Flaring case could open door for mineral owners to sue oil companies
BISMARCK - An appeal being considered by the North Dakota Supreme Court could pave the way for class action lawsuits against oil companies over flared natural gas.
BISMARCK – An appeal being considered by the North Dakota Supreme Court could pave the way for class action lawsuits against oil companies over flared natural gas.
The state Supreme Court heard oral arguments Thursday in an appeal from a mineral owner who claims she’s owed royalties for natural gas that was illegally flared from oil wells.
The mineral owner, potential governor candidate Sarah Vogel, is appealing a judge’s decision to dismiss her case against Marathon Oil Co.
But the outcome of the Supreme Court’s decision will affect more than one royalty owner and one oil company.
Justices on Thursday referred to the “elephant in the room,” which is that a ruling in favor of Vogel would open the door for the potential of class action claims against oil companies that are flaring natural gas in North Dakota.
The Vogel case is one of 14 lawsuits filed against oil companies in 2013 in which mineral owners claim they’re owed royalty payments because of natural gas flaring that was in violation of state statute.
Attorneys said at the time mineral owners are potentially owed millions of dollars in royalties from illegally flared natural gas, and attorney Derrick Braaten said he initially fielded several calls a day from owners who wanted to join class action claims.
Cases against 13 of the 14 oil companies were moved to federal court, where U.S. District Court Judge Daniel Hovland dismissed them, ruling that the mineral owners failed to exhaust their administrative remedies through the state’s Industrial Commission.
The case against Marathon remained in state court, where North Central Judicial District Judge Todd Cresap dismissed it on similar grounds.
The appeal focuses on whether mineral owners can bring such a claim to the courts without going first to the Industrial Commission.
“If the Supreme Court rules in our favor, then all of the other cases would be immediately refiled,” said Braaten, one of the attorneys for Vogel and the other mineral owners.
Vogel’s attorneys argue that the real reason oil companies want the matter decided by the Industrial Commission is they know the process will discourage mineral owners from making claims.
For individual mineral owners to bring claims to the Industrial Commission, they’d likely spend more money on legal fees than they’d potentially recoup in royalties, Braaten said.
“It’s not going to be economical and no one’s going to do it,” Braaten said in an interview.
In addition, the Industrial Commission can’t award damages, so the claims would still need to go to court, argued attorney Stephen Easton
“In the absence of class action recovery, this is an industry that can effectively ignore this statute,” Easton said of the anti-flaring statute.
Oil companies are allowed to burn away some natural gas that occurs along with oil production. But if that gas is burned away in violation of Industrial Commission rules, state law requires oil companies to pay royalties and gross production tax on that gas.
Marathon attorney John Morrison challenged the claims that Marathon flared gas illegally and that companies haven’t paid royalties on flared gas.
“Royalties are being paid on flared gas,” Morrison said. “In fact, if this case fully develops, it will come out that Marathon has paid royalties on flared gas.”
In addition, Morrison argued that any royalty owner can file a petition to the Industrial Commission and receive a hearing and a ruling within 30 days of the hearing.
“The commission has bent over backwards to be accessible to members of the public. You can testify by telephone, you can have your experts testify by telephone,” Morrison said. “It’s a much less expensive process than going to court, so there is meaningful relief for royalty owners that have a claim.”
The Supreme Court took the matter under advisement.
Vogel, a Democrat and former North Dakota agriculture commissioner, has formed a committee to explore a run for governor. While she was agriculture commissioner, Vogel served on the three member-Industrial Commission, which is chaired by the governor. Vogel didn’t return a call seeking comment Thursday.
Vogel’s lawsuit and the other cases don’t seek a specific amount in damages, but ask for an amount to be determined at trial. Braaten argues the state of North Dakota is owed money for flared gas, too, in royalties and taxes.
“If we’re able to move ahead with these in state or federal court, we’re confident the companies are going to have to pay the piper and mineral owners are going to get paid and the state’s going to get paid,” Braaten said.