Froholm v. Cox, s. 90-5100

• Decision Date: 31 May 1991
• Docket Number: Nos. 90-5100,90-5101,s. 90-5100
• Citation: 934 F.2d 959
• Parties: Orvin FROHOLM, and Evelyn Froholm, Carl O. Froholm, A. Caroline Cook and Patrick Cook, Gladys S. Driscoll and Dennis J. Driscoll, and Doris P. Bickel and Carl G. Bickel, Appellants, v. Edwin L. COX and Berry R. Cox, Appellees. Orvin FROHOLM, and Evelyn Froholm, Carl O. Froholm, A. Caroline Cook and Patrick Cook, Gladys S. Driscoll and Dennis J. Driscoll, and Doris P. Bickel and Carl G. Bickel, Sidney Benn, Doris McNamara, Gordon Ersted, Robert Ersted, Catherine Olson, Alice Chase, First American Bank & Trust of Minot as Trustee of Paul Siquardson Trust, Janet Lee Schreiner, James Westdal, Marilyn Jean Yantorno, Thelma Davis and Ruth Ersted, Appellants, v. Edwin L. COX and Berry R. Cox, and Apache Corporation, Appellees.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 959

934 F.2d 959

Orvin FROHOLM, and Evelyn Froholm, Carl O. Froholm, A.

Caroline Cook and Patrick Cook, Gladys S. Driscoll

and Dennis J. Driscoll, and Doris P.

Bickel and Carl G. Bickel, Appellants, v. Edwin L. COX and Berry R. Cox, Appellees.

Orvin FROHOLM, and Evelyn Froholm, Carl O. Froholm, A.

Caroline Cook and Patrick Cook, Gladys S. Driscoll and

Dennis J. Driscoll, and Doris P. Bickel and Carl G. Bickel,

Sidney Benn, Doris McNamara, Gordon Ersted, Robert Ersted,

Catherine Olson, Alice Chase, First American Bank & Trust of

Minot as Trustee of Paul Siquardson Trust, Janet Lee

Schreiner, James Westdal, Marilyn Jean Yantorno, Thelma

Davis and Ruth Ersted, Appellants, v. Edwin L. COX and Berry R. Cox, and Apache Corporation, Appellees.

Nos. 90-5100, 90-5101.

United States Court of Appeals,

Eighth Circuit.

Submitted Nov. 16, 1990.

Decided May 31, 1991.

Maureen Holman, Fargo, N.D., for appellants.

John Morrison, Bismarck, N.D., for appellees.

Before LAY, Chief Judge, FAGG, Circuit Judge, and WRIGHT, ^* District Judge.

SUSAN WEBBER WRIGHT, District Judge.

This is an appeal by the appellants from unfavorable judgments in suits arising out of oil leases the appellants entered into with appellees. The appellants filed two actions in state court which were removed to federal court. The district court ¹ granted appellees' motion for summary judgment on appellants' allegations of fraud and lack of good faith and, after a trial, dismissed the remaining claims, finding appellants had failed to exhaust their administrative remedies. The actions were consolidated on appeal. For reasons to be stated, we affirm the district court's rulings.

I. FACTS

Each of the appellants owns certain mineral interests in McKenzie County, North Dakota. In November 1984, the Froholms entered into numerous oil and gas leases with Spectrum Resources, Inc. [Spectrum] which were ultimately assigned to appellees. Appellees subsequently acquired by assignment leases from the remaining appellants. On April 19, 1985, appellees applied to the Bureau of Land Management [BLM] for the creation of a federal exploratory unit known as the Antelope East Unit, which is the focus of one of the actions. Appellees proposed to include within the unit land leased from the federal government and land leased from appellants. The unit was approved by the BLM on June 25, 1985. On August 11, 1985, the Hagen # 1-13 well was spudded, which was the producing well for the Antelope East Unit. The well was completed on December 28, 1985. On January 27, 1986, appellees made application to the BLM for the formation of the Bakken Unit, the focus of the other action. The unit was approved two days later and on January 31, 1986, a well was spudded. This well, which was known as the Froholm # 1-18, was completed on March 29, 1986.

Appellants instituted these actions, seeking a determination that the unitization clause within the leases signed by the Froholms had been obtained by fraud, that the units were not formed in good faith or with geological justification, and that the appellees failed to give them notice of the proceedings before the BLM.

On a motion for summary judgment, the district court dismissed appellants' first cause of action, finding the Froholms were not induced by fraud when they signed lease agreements containing unitization clauses. It also dismissed their second cause of action in which appellants argued that appellees created the units in bad faith and against their wishes and intentions. The district court found that the fact that the creation of the units was contrary to the wishes of the appellants was irrelevant because the leases were valid and the unitization clauses binding on all appellants. It also found that the good faith of the lessee was irrelevant and the only issue to be considered is whether the geological data justifies the unit. After a trial, the district court declined to consider the remaining issues, finding that the appellants had failed to exhaust their administrative remedies.

