-contractual remedies ... are not to be created when an enforceable express contract regulates the relations of the parties with' respect to the disputed issue.’ ” MTD at 5 (alteration in original)(quoting Elliott Indus., 407 F.3d at 1117). WFC/WER point out that other courts have “barred unjust enrichment claims against third parties when the claim involves the issues that are the subject of a contract.” MTD at 6 (citing Randall’s Island Aquatic Leisure, LLC v. City of New York, 92 A.D.3d 463, 938 N.Y.S.2d 62, 62 (2012); Bellino Schwartz Padob Adver., Inc. v. Solaris Mktg. Grp., Inc., 222 A.D.2d 313, 635 N.Y.S.2d 587, 588 (1995); Pepi Corp. v. Galliford, 254 S.W.3d 457, 462 (Tex.App.2007)). Because the claim against WFC/WER covers the same.subject matter as the breach-of-contract claim against WPX Energy, WFC/WER argue that the Plaintiffs cannot maintain the unjust enrichment claim. See MTD at 7.

Next, WFC/WER contend that the relationship between the Plaintiffs and WFC or WER is too attenuated to support an unjust enrichment claim. See MTD at 7. According to WFC/WER, the Restatement (Third) of Restitution and Unjust Enrichment § 2 cmt. b (2011), articulates the principle that, unless the claimant has a legally protected interest in the benefit conferred on another party, “the fact that we derive advantage from the efforts and expenditures of others is not ‘unjust enrichment’ but just one of the advantages of civilization.” MTD at 7. WFC/WER cite cases from New York to support the proposition that, without a direct relationship, a plaintiff cannot bring an unjust enrichment claim against a third party: “[T]o allow an unjust enrichment claim in that circumstance would require parties to ‘probe the underlying relationships between the businesses with whom they contract and other entities tangentially involved but with whom they have no connection. This would impose a burdensome obligation in commercial transactions.’ ” MTD at 7 (citing Georgia Malone & Co., Inc. v. Rieder, 19 N.Y.3d 511, 950 N.Y.S.2d 333, 973 N.E.2d 743, 748 (2012)). In this case, WFC/WER argue that the Plaintiffs are not parties to, or beneficiaries of, the contracts among WPX Energy, WFC, and WER. See MTD at 8. WFC/WER argue that the “Plaintiffs seek to assert a claim against WFC based on a processing contract between WPX [Energy] and WFC. Similarly' — and another step removed— Plaintiffs seek to assert a claim against WER, based on an NGL sales/purchase contract between WFC and WER.” MTD at 8. WFC/WER argue that allowing the Plaintiffs to pursue the unjust enrichment claims against them threatens “the possibility of never-ending claims all the way up the supply chain.” MTD at 9.

Third, WFC/WER argue that the Plaintiffs’ claims do not satisfy the requirements of unjust enrichment. See MTD at 9. WFC/WER contend that, under New Mexico law, a party asserting unjust enrichment must show that: “(1) another has knowingly benefited at one’s expense[;] (2) in a manner such that allowance of the other to retain the benefit would be unjust.” MTD at 9 (quoting Ontiveros Insulation Co. v. Sanchez, 2000-NMCA-051, ¶ 11, 129 N.M. 200, 3 P.3d 695). Citing cases from Idaho, Texas, and New York, WFC/WER assert that the defendant in an unjust enrichment case “must be the intended beneficiary,” MTD at 9 (citing Cuevas v. Barraza, 152 Idaho 890, 277 P.3d 337, 344 (2012)), and that a plaintiff must show that “his efforts were undertaken” for the defendant, MTD at 9 (quoting Concept Gen. Contracting, Inc. v. Asbestos Maintenance Servs., Inc., 346 S.W.3d 172, 182 (Tex.App.2011)). Because WFC and WER were, in their view, at best, “incidental beneficiaries” and not intended beneficiaries, WFC/WER assert that the Plaintiffs have not alleged facts sufficient to support the unjust enrichment claims against them. See MTD at 10, & n. 10 (quoting Concept Gen. Contracting, Inc. v. Asbestos Maint. Servs., Inc., 346 S.W.3d at 182).

The Plaintiffs respond that the Defendants “have arrangements” where WFC/ WER “physically possess the liquids at the wells and processes the gas stream to extract the NGLs and sell them for its sole financial gain avoiding payment of the plaintiffs’ royalties.” Plaintiffs’ Response in Opposition to Williams Four Corners and Williams Energy Resources’ Motion to Dismiss Third Claim for Relief at 2, filed November 12, 2012 (Doc. 20)(“Response”). The Plaintiffs argue that they are “lawfully entitled to share in the proceeds from the sale of those NGLs and other liquids,” but that WPX Energy pays them royalties on the “much less valuable residue gas (methane) remaining” after WFC/WER have extracted and taken the liquids. Response at 2. The Plaintiffs urge the Court that it is to “accept as true all well-pleaded allegations in the complaint and construe them in favor of the non-moving party.” Response at 2-3 (citing Duran v. Carris, 238 F.3d 1268, 1270 (10th Cir.2001); MacArthur v. San Juan Cnty., 309 F.3d 1216, 1221 (10th Cir.2002)). The Plaintiffs repeat the allegations from the TAC, including that WPX Energy performs the function of paying royalty, overriding royalty, and production taxes each month, see Response ¶ 4, at 4 (citing TAC ¶ 10, at 4), and that the “NGLs produced as part of the gas stream are subsequently extracted at plants owned and operated by Williams and retained and disposed of by Williams free of royalty,” Response ¶ 7, at 4 (citing TAC ¶ 14, at 5).

The Plaintiffs assert that they are not seeking double recovery from the Defendants, but that they are pursuing unjust enrichment claims against WFC and WER as an alternative theory, in case WPX Energy raises a defense to the underlying royalty agreements or to the Plaintiffs’ right to recover under those agreements. See Response at 7. The Plaintiffs say that WFC/WER’s reliance on Elliott Indus, is misleading, because Elliott Indus, rejects unjust enrichment when the plaintiff royalty owner asserts unjust enrichment claims against the producer/lessee. See Response at 8. The Plaintiffs emphasize that their unjust enrichment claim is against WFC/WER, and not against WPX, and that, because the Plaintiffs do not have contracts with WFC/WER, Elliott Indus. “therefore actually stands for the principle that plaintiffs have a viable claim against the Williams defendants.” Response at 8. The Plaintiffs argue that, after the Tenth Circuit decided Elliott Indus., the Court of Appeals of New Mexico has allowed unjust enrichment claims “even where a contractual relationship exists between plaintiff and defendant.” Response at 8 (citing Starko, Inc. v. Presbyterian Health Plan, Inc., 2012-NMCA-053, ¶ 91, — N.M. -, 276 P.3d 252, cert. granted, 2012-NMCERT-003, — N.M. -, 293 P.3d 184 (table); Heimann v. Kinder-Morgan C02 Co., 2006-NMCA-127, ¶ 20, 140 N.M. 552, 144 P.3d 111).

