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Krenz v. XTO Energy, Inc.

Supreme Court of North Dakota

February 16, 2017

Darwin and Jean Krenz, Plaintiffs, Appellees and Cross-Appellants
v.
XTO Energy, Inc., Defendant, Appellant and Cross-Appellee

         Appeal from the District Court of Williams County, Northwest Judicial District, the Honorable David W. Nelson, Judge.

          Charles M. Carvell (argued), and R. Kirk Mueller (appeared), for plaintiffs, appellees and cross-appellants.

          Michael D. Schoepf (argued) and Lawrence Bender (on brief), and Leah C. Janus (appeared), for defendant, appellant and cross-appellee.

          OPINION

          SANDSTROM, SURROGATE JUDGE.

         [¶ 1] XTO Energy, Inc., appeals and Darwin and Jean Krenz cross-appeal from a judgment awarding the Krenzes $800, 000 for a pipeline trespass and ordering the parties to abide by certain documents for their future relationship after the district court construed a pipeline easement to authorize one pipeline on the Krenzes' land and found XTO's unauthorized construction and operation of a second pipeline on the Krenzes' land and use of their private road was a trespass. We conclude an April 2007 pipeline easement is ambiguous and the court erred in construing the easement as a matter of law. We reverse the court's decision construing the pipeline easement and awarding the Krenzes $800, 000 for the pipeline trespass and the court's decision requiring the parties to abide by their unexecuted negotiations involving their future relationship. We affirm in part, reverse in part, and remand for proceedings consistent with this opinion.

         I

         [¶ 2] In 1972, the Krenzes purchased the surface estate for land in Township 154 North, Range 95 West in Williams County consisting of parts of sections 9, 10, 14, 15, 22, and 23. XTO owns severed mineral interests in parts of sections 14, 15, 21, 22, and 23. The dispute in this case involves XTO's construction and operation of a gas pipeline across the Krenzes' land in section 15 and XTO's use of the Krenzes' private road in section 15 and other land subject to a mineral lease in sections 14 and 15 to access a well in section 23.

         [¶ 3] In February 2007, the Krenzes granted XTO's predecessor in interest an easement authorizing construction of a gas pipeline in the north half of section 9. Under that easement, an east-west pipeline was constructed to collect gas from other pipelines connected to wells in the area. In April 2007, the Krenzes executed another pipeline easement with XTO's predecessor in interest, authorizing construction and operation of "pipelines" across parts of the Krenzes' land in sections 9, 10, and 15.

         [¶ 4] In 2008, XTO drilled three wells in section 21, collectively referred to by the parties as the Southern Wells, and constructed a north-south pipeline from those three wells through state-owned land in section 16 and the Krenzes' land in section 9 to the east-west pipeline in the north half of section 9. In November 2008, the Krenzes and XTO executed a surface damage agreement for roads, authorizing XTO to use the Krenzes' roads and lands to access XTO's "oil and gas properties" and "wellsites for conducting oil and gas operations, production and transportation." The agreement stated the location of the Krenzes' private roads to be used by XTO was more particularly described on an attached map. A map attached to the agreement showed the Krenzes' private road entering the northwest quarter of section 15 and running southeast to a junction in the southeast quarter of section 15 and then running west and south across the Krenzes' land in the south half of section 15 to the Southern Wells in section 21. A handwritten notation on the attached map stated the area east of the junction was "not a road." XTO initially used the Krenzes' private road in section 15 to access the Southern Wells in section 21.

         [¶ 5] XTO is a lessee under a 2004 mineral lease from the Mendenhall family for mineral interests on the Krenzes' land in parts of sections 14, 15, 22, and 23. In February 2010, XTO spud (started) the Ward Well on the Krenzes' land in the northwest quarter of the northwest quarter of section 23. The Ward Well is located on a two-section spacing unit consisting of sections 23 and 26 and is subject to a forced-pooling order issued by the North Dakota Industrial Commission. The only land in the two-section spacing unit subject to the Mendenhall lease is the northwest quarter of the northwest quarter of section 23.

         [¶ 6] XTO and the Krenzes then engaged in negotiations regarding a pipeline easement, a road use agreement, and a surface damage agreement for XTO's operations involving the Ward Well. The Krenzes ultimately signed a pipeline easement, a road use agreement, and a surface damage agreement in November 2010 and sent the documents to XTO. XTO refused to sign the documents, however, claiming the recently discovered April 2007 pipeline easement authorized it to construct a pipeline from its north-south pipeline in section 16 through section 15 to the Ward Well in section 23 and the 2008 road use agreement authorized it to use the Krenzes' private road in section 15 to access the Ward Well. XTO also claimed its rights under the Mendenhall lease authorized it to use the Krenzes' land subject to that lease in sections 14 and 15 to access the Ward Well in section 23.

         [¶ 7] The Krenzes initially sued XTO in state court for a declaration the April 2007 easement was void and unenforceable. They alternatively sought a declaration the easement limited XTO to one pipeline on their land, which they claimed had been constructed in 2008 in section 9. The Krenzes sought to enjoin XTO from constructing a pipeline across their land in section 15 to the Ward Well.

