Tank v. Burlington Res. Oil & Gas Co.
| Decision Date | 22 November 2013 |
| Docket Number | Case No. 4:10-cv-088 |
| Parties | Greggory G. and Tommie S. Tank, Plaintiffs, v. Burlington Resources Oil and Gas Company, LP, and Murex Petroleum Corporation, Defendants. |
| Court | U.S. District Court — District of North Dakota |
Plaintiffs Greggory G. Tank and Tommie S. Tank (collectively the "Tanks") own mineral interests in the NW¼ of Section 35, Township 151 North, Range 96 West, in McKenzie County, North Dakota. The Tanks have leased this interest to Murex Petroleum Corporation ("Murex") (the "Murex Lease"). The North Dakota Industrial Commission ("Industrial Commission") pooled the Tanks' mineral acres and Murex's lease interest together with other acreage from Sections 26 and 35 controlled by third parties for purposes of drilling the Lassen Well #41-26H ("Lassen Well") in Section 26 by defendant Burlington Resources Oil and Gas Company, LP ("Burlington"), the well operator.1
Plaintiff Greggory Tank also owns a mineral interest in 16.667 acres of land located in the N½SE ¼ & E½SW¼ of Section 34, which is unleased. The Industrial Commission pooled Tank's unleased interest with other acreage in a separate unit for the drilling of the Kings Canyon Well #21-27H ("Kings Canyon Well") for which Burlington is also the operator. Murex does not have an interest in the Kings Canyon Well pursuant to the Murex Lease.
The Tanks commenced this action in state court in November 2010, and it was removed to this court in December 2010. The initial complaint sought relief only for the untimely payment of royalty on production from the Lassen Well. In an amended complaint, a claim was added in which Greggory Tank sought relief for the untimely payment of royalty on the Kings Canyon Well against Burlington only.
The Tanks in the amended complaint asked the court to cancel the Murex Lease on account of the untimely payment of royalty on production from the Lassen Well pursuant to N.D.C.C. § 47-16-39.1, which authorizes cancellation of an oil and gas lease for failure to make timely payments of royalty when the equities support cancellation. As discussed in more detail later, defendants contend this was the only relief that the Tanks sought with respect to the Lassen Well (aside from the payment of costs and attorney's fees) and that the Tanks never requested the alternative remedy under § 47-16-39.1, which is payment of "penalty interest" at the rate of 18% when an operator fails to pay royalty within 150 days of when oil or gas produced from a well is first marketed.
With respect to the Kings Canyon Well, lease cancellation was never an issue since Greggory Tank's mineral interest was unleased. The only relief that Greggory Tank sought with respect to the untimely payment of royalty with respect to the Kings Canyon Well was the payment of statutory royalty on the unleased interest required by N.D.C.C. § 38-08-08 as well as "penalty interest" at the rate of 18% interest pursuant to § 47-16-39.1.
In addition to the Tanks' claims, Murex filed a crossclaim against Burlington claiming Burlington should be held liable for damages Murex would suffer if the Murex Lease was cancelledas well as for any other liability imposed upon Murex. Also, Murex was granted leave to assert a counterclaim against the Tanks after it had initially answered their complaint in which Murex alleged that the Tanks had breached the Murex Lease by their failure to cooperate and by bringing this action.
Early on in the litigation, the Tanks filed a motion for a preliminary injunction seeking an order requiring interim payments of royalty pending final resolution of the action. The court denied the Tanks' request. In its order denying preliminary relief, the court expressed doubt over the likelihood of the Tanks prevailing on their claim for lease cancellation with respect to the Lassen Well. On the other hand, the court also expressed doubt about the two "title dispute" defenses that defendants had raised, which, if valid, would have provided safe-harbor from any liability under § 47-16-39.1, including payment of "penalty interest." With respect to the Kings Canyon Well, the court expressed doubt about the validity of the excuses offered by Burlington for the failure to make timely payment of royalty to Greggory Tank, but concluded that the extraordinary remedy of a preliminary injunction was not required because of the availability of monetary remedies. In addition, the court offered to accelerate a trial on the Kings Canyon Well claim. Tank v. Burlington Resources Oil and Gas, Co., L.P., No. 4:10-cv-088, 2011 U.S. Dist. Lexis 70238, 2011 WL 2600458 (D.N.D. June 28, 2011) ("Tank I").