The Plaintiffs argue that New Mexico law supports their unjust enrichment claims against WFC/WER, even though the underpayment claims are also the subject of the breach-of-contract claim against "WPX Energy. See Response at 9. The Plaintiffs point to Ontiveros Insulation Co. v. Sanchez, in which the Court of Appeals of New Mexico permitted two subcontractors to sue homeowners for unjust enrichment when the general contractor declared bankruptcy before the subcontractors were paid. See Response at 10 (citing 2000-NMCA-051, ¶ 12). The New Mexico court allowed the claim, “despite the general rule that subcontractor suits against property owners are generally disfavored.” Response at 10 (citing Ontiveros Insulation Co. v. Sanchez, 2000-NMCA-051, ¶ 12). “Ontiveros demonstrates that under New Mexico law, a claimant who has a breach of contract cause of action against one party nonetheless has a right to recover its loss from others who are not parties to the contract based on unjust enrichment.” Response at 10. The Plaintiffs also cite two District of New Mexico decisions interpreting New Mexico law to support their argument that an underlying contract does not bar an unjust enrichment claim. See Response at 10-11 (citing Cruse v. St. Vincent Hosp., 729 F.Supp.2d 1269 (D.N.M.2010) (Johnson, J.), Olivo v. Crawford Chevrolet, Inc., 799 F.Supp.2d 1237 (D.N.M.2011) (Black, J.)).

To further support their argument that New Mexico law supports the claim for unjust enrichment, the Plaintiffs cite Néw Mexico statutes and cases recognizing “a strong public policy favoring the rights of royalty and overriding royalty owners to receive monies owed them by a lessee/pay- or.” Response at 11 (citing Greer v. Salmon, 1971-NMSC-002, 82 N.M. 245, 479 P.2d 294; Libby v. DeBaca, 1947-NMSC-007, 51 N.M. 95, 179 P.2d 263; New Mexico Proceeds Payment Act, N.M. Stat. Ann. §§ 70-10-1 to -6). The Plaintiffs further cite the Supreme Court of Texas to show that a royalty owner may recover under unjust enrichment “from a party that unjustly benefits and receives royalty proceeds that were actually due the owner.” Response at 12 (citing Gavenda v. Strata Energy, Inc., 705 S.W.2d 690 (Tex.1986)). The Plaintiffs argüe that New Mexico courts would allow their unjust enrichment claim against WFC/WER, because “allowing Williams to retain that benefit without payment would be patently unjust.” Response at 13. In the Plaintiffs view, “ ‘[ejquity is reluctant to permit a wrong to be sufferance without a remedy. It seeks to do justice and is not bound by strict common law rules or the absence of precedents. It looks to the substance rather than the form.’ ” Response at 13 (quoting Ontiveros Insulation Co. v. Sanchez, 129 N.M. at 204, 3 P.3d 695).

The Plaintiffs note that WFC/WER rely heavily on cases from other states to support their arguments against an unjust enrichment claim. See Response at 13. For example, the Plaintiffs contend that New Mexico law does not require that the defendant be the intended beneficiary of the claimant’s efforts. See Response at 13 (“No New Mexico case holds that there is an intended beneficiary element to an unjust enrichment claim, and Williams cites no New Mexico authority for the proposition.”). Instead, the Plaintiffs argue that “New Mexico courts have liberally applied equitable principles in claims for unjust enrichment and rely on the equitable analysis to protect claimants and defendants.” Response at 14 (citing Ontiveros Insulation Co. v. Sanchez, 2000-NMCA-051, ¶¶ 11-13, Hydro Conduit Corp. v. Kemble, 1990-NMSC-061, 110 N.M. 173, 179, 793 P.2d 855; Credit Inst. v. Veterinary Nutrition Corp., 2003-NMCA-010, 133 N.M. 248, 253, 62 P.3d 339). Further, the Plaintiffs distinguish the cases that WFC/WER cite, because the third-parties in those cases “had no role in the benefit being conferred on [them],” unlike the present case where “Williams’ retention of financial benefit from the NGLs proximately results from its own active role and behavior in excluding royalty on produced liquids.” Response at 14,15.

