N. Oil & Gas, Inc. v. EOG Res.

1

2022 ND 182

Northern Oil & Gas, Inc., Plaintiff, Appellee, and Cross-Appellant v. EOG Resources, Inc., Defendant, Appellant, and Cross-Appellee and Kelly Hanson, Denise Hanson, Ritter Family Trust dated March 1, 2006, Lake Energy Development LLC, Sanish Oil LLC, Steven Pederson, Kimco Land Services, Inc., Defendants

No. 20220133

Supreme Court of North Dakota

October 27, 2022

Appeal from the District Court of Mountrail County, North Central Judicial District, the Honorable Douglas L. Mattson, Judge.

Nick A. Swartzendruber, Denver, CO, for plaintiff, appellee and cross-appellant.

Charles M. Carvell (argued) and Larry L. Boschee (on brief) Bismarck, ND, for defendant, appellant and cross-appellee.

OPINION

MCEVERS, JUSTICE

[¶1] EOG Resources, Inc. appeals from a judgment entered after the district court quieted title to a mineral leasehold in favor of Northern Oil & Gas, Inc. The court also awarded Northern damages and attorney fees. EOG challenges the title determination and the award of attorney fees. Northern cross appeals arguing the court erred when it declined to grant additional relief after its title determination. We hold the court erred when it quieted title in Northern. We reverse the judgment and vacate the award of attorney fees.

I

[¶2] The dispute concerns two competing oil and gas leases. For ease of reference, we refer to the leases EOG and Northern claim ownership under as the EOG Lease and the Northern Lease, respectively. The interest in question (the Disputed Interest) is a mineral leasehold located in Mountrail County.

[¶3] In 2006, Ritter, Laber and Associates, Inc. was part of a joint venture that was locating mineral owners and leasing their interests. A Ritter representative contacted Eugene and Carol Hanson. Their meeting resulted in the Hansons mailing documents to one of Ritter's partners in the venture. One document was a fully executed oil and gas lease dated December 20, 2006. This is the EOG Lease. Another document was a "Side Letter Agreement" signed by the Hansons on the same date as the EOG Lease. It contained terms allowing Ritter to "exercise its option" to lease the minerals. If Ritter chose not to exercise the option Ritter was required to "immediately release [the Hansons] from any further obligation." It is undisputed that Eugene and Carol Hanson owned mineral interests in the tracts identified by the EOG lease. The EOG Lease was not immediately recorded.

[¶4] In April 2007, Eugene and Carol Hanson executed a warranty deed to their son and daughter-in-law, Kelly and Denise Hanson, which included the minerals in question and was recorded. The deed reserved a 50% life estate in the minerals. In May 2007, Ritter recorded a "Memorandum of Oil and Gas elected to exercise its option to lease." In August 2007, Ritter's partner sent the couple a letter with a check for roughly $37,000 "as total consideration for your Paid up Oil and Gas Lease dated December 20, 2006." In September 2007, Ritter assigned the EOG Lease, along with a batch of other leases, to EOG. The assignment was recorded. In December 2007, Ritter obtained an oil and gas lease from Kelly and Denise Hanson listing the tracts in question. This is the Northern Lease. It was recorded in January 2008 and assigned to Northern in June 2008.

[¶5] Northern brought this lawsuit in 2016 requesting a declaration it owns the Disputed Interests, an accounting of production, and damages. At the parties' request, the district court agreed to bifurcate the proceedings and decide the title issue before considering the remaining claims. The parties filed cross motions for summary judgment on the title issue. The court quieted title in Northern. The court determined the transaction between Eugene and Carol Hanson and Ritter created an option to lease, Denise and Kelly Hanson had no notice of the option, and they took title to the minerals free of it. The court entered a partial judgment determining "the EOG Lease is not valid and subsisting insofar as it conflicts with the Northern Lease." The court held a bench trial as to the remaining claims and awarded Northern damages and attorney fees.

II

[¶6] EOG challenges the district court's title determination which was made on summary judgment.

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.

Hallin v. Inland Oil & Gas Corp., 2017 ND 254, ¶ 6, 903 N.W.2d 61 (quoting THR Minerals, LLC v. Robinson, 2017 ND 78, ¶ 6, 892 N.W.2d 193).

