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Van Sickle v. Hallmark & Associates, Inc.

Supreme Court of North Dakota

November 25, 2013

Earl R. VAN SICKLE and Harold R. Van Sickle, Plaintiffs, Appellants and Cross-Appellees
v.
HALLMARK & ASSOCIATES, INC., Frank Celeste, William R. Austin, Phoenix Energy, Bobby Lankford and Earskine Williams, collectively known as

Rehearing Denied Jan. 23, 2014.

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Robert S. Rau, Minot, N.D., for plaintiffs, appellants and cross-appellees.

Jon R. Brakke (argued) and Caren W. Stanley (on brief), Fargo, N.D., for defendants, appellees and cross-appellants.

SANDSTROM, Justice.

[¶ 1] Earl and Harold Van Sickle (" Van Sickles" ) appeal and Hallmark & Associates,

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Inc., Frank Celeste, William R. Austin, Phoenix Energy, Bobby Lankford, and Earskine Williams (" Interest Holders" ), and Missouri Breaks, LLC, cross-appeal from an amended judgment holding Missouri Breaks liable to the Van Sickles for unpaid pre-bankruptcy confirmation royalties and awarding the Van Sickles interest and attorney's fees. We conclude the court did not err in holding Missouri Breaks liable under state law for pre-bankruptcy confirmation royalties owed to the Van Sickles. We further conclude the district court did not abuse its discretion in awarding the Van Sickles attorney's fees under N.D.C.C. § 47-16-39.1 and did not err in awarding them simple interest under the statute. We affirm.

I

[¶ 2] This case was previously before this Court in Van Sickle v. Hallmark & Assocs., Inc., 2008 ND 12, 744 N.W.2d 532 (" Van Sickle I " ).

[¶ 3] The Van Sickles each own a .0013125 percent royalty interest in oil and gas produced from a well designated as Missouri Breaks Unit No. 1, located in McKenzie County. The well is operated under the terms of four leases, and Comanche Oil Company was the original lessee. In 1997, Comanche Oil's interest was assigned to Athens/Alpha Gas Corporation (" Alpha" ). Alpha later conveyed approximately 50 percent of the working interest— generally to share costs and profits— in the well to the Interest Holders and continued to operate the well. In 2002, Alpha filed for reorganization under Chapter 11 of the bankruptcy code. See 11 U.S.C. §§ 1101-1174. In February 2005, the Interest Holders submitted a competing amended plan of reorganization.

[¶ 4] In May 2005, the United States Bankruptcy Court for the District of North Dakota confirmed— approved— the Interest Holders' amended plan of reorganization, which provided for the formation of Missouri Breaks and the transfer of Alpha's working interest in the well to Missouri Breaks. Under the reorganization plan, Missouri Breaks was required to pay Alpha's creditors using the revenue from its portion of the working interest under the terms of the plan. Under the plan's terms, to be eligible to receive payments from Missouri Breaks, Alpha's creditors had to file a claim in the bankruptcy proceeding, or the confirmed plan or a final order of the bankruptcy court had to specifically allow their claims. The Van Sickles did not file a claim with the bankruptcy court, and neither the plan nor the bankruptcy court's final order included their claim. See Van Sickle I, 2008 ND 12, ¶ 14, 744 N.W.2d 532. It is undisputed in this appeal, however, that the Van Sickles were not listed as creditors in Alpha's bankruptcy case, that the Van Sickles had no notice of Alpha's bankruptcy proceedings, and that Missouri Breaks has made post-confirmation royalty payments to the Van Sickles.

[¶ 5] In 2006, the Van Sickles sued the Interest Holders and Missouri Breaks for conversion, intentional tortious interference, and breach of contract for unpaid royalties. They also asserted claims against the defendants for royalties on oil and gas produced before the reorganization plan was confirmed. Prior to the first appeal, the district court had granted summary judgment dismissing Van Sickles' claims.

[¶ 6] In Van Sickle I, 2008 ND 12, ¶¶ 1, 29, 744 N.W.2d 532, this Court affirmed the district court's summary judgment dismissal of the Van Sickles' claims for conversion, tortious interference, and post-bankruptcy royalties, but we reversed and remanded for further proceedings on the Van Sickles' claim for pre-bankruptcy-

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court-confirmation royalties. We concluded summary judgment was inappropriate because a question of fact existed regarding " whether the Van Sickles had notice of the bankruptcy proceedings, and if they did not receive notice, they must be allowed to adjudicate their contract claim against a party obligated to pay the pre-confirmation royalties." Id. at ¶ 17. We further concluded that, because " state and federal courts have concurrent jurisdiction to decide the issue [whether a creditor's claim has been discharged by deciding whether the creditor had notice or actual knowledge of the bankruptcy proceeding]," the district court had jurisdiction " to decide whether the Van Sickles' pre-confirmation claims were discharged in Athens/Alpha's bankruptcy proceedings." Id. at ¶ 18.

