James Averell was probably born in about 1855. He joined the U.S. Army and served ten years in the 9th Infantry. After leaving the army in 1881 he worked as a surveyor.
In 1886 purchased a homestead near Independence Rock. He also established a store and saloon in the town and served as the local postmaster and justice of the peace. He became close friends with Ellen Watson, a neighbouring farmer.
Watson helped Averell in the saloon. A local newspaper, the Cheyenne Mail Leader, described her as "of a robust physique, a dark devil in the saddle, handy with a six-shooter and a Winchester, and an expert with a branding iron."
In 1888 Watson and Averell got involved in a dispute with Albert J. Bothwell, a powerful cattleman in Wyoming. Both their homesteads were on land claimed by Bothwell for grazing his cattle. Averell wrote to Casper Daily Mail criticizing Bothwell and claiming that cattle barons had too much power. Bothwell retaliated by claiming that Averell and Watson were stealing his cattle. Watson was also accused of being a prostitute who sometimes accepted stolen cattle in payment. Over the next few months Averell emerged as the undisputed leader of the small ranchers in their opposition to the powerful stockmen like Bothwell.
On 20th July, 1889, six men, Albert Bothwell, Tom Sun, Ernest McLean, Robert Connor, Robert Galbraith and John Durbin, arrived at the homes of Kate Watson and James Averell, and told them they intended to arrest them for rustling. According to Keith Taylor: "Although Ellen’s young wards tried to help her, they were kicked out of the way and Ellen herself was shoved into a buggy. The ranchers took her by force to Jim Averell’s place.... the kids ran for help, and found it in the shape of Jim’s nephew and a cowboy friend, Frank Buchanan. The pair grabbed six-shooters and rode to the rescue."
Averell's foreman, Frank Buchanan, followed the party and observed them stopping at the mouth of a small canyon by Sweetwater River. When it was clear that the men intended to lynch Watson and Averell, Buchanan opened fire on Bothwell and his men. Outnumbered, Buchanan was eventually forced to flee from the scene.
Bothwell and the five other men were charged with the murders of Watson and Averell. Frank Buchanan, the key witness to the crime, disappeared and was presumed murdered. Another witness also died in mysterious circumstances. Therefore Bothwell and his fellow defendants were acquitted. Bothwell was now able to acquire the property of Watson and Averell.