United States District Court, D. Kansas
MEMORANDUM AND ORDER
Thomas Marten, Judge.
number of the motions are before the court in the present
dispute over the effects of the migration of natural gas
which plaintiff Northern Natural Gas injected into a storage
field. The gas subsequently migrated to other property.
Northern brings claims for private nuisance against the
Producer defendants who obtained the gas, based on the
allegation that the production caused an unreasonable
interference with its storage field. It also brings a claim
for unjust enrichment against other interest owner
defendants, alleging that they unfairly profited from the
extraction. The parties have filed motions which seek to
exclude certain evidence, as well as motions for summary
judgment on various aspects of the case. The court first
addresses the evidentiary motions.
Motion to Exclude Expert Keeney
(Dkt. 727) moves to exclude the testimony of George N.
Keeney, III, an expert retained by L.D. Drilling, and the
opinions contained in his October 17, 2018 report, which was
subsequently adopted by other defendants in the action.
Keeney was retained to assess the damages that Northern
claims it incurred in mitigating the alleged nuisance created
by the producer defendants. Northern argues that Keeney's
opinions are speculative and unreliable.
conceding that some of Northern's arguments are
well-founded, the defendants argue that Northern's
request to exclude the entirety of Keeney's testimony is
“overreaching” and that the court should not
“exclude all of Keeney's testimony and
opinions.” (Dkt. 752, at 1, 5) (emphasis in original).
Having reviewed the pleadings, the court agrees that
substantial portions of Keeney's proposed opinions and
testimony have not been shown to be reliable and are hereby
is a CPA and has been certified by the American Institute of
CPAs in Financial Forensics. He has 38 years of experience in
the oil and gas industry. He has frequently offered expert
opinions in Oklahoma litigation. In his report, Keeney breaks
down Northern's claimed damages as falling into six
$ 36, 629, 738
16, 888, 276
Construction & Expansion
20, 007, 434
Experts and O&M Costs
5, 595, 775
Experts and O&M Costs Northern in-house
2, 800, 471
Profits Disgorgement/Unjust Enrichment
30, 443, 753
presents five opinions as to these claimed damages. He
believes the gas purchase amounts claimed are invalid because
Northern has failed to account for the production by
non-defendant producers Phillips and Trisum prior to 1984.
(Dkt. 728-1, at 4). Second, he contends that the reason for
Northern's gas purchases “was more economic than
operational, ” because the timing of the purchases
indicates that Northern bought gas when the market price was
high, rather than when it was low. (Id. at 5).
Keeney expressly linked this conclusion in his report to a
supposed lack of supporting information:
No evidence has been provided that indicates the purchased
gas was actually injected into the storage facility; in
February of 2010 the purchased volume exceeds the injected
volume by 16 times. Inclusion of the entirety of purchased
gas in the NNG claim is inappropriate. I have searched, but
found no NNG internal documents that support its claim that
it was necessary to purchase the gas for operational reasons
and/or that such purchases were attributable to
Keeney states that the hedging losses were not the fault of
the defendants, but “the result of bad bets” by
Northern in the derivatives markets. He founded this
conclusion on (a) the fact that derivative markets were
“purely speculative” and “costless collars
that are not related to the purchases of natural gas”
made by Northern, and (b) that the timing of the hedges
appeared to be unrelated to the actual purchases of
replacement gas. “Why were the hedges necessary?,
” he asked. “The disconnect between the periods
and prices of hedging and the periods when gas was purchased
are a clear indication that the hedges were purely
speculative and unrelated.” (Id. at 5-6).
Keeney opines that the cost to improve the Cunningham storage
facility overstates the cost of mitigating the nuisance,
because it is simply a tally of capital expenditures at the
field since 2004. According to Keeney, the work includes
costs for containment and storage that Northern would have
incurred anyway, or would have incurred as the result of FERC
and KCC orders. (Id. at 6-7).
respect to the expert costs for improving the storage field,
Keeney again focuses on the lack of support: “the
detail supporting the claim for Expert fees associated with
the Cunningham projects is inadequate to allow determination
of the activities performed and the nature of the respective
engagements.” (Id. at 7).
motion argues that Keeney's opinions are unreliable
because they rest on the assumption that Northern lacked
documentation for its damages claims, and that the assumption
was false. The information supplied by Northern (Dkt. 728, at
3) indicates that it did, indeed, supply defendants with
information which would support its damages claims, and that
this information was simply ignored by the defendants and its
defendants in response stress the sheer size of the discovery
presented in the case. (Dkt. 752, at 3) (given the
“terabytes” of data, “Keeney [could] not
possibly review all of the production in this case”).
