Oil v. Creighton

• Decision Date: 14 May 2013
• Docket Number: No. 20120420.,20120420.
• Citation: 2013 ND 73,830 N.W.2d 556
• Court: North Dakota Supreme Court
• Parties: NORTHERN OIL & GAS, INC., a Nevada Corporation, Plaintiff and Appellant v. Morris J. CREIGHTON, Defendant and Murex Petroleum Corporation, a Delaware corporation, John H. Holt; LBK Sales and Service Inc., a North Dakota corporation; Racer Oil & Gas, LC; and Double L, LLC, a Colorado limited liability company, Defendants, Third Party Plaintiffs and Appellees v. Brian Gunderson and Holly Gunderson, Third Party Defendants and Appellees.

830 N.W.2d 556

2013 ND 73

NORTHERN OIL & GAS, INC., a Nevada Corporation, Plaintiff and Appellant

v.Morris J. CREIGHTON, DefendantandMurex Petroleum Corporation, a Delaware corporation, John H. Holt; LBK Sales and Service Inc., a North Dakota corporation; Racer Oil & Gas, LC; and Double L, LLC, a Colorado limited liability company, Defendants, Third Party Plaintiffs and Appellees

v.Brian Gunderson and Holly Gunderson, Third Party Defendants and Appellees.

No. 20120420.

Supreme Court of North Dakota.

May 14, 2013.

Amy L. De Kok (argued), Jillian R. Rupnow (appeared) and Lawrence Bender (on brief), Bismarck, N.D., for plaintiff and appellant.

Jacob D. Marburger, Williston, N.D., for defendants, third party plaintiffs and appellees Double L, LLC, John H. Holt, LBK Sales & Service Inc., Racer Oil & Gas, LC, and Murex Petroleum Corporation.

Tom P. Slorby (appeared), Minot, N.D., for third party defendants and appellees Brian Gunderson and Holly Gunderson.

MARING, Justice.

[¶ 1] Northern Oil & Gas, Inc. (“Northern”) appeals from a judgment ordering reformation of an oil and gas lease and quieting title to the oil and gas leasehold estate in Murex Petroleum Corporation, John H. Holt, LBK Sales & Service, Inc., Racer Oil & Gas, LC, and Double L, LLC (collectively “Murex”). We conclude the district court erred in concluding, as a matter of law, that Creighton was not a good faith purchaser and we hold that there is a question of fact whether Creighton had constructive notice when he acquired rights under the lease. We reverse the judgment and remand for further proceedings.

I

[¶ 2] Brian and Holly Gunderson own certain real property in Mountrail County. In October 2004, the Gundersons entered into an oil and gas lease with Holt. The lease described the covered property as:

Township 155 North, Range 91 West

Section 25: S/2NE/4, S/2SE/4

Section 26: NE/4, SE/4SW/4

Section 35: E/2NW/4, SW/4NW/4

The lease was recorded in the Mountrail County Recorder's Office in November 2004. In February 2005, Holt assigned all of his interest in the lease, with the exception of an overriding royalty interest, to Murex Petroleum, LBK Sales & Service, Racer Oil & Gas, and Double L. The assignment was recorded in the Mountrail County Recorder's Office in April 2005.

[¶ 3] In November 2007, Alan Bradshaw, a landman working for Morris J. Creighton, determined the Gundersons owned unleased minerals. On approximately November 23, 2007, Bradshaw contacted the Gundersons about leasing the minerals. On November 25, 2007, the Gundersons and Creighton signed an oil and gas lease for the property described as:

TOWNSHIP 155 North Range 91 West:

Section 25: N1/2SE1/4

The lease was recorded in the Mountrail County Recorder's Office on January 30, 2008.

[¶ 4] On December 21, 2007, Holt recorded an affidavit in the Mountrail County Recorder's Office, which stated there was a mistake and typographical error in the property description in the Holt lease. Holt claimed “Section 25: S/2NE/4, S/2SE/4 should have been described as Section 25: S/2NE/4, N/2SE/4” and the Gundersons “own no interest in the Section 25: S/2SE/4 as described in this oil and gas lease when it included the typographical error.” Holt claimed his lease remains in effect and includes Section 25: N/2SE/4.

[¶ 5] On April 2, 2008, Creighton assigned his interest in the Creighton lease, with the exception of an overriding royalty interest, to Antares Exploration Fund, L.P. The assignment was recorded on April 15, 2008. On April 14, 2008, Antares assigned its interest in the Creighton lease to Northern. The assignment was recorded on May 8, 2008.

[¶ 6] In February 2009, Northern brought an action to quiet title against Creighton and Murex and to determine the rights of the parties to the oil and gas leasehold estate in and under the property described as:

Township 155 North, Range 91 West

Section 25: N/2SE/4

Murex filed a third-party complaint against the Gundersons, a cross-claim against Creighton, and a counterclaim against Northern.

[¶ 7] Murex moved for partial summary judgment seeking reformation of the Holt lease, claiming a mutual mistake had been made in the legal description of the land in the Holt lease, the parties intended the lease to cover the property that was the subject of the lawsuit, and Creighton had constructive notice of the mistake before he entered into the oil and gas lease with the Gundersons. Northern also moved for summary judgment, arguing the property at issue was not included in the Holt lease, Creighton was a bona fide purchaser in good faith and for value, and both Northern and Creighton's rights would be prejudiced if the Holt lease was reformed.

