Kartch v. EOG Res. Inc.

Frankie and Kristin Kartch, Plaintiffs,

v.EOG Resources, Inc., Defendant.

Case No. 4:10-cv-014

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NORTH DAKOTA NORTHWESTERN DIVISION

Date: November 10, 2011

ORDER GRANTING IN PART, DEFERRING IN PART, AND DENYING IN PART

PLAINTIFFS' MOTION TO COMPEL

I. BACKGROUND

Plaintiffs are surface owners of land located in Mountrail County that includes parts of Sections 7 & 8 and all of Section 17 in T158N, R89W. Plaintiffs purchased Section 17 in 2004. The sellers, however, retained the mineral interests and subsequently entered into an oil and gas lease with a company based in Williston, North Dakota. This company, in turn, assigned its lease to defendant EOG Resources, Inc. ("EOG").

In 2008, EOG entered Section 17 and began drilling an oil well that was completed in 2009 and that is still producing today. After EOG had drilled the well, plaintiffs purchased the land in Sections 7 and 8, which is a 520-acre tract located north of and adjacent to Section 17 and upon which sits a rural residence that is approximately ½ mile from the well site in Section 17. The Section 17 property has been used only for agricultural or recreational purposes and has not been otherwise developed. Plaintiffs do not permanently reside on their Mountrail County property and live in Duluth, Minnesota.

N.D.C.C. ch. 38-11.1 requires mineral developers to provide a modicum of compensation to surface owners for damages caused by oil and gas production, thereby alleviating, at least to some degree, the harsh results flowing from the mineral estate being dominant, including the fact that the mineral developer at common law was likely not required to pay any compensation for use of the surface. Prior to commencement of drilling, EOG tendered an offer to pay the anticipated damages for use of the surface as required by ch. 38-11.1. The amount it offered was $8,000. Plaintiffs rejected the offer, contending it was inadequate, and instituted this action.

In their Second Amended Complaint, plaintiffs assert claims for compensation pursuant to ch. 38-11.1 for EOG's lawful use of their surface estate. In addition, they seek damages and injunctive relief for uses of the surface estate that they claim were improper, either because the uses exceeded EOG's property rights or because the uses created a nuisance or were negligent.

One of the primary items of disagreement between the parties relates to EOG's use of a "reserve pit" during drilling to hold drilling mud and deposit well cuttings - material that typically contains some environmentally-hazardous compounds, which, if allowed to escape, could cause pollution - particularly to nearby surface and ground waters. In constructing the reserve pit, EOG used a synthetic liner, but states this was simply a precautionary measure and not required because of the relatively impervious clay soils in which the pit was constructed. When drilling was completed, EOG removed the liquid waste from the pit, but left the well cuttings and other solid wastes in place as permitted by state regulations. EOG then covered the pit, leaving it and the waste contained therein buried slightly more than four feet below a recontoured surface.

Plaintiffs contend that EOG's use of a reserve pit was in excess of its property rights and amounted to a trespass. They also claim that use of the pit, and later leaving it in place filled withwaste, created a nuisance and was negligent. Plaintiffs argue that, instead of a reserve pit, EOG should have used an alternative, such as a "closed loop" system, which recycles part of the drilling mud and captures the remainder along with the well cuttings in tanks for later disposal offsite at permitted disposal locations.¹ Plaintiffs also contend that, at the very least, EOG should have completely reclaimed the reserve pit by excavating the wastes and the pit liner and trucking them to a permitted waste disposal area. Plaintiffs argue that leaving the drilling wastes buried on their property near the surface is unreasonable because it diminishes the value of their property, limits its future use, creates a risk of damage if there is a future leakage or leaching of toxic chemicals from the buried wastes, and exposes them to the possibility of financial responsibility for any cleanup if EOG is not around to answer for the consequences because it has gone bankrupt or is otherwise out of business.

In addition to contending that EOG's use of the reserve pit was per se unreasonable, plaintiffs also contend that the pit and wastes should have been completely removed in this case because a tear was discovered in the liner while the pit was still open. EOG acknowledges there was a tear, but claims there is no evidence that any material actually leaked from the pit. EOG states that it removed soil from either side of the tear and trucked it out as a precautionary measure when it covered the pit. EOG states this was done under state regulatory supervision and that there is no reason to believe now that the dry wastes remaining in the pit pose any significant risk of future environmental harm -at least so long as they remain undisturbed.

