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Power Energy Corp. v. Hess Bakken II, L.L.C.

United States District Court, D. North Dakota

June 19, 2019

Power Energy Corporation, a North Dakota Corporation; Altschuld Oil, L.L.C., a Colorado Limited Liability Company; Copperhead Corporation, a North Dakota Corporation; Strata Resources, Inc., a Colorado Corporation; Michael S. Johnson, a Colorado Resident; Michael T. Fitzmaurice, a North Dakota Resident; Patrick L. Butz, a North Dakota Resident; and Jacques F. Butz, a North Dakota Resident, Plaintiffs,
v.
Hess Bakken Investment II, L.L.C., a Delaware Limited Liability Company, Defendant.

          ORDER DENYING MOTION TO DISMISS

          CHARLES S. MILLER, JR. UNITED STATES MAGISTRATE JUDGE.

         Before the court is a “Motion to Dismiss for Failure to State a Claim” filed by defendant Hess Bakken Investment II, L.L.C. (“Hess Bakken”). For the reasons set forth below, the motion is denied.

         I. BACKGROUND

         While somewhat difficult to navigate, the following appears to be the essence of what plaintiffs allege in their amended complaint:

• On July 8, 2004, Altschuld Oil, L.L.C. (“Altschuld Oil”), Power Energy Corporation (“Power Energy”), and Copperhead Corporation (“Copperhead”) sold numerous oil and gas leases in western North Dakota to Prima Exploration, Inc. (“Prima Exploration”), Gunlickson Petroleum, Inc., Niwot Resources, LLC, Cordillera Energy Partners II, LLC, Berry Ventures, Inc., and Strata Resources, Inc. Hereinafter, the sellers will be referred to collectively as the “Altschuld Group, ” the purchasers collectively as the “Prima Group, ” and the sale agreement as the “Altschuld Agreement.” The Altschuld Agreement included an Area of Mutual Interest Clause (“Altschuld AMI”). The Altschuld AMI stated if the Prima Group acquired additional oil and gas leases within the AMI's described lands that the Prima Group would in certain instances assign the Altschuld Group an overriding royalty.
• On the same day, July 8, 2004, Strata Resources, Inc. (“Strata”) entered into a similar agreement selling oil and gas leases in western North Dakota to the Prima Group (hereinafter referred to as the “Strata Agreement”). The Strata Agreement also included an Area of Mutual Interest Clause (“Strata AMI”) that required the Prima Group to in certain instances assign Strata an overriding royalty if additional oil and gas leases were acquired within the AMI's described lands.
• In April 2005, Prima Exploration acquired on behalf of the Prima Group Federal Lease NDM-94456 (“Federal Lease”) covering Township 155 North, Range 90 West on portions of Sections 6, 27, 28, and 33 in Mountrail County, North Dakota. The Federal Lease became effective on May 1, 2005.
• The Altschuld Agreement and the Strata Agreement each contained language recognizing the other agreement and the net effect of the contract language of both Agreements as applied to the Federal lease was the Altschuld Group and Strata collectively were entitled to a 3% overriding royalty on the production from the Federal Lease.
• In May 2007, the Prima Group sold various oil and gas interests to Hess Corporation (“Hess”). The sale included the Federal Lease burdened by a 3% overriding interest in favor the Altschuld Group and Strata.
• Hess Bakken has succeeded to the interests Hess acquired from the Prima Group, including the Federal Lease, and Hess Bakken cannot avoid the obligation to honor the 3% overriding interest on the production from the Federal Lease owed the Altschuld Group and Strata based on a claim by it or Hess that they were not aware of the overriding interest and were otherwise good faith purchasers for value. This in part is because there were several documents and records that Hess necessarily reviewed or obtained the possession of that referenced the 3% overriding interest.

         Based on these allegations, plaintiffs ask for a declaration that they have a 3% overriding royalty in the production from the Federal Lease. They also ask for an accounting for all amounts owed to them on past production under the Federal Lease.

         II. DISCUSSION

         Hess Bakken has moved to dismiss plaintiffs' amended complaint based upon the sole grounds that plaintiffs' action is untimely. While normally a motion pursuant to Fed.R.Civ.P. 12(b)(6) is limited to testing the sufficiency of the complaint and the claim that an action is untimely is an affirmative defense, Eighth Circuit case law provides that a defendant can seek the dismissal of a claim pursuant to motion brought by Rule 12(b)(6) without first answering, if the defense is clearly established by what is alleged in the complaint. See, e.g., Joyce v. Armstrong Teasdale, LLP, 635 F.3d 364, 367 (8th Cir. 2011) (“As a general rule, the possible existence of a statute of limitations defense is not ordinarily a ground for Rule 12(b)(6) dismissal unless the complaint itself establishes the defense.”) (internal quotations and citing authority omitted).

         Here, Hess Bakken has not attempted to argue that the face of the amended complaint is sufficient to establish the affirmative defense of statute of limitations. Rather, to support its argument, Hess Bakken relies upon provisions of the agreements and instruments referenced in the complaint, but not attached as exhibits, to support its contentions that (1) the only possible claim that plaintiffs have is for breach of an agreement to assign the 3% overriding royalty claimed by plaintiffs (even though plaintiffs' claims appear to be broader than that), and (2) the claim for breach of contract is untimely. Hess Bakken argues that the court can consider the text of the agreements and instruments accompanying its motion based on Eighth Circuit case law holding that materials embraced by the pleadings or that are of a matter of public record and whose authenticity is not subject to question may in the court's discretion be considered. See, e.g., Miller v. Redwood Toxicology Lab., Inc., 688 F.3d 928, 931 (8th Cir. 2012) (“‘When considering . . . a motion to dismiss under Fed.R.Civ.P. 12(b)(6)[ ], the court generally must ...


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