Zavanna, LLC v. GADECO, LLC
| Docket Number | 20220265 |
| Decision Date | 02 August 2023 |
| Citation | 2023 ND 142 |
| Parties | Zavanna, LLC, Plaintiff and Appellee v. GADECO, LLC; Continental Resources, Inc.; Defendants and Appellants and all other persons unknown claiming any estate or interest in, or line or encumbrance upon, the property described in the Complaint; Defendants |
| Court | North Dakota Supreme Court |
Appeal from the District Court of Williams County, Northwest Judicial District, the Honorable Joshua B. Rustad, Judge.
Deva A. Solomon (argued), Amber M. Moore (on brief), and David R Little (on brief), Denver, Colorado, and Nicholas C. Grant (appeared), Dickinson, North Dakota, for plaintiff and appellee.
Colleen E. McKnight (argued) and Charles M. Seely (on brief) Houston, Texas; Robert T. Slovak (on brief) and Steven C Lockhart (appeared), Dallas, Texas; and Diane M. Wehrman (on brief), Bismarck, North Dakota, for defendant and appellant GADECO, LLC.
James E. Dallner (argued), Parker, Colorado, and Phillip S. Lorenzo (on brief), Denver, Colorado, for defendant and appellant Continental Resources, Inc.
[¶1] GADECO, LLC, and Continental Resources, Inc. (together, "Defendants") appeal from a judgment quieting title in oil and gas leasehold interests in Zavanna, LLC. We affirm, concluding the district court did not err in concluding Defendants' leases terminated under their terms when production ceased and Defendants failed to timely commence reworking operations, and in concluding Defendants failed to show a force majeure condition saved the leases from termination.
[¶2] Zavanna and the Defendants make competing claims to oil and gas leasehold interests covering 1,280 gross acres in Williams County. These interests are located in the Golden Unit. The Golden Well is the only well producing oil and gas from the subject leasehold within the Golden Unit. GADECO is the operator of the Golden Well. Zavanna is the lessee by assignment of the "Top Leases"[1] and GADECO and Continental are the lessees of the "Bottom Leases." The Top Leases and Bottom Leases cover the same lands and leasehold interests. The Bottom Leases consist of five sets of leases sharing common text: Grynberg Leases, GADECO Leases, Diamond Leases, Parke Energy Leases, and Continental Leases. GADECO owns all of the Bottom Leases with the exception of the Continental Leases, which are owned by Continental. Each Bottom Lease establishes a primary term and specifies that the lease will extend into a secondary term "as long thereafter as" oil or gas is produced. All of the Bottom Leases extended into secondary terms.
[¶3] The Bottom Leases automatically terminate upon cessation of production unless certain express conditions are met. The Bottom Leases state that a cessation of production after the lease's primary term shall not terminate the lease if the lessee restores production or commences additional drilling or reworking operations within 90 days (or 120 days in the case of the Parke Energy Leases) from the date of cessation of production.
[¶4] After a bench trial, the district court quieted title in Zavanna, concluding the Bottom Leases terminated by their own terms when production ceased and GADECO failed to timely commence drilling or reworking operations. The court found three periods of production cessation. The court concluded Defendants bore the burden to prove that production did not cease or reworking operations were timely commenced. Alternatively, the court concluded that in the event the burden is on Zavanna, Zavanna satisfied its burden of proof. Last, the court concluded the force majeure clauses in the Bottom Leases did not apply to excuse the Defendants' obligations under the leases.
[¶5] "In an appeal from a bench trial, the district court's findings of fact are reviewed under the clearly erroneous standard of review, and its conclusions of law are fully reviewable." Larson v. Tonneson, 2019 ND 230, ¶ 10, 933 N.W.2d 84. A finding of fact is clearly erroneous if it is induced by an erroneous view of the law, if there is no evidence to support it, or if, after reviewing all of the evidence, we are convinced a mistake has been made. Id. The court's findings are presumptively correct. Id. "[T]he district court is the determiner of credibility issues and we will not second-guess the district court on its credibility determinations." Id.