WFC/WER reply that, although the Plaintiffs may pursue alternative theories of relief, those alternative theories must state a claim upon which relief can be granted, which is not true of the unjust enrichment claims against WFC and WER. See Williams Four Corners, LLC’s and Williams Energy Resources, LLC’s Reply in Further Support of Motion to Dismiss Plaintiffs’ Third Claim for Relief at 2, filed November 30, 2012 (Doc. 28)(“Reply”). WFC/WER argue that Elliott Indus, is binding on the Court and that it bars unjust enrichment when there is a contract. See Reply at 3. WFC/WER assert that, “[w]hile WPX challenges Plaintiffs’ construction of the royalty obligation, WPX does not challenge the existence of valid contracts between it and Plaintiffs.” Reply at 2 n. 1 (emphasis in original). Because the Plaintiffs can pursue a breach-of-contract claim against WPX Energy for the royalty underpayments, WFC/WER argue that the Plaintiffs cannot pursue unjust enrichment claims for the same royalty underpayments against WFC and WER. See Reply at 3. Regarding the two subsequent Court of Appeals of New Mexico decisions since Elliott Indus., WFC/WER argue that the cases do not control, because they are distinguishable and are not intervening decisions from the state’s highest court. See Reply at 4. For example, in Heimann v. Kinder-Morgan C02 Co., 2006-NMCA-127, 144 P.3d 111, the Court of Appeals of New Mexico refused to consider the validity of the unjust enrichment claim and sent it to the arbitrator to decide instead. See Reply at 5 (citing Heimann v. Kinder-Morgan C02 Co., 2006-NMCA-127 ¶ 3). Thus, in WFC/WER’s view, Heimann v. Kinder-Morgan C02 Co. does not stand for the proposition that the “royalty owners could proceed on claims for unjust enrichment and breach of settlement agreement.” Reply at 5 (citing Heimann v. Kinder-Morgan C02 Co., 2006-NMCA-127 ¶¶ 20, 25). WFC/WER also distinguish Starko, Inc. v. Presbyterian Health Plan, Inc., in which “the plaintiff class of pharmacists was forced by the New Mexico Human Services Department (HSD) into contracts with managed care organizations (MCOs) relating to the provision of pharmacy services under Medicaid, and New Mexico’s SALUD! Managed care program.” Reply at 5 (citing Starko, Inc. v. Presbyterian Health Plan, Inc., 2012-NMCA-053 ¶¶ 1-7). According to WFC/ WER, a New Mexico statute — N.M. Stat. Ann. § 27-2-16 — governed “how the Medicaid programs paid plaintiff pharmacists,” and the plaintiffs’ unjust enrichment claim against the MCOs was distinct from their contract claim against the MCOs, because the unjust enrichment claim was based on an alleged violation of a statute, not a contract. Reply at 5-6. In WFC/WER’s view, “Starko simply does not support the proposition that an unjust enrichment claim can stand where there exists a contract addressing issues that are the subject of the unjust enrichment claim,” Reply at 6,- because the Court of Appeals of New Mexico “did not address if (or how) the plaintiffs’ unjust enrichment claim overlapped with the ‘express contract regulating] the relations of the parties with respect to the disputed issue,’ ” Reply at 7 (alteration in original)(quoting Elliott Indus., 407 F.3d at 1117), and because Starko, Inc. v. Presbyterian Health Plan, Inc. “turned primarily on the existence of a statutory remedy, which, according to the Supreme Court of New Mexico, will not ‘deprive! ] [courts] of their inherent equitable powers’ absent ‘express language or necessary implication,’ ” Reply at 7 (alterations in originalXquoting Sims v. Sims, 1996-NMSC-078 ¶ 33, 122 N.M. 618, 930 P.2d 153).

WFC/WER argue that the Plaintiffs mischaracterize Ontiveros v. Sanchez by applying it outside of subcontractor/homeowner suits, and point to a portion of the opinion in which the Court of Appeals of New Mexico limited its holding:

“In so holding, we wish to emphasize that recovery on such an action may not be had in every instance where a subcontractor has furnished labor or materials which benefit a third person which whom there is no privity of contract. Our decision today is limited to affirming the propriety of quasi contract as a remedy in a particular factual situation. Each case must be decided according to the essential elements of quasi contract.”

Reply at 8 n. 5 (quoting Ontiveros Insulation Co. v. Sanchez, 2000-NMCA-051 ¶ 22). Instead, WFC/WER say that Ontiveros Insulation Co. v. Sanchez “reaffirms the general disfavor of equitable remedies when there exists a remedy at law (i.e., contract)_” Reply at 8. WFC/ WER point out that the Court of Appeals of New Mexico permitted the unjust enrichment claim to proceed in that case, but only because the subcontractors had “pursued ‘all possible remedies before turning to the present action,’” had “‘exhausted their remedies against the person with whom they’d contracted,”’ and “had not recovered any value for their services.” Reply at 8 (quoting Ontiveros Insulation Co. v. Sanchez, 2000-NMCA-051, ¶ 21).

WFC/WER argue that the Plaintiffs’ reliance on New Mexico policy — that the unjust enrichment claim is “fully supported by New Mexico principles of oil and gas law,” Response at 11 — does not help the Plaintiffs, because the Plaintiffs “do not cite a single case allowing a royalty owner to assert any claim — unjust enrichment or otherwise — against a third party gas processor or marketer,” Reply at 11 (emphasis in original). WFC/WER direct the Court instead to several New York cases to demonstrate that the lack of a relationship between WFC/WER and the Plaintiffs should preclude an unjust enrichment claim, because the connection between the parties is too attenuated. See Reply at 14 (citing Sperry v. Crompton, 8 N.Y.3d 204, 831 N.Y.S.2d 760, 863 N.E.2d 1012 (2007); Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 919 N.Y.S.2d 465, 944 N.E.2d 1104 (2011); Georgia Malone & Co., Inc. v. Rieder, 19 N.Y.3d 511, 950 N.Y.S.2d 333, 973 N.E.2d 743 (2012)). Although WFC/ WER acknowledge their relationship with WPX Energy, they contend that they do not have any dealings with the Plaintiffs “besides just knowing the other exists.” Reply at 15.

The Court held a hearing on the MTD on May 1, 2013. See Transcript of Hearing (taken May 1, 2013), filed October 10, 2013 (Doc. 84)(“Tr.”). The Defendants explained the relationship between WPX Energy, WFC, and WER. WPX Energy holds the leasehold interest and produces the gas. See Tr. at 34:22-23:1 (Sutphin). “Once the gas comes out of the well, goes through various initial post-production stages and through a wellhead meter that gas is picked up by a midstream company, who in this Abraham case is Williams Four Corners.” Tr. at 35:2-5 (Sutphin). WFC processes the gas to remove either impurities or the NGLs. See Tr. at 35:17-22 (Sutphin). At that point, WER markets and sells the NGLs. See Tr. at 37:16-19 (Sutphin). Before January 1, 2012, the companies were integrated, so that WPX Energy was affiliated as a wholly owned subsidiary of The Williams Companies, Inc., but after that date, WPX Energy spun off as a separate, publicly traded company. See Tr. at 36:5-23 (Sut-phin)(“As some integrated oil companies have done, they segregate ... their production business from their midstream business from their ... downstream business, refining and marketing and sales.... ”). WPX Energy, WFC, and WER are no longer affiliated, but are “three separate companies.” Tr. at:20-22 (Sutphin).