The defendants suggest that Northern bears the fault for
Keeney's failure to identify the relevant documents,
because it “refused” to identify the specifically
court finds there are two problems with this argument. First,
the issue of fault is secondary to the key issue of whether
Keeney's opinions are reliable. For the reasons stated
below, the court concludes that in important respects they
are not, because their central premise is that Northern has
no documentary evidence to support its claims. Shorn of this
support, Keeney's opinions in many respects fall back on
his own ipse dixit. Second, the record does not
support the conclusion that Northern refused to identify the
relevant documents. Northern communicated with defendants as
to its claimed damages, but noting the volume of the
underlying invoices and other materials, it proposed
“retain[ing] the invoices and backup” absent a
“request for production.” In October, 2018,
defendants requested help in locating certain documents - but
not supposedly missing damages documents which later formed
an essential part of Keeney's opinions.
review of Keeney's March 1, 2019 deposition supports the
conclusion that a lack of supporting evidence was an
important factor in Keeney's opinions. Keeney testified
that he relied on defendants' counsel to supply him
relevant documentation. He would ask for information, and if
none would be supplied, he assumed it did not exist:
Q. Were there any documents that you asked for specifically?
Q. Okay. And what documents would those be?
A. The -- the native format spreadsheets from virtually all
of the experts and the employees that provided information on
damages. I asked for copies of contracts with regard to the
hedging. I asked for contracts, settlement documents,
delivery tickets and so forth with regard to the gas
purchases. Most of what I was asking for was backup for -- to
substantiate the claim numbers that were being evaluated.
Q. Okay. And were those provided to you?
A. Some were; some weren't.
Q Okay. Do you know what [documents] weren't provided to
A. Any kind of supporting documentation.
Q. Can you elaborate on that?
A. Delivery tickets, invoices, payment stubs, gas analysis to
purchase gas, the contracts associated with the hedging with
the spreads that were done. Virtually all of that information
was simply summarized. It was a spreadsheet and that's
all the support that was provided.
Q. Okay. Do you know why the additional documentation
wasn't provided to you?
A. I presume it wasn't available.
Q. If it was available, is it something you would want to
Northern notes, Keeney's basic opinion that Northern was
buying gas when it was expensive rather when it was cheap is
strongly counterintuitive. Further, the opinion fails to take
account of other evidence in the case, such as FERC
constraints on when Northern could purchase gas, existing
deposition testimony (by Dan Fancler) that the additional gas
was in fact purchased in order to meet operating commitments
to customers, and that Keeney's opinion as to purchase
timing failed to take into account defendants' increasing
production after 2010.
had no opinion as to Northern's actual gas purchases, or
as to the volumes of gas purchased by Northern. And, again in
each instance, the supposed lack of supporting documents was
important to him:
Q. Can you agree reviewing - well, first of all, do you have
any reason to dispute that Exhibit No. 10, which was Exhibit
2 to Mr. Fonda's deposition, do you have any reason to
dispute that that accurately reflects the physical gas
purchases that Northern made?
A. I have no way to verify that. I've asked for the
documentation that supports the purchases. I haven't been
able to obtain it. But I don't know.
A. I have no explanation for the volumes. You'll have to
ask Northern what the criteria was.
Q. Okay. And you have no reason to dispute whatever
information Northern puts out there for the volumes that it
did choose to purchase?
A. I'd love to see the backup.
agreed that the suggestion the purchases weren't
necessary is linked to the lack of documentary evidence:
Q. You're not [offering] an opinion that gas purchases
were not operationally needed; correct?
A. I am - I'm - I'm of the opinion that I didn't
find any evidence from any internal documents, from any
reservoir engineer, from any pressure maintenance group, from
anybody inside NNG that said, “We better buy some
gas.” Q. Okay. So your opinion is simply that you
didn't see anything that would support that conclusion?
respect to tying the hedging transactions to the Cunningham
gas purchases, a lack of documentation was also an important
part of Keeney's opinions as related in his deposition.
