Come Big Or Stay Home, LLC v. EOG Res., Inc.

816 N.W.2d 80

2012 ND 91

COME BIG OR STAY HOME, LLC, Plaintiff and Appellant,

v.EOG RESOURCES, INC., Defendant and Appellee.

No. 20110305.

Supreme Court of North Dakota.

May 4, 2012.

James M. Chaney (argued), Oklahoma City, OK, Monte Lane Rogneby (appeared) and John J. Petrik (on brief), Bismarck, N.D., for plaintiff and appellant.

David R. Marshall (argued), Minneapolis, MN, Lawrence Bender (appeared) and Jillian Rene Rupnow (on brief), Bismarck, N.D., for defendant and appellee.

MARING, Justice.

[¶ 1] Come Big or Stay Home, LLC (“CBSH”), appeals from a summary judgment dismissing its claims against EOG Resources, Inc. (“EOG”), for refusing to provide it with oil and gas well information unless CBSH agreed to not disclose the information to third parties without EOG's consent. We affirm, concluding as a matter of law that CBSH's theories of recoveryare not viable under the circumstances.

I

[¶ 2] EOG owns and develops oil and gas interests in North Dakota and has drilled and operated numerous oil and gas wells in the state. CBSH owns mineral or leasehold interests in the state, including interests in spacing units where wells have been drilled and operated by EOG. In late 2008, EOG sent CBSH, a working interest owner, an invitation to participate in the risks of drilling a horizontal oil and gas well in Mountrail County. See generally Gadeco, LLC v. Industrial Comm'n, 2012 ND 33, ¶¶ 3–7, 812 N.W.2d 405 (providing background information about invitations to participate and risk penalties); Continental Res., Inc. v. Farrar Oil Co., 1997 ND 31, ¶ 3 n. 1, 559 N.W.2d 841 (describing horizontal well technology). The invitation to participate informed CBSH that if it accepted the well proposal and elected to participate in the drilling operation, a joint operating agreement (“JOA”) “for your execution will be sent under separate cover upon your election to participate.” CBSH elected to participate in the drilling of the well and received a JOA, titled “A.A.P.L. Form 610–1982 Model Form Operating Agreement,” which contained the following provisions:

D. Access to Contract Area and Information:

Each party shall have access to the Contract Area at all reasonable times, at its sole cost and risk to inspect or observe operations, and shall have access at reasonable times to information pertaining to the development or operation thereof, including Operator's books and records relating thereto. Operator, upon request, shall furnish each of the other parties with copies of all forms or reports filed with governmental agencies, daily drilling reports, well logs, tank tables, daily gauge and run tickets and reports of stock on hand at the first of each month, and shall make available samples of any cores or cuttings taken from any well drilled on the Contract Area. The cost of gathering and furnishing information to Non–Operator, other than that specified above, shall be charged to the Non–Operator that requests the information. Well information will be provided by the Operator as set out in Exhibit “G.” Such exhibit also provides for notice.

....

XV.P. Non–Operator Confidentiality

Non–Operator agrees not to disclose any information relative to drilling or completion operations to any third party without the express written consent of the Operator which may be withheld at the Operator's sole discretion, provided however, Operator agrees to allow disclosure if required for any filings with the Securities and Exchange Commission or if required to comply with any court order.

CBSH signed and returned the JOA and accompanying documents to EOG.

[¶ 3] During the ensuing months, EOG sent CBSH, as a working interest owner, 18 additional invitations to participate in the drilling of horizontal wells in North Dakota. Except for the location and estimated costs of the proposed wells, these invitations to participate did not differ substantively from the first invitation to participate received by CBSH in late 2008. CBSH agreed to participate in each well and received from EOG separate JOAs that mirrored the provisions of the JOA received by CBSH after it had elected to participate in the first well. However, CBSH refused to execute any of the JOAs for the subsequent wells. After each refusalby CBSH to execute a JOA, EOG sent letters to CBSH explaining it was willing to provide well information to CBSH if it would agree to the nondisclosure provision contained in the JOA. EOG has explained that the nondisclosure provision is intended to protect its “confidential and proprietary information.” CBSH refused to sign the nondisclosure letter agreements.

