Newfield Prod. Co. v. Eighty-Eight Oil LLC
| Decision Date | 22 September 2017 |
| Docket Number | Case No.: 1:16-cv-273 |
| Parties | Newfield Production Company, Plaintiff, v. Eighty-Eight Oil LLC, Defendants. |
| Court | U.S. District Court — District of North Dakota |
Before the court is Plaintiff Newfield Production Company ("Newfield")'s Motion for Leave to File Third Amended Complaint. (Doc. No. 30). In the motion, Newfield requests the court's leave to allow it to file an amended complaint containing a new claim for fraud and a claim for punitive damages. Eighty-Eight Oil LLC ("Eighty-Eight") opposes the motion. (Doc. No. 31).
Eighty-Eight is a shipper of crude oil in North Dakota and the western United States. In 2011, Eighty-Eight was exploring the feasability of building another pipeline in North Dakota. In furtherance of that end, Eighty-Eight reached out to various oil producers in North Dakota to gauge interest and secure commitments of oil that would be sent through that pipeline. Eighty-Eight and Newfield signed a "Crude Oil Volume Commitment Sales Agreement" ("Sales Agreement") in December 2011. (Doc. No. 30-3). Generally speaking, the Sales Agreement obligated Newfield to sell a specific volume of crude oil to Eight-Eighty at a price to be determined by Section 4(a) of the Sales Agreement, which dictated Eighty-Eight was to pay Newfield a price equal to:
The average of the daily settlement price of the NYMEX near month WTI crude oil contract as it trades for the calendar month of delivery, excluding weekends and holidays, gravity deemed 40 degree API, EDQ, minus Eighty-Eight's differential for NDL (North Dakota Light) type crude oil, minus all transportation from Guernsey, Wyoming, back to the point of purchase, and less a marketing fee of $0.85 per barrel minus transportation charges if the barrel is trucked from the wellhead to the Carrier Line inlet flange, if applicable.
(Doc. No. 30-3 p. 3). This litigation focuses upon how Eighty-Eight interpreted and applied the "differential for NDL (North Dakota Light) type crude oil" clause of Section 4(a) (hereinafter the "NDL differential") to the amounts it paid Newfield under the Sales Agreement.
Newfield initiated this action on July 22, 2016, asserting one claim for breach of contract. (Doc. No. 1). Newfield alleged Eighty-Eight applied the NDL differential in a commercially unreasonable manner in determining the amount to be paid to Newfield. Among other requested forms of relief, Newfield sought monetary compensation for the alleged breach. (Doc. No. 1). Before Eighty-Eight answered, Newfield filed its First Amended Complaint. (Doc. No. 7). The First Amended Complaint was, in substance, analogous to Newfield's original complaint in that it did not allege any additional counts against Eight-Eight, but contained a more fleshed out factual predicate for the breach of contract claim. Following Eighty-Eight's answer, (Doc. No. 9), the court entered a scheduling order, under which discovery is due September 25, 2017, with dispostive motions due October 27, 2017. (Doc. No. 16). Trial is currently set for June 4, 2018. (Doc. No. 18).
Upon stipulation of the parties, the court allowed Newfield to file a Second Amended Complaint. (Doc. No. 26). In the Second Amended Complaint, Newfield retooled its breach of contract claim and added a second breach of contract claim. Newfield's first claim alleges Eighty-Eight breached the Sales Agreement by not properly calculating the price to be paid to Newfield under Section 4(a). Newfield's second claim alleges Eighty-Eight breached its duty of good faith imposed under North Dakota law by paying Newfield a commercially unreasonable price.
In the motion currently before the court, Newfield seeks the court's leave to file a ThirdAmended Complaint. Newfield has provided the court with a copy of its proposed complaint. (Doc. No. 30-2). The proposed complaint realleges the two breach of contract claims set forth in the Second Amended Complaint. Additionally, the proposed complaint contains a third claim for "actual fraud" based upon Eighty-Eight allegedly not disclosing to Newfield how it understood the NDL differential would operate. Specifically, the proposed fraud claim reads:
COUNT THREE
ACTUAL FRAUD
21.
Newfield re-alleges and incorporates the allegations contained in paragraphs 1-20 above.
22.
Eighty-Eight committed actual fraud against Newfield when, to induce Newfield to enter into the Sales Agreement, Eighty Eight suppressed the material fact that it believed it had "complete discretion" over how Eight-Eight calculated the NDL differential, including "complete discretion" over the sales included in the calculations of the NDL differential and the costs deducted when calculating the NDL differential.
