N. Oil & Gas, Inc. v. Eog Res., Inc., Case No. 1:16-cv-388
| Decision Date | 17 April 2018 |
| Docket Number | Case No. 1:16-cv-388 |
| Parties | Northern Oil & Gas, Inc., Plaintiff, v. EOG Resources, Inc., Defendant. |
| Court | U.S. District Court — District of North Dakota |
ORDER DENYING DEFENDANT'S MOTIONS TO DISMISS
Before the Court is EOG Resources, Inc.'s ("EOG") Motion to Dismiss for Failure to Add Indispensable Parties, or Alternatively, for an Order Requiring the Plaintiff to Add the Required Parties filed on June 21, 2017. See Docket No. 13. Northern Oil & Gas, Inc. ("Northern Oil") filed a response on July 19, 2017. See Docket No. 20. EOG filed a reply to Northern Oil's response on August 7, 2017. See Docket No. 29. Also before the Court is EOG's Motion to Dismiss Because Claim Preclusion Bars Northern Oil's Claims filed on July 10, 2017. See Docket No. 15. Northern Oil filed a response on July 31, 2017. See Docket No. 28. EOG filed a reply to Northern Oil's response on August 7, 2017. See Docket No. 32. For the reasons set forth below, the Court denies both of EOG's motions to dismiss.
Northern Oil is a Minnesota Corporation with its principal office in Minnesota. EOG is a Delaware corporation with its principal office in Texas. See Docket No. 1, p. 1. Northern Oil brought this diversity action against EOG in an attempt to quiet title to a mineral leasehold interest. See Docket No. 1, p. 19. Northern Oil also requests the Court declare EOG acted wrongfully when it made certain deductions from revenue payments it owed Northern Oil, and Northern Oil asks the Court to bar EOG from engaging in such conduct in the future. See Docket No. 1, p. 22.
The conveyances at issue have been the subject of litigation before North Dakota state courts. See Johnson v. Finkle, 837 N.W.2d 123 (N.D. 2013). The deed at the center of the controversy presents a classic Duhig1 scenario—a grant and a reservation, both of which cannot be satisfied because the grantor does not own enough minerals. Axel Anderson owned the surface and minerals in the following property located in Mountrail County, North Dakota:
See Docket No. 1, p. 2. In 1949, Anderson sold half of the minerals in the above-described property to L.S. Youngblood, except for the S1/2NE1/4 and the N1/2SE1/4 of Section 25, Township 158 North, Range 91 West, which he reserved to himself. See Docket No. 24-1. In 1957, Axel Anderson and his wife Norma Anderson entered into a contract for deed ("the Contract for Deed") to sell the property located in Township 158 North, Range 91 West to Henry Johnson; the Contract for Deed contained a provision stating "[t]he grantor reserves a 1/4 mineral interest . . . ." See Docket No. 24-2. On October 4, 1962, the Andersons conveyed the property describedin the Contract for Deed to Johnson by warranty deed ("the Warranty Deed"). See Docket No. 1, p. 11. The Warranty Deed contained a provision that stated: "The grantor reserves a 1/4 mineral interest, including gas and oil, with the right of ingress and egress for the purposeof [sic] mining, exploring or drilling for the same." See Docket No. 24-3. Nancy Finkle has succeeded to the Anderson's interests. See Docket No. 1, p. 11. Henry Johnson's interest has been divided among his successors ("the Johnsons"). See Docket No. 1, pp. 11-12. By various oil and gas leases and assignments, Northern Oil acquired 90% of a mineral leasehold interest carved from Finkle's mineral estate; EOG acquired 100% of a mineral leasehold interest carved from the Johnson's mineral estate. See Docket No. 1, p. 12.