Q. And if, in fact, the 16 million in losses on the swap
agreements are tied to direct purchases to offset storage ...
gas taken out of the Cunningham field on a one-to-one basis
by the defendants ..., would your opinion change?
[A.] I believe the hedging losses are unrelated because
they're hedging losses.
I -- I haven't seen a document that would convince me of
Q. …. Okay. But that doesn't answer the question
that I just asked, does it? Because I asked if you were
provided documents that satisfied you that that was, in fact,
the case, what would your opinion be?
A That's -- I mean, hypothetically, I - I can't
answer the question until I see the documents. What I've
seen does not support this claim and this claim.
Q. Okay. So you reviewed the spreadsheets that were attached
as PDFs as deposition exhibits?
A. That's correct.
Q. ….No other documents?
A I was not able to find -- in fact, as part of the
interrogatories, we asked for all the supporting
documentation. I asked for the native spreadsheets. I asked
for the contracts themselves. I asked for trade dates. I
asked to see any memoranda that had anything to do with the
thought process behind the hedging, and I got this.
A. Two pages.
Q. Okay. And you weren't provided any of those things
that you asked for?
A No, none of those things could be located or were responded
to in the interrogatories.
is substantial documentary evidence directly linking the
hedges to the Cunningham field purchases. Keeney was shown
such documentation in his deposition and he agreed it was the
type of important information that he would have liked to
have had before issuing his report.
Q. And without committing - I'm not asking you to commit
to the specifics, but would this type of contract seem to be
consistent with the memorandum that we looked at from Kent
Miller to Mark Hewett indicating hedging .5 BCF of
Northern's 1.8 BCF open position from 2008 and 2009?
A. Well, without being able to reconcile it to the position,
I can't really tell you. That's what these are, and,
yes, I -- I suspect, if given the opportunity to go through
all of them, I could at least correlate some --some kind of
strategy out of it.
Q. And, sir, I just want to make sure that we have a clean
record here because I can sense some of your frustration
because you've expressed to us today that you would have
liked to have reviewed all of these agreements, you would
have liked to have gone through all the financial details of
these transactions in order to form an opinion; correct?
A. That is correct.
Q. And I want to make clear to you that all of these
agreements as indicated by the Bates numbers that are on the
bottom of the page have been produced in this litigation and
were, in fact, produced in this litigation in 2017 before the
depositions of Mr. Waymire and Mr. Fonda. But you have not
had the opportunity before today to see anything similar to
A. That is correct.
respect to his opinion as to the capital expenditures being
ordinary and necessary costs, Keeney again did not review the
underlying information which had been produced by Northern.
Instead, Keeney had looked at the 2017 deposition of David
Waymire and the exhibits that were attached in it. He did not
review the invoices and other backup documentary information
under the AFEs and summaries. He testified, “I was not
aware that they were provided, ” although “I
asked for them.” He agreed that they were important to
review. Further, although the underlying work order runs were
not explicitly attached to the Waymire deposition as
exhibits, Waymire explicitly spoke about them in the
deposition. Those documents, he testified, were voluminous,
but showed the actual costs incurred, and that having such
information was important for any accountant to be able to
“drill down and see the invoice and the details.”
respect to the claim for the expert costs associated with
improving the Cunningham field, Keeney's report again
relied on an alleged lack of evidence. However, in this
respect it may be noted that in his deposition Waymire had
explicitly testified that Exhibit 3 was simply a summary. He
clearly indicated that there was specific documentation, and
that it had been produced by Northern to the defendants.
testimony is admissible if it is reliable. Daubert v.
Merrell Dow Pharms., 509 U.S. 579, 589-93 (1993);
Dodge v. Cotter Corp., 38 F.3d 1212, 1222-23 (10th
Cir. 2003). Reliability is absent where the putative expert
fails to review the available evidence. See Miller v.