The Court stated that it was concerned that the Tenth Circuit’s broad language in Elliott Indus. — “the presence of a contract bars a claim for unjust enrichment,” 407 F.3d at 1117—precludes the Court from making its own determination of New Mexico state law regarding whether the Plaintiffs can maintain an unjust enrichment claim against WFC/WER, see Tr. at 40:1-14 (Court). The Court said that, if it concludes, however, that the language in Elliott Indus, does not constrain the Court, then it is inclined to think that New Mexico would allow unjust enrichment claims in the absence of contractual relationships, see Tr. at 40:15-20 (Court). WFC/WER argued that Elliott Indus. binds the Court, based on its language that “ ‘quasi-eontractual remedies’ such as unjust enrichment ‘are not to be created when an enforceable express contract’ ” exists. Tr. at 42:2-5 (Sutphin)(quoting Elliott Indus., 407 F.3d at 1117). WFC/WER explained that, in Elliott Indus., the plaintiffs, who were in privity of contract with the defendants, brought an unjust enrichment claim against an integrated entity that was both a lessee and a processor. See Tr. at 42:11-18 (Sutphin). The Court asked whether the fact that the defendants in Elliott Indus. were completely integrated and had contracts with the plaintiffs made it dangerous to rely on Elliott Indus. in this case. See Tr. at 43:8-14 (Court). WFC/WER argued that “the better reading of Elliott is that if a contract regulates the disputed issue, without regard for who the contracting party is, it controls,” and that they do not think Elliott Indus, “can be read to differentiate between defendants and third parties.” Tr. at 50:8-13 (Sutphin).

WFC/WER argued that allowing the unjust enrichment claim against WFC and WER to move forward with the breach-of-contract claim against WPX would risk resulting in different interpretations of what the contract says. See Tr. at 43:15-44:4 (Sutphin). They asserted that numerous cases from other states hold “that a claim for unjust enrichment cannot be maintained against a third party relating to the subject matter of a valid contract.” Tr. at 45:9-12. For example, in Pepi Corp. v. Galliford, the Court of Appeals of Texas “preclud[ed] the plaintiff ... from asserting unjust enrichment against a third party where plaintiff was a party to a contract that defined its rights.” Tr. at 45:20-25 (Sutphin). WFC/WER also cited Morales v. Dalworth Oil Co., 698 S.W.2d 772 (Tex.App.1985), which states that “[tjhere can be no implied contract where the subject matter is covered by a valid express contract.” Tr. at 46:14-15 (Sutphin)(citing Morales v. Dalworth Oil Co., 698 S.W.2d at 774-76). WFC/WER argued that these statements express “the best statement of the law, and the law that should be followed here.” Tr. at 47:5-6 (Sutphin). In WFC/WER’s view, “when plaintiffs seek to have something implied that is covered by an express contract, there’s a great potential for conflict, and ultimately the plaintiffs and the Court could participate in doing violence to a contract and to ignoring a contract.” Tr. at 47:7-11 (Sutphin). The Court asked whether this concern was more of a theoretical risk, rather than a practical one. See Tr. at 47:25-48:4 (Court). WFC/WER argued that, even though it is a theoretical problem, the problem still exists. See Tr. at 48:5-6 (Sutphin).

WFC/WER argued that Elliott Indus., as a Tenth Circuit decision “making a determination of state law,” controls the disposition of this case, absent an intervening decision by the state’s highest court. Tr. at 51:4-8 (Sutphin). Although the Plaintiffs directed the Court to Heimann v. Kinder-Morgan C02 Co. and Starko, Inc. v. Presbyterian Health Plan, Inc., WFC/WER contend that, because neither are from the Supreme Court of New Mexico, they do not change the Court’s analysis. See Tr. at 51:10-14 (Sutphin). WFC/WER argued that, even if Heimann v. Kinder-Morgan C02 Co. and Starko, Inc. v. Presbyterian Health Plan, Inc. were from the Supreme Court of New Mexico, they are distinguishable. See Tr. at 51:15-20 (Sut-phin). WFC/WER contended that, for example, in Heimann v. Kinder-Morgan C02 Co., the Court of Appeals of New Mexico expressly refused to consider the validity of the unjust enrichment claim and, instead, said that the arbitrator must decide whether to dismiss that claim. See Tr. at 52:1-6 (Sutphin). Similarly distinguishable from WFC/WER’s perspective, Starko, Inc. v. Presbyterian Health Plan, Inc. involved complex facts that should be “limited to its facts and circumstances.” Tr. at 52:11-15 (Sutphin). WFC/WER argued that Starko, Inc. v. Presbyterian Health Plan, Inc. seemed to turn on the existence of a statutory remedy, see Tr. at 52:17 (Sutphin), and the Court of Appeals of New Mexico refused to address the breach-of-contract claims, meaning that it could not evaluate the overlap between breach-of-contract and unjust enrichment claims, see Tr. at 58:12-23 (Sutphin).

WFC/WER argued that, while New Mexico law recognizes some exceptions to allow for unjust enrichment claims, none of those exceptions apply in this case. See Tr. at 54:21-22. WFC/WER assert that, in Ontiveros Insulation Co. v. Sanchez and Danley v. City of Alamogordo, New Mexico courts permitted plaintiffs to bring unjust enrichment claims, because there was an inadequate legal remedy. See Tr. at 55:1-11 (Sutphin). WFC/WER contend that, in Ontiveros Insulation Co. v. Sanchez, the Court of Appeals of New Mexico allowed the plaintiff subcontractor to pursue the unjust enrichment claim, because “the plaintiff subcontractor had no adequate remedy at law,” and because the general contractor filed bankruptcy. Tr. at 55:15-56:14 (Sutphin). WFC/WER assert that, in Danley v. City of Alamogordo, the “contract ] between the contractor and the City was deemed to be void because it had not followed the ... Public Purchasing Act.” Tr. at 56:16-21 (Sutphin). WFC/ WER argued that the Supreme Court of New Mexico allowed the unjust enrichment claim to proceed, because the contract was void, and unjust enrichment “was the only remedy available.” Tr. at 57:2-8 (Sutphin). WFC/WER argued that the unjust enrichment claims against WFC and WER “do not fit into one of these ... narrow exceptions recognized by New Mexico law.” Tr. at 57:9-12 (Sutphin).

The Plaintiffs explained that their claims against WFC/WER are not royalty underpayment claims, although the claims are related. See Tr. at 60:1-2 (Condon). They allege that the Defendants

have acted among themselves and .entered into a contract by which WPX, the producer, agrees with the processor: You can take all of the natural gas liquids as part of the processing agreement, and you can give us methane gas to make up or, what they say, keep whole in the industry, us as a producer for the natural gas liquids that we’re letting you take.

