876 N.W.2d 443
N.D.2016Background
- 1991 oil and gas lease between Grynberg and Kittleson; a rider modified the lease.
- Royalty clause requires payment of market value at the well with no deductions for processing, dehydration, compression, transportation, or other post-production costs.
- Gas is sour and requires processing to become marketable; processing yields additional products.
- Grynberg does not operate the well; Missouri River Royalty operates it under a joint-venture; third parties gather and process the gas.
- In 2005, Kittleson sued claiming post-production costs were deducted in violation of the no-deductions clause; district court found underpayment of royalties since 1997 and awarded damages, interest, fees.
- Grynberg appeals, challenging lease interpretation and applicable statute of limitations; district court’s damages calculation and limitations ruling are reviewed on appeal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Lease interpretation on deductions vs. market value at the well | Kittleson: no deductions allowed; work-back allowed only if not overridden by specific clause | Grynberg: work-back deductions permitted under at-the-well rule | No deductions prohibited; specific no-deductions clause prevails over at-the-well rule |
| Applicable statute of limitations for underpayment royalties | Kittleson: ten-year period applies to real-property conveyance contract | Grynberg: U.C.C. four-year or six-year period should apply | Ten-year limitation under N.D.C.C. § 28-01-15(2) applies; royalties are tied to real-property lease |
| Damages award support and basis | Kittleson presented multiple exhibits showing underpayment | Grynberg contested amount and method | Damages supported by record; amount of underpayment ~$17,237.71 affirmed. |
Key Cases Cited
- Bice v. Petro-Hunt, L.L.C., 2009 ND 124 (2009) (adopts at-the-well rule but with no-deductions clause controlling when present)
- Ramada, Inc. v. Diocese of Bismarck Trust, 553 N.W.2d 760 (ND 1996) (ten-year limitation for contract actions contained in conveyances affecting title to real property)
- Jones v. Barnett, 2000 ND 207 (ND 2000) (treats some verbal terms not within a deed as not governing for limitations)
- Finstrom v. First State Bank of Buxton, 525 N.W.2d 675 (ND 1994) (addressed U.C.C. applicability and accrual timing in royalty context)
- Nantt v. Puckett Energy Co., 382 N.W.2d 655 (ND 1986) (oil and gas leases are interests in real property; royalties relate to conveyance)