Northern Oil and Gas, Inc. v. EOG Resources, Inc.
No. 19-1326
United States Court of Appeals For the Eighth Circuit
July 27, 2020
SMITH, Chief Judge, MELLOY and SHEPHERD, Circuit Judges.
Appeal from United States District Court for the District of North Dakota - Bismarck. Submitted: May 12, 2020.
SMITH,
Northern Oil and Gas, Inc. (“Northern“) filed this quiet-title action in federal district court against EOG Resources, Inc. (EOG) regarding their competing interests in mineral rights in North Dakota. Both companies lease oil and gas rights, and their lessors litigated a similar matter in state court. The district court found that Northern was in privity1 with its lessor and held that the lessors’ case barred Northern‘s claims.
I. Background
In the 1950s and 1960s, Axel Anderson and Henry Johnson engaged in a series of transactions involving land and mineral interests. These culminated in a 1962 warranty deed in which Anderson conveyed certain mineral interests to Johnson but reserved 1/4 for himself. By 2008, Anderson‘s interest had passed to Nancy Finkle, and Johnson‘s interest had passed to his descendants (“the Johnsons“). That year, Finkle entered an oil and gas lease with Northern‘s predecessor, which assigned most of its interest to Northern a few months later.2 The Johnsons entered oil and gas leases with EOG.
In 2011, the Johnsons filed a quiet-title action against Finkle in North Dakota state court.3 Northern and EOG were not made parties to nor given notice of that litigation. The state court found in the Johnsons’ favor, terminating Finkle‘s interest in the land at issue.
Prior to the state-court action, Northern and EOG cooperated in the development of the land. But two years after the case concluded, EOG informed Northern that it would no longer do so; it was “reversing” previously paid revenues and invoiced well costs. In response, Northern filed this quiet-title action in federal district court. EOG moved to dismiss, arguing that the state-court judgment against Finkle barred Northern‘s quiet-title action by operation of res judicata.
Under res judicata, the state-court judgment could only preclude Northern‘s claim if it was in privity with Finkle. Northern argued that, under North Dakota law, privity does not apply where a mineral lessee acquired its interest before the earlier litigation‘s commencement. The district court rejected that argument. Instead it applied a two-pronged test, which looked to whether Northern‘s interests (1) were aligned with Finkle‘s and (2) were protected by the state-court proceedings. The court determined that Finkle adequately represented Northern‘s interest. Therefore, Northern was in privity with Finkle. The court granted EOG‘s motion to dismiss.
A few months later, the Supreme Court of North Dakota decided Gerrity Bakken, 915 N.W.2d at 685, a factually similar case. Gerrity Bakken leased mineral interests
Based on the decision in Gerrity Bakken, Northern moved for reconsideration. The district court denied the motion. The court noted that North Dakota‘s privity standard allows consideration of fundamental fairness. See Kulczyk v. Tioga Ready Mix Co., 902 N.W.2d 485, 488 (N.D. 2017). Gerrity Bakken‘s holding did not address fundamental fairness, and the district court believed the holding was not one that “should . . . be applied so rigidly as to defeat the ends of justice or to work an injustice.” Order Granting Def.‘s Mot. to Dismiss at 11, N. Oil & Gas Co. v. EOG Resources, Inc., No. 1:16-cv-00388-DLH-CSM (D.N.D. Jan. 15, 2019), ECF No. 100 (quoting Riverwood Com. Park L.L.C. v. Standard Oil Co., 729 N.W.2d 101, 107 (N.D. 2007)). In other words, courts are free to consider the timing of the lease as well as fundamental fairness. Because Northern‘s interests were (1) aligned with Finkle‘s and (2) protected by the state court proceedings, the court found that fundamental fairness counseled binding Northern to the quiet-title judgment.