[¶ 7] On remand, the Van Sickles sought to hold both Missouri Breaks and the Interest Holders liable for pre-confirmation royalties. In 2010, the defendants moved for summary judgment on the issue of their liability to the Van Sickles for pre-confirmation royalties. They argued the Interest Holders were not obligated to pay royalties because they were " operators" of the well under N.D.C.C. § 47-16-39.1. They further argued Missouri Breaks assumed Alpha's assets free and clear of any claims under the reorganization plan and 11 U.S.C. § 1141 and none of the state-law exceptions to successor liability applied. The Van Sickles also moved for summary judgment, contending both the Interest Holders and Missouri Breaks are liable for payment of the pre-bankruptcy-court-confirmation royalties under N.D.C.C. § 47-16-39.1 and state law regarding corporate successor liability. See Downtowner, Inc. v. Acrometal Prods., Inc., 347 N.W.2d 118, 121 (N.D.1984).

[¶ 8] In April 2011, the district court ruled: the Van Sickles' claims for pre-bankruptcy-court-confirmation royalties were not discharged in Alpha's bankruptcy case because they did not receive notice of the bankruptcy; the Interest Holders were not individually liable for pre-confirmation royalty payments because the Interest Holders were not " operators" of the well under N.D.C.C. § 47-16-39.1 and because the Van Sickles made no attempt to pierce Missouri Breaks' corporate veil; and genuine issues of material fact existed regarding Missouri Breaks' liability for pre-confirmation royalties to the Van Sickles under the doctrine of successor liability. The court also rejected the Van Sickles' renewed claim for cancellation of the underlying leases under N.D.C.C. § 47-16-39.1.

[¶ 9] A trial was scheduled for November 2011 on the remaining issue of whether Missouri Breaks was liable to the Van Sickles under successor liability. The trial, however, was continued and in February 2012, the court granted the Van Sickles summary judgment, holding Missouri Breaks was the successor in interest to Alpha as a matter of law and was liable to the Van Sickles for the unpaid pre-confirmation royalties. The court ordered the parties to submit damage calculations.

[¶ 10] After further submissions, the district court entered a final amended judgment, requiring Missouri Breaks to pay each of the Van Sickles $10,086.67, consisting of approximately $3,698 in unpaid royalties and $6,388 in interest. The court also awarded the Van Sickles attorney's fees in the amount of $3,000, or $1,500 each, for a total monetary judgment of about $23,173.

[¶ 11] The district court had jurisdiction under N.D. Const. art. VI, § 8, and N.D.C.C. § 27-05-06, and the appeal and cross-appeal were timely under N.D.R.App.P. 4. We have jurisdiction under

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N.D. Const. art. VI, § 6, and N.D.C.C. § 28-27-01.

II

[¶ 12] 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.

Golden v. SM Energy Co., 2013 ND 17, ¶ 7, 826 N.W.2d 610 (quoting Hamilton v. Woll, 2012 ND 238, ¶ 9, 823 N.W.2d 754).

III

[¶ 13] When the Van Sickles brought this action, N.D.C.C. § 47-16-39.1 provided in part:

The obligation arising under an oil and gas lease to pay oil or gas royalties to the mineral owner or the mineral owner's assignee, or to deliver oil or gas to a purchaser to the credit of the mineral owner or the mineral owner's assignee, or to pay the market value thereof is of the essence in the lease contract, and breach of the obligation may constitute grounds for the cancellation of the lease in cases where it is determined by the court that the equities of the case require cancellation. If the operator under an oil and gas lease fails to pay oil or gas royalties to the mineral owner or the mineral owner's assignee within one hundred fifty days after oil or gas produced under the lease is marketed and cancellation of the lease is not sought, the unpaid royalties shall thereafter bear interest calculated at the rate of eighteen percent per annum until paid, .... The district court for the county in which the oil or gas well is located has jurisdiction over all proceedings brought pursuant to this section. The prevailing party in any proceeding brought pursuant to this section is entitled to recover any court costs and reasonable attorney's fees. ...

N.D.C.C. § 47-16-39.1 (2005) (emphasis added); see also 1995 N.D. Sess. Laws ch. 439, § 1.

[¶ 14] Although the Van Sickles filed their appeal first, it is more appropriate to resolve Missouri Breaks' issue on cross-appeal first. That is, we decide whether Missouri Breaks is liable to the Van Sickles before we decide whether they are entitled to attorney fees and compound interest because of that liability.

[¶ 15] In their cross-appeal, the defendants argue the district court erred as a matter of law in holding Missouri Breaks liable for Alpha's debts ...


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