Tr. at 59:7-13 (Condon). The Plaintiffs argued that Elliott Indus, does not constrain the Court, because the parties in that case were in privity of contract, unlike in the present case. See Tr. at 62:15-24 (Condon). The Plaintiffs contended that New Mexico law allows a plaintiff to “bring a claim for unjust enrichment against a party with whom you’re not in privity of contract even if that claim relates to a claim that sounds in breach of contract against another party.” Tr. at 64:22-65:1 (Condon). The Plaintiffs asserted that unjust enrichment in New Mexico is “an expansive policy, ... designed to give relief in a situation where there’s no contractual remedy.” Tr. at 67:7-10 (Condon). The Plaintiffs argued that the rule that WFC/ WER advocate would “mean[ ] that when you have a royalty underpayment issue the royalty owners are limited to just their contract and contract-related implied covenant claims and maybe the Proceeds Payment Act claim.” Tr. at 67:19-23 (Con-don). They argued that this rule does not make sense in an analogous situation:

What if there was a lease arrangement between a royalty owner and a producer, and a third party came in and intentionally interfered with that lease contract and caused the royalty payor to breach the contract? Would New Mexico courts say the royalty owner doesn’t have an intentional-interference-with-contract claim against the third party under those facts? I think, clearly, New Mexico courts would say you have that claim. And I realize it’s a tort claim, but I think the principle applies equally to our situation.

Tr. at 68:1-10 (Condon). The Plaintiffs argued that the unjust enrichment claim against WFC/WER is for holding the royalty share of the NGLs revenue, while the claim against WPX Energy is for underpayment of royalties. See Tr. at 68:11-16 (Condon). The Plaintiffs warned the Court against relying heavily on cases from other jurisdictions, because, for example, the Texas court in Pepi Corp. v. Galliford came to “a completely different result” than what the Court of Appeals of New Mexico did in Ontiveros Insulation Co. v. Sanchez. Tr. at 69:24-70:10 (Con-don). The Plaintiffs urged the Court to review Ontiveros Insulation Co. v. Sanchez, arguing that the Court of Appeals of New Mexico articulated a rule that can be applied beyond the facts of that case when it said that the plaintiffs’ contractual relationship with the MCOs did not foreclose their claims for unjust enrichment. See Tr. at 70:19-71:1 (Condon). The Plaintiffs contended that “[t]he adequate-remedy-of-law issue is on a defendant-by-defendant basis, that it’s not a global adequate-remedy-at-law analysis.” Tr. at 71:17-19 (Con-don).

The Plaintiffs reiterated their position that Elliott Indus, does not control in this case, because, unlike the parties in Elliott Indus., the Plaintiffs are not in privity with WFC/WER; although their claims are related to the royalty underpayment breach-of-contract claims, they are not the same. See Tr. at 72:11-18 (Condon). The Court asked how to limit the Plaintiffs’ proposed interpretation of New Mexico law, which would allow a plaintiff to sue third parties for claims in which it is not in privity. See Tr. at 73:5-10 (Court). The Plaintiffs said one limitation would be the rule against double recovery, which would prevent the Plaintiffs from recovering more than one hundred percent of their proved and awarded damages. See Tr. at 73:11-15 (Condon). The Court asked what would prevent the Plaintiffs in this case from double recovery, see Tr. at 73:23-74:2 (Court), and the Plaintiffs said that the fact that both claims are before the same Court would prevent the double recovery, see Tr. at 74:7-9 (Condon). Because unjust enrichment is an equitable claim that is not submitted to the jury, the Plaintiffs asserted that the Court could determine whether to award any damages for unjust enrichment after determining if a jury’s verdict for the breach-of-contract claim represents the Plaintiffs’ full damages. See Tr. at 74:22-75:9 (Court, Condon).

Noting the Plaintiffs’ position that the unjust enrichment claim and royalty underpayments claims are distinct, the Court asked whether WPX Energy could bring a claim against WFC/WER to protect itself against the breach-of-contract claim. See Tr. at 75:10-13 (Court). The Plaintiffs said that WPX Energy would not have a claim against WFC/WER, unless WFC coerced it into the agreement. See Tr. at 75:17-76:25 (Court, Condon). The Plaintiffs said they doubted that WPX Energy would bring a claim against WFC or WER, because, in the Plaintiffs’ view, the Defendants are “voluntarily stuck with each other,” but acknowledged that they would need to wait until discovery to determine if there was “something untoward” in the Defendants’ agreements with each other. Tr. at 77:4-16 (Condon). The Plaintiffs stated that the rule of law which they are urging the Court to apply is “that the plaintiffs have a right to bring a claim for unjust enrichment against the Williams entities,” and that, although they are bringing alternative claims for relief, the Court does not need to set any limitations or worry about double recovery until the claims go to a fact-finder, and “that’s the point at which [the Court can] address the limits on recovery, the potential for double recovery-, and any other concerns you have about a damage award.” Tr. at 77:17-78:16 (Court, Condon).

WFCWER argued that there are no limitations to the Plaintiffs’ proposed rule, which would allow them to sue WFC, the processor, and WER, the marketer, and could potentially allow them to continue suing down the line to the subsequent marketers and subsequent manufacturing plants that make some type of profit on the NGLs: “Where does it end? If they can sue the processer and the marketer, why can’t they sue the next marketer in the chain or the utility or the plant or any other user in the supply chain?” Tr. at 79:23-80:11 (Sutphin). The Court questioned whether the Plaintiffs would have any incentive to sue “so far down the chain,” and whether it should cut off the Plaintiffs claims as a matter of law, as WFC/WER assert that New York courts have done. Tr. at 80:12-21 (Court). WFC/WER argued that allowing the unjust enrichment claim to proceed threatens double recovery and that this situation is different from Ontiveros Insulation Co. v. Sanchez, because there is an adequate remedy at law in this case, unlike the situation when a contractor declares bankruptcy. See Tr. at 81:14-82:22 (Court, Sutphin). The Court asked at what, point it should determine that there is an adequate remedy at law, noting that, although it seemed likely that WPX Energy would still be in business at the time of a potential trial in this case, it would want to apply a rale of law that is more generally applicable; WFC/WER said a number of federal district courts have dismissed unjust enrichment claims based on the plaintiffs pleading a valid breach-of-contract claim. See Tr. at 82:23-83:10 (Court, Sut-phin).

