Cont'l Res., Inc. v. Armstrong

• Decision Date: 30 September 2021
• Docket Number: No. 20210060,20210060
• Citation: 965 N.W.2d 57
• Parties: CONTINENTAL RESOURCES, INC., Plaintiff and Appellee v. Phillip ARMSTRONG, Defendant and Appellant and Citation 2002 Investment Limited Partnership, Defendant and Appellee and Paragon Oil & Gas, LLC, Poplar Energy Company, LLC, Grandhaven Energy, LLC, Goldline Creek, LLC, Dakota Ventures I, LLC, and Geo Resource Management, LLC, Defendants
• Court: North Dakota Supreme Court

965 N.W.2d 57

CONTINENTAL RESOURCES, INC., Plaintiff and Appellee

v.Phillip ARMSTRONG, Defendant and AppellantandCitation 2002 Investment Limited Partnership, Defendant and Appellee

and

Paragon Oil & Gas, LLC, Poplar Energy Company, LLC, Grandhaven Energy, LLC, Goldline Creek, LLC, Dakota Ventures I, LLC, and Geo Resource Management, LLC, Defendants

No. 20210060

Supreme Court of North Dakota.

FILED SEPTEMBER 30, 2021

Rehearing Denied October 21, 2021

Spencer D. Ptacek (argued) and Lawrence Bender (on brief), Bismarck, ND, for plaintiff and appellee.

Phillip D. Armstrong, self-represented, Minot, ND, defendant and appellant.

Joshua A. Swanson, Fargo, ND, for defendant and appellee.

McEvers, Justice.

[¶1] Phillip Armstrong appeals from a judgment adjudicating ownership of interests in an oil and gas lease and the parties’ claims to revenue proceeds from production on those interests. We affirm the judgment to the extent it determines ownership of the disputed interests and dismisses Armstrong's claims against Continental Resources, Inc. We reverse and vacate the judgment to the extent it orders Armstrong to pay Citation 2002 Investment Limited Partnership restitution for unjust enrichment.

I

[¶2] Continental Resources operates wells located on lands covered by the lease. When Continental learned of competing claims to the leasehold interests in question, it began holding production royalties in suspense and recouping amounts it had paid on the wells. Continental sued Armstrong alleging it had overpaid him. Continental later amended its complaint to add the other defendants and request interpleader relief. Continental requested the district court determine ownership of the interests and the amount of revenue proceeds to which each defendant is entitled on production from wells the parties refer to as the Hartman Wells. The defendants filed various crossclaims and counterclaims.

[¶3] As relevant to this appeal, Armstrong filed claims against Continental alleging underpayment of revenue proceeds from the Hartman Wells and other wells located on lands covered by the lease, which the parties refer to as the Meadowlark Wells, the Skachenko Wells, and the Bice-Dolezal Wells. Citation 2002 Investment Limited Partnership filed a claim for unjust enrichment against the other defendants alleging they improperly retained proceeds that Citation is entitled to from production on the Hartman Wells.

[¶4] The oil and gas interests at issue arise from a lease executed by Frank and Marie Skachenko to C.E. Beck in 1972 covering lands in Dunn County. The Skachenkos reserved a 1/8 royalty on production under the lease. Successors to Beck's interest assigned an overriding royalty that was ultimately acquired by the Apache Corporation. Apache conveyed various interests, "together with all overriding royalty interests," to Key Production Company. Apache and Key subsequently filed a correction instrument, which noted "the Original Assignment has been misinterpreted" and provided instructions on how to calculate the interests.

[¶5] At the heart of the dispute is the proper interpretation of the Apache-Key conveyance and correction. Armstrong acquired a portion of Key's interests; Citation acquired Apache's interests. Armstrong claims the correction instrument relieves his working interest in the lease from all burdens. Armstrong also claims Key acquired, and he succeeded to a portion of, the entire overriding royalty based on the "together with all overriding royalty interests" language in the original conveyance. Citation claims Apache acquired the majority of the overriding royalty based on the calculation set out in the correction instrument. Continental does not claim ownership of the disputed interests; it agrees with Citation's stance on title.

[¶6] The district court denied cross-motions for summary judgment finding the language in the conveyances is ambiguous. The court held a bifurcated bench trial. After the first trial, the court entered an order determining the correction instrument vested Apache with 97.82% of the overriding royalty and Key with 2.18%. The court also ordered Continental to provide an accounting of the revenue amounts each defendant was entitled to on production from the Hartman Wells. After the second trial, the court awarded Citation restitution for its unjust enrichment claim against the other defendants and dismissed Armstrong's counterclaims against Continental. On November 4, 2020, the court entered an order for judgment with findings of fact and conclusions of law. Final judgment was entered January 8, 2021.

II

[¶7] On appeal, Armstrong challenges the district court's title determination, the court's dismissal of his claims against Continental for underpayment of revenue proceeds, and the court's award of restitution to Citation for its unjust enrichment claim. Aside from Citation, the other defendants hold interests that are consistent with Armstrong's chain of title. They have not appealed.

