IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA ) ) ) ) ) ) ) ) ) ) ANSWER AND COUNTERCLAIMS

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1 Case 5:14-cv C Document 5 Filed 02/26/14 Page 1 of 14 IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA (1 STAMPS BROTHERS OIL & GAS LLC, for itself and all others similarly situated, vs. Plaintiff, (1 CONTINENTAL RESOURCES, INC., Defendant. Case No. CIV C (Removed from District Court of Grady County, Case No. CJ (Related to CIV HE ANSWER AND COUNTERCLAIMS Defendant, CONTINENTAL RESOURCES, INC. (referred to at times as Continental, for its answer to the Petition of the Plaintiff (referred to at times as Stamps Bros. herein, alleges and states as follows: ANSWER Jurisdiction and Venue Allegations 1. In response to the allegation in paragraph 1 of the Petition, Continental admits, upon information and belief, that Stamps Bros. is an Oklahoma limited liability company. 2. In response to the allegations in paragraph 2 of the Petition, Continental admits it is an Oklahoma corporation with its principal place of business in Oklahoma. 3. In response to the allegations in paragraph 3 of the Petition, Continental is without knowledge or information sufficient to form a belief as to the current truth of

2 Case 5:14-cv C Document 5 Filed 02/26/14 Page 2 of 14 such assertions, so those allegations are deemed denied. However, Continental admits Stamps Bros. has owned some royalty interests in some oil and gas wells operated by Continental and some of those wells are located in Grady County, Oklahoma. 4. In response to the allegations in paragraph 4 of the Petition, Continental denies the existence of any alleged damages attributable to Plaintiff and the Class, but also denies the allegation that any total amount of such alleged damages under the theory Plaintiff has alleged is less than five million dollars and also denies Plaintiff has any information or belief that such allegation is true. 5. In response to the allegations in paragraph 5 of the Petition, Continental denies jurisdiction and venue reside with the District Court of Grady County, Oklahoma, for the reason that jurisdiction and venue over this action is now with the United States District Court for the Western District of Oklahoma by virtue of the removal of this action to federal court. Class Action Allegations In response to the allegations that are incorporated by reference in the Plaintiff s Petition, Continental adopts and incorporates by reference the preceding allegations of this Answer. 6. Continental denies the allegations in paragraph 6 of the Petition. This case has not been certified as a class action lawsuit, and Continental specifically denies the threshold requirements for class certification can be met and denies that such a class action can be brought pursuant to either Fed. R. Civ. P. 23 or 12 O.S

3 Case 5:14-cv C Document 5 Filed 02/26/14 Page 3 of In response to the allegations in paragraph 7 of the Petition, Continental admits the proposed class, if it were to be certified by the Court, would include thousands of members and would be so numerous and diverse that joinder of all proposed class members in a single lawsuit either through an individual lawsuit or through a class action lawsuit would be impracticable and unmanageable. 8. Continental denies the allegations in paragraph 8 of the Petition. 9. In response to the allegations in paragraph 9 of the Petition, Continental admits the Plaintiff has indicated its intention to ask the Court to certify a class that would include the categories of royalty and overriding royalty owners referenced in paragraph 9. Continental denies that any such class could and should be certified in this action. 10. Continental denies the allegations in paragraph 10 of the Petition. 11. Continental denies the allegations in paragraph 11 and subparagraphs 11(a, 11(b, 11(c and 11(d of the Petition. Background Facts and Claims 12. The allegations in paragraph 12 of the Petition state broad legal conclusions concerning the provisions of Oklahoma s Production Revenue Standards Act (the PRSA and the requirements of other laws and contracts. These alleged legal conclusions need not be admitted or denied. Further, the allegations in paragraph 12 do not completely and accurately describe the requirements of those laws and contracts so Continental denies the allegations in paragraph 12. 3

4 Case 5:14-cv C Document 5 Filed 02/26/14 Page 4 of The allegations in paragraph 13 of the Petition state broad legal conclusions concerning the provisions of the PRSA. These alleged legal conclusions need not be admitted or denied. Further, the allegations in paragraph 13 do not completely and accurately describe the requirements of the PRSA so Continental denies the allegations in paragraph Continental denies the allegations in paragraph 14 of the Petition. Alleged Breach of Obligation Arising from Operation of Law 15. The allegations in the first two sentences in paragraph 15 of the Petition state broad legal conclusions concerning the provisions of the PRSA. These alleged legal conclusions need not be admitted or denied. Further, the allegations in the first two sentences of paragraph 15 do not completely and accurately describe the requirements of the PRSA, so Continental denies those allegations. Continental denies the allegations in the last sentence of paragraph Continental denies each and every allegation contained in the Petition to the extent that they are not expressly admitted above. be granted. release(s. ADDITIONAL DEFENSES (INCLUDING CERTAIN AFFIRMATIVE DEFENSES 1. Plaintiff has failed, in whole or in part, to state claims upon which relief can 2. The claims in this case are barred in part by prior settlement(s and 4