Pfizer, Inc., 19 F.Supp.2d 1062, 1085 (D. Kan. 2002),
aff'd, 356 F.3d 1326 (10th Cir. 2004).
affidavit presented after Northern's motion, Keeney
concedes that, upon reviewing the documents specified by
Northern, he longer opines that “Northern's damages
claim for replacement gas should be wholly disallowed for
complete lack of support, ” and that its “damages
claim for expert costs and containment [sic] O&M costs
should be wholly disallowed for complete lack of
support.” (Dkt. 728-2, at ¶ 20-21). At the same
time, but in purely conclusory fashion, Keeney also avers
that none of the documents cited by Northern has caused him
to change his opinions that Northern fails to account for
lost gas due to other causes, that its losses were
“driven by market concerns, ” that the derivative
trades are “independent financial transactions,
separate and apart from the physical purchase of natural gas,
” or that the capital costs “would have been
incurred regardless of the conduct of the defendants.”
(Id. at ¶¶ 13-15, 19).
court believes that Keeney's opinions as to market-driven
motivation and capital expenses as ordinary and necessary
costs should be excluded. A review of Keeney's original
report, and his deposition, reveals that the supposed lack of
underlying documentary support was an essential component of
his opinions. When queried about these opinions in his
deposition, the cornerstone of Keeney's position was
always that Northern had failed to support its position with
documentary evidence. This was true even though Northern had
produced such evidence, and even where the limited sources
reviewed by Keeney (such as the Waymire deposition) clearly
indicated that there were additional invoices and backup
documentation available. Once the pillar of a supposed lack
of documentary support is removed, Keeney's remaining
opinions provide little help to the jury.
noted earlier, Keeney is unfamiliar with many of the
circumstances which might affect the timing of Northern's
gas purchases, rendering his testimony of limited utility at
the outset. But the opinion was also integrally tied to the
mistaken contention that there were “no [Northern]
internal documents that support its claim that it was
necessary to purchase the gas.” (Dkt. 728-2, at 5).
Keeney's opinion rested on a false premise. Similarly,
the contention that Northern's gas purchases were somehow
“market driven” is not a reliable expert opinion,
once the false premise is removed. The remaining opinion of
market motivation by Keeney rests on nothing more than his
say so. Keeney was asked in his deposition about the
counterintuitive nature of his claim that Northern was only
buying gas at high prices.
Q. [I]t would seem to me that if somebody is simply trying to
purchase gas when it is most beneficial in the market, you
would want to purchase when the prices are low and not
purchase when the prices are high.
. . .
Q. (By Mr. Olmstead) So explain to me why my understanding is
A. Because you're not in the financial markets.
Q. That's not an answer, sir.
A. Yes, it is.
essential element of an expert witness is that they are able
to explain the opinion, rather that simply invoke
their own authority. When coupled with Keeney's lack of
familiarity with other factors which might have influenced
the timing of Northern's gas purchases, the court finds
that the opinion that the purchases were market-related is
court will also exclude Keeney's opinion that the
Northern's capital costs were ordinary and necessary
expenses, rather than compensable responses to the
defendants' alleged nuisance. Again, the supposed lack of
documentation was an important pillar of Keeney's
opinion, as reflected in his report and in the deposition.
See Report (Dkt. 728-2) at ¶ 5.D.2 “there
is insufficient information to allow any evaluation”).
Without this support, Keeney's opinion appears to rest
solely upon Doug Johnson's conclusions, that the capital
expenditures were otherwise required by administrative
agencies. See id. at ¶ 5.D.3. Keeney's
opinion therefore adds no additional evidentiary support for
the defendant's contentions.
court reaches a different result conclusion on Keeney's
opinion that Northern's derivative losses are unrelated
and unrecoverable hedging transactions. Northern highlights
the defendants' concession in their response that that
the produced documents “would otherwise confirm that
the transactions actually occurred and that there was nothing
unusual about them.” (Dkt. 752, at 9). But a review of
Keeney's original opinion as expressed in his report
indicates that the lack of documentation played an important
but not (as with the claim of market driven gas purchases) an
essential role in Keeney's opinion as to the hedging
transaction. The Report (Dkt. 728-2, at ¶¶ 5.C.3-6)
stresses the disconnect between the timing and nature of the
actual gas purchases and the derivative transactions. The
court finds that Keeney may provide testimony as to the
opinions expressed in Section 5C of his Report. Although it
is a close question, the court concludes that the questions
by Northern as to the documentary support for the hedging
claims are an appropriate basis for the cross-examination of
Keeney rather than a sufficient basis for exclusion of his
arguments as to the remaining portions of Keeney's
opinions are relatively limited. The court will also deny
Northern's motion as it relates to Kenney's opinions
that Northern's damages claims fail to account for gas
storage lost due to reasons other than any nuisance created
by defendants (Report Section 5A). Northern's discussion
of his opinion (Dkt. 728 at 6, Dkt. 766 at 5-6) is cursory.