[¶ 8] After oral argument, the district court denied both motions but decided some of the issues raised. The court ruled Creighton, and therefore Northern, were not good faith or bona fide purchasers because Holt recorded an affidavit claiming there was a mistake in his oil and gas lease and the affidavit gave Creighton notice of Holt's claim to the property prior to the recording of Creighton's lease. The court ruled the issue of whether there was a mutual mistake was a factual issue that could not be resolved on summary judgment. The court ordered that the only issue of fact left to be determined at trial was whether there was a mutual mistake justifying reformation of Holt's oil and gas lease.

[¶ 9] The parties entered a stipulation agreeing there was a mutual mistake in the Holt lease and the Gundersons intended to lease all of their mineral acres to Holt, including the property that is the subject of the action. Based on the parties' stipulation, the court ordered the Holt lease be reformed to include the disputed property. The court entered a judgment reforming the Holt lease and quieting title to the oil and gas leasehold estate in favor of Murex.

II

[¶ 10] “ ‘Summary judgment is a procedural device used to promptly resolve a controversy on the merits without a trial if either party is entitled to judgment as a matter of law and the material facts are undisputed or if resolving the disputed facts would not alter the result.’ ” Riedlinger v. Steam Bros., Inc., 2013 ND 14, ¶ 10, 826 N.W.2d 340 (quoting Burris Carpet Plus, Inc. v. Burris, 2010 ND 118, ¶ 10, 785 N.W.2d 164). The moving party bears the initial burden of showing there are no genuine issues of material fact in dispute and the case is appropriate for judgment as a matter of law. Riedlinger, at ¶ 10. If the motion is properly made and supported, the opposing party must set forth specific facts by presenting competent, admissible evidence, by affidavit or by directing the court to other evidence in the record, showing there is a genuine issue of material fact. Hale v. Ward Cnty., 2012 ND 144, ¶ 12, 818 N.W.2d 697. “Summary judgment is appropriate against parties who fail to establish the existence of a factual dispute on an essential element of a claim on which they will bear the burden of proof at trial.” Riverside Park Condo. Unit Owners Ass'n v. Lucas, 2005 ND 26, ¶ 8, 691 N.W.2d 862.

[¶ 11] In deciding whether to grant summary judgment, the district court may consider the pleadings, depositions, admissions, affidavits, interrogatories, and inferences to be drawn from the evidence. Riedlinger, 2013 ND 14, ¶ 10, 826 N.W.2d 340. “ ‘Summary judgment is inappropriate if neither party is entitled to judgment as a matter of law or if reasonable differences of opinion exist as to the inferences to be drawn from the undisputed facts.’ ” Id. (quoting Burris Carpet Plus, 2010 ND 118, ¶ 10, 785 N.W.2d 164). “[T]he district court's ‘role is limited to determining whether the evidence and inferences to be drawn therefrom, when viewed in the light most favorable to the party opposing summary judgment, demonstrate that there are no genuine issues of material fact.’ ” Farmers Union Oil Co. of Garrison v. Smetana, 2009 ND 74, ¶ 10, 764 N.W.2d 665 (quoting Heng v. Rotech Med. Corp., 2004 ND 204, ¶ 34, 688 N.W.2d 389). Deciding an issue on summary judgment is not appropriate if the court must draw inferences and make findings on disputed facts. Smetana, at ¶ 10.The court may not “weigh the evidence, determine credibility, or attempt to discern the truth of the matter....” Id.

[¶ 12] Whether the district court has properly ruled on a motion for summary judgment is a question of law, which we review de novo on appeal. Riedlinger, 2013 ND 14, ¶ 10, 826 N.W.2d 340. In reviewing the court's decision, we view the evidence in a light most favorable to the party opposing the motion and give the opposing party all favorable inferences. Id.

III

[¶ 13] Northern argues the court erred in finding Creighton was not a good faith purchaser. Northern contends the court erred in considering whether Creighton had actual or constructive notice of the alleged mistake in the Holt lease when his lease was recorded and failed to determine whether Creighton had notice when he executed the lease.

[¶ 14] Murex sought reformation of the lease under N.D.C.C. § 32–04–17, which allows for the reformation of a contract:

When, through fraud or mutual mistake of the parties, or a mistake of one party which the other at the time knew or suspected, a written contract does not truly express the intention of the parties, it may be revised on the application of a party aggrieved so as to express that intention so far as it can be done without prejudice to rights acquired by third persons in good faith and for value.

Reformation is an equitable remedy used to rewrite a contract to conform to the parties' actual intent. Smetana, 2009 ND 74, ¶ 14, 764 N.W.2d 665. If Creighton acquired his rights to the property in good faith and for value, reformation of Holt's lease is not permitted because it will prejudice Creighton's, and therefore Northern's, rights. SeeN.D.C.C. § 32–04–17.

[¶ 15] Good faith is “an honest intention to abstain from taking any unconscientious advantage of another even through the...