[¶ 4] CBSH sued EOG seeking damages under various theories for EOG's failure to provide it with well information pertaining to the last 18 wells in which it had elected to participate. CBSH eventually moved to compel discovery and EOG moved for summary judgment. CBSH moved for additional time for discovery under N.D.R.Civ.P. 56(f), arguing “[o]nce EOG responds to discovery, ... CBSH will be able to more definitively prove its damages.” The district court granted EOG's motion for summary judgment and dismissed CBSH's lawsuit. The court ruled as a matter of law that EOG did not breach the parties' contracts, EOG did not breach any fiduciary duties owed to CBSH, and CBSH had no viable claim for conversion. The court further ruled in the alternative that even if there was a breach of contract, breach of fiduciary duties, or conversion, “a reasonable person would conclude that CBSH has not established a basis for damages with the requisite degree of certainty or without resort to speculation or conjecture.” The court determined its decision on the merits rendered it unnecessary to address CBSH's requests for a declaratory judgment and constructive trust, and its motion to compel discovery. Although the court did not specifically state CBSH's N.D.R.Civ.P. 56(f) motion was denied, we assume the court denied the motion because it granted summary judgment in favor of EOG. See Alerus Fin., N.A. v. Marcil Grp. Inc., 2011 ND 205, ¶ 34, 806 N.W.2d 160.

II

[¶ 5] CBSH argues the district court erred in granting summary judgment dismissing its claims against EOG.

[¶ 6] In Arndt v. Maki, 2012 ND 55, ¶ 10, 813 N.W.2d 564 we explained our standard for review of summary judgments:

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.

(quoting Saltsman v. Sharp, 2011 ND 172, ¶ 4, 803 N.W.2d 553).

A

[¶ 7] CBSH argues EOG was not entitled to summary judgment dismissing its breach of contract claim.

[¶ 8] The party asserting a breach of contract has the burden of proving the existence of a contract, breach of the contract, and damages flowing from the breach. See Godon v. Kindred Pub. Sch. Dist., 2011 ND 121, ¶ 13, 798 N.W.2d 664. “A breach of contract is the nonperformance of a contractual duty when it is due.” WFND, LLC v. Fargo Marc, LLC, 2007 ND 67, ¶ 13, 730 N.W.2d 841.

[¶ 9] CBSH argues the last 18 invitations to participate it executed in this case constituted valid contracts with EOG, even though subsequent written agreements in the form of the JOAs were contemplated by the parties. Because the JOAs were not executed, CBSH argues the court should nevertheless enforce the invitations to participate by implying reasonable terms that were intentionally left open by the parties. Reasonable terms, according to CBSH, include terms based upon custom and usage in the oil and gas industry. In an affidavit presented in opposition to the motion for summary judgment, CBSH's expert said:

8. It is the long-established and well-known custom in the oil and gas industry throughout the United States, including in North Dakota, that non-operating working interest owners are entitled to receive well information (including but not limited to logs, daily drilling reports, title opinions, etc.)

9. It is not industry custom for an Operator to withhold well information from a participant in an operation, nor [is it] industry custom for an Operator to place terms and conditions on a participant's rights to use such well information once the well information is released to the participant.

....

12. EOG Resources, Inc.'s position that it will not disclose any information relative to drilling or completion operations unless a participating owner signs an agreement that provides that the “non-operator agrees not to disclose any information relative to drilling or completion operations to any third party without the express written consent of the operator which may be withheld at the operator's sole discretion” is patently unreasonable to the small oil and gas business. Large companies such as EOG generally have geologists and engineers as employees so they do not need to disclose well information to non-employees. Small oil and gas companies, on the other hand, often must use outside consultants, including engineers and geologists, to evaluate the well information to make decisions concerning business opportunities.

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