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Continental Resources, Inc. v. Reems

United States District Court, D. North Dakota

September 26, 2016

Continental Resources, Inc., Plaintiff,
v.
Ricky L. Reems, Linda Reems, and McKenzie Electric Cooperative, Inc. Defendants.

          ORDER GRANTING CONTINENTAL'S MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING THE MOTIONS TO DISMISS AND FOR PARTIAL SUMMARY JUDGMENT BY THE REEMS

          Charles S. Miller, Jr., Magistrate Judge.

         This case is back before the court on two motions. The first is a renewed motion to dismiss for lack of subject matter jurisdiction or, in the alternative, for partial summary judgment brought by defendants Ricky and Linda Reems (collectively the “Reems”). The second is a partial motion for summary judgment brought by plaintiff Continental Resources, Inc. (“Continental”) which asks that the court declare that it, as well as its subcontractors and agents, may enter upon the property that is owned by the Reems and at issue in this case “for the purpose of constructing oil pipelines, produced water lines, electric utility lines, and other infrastructure that is reasonably necessary to explore for and produce oil and gas . . . . ”

         Earlier this court had denied motions to dismiss for lack of subject matter jurisdiction brought by the Reems and McKenzie Electric Cooperative, Inc. (“McKenzie Electric”) as well as a separate motion by McKenzie Electric for dismissal of Continental's complaint for failure to state a claim as to it. Continental Resources, Inc. v. Reems, No. 1:15-cv-076, 2016 WL 75055, 2016 U.S. Dist. LEXIS 2249 (D.N.D. January 6, 2016) (“Reems”).

         The present motions do not address Continental's claim against McKenzie Electric, nor has McKenzie Electric weighed in on the present motions.

         I. BACKGROUND

         The Reems are the owners of the surface estate of real property, located in Dunn County, North Dakota, and described as follows:

Township 146 North, Range 96 West: Section 24: N/2NE/4 (the “subject lands”).

         On or about August 9, 2004, defendant Ricky L. Reems, as Trustee of the Thelma M. Reems Family Mineral Trust (“Trust”), executed an Oil and Gas Lease (the “Trust Lease”), granting Diamond Resources, Inc. the exclusive right to explore for and produce oil and gas from the subject lands and other property.[1] On April 14, 2005, but effective as of the date the Trust Lease was executed, Diamond Resources, Inc. assigned the Trust Lease to Continental.

         The subject tract is included within a four-section spacing unit comprised of Sections 12, 13, 24, and 25, Township 146 North, Range 96 West, Dunn County, North Dakota. All of the interests in this unit have been force-pooled by order of the North Dakota Industrial Commission. Continental is the operator of this unit.

         Continental has drilled and completed seven oil and gas wells (the Oakdale and Ryden wells) on a multi-well pad (the Oakdale-Ryden well pad) located on the subject tract. Part of what is in dispute in this case is the right of Continental to install an underground electrical service line that would run from a McKenzie Electric distribution line (which parallels the northern boundary of the subject tract) into the Oakdale-Ryden well pad, a distance of a mere 125 feet or less, as well as the right to install two underground pipelines, one to convey produced oil and the other to haul away contaminated water generated from oil recovery operations (“production water”).

         When the court considered the earlier motions to dismiss, the two pipelines had already been installed but the electrical service line had not. It appears that this remains the state of affairs - at least as of the time of the filing of present motions.

         II. DISCUSSION

         A. The renewed motion to dismiss for lack of subject matter jurisdiction

         The Reems appear to make two arguments for why the amount in controversy does not exceed the $75, 000 jurisdictional threshold. The first is that the court legally got it wrong the first time it ruled on the issue. In so contending, the Reems rehash their earlier argument that the amount in controversy is what a jury would determine to be the value of the easements that they claim Continental needs to obtain from the them (ignoring that Continental seeks a declaratory ruling that it does not need to acquire express easements for the uses at issue) and that the amount a jury could reasonably award would not come anywhere close to the threshold amount. In support, the Reems point to the negotiations between the parties prior to the commencement of this action, including the fact that even the highest amount demanded by the Reems was substantially less than the threshold.