         [¶ 8] XTO removed the Krenzes' lawsuit to federal district court, and the Krenzes moved to remand the action to state court, claiming the amount in controversy did not exceed $75, 000. In support of their motion, the Krenzes' son, Courtney Krenz, filed an affidavit valuing the pipeline easement at $28, 936.90 under the parties' 2010 negotiations for an easement. The federal district court granted the Krenzes' motion for remand to state district court.

         [¶ 9] In April 2011, the state district court denied the Krenzes' motion to preliminarily enjoin XTO from constructing a pipeline across their land in section 15 during the lawsuit, stating it found "good arguments for and against each party." In August 2011, XTO constructed a pipeline from its existing north-south pipeline in section 16 across the Krenzes' land in section 15 to the Ward Well in section 23 and began operating that pipeline. Part of the pipeline is on land subject to the Mendenhall lease in sections 14 and 15. XTO also constructed an access road to the Ward Well on land subject to the Mendenhall lease in sections 14 and 15, and that access road connects to the Krenzes' private road in section 15.

         [¶ 10] After XTO constructed the pipeline to the Ward Well, both parties moved for summary judgment on the Krenzes' claim the April 2007 easement did not authorize XTO to construct and operate a pipeline across their land in section 15. The district court granted the Krenzes' motion for summary judgment, ruling as a matter of law the April 2007 easement did not authorize XTO to construct the pipeline. The court ruled the easement allowed XTO to have one pipeline across the Krenzes' land and XTO's 2008 construction of the north-south pipeline on the Krenzes' land in section 9 to connect to the Southern Wells in section 21 fixed the location for that pipeline by use and acquiescence.

         [¶ 11] The district court granted the Krenzes' motion to amend their complaint. In their amended complaint, the Krenzes alleged a claim for trespass for XTO's unauthorized construction and operation of the pipeline across their land in section 15 and XTO's unauthorized use of the Krenzes' private road in section 15 to access the Ward Well. The Krenzes also asserted a claim for unjust enrichment, alleging XTO had been unjustly enriched by its operation of oil and gas facilities on the Krenzes' land. They further alleged a claim for surface damages under N.D.C.C. ch. 38-11.1. The Krenzes sought injunctive relief requiring XTO to stop using and to remove the pipeline in section 15, to perform its obligations under the 2010 negotiations and documents signed by the Krenzes in November 2010, and to stop using land subject to the Mendenhall lease in sections 14 and 15 to benefit mineral interests located in the Ward Well spacing unit but not subject to the Mendenhall lease. The Krenzes also sought damages for their claims.

         [¶ 12] Before trial, the district court ruled the 2008 road use agreement was ambiguous and extrinsic evidence was necessary to determine whether the agreement authorized XTO to use the Krenzes' private road in section 15 to access the Ward Well in section 23. The court also ruled XTO could use the Krenzes' land subject to the Mendenhall lease in sections 14 and 15 to develop all the minerals from the Ward Well, including the interests in the two-section spacing unit not subject to the Mendenhall lease. The court further ruled the parties' 2010 negotiations for a pipeline easement, a road use agreement, and a surface damage agreement did not culminate in a binding contract.

         [¶ 13] After a bench trial, the district court said it was adopting the Krenzes' "spin on the facts." The court said the dispute was about the appropriate remedies and explained XTO used the Krenzes' property against their wishes with full knowledge of the possible consequences. The court reiterated that XTO's construction and operation of the pipeline in section 15 during the lawsuit was not an innocent trespass. The court also relied on extrinsic evidence and construed the 2008 road use agreement to preclude XTO from using the Krenzes' private road in section 15 to access the Ward Well. The court ruled XTO's use of the road for that purpose was a trespass.

         [¶ 14] The court declined to enjoin XTO from using the pipeline in section 15 to service the Ward Well, or to enjoin XTO from using the Krenzes' private road in section 15 to access that well. Rather, the court awarded the Krenzes $800, 000 in damages for the pipeline trespass, saying it was "the amount XTO would save by virtue of not having to build a new pipeline across the Corps of Engineers' land" and "approximates the amount by which the Krenzes have been 'impoverished, ' while XTO has been unjustly enriched by the trespass." The court explained the amount specifically covered the rentals the Krenzes would have received under 2010 negotiations between the parties in the approximate amount of $150, 000, plus five years of litigation costs and fees they would have been entitled to under surface damage compensation law in N.D.C.C. ch. 38-11.1. The court said the damage award allowed XTO to continue operating the Ward Well and retain 98 percent of the $32, 500, 000 in revenues received from the Ward Well.

         [¶ 15] The district court also ruled that although the parties' 2010 negotiations and documents signed by the Krenzes in November 2010 for a pipeline easement, a road use agreement, and a surface damage agreement were not binding contracts, the parties were required to abide by the terms of the documents to establish protocols for the parties' future relationship. Although the court ruled XTO's use of the Krenzes' private road in section 15 to access the Ward Well was also a trespass, the court cited its damage award for the pipeline trespass and did not award the Krenzes a separate or additional damage award for the road trespass. The court also cited its award for the pipeline trespass and declined to make a separate award for surface damages under N.D.C.C. ch. 38-11.1.

         [¶ 16] The district court had jurisdiction under N.D. Const. art. VI, § 8, and N.D.C.C. § 27-05-06. XTO's appeal and the Krenzes' cross-appeal are timely under N.D.R.App.P. 4(a). This Court has jurisdiction under N.D. ...


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