Penman v. Hess Bakken Investments II, LLC

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
Ronald Penman and )
Adelante Oil & Gas, LLC, )
on behalf of themselves and a class of )
similarly situated royalty owners, )
)
Plaintiffs, )
)
vs. ) Case No. 1:22-cv-097
)
Hess Bakken Investments II, LLC, )
)
Defendant. )
___________________________________ ) ORDER OF CONSOLIDATION
Sandy River Resources, LLC, and )
Sandy River Energy, LLC, )
on behalf of themselves and classes of )
similarly situated royalty owners, )
)
Plaintiffs, )
) Case No. 1:22-cv-108
vs. )
)
Hess Bakken Investments II, LLC, )
)
Defendant. )
______________________________________________________________________________
Before the Court is Plaintiffs Ronald Penman and Adelante Oil & Gas, LLC’s (“Penman”)
motion to consolidate filed on March 27, 2023. See Doc. No. 12. The Defendant, Hess Bakken
Investments II, LLC (“Hess”), filed a response to the motion on April 17, 2023. See Doc. No. 21.
The Plaintiffs filed a reply on April 24, 2023. See Doc. No. 23. The Plaintiffs in case number 1:22-
cv-108 (Sandy River Resources, LLC, and Sandy River Energy, LLC (“Sandy River”)) filed a notice
of consent to consolidation on April 19, 2023. See Doc. No. 22. For the reasons set forth below,
the motions are granted.
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I. BACKGROUND
Currently before the Court are two class actions alleging that Hess has breached its royalty
payment obligations with respect to the putative class members by: (1) deducting unreasonable and
excessive post-production costs from the Plaintiffs’ and the putative class members’ oil royalties;
(2) failing to pay the mineral owners statutory interest of 18% per annum on untimely royalty
payments pursuant to N.D.C.C. § 47-16-39.1; and (3) improperly deducting post-production costs
related to Hess’ natural gas production against the Plaintiffs’ and the putative class members’ oil
royalties. Review of the respective complaints reveals as follows.
A. The Royalty Underpayment Claims
The Penman Plaintiffs are owners of the lessor’s interest in certain oil and gas leases covering
land located in North Dakota. Hess obtained the lessee’s interest in the leases in or around 2010.
The lands covered by the lease have produced oil and gas and Hess has paid royalties to the Plaintiffs
pursuant to the leases. Plaintiffs allege that Hess has breached its contractual obligations by
deducting from the sales prices of the oil various unreasonable and excessive costs related to an
assortment of mid-stream services, including, but not limited to, gathering, storing, transporting the
oil, administrative costs, and costs of marketing the oil for sale. Plaintiffs further contend these
unreasonable and excessive post-production costs include instances where Hess itself or its affiliates
provided the above-referenced services from which Hess has further profited.
The Sandy River Plaintiffs own the lessor’s interest in a 2009 oil and gas lease and an interest
in a 2006 overriding royalty interest. The lands subject to the lease and overriding royalty interest
are located in western North Dakota. Hess holds the lessees’ interest in the 2009 lease and the
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obligations under the 2006 overriding royalty interest. . The Sandy River Plaintiffs’ allege that North
Dakota law and the lease and overriding royalty interest at issue obligate Hess to pay royalties on the
gross sales prices received on oil and gas sales, subject to the deduction of reasonable
post-production costs. The Sandy River Plaintiffs further allege that Hess has deducted unreasonable
amounts for post-production costs. The Sandy River Plaintiffs further allege that Hess’ use of its
wholly owned midstream subsidiary has further resulted in Hess’ improper deduction of excessive
post-production costs from their oil royalties.
B. Failure to Pay Statutory Interest on Late Payments Claims
The Penman Plaintiffs allege that Hess has consistently failed to pay royalties to Plaintiffs
and the putative class members within 150 days after the oil or gas is produced and marketed as
required under N.D.C.C. § 47-16-39.1. The Penman Plaintiffs further contend Hess has not paid
18% interest on those late payments despite being required to do so under North Dakota law.
The Sandy River Plaintiffs have made the same claim for late payment interest under
N.D.C.C. § 47-16-39.1. Originally, in Sandy River Plaintiffs made similar allegations in their
complaint with respect to the overriding royalty interests. However, the Court granted Hess’ motion
to dismiss this claim as it pertains to overriding royalty interests. See Doc. No. 15. The Sandy River
Plaintiffs’ statutory interest claims are now nearly identical to the those pending in the Penman case.