23.
As demonstrated by the way Eighty-Eight calculated the NDL differential for the purchase contracts already in effect during the negotiations with Newfield, as well as Eight-Eight's recent deposition testimony, Eighty-Eight believed when it was negotiating the Sales Agreement with Newfield that Eighty-Eight had "complete discretion" over how it calculated the NDL differential, including "complete discretion" over the sales included in the calculation of the NDL differential and the costs deducted when calculating the NDL differential.
24.
Eighty-Eight never told Newfield during the negotiations that it believed it had "complete discretion" over how Eighty-Eight calculated the NDL differential, including "complete discretion" over the sales included in the calculation of the NDL differential and the costs deducted when calculating the NDL differential.
25.
Had Newfield known before signing the Sales Agreement that Eighty-Eight believed it had "complete discretion" over how it calculated the NDL differential, including "complete discretion" over the sales included in the calculation of the NDL differential and the costs deducted when calculating the NDL differential, Newfield would not have entered into the Sales Agreement.
26.
Eighty-Eight's actual fraud caused Newfield harm.
(Doc. No. 30-2). Newfield parlays this fraud claim into a request to allow it to assert a claim for punitive damages under N.D.C.C. § 32-03.2-11. In the proposed Third Amended Complaint, Newfield only seeks monetary compensation; it does not seek rescission of the Sales Agreement.
Newfield argues the court should grant its motion because it only recently learned of the information giving rise to the fraud claim. (Doc. Nos 30, 32). Newfield also argues the amending is appropriate because the fraud claim largely turns on the same facts and documents animating the two breach of contract claims already before the court, thereby causing little prejudice to Eighty-Eight in the form of additional discovery. Eighty-Eight opposes the motion, arguing Newfield was dilatory in investigating and asserting the fraud claim, allowing the claim to go forward would cause prejudice by requiring new discovery, and the claim would be futile. (Doc. No. 31).
Under Fed.R.Civ.P. 15(a)(2), As explained by the Eighth Circuit Court of Appeals: "absent a good reason for denial—such as undue delay, bad faith or dilatory motive, repeated failure to cure deficiencies by amendments previouslyallowed, undue prejudice to the non-moving party, or futility of amendment—leave to amend should be granted." Thompson-El v. Jones, 876 F.2d 66, 67 (8th Cir. 1989).
"[W]hen a court denies leave to amend on the ground of futility, it means that the court reached a legal conclusion that the amended complaint could not withstand a Rule 12 motion, Fed.R.Civ.P. 12 . . . .". In re Senior Cottages of America, LLC, 482 F.3d 997, 1001 (8th Cir. 2007). The futility inquiry asks "whether the proposed amended complaint states a cause of action under the [Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2009)] pleading standard . . . ." Zutz v. Nelson, 601 F.3d 842 (8th Cir. 2010). Under this standard, the court must assume all facts alleged in the complaint as true to determine whether those same facts state a plausible claim for relief. Id.
At the outset, the court is not bound to take Newfield's characterization of the proposed claim as one for "actual fraud" at face-value. Newfield's proposed "actual fraud" claim, in essence, asserts: (1) Eighty-Eight understood the Sales Agreement provided it with complete discretion in calculating the NDL differential; (2) Eighty-Eight did not convey that understanding to Newfield at the time the parties executed the Sales Agreement; (3) Newfield would not have executed the Sales Agreement if Eighty-Eight conveyed its understanding; and (4) Newfield suffered an injury. Newfield only seeks monetary damages; it does not seek rescission of the Sales Agreement.
According to the North Dakota Supreme Court, a "party who has been induced to enter a contract by fraudulent misrepresentations may elect to rescind the contract, or to affirm the contract and recover damages." Holverson v. Lundberg, 2016 ND 103, ¶ 15, 879 N.W.2d 718 (internal citations omitted). By solely seeking monetary damages rather than rescission, Newfield has tacitlyaffirmed the validity of the Sales Agreement. With this election, Newfield positions its "actual fraud" claim into an ongoing debate about whether such a claim should be considered one for fraud under N.D.C.C. ch. 9-03 or for deceit under N.D.C.C. ch. 9-10. Erickson v. Brown 2008 ND 57, ¶ 62, 747 N.W.2d 34 (Crothers, J., concurring and dissenting in part) ...
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