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Border Resources, LLC v. Irish Oil & Gas, Inc.

Supreme Court of North Dakota

September 21, 2015

Border Resources, LLC, Plaintiff and Appellee
v.
Irish Oil & Gas, Inc., and Twin City Technical, LLC, Defendants and Appellants

Page 759

Appeal from the District Court of Stark County, Southwest Judicial District, the Honorable Dann E. Greenwood, Judge.

W. Todd Haggart (argued) and Neil J. Roesler (on brief), Fargo, N.D., for plaintiff and appellee.

Jon T. Dyre (argued), Billings, Mont., Paul J. Forster (appeared) and John W. Morrison Jr. (on brief), Bismarck, N.D. for defendants and appellants.

Lisa Fair McEvers, Daniel J. Crothers, Dale V. Sandstrom, David E. Reich, D.J., Gerald W. VandeWalle, C.J. Honorable David E. Reich, D.J., sitting in place of Kapsner, J., disqualified. Opinion of the Court by McEvers, Justice. Crothers, Justice, specially concurring.

OPINION

Page 760

Lisa Fair McEvers, Justice.

[¶1] Irish Oil & Gas, Inc., and Twin City Technical, LLC, (collectively " Irish Oil" ) appeal from a judgment entered after a bench trial, awarding Border Resources, LLC (" Border" ), damages and prejudgment interest and dismissing Irish Oil's counterclaim for breach of fiduciary duty. We conclude the district court did not clearly err in finding Border did not breach its fiduciary duty while providing professional landman services to Irish Oil and in finding leases Border acquired for Irish Oil were sold for $1,100 per net mineral acre. We further conclude the court did not abuse its discretion in denying Irish Oil's motion to amend its counterclaim to add individual landmen as counterclaim defendants. We affirm.

I

[¶2] Irish Oil is an oil and gas exploration, production, and brokerage company. Border provides landman services to clients, including acquiring leases, performing due diligence, and providing title curative work. This case involves Border's claim against Irish Oil for breach of contract for landman services Border provided to Irish Oil and Irish Oil's counterclaim against Border for breach of fiduciary duty in performing those services.

[¶3] On January 24, 2011, Irish Oil and Border contracted for Border to acquire oil and gas leases for Irish Oil in a designated prospect area (" IRS-TP prospect" ).

Page 761

Tim Furlong, an officer of Irish Oil, and Jeff Skaare, an officer of Border, established the contract's basic terms in a series of emails sent between January 24 and 25, 2011, and a prospect map Furlong emailed to Skaare on January 25, 2011. Under the contract, Irish Oil agreed to pay Border 25 percent of the profit from the sale of oil and gas leases that Border acquired for Irish Oil in the prospect area, plus 25 percent of any retained overriding royalty interests. Border agreed to perform due diligence and title curative work on the leases Border acquired for Irish Oil, and Irish Oil agreed to pay 100 percent of the bonuses to mineral lessors to acquire the leases. Twin City was a 50 percent investor with Irish Oil in the IRS-TP prospect and was responsible for paying one-half of the bonus payments and one-half of the money owed to Border under the contract.

[¶4] Irish Oil authorized Border to purchase leases in Irish Oil's name within the " purchase" area delineated on the prospect map Furlong provided to Skaare. Within the " purchase" area, Border was authorized to pay up to $500 per net mineral acre for a five-year lease term and to pay a one-sixth royalty. Border was given additional authority to enter into shorter lease terms under other conditions expressed in emails confirming the contract. The contract initially authorized acquisition of 3,500 to 4,000 net mineral acres, and Irish Oil later increased the acreage to 4,500 net mineral acres.

[¶5] Border's authority to acquire oil and gas leases for Irish Oil in the IRS-TP prospect was non-exclusive in favor of Irish Oil, in that Irish Oil had the right to acquire oil and gas leases in the same prospect through others without sharing the profits with Border. The parties' contract required Border to perform distinct functions:

A. Acquire oil and gas leases in Irish's name within the " purchase" area delineated on Furlong's map within the parameters established by Furlong;
b. Submit for Irish's review oil and gas acreage within the " review" area outside the " purchase" area on the Furlong map . . .; and
c. Complete " due diligence," including title curative work, on leases acquired by Border for Irish in the IRS-TP prospect.

