Wenco v. EOG Res., Inc.

• Decision Date: 23 October 2012
• Docket Number: No. 20120194.,20120194.
• Parties: WENCO, a North Dakota Limited Partnership, Plaintiff and Appellant v. EOG RESOURCES, INC., QEP Energy Company, John Doe Defendants 1–10, claiming any estate or interest in, or lien or encumbrance upon, the property described in numbered paragraph 29 of the complaint, Defendants EOG Resources, Inc., QEP Energy Company, Appellees.
• Court: North Dakota Supreme Court

822 N.W.2d 701

2012 ND 219

WENCO, a North Dakota Limited Partnership, Plaintiff and Appellant

v. EOG RESOURCES, INC., QEP Energy Company, John Doe Defendants 1–10, claiming any estate or interest in, or lien or encumbrance upon, the property described in numbered paragraph 29 of the complaint, DefendantsEOG Resources, Inc., QEP Energy Company, Appellees.

No. 20120194.

Supreme Court of North Dakota.

Oct. 23, 2012.

David J. Hogue, Minot, N.D., for plaintiff and appellant.

Amy L. De Kok (argued), Lawrence Bender (on brief) and Jillian R. Rupnow (on brief), Bismarck, N.D., for defendant and appellee EOG Resources, Inc.

John W. Morrison, Jr. (argued) and Wade Charles Mann (on brief), Bismarck, N.D., for defendant and appellee QEP Energy Company.

KAPSNER, Justice.

[¶ 1] Wenco, a North Dakota limited partnership, appeals from a judgment quieting title to certain Mountrail County royalty and mineral interests in EOG Resources, Inc. (“EOG”), and QEP Energy Company (“QEP”), and dismissing Wenco's claims for conversion and unjust enrichment against EOG and QEP. We conclude the district court did not err in ruling as a matter of law that Wenco's interest bears the entire burden of a prior royalty interest conveyance in the subject property, that EOG and QEP did not waive their rights to claim the prior royalty interest conveyance burdened only Wenco's interest, and consequently, that Wenco had no viable claims against EOG and QEP for conversion and unjust enrichment. We affirm.

I

[¶ 2] On November 30, 1954, Raymond and Jewell Dockter, who owned 100 percent of the oil and gas interests in a tract of land in Mountrail County, executed a royalty deed to Northwestern National Bank of Minneapolis conveying an undivided 64/160ths interest in “all of the oil royalty, gas royalty, and royalty in casinghead gas, gasoline, and royalty in other minerals in and under” the subject property. The deed was recorded the same day. On March 4, 1957, the Dockters executed a mineral deed to Wm. F. Grinnan conveying an undivided one-half interest in “all of the oil, gas and other minerals in and under” the subject property. The deed warranted title to the one-half interest and although it did not reference the earlier royalty conveyance to the Bank, the deed stated it was “made subject to any rights now existing to any lessee or assigns under any valid and subsisting oil and gas lease of record heretofore executed.” This mineral deed was recorded on April 11, 1957. QEP is the successor in interest to Grinnan, having received its interest following a series of earlier conveyances made by Grinnan.

[¶ 3] Wenco purchased the Dockters' remaining interest in the property through a contract for deed in 1993. On July 31, 2003, the Dockters executed a warranty deed to Wenco conveying their remaining interest in the property subject to “prior mineral reservations ... now of record.” This deed was recorded on August 5, 2003. In 2006 Wenco leased its mineral interest to Context Energy Company and that lease was later assigned to EOG and the assignment was recorded on July 5, 2006.

[¶ 4] EOG decided to drill a well on the property and had a drilling title opinion prepared. QEP agreed to participate and later signed a joint operating agreement. After EOG's request for a pooling order was granted by the Industrial Commission, a division order title opinion was prepared incorporating the drilling title opinion. It assigned Wenco a 0.03335841 royalty interest and QEP a 0.24376880 royalty interest in the oil and gas produced from the spacing unit. Neither Wenco nor QEP signed this division order. QEP subsequently contacted EOG and questioned the interest it had been assigned in the well production. QEP believed its interest had been improperly burdened by the royalty interest held by the Bank and its royalty interest should be increased, while Wenco's royalty interest should be decreased. After a reanalysis of the situation, a revised royalty interest opinion was prepared which reduced Wenco's royalty interest to 0.02505015 and increased QEP's royalty interest to 0.250000. A revised division order conforming with the revised royalty interest opinion was issued in September 2008.

[¶ 5] EOG withheld payments from Wenco to recover the overpayment caused by its original miscalculation. After the overpayments were recovered, EOG began making royalty payments to Wenco in accordance with the revised division order. In March 2010, Wenco expressed its disagreement with the revised division order, contending both Wenco and QEP should be proportionately burdened by the Bank's royalty interest. EOG disagreed, and Wenco brought this action to quiet title against EOG and QEP. Wenco claimed QEP had been unjustly enriched and that EOG had converted funds belonging to Wenco.

