Golden v. SM Energy Co.

• Decision Date: 01 February 2013
• Docket Number: No. 20120265.,20120265.
• Citation: 826 N.W.2d 610,2013 ND 17
• Parties: A.G. GOLDEN; Paul E. Nordstog; Cooper B. Land; Solveig K. Land; Howard D. Armentrout and Delores K. Armentrout, as Co–Trustees of the Armentrout Family Revocable Living Trust dated May 24, 2005; Craig L. Bolenbaugh, and Joseph Michael Bolenbaugh, Peter Francis Bolenbaugh, and James Patrick Bolenbaugh, as joint tenants; and Royalty Interest Partnership, LP, Plaintiffs and Appellees v. SM ENERGY COMPANY, a Delaware corporation, Defendant and Appellant.
• Court: North Dakota Supreme Court

826 N.W.2d 610

2013 ND 17

A.G. GOLDEN; Paul E. Nordstog; Cooper B. Land; Solveig K. Land; Howard D. Armentrout and Delores K. Armentrout, as Co–Trustees of the Armentrout Family Revocable Living Trust dated May 24, 2005; Craig L. Bolenbaugh, and Joseph Michael Bolenbaugh, Peter Francis Bolenbaugh, and James Patrick Bolenbaugh, as joint tenants; and Royalty Interest Partnership, LP, Plaintiffs and Appellees

v.SM ENERGY COMPANY, a Delaware corporation, Defendant and Appellant.

No. 20120265.

Supreme Court of North Dakota.

Feb. 1, 2013.

Amy L. DeKok (argued), Jillian R. Rupnow (appeared), and Lawrence Bender (on brief), Bismarck, ND, for plaintiffs and appellees.

David R. Hammond (argued), and Natalie West (on brief), Denver, CO; and H. Malcolm Pippin (appeared), Williston, ND, for defendant and appellant.

VANDE WALLE, Chief Justice.

[¶ 1] SM Energy Company appealed from a summary judgment declaring that A.G. Golden and other plaintiffs are entitled to a four percent overriding royalty interest in leases and lands covered by a 1970 letter agreement and ordering SM to pay amounts due to Golden and the other plaintiffs for these interests, and from an order denying SM's motion to amend or for relief from the judgment. We conclude the district court erred in ruling as a matter of law that SM, through its predecessors in interest, expressly assumed an “area of mutual interest” clause in the 1970 letter agreement and in expanding the judgment to include unpled and unlitigated properties within the area of mutual interest. We further conclude the court correctly ruled as a matter of law that SM owes Golden and the other plaintiffs retroactive royalty payments on production from a certain well located on the subject property. We affirm in part, reverse in part, and remand for further proceedings.

I

[¶ 2] Golden owned oil and gas leases covering property located in McKenzie County. On July 15, 1970, Golden entered into a letter agreement with Universal Resources Corporation in which he sold Universal his “entire interest in these lands” for $15,000 “subject to my retention of four percent (4%) overriding royalty.” The letter agreement also created a “joint area of interest”:

A joint area of interest is designated between the parties hereto and is described as All of Sections 19, 20, 29, 30, 31 and 32 in Township 153 North, Range 95 West and All of Section 2 in Township 152 North, Range 96 West. It is agreed that should A.G. Golden purchase any leasehold interest within the above descirbed [sic] area, he will offer it at cost to Universal Resources Corporation, subject to a reservation of four per cent (4%) overriding royalty. Should Universal Resources Corporation purchase any leasehold interest in the joint area of interest, they will assign a four percent (4%) overriding royalty to A.G. Golden without cost. Said joint area of interest is shown by Exhibit “B” (attached hereto and made a part hereof).... Should production be encountered on any acreage owned or controlled by Universal Resources Corporation in the joint area of interest, the obligations of the parties hereto shall continue to each other for so long as production continues.... The terms of this paragraph shall extend to all new lease purchases, lease renewals lease extensions of any nature whatsoever.

The letter agreement further provided that “[a]ny assignment of this agreement made by you [Universal] shall recite that same is made pursuant and subject to the terms and conditions of this Agreement.” During the early 1980s, Universal acquired several leases within the geographic area defined in the letter agreement, including what the parties refer to as the “Thompson lease,” and assigned to Golden a four percent overriding royalty interest in that lease and other leases in the joint area of interest.

