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Great Plains Royalty Corporation v. Earl Schwartz Co.

Supreme Court of North Dakota

May 16, 2019

Great Plains Royalty Corporation, a North Dakota Corporation, Plaintiff and Appellant
v.
Earl Schwartz Company, a North Dakota partnership, Basin Minerals, LLC, a North Dakota limited liability company, SunBehm Gas, Inc., a North Dakota corporation, and Kay Schwartz York, Kathy Schwartz Mau, and Kara Schwartz Johnson, as the Co-Personal Representative of the Estate of Earl N. Schwartz, Defendants and Appellees

          Appeal from the District Court of McKenzie County, Northwest Judicial District, the Honorable Daniel S. El-Dweek, Judge.

          Daniel H. Oster (argued) and James J. Coles (appeared), Bismarck, ND, for plaintiff and appellant.

          Spencer D. Ptacek (argued) and Lawrence Bender (appeared), Bismarck, ND, for defendants and appellees Earl Schwartz Company, a North Dakota partnership, Basin Minerals, LLC, a North Dakota limited liability company, Kay Schwartz York, Kathy Schwartz Mau, and Kara Schwartz Johnson, as the Co-Personal Representative of the Estate of Earl N. Schwartz.

          Jordan L. Selinger (argued) and Jon Bogner (appeared), Dickinson, ND, for defendant and appellee SunBehm Gas, Inc., a North Dakota corporation.

          OPINION

          MCEVERS, JUSTICE.

         [¶1] Great Plains Royalty Corp. appeals from a judgment dismissing its complaint and deciding ownership of certain real property in favor of Earl Schwartz Co. ("ESCO"); Basin Minerals, LLC; SunBehm Gas, Inc.; and other defendants. Great Plains argues the district court erred in deciding ownership of the disputed properties in favor of the defendants. We reverse and remand.

         I

         [¶2] In 1968, Great Plains' creditors initiated a bankruptcy case by filing an involuntary petition under Chapter 11 of the Bankruptcy Code. Myron Atkinson was appointed trustee for the bankruptcy estate, the bankruptcy court ruled Great Plains was "a bankrupt," and the case was converted to a liquidation proceeding under Chapter 7 of the Bankruptcy Code. The trustee received permission to sell the estate's assets, an auction sale was held, and Earl Schwartz was the winning bidder. An order confirming sale of the assets was entered, and an amended order was later entered. The order stated Schwartz entered into an agreement with SunBehm to purchase certain properties in the bankruptcy estate, and title was transferred on those properties directly from the estate to SunBehm. The trustee did not collect sufficient funds from the auction to pay all creditors in full. The bankruptcy case was closed in 1974.

         [¶3] In 2013, the bankruptcy case was reopened, and a successor trustee was appointed. The successor trustee collected funds sufficient to pay "a 100 percent dividend" to the estate's creditors, and he attempted to disburse the funds to the unpaid creditors. While the case was open various adversary proceedings were brought, including some to determine ownership of certain properties. Some of the adversary proceedings were decided, and others were dismissed for lack of jurisdiction. The bankruptcy court discharged the trustee and closed the bankruptcy case in May 2016.

         [¶4] In December 2016, Great Plains sued ESCO, Basin, and SunBehm to quiet title to oil, gas, and other minerals in and under three properties located in McKenzie County. ESCO and Basin are successors in interest to Schwartz. The properties are certain oil, gas, and other minerals and interests in and under land in McKenzie County described as:

Property No. 1:
Township 153 North, Range 95 West
Section 7: S1/2 SE1/4 and NW1/4 SE1/4
Section 8: S1/2 SE1/4 and SW1/4 SW1/4
Section 17: N1/2 NE1/4
Property No. 2:
Township 152 North, Range 96 West
Section 24: NW1/4
Property No. 3:
Township 152 North, Range 95 West
Section 16: NW1/4

         SunBehm answered and counterclaimed, requesting the district court quiet title to 1/320ths mineral interest in Property No. 1 in its favor. ESCO and Basin answered and counterclaimed, requesting the court quiet title and declare they own 100 percent of the minerals, royalties, and other interests in and under Property Nos. 1, 2, and 3, and ten additional described properties (collectively "subject properties") that were owned by Great Plains at the time the bankruptcy petition was filed in 1968.

         [¶5] In July 2017, Great Plains moved to amend its complaint and to add party defendants, requesting Kay Schwartz York, Kathy Schwartz Mau, and Kara Schwartz Johnson, as the co-personal representatives of the estate of Earl Schwartz be added as defendants. Great Plains also stated it wished to withdraw any and all claims to Property No. 1 and admitted it had no interest in the property. The district court granted Great Plains' motion. An amended complaint adding the Schwartz estate defendants and withdrawing all claim to Property No. 1 was filed. The amended complaint also added claims of slander of title and conversion related to Property Nos. 2 and 3. SunBehm answered the amended complaint and counterclaimed, requesting the court quiet title in Property No. 3 in its favor. ESCO, Basin, and the personal representatives of the Schwartz estate (collectively "Schwartz defendants") filed an amended answer.

         [¶6] A bench trial was held in January 2018. During the trial, Great Plains moved to amend its answer to the Schwartz defendants' counterclaim. Great Plains requested the district court allow it to amend its answer to request the court quiet title in its favor in all of the subject properties the Schwartz defendants listed in their counterclaim, which included the ten additional properties. The court denied Great Plains' motion, but stated the motion could be renewed at some point. At the close of evidence, Great Plains renewed its motion. The Schwartz defendants objected, arguing they would have presented different evidence if they knew Great Plains was claiming an interest in all of the subject properties. Great Plains filed a brief in support of its motion. The Schwartz defendants opposed the motion. The court denied Great Plains' motion to amend.

         [¶7] On May 17, 2018, the district court entered its findings of fact, conclusions of law, and order for judgment. The court found the parties to the bankruptcy proceeding and sale of the bankruptcy estate intended to sell all of Great Plains' assets. The court declared that "one hundred percent (100%) of the minerals, royalties, and other interests in and under the Subject Properties that belonged to Great Plains at the time the bankruptcy petition was filed in 1968, with the exception of that portion comprising Property No. 3, are now owned by ESCO and Basin," and the court quieted title in those properties. The court declared that "one hundred percent (100%) of Property No. 3 that belonged to Great Plains at the time the bankruptcy petition was filed in 1968 is now owned by ...


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