Sundance Oil & Gas, LLC v. Hess Corp.

• Decision Date: 20 November 2017
• Docket Number: No. 20170148,20170148
• Citation: 903 N.W.2d 712
• Parties: SUNDANCE OIL AND GAS, LLC, Plaintiff and Appellee v. HESS CORPORATION, Defendant and Appellant and Barbara B. Corwin and Patricia B. Goldberg, Defendants
• Court: North Dakota Supreme Court

903 N.W.2d 712

SUNDANCE OIL AND GAS, LLC, Plaintiff and Appellee

v.HESS CORPORATION, Defendant and AppellantandBarbara B. Corwin and Patricia B. Goldberg, Defendants

No. 20170148

Supreme Court of North Dakota.

Filed November 20, 2017

Kirsten Tuntland (argued), Zachary E. Pelham (appeared), and Benjamin W. Keup (on brief), Bismarck, ND, for plaintiff and appellee.

Michael J. Mazzone (argued), Houston, TX, and Dante E. Tomassoni (appeared), Duluth, MN, for defendant and appellant Hess Corporation.

David P. Garner, Assistant Attorney General, Office of the Attorney General, Bismarck, ND, for amicus curiae State of North Dakota.

Jensen, Justice.

[¶ 1] Hess Corporation ("Hess") appeals from a summary judgment determining Sundance Oil and Gas, LLC ("Sundance") holds the superior leasehold mineral interest in a property located in Mountrail County. We reverse the district court's judgment and remand for further proceedings.

I

[¶ 2] In May 2014, Sundance sued Hess and the owners of the disputed mineral rights, Barbara B. Corwin and Patricia B. Goldberg, seeking to quiet title to leasehold mineral interests. In 1952, Edward J. Brown acquired a 50/2000ths interest in the mineral rights on the disputed property described as:

Township 154 North, Range 94 West of the 5th P.M.Section 23: S1/2NW1/4, W1/2E1/2, N1/2SW1/4, SE1/4SE1/4, SE1/4SW1/4Section 25: E1/2W1/2, SW1/4NW1/4, SW1/4SW1/4, West 20 acres of the SW1/4SE1/4Section 26: NE1/4, E1/2NW1/4, N1/2SW1/4

Edward Brown died on July 29, 1977 in Broward County, Florida. Edward Brown was survived by his wife, Janet G. Brown, and two daughters, Barbara Corwin and Patricia Goldberg. Edward Brown's wife, Janet Brown, died on January 28, 2000. Both Edward and Janet Brown died intestate and no probate proceedings occurred in North Dakota until October 2013. Hess obtained a leasehold interest in 2011 from Corwin and Goldberg, as the heirs to Edward and Janet Brown's estates. Hess recorded its leases on May 27, 2011. After Hess recorded its leases from Corwin and Goldberg, it obtained permits and began drilling three wells on the property.

[¶ 3] In April 2013, Sundance petitioned the district court to create a trust for Edward Brown's mineral interests because he was an unlocatable mineral owner. After Sundance was unable to locate Edward Brown or his successors, it served him by publication. In the trust action, the district court entered a default judgment and created a trust for Edward Brown's mineral interest after finding Sundance conducted a diligent but unsuccessful effort to locate Edward Brown and his successors in interest. The trustee executed a lease of the property to Sundance on July 17, 2013. Sundance recorded its lease on August 8, 2013.

[¶ 4] In this quiet title action, Sundance and Hess moved for summary judgment, each arguing they had a superior claim to the mineral interests. The district court determined the trust action was res judicata in this quiet title action and granted partial summary judgment in favor of Sundance, quieting title to the leasehold interest. Although the district court entered an order for partial summary judgment, the parties stipulated to the remaining issues related to revenues and expenses, and the district court later entered a final judgment.

II

[¶ 5] On appeal, Hess argues the district court erred in applying res judicata to determine Sundance was a good-faith purchaser for value. Hess also contends the district court erred in granting summary judgment in Sundance's favor because genuine disputes of material fact existed. Additionally, Hess argues the district court erred by concluding Sundance could obtain a superior lease for the same property without providing Hess actual notice of the trust action proceedings.