5 Case 5:14-cv C Document 5 Filed 02/26/14 Page 5 of The claims in this case are barred, in whole or in part, under the doctrines of waiver, estoppel, acquiescence, course of performance and/or ratification. 4. The claims in this case are barred, in whole or in part, by the applicable statute of limitations, contractual limitations periods and/or by the doctrine of laches in that Plaintiff has unreasonably delayed the commencement of this action and has thereby prejudiced Continental. 5. The claims in this case are barred, in whole or in part, by the doctrine of payment and by the legal consequences that follow from accepting the principal sum owed without interest. 6. The claims in this case are barred, in whole or in part, by the doctrines of settlement, release and/or accord and satisfaction. 7. The claims in this case are barred, in whole or in part, by the express terms of the written leases, division orders, agreements, transfer orders, unit agreements, and/or communitization agreements applicable to the properties at issue in this lawsuit. 8. The claims in this case are barred, in whole or in part, by the doctrine of performance. 9. The claims in this case are barred, in whole or in part, by the doctrines of course of dealing, trade custom and/or usage of trade. 10. The claims in this case are barred in whole or in part by the omission of claimants to meet the pre-conditions and/or other required elements, conduct or other circumstances required in order for them to assert the claims alleged in this suit. 5

6 Case 5:14-cv C Document 5 Filed 02/26/14 Page 6 of To the extent any claims are asserted under compulsory pooling orders of the Oklahoma Corporation Commission rather than under oil and gas leases, such claims are barred by virtue of the nature and scope of the rights derived under Commission pooling orders. 12. To the extent Plaintiff decides to seek punitive damages in this cause, an award of punitive damages in this case would be unconstitutional, a violation of due process, and an unconstitutional and illegal taking of Continental s property, and an excessive and unconstitutional penalty against Continental. 13. At all times, Continental has acted in good faith and in accordance with the applicable law in effect at the time. 14. Requiring Continental to account under the theories of payment liability alleged by Plaintiff would be inequitable, would constitute an unconstitutional and illegal taking of Continental s property, and would constitute an excessive and unconstitutional penalty against Continental. 15. To the extent Plaintiff seeks to recover interest under 52 O.S (formerly codified as 52 O.S. 540 based on any alleged breach of a lease entered into prior to the effective date of the statute, application of the statute to such pre-existing leases would impair Continental s then-existing contractual rights in violation of the United States Constitution and the Oklahoma Constitution. 16. To the extent Plaintiff seeks to recover interest under 52 O.S (formerly codified as 52 O.S. 540, that statute violates Article 5, Sections 46 and 59 of the Oklahoma Constitution. Such statute also impermissibly deprives Continental of 6

7 Case 5:14-cv C Document 5 Filed 02/26/14 Page 7 of 14 equal protection and due process of the laws in violation of both the Oklahoma and United States Constitutions. 17. To the extent Plaintiff s allegations and claims are based in part on the provisions of the PRSA pertaining to certain information that is to be shown on monthly production check stubs/remittances, such statutory provisions are unconstitutionally vague. 18. The claims asserted in this case may be subject to reduction due to a failure, in part, to mitigate any alleged damages. 19. Without assuming the burden of proof that by law falls on Stamps Bros. and each member of the proposed class Stamps Bros. claims to represent to establish the essential elements of any claim to unpaid interest on royalty payments, Continental states that Plaintiff s claims are barred, in whole or in part, by its failure and/or the failure of proposed class members to have and/or show marketable title. 20. Without assuming the burden of proof that by law falls on Stamps Bros. and each member of the proposed class Stamps Bros. claims to represent to establish the essential elements of any claim to unpaid interest on royalty payments, Continental states that Plaintiff s claims are barred, in whole or in part, by its failure and/or the failure of proposed class members to provide Continental with notice of assignments of royalty and overriding royalty interests as required by the leases from which their interests are derived. 21. Without assuming the burden of proof that by law falls on Stamps Bros. and each member of the proposed class Stamps Bros. claims to represent to establish the 7