WFC/WER compared Pepi Corp. v. Galliford with Ontiveros Insulation Co. v. Sanchez, and argued that, contrary to the Plaintiffs’ assertion that the eases reveal that Texas and New Mexico law on unjust enrichment differ, Pepi Corp. v. Galliford, “recognizes and discusses three exceptions under Texas law to the prohibition against unjust-enrichment claims when there is a valid written contract,” and that Ontiveros Insulation Co. v. Sanchez is an exception that New Mexico courts recognize. Tr. at 84:2-15 (Sutphin). WFC/WER then turned to Starko, Inc. v. Presbyterian Health Plan, Inc., and argued that the Court of Appeals of New Mexico did not address any of the breach-of-contract claims between the plaintiffs and the MCOs; the Court noted that there were breach-of-contract claims involved, questioned what the Court of Appeals of New Mexico meant when it said it would not deal with any of the breach-of-contract claims, and asked, if the Court of Appeals of New Mexico was not willing to dismiss the unjust enrichment claims, whether district courts should be cautious about dismissing unjust enrichment claims. See Tr. at 84:20-87:10 (Sutphin, Court). WFC/ WER argued that the Court should not apply Starko, Inc. v. Presbyterian Health Plan, Inc. in this case, because the Court of Appeals of New Mexico allowed the plaintiffs to pursue unjust enrichment as a private cause of action in the context of a statutory remedy, and that the breach-of-contract claim is distinct from the statutory remedy. See Tr. at 87:13-17 (Sutphin). Further, WFC/WER contended that the plaintiffs in Starko, Inc. v. Presbyterian Health Plan, Inc. were potential third-party beneficiaries, and the Court of Appeals of New Mexico may have seen unjust enrichment as the remedy. See Tr. at 87:23-88:4 (Sutphin).

LAW REGARDING RULE 12(b)(6)

Rule 12(b)(6) authorizes a court to dismiss a complaint for “failure to state a claim upon which relief can be granted.” Fed.R.Civ.P. 12(b)(6). “The nature of a Rule 12(b)(6) motion tests the sufficiency of the allegations within the four corners of the complaint after taking those allegations as true.” Mobley v. McCormick, 40 F.3d 337, 340 (10th Cir.1994). The sufficiency of a complaint is a question of law, and when considering a rule 12(b)(6) motion, a court must accept as true all well-pleaded factual allegations in the complaint, view those allegations in the light most favorable to the non-moving party, and draw all reasonable inferences in the plaintiffs favor. See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 322, 127 S.Ct. 2499, 168 L.Ed.2d 179 (2007) (“[Ojnly if a reasonable person could not draw ... an inference [of plausibility] from the alleged facts would the defendant prevail on a motion to dismiss.”); Smith v. United States, 561 F.3d 1090, 1098 (10th Cir.2009) (“[F]or purposes of resolving a Rule 12(b)(6) motion, we accept as true all well-pleaded factual allegations in a complaint and view these allegations in the light most favorable to the plaintiff.”)(quoting Moore v. Guthrie, 438 F.3d 1036, 1039 (10th Cir.2006)).

A complaint need not set forth detailed factual allegations, yet a “pleading that offers labels and conclusions or a formulaic recitation of the elements of a cause of action” is insufficient. Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). “Threadbare recitals of the elements of a cause of action, supported by mere conclusory statements, do not suffice.” Ashcroft v. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. “Factual allegations must be enough to raise a right to relief above the speculative level, on the assumption that all the allegations in the complaint are true (even if doubtful in fact).” Bell Atl. Corp. v. Twombly, 550 U.S. at 555, 127 S.Ct. 1955 (citation omitted).

To survive a motion to dismiss, a plaintiffs complaint must contain sufficient facts that, if assumed to be true, state a claim to relief that is plausible on its face. See Bell Atl. Corp. v. Twombly, 550 U.S. at 570, 127 S.Ct. 1955; Mink v. Knox, 613 F.3d 995, 1000 (10th Cir.2010). “A claim has facial plausibility when the pleaded factual content allows the court to draw the reasonable inference that the defendant is hable for the misconduct alleged.” Ashcroft v. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (citing Bell Atl. Corp. v. Twombly, 550 U.S. at 556, 127 S.Ct. 1955). “Thus, the mere metaphysical possibility that some plaintiff could prove some set of facts in support of the pleaded claims is insufficient; the complainant must give the court reason to believe that this plaintiff has a reasonable likelihood of mustering factual support for these claims.” Ridge at Red Hawk, LLC v. Schneider, 493 F.3d 1174, 1177 (10th Cir.2007) (emphasis omitted). The Tenth Circuit stated:

“[Plausibility” in this context must refer to the scope of the allegations in a complaint: if they are so general that they encompass a wide swath of conduct, much of it innocent, then the plaintiffs “have not nudged their claims across the line from conceivable to plausible.” The allegations must be enough that, if assumed to be true, the plaintiff plausibly (not just speculatively) has a claim for relief.

Robbins v. Oklahoma, 519 F.3d 1242, 1247 (10th Cir.2008) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. at 570, 127 S.Ct. 1955) (internal citations omitted).

SCHOLARSHIP REGARDING CONFLICT OF LAW

Dissatisfaction with the fixed and mechanical rules of the First Restatement produced new suggestions — a “revolution” — in American conflicts law. See Peter Hay, Patrick J. Borchers, Symeon C. Symeonides, Conflict of Laws 27 (5th ed.2010). One approach stands out— Brainerd Currie’s governmental interest theory. See Hay, supra, at 27. In Cur-rie’s view, when a court confronted with a case with foreign connections is asked to apply another state’s laws, the court “should first inquire into the policies expressed in the laws of the involved states and into the circumstances in which it is reasonable for each state to assert an interest in the application of these policies.” Hay, supra, at 30.

This inquiry may lead to three possibilities that correspond to three categories of conflicts: (i) only one of the involved states is interested in applying its law — the “false conflict ” pattern; (ii) more than one state is interested — the “true conflict” pattern; or (iii) none of the states are interested— the “no-interest” pattern or “unprovided— for” case. See Hay, supra, at 30. False conflicts also include cases in which the laws of the involved states are identical or produce identical results. See Hay, supra, at 30 n. 15. This aspect of the “false conflicts” concept does not, however, add much, because parties will rarely seek the application of foreign law when it is identical with local law, especially when the use of foreign law may leave them with the burden of proving it. See Hay, supra, at 27 n. 15. Elimination of foreign law in this category of case is said to guard against a Constitutional-law objection to the application of the lex fori by an unconnected forum, but such instances are rare. See Hay, supra, at supra at 30 n. 15 (citing Kurt Lipstein, The General Principles of Private International Law, 135 Recueil des Courts 96,155-56 (1972-1)).

