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Carmen and Carol Wold, Cordell Wold v. Diamond Resources

October 4, 2011

CARMEN AND CAROL WOLD, CORDELL WOLD, EDITH WOLD, KRIS WOLD, KEVIN WOLD, ) AND LYLE AND MELBA LARSON AS TRUSTEES OF THE LARSON FAMILY NOMINEE TRUST,
PLAINTIFFS,
v.
DIAMOND RESOURCES, INC., ZAVANNA, LLC, AND ZENERGY, INC. DEFENDANTS. JAMES AND JODY RENBARGER, ELISE RENBARGER, AND CAROLYN BENJAMIN, PLAINTIFFS,
v.
DIAMOND RESOURCES, INC., ZAVANNA, LLC, ) AND ZENERGY, INC. DEFENDANTS.



The opinion of the court was delivered by: Charles S. Miller, Jr. United States Magistrate Judge

ORDER FOR REMAND

The above cases are before the court on motions for remand filed by plaintiffs. While the cases have not been joined, the issues presented by the motions are identical. In addition, plaintiffs in both cases are represented by the same attorney and the defendants are the same. Consequently, the motions will be considered together.

I. BACKGROUND

In both cases, plaintiffs are the owners of mineral rights located in Mckenzie County, North Dakota, who entered into oil and gas leases with defendant Diamond Resources, Inc. ("Diamond"). Diamond later assigned its lease interests to defendant Zavanna, LLC ("Zavanna"). Also, in each case, defendant Zenergy, Inc. ("Zenergy") has drilled an oil well within a spacing unit that encompasses part or all of the acreage covered by the leases that are the subject of the case.*fn1

The complaints in both cases were filed by the plaintiffs in state court. The complaints seek orders declaring that the referenced leases have lapsed and that title be quieted in plaintiffs' names free and clear of any claims of the defendants. In both cases, plaintiffs allege that the leases lapsed prior to any development that would extend or hold the leases, including the drilling of the wells by Zenergy. In addition, one or more plaintiffs in each of the cases allege that they have not been timely paid lease royalties. These plaintiffs seek cancellation of the leases for this reason as well or, in the alternative, statutory penalties.

Defendants removed the cases to this court alleging diversity as the basis for the court's jurisdiction. In the notices of removal, defendants acknowledge that Diamond is a nondiverse party. However, they allege that Diamond has no interest in this case, given the assignment of its lease interests to Zavanna, and that it has been named as a defendant solely for the purpose of defeating the court's jurisdiction. The issue presented by the motions for remand in each of the cases is whether the inclusion of Diamond as a defendant amounts to "fraudulent joinder."

II. DISCUSSION

A. Governing law

A defendant may remove to federal court any civil action filed in state court in which the amount in controversy exceeds $75,000 and the citizenship of each plaintiff is diverse from the citizenship of each defendant. Caterpillar Inc. v. Lewis, 519 U.S. 61, 68 (1996); 28 U.S.C. §§ 1332 and 1441(a). This right "cannot be defeated by the fraudulent joinder of a resident defendant." Simpson v. Thomure, 484 F.3d 1081, 1083 (8th Cir. 2007) (quoting Wilson v. Republic Iron & Steel Co., 257 U.S. 92, 97 (1921)).

While actual fraud will invoke the doctrine of "fraudulent joinder," the term is somewhat of a misnomer in that proof of fraud is not required to invoke the doctrine. Joinder will also be considered "fraudulent" when there is no reasonable basis in fact or law for the claims being made against the non-diverse defendant, regardless of the plaintiff's intent in naming the non-diverse defendant. See, e.g., Schur v. L.A. Weight Loss Centers, Inc., 577 F.3d 752, 763 n.9 (7th Cir. 2009); Wilkinson v. Shackelford, 478 F.3d 957, 964 (8th Cir. 2007); Filla v. Norfolk S. Ry. Co., 336 F.3d 806, 810 (8th Cir. 2003); Iowa Pub. Serv. Co. v. Medicine Bow Coal Co., 556 F.2d 400, 406 (8th Cir.1977).

In removing an action, the defendant bears the burden of establishing the court's jurisdiction, including any claim of fraudulent joinder that is alleged to overcome the facial lack of diversity. Filla v. Norfolk S. Ry. Co., 336 F.3d at 810. All doubts about the court's jurisdiction and the claim of fraudulent joinder must be resolved in favor of remand. See id.; Wilkinson v. Shackelford, 478 F.3d at 964.

B. Discussion

Plaintiffs have not disputed defendants' contention that Diamond has completely and irrevocably assigned its lease interest to Zavanna and has retained nothing.*fn2 Rather, their argument is that the assignments did not discharge Diamond of its contractual obligations under the leases because of the lack of their consent to a discharge, i.e., the lack of "novation."

North Dakota follows the "well-established principle in the law of contracts that a contracting party cannot escape its liability on the contract by merely assigning its duties and rights under the contract to a third party." Rosenberg v. Son. Inc., 491 N.W.2d 71, 74 (ND 1992); see also Estate of Murphy v. Murphy, 554 N.W.2d at 437 ("Even where there is an effective assignment of a contractual obligation, the assignor's 'duty remains absolutely unchanged.'") (quoting 4 Corbin on Contracts § 866). Under North Dakota law, this principle applies to all categories of contracts, including the oil and gas leases at issue here. Cf. Holman v. State, 438 N.W.2d 534, 537 (ND 1989) ("[D]ocuments conveying oil and gas interests are subject to the same general rules that govern interpretation of contractual agreements."); see generally 5-64 E. Kuntz, A Treatise on the Law of Oil and Gas § 64.7 (Matthew Bender rev. ed. 2011) ["Kuntz"]; 2-4 P. Martin & B. Kramer, Williams & Meyers, Oil and Gas Law § 403.1 (Matthew Bender 2010) ("Williams ...


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