8 Case 5:14-cv C Document 5 Filed 02/26/14 Page 8 of 14 essential elements of any claim to unpaid interest on royalty payments, Continental states that Plaintiff s claims are barred, in whole or in part, by their refusal to accept royalty and/or overriding royalty payments that were tendered. 22. Without assuming the burden of proof that by law falls on Stamps Bros. and each member of the proposed class Stamps Bros. claims to represent to establish the essential elements of any claim to unpaid interest on royalty payments, Continental states that Plaintiff s claims are barred, in whole or in part, by the doctrines of unclean hands and impossibility of performance. 23. The claims in this case are barred in whole or in part, (a due to the elections of proposed class members to take their production in kind and/or to separately dispose of it; (b due to questions and/or doubts as to the quality of ownership and title possessed by proposed class members and/or due to their failure to establish the quality of title required in the applicable jurisdiction; (c due to the inability to locate with reasonable efforts proposed class members; (d due to express provisions in the statutes relied upon by Stamps Bros. that exclude from the rights and provisions of those statutes the factual circumstances applicable to proposed class members; and/or (e due to the express provisions in the statutes relied upon by Stamps Bros. that recognize the conduct of Continental as permissible and proper under such statutes. 8

9 Case 5:14-cv C Document 5 Filed 02/26/14 Page 9 of Plaintiff s purported cause of action and alleged damages, if any, are the responsibility of third parties, including, but not limited to, the Plaintiff and other unnamed parties. 25. Continental reserves the right to plead additional defenses that may become known during the course of discovery and as the claims being asserted in this case are clarified. WHEREFORE, premises considered, Continental prays that Plaintiff take nothing by way of its Petition herein as against Continental, that such Petition be dismissed, that Continental be awarded its attorneys fees, costs and litigation expenses to the extent that the Court determines that the same are recoverable in this proceeding, and that the Court grant Continental such other and further relief as the Court deems just and equitable. COUNTERCLAIMS Continental, for its Counterclaim against the Plaintiff Stamps Bros., alone and individually in this cause, and not against any other person, or class of persons, who Stamps Bros. might seek to represent, alleges and states as follows: 1. Stamps Bros. is, upon information and belief, an Oklahoma limited liability company. 2. Continental is an Oklahoma corporation with its principal place of business in Oklahoma. 3. This Court has original jurisdiction over Continental s counterclaims herein under the provisions of 28 U.S.C because Continental s counterclaims include a 9

10 Case 5:14-cv C Document 5 Filed 02/26/14 Page 10 of 14 request for a declaratory judgment concerning the invalidity of an Oklahoma Statute under the United States Constitution. 4. Venue is proper in the United States District Court for the Western District of Oklahoma because Continental s principal place of business is in Oklahoma County, and some of the wells in which Stamps Bros. claims an interest and which Stamps Bros. seeks to include in support of its individual claims in this cause are located in Grady County, Oklahoma. COUNT ONE Declaratory Relief Regarding the Unconstitutionality of 52 O.S and predecessor statute 5. As shown in the allegations made by Stamps Bros. in its Petition, Stamps Bros. alleges in part: 13. The Production Revenue Standards Act ( PRSA, 52 O.S et seq., requires that Continental make the first payment of royalties to Stamp Brothers and the Class no later than six months after the date of first sale of production. The PRSA also specifies the method of calculation and rate of interest owed to Stamp Brothers and the Class when Continental fails to meet this royalty payment timing requirement. 14. Continental has failed to meet the PRSA requirement of making the first payment of royalties to Stamp Brothers and the Class no later than six months from date of first sale of production and has failed to pay interest owed as a result thereof. 6. By reason of its terms, the context in which it is applied and the surrounding circumstances that are relevant to a determination of the constitutionality of the statute, 52 O.S (and its predecessor statute, 52 O.S. 540 are unconstitutional, and should be declared invalid, in whole or in part, for the reasons that: 10

