Pennington v. Continental Resources , 2021 ND 105 ( 2021 )

FILED
IN THE OFFICE OF THE
CLERK OF SUPREME COURT
JUNE 10, 2021
STATE OF NORTH DAKOTA
IN THE SUPREME COURT
STATE OF NORTH DAKOTA
2021 ND 105Rhonda Pennington, Steven Nelson,
Donald Nelson, and Charlene Bjornson, Plaintiffs and Appellants
v.
Continental Resources, Inc., Defendant and Appellee
No. 20200318
Appeal from the District Court of McKenzie County, Northwest Judicial
District, the Honorable Daniel S. El-Dweek, Judge.
AFFIRMED.
Opinion of the Court by McEvers, Justice.
Nathan A. Keever (argued), Grand Junction, CO, and Fintan L. Dooley
(appeared), Bismarck, ND, for plaintiffs and appellants.
Mark W. Vyvyan (argued), Minneapolis, MN, Lawrence Bender (on brief), and
Spencer D. Ptacek (appeared), Bismarck, ND, for defendant and appellee.
Pennington v. Continental Resources
No. 20200318
McEvers, Justice.
[¶1] Rhonda Pennington, Steven Nelson, Donald Nelson, and Charlene
Bjornson (“Plaintiffs”) appeal from a judgment entered after the district court
determined their oil and gas leases with Continental Resources have not
expired and remain in effect. The Plaintiffs argue the district court erred in
concluding the leases had not expired. We affirm, concluding the issues the
Plaintiffs raise on appeal are precluded under the law of the case doctrine and
mandate rule.
I
[¶2] In 2011, the Plaintiffs executed oil and gas leases for property in
McKenzie County. Each lease term was three years with a lessee option to
extend for an additional year. In 2014, the leases were assigned to Continental,
and it exercised the option to extend the leases. The leases contained a
“regulation and delay” paragraph, which states, “When drilling, reworking,
production or other operations are prevented or delayed . . . by inability to
obtain necessary permits . . . this lease shall not terminate because of such
prevention or delay, and, at Lessee’s option, the period of such prevention or
delay shall be added to the term hereof.”
[¶3] In May 2012, Continental applied for a drilling permit on a 2,560-acre
spacing unit, which included the property covered by the leases. Continental
could not begin drilling operations until receiving federal approval. In October
2015, Continental recorded an affidavit of regulation and delay, stating it had
not yet obtained federal regulatory approval to drill, and the primary term of
the leases was extended under the “regulation and delay” paragraph of the
leases. Continental also applied to terminate the 2,560-acre spacing unit and
create a 1,920-acre spacing unit that excluded the land requiring federal
approval. In November 2015, the Industrial Commission approved the new
smaller spacing unit. In January 2016, the commission pooled all of the oil and
gas interests in the 1,920-acre spacing unit for the development and operation
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of the spacing unit. Continental began drilling operations. Production was
obtained in 2017.
[¶4] In August 2017, the Plaintiffs sued Continental, alleging the leases
expired on October 25, 2015, and Continental’s delay in obtaining regulatory
approval to drill did not extend the leases. Both parties moved for summary
judgment. The district court granted Continental’s motion, concluding the
“regulation and delay” paragraph of the leases extended the leases until
regulatory approval could be obtained to begin drilling operations.
[¶5] The Plaintiffs appealed, arguing the leases expired in October 2015, and
the “regulation and delay” paragraph did not extend the leases. They also
argued the delay in attempting to obtain a permit was unreasonable because
Continental could have obtained a permit for a smaller spacing unit during the
primary term of the leases.
[¶6] This Court affirmed the district court’s summary judgment in part,
reversed it in part, and remanded. Pennington v. Cont’l Res., Inc., 2019 ND
228, ¶ 1, 932 N.W.2d 897. We held the “regulation and delay” paragraph in the
leases is a force majeure clause, which allocated the risk of loss if performance
becomes impossible or impracticable, and the paragraph applied to both the
primary and secondary term. Id. at ¶¶ 12, 15. We explained for an express force
majeure clause to apply it must be accompanied by proof that the failure to
perform was proximately caused by a contingency and that performance
remained impossible or unreasonably expensive in spite of skill, diligence, and
good faith on the promisor’s part. Id. at ¶ 18. We stated the district court
concluded the delay in obtaining drilling permits was beyond Continental’s
control and was not because of its fault or negligence, but the court did not
address whether Continental acted diligently and in good faith in pursuing a
permit for the 2,560-acre spacing unit for more than three years. Id. at ¶ 21.
We held a genuine issue of material fact existed about whether Continental
acted diligently and in good faith, and we remanded for further proceedings on
that issue. Id.
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[¶7] On remand, the district court held a bench trial. The court found
Continental acted diligently and in good faith in pursuing the necessary
permits and Continental’s drilling operations were prevented or delayed by the
inability to obtain the necessary permits. The court concluded the period of
delay should be added to the term of the leases under the “regulation and
delay” paragraph of the leases, extending the term of the leases from October
25, 2015, to December 24, 2017. The court found drilling operations and
production had commenced on the leases before the term expired. The court
concluded the leases remain in effect.
