Norberg et al v. Cottonwood Natural Resources, Ltd.

Filing 24

MEMORANDUM AND ORDER - The Motion to Dismiss (Filing No. 5 ) filed by Defendant Cottonwood Natural Resources, LTD. is granted. Plaintiffs' Complaint (Filing No. 1 -2) is dismissed. A separate judgment will be entered. Ordered by Chief Judge Laurie Smith Camp. (GJG)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
DAVID NORBERG, husband and wife;
SHELLY NORBERG, husband and wife;
and DCN, INC., a Nebraska
Corporation;
Plaintiffs,

8:15CV71
MEMORANDUM AND ORDER

vs.
COTTONWOOD NATURAL
RESOURCES, LTD., an Oklahoma
Limited Liability Company;
Defendant.

This matter is before the Court on the Motion to Dismiss (Filing No. 5) filed by
Defendant Cottonwood Natural Resources, LTD. (“Cottonwood”).

For the reasons

discussed below, the Motion will be granted.
FACTUAL BACKGROUND
The following is a summary of the allegations and factual assertions in the
Plaintiffs’ Complaint (Filing No. 1-2) which the Court accepts as true, for purposes of
this Motion. The Court need not accept legal conclusions stated in the Complaint.
This case involves a mineral lease for property in Kimball County, Nebraska.
Plaintiffs claim that Cottonwood failed to pay them an agreed-upon lease bonus in the
amount of $144,000.00 in exchange for its lease of Plaintiffs’ mineral interests. Plaintiffs
allege that Cottonwood solicited them in early 2013 to lease certain of their oil, gas, and
mineral interests. (Filing No. 1-2, Compl. ¶ 6.) To that end, Cottonwood prepared a
Letter Agreement (the “Letter Agreement”), and delivered it to Plaintiff David Norberg.
(Id.; Filing No. 1-2, Compl., Ex. A at ECF 8.) The terms of the Letter Agreement state

that Plaintiff David Norberg and Cottonwood would execute an additional Option to
Exercise Oil and Gas Lease (the “Option Agreement”). (Id.) The Letter Agreement
stated that Cottonwood would pay $100.00 per net mineral acre and provided for a 1/8th
mineral owner’s royalty with a primary term of four years. (Id.) Plaintiffs Shelly Norberg
and DCN, Inc., were not referenced in the Letter Agreement, and the Complaint did not
contain any allegation that Cottonwood ever contracted with DCN, Inc., or Shelly
Norberg. The Letter Agreement was dated March 20, 2013, and was executed by
Cottonwood on March 18, 2013. (Id.) Plaintiffs did not execute the Letter Agreement or
the contemplated Option Agreement. (Id.)
The parties’ negotiations continued for several months until a final contract, with
different terms and parties, was entered into on June 24, 2013. The final contract was
embodied in two mutually-executed documents, each dated June 24, 2013. The first
document was an Oil and Gas Lease between Norberg Farms, Inc. (“Norberg Farms”)
and Cottonwood (the “Lease”). (Filing No. 1-2, Compl. Ex. B at ECF 9-13.)

The

executed Lease was for a three-year primary term. (Id. at ECF 10-11.) The second
document was a Bank Draft (the “Draft”) between Cottonwood, as drawee, and Norberg
Farms. (Filing No. 1-2, Compl. Ex. D at ECF 20.) The terms of the Draft indicated that it
would be paid “[o]n approval of Oil & Gas Lease described hereunder, [a]nd on approval
of title to same by drawee not later than 120 banking days after arrival of this draft at
collecting bank.” (Id.) The Draft further indicated that “[i]n the event [it] is not paid within
said time, the collecting bank shall return same to forwarding bank and no liability for
payment or otherwise shall be attached to any of the parties herein.” (Id.)

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Cottonwood claims it released the Lease through a release document executed
on October 14, 2014. (Filing No. 1-2, Compl. Ex. J at ECF 42.) Plaintiffs claim that
Cottonwood breached the Letter Agreement and the Lease when it failed to pay the
bonus payment called for in the Letter Agreement in the amount of $100.00 per net
acre. Plaintiffs further assert that in reliance on the Lease, Plaintiffs expended a sum in
excess of $15,000.00 taking all necessary actions to clear title defects and confirm
marketable title. Plaintiffs also claim that by obtaining and recording the Lease,
Cottonwood prevented Plaintiffs from entering into agreements and oil and gas leases
with other interested parties and, as a result, Plaintiffs have suffered damages.
MOTION TO DISMISS STANDARD
“To survive a motion to dismiss, the factual allegations in a complaint, assumed
true, must suffice ‘to state a claim to relief that is plausible on its face.’” Northstar Indus.,
Inc. v. Merrill Lynch & Co., 576 F.3d 827, 832 (8th Cir. 2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007)). A complaint must contain “a short and plain
statement of the claim showing that the pleader is entitled to relief.” Fed. R. Civ. P.
8(a)(2).