[¶8] Our standard of review for appeals from a judgment entered after a bench trial is well established:

In an appeal from a bench trial, the district court's findings of fact are reviewed under the clearly erroneous standard of review, and its conclusions of law are fully reviewable. A finding of fact is clearly erroneous if it is induced by an erroneous view of the law, if there is no evidence to support it, or if, after reviewing all of the evidence, this Court is convinced a mistake has been made. In a bench trial, the district court is the determiner of credibility issues and we will not second-guess the district court on its credibility determinations. Findings of the trial court are presumptively correct.

Great Plains Royalty Corp. v. Earl Schwartz Co. , 2021 ND 62, ¶ 10, 958 N.W.2d 128 (quoting McCarvel v. Perhus , 2020 ND 267, ¶ 9, 952 N.W.2d 86 ).

III

[¶9] As a threshold matter, Armstrong asserts Citation's claim to the disputed interests is barred by the twenty-year statute of limitations under N.D.C.C. § 28-01-04 for actions to recover or possess real property.

[¶10] Section 28-01-04, N.D.C.C., provides:

No action for the recovery of real property or for the possession thereof may be maintained, unless the plaintiff, or the plaintiff's ancestor, predecessor, or grantor, was seized or possessed of the premises in question within twenty years before the commencement of such action.

"Generally, a defense based on the statute of limitations in a civil proceeding is an affirmative defense, and the party relying on the statute of limitations has the burden of proving the action is barred." D.E. v. K.F. , 2012 ND 253, ¶ 11, 825 N.W.2d 832.

[¶11] The district court summarily rejected Armstrong's argument. Our review of the record shows Armstrong asserted N.D.C.C. § 28-01-04 applied in a conclusory fashion unsupported by analysis or relevant authority. "A party must do more than submit bare assertions, and an argument is without merit if the party does not provide supportive reasoning or citations to relevant authorities." Gaede v. Bertsch , 2017 ND 69, ¶ 18, 891 N.W.2d 760 ; see also Kautzman v. Kautzman , 2003 ND 140, ¶ 15, 668 N.W.2d 59. We conclude the district court did not err when it rejected Armstrong's argument that N.D.C.C. § 28-01-04 barred Citation's claim.

IV

[¶12] Armstrong claims the district court misinterpreted the correction instrument. He asserts the misinterpretation resulted in an erroneous overriding royalty ownership determination and an incorrect conclusion that his working interest in the lease is burdened by other interests.

[¶13] The general rules that apply to the interpretation of contracts apply to instruments conveying oil and gas interests. Nichols v. Goughnour , 2012 ND 178, ¶ 12, 820 N.W.2d 740.

The construction of a written contract to determine its legal effect is a question of law. Lire, Inc. v. Bob's Pizza Inn Restaurants, Inc. , 541 N.W.2d 432, 433 (N.D. 1995). Contracts are construed to give effect to the mutual intention of the parties at the time of contracting. N.D.C.C. § 9-07-03 ; Lire , at 433-34,. The parties’ intention must be ascertained from the writing alone, if possible. N.D.C.C. § 9-07-04 ; Lire , at 434,. A contract must be construed as a whole to give effect to each provision if reasonably practicable. N.D.C.C. § 9-07-06 ; Lire , at 434,.

Hess Bakken Invs. II, LLC v. AgriBank, FCB , 2020 ND 172, ¶ 8, 946 N.W.2d 746 (quoting Grynberg v. Dome Petroleum Corp. , 1999 ND 167, ¶ 10, 599 N.W.2d 261 ). The district court concluded the language in the correction instrument is ambiguous. That holding has not been challenged on appeal. "When ambiguity exists, the parties’ intent becomes a question of fact requiring a factual finding based on extrinsic evidence." Hess Bakken Invs. , at ¶ 13.

[¶14] The original conveyance from Apache to Key, which was made effective January 1, 1993, and titled "Quitclaim Assignment and Bill of Sale," conveyed:

The leasehold estates created by the leases, licenses, permits and other agreements described in Exhibit A, INSOFAR BUT ONLY INSOFAR as they cover and relate to the land ... described in Exhibit A ... together with all overriding royalty interests , production payments and other payments described in Exhibit A out of or measured by the value of oil and gas production[.]

(Emphasis added.) Exhibit A describes tracts of land along with Key's working interest in decimal form.

[¶15] The correction instrument, which is titled "Correction Instrument and Quit Claim Assignment of Additional Interests" was dated August 1, 1995, but made effective January 1, 1993. It states:

Assignor and Assignee have subsequently determined that the Original Assignment has been misinterpreted and that Exhibits A and B to the Original Agreement contained certain incorrect or misleading information. Assignor and Assignee desire to correct and amend the Original Assignment and to replace Exhibits A and B thereto. Assignor also desires to quitclaim additional interests to Assignee and

...