11 Case 5:14-cv C Document 5 Filed 02/26/14 Page 11 of 14 A. Such statute violates Article 5, Section 46 of the Oklahoma Constitution inasmuch as the statute is a special law that fixes the rate of interest; and/or B. Such statute violates Article 5, Section 59 of the Oklahoma Constitution inasmuch as the Oklahoma Statutes include general laws regarding rates of interest that accomplish the proper legislative goals, with the result that there is no proper basis for attempting to create a special statute. Moreover, the interest provisions in 52 O.S are not reasonably and substantially related to a valid legislative objective; and/or C. Such statute impermissibly deprives Continental and others of the equal protection of the laws in violation of both the Oklahoma and United States Constitutions because, among other considerations, the Statute arbitrarily and capriciously imposes a higher interest rate on, and differing required standards of conduct with respect to, the late payment of oil and gas production proceeds attributable to (i some sales of oil and gas production, but not all; 1 (ii some royalty owners but not all (e.g., royalty owners in mining operations or wind farms not covered by the statute, (iii even some royalty owners in oil and gas wells but not all (depending upon whether de minimis royalty payment provisions apply, and (iv other payment obligations; and/or 1 The provisions of 52 O.S apply by their terms to (a persons or governmental entities with a legal interest in the mineral acreage under a well which entitles that person or entity to oil or gas production or the proceeds or revenues therefrom, and (b producing oil or gas wells. See 52 O.S and In addition, Section refers to first purchasers. See 52 O.S C.1, E.1 and E.2.a. Consequently the timing and interest rate provisions of do not apply, for example, to second and subsequent sales of the same oil or gas production once it has been first sold after it is produced from a well. 11

12 Case 5:14-cv C Document 5 Filed 02/26/14 Page 12 of 14 D. Such statute impermissibly deprives Continental and others of due process of law in violation of both the Oklahoma and United States Constitutions because, among other considerations, the Statute arbitrarily and capriciously imposes a higher interest rate on, and differing required standards of conduct with respect to, the late payment of oil and gas production proceeds attributable to (i some sales of oil and gas production, but not all; (ii some royalty owners but not all (e.g., royalty owners in mining operations or wind farms not covered by the statute, (iii even some royalty owners in oil and gas wells but not all (depending upon whether deminimis royalty payment provisions apply, and (iv other payment obligations. COUNT TWO Declaratory Judgment Regarding Continental s Compliance with 52 O.S and its predecessor statute 7. Continental adopts and incorporates by reference herein the preceding allegations in paragraphs 1 through 6 of the above Counterclaims. 8. Continental denies that its actions with respect to the subject matter of this lawsuit have violated the timing of payment, interest rate and other provisions of the statutes alluded to by Stamps Bros. in its Petition. Certain of the reasons for that denial have been set forth in the defenses asserted by Continental in response to the claims of Stamps Bros. 9. As a result of the foregoing conflicting positions of the parties concerning the extent to which Continental has complied with, or violated, the timing of payment, interest rate and other provisions of the statutes alluded to by Stamps Bros. in its Petition, 12

13 Case 5:14-cv C Document 5 Filed 02/26/14 Page 13 of 14 a controversy has arisen between the parties that can and should be resolved by a declaratory Order of the Court. 10. Continental requests that the Court enter a declaratory judgment and decree declaring and determining the full extent to which Continental (a has complied with the statutory provisions referenced in Stamps Bros. Petition, or (b has been excused, or otherwise exempted, from the requirements of such statutory provisions. WHERFORE, Continental prays that the Court: (A Enter a declaratory judgment and decree declaring and determining that the provisions of 52 O.S are unconstitutional in whole or in part under both the Oklahoma and United States Constitutions on the grounds asserted above. (B Enter a declaratory judgment and decree declaring and determining the full extent to which Continental (a has complied with the statutory provisions referenced in Stamps Bros. Petition, or (b has been excused, or otherwise exempted, from the requirements of such statutory provisions; and (C Award Continental its attorneys fees and costs herein to the extent that the Court determines that such fees and costs are recoverable in this action, and that the Court grant to Continental such other and further relief as the Court deems just and proper. Dated the 26 th day of February,

14 Case 5:14-cv C Document 5 Filed 02/26/14 Page 14 of 14 s/ Mark D. Christiansen Mark D. Christiansen, OBA #1675 Jodi W. Dishman, OBA #20677 McAFEE & TAFT A Professional Corporation 10 th Floor, Two Leadership Square 211 North Robinson Ave. Oklahoma City, OK Tel Fax mark.christiansen@mcafeetaft.com jodi.dishman@mcafeetaft.com ATTORNEYS FOR DEFENDANT CONTINENTAL RESOURCES, INC. CERTIFICATE OF SERVICE I hereby certify that on this 26 th day of February, 2014, I electronically transmitted the attached document to the Clerk of Court using the ECF System for filing. Based on the records currently on file, the Clerk of Court will transmit a Notice of Electronic Filing to the following registrants: Kandi Jespen Pate Mark A. Wolfe s/ Mark D. Christiansen Mark D. Christiansen 14

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