In a nutshell, Currie argued that, subject only to constitutional restraints, the forum is entitled to and should apply its law to all three categories of cases, except to a few false conflict and unprovided-for cases. See Hay, supra, at 31. In false conflicts cases, Currie’s analysis applies the law of the only interested state, which, “in the great majority of cases,” is likely the forum state. Hay, supra, at 31. False-conflicts analysis examines the underlying policies both of forum law and of the other interested state or states. See Hay, supra, at 31 n. 19. If the foreign law’s policy does not call for its application, forum law will apply. See Hay, supra, at 31 n. 19. The principal contribution of this concept to confliet-of-laws methodology is the introduction of policy analysis and the concomitant possibility of conflict avoidance. See Hay, supra, at 31 n. 19. Currie recognizes — through the “false conflict” concept — that analysis should focus on underlying policies. See Hay, supra, at 31 n. 19. “This part of Currie’s analysis is neither controversial nor controvertible, at least for those who subscribe to the view that consideration of state interests is a proper starting point for resolving conflicts of law.” Hay, supra, at 31.

The traditional theory’s “failure to inquire into state interests resulted in randomly sacrificing the interests of other states without promoting the interests of the state,” Hay, supra, at 31-32; Currie, Selected Essays on the Conflict of Law 191, 589-90 (1963); in contrast, Currie’s solution to a false conflict results in applying the law of the interested state, without sacrificing any policies of the uninterested. state, see Hay, supra, at 31-32. “In this sense, the concept of a false conflict is an important breakthrough in American choice-of-law thinking and has become an integral part of all modern policy-based analyses.” Hay, supra, at 32.

That this [concept] is by now taken for granted, even by [Currie’s] critics, and forms the common denominator of all current choice of law methodologies is no reason to deny him the credit rightfully due to him. Even if this were Currie’s only contribution to conflicts theory, it would be sufficient to secure him a permanent position in the conflicts “Hall of Fame.”

Symeon Symeonides, Revolution and Counter-Revolution in American Conflicts Law: Is There a Middle Ground?, 46 Ohio St. L.J. 549, 564 (1985).

CONSTITUTIONAL LIMITATIONS ON APPLICATION OF FOREIGN LAW

In Allstate Insurance Co. v. Hague, 449 U.S. 302, 101 S.Ct. 633, 66 L.Ed.2d 521 (1981), two conflicting rules of state insurance law confronted the Supreme Court of the United States. Minnesota permitted the “stacking” of separate uninsured motorist policies while Wisconsin did not. 449 U.S. at 305-06, 101 S.Ct. 633. Although the decedent lived in Wisconsin, took out insurance policies in Wisconsin, and was killed there, he was employed in Minnesota, and after his death, his widow moved to Minnesota for reasons unrelated to the litigation and was appointed personal representative of his estate. See 449 U.S. at 305, 101 S.Ct. 633. She filed suit in Minnesota courts, which applied the Minnesota stacking rule. See 449 U.S. at 305-06, 101 S.Ct. 633.

The plurality in Allstate Insurance Co. v. Hague noted that a particular set of facts giving rise to litigation could justify, constitutionally, the application of more than one jurisdiction’s laws. See 449 U.S. at 307, 101 S.Ct. 633. The plurality recognized, however, that the Due Process Clause and the Full Faith and Credit Clause provided modest restrictions on the application of forum law. See 449 U.S. at 307-08, 101 S.Ct. 633. These restrictions required “that for a State’s substantive law to be selected in a constitutionally permissible manner, that State must have a significant contact or significant aggregation of contacts, creating state interests, such that choice of its law is neither arbitrary nor fundamentally unfair.” 449 U.S. at 312-313, 101 S.Ct. 633. The dissenting Justices were in substantial agreement with the principle. See 449 U.S. at 332, 101 S.Ct. 633 (Powell, J., dissenting, joined by Burger, C:J., and Rehnquist, J.). The dissent stressed that the Due Process Clause prohibited the application of law which was casually or slightly related to the litigation, while the Full Faith and Credit Clause required the forum to respect the laws and judgments of other states, subject to the forum’s own interests in furthering its public policy. See 449 U.S. at 335-36, 101 S.Ct. 633. The plurality in Allstate Insurance Co. v. Hague affirmed the application of Minnesota law because of the forum’s significant contacts to the litigation, which supported the State’s interest in applying its law. See 449 U.S. at 313-329, 101 S.Ct. 633.

In Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 105 S.Ct. 2965, 86 L.Ed.2d 628 (1985), gas company investors brought a class action to recover interests on royalties. See 472 U.S. at 799, 105 S.Ct. 2965. The state district court entered judgment for the class, and the gas company appealed. See 472 U.S. at 799, 105 S.Ct. 2965. The Supreme Court of Kansas affirmed over the gas company’s contentions that the Due Process Clause and the Full Faith and Credit Clause of Article IV of the Constitution prohibited the application of Kansas law to all of the transactions between the gas company and the class. See 472 U.S. at 799, 105 S.Ct. 2965. The gas company argued that Kansas courts could not apply Kansas law to every claim in the dispute. See 472 U.S. at 802, 105 S.Ct. 2965. The gas company argued that the trial court should have looked to the laws of each state where the leases were located to determine, on the basis of conflict of laws principles, whether interest on the suspended royalties was recoverable and at what rate. See 472 U.S. at 802-803, 105 S.Ct. 2965. The Supreme Court of Kansas rejected the gas company’s contentions. See 472 U.S. at 803, 105 S.Ct. 2965.

The Kansas courts applied Kansas contract and Kansas equity law to every claim in the case, notwithstanding that “over 99% of the gas leases and some 97% of the plaintiffs in the case had no apparent connection to the State of Kansas except for th[e] lawsuit.” 472 U.S. at 814-15, 105 S.Ct. 2965. The gas company protested that Kansas courts should apply the laws of the states where the leases were located, or at least apply Texas and Oklahoma law, because so many of the leases came from those states. See 472 U.S. at 815-16, 105 S.Ct. 2965. The Kansas courts disregarded this contention and found the gas company liable for interest on the suspended royalties as a matter of Kansas law, and set the interest rates under Kansas equity principles. See 472 U.S. at 816, 105 S.Ct. 2965. The Supreme Court of Kansas took the view that, in a nationwide class action where procedural due process guarantees of notice and adequate representation were met, the law of the forum should be applied unless compelling reasons exist for applying a different law. See 472 U.S. at 822-23, 105 S.Ct. 2965.

