Ritter, Laber & Associates v. Koch Oil

• Decision Date: 03 June 2004
• Docket Number: No. 20030347.,20030347.
• Citation: 680 N.W.2d 634,2004 ND 117
• Parties: RITTER, LABER AND ASSOCIATES, INC.; Elizabeth Cantarine, Personal Representative of the Estate of Eugene A. Burdick; and Russell L. Kiker, Plaintiffs and Appellants v. KOCH OIL, INC., a Division of Koch Industries, Inc., Defendant and Appellee.
• Court: North Dakota Supreme Court

680 N.W.2d 634

2004 ND 117

RITTER, LABER AND ASSOCIATES, INC.; Elizabeth Cantarine, Personal Representative of the Estate of Eugene A. Burdick; and Russell L. Kiker, Plaintiffs and Appellants v. KOCH OIL, INC., a Division of Koch Industries, Inc., Defendant and Appellee.

No. 20030347.

Supreme Court of North Dakota.

June 3, 2004.

Ronald H. McLean (argued) and Jane L. Dynes (on brief), Serkland Law Firm, Fargo, ND; Marvin L. Kaiser (on brief), Kaiser Law Firm, Williston, ND; Gary J. Gordon (argued), Rider Bennett, LLP, Minneapolis, MN, for plaintiffs and appellants.

Charles F. Webber (argued), Jerry W. Snider (on brief), Aaron Van Oort (on brief) and Deborah A. Ellingboe (on brief), Faegre & Benson, Minneapolis, MN; John W. Morrison (appeared), Fleck, Mather & Strutz, Ltd., Bismarck, ND, for defendant and appellee.

SANDSTROM, Justice.

[¶ 1] The representative plaintiffs in a class action, Ritter, Laber and Associates, Inc., Elizabeth Cantarine as personal representative of the estate of Eugene A. Burdick, and Russell L. Kiker, appeal from a summary judgment dismissing their claims against Koch Oil, Inc., a division of Koch Industries, Inc., ("Koch") for conversion, unjust enrichment, and an accounting, and denying their motion to amend the complaint to allege a claim for breach of contract. We hold there are disputed issues of material fact regarding the plaintiffs' claim for conversion, the trial court properly granted summary judgment on the plaintiffs' claim for unjust enrichment, and the court did not abuse its discretion in denying the plaintiffs' motion to amend their complaint. We affirm in part, reverse in part, and remand for proceedings consistent with this opinion.

I

[¶ 2] This case has been before this Court previously on issues involving the trial court's decision to certify the plaintiffs' claims as a class action. Ritter, Laber and Assocs., Inc. v. Koch Oil, Inc., 2001 ND 56, 623 N.W.2d 424; Ritter, Laber and Assocs., Inc. v. Koch Oil, Inc., 2000 ND 15, 605 N.W.2d 153. The plaintiffs represent a class "described as all persons and entities owning royalty interests and leasehold interests in wells from which Koch purchased or sold oil in the State of North Dakota between January 1, 1975 through December 1988 where the oil was measured by hand gauging."

[¶ 3] Koch's oil purchases were governed by written contracts called "division orders" that set out the terms of the sale and specified the methodology for Koch to pay for the oil it purchased. Koch used two general types of division orders, a "basic" division order and a "100%" division order. Under the "basic" division order, Koch contracted directly with those who had an interest in the oil and paid them directly according to their percentage interest. Under the "100%" division order, Koch contracted with a well operator for 100% of the oil that it bought from a particular well, and the well operator held separate contracts with interest holders and paid them according to their percentage interests in the oil. The division orders authorized Koch to receive oil to the extent of its requirements and provided that the "oil run in pursuance of this division order shall become [Koch's] property upon the delivery thereof to [Koch] or any agent designated by [Koch]." The division orders said the quantities of oil purchased would be determined by Koch's methods of measurement and computation, including the "gauging of storage tanks using regularly compiled tank tables, the use of certified truck gauges, and the use of meters or any other reasonably accurate method of measurement and computation." The division orders required Koch to correct the volume to a temperature of 60 Fahrenheit and to deduct from the corrected volume the full percentage of basic sediment, water, and other impurities.

[¶ 4] Koch paid the plaintiffs for oil based on hand-gauging measurements at the well, but when Koch delivered the oil for shipping or selling, Koch measured the oil by volumetric meter, which allegedly resulted in Koch selling more oil than it had obtained from the plaintiffs. The plaintiffs claim Koch had an established practice of systematically adjusting the observed hand-gauging measurements for oil taken at the well, which allowed Koch to obtain more than 750,000 barrels of oil during the relevant time period without paying the plaintiffs for that oil.

[¶ 5] The plaintiffs sued Koch for conversion, unjust enrichment, and an accounting, alleging the differences in Koch's measurements resulted in Koch's not paying for all the oil it had received from the plaintiffs. The plaintiffs sought lost revenues attributable to the differences in measurements. The trial court granted Koch summary judgment on the plaintiffs' claims for conversion and for unjust enrichment. The court thereafter dismissed the plaintiffs' request for an accounting and denied their motion to amend their complaint to allege a claim for breach of contract.