[¶ 3] On April 29, 1993, Universal sold and assigned to Tipperary Petroleum Company its interest in the leases and lands covered by the 1970 letter agreement. The assignment and bill of sale included a provision that Universal was assigning “all right, title and interest of Assignor in and to ... all operating agreements, joint venture agreements, partnership agreements, and other contracts, to the extent that they relate to any of the Assets.” A few months later, Tipperary acquired through an assignment from Texaco Exploration and Production, Inc., all of Texaco's interest in what the parties refer to as the “Federal lease.” Effective March 1, 2000, Tipperary sold and assigned all of its interest in the leases and lands subject to the letter agreement, including the Thompson lease and the Federal lease, and its contract rights and obligations in the letter agreement, to Nance Petroleum Corporation. The assignment and bill of sale provided that Nance “assumes all of Assignor's duties, liabilities and obligations relating to the Assets to which Assignor was a party or by which it was bound on and after the date hereof.” Nance was later merged into SM. All of the relevant documents in this case were duly recorded.

[¶ 4] SM is the current operator of the “Thompson–Federal” well and the “Wilson” well. The drill site spacing unit for the Thompson–Federal well includes the Thompson lease and the Federal lease. The Wilson well is located within the joint area of interest. SM has paid Golden and the other plaintiffs royalties on production from the Thompson–Federal well attributable to the Thompson lease, but has not paid royalties on production attributable to the Federal lease. SM has paid Golden and the other plaintiffs a four percent overriding royalty on production from the Wilson well since January 2009, but has refused to pay them the four percent royalty for earlier periods because SM's previous smaller payments were made under executed division orders. Golden and the other plaintiffs brought this declaratory judgment action to determine the parties' rights, to quiet title to interests in the land, and for an accounting.

[¶ 5] The district court granted summary judgment in favor of Golden and the other plaintiffs and denied SM's cross-motion for summary judgment in its favor. The court ruled as a matter of law that SM, through its predecessors in interest, expressly assumed Universal's rights and obligations under the 1970 letter agreement. The court's judgment also expanded the scope of the ruling beyond the pleadings to include all leases and wells in the joint area of interest described in the letter agreement. The court further ruled as a matter of law that SM owes Golden and the other plaintiffs retroactive royalty payments on production from the Wilson well. The court denied SM's post-judgment motion to amend and for relief from the judgment.

II

[¶ 6] SM argues the district court erred in granting summary judgment in favor of Golden and the other plaintiffs (collectively “Golden”). SM contends summary judgment should have been granted in its favor.

[¶ 7] The standard for reviewing summary judgments is well established:

Summary judgment is a procedural device for the prompt resolution of a controversy on the merits without a trial if there are no genuine issues of material fact or inferences that can reasonably be drawn from undisputed facts, or if the only issues to be resolved are questions of law. A party moving for summary judgment has the burden of showing there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. In determining whether summary judgment was appropriately granted, we must view the evidence in the light most favorable to the party opposing the motion, and that party will be given the benefit of all favorable inferences which can reasonably be drawn from the record. On appeal, this Court decides whether the information available to the district court precluded the existence of a genuine issue of material fact and entitled the moving party to judgment as a matter of law. Whether the district court properly granted summary judgment is a question of law which we review de novo on the entire record.

Hamilton v. Woll, 2012 ND 238, ¶ 9, 823 N.W.2d 754 (quoting Wenco v. EOG Resources, Inc., 2012 ND 219, ¶ 8, 822 N.W.2d 701).

A

[¶ 8] SM argues the district court erred in granting summary judgment in favor of Golden because, as a matter of law, neither SM nor its predecessors in interest assumed the “joint area of interest” clause in the 1970 letter agreement.

[¶ 9] The “joint area of interest” clause in the 1970 letter agreement is commonly referred to in the oil and gas industry as an area of mutual interest or AMI agreement, which has been defined as an “agreement by which the parties attempt to describe a geographical area within which they agree to share certain additional leases or other interests acquired by any of them in the future.” 8 P. Martin & B. Kramer, Williams & Meyers Oil and Gas Law, Manual of Oil and Gas Terms 54 (2012); see also A. Himebaugh, An Overview of Oil and Gas Contracts in the Williston Basin, 59 N.D. L. Rev. 7, 32–33 (1983). The parties in this case agree that the AMI clause is not a covenant that runs with the land, but is a personal covenant that is enforceable only between the original parties to the agreement. See generally Beeter v. Sawyer Disposal LLC, 2009 ND 153, ¶ 10, 771 N.W.2d 282;compare Mountain West Mines, Inc. v. Cleveland–Cliffs Iron Co., 376 F.Supp.2d 1298, 1304–08 (D.Wyo.2005), aff'd in part and rev'd in part on other grounds,470 F.3d 947 (10th Cir.2006) (AMI clause was not intended by the parties to be a covenant running with the land). Consequently, the parties agree that SM and its predecessors in interest must have agreed to be bound by the AMI clause under the law of assignments.

[¶ 10] Assignment agreements may not only assign rights, but may also delegate duties to the assignee. See Rosenberg v. Son, Inc., 491 N.W.2d 71, 73 n. 1 (N.D.1992). An assignment is an expression of intention by the assignor that his duty shall...