The Supreme Court of the United States, in an.opinion that Justice Rehnquist wrote, sustained the gas company’s argument regarding the choice of law, and held that Kansas law was not applicable to claims of all class members. See 472 U.S. at 799, 105 S.Ct. 2965. The gas company contended that the total application of Kansas substantive law violated the constitutional limitations on choice of law that the Due Process Clause of the Fourteenth Amendment and the Full Faith and Credit Clause of Article IV, § 1. See 472 U.S. at 816, 105 S.Ct. 2965. The Supreme Court said it must first determine whether Kansas law conflicts in any material way with any other law which could apply. See 472 U.S. at 816, 105 S.Ct. 2965. Justice Rehnquist stated: “There can be no injury in applying Kansas law if it is not in conflict with that of any other jurisdiction connected to this suit.” 472 U.S. at 816, 105 S.Ct. 2965. The Supreme Court concluded that “the Supreme Court of Kansas erred in deciding on the basis that it did that the application of its laws to all claims would be constitutional.” 472 U.S. at 818, 105 S.Ct. 2965.

Justice Rehnquist began his analysis by noting that the Supreme Court, just four terms earlier, had addressed a similar situation in Allstate Insurance Co. v. Hague. See Phillips Petroleum Co. v. Shutts, 472 U.S. at 818, 105 S.Ct. 2965. Justice Rehnquist stated that, when considering fairness in this context, an important element is the parties’ expectation. See Phillips Petroleum Co. v. Shutts, 472 U.S. at 822, 105 S.Ct. 2965 (citing Allstate Ins. Co. v. Hague, 449 U.S. at 333, 101 S.Ct. 633 (Powell, J., dissenting)). Justice Rehnquist stated that there was no indication that, when the leases involving land and royalty owners outside of Kansas were executed, the parties had any idea that Kansas would control. See Phillips Petroleum Co. v. Shutts, 472 U.S. at 822, 105 S.Ct. 2965. Justice Rehnquist maintained that neither the Due Process clause, nor the Full Faith and Credit Clause, requires Kansas “ ‘to substitute for its own [laws], applicable to persons and events within it, the conflicting statement of another state,”’ 472 U.S. at 822, 105 S.Ct. 2965 (quoting Pacific Employers Ins. Co. v. Industrial Accident Comm’n, 306 U.S. 493, 502, 59 S.Ct. 629, 83 L.Ed. 940 (1939)), but that Kansas “ ‘may not abrogate the results of parties beyond its borders having no relation to anything done or to be done within them,’ ” Phillips Petroleum Co. v. Shutts, 472 U.S. at 822, 105 S.Ct. 2965 (quoting Home Ins. Co. v. Dick, 281 U.S. 397, 410, 50 S.Ct. 338, 74 L.Ed. 926 (1930)).

Kansas’ contacts to the litigation in Phillips Petroleum Co. v. Shutts can be gleaned from the Supreme Court of Kansas’ opinion. The gas company owned property and conducted substantial business in the state, so the Supreme Court of the United States stated that “Kansas certainly has an interest in regulating [the gas company’s] conduct in Kansas.” 472 U.S. at 819, 105 S.Ct. 2965. Justice Rehnquist stated, however, that “Kansas must have a ‘significant contact or significant aggregation of contacts’ to the claims asserted by each member of the plaintiff class, contacts ‘creating state interests,’ in order to ensure that the choice of Kansas law is not arbitrary or unfair.” 472 U.S. at 821-822, 105 S.Ct. 2965 (quoting Allstate Ins. Co. v. Hague, 449 U.S. at 312-313, 101 S.Ct. 633). Justice Rehnquist stated that, given Kansas’ “lack of ‘interest’ in claims unrelated to that State, and the substantive conflict with jurisdictions such as Texas,” the application of Kansas law to every claim in this case was “sufficiently arbitrary and unfair as to exceed constitutional limits.” 472 U.S. at 822, 105 S.Ct. 2965.

Justice Rehnquist stated:

The issue of personal jurisdiction over plaintiffs in a class action is entirely distinct from the question of the constitutional limitations on choice of law; the latter calculus is not altered by the fact that it may be more difficult or more burdensome to comply with the constitutional limitations because of the large number of transactions which the State proposes to adjudicate and which have little connection with the forum.

472 U.S. at 821, 105 S.Ct. 2965.

Justice Rehnquist stated that, whatever practical reasons may have commanded the rule that the Supreme Court of Kansas adopted, the rule was not consistent with the Supreme Court of the United States’ decisions. See 472 U.S. at 823, 105 S.Ct. 2965. Justice Rehnquist noted, however, that the Supreme Court was not determining which law must apply to the various transactions involved in the lawsuit, and reaffirmed the observation in Allstate Insurance Co. v. Hague that in many situations a state court may be free to apply one of several choices of law. See 472 U.S. at 803, 105 S.Ct. 2965. Justice Rehnquist stated, however, that the constitutional limitations laid down in cases such as Allstate Insurance Co. v. Hague and Home Insurance Co. v. Dick must be respected even in a nationwide class action. See 472 U.S. at 823, 105 S.Ct. 2965. The Supreme Court therefore reversed the Supreme Court of Kansas’ judgment insofar as it held that Kansas law was applicable to all of the transactions which it sought to adjudicate. See 472 U.S. at 823, 105 S.Ct. 2965. The Supreme Court remanded the case for further proceedings. See 472 U.S. at 823, 105 S.Ct. 2965.

NEW MEXICO LAW REGARDING FALSE CONFLICTS OF LAW

In Ferrell v. Allstate Insurance Co., 2008-NMSC-042, 144 N.M. 405, 188 P.3d 1156, the Supreme Court of New Mexico described the “false conflict” or “actual conflict” doctrine: “Under this analysis, when the laws of the relevant states do not actually conflict, the court may avoid a conflict-of-law analysis and may apply forum law to the entire class.” 2008-NMSC-042, ¶ 16 (citing Phillips Petroleum Co. v. Shutts, 472 U.S. at 816,