Notwithstanding the court's hope that the litigation could then be resolved, the case continued. Following additional discovery, the parties filed cross-motions for summary judgment with respect to the issues in dispute over the untimely payment of royalty with respect to the Lassen Well and Greggory Tank asked for summary judgment on the similar claim with respect to the Kings Canyon Well. In resolving these motions, the court's final resolution of the principal issues did not materially change from what it predicted the outcome would be in its order denying the preliminary injunction.With respect to the Lassen Well, the court concluded that the Tanks were not entitled to cancellation of the Murex Lease based on the overall equities, but, on the other hand, rejected defendants' arguments for safe-harbor from any liability under §47-16-39.1. With respect to the Kings Canyon Well, the court stated it was unsure what remained to be resolved given that Burlington claimed it had paid the royalty due with respect to that well and, perhaps, penalty interest. In reaching these conclusions, the court also had to address when the 18% penalty interest began to accrue on unpaid royalties. The Tanks argued that it was retroactive to the date of first marketing of the oil and gas. Defendants argued it would not begin until the 151st day following the first marketing of the oil and gas. The court agreed with defendants on that issue. Tank v. Burlington Resources Oil and Gas, Co., L.P., No. 4:10-cv-088, 2013 U.S. Dist. Lexis 99204, 2013 WL 3766526 (D.N.D. July 16, 2013) ("Tank II").
Several issues remained to be resolved following the court's order on the competing motions for summary judgment. One was whether Burlington, which professed to having paid the royalty due along with penalty interest some time after the court issued its order denying preliminary relief with respect to both wells, had correctly paid the amounts due. It appears that this issue has been resolved by agreement of the parties with respect to both wells.
Another claim that remained unresolved was Murex's crossclaim against Burlington. This has now been dismissed pursuant to a stipulation by defendants.
The last issue that the court left open and which is the subject of the current order is whether any of the parties are entitled to attorney's fees and costs. Both the Tanks and defendants claim they are the "prevailing party" within the meaning of N.D.C.C. § 47-16-39.1 and are entitled to attorney's fees and costs as provided for in that section. In addition, the Tanks are seeking recovery of attorney'sfees and costs related to Murex having to dismiss its counterclaim when it became clear that the facts no longer supported it.
Initially, the court ordered the parties to file their requests for attorney's fees and costs and brief the issues that the court would need to decide in ruling upon those requests. Later, after a further telephone conference with the parties, the court agreed to first decide who, if anyone, was entitled to an award of attorney's fees and costs and then sort out later how much would be awarded, if anything.
For purposes of the discussion that follows, it is helpful first to set forth the version of N.D.C.C. § 47-16-39.1 that was in effect during the time relevant to this action:
§ 47-16-39.1. Obligation to pay royalties--Breach. The obligation arising under an oil and gas lease to pay oil or gas royalties to the mineral owner or the mineral owner's assignee, or to deliver oil or gas to a purchaser to the credit of the mineral owner or the mineral owner's assignee, or to pay the market value thereof is of the essence in the lease contract, and breach of the obligation may constitute grounds for the cancellation of the lease in cases where it is determined by the court that the equities of the case require cancellation. If the operator under an oil and gas lease fails to pay oil or gas royalties to the mineral owner or the mineral owner's assignee within one hundred fifty days after oil or gas produced under the lease is marketed and cancellation of the lease is not sought or if the operator fails to pay oil or gas royalties to an unleased mineral interest owner within one hundred fifty days from initial oil or gas production from the unleased mineral interest owner's mineral interest, the operator shall pay interest on the unpaid royalties at the rate of eighteen percent per annum until paid, except that the commissioner of university and school lands may negotiate a rate to be no less than the prime rate as established by the Bank of North Dakota plus four percent per annum with a maximum of eighteen percent per annum, for unpaid royalties on minerals owned or managed by the board of university and school lands. Provided, that the operator may remit semiannually to a person entitled to royalties the aggregate of six months' monthly royalties where the aggregate amount is less than fifty dollars. The district court for the county in which the oil or gas well is located...
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