II. Discussion
Northern argues that the district court erred in holding that it was in privity with Finkle and that res judicata barred its quiet-title action. “The law of the forum that rendered the first judgment“—here, North Dakota—“controls the res judicata analysis.” Laase v. Cty. of Isanti, 638 F.3d 853, 856 (8th Cir. 2011) (internal quotation omitted). “We review a district court‘s interpretation of state law de novo. In interpreting state law, we are bound by the decisions of the state‘s highest court.” Cty. of Ramsey v. MERSCORP Holdings, Inc., 776 F.3d 947, 950 (8th Cir. 2014) (internal citation omitted). “When there is no state supreme court case directly on point, our role is to predict how the state supreme court would rule if faced with the same issue before us.” Blankenship v. USA Truck, Inc., 601 F.3d 852, 856 (8th Cir. 2010) (cleaned up).
Under North Dakota law, res judicata applies only if Northern was in privity with Finkle. See Ungar, 721 N.W.2d at 20-21. Typically “privity exists if a person is so identified in interest with another that he represents the same legal right.” Hofsommer v. Hofsommer Excavating, Inc., 488 N.W.2d 380, 384 (N.D. 1992) (internal quotation omitted).4 Northern contends that “the privity doctrine cannot be applied if the rights to property were acquired by the person sought to be bound before the adjudication.” Gerrity Bakken, 915 N.W.2d at 684. In other words, it argues that it is not bound by Finkle‘s quiet-title judgment because it acquired its
Gerrity Bakken sets forth current North Dakota law on the subject of privity and the application of res judicata. There, in two 1960‘s conveyances, a property owner conveyed a greater mineral interest than he possessed. Id. at 680. In 2013, this fault came to light, and the buyers’ successors filed a quiet-title action, which also named “all other persons unknown claiming any estate or interest in, or lien or encumbrance upon, the property described in the complaint.” Id. at 680-81 (cleaned up). The plaintiffs did not name Gerrity Bakken, who had entered an oil and gas lease two years before the case was filed with a putative owner of the disputed property. Id. at 680. The trial court found for the opponents of Gerrity Bakken‘s lessors. Id. at 681. Shortly thereafter, Gerrity Bakken filed a separate quiet-title action against the prevailing party. Id. The defendants to Gerrity Bakken‘s suit argued that the case should be barred because it constituted “an impermissible collateral attack on the [earlier] quiet title judgment.” Id. at 684. Even with the complaint‘s broad naming of parties, the court found that Gerrity Bakken was not a party to the action or in privity with its lessors. Id. As for the latter, it stated that “the privity doctrine cannot be applied if the rights to property were acquired by the person sought to be bound before the adjudication.” Id. Thus, “because Gerrity Bakken and its predecessors acquired their interest from [its lessors] in 2011, two years before the 2013 quiet title action, the privity doctrine does not apply.” Id.
Applying Gerrity Bakken to the instant facts, Northern was not in privity with Finkle. Like Gerrity Bakken, Northern entered a lease before the state quiet-title action commenced. And like Gerrity Bakken, Northern‘s lessor lost its quiet-title action. The North Dakota Supreme Court expressly declined to apply the privity doctrine on facts closely resembling this case. See id. at 684-85. In short, because “the privity doctrine cannot be applied if the rights to property were acquired by the person sought to be bound before the adjudication,” id. at 684, we hold that the privity doctrine does not bar Northern‘s action under controlling North Dakota law.
The district court distinguished Gerrity Bakken and concluded that it is not a hard-and-fast rule prohibiting consideration of other factors. The court noted that Gerrity Bakken did not address fundamental fairness, which counsels against reversal. But even if Gerrity Bakken‘s failure to consider fundamental fairness renders it not “directly on point, our role is to predict how the state supreme court would rule if faced with the same issue before us.” Blankenship, 601 F.3d at 856 (cleaned up). Gerrity Bakken, a case with striking similarity, gives us a convincing clue for making that prediction.
