The Suspense is Killing Me: When North Dakota’s Suspense Statute May Require Formal Notice

The Supreme Court of North Dakota determined in Powell v. Statoil Oil & Gas LP[1] that statutory interest under the state’s “Suspense Statute” may be granted for improper notification of a purported title defect to an owner of suspended royalty. This criterion is especially applicable where there is a title dispute between an operator and a mineral owner rather than between two rival royalty or mineral owners. The court further decided that royalty payments that are late, underpaid, or unpaid are subject to the ten-year statute of limitations.

I. Context
Before she passed away on April 23, 2016, June Slagle possessed a life estate mineral interest in McKenzie County, known as the “Slagle Interest.” The June Slagle Family Mineral Trust (the “Slagle Trust”) held the remaining portion. The predecessor in interest of Statoil Oil & Gas LP (also known as Equinor Energy LP) (henceforth referred to as “Statoil”), Brigham Oil & Gas L.P., received a lease from “Fonda Powell, power of attorney for June Slagle” in April 2010. Crucially, June’s daughter Fonda Powell was named as June Slagle’s attorney-in-fact in a power of attorney that was given to Statoil but was never registered in McKenzie County.

Patent Gate 7-6 #1H of Statoil After being spud in October 2011, the well started to produce in April 2012. But during her life, June Slagle never received royalties. Following June’s passing in April 2017, Statoil gave the Slagle Trust about $750,000 in exchange for the suspended royalties related to June’s life estate mineral interest. The June Slagle Family Mineral Trust and the Estate of June A. Slagle, Deceased (collectively, the “Plaintiffs”) filed a lawsuit in May 2019 alleging Statoil had failed to pay royalties on time and requesting statutory interest.

Statoil retorted that, while having received a copy of the power attorney, it had never been registered in McKenzie County, hence it had rightfully suspended the payments. But Statoil had never gotten in touch with June or Fonda to let them know about this purported title flaw or that June’s life estate interest was being held in escrow. According to the district court, Statoil did not due statutory interest since the unrecorded power of attorney gave rise to a valid ownership dispute under the Suspense Statute’s “Safe Harbour” clause. In their appeal, the Plaintiffs contested two issues: (i) whether the relevant statute of limitations applied, and (ii) whether Statoil had the right to suspend the Slagle Interest because of a title dispute.

II. The Ten-Year Statute of Limitations and Kittleson
The North Dakota Century Code’s Section 28-01-17(2) sets a three-year statute of limitations for cases involving “penalty or forfeiture.” Statoil contended that the interest due under the Suspense Statute should be subject to the three-year statute since it is “not truly interest.” The legislature “is aware of the difference between ‘interest’ and ‘penalty,’ and although there may be an upper limit where interest becomes a penalty, we will not second-guess its use of the word ‘interest’ here,” the court stated in contrast to the legislature’s position.

A ten-year statute of limitations is imposed on “a contract contained in any conveyance… affecting title to real property” under Section 28-01-15(2) of the Code. A breach of contract lawsuit for underpayment of royalties is subject to the ten-year statute of limitations, as was previously decided in Kittleson v. Grynberg Petroleum Co. in 2016. Unlike in some other states, North Dakota considers royalties to be “of the essence” in oil and gas leases, meaning that failure to pay can result in the termination of the agreement. Thus, the duty to pay royalties is covered by Section 28-01-15(2) as a “contract in a conveyance affecting title to real property.”

The eighteen percent interest is an alternative remedy to lease termination under the Suspense Statute, and it is part of the unpaid royalty owner’s damages for nonpayment. The complaint may be based on underpayment, nonpayment, or—as in Powell’s case—late royalties payments. The plaintiffs’ claim was not barred by the three-year statute of limitations because it was made within ten years of the complaint and included tardy royalties and statutory interest.