“[A]lthough a complaint need not include detailed factual allegations, ‘a

plaintiff's obligation to provide the grounds of his entitlement to relief requires more than
labels and conclusions, and a formulaic recitation of the elements of a cause of action
will not do.’” C.N. v. Willmar Pub. Sch., Indep. Sch. Dist. No. 347, 591 F.3d 624, 629-30
(8th Cir. 2010) (quoting Twombly, 550 U.S. at 555). “Instead, the complaint must set
forth ‘enough facts to state a claim to relief that is plausible on its face.’” Id. at 630
(citing Twombly, 550 U.S. at 570).

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“A claim has facial plausibility when the plaintiff pleads factual content that allows
the court to draw the reasonable inference that the defendant is liable for the
misconduct alleged.” Ritchie v. St. Louis Jewish Light, 630 F.3d 713, 716 (8th Cir.
2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)) (internal quotation marks
omitted).

“Courts must accept . . . specific factual allegations as true but are not

required to accept . . . legal conclusions.” Outdoor Cent., Inc. v. GreatLodge.com, Inc.,
643 F.3d 1115, 1120 (8th Cir. 2011) (quoting Brown v. Medtronic, Inc., 628 F.3d 451,
459 (8th Cir. 2010)) (internal quotation marks omitted). When ruling on a defendant's
motion to dismiss, a judge must rule “on the assumption that all the allegations in the
complaint are true,” and “a well-pleaded complaint may proceed even if it strikes a
savvy judge that actual proof of those facts is improbable, and ‘that a recovery is very
remote and unlikely.’” Twombly, 550 U.S. at 555, 556 (quoting Scheuer v. Rhodes, 416
U.S. 232, 236 (1974)). The complaint, however, must still “include sufficient factual
allegations to provide the grounds on which the claim rests.” Drobnak v. Andersen
Corp., 561 F.3d 778, 783 (8th Cir. 2009).
DISCUSSION
Cottonwood argues that Plaintiffs’ Complaint should be dismissed because their
claims are based on Cottonwood’s breach of an offer that Plaintiffs never accepted. “To
create a contract, there must be both an offer and an acceptance; there must also be a
meeting of the minds or a binding mutual understanding between the parties to the
contract.” Linscott v. Shasteen, 847 N.W.2d 283, 289 (Neb. 2014).1 Under Nebraska
law, to recover for breach of express contract, “the plaintiff must plead and prove the
1

The parties agree that Nebraska law applies to this case.

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existence of a promise, its breach, damage, and compliance with any conditions
precedent that activate the defendant's duty.” Phipps v. Skyview Farms, Inc., 610
N.W.2d 723, 730 (Neb. 2000). “To establish an express contract under Nebraska law, a
definite proposal and absolute and unconditional acceptance must exist.” 168th &
Dodge, LP v. Rave Reviews Cinemas, LLC, 501 F.3d 945, 950 (8th Cir. 2007) (citing
Viking Broad. Corp. v. Snell Publ'g Co., 497 N.W.2d 383, 385 (Neb. 1993)).
“Additionally, a meeting of the minds must occur at every point, with nothing left open
for future agreement.” Id. (citations omitted). “An informal agreement may be binding,
despite the parties' intentions to enter a formal agreement at a later time, only if the
later, formal agreement contains no new provisions not contained in or inferred from the
prior informal agreement.” Id. 950-51 (citations omitted).
Plaintiffs do not deny that the Letter Agreement was an offer expressing
Cottonwood’s willingness to enter into a mineral rights lease. However, Plaintiffs allege
no facts indicating they accepted the Letter Agreement nor do the allegations support
an inference of acceptance. The Letter Agreement, addressed to David Norberg, was
not signed by David Norberg or any of the Plaintiffs. (Filing No. 1-2 at ECF 8.) Further,
the Complaint is devoid of any allegation that David Norberg manifested acceptance of
the Letter Agreement. Rather, the Complaint demonstrates that negotiation in the
months following transmittal of the Letter Agreement resulted in the Lease between
different parties that contained different terms. Norberg Farms, Inc., became the
contracting party rather than David Norberg and, among other differences, the four-year
term contemplated in the Lease Agreement became a three-year term.