To be sure, Stetson v. Investors Oil, Inc., 176 N.W.2d 643 (N.D. 1970) provides some support for the fundamental fairness argument. There, an individual filed a suit against an oil prospecting company for unpaid services on an oil well and won. Id. at 644. His trustee then brought a garnishment action, which set up the garnishment of oil runs and an execution sale of a leasehold interest. Id. at 644-45. The owners of the prospecting company and financiers who had purchased participating units in an oil venture well before the garnishment action (“the defendants“) brought a quiet-title action to prevent the garnishment. Id. at 645. The defendants argued that their rights were not foreclosed by the earlier suit because they were not a party to the original judgment; their agent, the company, was. Id. at 647-48. The court rejected that argument and applied res judicata to bind them to the
Stetson, however, is materially distinguishable: Northern did not admit that it (1) participated in the prior action or (2) had any communications regarding the prior action. Indeed, it appears that North Dakota courts have never found it equitable to apply res judicata where the third party (1) acquired its interest prior to the proceeding and (2) was not involved in the proceeding. See Bismark Pub. Sch. Dist. v. Hirsch, 136 N.W.2d 449, 454 (N.D. 1965) (finding a prior quiet-title action, which decided title to chattel attached to land, did not prevent the land‘s buyer from arguing he had title to the chattel because he acquired his interest before the quiet-title action); Hull v. Rolfsrud, 65 N.W.2d 94, 98 (N.D. 1954) (finding a probate proceeding did not affect the claim of an individual who acquired his interest to the property in the probate proceedings before the proceedings commenced).
A recent decision further weakens the proposition that fundamental fairness alone alters the timing component of Gerrity Bakken‘s holding. In Great Plains Royalty Corp. v. Earl Schwartz Co., 927 N.W.2d 880, 883-84 (N.D. 2019), parties argued over ownership interests in assets. Id. at 884-85. The plaintiff argued that res judicata barred some of the defendants’ arguments because the assets were involved in an earlier bankruptcy proceeding. Id. One of the defendants was not a party to the bankruptcy proceeding but had acquired its interest from a party who was, so the plaintiff argued the former was in privity with the latter. Id. at 888. In its privity analysis, the North Dakota Supreme Court referenced fundamental fairness. Id. But the court found that it could not apply privity because the relevant defendant acquired its interest before the bankruptcy proceeding. Id. at 889. In short, even after noting fundamental fairness, the North Dakota Supreme Court applied the Gerrity Bakken rule. The court considered fundamental fairness but declined to apply it in a way that undermined the Gerrity Bakken rule.5 Thus, we predict that North Dakota would conclude that fundamental fairness does not overcome Gerrity Bakken in this case.
EOG offers other arguments, but they too are unavailing. Specifically, it claims that other rules of privity apply. For instance, it argues that North Dakota has indicated that a party is in privity where it holds its interest subordinate to a party involved in an earlier action. See Hull, 65 N.W.2d at 98 (“In order to make a man a privy to an action . . . he must hold property subordinately.” (internal quotation omitted)). The argument would conclude that Northern, as a lessee, was in privity with Finkle, a lessor. Notably, EOG does not provide a case where a North Dakota court actually found a party in privity because it possessed a subordinate interest. Also, in Gerrity Bakken, the lessee was not in privity even though its interest was subordinate. In short, though it includes references to the standard, case law does not suggest that North Dakota courts would apply the subordinate-interest rule on these facts.
EOG also argues that privity applies because Finkle adequately represented Northern in the state quiet-title action. This argument draws heavily on Taylor v. Sturgell, 553 U.S. 880, 885 (2008) (finding that the
In short, we believe the North Dakota courts would follow the rule pronounced in Gerrity Bakken. And applying that rule here, privity—and thus res judicata—does not apply to Northern because it obtained its property interest three years before the state quiet-title action commenced.
III. Conclusion
For the foregoing reasons, we reverse and remand for further proceedings consistent with this opinion.