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Pitchblack Oil, LLC v. Hess Bakken Investments II, LLC

United States District Court, D. North Dakota

March 7, 2018

Pitchblack Oil, LLC, Dustin J. Stuber and Suzanne M. Young, Trustees of the Good Shepherds Royalty Trust, Douglas R. Hansen, and Lori A. Hansen, Plaintiffs,
v.
Hess Bakken Investments II, LLC, Hess Corporation, Rocky R. Svihl, as Trustee of the RGKH Mineral & Royalty Trust dated November 1, 1995, and Whitetail Wave LLC, Defendants.

          ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT AND GRANTING DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

          L. Hovland, Chief Judge United States District Court

         Before the Court are cross-motions for summary judgment. Pitchblack Oil, LLC (“Pitchblack”) filed a complaint against Hess Bakken Investments II and Hess Corporation (“Hess”) in North Dakota state court on September 8, 2016. See Docket Nos. 1-3 and 1-5. Hess filed a Notice of Removal based on diversity jurisdiction on September 30, 2016. See Docket No. 1. Pitchblack and Hess entered into a Stipulation to Amend Complaint to add additional parties on October 6, 2016. See Docket No. 8. The Plaintiffs filed an amended complaint on December 21, 2016. See Docket No. 17. Hess filed a counterclaim against the Plaintiffs and a crossclaim against Whitetail Wave LLC (“Whitetail”), and Rocky R. Svihl on January 12, 2017. See Docket No. 19. The Plaintiffs moved for summary judgment on April 19, 2017. See Docket No. 34. Whitetail filed a response supporting the Plaintiffs' summary judgment motion on May 15, 2017. See Docket No. 40. Hess filed a cross-motion for summary judgment on May 25, 2017. See Docket No. 41. The Plaintiffs filed a reply to Hess's summary judgment motion on June 15, 2017. See Docket No. 52. Whitetail filed a response in opposition to Hess's summary judgment motion on June 29, 2017. See Docket No. 53. Hess filed a reply to the Plaintiffs' reply and Whitetails' response on July 13, 2017. See Docket No. 54. For the reasons set forth below, the Plaintiffs' summary judgment motion is denied and Hess's summary judgment motion is granted.

         I. BACKGROUND

         Pitchblack is a North Dakota LLC. Dustin Stuber, a citizen of North Dakota, is Pitchblack's sole member. Hess is a Delaware corporation with its principal office in New York. Pitchblack brought suit against Hess in North Dakota state court, and Hess filed a notice of removal based on diversity jurisdiction. At the time the case was removed to this Court, complete diversity existed among the litigants. Pitchblack then amended its complaint to add additional parties. The amended complaint added the following plaintiffs: Dustin J. Stuber and Suzanne M. Young, both citizens of North Dakota; Douglas R. Hansen, a citizen of Arizona; and Lori A. Hansen, a citizen of Montana. It also added the following defendants: Rocky R. Svihl, a citizen of Arizona; and Whitetail Wave, LLC, a Montana LLC. Whitetail's sole member is Lonney H. White, Jr., a citizen of Montana. The amended complaint procedurally eliminated diversity of citizenship between the parties because it includes both plaintiffs and defendants from Montana and Arizona. Factually however, as discussed below, the interests of Defendants Svihl and Whitetail align with the Plaintiffs' interests. Collective references to “Plaintiffs” hereafter will include the procedural plaintiffs as well as Defendants Svihl and Whitetail.

         The facts of the case are undisputed. Between October and December of 2005, Rocky Mountain Exploration, Inc. (“RME”) acquired a number of oil and gas leases over lands in Dunn County, North Dakota. The pleadings and briefs set forth the details of these leases; the parties refer to them as the “Subject Leases.” See Docket Nos. 17, 35, and 43-2. On May 15, 2006, RME executed an Assignment of Overriding Royalty Interests (“the Assignment”) assigning various overriding royalty interests[1] in the Subject Leases to the “Stuber Group.” The Plaintiffs are members of the Stuber Group or successors in interest. See Docket No. 35, p. 2. The overriding royalty interests assigned to the Stuber Group ranged from 1.83% to 4.00%. The Assignment contained language stating it applied to the Subject Leases “or any extensions or renewals thereof entered into within 180 days of expiration of the applicable [Subject] Lease.” See Docket No. 7-1, p. 1.