The Johnsons brought suit against Finkle in the Northwest Judicial District Court of North Dakota to determine ownership of the 1/2 mineral interest that remained with the Andersons after the conveyance to Youngblood. Finkle, 837 N.W.2d at 134. Finkle brought a counterclaim alleging the Warranty Deed contains a mistake and seeking reformation. Id. Although both Northern Oil and EOG's leasehold interests were of record, neither was named a party to the lawsuit. See Docket No. 1, p. 13. After reviewing various mineral leases and a 1957 delay rental stipulation, the state district court concluded reformation was unwarranted, explaining: "The fact that the Anderson family continued to convey minerals in which they no longer had an ownership interest does not establish a mutual mistake was made when the warranty deed was executed." See Docket No. 24-14, p. 14. The state district court applied the Duhig rule to the Warranty Deed and quieted title in the minerals to the Johnsons. See Docket No. 24-14, pp. 7-8 and 15. Finkle appealed and the North Dakota Supreme Court affirmed. See Finkle, at 133. Finkle then petitionedfor a rehearing asserting the North Dakota Supreme Court overlooked her argument regarding the effect of the 1957 delay rental stipulation. Id. at 137. The court denied her petition, stating it "considered Finkle's argument about the delay rental stipulation but it did not change the outcome or affect the analysis." Id. at 138.
EOG drilled a number of oil and gas wells—collectively referred to as the "Lostwood Wells"—on the property in question or on lands pooled with the property in question. See Docket No. 1, pp. 15-16. Prior to the state court judgment, EOG credited Northern Oil with a leasehold interest derived from Finkle's mineral estate, and EOG had been sending Northern Oil production revenue payments. See Docket No. 1, pp. 15-16. On April 20, 2015, EOG sent Northern Oil a letter with the state court judgment enclosed. See Docket No. 35-3. The letter stated EOG would be reversing prior production revenue payments it had made to Northern Oil due to the outcome of the state court action:
See Docket No. 35-3, pp. 1-2 (emphasis in original). Further correspondence between Northern Oil and EOG ensued. Northern Oil took the position that the 1957 delay rental stipulation, as well as other documents of record, indicated that the parties to the Warranty Deed intended for Anderson to reserve a 1/4 mineral interest, despite the overconveyance. Northern Oil advisedEOG that "the Duhig doctrine can be overcome if a contrary intent can be demonstrated." See Docket No. 1, p. 17. Communication between the parties ultimately ceased and Northern Oil brought this action. See Docket No. 1, p. 18.
Northern Oil claims EOG's reversal of prior production revenue payments was wrongful. Northern Oil also asserts the parties to the Warranty Deed intended for Anderson to reserve 1/4 interest, and thus the Duhig rule should not apply. Northern Oil asks the Court to grant a declaratory judgment in its favor. See Docket No. 1, pp. 22-23. EOG has moved to dismiss Northern Oil's complaint on two grounds. EOG first argues Northern Oil has failed to add indispensable parties whose joinder would destroy diversity jurisdiction. See Docket No. 13. EOG's second ground for dismissal is that Northern Oil's claim is res judicata due to the state action, and thus is barred by the doctrine of claim preclusion. See Docket No. 15.
The Court will first address EOG's motion to dismiss based on claim preclusion. The Court concludes that because Northern Oil's complaint asserts matters not before the North Dakota courts—namely whether EOG's reversal of revenue payments was wrongful—the doctrine of claim preclusion cannot apply. However, the specific issue of the Warranty Deed's effect was decided by the North Dakota courts. That issue is consequently res judicata, and the Court concludes the doctrine of issue preclusion bars the parties from relitigating the matter in federal court. The Court then turns to EOG's motion to dismiss for failure to add indispensable parties. After application of the analysis required by Rule 19 of the Federal Rules of Civil Procedure, the Court concludes Northern Oil's action is not lacking any required parties at this juncture.
EOG asserts Northern Oil's complaint should be dismissed as res judicata due to the state court judgment. Northern Oil argues it cannot be bound by the state court judgment because it acquired its interests before the litigation commenced and it was not a party to the lawsuit. Northern Oil also argues the leasehold interest it is attempting to quiet title to is different than the mineral ownership interest at issue in the state action, and thus its claim is not res judicata.
The doctrine of res judicata "prevents courts from relitigating claims and issues in order to promote the finality of judgments and conserve judicial resources." Macquarie Bank Ltd. v. Knickel, 723 F. Supp. 2d 1161, 1194 (D.N.D. 2010). The term res judicata refers to both claim preclusion and issue preclusion. Taylor v. Sturgell, 553 U.S. 880, 892 (2008). Claim preclusion bars successive litigation of the same claim regardless of whether the claim raises different issues. Id. (quoting New Hampshire v. Maine, 532 U.S. 742 (2001)). Issue preclusion bars relitigation of issues of fact or law resolved in a prior court determination. Id. In federal diversity actions, res judicata determinations must be made according to state law. Rutherford...
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