II
[¶8] The Plaintiffs argue the district court erred in concluding the leases did
not expire. They contend production was required prior to the expiration of the
primary term of the leases to prevent automatic expiration and the district
court erred in crediting Continental with the time for permitting delays that
the court found Continental suffered prior to having any interest in the leases.
Continental argues the Plaintiffs’ arguments are barred by the law of the case
doctrine and the mandate rule. Continental contends the judgment should be
affirmed because these issues were not properly before the district court, the
issues exceeded the scope of this Court’s mandate in the prior appeal, and the
district court properly adhered to the law of the case doctrine and mandate
rule on remand.
[¶9] “Under the doctrine of res judicata, a valid, existing final judgment from
a court of competent jurisdiction is conclusive on the parties . . . in all other
actions with regard to the issues raised, or those that could have been raised,
and determined therein.” Glass v. Glass, 2018 ND 14, ¶ 5, 906 N.W.2d 81(quoting Jundt v. Jurassic Res. Dev., N. Am., L.L.C., 2004 ND 65, ¶ 6, 677
N.W.2d 209). “The law of the case doctrine is based upon the theory of res
judicata, and is grounded on judicial economy to prevent piecemeal and
unnecessary appeals.” Glass, at ¶ 5 (quoting Jundt, at ¶ 6).
[T]he law of the case doctrine applies when an appellate court has
decided a legal question and remanded to the district court for
further proceedings, and [a] party cannot on a second appeal
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relitigate issues which were resolved by the Court in the first
appeal or which would have been resolved had they been properly
presented in the first appeal.
Montana-Dakota Utils. Co. v. Behm, 2020 ND 234, ¶ 8, 951 N.W.2d 208(quoting Dale Expl., LLC v. Hiepler, 2020 ND 140, ¶ 13, 945 N.W.2d 306).
[¶10] The mandate rule is a more specific application of the law of the case
doctrine. Montana-Dakota, 2020 ND 234, ¶ 8. The mandate rule requires the
district court to follow the appellate court’s pronouncements on legal issues in
subsequent proceedings in the case and to carry the appellate court’s mandate
into effect according to its terms. Id. This Court retains the authority to decide
whether the district court scrupulously and fully carried out the mandate’s
terms. Id.[¶11] Prior to the first appeal, the Plaintiffs and Continental each moved for
summary judgment, arguing the matter should be decided in their favor as a
matter of law. Continental argued it was entitled to summary judgment in the
form of a declaration that the leases are still valid and in effect and will
continue to remain valid and in effect as provided for under the terms of the
leases. It claimed the regulation and delay paragraph is a force majeure clause
that relieved Continental of liability for nonperformance due to events beyond
its control, it was unable to obtain the necessary permits for drilling despite its
good faith efforts, and the leases were extended for the period of the delay
under the regulation and delay paragraph. It claimed there were no genuine
issues of material fact.
[¶12] The Plaintiffs also moved for summary judgment, arguing they should
be granted summary judgment in the form of a declaratory judgment because
the leases expired by their own terms on October 25, 2015. They asserted the
delay in permitting did not extend the expiration of the primary term of the
lease and the regulation and delay paragraph does not apply to the primary
term.
[¶13] Continental argued in its reply brief that the regulation and delay
paragraph may take effect during the primary term, its actions did not
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preclude it from relying on the regulation and delay paragraph to extend the
effective term of the leases, and the term was extended because drilling
operations were delayed by Continental’s inability to obtain the requested
permit. The Plaintiffs argued in their reply brief that the regulation and delay
paragraph does not support Continental’s argument, it did not extend the
primary term, the lessee did not have any obligations in the primary term, the
regulation and delay paragraph relates to the lessee’s obligations under the
leases, and Continental’s argument about the regulation and delay paragraph
is unsupported by a complete reading of the leases. The Plaintiffs argued
Continental’s prior actions undercut its argument that the regulation and
delay paragraph was intended to apply during the primary term because it
claims the extended period of time includes the time from when it filed an
application to drill four wells in 2012 until it was granted approval to drill
different wells in a smaller spacing unit in 2016 and if it believed the regulation
and delay paragraph applied it did not need to exercise the option to extend
the primary term. The Plaintiffs also argued evidence of production following
the express primary term was not relevant to whether the leases expired at
the end of the primary term.
[¶14] The district court granted Continental’s motion for summary judgment.
The court concluded the leases remained in effect under the regulation and
delay paragraph. This Court affirmed the district court’s summary judgment
in part, reversed it in part, and remanded for further proceedings. Pennington,
2019 ND 228, ¶ 22. We said the district court concluded the delay in obtaining
drilling permits was beyond Continental’s control and was not because of its
fault or negligence, but the court did not address whether Continental acted
diligently and in good faith in pursuing the permit and the Plaintiffs’
arguments related to good faith and diligence in obtaining the permit. Id. at ¶
21. We said, “Viewing the evidence and inferences to be drawn from the
evidence in a light favorable to the Plaintiffs, a genuine issue of material fact
exists as to whether Continental acted diligently and in good faith. We reverse
the court’s judgment and remand for further proceedings on this issue.” Id. We
only reversed the district court’s summary judgment on the issue of whether
Continental acted diligently and in good faith in pursuing the drilling permit,
and we affirmed the rest of the summary judgment.