[¶ 6] The district court granted summary judgment in favor of EOG and QEP, ruling EOG was correctly dispersing royalty revenue in accordance with this Court's opinion in Acoma Oil Corp. v. Wilson, 471 N.W.2d 476 (N.D.1991) ( “Acoma ”), and therefore, as a matter of law, EOG had not committed conversion and QEP had not been unjustly enriched. The court further ruled that, as a matter of law, EOG and QEP had not waived their rights to assert that the royalty conveyance to the Bank burdened only Wenco's interest.

II

[¶ 7] Wenco argues the district court erred in granting summary judgment in favor of EOG and QEP because the court misapplied the law relating to overconveyances of mineral interests.

[¶ 8] The standard for reviewing summary judgments is well established:

Summary judgment is a procedural device for the prompt resolution of a controversy on the merits without a trial if there are no genuine issues of material fact or inferences that can reasonably be drawn from undisputed facts, or if the only issues to be resolved are questions of law. A party moving for summary judgment has the burden of showing there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. In determining whether summary judgment was appropriately granted, we must view the evidence in the light most favorable to the party opposing the motion, and that party will be given the benefit of all favorable inferences which can reasonably be drawn from the record. On appeal, this Court decides whether the information available to the district court precluded the existence of a genuine issue of material fact and entitled the moving party to judgment as a matter of law. Whether the district court properly granted summary judgment is a question of law which we review de novo on the entire record.

Arndt v. Maki, 2012 ND 55, ¶ 10, 813 N.W.2d 564 (quoting Saltsman v. Sharp, 2011 ND 172, ¶ 4, 803 N.W.2d 553).

[¶ 9] Our analysis begins with a discussion of this Court's decision in Acoma, 471 N.W.2d 476. In that case, H.O. Moen owned a 160–acre tract of land and in 1937 made three separate royalty conveyances cumulatively transferring to third parties a 6.5 percent royalty interest in all oil and gas produced from the land. Id. at 477. In 1944 Moen and his wife conveyed the 160 acres to Clayton D. Wilson, Sr., by warranty deed without reserving any mineral interests or mentioning the prior 6.5 percent royalty conveyances. Id. In 1952 Wilson and his wife conveyed to Thomas W. Leach through two separate mineral deeds an undivided 35/320ths and an undivided 5/320ths interest in the minerals. Id. The deeds contained warranty clauses but did not indicate that the conveyed interest was burdened by the previously conveyed and outstanding 6.5 percent royalty. Id.

[¶ 10] Leach subsequently learned about the outstanding 6.5 percent royalty through a title opinion. Acoma, 471 N.W.2d at 478. Leach executed a mineral deed with a warranty clause to United Properties Incorporated conveying an undivided 18/320ths interest in the minerals. In 1966 United conveyed that interest to Acoma through a mineral deed with a similar warranty clause. Id. Leach also conveyed through a warranty deed an undivided 9/320ths interest in the minerals to Clark D. Bassett. Id. These later deeds also did not refer to the outstanding 6.5 percent royalty. Id. Bassett later conveyed a 3/320ths interest in the minerals to Arthur Fitzloff. Id. Bassett's remaining 6/320ths interest in the minerals was ultimately transferred to the Bassett Trust. Id. When the Wilsons died, their remaining interest in the property passed to their children. Id.

[¶ 11] After Universal Resources Corporation drilled a producing oil and gas well on the property, a dispute arose whether the burden of the outstanding 6.5 percent royalty should be shared proportionately by Acoma, the Bassett Trust, and the Wilson children, or entirely by the Wilson children. Acoma, 471 N.W.2d at 478. The district court ruled that the rationale of Duhig v. Peavy–Moore Lumber Co., 135 Tex. 503, 144 S.W.2d 878 (1940), did not apply, but that principles of equitable estoppel governed. Acoma, at 478–79. The district court determined that, because Leach was aware of the outstanding 6.5 percent royalty, equity dictated that the 6.5 percent royalty be proportioned among the current mineral owners. Id. at 479.

[¶ 12] This Court reversed, resolving the issue by applying the Duhig rule, which holds “that a grantor cannot grant and reserve the same mineral interest, and if a grantor does not own a large enough mineral interest to satisfy both the grant and the reservation, the grant must be satisfied first because the obligation incurred by the grant is superior to the reservation.” Acoma, 471 N.W.2d at 480. The Court relied in part on decisions from New Mexico and Texas, see Atlantic Refining Co. v. Beach, 78 N.M. 634, 436 P.2d 107 (1968), and Selman v. Bristow, 402 S.W.2d 520 (Tex.Ct.Civ.App.1966), which had also used the Duhig rationale to conclude that conveyances of undivided fractional mineral interests in a tract of land were not proportionately burdened by prior royalty...