[¶7] An oil and gas lease constitutes a real property interest in North Dakota. Kittleson v. Grynberg Petroleum Co., 2016 ND 44, ¶ 34, 876 N.W.2d 443; see also Nantt v. Puckett Energy Co., 382 N.W.2d 655, 659 (N.D. 1986). A lease of real property is both a contract and a conveyance of an interest in land. Kittleson, at ¶ 34; see also Diocese of Bismarck Trust v. Ramada, Inc., 553 N.W.2d 760, 766 (N.D. 1996).

A

[¶8] EOG argues the transaction between Eugene and Carol Hanson and Ritter created an immediately effective lease. EOG asserts that under North Dakota law the delivery of a grant-in this case the fully executed EOG Lease-cannot be conditional. EOG contends that "[e]ven if the parties had intended to condition effectiveness of the lease upon exercise of the option, the lease still would have taken effect upon delivery." EOG thus claims the Disputed Leasehold transferred to Ritter when the EOG Lease was mailed- i.e., before Eugene and Carol Hanson divested themselves of the mineral interests. Northern, on the other hand, argues the transaction created an option to lease rather than an immediately effective lease. Northern claims the option was not exercised prior to the minerals transferring to Kelly and Denise Hanson. Northern therefore claims its lease, from Kelly and Denise Hanson, prevails.

[¶9] A transfer in writing is called a grant. N.D.C.C. § 47-09-05. Under N.D.C.C. § 47-09-06, a grant "takes effect so as to vest the interest intended to be transferred only upon its delivery." See also Rice v Neether, 2016 ND 247, ¶ 8, 888 N.W.2d 749 (absent delivery a grant is not effective). Whether a delivery of a grant has occurred depends on the grantor's intent. Id. at ¶ 14; see also Shuck v. Shuck, 44 N.W.2d 767, 772 (N.D. 1950); Arhart v. Thompson, 31 N.W.2d 56, 59 (N.D. 1948). For a delivery to occur, the grantor must intend to pass title. See Keefe v. Fitzgerald, 288 N.W. 213, 214-15 (N.D. 1939) (distinguishing between intent to manually transfer a grant and intent to pass title); see also Arhart, at 574 (no delivery occurred when grantor manually gave deed to grantee because "her actions . . . show clearly she did not intend to transfer title"); Shuck, at 635 (words or conduct that show a grantor intended to "vest the estate in the grantee, and to surrender control over the title, is necessary"). Whether a delivery has occurred is a question of fact that must be "found from all the circumstances surrounding the transaction." Rice, at ¶ 13; see also Jorgensen v. Crow, 466 N.W.2d 120, 122-23 (N.D. 1991); 4 Tiffany Real Prop. § 1034 (3d ed. 2022 Supp.) (the terms of a grant do not show whether there has been a delivery; "[b]y its very nature, evidence of delivery or lack thereof can only come by way of parol evidence").

[¶10] Delivery of a grant with intent that title transfer upon some contingency or condition is prohibited under North Dakota law. "A grant cannot be delivered to the grantee conditionally." N.D.C.C. § 47-09-07. A conditional delivery "is necessarily absolute and the instrument takes effect thereupon, discharged of any condition on which the delivery was made." Id.; see also Sargent v. Cooley, 94 N.W. 576, 579 (N.D. 1902) (holding delivery of a mortgage was absolute and took effect despite conditions); Ueland v. More Bros., 133 N.W. 543, 545 (N.D. 1911) ("The effect of the statute is to abrogate the condition precedent, and make the delivery absolute."); Adams v. Little Missouri Minerals Ass'n. 143 N.W.2d 659, 676 (N.D. 1966) (mineral interests transferred to grantee when deed was issued despite conditions in written agreements); Gajewski v. Bratcher, 221 N.W.2d 614, 626-27 (N.D. 1974) (parol evidence regarding conditional delivery inadmissible under N.D.C.C. § 47-09-07). Section 47-09-07 codifies the common law rule prohibiting the effectiveness of a "duly executed deed" from being conditioned on some requirement "not expressed in the deed itself" absent fraud or mistake. Sargent, at 578. While conditional delivery of a grant to a grantee is prohibited, a grant may be delivered in escrow to a third party subject to conditions. See N.D.C.C. § 47-09-08. The effectiveness of a real property grant itself, as opposed to its delivery, may also be conditional. See N.D.C.C. § 47-10-14.

[¶11] Eugene and Carol Hanson testified in...