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[¶15] In this appeal, the Plaintiffs argue that production was required prior to
the expiration of the primary term of the lease to continue the leases and that
the court erred by crediting Continental with any period of permitting delays
it found Continental suffered prior to having any interest in the leases. They
further contend these issues do not exceed the scope of the prior mandate and
the issues could not be raised at the time of the first appeal because
Continental had not yet articulated the time period it was claiming a force
majeure event existed.
[¶16] These issues could have been raised in the motion for summary judgment
or in response to Continental’s motion for summary judgment. The
interpretation and effect of the leases and the length of the period of delay were
issues before the district court when the court granted summary judgment.
The Plaintiffs were aware that Continental was claiming the period of delay
including the time after it had applied for permits but before it was assigned
the leases. The Plaintiffs stated in their reply brief in support of their motion
that Continental claims the term of the leases was extended for a period of
1,316 days and it calculated “this extensive period of time based on the date in
2012 that it filed an application to drill four wells . . . until the date in 2016
that it was granted approval of permits to drill different wells in a smaller 1920
Spacing Unit.” The period of time for the permitting delay was an issue and
the Plaintiffs were aware Continental was claiming the period included the
time before it had been assigned the leases. The Plaintiffs chose not to raise
their current issues when arguing they were entitled to summary judgment
and Continental’s motion should be denied. The law of the case doctrine and
mandate rule apply.
[¶17] An order denying or partially granting a motion for summary judgment
is generally an interlocutory order, which may be revised at any time before
entry of a judgment adjudicating all the claims and all the parties’ rights and
liabilities. See Ceynar v. Barth, 2017 ND 286, ¶ 7, 904 N.W.2d 469 (stating an
order denying summary judgment is an interlocutory order); Frontier Enters.,
LLP v. DW Enters., LLP, 2004 ND 131, ¶¶ 3-4, 682 N.W.2d 746 (stating partial
summary judgment is an interlocutory order). However, in this case the
summary judgment was a final order that decided all claims against all parties.
6
The Plaintiffs appealed that judgment. On appeal, we did not fully reverse the
judgment and remand for all issues to be tried. We only reversed on one issue
and remanded with specific instructions. This Court’s affirmance of the rest of
the summary judgment is the law of the case, including the Plaintiffs’ waiver
of any issues and arguments not raised. We remanded for further proceedings
on the issue of “whether Continental acted diligently and in good faith.”
Pennington, 2019 ND 228, ¶ 21. Because a final judgment was entered and
reviewed on appeal, with this Court reversing and remanding on a specific
issue, the Plaintiffs are precluded from raising new issues on remand. The
district court was required to carry out our mandate on remand and address
the issue of whether Continental acted diligently and in good faith in pursuing
the permit to drill the 2,560-acre spacing unit for more than three years.
[¶18] On remand, a bench trial was held and the district court made findings
and determined the leases remained in effect. The court found Continental
began the permitting process for a spacing unit including the land covered by
the Plaintiffs’ leases in 2012, the Forest Service and Fish and Wildlife Service
delayed the permitting process for the wells which prevented or delayed
Continental’s drilling operations, and Continental began developing a
contingency plan in early summer 2015. The court found Continental acted
diligently and in good faith in pursuing federal permits for the larger spacing
unit from May 2012 through October 2015.
[¶19] The district court also rejected the Plaintiffs’ current issues on the basis
of the mandate rule, stating “The Court rejects these arguments because they
are inconsistent with the Supreme Court’s opinion and with the language of
the Leases.” The court further explained:
The Supreme Court remanded to this Court specifically for
further proceedings on the issue of whether Continental acted
diligently and in good faith. Under the “mandate rule” this Court
must carry the Supreme Court’s mandate into effect according to
its terms. Ruling in favor of the Plaintiffs on the basis of the
arguments now raised would be outside the scope of remand
established by the Supreme Court and would thus be improper. . .
. The arguments that Plaintiffs now raise could have been made in
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conjunction with the parties’ cross motions for summary judgment
prior to the first appeal. Plaintiffs attempt to make these
arguments now comes “too late”.
(Citations omitted.)
[¶20] The district court fully carried out the terms of our mandate. The
Plaintiffs do not argue the district court erred in finding Continental acted
diligently and with good faith. We conclude the Plaintiffs’ arguments are
precluded under the law of the case doctrine and the mandate rule and will not
be addressed on appeal.
III
[¶21] We affirm the judgment.
[¶22] Jon J. Jensen, C.J.
Daniel J. Crothers
Lisa Fair McEvers
Jerod E. Tufte
Carol Ronning Kapsner, S.J.
[¶23] The Honorable Carol Ronning Kapsner, S.J., sitting in place of
VandeWalle, J., disqualified.
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