         The court rejects this argument for the same reasons it did earlier. At the time of the commencement of this action, the Reems had taken the position that Continental did not have the right to be on the subject tract for purposes of installing the two pipelines or for installing an electrical service line absent Continental securing from them one or more express easements and had threatened Continental with an action for trespass. In view of this, the court concluded that Continental's action was not patently specious and, because this was an action for declaratory judgment, the court was required under governing Eighth Circuit case law to consider the value of the rights that Continental was seeking to have declared from its perspective for purposes of determining whether the jurisdictional threshold amount had been reached. Reems, 2016 WL 75055, at *2; see, e.g., Usery v. Anadarko Petroleum Corp., 606 F.3d 1017, 1018 (8th Cir. 2010) ("We have held repeatedly that in a suit for declaratory or injunctive relief the amount in controversy is the value to the plaintiff of the right that is in issue."). And, based on the evidence that Continental proffered and was deemed to be credible, the court concluded that Continental had demonstrated an amount in controversy from its perspective that exceeded the threshold amount. Reems, 2016 WL 75055, at *3.

         The second reason that the Reems appear to be advancing (although perhaps not stated exactly in this fashion) is that the court misunderstood the Reems' intentions and that those have now been made clear by an additional affidavit in which they claim they never intended to interfere with the installation of the electrical line, either physically or by attempting to obtain an injunction, pointing to the fact that they stood by while the two pipelines were installed. There are two problems with this argument. The first is that this was not at all clear when Continental filed its action. Rather, as the court determined earlier, the Reems had threatened Continental with a claim for trespass and the Reems had not unequivocally taken off the table the possibility that they might seek injunctive relief despite what they now claim. And with that, the problem for the Reems now is that this court was required to determine the amount in controversy as of the time the action was commenced (which the court did based on the circumstanced then existing), and subsequent events as they might affect the amount in controversy generally do not divest the court of jurisdiction. E.g., Scottsdale Ins. Co. v. Universal Crop Protection Alliance, LLC, 620 F.3d 926, 931 (8th Cir. 2010); (“It is well established that the requirements for diversity jurisdiction must be satisfied only with respect to the time of filing. [citation omitted] Subsequent events reducing the amount in controversy do not destroy diversity jurisdiction. [citation omitted] Subsequent events may, however, be relevant to prove the existence or nonexistence of diversity jurisdiction at the time of filing. [citation omitted]”); see generally 14A Federal Practice and Procedure: Jurisdiction § 3702 (4th ed. April 2016 update).

         The second problem with the contention that the court should reconsider the question of jurisdiction based on the purported clarification by the Reems of their intent is that they (1) continue to take the position that Continental does not have the right to use the subject tract for two the pipelines or an electrical service line by virtue of its rights as an assignee of the lessee under the Trust Lease (which is what Continental seeks to have declared); and (2) continue to assert that they can sue for trespass absent Continental having acquired one or more express easements from them for the pipelines and the electrical service line. In fact, since the court's earlier denial of the motions to dismiss, the Reems have counterclaimed for trespass.

         Consequently, even if the court is wrong in restricting its consideration to what the circumstances were at the time of the filing of the action in determining the amount in controversy, the situation has not materially changed. Even though the Reems now state that they will not interfere with the installation of the electrical service line (either physically or by seeking an injunction) the court can understand Continental not wanting to proceed so long it yet may be at risk for a claim of trespass with all that such a claim might possibly entail. This leaves the court with having to consider the value of Continental's rights in determining whether the threshold for the amount in controversy has been reached and the court has already determined it has based just on what the immediate increased costs to Continental are by having to generate its electricity on site (as opposed to obtaining electrical service from a utility) and without even considering the increased costs of operating without the pipelines. Reems, 2016 WL 75055, at 3 (citing Glenwood Light & Water Company v. Mutual Light, Heat, & Power Company, 239 U.S. 121, 124-26 (1915) (the amount-in-controversy in an action by a power company seeking to restrain its competitor from interfering with its power lines was the increased operating costs resulting from the interference to plaintiff's business and not the costs that would be incurred by defendant to alleviate the conflicts) and Enbridge Pipelines (Illinois) L.L.C. v. Moore, 633 F.3d 602, 605 (7th Cir. 2011) (the amount-in-controversy in an action by plaintiff pipeline company seeking a declaration that its pipeline easements were still in force, which was disputed by defendants, was plaintiff's cost to build a new pipeline around defendant's property)).[2]

         In short, this would be a different case if the Reems had agreed that Continental has the right to be on their property for the uses that are the subject of this case and that the only issue is the amount of compensation that must be paid for that use under North Dakota's Surface Owner Protection Act, codified at N.D.C.C. ch. 38-11.1. If that was the issue and the Reems were not taking the position that Continental's occupation amounts to a trespass, the court would agree that the amount in controversy between ...


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