JN Exploration & Production v. Western Gas Resources, Inc.

• Decision Date: 01 September 1998
• Docket Number: Nos. 96-4058,96-4134,s. 96-4058
• Citation: 153 F.3d 906
• Parties: 36 UCC Rep.Serv.2d 649 JN EXPLORATION & PRODUCTION, Plaintiff-Appellee, v. WESTERN GAS RESOURCES, INC., Defendant-Appellant. JN EXPLORATION & PRODUCTION, Plaintiff-Appellant, v. WESTERN GAS RESOURCES, INC., Defendant-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 906

153 F.3d 906

36 UCC Rep.Serv.2d 649

JN EXPLORATION & PRODUCTION, Plaintiff-Appellee, v. WESTERN GAS RESOURCES, INC., Defendant-Appellant.

JN EXPLORATION & PRODUCTION, Plaintiff-Appellant, v. WESTERN GAS RESOURCES, INC., Defendant-Appellee.

Nos. 96-4058, 96-4134.

United States Court of Appeals Eighth Circuit.

Submitted Oct. 20, 1997.

Decided Sept. 1, 1998.

Gary C. Davenport, Denver, CO, argued (Eric A. Beltzer, Denver, CO, on the brief), for appellant Western Gas Resources.

Todd Zimmerman, Fargo, ND, argued (Steven A. Johnson, Fargo, ND, on the brief), for JN Exploration & Production.

Nicholas J. Spaeth, Fargo, ND, argued (Robert L. Sterup, Billings, MT, on the brief), for appellee.

Before RICHARD S. ARNOLD, Chief Judge, ¹ and LOKEN and HANSEN, Circuit Judges.

HANSEN, Circuit Judge.

Western Gas Resources, Inc. (Western) appeals from the district court's denial of its motion for summary judgment and from the grant of JN Exploration & Production's (JN) motion for summary judgment. JN cross-appeals, contesting the district court's denial of JN's motion for attorneys' fees and the inclusion of an indemnity clause in the judgment. JN has additionally moved to strike portions of Western's reply brief. We reverse and remand on Western's appeal, we deny JN's motion to strike, and we do not reach JN's cross-appeal.

I.

JN owns or leases mineral rights to various properties in Billings County, North Dakota. JN is primarily concerned with the production of oil, but in producing its oil, JN necessarily produces a certain amount of natural gas. Years ago, this gas was "flared" at the site of the well. However, environmental legislation enacted in the late 1970s created incentives for oil producers to begin collecting the otherwise "flared" gas for sale. On June 4, 1979, JN's predecessor-in-interest entered into a gas sales and purchase contract with Western. ² Pursuant to this contract, JN agreed to sell, and Western agreed to buy, "all the gas ... now or hereafter produced from the said lease/s and land/s" through 1999. (Appellee's App. at 34.) The parties agreed that Western would construct a processing facility near the wells at which Western would process the gas it bought from JN for resale by Western. The contract provided that Western would receive title to the gas upon delivery at the wellhead. Pursuant to the contract, JN would not be paid for the natural gas delivered to Western until such gas was processed and sold by Western, and the price paid by Western to JN would be equal to "fifty percent of the net sales proceeds" received by Western for the processed gas when Western sold it. Once Western had reached "payout" (i.e., once it had recouped the costs of constructing and operating its plant), JN's compensation would rise to sixty percent of the net sales proceeds.

JN's contract with Western did not specify at what price or to whom Western would resell the processed gas. However, JN's predecessor had selected Western over several competing processors, and one factor militating in favor of Western was Western's then existing contract with Montana Dakota Utilities Co. (MDU). On March 16, 1979--several months before signing the gas sales and purchase contract with JN--Western had entered into a gas purchase contract with MDU pursuant to which MDU promised to purchase all of the plant's production up to 10,000,000 cubic feet of gas per day from Western. At that time, MDU had the only interstate gas pipeline in the area and was the only readily accessible market for processed natural gas. The contract included a "take-or-pay" clause which obligated MDU, through 1999, to pay for the daily contract quantity of gas even if it did not in fact take that amount. MDU agreed to pay the highest price permitted under federal price regulations. Fifteen months after signing the contract with JN, Western negotiated an amendment to its contract with MDU pursuant to which MDU increased its maximum take to 30,000,000 cubic feet per day.

In the early 1980s, changes in the regulatory structure led to a significant oversupply of natural gas. As a result, MDU was unable to take the amount of processed gas it was obligated to purchase under its contract with Western. As a result, in 1983, 1984, and 1985, MDU requested a short-term abatement in its required take from Western's processing facilities. In each of those years, Western agreed to such reduction. As partial consideration, MDU agreed to pay an elevated price for the gas it did buy during each of those years.