Another primary area of disagreement between the parties is the amount of damages that plaintiffs are entitled to receive as result of EOG's use of plaintiffs' surface estate. EOG claims that the $8,000 it offered is significantly in excess of what is recoverable as a matter of law. Plaintiffs disagree and claim that the recoverable damages exceed that amount.

II. DISCUSSION

A. Introduction

Now before the court is plaintiffs' motion to compel discovery. Plaintiffs claim that part of the discovery they seek is relevant to the reserve pit issues and the remainder to the amount of compensation that they are entitled to receive for the use of their surface estate. EOG disagrees, contending that the information being sought is irrelevant and that the discovery requests are unduly burdensome.

Also before the court is the question of the timing of the disputed discovery. EOG has filed a motion for summary judgment that it contends should be ruled on before the court allows any of the disputed discovery. EOG claims a ruling in its favor, particularly on the issue of whether the use of the reserve pit was within its property rights, would alleviate the need for most, if not all, of the disputed discovery. Plaintiffs disagree. They contend that EOG is not entitled to judgment as a matter of law and that they need the disputed discovery to be able to properly respond to EOG's motion. Until these matters could be sorted out, the court temporarily extended plaintiffs' time to respond to the summary judgment motion.

B. The discovery that plaintiffs claim is necessary to demonstrate that EOG's use of a reserve pit was in excess of its property rights, negligent, and/or a nuisance

EOG contends that the fact that state regulations allow use of reserve pits as a general matter is dispostive in terms of its right to use a reserve pit here. EOG also contends that, as the lessee of an oil and gas lease from the owner of the dominant mineral estate, it has the right to use the plaintiffs' surface estate for any reasonable purpose in support of the exercise of its rights and that a reserve pit is a reasonable use both as a matter of law and undisputed fact. According to EOG, any discovery regarding whether the use of a reserve pit was reasonable under the circumstances is simply irrelevant.

In many cases, the staggering of discovery to allow one party to litigate issues piecemeal is inefficient and simply adds to the time required to resolve the case. However, there are times when resolving some issues in advance will conserve party or court resources and makes sense. To determine whether this is such a case, an assessment of whether the issues claimed by EOG as being dispositive are realistically capable of being resolved by summary judgment without first affording plaintiffs the discovery they claim they need, as well as whether resolving these issues first is likely to conserve party or judicial resources, is appropriate. However, before considering these points, some discussion of North Dakota law regarding the relative rights of the mineral estate versus the surface estate, as well as the state regulations governing the use of reserve pits, is helpful.

Under North Dakota law, a severed mineral interest is dominant and carries with it the "inherent surface rights to find and develop the minerals." Hunt Oil Co. v. Kerbaugh, 283 N.W.2d 131, 135 (N.D. 1979) ("Hunt Oil") ("[T]he surface estate is servient in the sense it is charged with the servitude for those essential rights of the mineral estate."); see Christina v. Emineth, 212 N.W.2d 543, 550 (N.D. 1973); see also Slaaten v. Cliff's Drilling Co., 748 F.2d 1275, 1278 (8th Cir. 1984)(observing that North Dakota's position is in accord with the general rule in the oil and gas industry). "Without such rights the mineral estate would be meaningless and worthless." Hunt Oil, 283 N.W.2d at 135.²

While the severed mineral estate is dominant, the North Dakota Supreme Court has made clear that there are limits on the right of the mineral estate to use the surface estate for oil and gas development. The controlling case is Hunt Oil, supra. In that case, the North Dakota Supreme Court discussed these limits at some length and also what is commonly referred to as the "accommodation doctrine" - or at least one version of it. And, because both parties are relying on the court's language in that case, it is best to simply quote from it at length:

In the absence of other rights expressly granted or reserved, the rights of the owner of the mineral estate are limited to so much of the surface and such use thereof as are Reasonably necessary to explore, develop, and transport the minerals. See, Union Producing Co. v. Pittman, 245 Miss. 427, 146 So.2d 553 (1962); 58 C.J.S. Mines and Minerals s 159c; Annot., 53 A.L.R.3d 16 s 3

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