II. FRAUD

Summary judgment is a question of law to be reviewed de novo. Spalding v. Agri-Risk Services, 855 F.2d 586, 588 (8th Cir.1988). A party is entitled to summary judgment only if "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The court must view all inferences to be drawn from the facts in a light most favorable to the party opposing the motion. However, "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986).

In their first point, appellants argue the trial court improperly granted summary judgment to appellees on the issue of fraud. They assert a material issue of fact exists on the question of whether the Froholms were induced to enter into a contract which was designed to defeat their purpose of entering into leases which required production on each parcel in order to hold the lease beyond the primary term. The Froholms contend they insisted on having separate leases for different tracts of land in order to avoid having all their land under one lease with only one producing well. They in fact received separate leases, but those leases contained pooling or unitization clauses that allowed the appellees to do what the Froholms assert they were trying to avoid. ²

To support their claim of fraud, appellants rely upon N.D. Cent.Code Sec. 9-03-08(3) which provides:

Actual fraud within the meaning of this title consists in any of the following acts committed by a party to the contract, or with his connivance, with intent to deceive another party thereto or to induce him to enter into the contract:

3. The suppression of that which is true by one having knowledge or belief of the fact;

Appellants contend that appellees, through the Spectrum representative, had knowledge that the Froholms did not want one well to hold their land; that the representative did not discuss pooling or unitization with the Froholms; and that the Froholms stated they wanted production on each tract of land leased to appellees and the appellees were aware of this requirement.

We conclude that the district court's summary judgment determination was correct. We are satisfied that the facts of the case, when viewed in a light most favorable to the appellants, fail to support their claim of fraud.

Appellants presented no evidence that appellees suppressed or withheld any information from the Froholms. The Froholms had the opportunity to and did read the leases and were given ample time to learn the terms of the leases before they executed them. The appellees did not engage in any misconduct in getting the Froholms to sign the leases and, as was noted by the district court, the Froholms were familiar with oil and gas leases and were successful in obtaining separate leases for each quarter section of land.

In David v. Merrill Lynch, Pierce, Fenner, & Smith, Inc., 440 N.W.2d 269 (N.D.1989), the appellant alleged he was fraudulently induced to enter into an arbitration agreement with appellee. The North Dakota Supreme Court affirmed the trial court's grant of summary judgment, holding that the appellee had no duty to draw the customer's attention to the arbitration clause in the contract. Appellants argue their case is distinguishable from David because the Froholms specifically required that the leases be written in such a way that there be production on each 160 acre tract in order for the lease to be continued beyond the end of the primary term. The court cannot ignore the state holding repeated in David that one who signs a contract ignorant of its contents cannot thereafter be heard to say that he did not read it, or that he supposed that it was different in terms. The "[f]ailure to read a document before signing does not excuse ignorance of its contents unless the party shows that he was prevented from reading it by fraud, artifice, or design by the other party or his authorized representative." Pioneer Credit Co. v. Medalen, 326 N.W.2d 717, 719 (N.D.1982). There is no contention that appellees prevented the Froholms from reading the oil and gas leases prior to signing them. Based upon the Froholms' failure to make a sufficient showing of fraud, the district court was correct in dismissing their claim as a matter of law.

III. GOOD FAITH

Appellants also contend the district court erred in granting the appellees summary judgment on the issue of lack of good faith on the part of appellees in creating the units. The leases permitted appellees to unitize the leasehold estate with other land or leases in the immediate vicinity when in their judgment it was necessary or advisable to do so. ³ Appellants contend that a two-part test should have been employed to determine whether their lands were properly committed to units. They argue that, according to a recent tenth circuit case, Celsius Energy Co. v. Mid America Petroleum, Inc., 894 F.2d 1238 (10th Cir.1990), as well as two earlier cases from the same circuit, Boone v. Kerr-McGee Oil Industries, Inc., 217 F.2d 63 (10th Cir.1954) and Phillips Petroleum Co. v. Peterson, 218 F.2d 926 (10th Cir.1954), the court must consider whether the lessors acted in good faith in executing and filing the pooling designation and whether there was geological basis for the unit. Appellants argue that the issue of whether a lessee has exercised good faith toward a lessor mineral owner when creating a unit is a question of fact and they should have been allowed to present evidence to show appellees did not act in good faith when they proposed the Antelope East and Bakken Units. Appellants criticize the...