[¶ 6] First, Hess argues the district court erred in determining that the findings in the trust action were res judicata for this quiet title action. The district court did not reconsider the facts presented by Hess or Sundance in this quiet title action. "Res judicata, or claim preclusion, prevents relitigation of claims that were raised, or could have been raised, in prior actions between the same parties or their privies."

Kulczyk v. Tioga Ready Mix Co., 2017 ND 218, ¶ 10, 902 N.W.2d 485 (quoting Missouri Breaks, LLC v. Burns, 2010 ND 221, ¶ 10, 791 N.W.2d 33 ). This Court has concluded, "[f]undamental fairness underlies determinations of privity and res judicata." Kulczyk, at ¶ 11 (citations omitted). Additionally, "[t]he doctrine of res judicata does not apply to matters which are incidental or collateral to the determination of the main controversy." Martin v. Rath, 1999 ND 31, ¶ 9, 589 N.W.2d 896. This Court reviews the applicability of res judicata as a question of law, fully reviewable on appeal. Kulczyk, at ¶ 10.

[¶ 7] The trust action and quiet title action are separate and distinct proceedings with separate results. The district court's order in the trust action is not res judicata for the purposes of determining this quiet title action. The trust statute provides:

A person that owns a mineral, leasehold, or royalty interest underlying a tract of land may petition the district court of the county in which the tract or a portion of the tract is located to declare a trust in favor of other persons also owning or claiming an interest in the mineral, leasehold, or royalty interest underlying the tract if the place of residence and present whereabouts of the other persons are unknown and cannot reasonably be ascertained. In requesting the appointment of a trustee, the petitioner must show that a diligent but unsuccessful effort to locate the absent owner or claimant has been made and that appointment of a trustee will be in the best interest of all owners of an interest in the mineral, leasehold, or royalty interest.

N.D.C.C. § 38–13.1–01. As a result of the trust action, the property was put into a trust for the benefit of Edward Brown. The district court only determined Sundance undertook a "diligent but unsuccessful effort" to locate the record owner, in accordance with N.D.C.C. § 38–13.1–01. The trustee's lease of the mineral rights to Sundance was an incidental result of the district court's creation of the trust. In comparison, due to this quiet title action, the district court made a final judgment regarding who has the superior right to lease the mineral rights in the disputed property. Considering the facts to determine whether Sundance was a good-faith purchaser for value does not constitute a relitigation of the claims in the trust action.

[¶ 8] We determine the district court improperly applied res judicata and failed to consider the factual issues raised by Hess. This decision and quiet title action will not result in relitigation of claims that were raised, or could have been raised, in the trust action because the trust action did not determine who has a superior leasehold interest or whether Sundance had notice of Hess's interest. Accordingly, we reverse the district court's judgment and determine the district court erred in applying res judicata to Hess's claims in this quiet title action.

III

[¶ 9] Hess argues the district court erred in granting summary judgment and determining Sundance was a good-faith purchaser for value without notice of Hess's interest when it executed the lease with the trustee. This Court reviews summary judgment as follows:

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.

Desert Partners IV, L.P. v. Benson, 2016 ND 37, ¶ 9, 875 N.W.2d 510 (quoting Tibert v. Nodak Mut. Ins. Co., 2012 ND 81, ¶ 8, 816 N.W.2d 31 ). Summary judgment is inappropriate if reasonable differences of opinion exist regarding inferences that may be drawn from undisputed facts. Desert Partners, at ¶ 10.

[¶ 10] The district court concluded all the underlying facts in this case were judicially determined in the 2013 trust action. Accordingly, the district court granted summary judgment in favor of Sundance and determined Sundance's lease was the first to be recorded in the chain of title. However, the district court erred in applying res judicata to the facts in this quiet title action, and a genuine dispute of material fact exists.

[¶ 11] In 2013, when Sundance's cause of action arose, N.D.C.C. § 47–19–41, provided:

Every conveyance of real estate not recorded shall be void as against any subsequent purchaser in good faith, and for a valuable consideration, of the same real estate, or any part or portion thereof, whose conveyance, whether in the form of a warranty deed, or deed of bargain and sale, or deed of quitclaim and release, of the form in common use or otherwise, first is deposited with the proper officer for record and subsequently recorded, whether entitled to record or not, or as against an attachment levied thereon or any judgment lawfully obtained, at the suit of any party, against the person in whose name the title to such land appears of record, prior to the recording of such conveyance. The fact that such first

...