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Vogel v. Marathon Oil Co.

Supreme Court of North Dakota

May 31, 2016

Sarah Vogel, individually and for all those similarly situated, Plaintiff and Appellant
v.
Marathon Oil Company, an Ohio Corporation, Defendant and Appellee

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[Copyrighted Material Omitted]

Page 473

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

         Stephen D. Easton (argued), Laramie, Wyo.; Derrick L. Braaten (appeared) and JJ William England (on brief), Bismarck, N.D.; Cody L. Balzer (appeared), Loveland, Colo.; and Matthew J. Kelly (on brief), Bozeman, Mont., for plaintiff and appellant.

         John W. Morrison Jr. (argued), Bismarck, N.D., and Adrian A. Miller, Billings, Mont., for defendant and appellee.

         Hope L. Hogan, Office of the Attorney General, Bismarck, N.D., for amicus curiae State of North Dakota.

         Lisa Fair McEvers, Daniel J. Crothers, Dale V. Sandstrom. VandeWalle, Chief Justice, concurring in the result. Kapsner, Justice, dissenting.

          OPINION

Page 474

         Lisa Fair McEvers, Justice.

          [¶1] Sarah Vogel appeals from a district court judgment dismissing without prejudice her complaint against Marathon Oil Company. Vogel argues her claims should not be dismissed because she has a private right of action for violations of the statute restricting the flaring of gas produced with crude oil from an oil well, N.D.C.C. § 38-08-06.4, and she was not required to exhaust administrative remedies. We affirm.

         I

          [¶2] Marathon operates the Elk USA 11-17H well in Mountrail County. The well began producing hydrocarbons in 2011 and continued producing through at least January 2014. Vogel owns mineral interests and has received royalties from the oil or gas produced and sold from the well.

          [¶3] In October 2013, Vogel, individually and on behalf of those similarly situated, sued Marathon seeking declaratory relief as well as money damages for failure to pay royalties on flared gas. Vogel alleged Marathon flared all or some of the

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gas produced from the well, some of the gas was flared in violation of N.D.C.C. § 38-08-06.4, Marathon owes royalties on the value of the flared gas, and she is entitled to sue for and recover damages under N.D.C.C. § 38-08-06.4. Vogel also sought damages for common law claims of conversion and waste. Vogel also requested class certification, alleging Marathon failed to pay royalties for flared gas on 29 wells and claiming the class includes over 100 similarly situated royalty owners. Vogel later amended her complaint, alleging she also has a private right of action under the Environmental Law Enforcement Act (" ELEA" ), N.D.C.C. ch. 32-40, to enforce payment of royalties attributable to gas flared in violation of N.D.C.C. § 38-08-06.4.

          [¶4] Marathon answered and subsequently moved to dismiss Vogel's complaint under N.D.R.Civ.P. 12(b)(1) and (6) for lack of subject-matter jurisdiction and failure to state a claim upon which relief can be granted. Marathon argued the complaint should be dismissed for failure to state a valid claim because N.D.C.C. § 38-08-06.4 does not expressly provide for a private right of action for damages based on a violation of the statute, there is no implied private right of action for damages under N.D.C.C. § 38-08-06.4, the ELEA does not create a private right of action for a violation of N.D.C.C. § 38-08-06.4, and N.D.C.C. ch. 38-08 provides the exclusive remedy for alleged improper flaring preempting any common law claims for conversion and waste. Marathon also argued the district court lacked subject matter jurisdiction and Vogel's claims should be dismissed because the North Dakota Industrial Commission has exclusive jurisdiction over the matter and Vogel failed to exhaust her administrative remedies. Vogel opposed Marathon's motion.

          [¶5] After a hearing, the district court granted Marathon's motion to dismiss. The court stated N.D.C.C. ch. 38-08 provides the Industrial Commission with very broad authority to regulate and administer oil and gas related activities in this state, N.D.C.C. ch. 38-08 exclusively provides the remedies Vogel seeks, and Vogel did not exhaust her administrative remedies. The court concluded N.D.C.C. § 38-08-06.4 does not provide an express or implied private right of action, the ELEA does not provide a private right of action but may provide a cumulative remedy if the Industrial Commission fails or refuses to act and the administrative remedies are exhausted, and N.D.C.C. § 38-08-06.4 is the controlling law and provides all of the remedies for flaring. The court concluded it did not have subject-matter jurisdiction because Vogel did not exhaust her administrative remedies, and she did not state a claim for which relief can be granted. A judgment dismissing Vogel's complaint without prejudice was entered.