The original opinion expressed by Keeney in his report cited
storage gas lost before 1984 due to production by Philips, or
other production by Trisum or TransPac. Nothing in
Northern's original motion addresses this aspect of
Keeney's opinion. In its Reply, Northern cites a portion
of John Fonda's deposition stating that it was
“[m]y understanding” that Dan Dobbins had
calculated what “would have been … if a Bcf of
gas was produced from these wells he made a deduction for
native gas to determine the amount of gas that need to be
purchased for replacement.” (Dkt. 766-5, at 4).
narrow portion of the deposition cited does not establish
what Fonda meant by “these wells.” Since the
ambiguous evidence is cited only in Northern's Reply, the
court will provisionally deny the request to exclude
Keeney's opinion that the replacement gas figure does not
account for other storage gas lost due to other reasons.
court grants the plaintiff's motion as to the contention
(Report Section 5F) that Northern's claim for
disgorgement of profits improperly duplicates its claim for
the cost of purchasing replacement gas. The defendants note
that they have independently moved to determine that Northern
cannot recover for both claims, and argue that Keeney should
be allowed to testify as to the issue “in the event
that motion is denied.” (Dkt. 752, at 12). That motion
is addressed elsewhere; the issue here is whether Kenney can
address the issue as an expert. Defendants' argument
assumes that Keeney as a forensic accountant has some
expertise in the legal determination of what is duplicative
recovery. Keeney's Report cites no relevant expertise,
and instead simply references “my understanding”
of court rulings. The court determines that such opinion
would not be helpful to the finder of fact.
court grants plaintiff's motion as to the opinions
expressed by Keeney in Sections 5B (“Market Driven
Actions”), 5D (‘Ordinary and Necessary
Costs”), 5E (“Expert Costs are Ordinary and
Necessary”), and 5F (“Duplicative Claim”)
of his Report. A supposed lack of documentation was a vital
and integral support for the first four of these opinions in
Keeney's report, and the same plays a vital role in his
defense of those opinions in his deposition. And without that
support, the remaining opinion lacks sufficient reliability
for submission to the jury. The final opinion, asserting the
legal conclusion of that Northern's claims are
duplicative, falls outside the scope of the witness's
Motion to Exclude Disgorgement Evidence
Pretrial Order (Dkt. 275, at 38), Northern explains its claim
for Unjust Enrichment this way:
UNJUST ENRICHMENT: Northern seeks disgorgement of profits
realized by all defendants from the unjust production and
sale of gas drawn to defendants' Extension Area wells
(save and except Nash's Holland 1-26 and J.C. 1 wells)
from the Cunningham Storage Field. Northern estimates
Defendants' cumulative total profit from the sale of gas
from the Extension Area wells to be in excess of $30 million.
When Defendants' production of gas at their wells became
unjust is a question of fact for the jury and is when
Defendants knew or reasonably should have known their wells
were producing storage gas drawn from the Cunningham Storage
Field and/or interfering with or damaging the Cunningham
Storage Field. Northern thus seeks disgorgement of all net
profits realized from and after the date and/or dates on
which the jury determines Defendants' production was
wrongful and retention of profits was unjust.
defendants seek exclusion of any evidence relating to
disgorgement of profits, arguing that Northern violated its
obligation to support that claim in its Rule 26 disclosures,
in its answers to interrogatories, the Rule 30(b)(6)
deposition of its corporate representative, or in his expert
disclosures of August 6, 2009 and July 21, 2016, Northern
indicated that it sought the disgorgement of “more than
$75, 000” from sums gained by defendants through unjust
enrichment. In 2016, defendants submitted Rule 33
interrogatories asking Northern for the amount of damages it
sought under each Count in the Third Amended Complaint.
Northern responded that “this discovery request will be
the subject of expert testimony and will be supplemented with
expert reports per the Court's rules and schedule.”