[¶6] Defendants argue the district court erred in concluding they bore the burden of proving production did not cease and reworking operations were timely commenced. In concluding Defendants bore the burden, the district court relied upon N.D.C.C. § 32-17-10, which provides, "A defendant interposing a counterclaim for purposes of trial shall be deemed plaintiff, and the plaintiff and codefendants against whom relief is sought shall be deemed defendants as to the counterclaiming defendant." See also Tavis v. Higgins, 157 N.W.2d 718, 724 (N.D. 1968) ("Where a defendant in an action to quiet title claims to be the owner of the property and seeks to have title quieted in him, he has the burden of proving the allegations of his claim and, in effect, becomes a party plaintiff."). The court's reliance on this statute is misplaced. Section 32-17-10, N.D.C.C., merely states that when a defendant brings a counterclaim, the defendant is deemed a plaintiff with respect to its counterclaim. Of course, the statute does not shift the burden of proof to the defendant with respect to the plaintiff's claims. Rather, "[i]n an action to quiet title to real property the plaintiff must rely on the strength of his own title." Robertson v. Brown, 25 N.W.2d 781, 785 (N.D. 1947); see also Hebden v. Bina, 116 N.W. 85, 85, Syl. 1 (N.D. 1908) ("In an action to determine adverse claims to real property, it is incumbent upon plaintiff to establish his title to the property as alleged by him.").
[¶7] Zavanna sued Defendants to quiet title under its Top Leases, and Defendants counterclaimed to quiet title under their Bottom Leases. The district court rejected Defendants' quiet title counterclaims, and Defendants do not appeal from that determination. Accordingly, the only remaining claims at issue are Zavanna's quiet title claims. In order for the court to quiet title in Zavanna, the Bottom Leases must have terminated. Zavanna argues Defendants must prove their leases remain in effect. Zavanna cites no statute or case law stating a defendant-lessee must prove its leases remain in effect in order to defeat a quiet title claim that depends on termination of the lease.
[¶8] Generally, it is the burden of the party requesting cancellation or termination of a contract that must prove the contract is no longer valid or in effect. Just as the court does not presume the terms of a contract have been breached, WFND, LLC v. Fargo Marc, LLC, 2007 ND 67, ¶ 13, 730 N.W.2d 841, the court also does not presume a contract has been terminated under its own terms. The party claiming the contract terminated by its own terms is the party that bears the burden to prove the facts necessary to support that claim. Sorum v. Schwartz, 411 N.W.2d 652, 654 (N.D. 1987). As the plaintiff, Zavanna bears the burden of proof on its quiet title claims, which in this case requires Zavanna to prove the Bottom Leases terminated. To prove the Bottom Leases terminated, Zavanna must prove production in paying quantities ceased, and we assume without deciding that Zavanna also has the burden to prove Defendants failed to timely commence reworking operations. The burden is not on the lessees, Defendants, to prove production did not cease in order to save the lease from termination. See BP Am. Prod. Co. v. Laddex, Ltd., 513 S.W.3d 476, 482 (Tex. 2017) ().
[¶9] Zavanna cites Borth v. Gulf Oil Exploration & Production Co., 313 N.W.2d 706, 709 (N.D. 1981), for the proposition that "the burden of preventing a lease with an 'unless' clause from terminating lies upon the lessee." "An 'unless' clause does not obligate the lessee to do an act; however, the 'unless' clause provides that the lease shall terminate unless the lessee does some act." Id. Thus, the burden of preventing a lease from terminating referred to the lessee's action or inaction under the contract. The Court did not conclude the defendant-lessee had the burden in court to prove termination. Accordingly, we conclude Zavanna bore the burden of proof on its quiet title claims.
[¶10] While the district court concluded Defendants had the burden of proof, the court concluded in the alternative that even if Zavanna has the burden of proof, Zavanna satisfied its burden. Thus, we review the court's findings and conclusions to determine whether the court erred in concluding Zavanna satisfied its burden to prove cessation of production and failure to timely commence reworking operations.
[¶11] Defendants argue the district court erred in concluding their Bottom Leases terminated for lack of production and failure to timely commence reworking operations. Each Bottom Lease states that after the lease's primary term, the lease terminates if there is a cessation of oil and gas production and there are no drilling or reworking operations commenced within a specified period of time-90 days under the Grynberg GADECO, Diamond, and Continental Leases and 120 days under the Parke Energy Leases. The court found three periods of production cessation where no reworking operations were commenced within the specified period of time.
[¶12] Oil and gas leases are interpreted in the same manner as other contracts:
Contracts, including oil and gas leases, are interpreted to give effect to the parties' mutual intent at the time of contracting. N.D.C.C. § 9-07-03. The parties' intent is ascertained from the...
To continue reading
Request your trial