C. Claims for Improper Deduction of Negative Gas Royalties
The Penman Plaintiffs allege that Hess has produced both natural gas and oil from wells
drilled subject to their leases since Hess acquired its interests in those leases. They contend that in
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its calculation and payment of royalties on oil, Hess has improperly deducted post-production costs
associated with Hess’ natural gas production resulting in Hess’ improper deduction of a negative gas
royalty from Plaintiffs’ oil royalties.
The Sandy River Plaintiffs have relied on the same negative gas royalty allegations and made
the same claims for breach of contract against Hess. The Sandy River Plaintiffs contend Hess, in
its calculation and payment of gas royalties subjected the gas royalty to a variety of costs and
post-production costs which resulted in a total negative value, thereby reducing the Sandy River
Plaintiffs’ royalties.
II. LEGAL DISCUSSION
Penman seeks to consolidate this case with the Sandy River case for all purposes because the
two class actions involve common questions of law and fact and the same Defendant, Hess. Both
cases allege: (1) deduction of unreasonable and excessive post-production costs in the calculation
and payment of its oil royalties; (2) untimely payment of royalties and failure to pay statutory interest
consistent with N.D.C.C. § 47-16-39.1 on those untimely royalty payments; and (3) improper
deduction of the post-production costs associated with Hess’ natural gas production in the calculation
and payment of oil royalties. Sandy Rives consents to consolidation. Hess does not oppose
consolidation, but asks that consolidation be limited to fact discovery and then be revisited.
Rule 42 of the Federal Rules of Civil Procedure allows for the consolidation of actions
involving common questions of law or fact pending before the Court. Rule 42 provides in part as
follows:
(a) Consolidation. If actions before the court involve a common question of law or
fact, the court may:
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(1) join for hearing or trial any or all matters at issue in the actions;
(2) consolidate the actions; or
(3) issue any other orders to avoid unnecessary cost or delay.
Fed. R. Civ. P. 42(a). The decision to consolidate cases is left to the broad discretion of the district
court and will only be overturned for abuse of that discretion. Enterprise Bank v. Saettele, 21 F.3d
233, 235 (8th Cir.1994); United States E.P.A. v. City of Green Forest, Ark., 921 F.2d 1394, 1402
(8th Cir. 1990); Seguro de Servicio de Salud v. McAuto Sys. Group, 878 F.2d 5, 8 (1st Cir.1989)
( noting the threshold issue is whether the two cases involve a common party and common questions
of fact or law.); Frazier v. Garrison I.S.D., 980 F.2d 1514, 1531 (5th Cir.1993) (“[A] trial court may
consolidate multiple actions if the actions involve common questions of law or fact.”); Watson v.
Portfolio Recovery Assocs., LLC., No. 1:12-CV-035, 2012 WL 12897121 *2 (D.N.D. June 11,
2012) (finding consolidation pursuant to Rule 42 was appropriate given the actions involved
common questions of law and fact and the same parties and claims).
In this case, the claims in both cases are nearly identical and are made against the same
defendant. Defendant Hess is represented by the same counsel in both cases. Both cases are in their
early stages having been filed around the same time and both cases are now assigned to the
undersigned.1 Having reviewed the parties respective complaints, the Court finds that common
questions of law and fact exist so as to warrant consolidation. Further, consolidation of the actions
would provide for the best use of judicial resources. Consolidation will also conserve the resources
of the parties and facilitate settlement.
1The Penman case was reassigned to the undersigned on October 25, 2023. See Doc. No. 25.
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Hess’ concerns with prejudice are unfounded. Hess stands to benefit as much as anyone from
consolidation and will likely incur far less in attorneys fees in doing so. The Court sees no need to
designate lead counsel. The Federal Rules of Civil Procedure will govern the discovery process and
prevent any inefficiency or prejudice. The Court is willing to revisit the issue of consolidated versus
bifurcated trials after the dispositive motions deadline has passed and the Court has ruled on any
dispositive motions.
III. CONCLUSION
The Court has carefully reviewed the entire record and concludes consolidation is
appropriate. Accordingly, the motion for consolidation (Doc. No. 12) is GRANTED. The Court
further ORDERS as follows:
1. Case No. 1:22-cv-1097 and Case No. 1:22-cv-108 shall in all respects be
CONSOLIDATED;
2. Case No. 1:22-cv-097 is designated as the lead case;
3. All future filings shall only be filed in the lead case (Case No. 1:22-cv-097);
and
4. The caption of all future filings shall include the lead case (Case
No.1:22-cv-097), and may also reference Case No. 1:22-cv-108.
IT IS SO ORDERED.
Dated this 6th day of December, 2023.
/s/ Daniel L. Hovland
Daniel L. Hovland, District Judge
United States District Court
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