III. Safe Harbour Provision and Vic Christensen
As previously mentioned, a resource owner may impose an 18% interest rate on late royalties payments under the Suspense Statute. The Statute does not, however, apply in the case that a title dispute arises that affects how royalties are distributed. This clause is also known as the “Safe Harbour” clause. Certain royalty payments were put on hold in the 2022 case of Vic Christensen Mineral Trust v. Enerplus Res. (USA) Corp. because of a “erroneous” remark in a title opinion. After concluding that there was no problem, the trusts settled their lawsuits against one another to quiet title and agreed to a stipulation of interest to do so. The trusts then filed a statutory interest lawsuit against Enerplus Resources Corporation (“Enerplus”), alleging that Enerplus had improperly deposited its interest in suspense.

According to the Vic Christensen court, the Safe Harbour clause only needs an ongoing title dispute to be in place. A victorious title claim is not necessary. If not, an operator would have to assess a dispute’s legal merits, a task better left to the judicial system. The “crucial facts” in Vic Christensen were that the mineral owners sued each other after the operator informed them of a title problem. This “undoubtedly created[ed] a ‘dispute of title’ that would impact [the operator’s] royalty payments.”

There was no quiet title litigation or other dispute between the mineral owners here, unlike Vic Christensen. N.D. Cent. Code § 47-16-39.4 states that “the mineral developer shall furnish the mineral owner with a description of the conflict and the proposed resolution or with that portion of the title opinion that concerns the disputed interest” in the event that the mineral owner and developer cannot agree on the owner’s ownership interest in a spacing unit. Statoil did not get in touch with June Slagle to inform her that her royalties were being suspended, unlike Enerplus in the Vic Christensen case.

The Powell court declined to discuss whether the Suspense Statute’s definition of a title dispute is met by a failure to record a power of attorney in the county where the property is located. Rather, N.D. Cent. Code § 47-16-39.4 required notification of the dispute because it was between the operator and the mineral owner rather than between mineral owners. Throughout her life, June Slagle received no income from Statoil on her life estate interest, and the company neglected to inform her of her title defect. Statoil was therefore obligated to pay statutory interest since it had not taken advantage of the Safe Harbour provision.

IV. Lessons Learned from Powell
The Powell ruling has several important implications. Powell first reminds us that in North Dakota, paying royalties is a requirement—not a covenant—of an oil and gas lease. Lease forfeiture or, alternatively, the collection of interest under the Suspense Statute may arise from underpayment, late payment, or failure to pay royalties.

In Powell, the Supreme Court of North Dakota denied to consider interest under the Suspense Statute as a forfeiture or punishment within the context of the three-year statute of limitations. Rather, a contract included in a transaction affecting title to real property governs nonpayment, underpayment, or late payment of royalties, and the ten-year limitation is applicable.

Third, Powell draws attention to a crucial distinction between when a mineral or royalty owner and a mineral developer should notify each other of a title dispute under the Safe Harbour provision. According to the interpretation of N.D. Cent. Code 47-16-39.1 and 47-16-39.4 taken together, an operator may be required to pay the 18% annual statutory interest under the Suspense Statute if she neglects to notify a mineral owner of a title dispute affecting her distribution of royalties and does not pay royalties within 150 days of the oil or gas produced under the lease being marketed. The conflict, the suggested solution, and the section of the title opinion pertaining to the contested should all be included in this notification.

V. Concluding Remarks on POAs
The court did not resolve the issue of whether the Suspense Statute’s Safe Harbour provision applies to a dispute of title if a power of attorney is not recorded in the county where the property is located. The North Dakota Title Standards stipulate that a power of attorney must be recorded in order to establish authority of an attorney-in-fact on behalf of the principal, even though we are not aware of any binding authority on the subject.

Thus, there is some evidence to support the claim that the absence of a power of attorney could constitute a suspendable offence (given due notice to the party in suspense). Failing to record a power of attorney is nevertheless, at the very least, a mark against marketable title. It should be noted that absent powers of attorney that are older than 20 years may be restored under the North Dakota Marketable Title Act or utilized as “ancient documents” in court.

Statoil had received an undocumented copy of the Slagle/Powell power of attorney in Powell. Whether this kind of “actual notice” could remove this very technical title flaw from the Safe Harbour protection is still up for debate. The most important lesson to be learned from this situation is probably that if you are going to suspend someone, and you can locate them through a reasonable search, you should give them prompt, comprehensive notice of their suspension along with cure instructions.

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