         II

          [¶6] Vogel argues the judgment dismissing her complaint without prejudice is appealable. Marathon does not dispute that the judgment is appealable. A dismissal without prejudice generally is not appealable, but it may be final and appealable if it has the practical effect of terminating the litigation in the plaintiff's chosen forum. Rolette Cty. Soc. Servs. Bd. v. B.E., 2005 ND 101, ¶ 4, 697 N.W.2d 333. The judgment requires Vogel to pursue her administrative remedies and terminates her attempt to seek damages through the courts individually and as a class action. The judgment has the practical effect of terminating the litigation in Vogel's chosen forum. We conclude the judgment in this case is appealable.

Page 476

          III

          [¶7] A claim may be dismissed for lack of subject-matter jurisdiction under N.D.R.Civ.P. 12(b)(1). Generally, dismissal for lack of subject matter jurisdiction is appropriate if the plaintiff failed to exhaust administrative remedies. Thompson v. Peterson, 546 N.W.2d 856, 861 (N.D. 1996). A dismissal for lack of subject-matter jurisdiction will be reviewed de novo on appeal if the jurisdictional facts are not disputed. Id. at 860.

          [¶8] A motion to dismiss for failure to state a claim under N.D.R.Civ.P. 12(b)(6) tests the legal sufficiency of the claim presented in the complaint. In re Estate of Nelson, 2015 ND 122, ¶ 5, 863 N.W.2d 521. We review a dismissal under N.D.R.Civ.P. 12(b)(6) de novo on appeal. Nelson, at ¶ 5. We construe the complaint in the light most favorable to the plaintiff and accept the well-pleaded allegations as true. Id.

         IV

          [¶9] Vogel argues her claims under N.D.C.C. § 38-08-06.4 should not be dismissed because there is an implied private right of action for damages under the statute. She contends producers are liable to mineral owners for royalties on the value of gas flared in violation of N.D.C.C. § 38-08-06.4 and the statute provides mineral owners with a right to recover damages when royalties are not paid.

          [¶10] Section 38-08-06.4, N.D.C.C., provides restrictions on the flaring of gas from an oil well, stating:

1. As permitted under rules of the industrial commission, gas produced with crude oil from an oil well may be flared during a one-year period from the date of first production from the well.
2. After the time period in subsection 1, flaring of gas from the well must cease . . . .
. . . .
4. For a well operated in violation of this section, the producer shall pay royalties to royalty owners upon the value of the flared gas and shall also pay gross production tax on the flared gas at the rate imposed under section 57-51-02.2.
5. The industrial commission may enforce this section and, for each well operator found to be in violation of the section, may determine the value of flared gas for purposes of payment of royalties under this section and its determination is final.
6. A producer may obtain an exemption from this section from the industrial commission upon application . . . .

          [¶11] Although N.D.C.C. § 38-08-06.4(4) states a producer shall pay royalties to royalty owners upon the value of the gas flared in violation of the statute, N.D.C.C. ch. 38-08 does not expressly provide a private right of action for damages for a violation of N.D.C.C. § 38-08-06.4. Vogel argues the statute implies a private right of action, allowing a royalty owner to bring suit in district court seeking damages for unpaid royalties.

          [¶12] Three factors are applied to determine whether a private right of action should be implied under a statute:

(1) [W]hether the plaintiff is one of the class for whose special benefit the statute was enacted; (2)whether there is an indication of legislative intent, explicit or implicit, either to create such remedy or to deny one; and (3) whether it is consistent with the underlying purposes of

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the legislative scheme to imply such a remedy for the plaintiff.

