Golden Eye Res., LLC v. Ganske

853 N.W.2d 544

GOLDEN EYE RESOURCES, LLC, Plaintiff, Appellee and Cross–Appellant

v. Debra K. GANSKE, Wesley G. Borgen, Gay M. King, Michael R. Borgen, Sue E. Evans and Linda R. McCoy, DefendantsDebra K. Ganske, Wesley G. Borgen, Michael R. Borgen, Sue E. Evans and Linda R. McCoy, Appellants and Cross–Appellees.

No. 20130219.

Supreme Court of North Dakota.

Sept. 23, 2014.

Nick A. Swartzendruber (argued), Denver, CO, and Charles L. Neff (appeared), Williston, N.D., for plaintiff, appellee and cross-appellant.

Zachary E. Pelham (argued) and Patrick W. Durick (on brief), Bismarck, N.D., for appellants and cross-appellees.

Opinion

SANDSTROM, Justice.

[¶ 1] Debra Ganske, Wesley Borgen, Michael Borgen, Sue Evans, and Linda McCoy (“the Borgens”) appeal from a district court summary judgment quieting title (deciding ownership) in certain oil and gas leases in Golden Eye Resources, LLC (“Golden Eye”) and dismissing their counterclaim for rescission or cancellation of the leases. Golden Eye has cross-appealed. We reverse and remand, concluding the district court erred in concluding the Borgens' fraudulent inducement claims were barred as a matter of law, and the court therefore erred in dismissing their rescission action and quieting title in the leases in Golden Eye.

I

[¶ 2] The Borgens are siblings who own mineral interests in Williams County. In 2009, representatives of Golden Eye contacted the Borgens to inquire about leasing their mineral interests. The Borgens ultimately leased their mineral interests to Golden Eye in December 2009. The Borgens' cousin, Gay King, also leased mineral interests to Golden Eye, but she is not a party to this appeal.

[¶ 3] The parties engaged in extensive negotiations leading up to the execution of the leases. The Borgens claim they made it clear to Golden Eye that they would only lease to an experienced company that would ultimately drill and operate the wells on the property. The Borgens claim Golden Eye made numerous material misrepresentations during the negotiations to induce them to lease their interests to Golden Eye, including: (1) Golden Eye “absolutely” was going to drill the wells itself and would not assign the leases; (2) Golden Eye had already acquired 7,000 mineral acres in the township where the Borgens' minerals were located; (3) Golden Eye had a “permit man” in Bismarck securing drilling permits on the acreage Golden Eye had already acquired in the area; (4) Golden Eye had successfully drilled wells in the past in Canada; (5) Golden Eye was establishing spacing units; and (6) Golden Eye would begin drilling as soon as it secured a drilling rig and would drill the Borgens' interests first if the leases were signed. The Borgens contend these misrepresentations induced them to sign leases with Golden Eye rather than with another company, Tracker Resources Exploration, that had offered leases on more favorable financial terms.

[¶ 4] In May 2010, the Borgens learned Petro–Hunt, LLC, had obtained a drilling permit to drill a well (“the Borrud well”) in a drilling unit encompassing some of the Borgen minerals. The Borgens also learned Golden Eye only had a 19 per cent interest in the spacing units where the Borgens' minerals were located. On May 28, 2010, the Borgens sent a notice of rescission to Golden Eye seeking to rescind the leases for fraud in the inducement and offering to return to Golden Eye all payments they had received under the leases. The Borgens claim they also learned Golden Eye did not have a “permit man” working to obtain drilling permits at the time of the negotiations and Golden Eye had not previously drilled wells in Canada or the United States.

[¶ 5] In July 2010, Golden Eye entered into a “Participation Agreement” with Northern Oil and Gas, Inc. (“Northern”), assigning 58.32% of its working interest in the Borrud drilling unit to Northern. The Borgens contend this agreement violated anti-assignment provisions in their leases which prohibited Golden Eye from assigning or subleasing its rights under the lease without the Borgens' consent. The Borgens claimed this was a breach of contract warranting cancellation of the leases, and the Borgens mailed notices of cancellation of the leases to Golden Eye.