In 1986, MDU ³ again requested a temporary abatement of its take-or-pay responsibilities. This time Western refused. On May 8, 1987, MDU and Western entered into a settlement, pursuant to which Western released MDU from its take-or-pay obligations and waived all claims against MDU. (See Appellee's App. at 127-31.) Western additionally released MDU from the price requirements of the 1979 contract. In consideration for these alterations, MDU agreed to pay Western three "annual commitment fees" totaling $15,000,000. (Id. at 128.)

On June 30, 1987, Western sent a letter to each of its producers, including JN, notifying them that "negotiations with [MDU] have resulted in a revision of the sales contract resulting in [MDU] assuring Western of continued transportation but significantly altering [MDU's] obligation to purchase gas." (Id. at 132.) Western made clear that MDU would no longer provide "any significant market" for gas sold from Western's processing facility. (Id.) However, Western never notified JN of the $15,000,000 in annual commitment fees it was receiving from MDU.

In the very same letter, Western announced that it would begin purchasing processed gas from the Western plant in the same daily quantities and at the same per-unit price that MDU had been purchasing since the beginning of 1987. (See id. at 132.) It wrote that it did so because "[i]t is Western's opinion that maintaining a market for the gas that has been purchased by [MDU], at a price consistent with [MDU's] previous purchases, is important to ... [Western's plant] and to Western's producers behind the plant." Id.

In 1993, JN received a communication from the North Dakota State Land Department which made reference to the $15,000,000 Western had received pursuant to its settlement with MDU. Less than one month later, JN initiated this action in the District of North Dakota. JN claimed that it was entitled to a portion of the $15,000,000 under several contract theories or under an unjust enrichment theory. Both parties moved for summary judgment. The district court granted summary judgment for JN on its unjust enrichment claim. Western appeals both from the grant of summary judgment for JN and from the denial of its own motion for summary judgment. JN cross-appeals, contesting the denial of its motion for attorneys' fees and the inclusion of an indemnity clause in the judgment.

II.

The district court held, in relevant part, "[t]hat although the negotiated settlement of the 'take-or-pay' contract was done in good faith and for the probable market advantage of producers and processor, the processor has been unjustly enriched, and under the controlling law of the Eighth Circuit, plaintiff is entitled to relief...." (Appellant's App. at 21 (emphasis added).) The district court does not appear to have considered any of JN's contract claims, and we therefore concentrate our analysis on the unjust enrichment theory on which the court granted relief.

A. Standard of Review and Choice of Law

We review the district court's grant of summary judgment for JN de novo, applying the same standard as the district court. Get Away Club, Inc. v. Coleman, 969 F.2d 664, 666 (8th Cir.1992). In so doing, we construe the facts in the light most favorable to Western, and we afford Western the benefit of all reasonable inferences. Watson v. Jones, 980 F.2d 1165, 1166 (8th Cir.1992). Summary judgment is appropriate only where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Id.; Fed.R.Civ.P. 56(c).

Notwithstanding the district court's invocation of "the controlling law of the Eighth Circuit," it is axiomatic that federal courts apply state substantive law in diversity suits. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Hiatt v. Mazda Motor Corp., 75 F.3d 1252, 1255 (8th Cir.1996). We review de novo the district court's application of state law. First Colony Life Ins. Co. v. Berube, 130 F.3d 827, 829 (8th Cir.1997). Where state law is ambiguous, we predict how the state's highest court would resolve the issue. Id. The parties agree that North Dakota law controls, and we therefore apply applicable North Dakota statutes and precedents.

B. North Dakota Precedents

"Unjust enrichment is a broad equitable doctrine which rests upon quasi or constructive contracts implied by law to prevent a person from unjustly enriching [himself] at the expense of another." In re Estate of Hill, 492 N.W.2d 288, 295 (N.D.1992) (emphasis added); see also D.C. Trautman Co. v. Fargo Excavating Co., 380 N.W.2d 644, 645 (N.D.1986) ("The doctrine [of unjust enrichment] rests upon quasi-contractual principles[.]"); First Nat'l Bank of Belfield v. Burich, 367 N.W.2d 148, 154 (N.D.1985) ("The equitable remedy of unjust enrichment generally rests upon the concept of quasi or constructive contract implied by law[.]"); Sykeston Township v. Wells County, 356 N.W.2d 136, 140 (N.D.1984) (same). In fact, quasi contract and unjust enrichment are two terms for the same theory of relief. See, e.g., Dove Valley Bus. Park Assocs., Ltd. v. Board of County Comm'rs, 945 P.2d 395, 403 (Co.1997) (en banc) ("Unjust enrichment [is] also known as a quasi contract[ ] or contract implied in law[.]"), cert. denied, --- U.S. ----, 118 S.Ct. 1302, 140 L.Ed.2d 468 (1998); Henning v. Security Bank, 564 N.W.2d 398, 403 (Iowa 1997) (unjust enrichment is a "modern...