932 N.W.2d 897
N.D.2019Background
- Plaintiffs leased McKenzie County land to Continental in 2011; leases had a 3-year primary term with a one-year extension option, which Continental exercised in Oct. 2014.
- Leases included a "Regulation and Delay" (Paragraph 12) force majeure clause allowing the lessee to tack delay caused by inability to obtain permits onto the lease term.
- Continental applied in May 2012 for a permit covering a 2,560-acre spacing unit that included habitat for the threatened Dakota Skipper; federal review delayed approval.
- Continental recorded an affidavit claiming regulatory delay on Oct. 21, 2015 (four days before the leases’ primary-term anniversary) and then sought to reconfigure the spacing unit to 1,920 acres; drilling began after the commission approved the smaller unit and pooled interests in Jan. 2016.
- Plaintiffs sued in Aug. 2017, claiming the leases expired Oct. 25, 2015 and the regulatory delay clause did not extend the primary term; district court granted summary judgment to Continental.
- Supreme Court of North Dakota affirmed that Paragraph 12 can apply during the primary term but reversed and remanded as to whether Continental exercised the requisite diligence and good faith to invoke the clause (a factual issue).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does the lease's force majeure/"Regulation and Delay" clause extend the lease during the primary term? | Paragraph 12 does not apply to the primary term; it only applies after production or during the secondary term. | Paragraph 12 is not limited to the secondary term and by its plain language can extend the primary term for regulatory delay. | The clause can apply during the primary term; court interprets the lease as a whole to give Paragraph 12 effect during primary and secondary terms. |
| Do Paragraphs 4 and (p) (Exhibit A) limit Paragraph 12's application to primary term delays? | Exhibit A explicitly excludes obtaining permits as an operation that holds the lease beyond the primary term, so Paragraph 12 should be so limited. | Those limitations mention "after the primary term" and therefore only limit operations during the secondary term, not Paragraph 12. | Paragraphs 4 and (p) limit permit-related activities only for the secondary term; they do not negate Paragraph 12's plain-language reach during the primary term. |
| Was Continental prevented from commencing operations by circumstances beyond its control? | Continental could have sought approval for a smaller spacing unit sooner; delay was not unavoidable. | Federal agency actions (USFWS/BLM) caused delay and Continental had no reason to foresee that delay until the 2015 biological opinion. | The district court correctly found the delay resulted from governmental action beyond Continental's control, but factual disputes remain on Continental's diligence and good faith. |
| Did Continental act with requisite diligence and good faith to trigger the force majeure extension? | Continental acted unreasonably by pursuing the larger spacing unit for years and failing to seek earlier reconfiguration, creating a fact question. | Continental pursued its planned development and relied on regulatory process; no evidence of bad faith or lack of diligence. | There is a genuine issue of material fact whether Continental exercised diligence and good faith; summary judgment on this point was improper and the case is remanded for further proceedings. |
Key Cases Cited
- Horob v. Zavanna, LLC, 883 N.W.2d 855 (N.D. 2016) (standard for contract interpretation and summary judgment review)
- Poppe v. Stockert, 870 N.W.2d 187 (N.D. 2015) (summary judgment principles)
- Entzel v. Moritz Sport and Marine, 841 N.W.2d 774 (N.D. 2014) (definition and proof requirements for force majeure clauses)
- Fleck v. Missouri River Royalty Corp., 872 N.W.2d 329 (N.D. 2015) (principle of giving effect to every lease clause)
- Martin v. Marquee Pacific, LLC, 906 N.W.2d 65 (N.D. 2018) (good-faith factual inquiry and limits on summary judgment)