GEM Razorback, LLC v. Zenergy, Inc.
2017 ND 33
| N.D. | 2017Background
- GEM and Zenergy owned working interests in two McKenzie County oil wells; Zenergy operated the wells and GEM did not consent to pay drilling/operating costs, making GEM a nonconsenting owner subject to a statutory risk penalty.
- GEM repeatedly requested detailed records (39 categories) including costs, revenues, production data, and cumulative payout balances from Zenergy; Zenergy provided limited information and later assigned its interest (including files/records) to Oasis.
- After the assignment, Oasis produced some records but said it lacked certain pre-assignment documents; GEM filed applications with the Industrial Commission seeking determination of actual costs and was allowed an audit; Commission dismissed applications without prejudice and the audit revealed missing pre-assignment records.
- GEM sought the missing records from Zenergy; Zenergy refused. GEM then sued Zenergy in district court for (1) declaratory relief that GEM has a statutory right under N.D.C.C. ch. 38-08 to the requested information, and (2) specific performance of the Zenergy–Oasis assignment, claiming third-party beneficiary status to compel production of records.
- Zenergy moved to dismiss for lack of subject-matter jurisdiction (failure to exhaust administrative remedies) and for failure to state a claim (assignment disclaims third-party beneficiaries); the district court granted dismissal on both grounds. GEM appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether GEM’s declaratory-judgment claim can proceed without exhausting administrative remedies | GEM: statutory-right question is purely one of statutory interpretation for courts; exhaustion would be futile | Zenergy: GEM must exhaust Commission remedies because the Commission has authority to require/compel records and adjudicate cost disputes | Court: Dismissal affirmed for failure to exhaust administrative remedies; Commission empowered to interpret statutes and to compel production of records |
| Whether GEM can enforce the Zenergy–Oasis assignment as a third-party beneficiary to obtain records (specific performance) | GEM: intended third-party beneficiary entitled to enforce assignment provision conveying "all files, records and data maintained by" Zenergy | Zenergy: assignment expressly disclaims any third-party beneficiaries, barring GEM’s claim | Court: Dismissal affirmed; written no-third-party-beneficiary clause governs, precluding parol evidence and third-party enforcement |
Key Cases Cited
- Vogel v. Marathon Oil Co., 879 N.W.2d 471 (N.D. 2016) (standard for 12(b)(1) dismissal and exhaustion review)
- Brown v. State ex rel. State Bd. of Higher Educ., 711 N.W.2d 194 (N.D. 2006) (administrative remedies must be exhausted when adequate)
- Thompson v. Peterson, 546 N.W.2d 856 (N.D. 1996) (failure to exhaust administrative remedies bars court claims)
- Egeland v. Continental Res., Inc., 616 N.W.2d 861 (N.D. 2000) (Industrial Commission’s broad regulatory powers under the Oil and Gas Act)
- Amerada Hess Corp. v. Furlong Oil & Minerals Co., 348 N.W.2d 913 (N.D. 1984) (appeal of administrative decisions is an adequate legal remedy)
- Mills v. City of Grand Forks, 813 N.W.2d 574 (N.D. 2012) (treatment of 12(b)(6) motion as summary judgment when extrinsic materials considered)