[¶ 6] Golden Eye sued the Borgens to quiet title to the leased interests and sought damages for breach of contract and intentional interference with contract. The Borgens answered and counterclaimed, seeking rescission or cancellation of the leases. On multiple motions and cross-motions for summary judgment, the court ultimately ordered that the Borgens' rescission claims based upon fraudulent inducement were barred as a matter of law; that Golden Eye's breach of contract and intentional interference with contract claims be dismissed; that the Borgens' counterclaims for rescission or cancellation of the leases be dismissed; and that title to the leases be quieted in Golden Eye. Summary judgment was entered quieting title in the leases in Golden Eye and dismissing all other claims and counterclaims of the parties.

[¶ 7] The district court had jurisdiction under N.D. Const. art. VI, § 8, and N.D.C.C. § 27–05–06. The appeal and cross-appeal are timely under N.D.R.App.P. 4(a). This Court has jurisdiction under N.D. Const. art. VI, §§ 2 and 6, and N.D.C.C. § 28–27–01.

II

[¶ 8] This Court's standard for reviewing summary judgment 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.

Van Sickle v. Hallmark & Assocs., Inc., 2013 ND 218, ¶ 12, 840 N.W.2d 92.

III

[¶ 9] The dispositive issue on this appeal is whether the district court erred in granting summary judgment dismissing the Borgens' claims they were fraudulently induced into signing the leases by Golden Eye's alleged misrepresentations.

A

[¶ 10] The consent of the parties to a contract must be free, mutual, and communicated by each to the other, and consent is not free if obtained through fraud. N.D.C.C. §§ 9–03–01 and 9–03–03(3) ; American Bank Ctr. v. Wiest, 2010 ND 251, ¶ 10, 793 N.W.2d 172 ; Erickson v. Erickson, 2010 ND 86, ¶ 7, 782 N.W.2d 346. If a party's apparent free consent to the contract has been obtained by fraud, the defrauded party may rescind the contract in the manner prescribed by N.D.C.C. ch. 9–09. N.D.C.C. §§ 9–03–02 and 9–09–02(1) ; Erickson v. Brown, 2008 ND 57, ¶ 25, 747 N.W.2d 34 ; Peterson v. Peterson, 555 N.W.2d 359, 362 (N.D.1996) ; Delzer v. United Bank of Bismarck, 527 N.W.2d 650, 653 (N.D.1995).

[¶ 11] For purposes of determining whether consent to a contract was obtained by fraud, “actual fraud” is defined in N.D.C.C. § 9–03–08 :

Actual fraud within the meaning of this title consists in any of the following acts committed by a party to the contract, or with the party's connivance, with intent to deceive another party thereto or to induce the other party to enter into the contract:

1. The suggestion as a fact of that which is not true by one who does not believe it to be true;

2. The positive assertion, in a manner not warranted by the information of the person making it, of that which is not true though that person believes it to be true;

3. The suppression of that which is true by one having knowledge or belief of the fact;

4. A promise made without any intention of performing it; or

5. Any other act fitted to deceive.

“Actual fraud is always a question of fact.” N.D.C.C. § 9–03–10. Furthermore, because “ ‘intent to defraud and deceive is ordinarily not susceptible of direct proof, fraud ... may be inferred from the circumstances' at the time of the transaction.” American Bank Ctr., 2010 ND 251, ¶ 12, 793 N.W.2d 172 (quoting Dewey v. Lutz, 462 N.W.2d 435, 441 (N.D.1990) ); see also West v. Carlson, 454 N.W.2d 307, 310 (N.D.1990) (“actual fraud ... may be inferred from the facts and attendant circumstances of the transaction”).

B

[¶ 12] The Borgens contend Golden Eye made numerous factual misrepresentations, constituting actual fraud, which fraudulently induced them to enter into the leases. They allege they made it clear from the beginning of negotiations with Golden Eye that they were only interested in leasing to a company which could drill and operate wells itself. They further claim the alleged misrepresentations by Golden Eye induced them into leasing to Golden Eye instead of to another company on more favorable financial terms.

[¶ 13] The district court, in its summary judgment order dismissing the Borgens' fraudulent inducement claims, summarized the alleged material misrepresentations:

As the basis for their fraudulent inducement claim, the Defendants argue that the following misrepresentations were made to them prior to signing the leases:

1. That Golden Eye itself would drill the wells and develop the Defendants' minerals.

2. That Golden Eye had drilled in Canada and was very successful.

3. That the only things that would prevent Golden Eye from drilling would be an inability to obtain a drilling rig or if the price of oil would plummet.

4. That Golden Eye would drill the Defendants'

...