April 12, 2017, Defendants served a Rule 30(b)(6) deposition
notice upon Northern requiring it to designate a corporate
representative to address “the amounts Northern claims
for disgorgement of profits realized by the
defendants.” Northern then designated geologist Thomas
Cook to address the issue.
testified on the issue on May 9, 2017 as the plaintiff's
designated corporate representative.
Q. What time span you -- does Northern include in its
calculations for disgorgement of profits?
A. It would be from when the wells initially started
producing in roughly 2003 up through shut-in, which for Nash,
I believe, was 2010, and February 2011 for L.D. Drilling.
Q. [D]o you see the topic number 12…Looking at Exhibit
1 the topic asks for the amounts Northern claims for
disgorgement of profits you're working on that, but you
can't give us those numbers today, correct?
A. That's right, yes, sir.
Q. In terms of Topic 12 and the L.D. Drilling Group, tell me
how much the amount Northern claims for disgorgement of
profits realized by L.D. Drilling for their alleged wrongful
production of storage gas?
A. I don't have that number today.
was asked about how he calculated the amount of net profits,
and explained that he was “in the process of reviewing
all of the income statements and expense statements or
revenue statements and expense statements” provided in
discovery by the defendants. He stated he was “still in
the process of running the numbers essentially. There is
quite a . . . bit of information on a monthly basis.”
Cook agreed that at that point he “simply ha[d]
reviewed revenue statements and expense statements for the
Q. What time span did you -- does Northern include in its
calculation for disgorgement of profits?
A. It would be from when the wells initially started
producing in roughly 2003 up through shut-in, which for Nash,
I believe, was 2010, and February 2011 for L.D. Drilling.
Q. Okay. Now, the Nash Young well began producing in, I
believe, December of '94, so why is it that you don't
begin your calculation until 2003?
A. Well, for the assessment that I've done so far I do
not have had any of Nash Oil & Gas's records from
1994 to 2001, I believe. So, I guess, to back up from
Nash's purpose -- Nash Oil & Gas I started in 2001
when I had records from them.
Q. [W]hy is it that you include revenue and expenses prior to
June 2010 in your calculations?
A. I think that's a legal question as far as when - when
the break is. . . . [A]ll I'm doing right now is running
revenue from 2001 to when the wells were shut-in. And how
that is divided up will be in my expert report and legal
Q. [D]o you think it's fair to seek disgorgement of
profits from the producers for a time period prior to FERC
finding enough evidence that the Extension Area wells were
producing storage gas?
A. Once it became - once it appears the operators knew that
they were producing storage gas then I would say, yes, [from]
that point on.
Q. Okay. At what point in time does Northern believe the
operators knew they were producing storage gas?
A. I haven't pinpointed that[, ] that's still in my
expert report, I don't have an exact date at this point.
Q. Do you believe it's as far back as 2001?
Q. Okay. Do you believe it's as far back as 2005?
Q. And what is Northern's understanding as to what is the
alleged wrongful production of storage gas by the defendant
A. That would be when they became aware they were producing
storage gas and continued to produce it.
Q. Okay. But you've told me that you can't tell us
when the producers became aware they were producing storage
A. Not today, no, sir.
Q. [Y]ou would agree with me that the defendant producers did
not know they were producing storage gas as far back as 2001,
A. Well, I don't know if they knew back in 2001, but you
know, whenever they started - their actions started acting
like they were producing storage gas is what I am ultimately
Q. I'm asking you right now because you're offered as
a witness on behalf of Northern on a particular issue and
I'm asking you what is the wrongful conduct or wrongful
production that you're referring to?
A. That would be when the actions of the operators indicated
that they were reasonably sure they were producing storage
course of the May 2017 deposition established the parties
were in conflict as to the need for the plaintiff to
articulate at that time the extent of the amount of profits
which should be disgorged. Defendants thought Northern was
required to do so; Northern stated that the amount could not
then be determined, that it had yet to receive its expert
report, but that the defendants should be required to
relinquish their profits once they manifested a knowledge
they were producing storage gas. Counsel for one of the
defendants responded that “whether that was inherent in
and required to answer the question No. 12 we'll take up
with the judge.” Northern represented that Cook would