Border carried out the work required under the contract through its employees and its contract landmen and continued acquiring leases for Irish Oil into March 2011.

[¶6] On March 22, 2011, Furlong sent an email to Skaare stating:

Appreciate the update yesterday. Please cut off all negotiations as of Thursday March 24th. I would like to have all the hard schedule of exactly what we have in hand on Friday afternoon March 25th. I think we can close on this by April 15th.
Also please keep in mind that anything North of 139 and east of 100 and west of 96 we can pay more money for and a quick sale.

(Emphasis added.) Border did not acquire any additional leases for Irish Oil after March 24, but continued to perform its contract obligations to provide due diligence and title curative work on the leases Border had acquired for Irish Oil.

[¶7] On March 21, 2011, Toby Zastoupil, a landman for Border, was asked by an individual to acquire mineral leases in Slope County, which were between four and six miles outside of the IRS-TP prospect. On March 29, 2011, Zastoupil spoke with Harvey Wolski about the Slope County leases. On April 15, 2011, Zastoupil and Wolski again spoke regarding the potential

Page 762

Slope County leases, and Zastoupil also learned about the availability of oil and gas lease acreage that the Wolski family owned in Billings County (" Wolski leases" ). These Wolski leases were outside the " purchase" area but within the " review" area delineated on the IRS-TP prospect map. Border subsequently acquired the Wolski leases for itself and Interwest Petroleum between April 26 and May 11, 2011.

[¶8] In an April 6, 2011, email exchange between Skaare and Furlong, Skaare stated Border was not purchasing any additional leases for Irish Oil, and Furlong advised Skaare that Irish Oil had committed the IRS-TP acreage to a purchase and sale agreement. In an April 11, 2011, email, Furlong asked Skaare for an estimate on when Border could complete the due diligence and documentation so Irish Oil could close on the sale on its IRS-TP prospect. Although Irish Oil did not close on the sale of the IRS-TP leases on April 15, 2011, Irish Oil subsequently agreed to sell the IRS-TP leases as a part of a larger sale of oil and gas leases to Chesapeake Exploration, LLC.

[¶9] On June 24, 2011, Irish Oil reached an agreement to sell to Chesapeake a group of oil and gas leases, containing the IRS-TP leases at issue and separate acreage leased from the Evangelical Lutheran Church in America (" ELCA" ) for $1,100 per net mineral acre. Irish Oil sold to Chesapeake at this price a total of 4131.9 net mineral acres that had been acquired under the contract with Border for a total of $4,545,090. Irish Oil received final payment from Chesapeake in August 2011. About two weeks later, Furlong informed Skaare of the sale of the IRS-TP lease acreage and reported the sale price was $825 per net mineral acre.

[¶10] On August 16, 2011, Irish Oil paid Border a total of $339,600 based on a sale price of $825 per net mineral acre. Irish Oil still owed Border approximately $45,500 under the reported price. After Border's receipt of the partial payment, Skaare periodically requested Furlong to pay Border the remaining balance. In an October 2011, email, Furlong raised an issue with Border about the Wolski leases:

We do have an issue that we will have to address which is the lease that you bought in 137-100. The mineral owners actually called me and said Toby [Zastoupil] was dealing with them and I backed off thinking it was for Irish since [it] was in our prospect.

[¶11] In December 2011, Border continued to seek a final accounting and payment from Irish Oil. Border contacted Chesapeake and learned that the IRS-TP leases had been combined with the ELCA leases and the " blended" price of the lease package was $1,100 per net mineral acre. Border demanded to be paid the percentage of profits on the IRS-TP leases based on the $1,100 contract price and the acquisition costs of the IRS-TP leases. Irish Oil refused.

[¶12] Border sued Irish Oil for breach of contract, alleging Irish Oil had failed to pay the contractual price for the leases and sought approximately $330,000 in additional compensation. Irish Oil denied liability and counterclaimed for breach of fiduciary duty for Border's actions regarding the Wolski leases.

[¶13] After a February 2014 bench trial, the district court ruled in favor of Border on its contract claim and dismissed Irish Oil's counterclaim. The court found that Irish Oil agreed to pay Border 25 percent of the profit from the sale of the IRS-TP leases acquired by Border and that Irish Oil sold those leases to Chesapeake for $1,100 per net mineral ...


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