         Third parties acquired various top leases[2] (“the Top Leases”) over the Subject Leases. See Docket No. 17, pgs. 10-15. Most of these third parties had a leasehold interest in the Subject Leases when they acquired the Top Leases. See Docket No. 35, p. 11. The third parties generally held only a partial interest in the Subject Leases, but obtained a 100% interest in the corresponding Top Lease. See Docket No. 43-2, pgs. 11-22. Each Top Lease differed in some respect from its corresponding Subject Lease; all of the Top Leases contained royalty amounts and primary term lengths that differed from the Subject Leases, and each was acquired with new bonus consideration. See Docket No. 43-2, pgs. 11-22. Some of the tracts covered by the Subject Leases remain in production and continue to be burdened by the Subject Leases. The Subject Leases expired as to other tracts-the tracts at the heart of this dispute-and the Top Leases became effective. See Docket No. 43-2, p. 4. Through a series of conveyances and acquisitions, Hess acquired nearly all of the working interests in both the Subject Leases and the Top Leases. See Docket No. 36, p. 5.

         The Plaintiffs demand Hess acknowledge the overriding royalty interests assigned by BME to the Stuber Group. Hess recognizes the Plaintiffs have an interest in royalties from production on lands still held by the Subject Leases. See Docket No. 43-2, pgs. 2-3. But Hess disputes the Plaintiffs' assertion that the Stuber Group overriding royalty interests applies to the Top Leases. Pitchblack, Dustin J. Stuber, Suzanne M. Young, Douglas R. Hansen, and Lori A. Hansen (together “Pitchblack”) filed a joint motion for summary judgment. Whitetail filed a brief in support of the joint motion. Hess then filed a counter-motion for summary judgment.

         III. LEGAL DISCUSSION

         The parties disagree on whether the Top Leases are considered renewals or extensions of the Subject Leases. The Assignment states it applies to any “extensions” or “renewals” that are “entered into within 180 days of expiration of the applicable lease.” If the Top Leases are renewals or extensions, they are burdened by the Stuber Group overriding royalty. If the Top Leases are not renewals or extensions, they are unburdened by the Stuber Group overriding royalty. The Court concludes the Top Leases are not renewals or extensions, but it first addresses the jurisdictional issue raised by the procedural background of the case.

         A. DIVERSTIY JURISDICTION

         Jurisdiction exists under 29 U.S.C. § 1332(a)(1) when the amount-in-controversy exceeds $75, 000 dollars and the parties are citizens of different states. In this case, the amount-in-controversy requirement is satisfied, but some plaintiffs and defendants are citizens of the same state. However, it is not the case's caption that controls diversity determinations; the court is required to “look beyond the pleading and to arrange the parties according to their side of the dispute.” City of Indianapolis v. Chase Nat'l Bank, 314 U.S. 63, 69 (1941). This Court has had occasion to discuss City of Indianapolis, a seminal case on the issue:

In City of Indianapolis, a New York bank was the trustee under a mortgage deed to secure bonds issued by a gas company. The bank filed suit in federal district court against the gas company and the City of Indianapolis, seeking a declaration that a lease was valid and binding on the gas company and the City of Indianapolis, and a judgment for overdue interest on the bonds. Only one issue remained in litigation, namely, whether the lease was valid and binding on the City of Indianapolis. Both the bank and the gas company asserted that the lease was valid and, therefore, they were “partners in litigation.” Id. at 75. The Supreme Court specifically found that both the bank and the gas company desired the same outcome in litigation, for the lease to be upheld:
The property covered by the lease is now in the City's possession; [the bank] is simply acting to protect the bondholders' security. As to [the gas company], if the lease is upheld, it will continue to receive a six per cent return on its capital, and the burden of paying the interest on its bonded indebtedness will be not upon it but upon the City. What [the bank] wants [the gas company] wants and the City does not want. Yet the City and [the gas company] were made to have a common interest against [the bank] when, as a matter of fact, the interests of the City and of [the gas company] are opposed to one another. Therefore, if regard be had to the requirements of jurisdictional integrity, [the gas company] and [the bank] are on the same side of the controversy not only for their own purposes but also for purposes of diversity jurisdiction. But such realignment places Indiana ‘citizens' on both sides of the litigation and precludes assumption of jurisdiction based upon diversity of citizenship. We are thus compelled to the conclusion that the District Court was without jurisdiction.

Id. at 74-75. As a result, the Supreme Court realigned the gas company as a party plaintiff and the case was dismissed for lack of ...


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