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Tank v. Petro-Hunt, L.L.C.

United States District Court, D. North Dakota

January 22, 2018

Greggory Tank, Plaintiff,
v.
Petro-Hunt, L.L.C., Defendant.

          ORDER GRANTING IN PART AND DENYING IN PART MOTION TO EXCLUDE LEASE EVIDENCE AND GRANTING MOTION TO EXCLUDE PLAINTIFF'S EXPERT ECONOMIST

          Charles S. Miller, Jr., Magistrate Judge United States District Court

         This is an action by plaintiff for compensation under N.D.C.C. § 38-11.1-04 for damages resulting from defendant using 5.74 acres of his property for a wellsite for the drilling and operation of an oil well. In a prior order, the court denied defendant's motion in limine to exclude all of defendant's damage evidence.

         Before the court now are two additional motions limine brought by the defendant. One is styled as a Motion in Limine to Exclude Irrelevant Documents. The other is a Motion in Limine to Exclude Plaintiff's Expert.

         I. BACKGROUND

         A. Defendant's wellsite

         Defendant's 5.74 acre wellsite is located in the SW¼SW¼ Section 10, T151N, R196W, McKenzie County, North Dakota, approximately three miles southwest of the small town of Keene and just under twenty miles northeast of Watford City. The wellsite is located along the south section line of Section 10, a little east from the southwest corner of the section. County Road 12 runs east to west on the south section line, providing direct access to the wellsite. Not only is County Road 12 paved, it intersects with North Dakota State Highway 23 just under a mile east from the wellsite. According to defendant's appraiser, Highway 23 is the primary highway between New Town and Watford City.

         Plaintiff owns all of Section 10, except for the NE¼. He also owns other land in the immediate area. The land owned by plaintiff in Section 10 is a mixture of crop and pasture land. There is a farmstead located less than a half mile due east of defendant's wellsite. Like the wellsite, the farmstead is abounded on the south by County Road 12.

         Previously, defendant's wellsite was part of a large area of cropland that appears to encompass roughly 2/3's of the west half of the SW¼ of Section 10 and extends northward into the NW¼. Notably, there appears to be several other oil wells located in the NW¼ and NE¼ of Section 10.

         B. Plaintiff's evidence of damages for loss of use

         Plaintiff has retained David Saxowsky as an expert witness. Saxowsky has a Master's Degree in Agricultural Economics from North Dakota State University and a Juris Doctor from Ohio State University. He currently is employed as an associate professor at the North Dakota State University's Department of Agribusiness and Applied Economics and an adjunct professor at the University of North Dakota School of Law. Defendant has moved to exclude Professor Saxowsky's testimony on the grounds that it amounts to nothing more than opinions about what the law governing surface owner compensation is or should be. Professor Saxowsky's opinions will be addressed in more detail below.

         Plaintiff also seeks to introduce as exhibits three leases of other property he owns in the area that he leased for industrial purposes. Plaintiff contends that the jury, armed with general economic principles that will be testified to by Dr. Saxowsky, will on their own be able to properly evaluate and give appropriate weight to the rental amounts set forth in the three leases in determining what is an appropriate annual lease rental for the 5.74 acres. In addition, plaintiff states he will also testify and that his landowner's opinion as to an appropriate annual lease rental will, in part, be based on the rentals he is receiving under the three leases. Defendant in its motion to exclude irrelevant documents seeks to exclude all evidence of the three leases, contending they are too dissimilar to defendant's use of the 5.74 acres to be relevant. In the alternative, defendant argues that plaintiff should not be allowed to discuss them because, according to the defendant, only an expert can properly assess their significance, which Professor Saxowsky has not done.

         C. Defendant's appraisal

         Defendant has retained an expert appraiser. Defendant's appraiser has treated as one unit for purposes of his appraisal the three quarters of land that plaintiff owns in Section 10, which he estimates to be 476 acres. Defendant's appraiser then opines that the “highest and best” use of the wellsite property, prior to it being applied for that purpose, was agricultural cropland after applying the following criteria: legal permissibility; physical possibility, financial feasibility; and maximum productivity. Defendant's appraiser discount the likelihood of the 5.74 acres being used for any industrial or commercial uses based on what he considers to be the property's remote location. He also states that, while some scattered commercial and industrial uses exist throughout the county, there has been little new development lately due to the downturn in oil prices. Notably, defendant's appraiser did not take into account in arriving at this latter opinion any of the three leases that plaintiff entered into to lease other property in the area for industrial uses.

         Defendant's appraiser comes up with two damage numbers for plaintiff's loss of use of the 5.74 acres. One is an amount for a single payment of $7, 749 for all damages past and future. He arrives at this amount by first multiplying the 5.74 acres times $1, 500, which he determined to be the market value of the cropland based on a comparable sales analysis that involved comparing seven sales of agricultural property in McKenzie County, several of which appear to be upwards of thirty miles away, to the 476 acre unit containing the 5.74 acre wellsite. Defendant's appraiser then multiplies the resulting market value number for the 5.74 acres times 90% as a discount to reflect the fact that plaintiff retains ownership of the property and that he or his heirs at some point will regain its use and possession.

         The other damage number that defendant's appraiser calculated is an annual rental value for the 5.74 acres. Defendant's appraiser stated he could not find any comparable rentals of agricultural land in the area so, instead, he estimated the yearly rental value as a percentage of its cropland value. Relying upon USDA statistics and adjusting for the size of the parcel, he concluded an appropriate percentage for the 5.74 acres in this instance was 5%. Using this “return on value” factor, he calculated a rental amount of $430 per year for the wellsite by multiplying the 5.74 acres times $1, 500 times 5%. Notable for what comes next, this is an annual rental on a per acre basis of $75 per acre per year - far less than the more than $1, 000 per acre per that plaintiff appears to be seeking based on the three lease transactions that are the subject of the motion to exclude.

         II. DISCUSSION

         A. Plaintiff's statutory right to compensation under N.D.C.C. § 38-11.1-04

         Chapter 38-11.1 was enacted to provide compensation to surface owners for the use of their land by mineral developers possessing dominant mineral rights. Prior to the enactment of the chapter, mineral owners possessing dominant mineral rights had the right to use the surface owner's property without payment of compensation so long as the use was not unreasonable.

         Relevant here is that § 38-11.1-04 provides:

The mineral developer shall pay the surface owner a sum of money equal to the amount of damages sustained by the surface owner and the surface owner's tenant, if any, for lost land value, lost use of and access to the surface owner's land, and lost value of improvements caused by drilling operations.

(italics added). In this case, plaintiff is seeking compensation based on the “lost use of and access to” proviso of § 38-11.1-04. Further, while the language of chapter 38-11.1 is not the most straightforward, this court has previously held that, except when only exploration damages are at issue, the landowner can elect to receive compensation for what is compensable under § 38-11.1-04 in the form of annual payments. Kartch v. EOG Resources, Inc., 845 F.Supp.2d 995, 1007-08 (D.N.D. 2012); see also N.D.C.C. ยง 38-11.1-08.1. In this case, ...


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