[¶ 6] The trial court had jurisdiction under N.D. Const. art. VI, § 8, and N.D.C.C. § 27-05-06. The plaintiffs' appeal is timely under N.D.R.App.P. 4(a). This Court has jurisdiction under N.D. Const. art. VI, §§ 2 and 6, and N.D.C.C. § 28-27-01.

II

[¶ 7] We review this appeal under our standards for summary judgment, which is a procedure for promptly resolving an action on the merits without a trial if there are no disputed issues of material fact or inferences to be drawn from undisputed facts and if a party is entitled to judgment as a matter of law. Bender v. Aviko, 2002 ND 13, ¶ 4, 638 N.W.2d 545. Whether a trial court properly grants summary judgment is a question of law, which we review de novo on the entire record. Fetch v. Quam, 2001 ND 48, ¶ 8, 623 N.W.2d 357. A party seeking summary judgment bears the initial burden of showing there are no genuine disputes regarding the existence of material facts. Id. at ¶ 9. On appeal, we view the evidence in the light most favorable to the party opposing the motion. Id. at ¶ 8.

III

[¶ 8] The plaintiffs argue the trial court erred in granting summary judgment dismissal of their claim for conversion. The court ruled "Koch did not wrongfully obtain additional goods," because "Koch had the right to obtain all the oil that it obtained, but ... was obligated to properly measure and pay for all the oil it obtained," and the court viewed "Koch's alleged actions in not properly measuring and paying for the oil which Koch had lawfully obtained possession of as breach of contract but not conversion."

[¶ 9] The plaintiffs argue claims for breach of contract and for conversion may arise from the same facts. They argue they have an enforceable property interest in the excess oil, and there are disputed factual issues about whether Koch systematically adjusted measurements of the oil without reporting the excess oil to the plaintiffs and then sold the unreported oil to third parties without paying the plaintiffs. The plaintiffs argue the contracts did not entitle Koch to wrongfully possess more oil than it reported and did not entitle Koch to wrongfully transfer the oil to third parties without remitting payment to the plaintiffs.

[¶ 10] Koch argues it never wrongfully possessed the oil, because the plaintiffs contracted with Koch to remove the oil from the plaintiffs' wells "to the extent of [Koch's] requirements" and any failure to pay for the oil may have been a breach of contract but was not conversion. Koch argues the law of conversion involves possession of property, and issues about payment for property are matters of contract law. Relying on Piney Woods Country Life Sch. v. Shell Oil Co., 726 F.2d 225, 242 (5th Cir.1984), Koch asserts the plaintiffs' claims are for breach of contract and not conversion.

[¶ 11] Conversion consists of a tortious detention or destruction of personal property, or a wrongful exercise of dominion or control over the property inconsistent with or in defiance of the rights of the owner. Perry Center, Inc. v. Heitkamp, 1998 ND 78, ¶ 18, 576 N.W.2d 505; Sargent County Bank v. Wentworth, 547 N.W.2d 753, 762 (N.D.1996); Napoleon Livestock Auction, Inc. v. Rohrich, 406 N.W.2d 346, 351 (N.D.1987); Taugher v. Northern Pac. Ry. Co., 21 N.D. 111, 120, 129 N.W. 747, 750 (1910). See 18 Am. Jur. 2d Conversion § 1 (1985); 1 Dan B. Dobbs, The Law of Torts, § 61 (2001); Restatement (Second) of Torts § 222A (1965). Conversion requires an intent to exercise control or interfere with the use of property to such a degree as to require a forced sale of the plaintiff's interest in the goods to the defendant. Dairy Dep't v. Harvey Cheese, Inc., 278 N.W.2d 137, 144 (N.D.1979). See Restatement (Second) of Torts, § 222A. The gist of conversion is not in acquiring the complainant's property, but in wrongfully depriving the complainant of the property. John Deere Co. v. Nygard Equip. Inc., 225 N.W.2d 80, 89 (N.D.1974); Christensen v. Farmers State Bank, 157 N.W.2d 352, 357 (N.D. 1968); Hook v. Crary, 142 N.W.2d 140, 149 (N.D.1966); Leach v. Kelsch, 106 N.W.2d 358, 363 (N.D.1960). In Harvey Cheese, 278 N.W.2d at 144 (citing Prosser, Torts § 15 (4th ed. 1971)), this Court said if the defendant rightly came into possession and there was no wrongful taking of goods, demand and refusal to return may be required for conversion. However, this Court also has said demand and refusal are evidence of conversion but are not necessary to constitute conversion where a demand would be unavailing. Hochstetler v. Graber, 78 N.D. 90, 95, 48 N.W.2d 15, 18-19 (1951); Rolette State Bank v. Minnekota Elevator Co., 50 N.D. 141, 150, 195 N.W. 6, 8 (1923); More v. Burger, 15 N.D. 345, 350, 107 N.W. 200, 201 (1906).

[¶ 12] Our decisions have recognized that claims for conversion may arise under the same facts as claims for breach of contract. See Finstrom v. First State Bank, 525 N.W.2d 675, 677 (N.D.1994); Leach, 106 N.W.2d at 360-65; Hochstetler, 78 N.D. at 94-95, 48 N.W.2d at 18-19; Golly v. Northland...