Empower the Taxpayer v. Fong, 2012 ND 119, ¶ 4, 817 N.W.2d 381 (quoting Ernst v. Burdick, 2004 ND 181, ¶ 11, 687 N.W.2d 473). Whether a statute creates a private right of action is a question of legislative intent. Trade 'N Post, L.L.C. v. World Duty Free Americas, Inc., 2001 ND 116, ¶ 13, 628 N.W.2d 707. " The 'ultimate issue' is whether the legislature intended to create a particular cause of action, and 'unless this [legislative] intent can be inferred from the language of the statute, the statutory structure, or some other source, the essential predicate for implication of a private remedy simply does not exist.'" Id. at ¶ 13 (quoting Thompson v. Thompson, 484 U.S. 174, 179, 108 S.Ct. 513, 98 L.Ed.2d 512 (1988)). " The legislature's silence in failing to expressly provide a private right of action is a strong indication it did not intend such a remedy." Trade 'N Post, at ¶ 14. The party arguing an implied right of action exists bears the burden of proof to establish the legislature intended to create the remedy. Id. at ¶ 14. Vogel has the burden of proving the legislature intended to create a private right of action for damages under N.D.C.C. § 38-08-06.4, through the language and focus of the statute, the legislative history, or the statutory purpose. See Trade 'N Post, at ¶ 14.

          [¶13] Vogel contends she is a member of the class for whose special benefit N.D.C.C. § 38-08-06.4 was enacted and she meets the first factor of the three-part test. Marathon conceded in its brief that Vogel may be a member of the class. Vogel owns mineral interests from which oil and gas were produced, and therefore she appears to be a member of the class for whose benefit the statute was enacted. However, that is only one factor, and Vogel must establish the legislature intended to create a private right of action. See Trade 'N Post, 2001 ND 116, ¶ 15, 628 N.W.2d 707.

          [¶14] There is nothing in the plain language of N.D.C.C. ch. 38-08 indicating the legislature intended to provide a private right of action for damages for violations of N.D.C.C. § 38-08-06.4. Rather, N.D.C.C. ch. 38-08 contains a comprehensive regulatory scheme providing an administrative remedy for a violation of N.D.C.C. § 38-08-06.4.

          [¶15] Under the plain language of N.D.C.C. § 38-08-06.4(1), (2), and (6), an operator is permitted to flare gas produced with crude oil from a well for one year from the date of first production from the well, and after that time flaring must cease, unless the operator receives an exemption from the Industrial Commission. If a well is operated in violation of N.D.C.C. § 38-08-06.4, the producer is required to pay royalties to royalty owners upon the value of the flared gas and pay taxes on the flared gas. N.D.C.C. § 38-08-06.4(4). The statute also provides, " The industrial commission may enforce this section and, for each well operator found to be in violation of this section, may determine the value of flared gas for purposes of payment of royalties under this section and its determination is final." N.D.C.C. § 38-08-06.4(5). The Industrial Commission " has continuing jurisdiction and authority over all persons and property, public and private, necessary to enforce effectively the provisions of [N.D.C.C. ch. 38-08]." N.D.C.C. § 38-08-04. Chapter 38-08, N.D.C.C., authorizes an interested person to petition the commission to act, the commission is required to set a hearing and give notice if there is a petition, and it is required to enter an order within thirty days after the hearing. N.D.C.C. § 38-08-11(4). Any party adversely affected by an order of the Industrial Commission may

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request reconsideration or may appeal the order to the district court. N.D.C.C. § § 38-08-13 and 38-08-14.

          [¶16] A royalty owner may petition the Industrial Commission for a determination of royalties on gas flared in violation of N.D.C.C. § 38-08-06.4. N.D.C.C. § 38-08-11(4). If a royalty owner files a petition, the Industrial Commission is required to set a date for a hearing and give notice and must enter an order within thirty days after a hearing. Id. If the royalty owner is adversely affected by the Industrial Commission's order, they may apply for reconsideration or appeal to the district court. N.D.C.C. § § 38-08-13 and 38-08-14. Chapter 38-08, N.D.C.C., includes a comprehensive regulatory scheme and gives royalty owners an administrative remedy for violations of N.D.C.C. § 38-08-06.4.

          [¶17] A statute expressly including a comprehensive regulatory scheme is a strong indication the legislature did not intend to provide other remedies. Trade 'N Post, 2001 ND 116, ¶ 17, 628 N.W.2d 707. In other cases where a statute ...


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