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Plaintiffs nevertheless argue that they accepted the Letter Agreement even
though they did not execute it, and that the Letter Agreement should be construed as a
part of the final contract between the parties.

Plaintiffs assert that the absence of

execution does not nullify the Letter Agreement because, in Nebraska, “signatures of
the parties are not essential to establish a binding contract if manifestation of mutual
assent is otherwise shown, unless there is a statute requiring a signature or an
agreement by the parties that a contract shall not be binding until it is signed.” RSUI
Indem. Co. v. Bacon, 810 N.W.2d 666, 672 (Neb. 2011).
Plaintiffs argue that the parties impliedly incorporated the Letter Agreement into
the parties’ final contract because Plaintiffs relied on representations contained in the
Letter Agreement. In Nebraska, “instruments made in reference to and as part of the
same transaction are to be considered and construed together, and the fact that the
instruments were made or dated at different times is not significant if they are related to
and were part of the transaction.”

Norwest Corp. v. State, Dep't of Ins., 584, 571

N.W.2d 628, 634 (Neb. 1997). Further, “A binding mutual understanding or meeting of
the minds sufficient to establish a contract requires no precise formality or express
utterance from the parties about the details of the proposed agreement; it may be
implied from the parties' conduct and the surrounding circumstances.”

Linscott v.

Shasteen, 847 N.W.2d 283, 289 (Neb. 2014). For example, in Gary's Implement, Inc. v.
Bridgeport Tractor Parts, Inc., 702 N.W.2d 355 (Neb. 2005), the Nebraska Supreme
Court determined that three documents related to an agreement to sell agricultural
equipment would be considered together because the documents each referenced the

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other and “were all executed at the same time and in the same place, and shared
parties in common.” Id. at 369.
Unlike the documents in Gary’s Implement, there is no allegation of a
manifestation of mutual assent to include the Letter Agreement in the parties’ contract.
The Letter Agreement was never executed, so it cannot be said that they were executed
at the same time or in the same place as the Lease and Bank Draft. Further, the Letter
Agreement and the Lease do not share parties in common and neither the Lease nor
the Draft make any reference to the Letter Agreement. As noted above, the executed
Lease was for a three-year primary term, but the March Letter Agreement proposed a
four-year lease which Plaintiffs never executed. There is no allegation that the “Option
Agreement” referenced in the Letter Agreement ever materialized. The Lease and Bank
Draft also contemplate consideration and royalties that differ from the Letter Agreement.
In sum, the Lease and Bank Draft make no reference to the Letter Agreement, and were
executed between different parties on different terms than the Letter Agreement nearly
three months after the Letter Agreement was sent to David Norberg. Accordingly, there
is no indication from the allegations in the Complaint and the attached documents that
the parties intended to include the Letter Agreement as a part of the same transaction
as the Lease and Bank Draft.2

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Plaintiffs argue that the Bank Draft’s no-liability clause does not negate the mutuality of
obligation of the underlying Lease and Letter Agreement. Plaintiffs cite the Eighth Circuit’s decision in
Smith v. Arrington Oil & Gas, Inc., 664 F.3d 1208 (8th Cir. 2012), in which the court considered the effect
of an identical provision in a number of bank drafts on lease agreements that, by their plain terms,
required the payment of a lease bonus. Id. at 1211. The court held that “[b]ecause [the defendant’s]
interpretation would impermissibly nullify the provisions of the lease agreements cited above when the
no-liability clause can be read to harmonize with those same provisions, we conclude that the drafts’ noliability clause does not prevent enforcement of the lease agreements.” Id. at 1215. This case is
distinguishable from Smith because the Lease does not require the payment of a lease bonus. The only

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CONCLUSION
For the reasons stated above, Plaintiffs have failed to allege that they accepted
the offer contained within the Letter Agreement. Further, there is no allegation or
indication that the parties intended to incorporate the Letter Agreement into their final
contract. Accordingly, Plaintiffs’ Complaint fails to state a claim for which relief can be
granted.
IT IS ORDERED:
1.

The Motion to Dismiss (Filing No. 5) filed by Defendant Cottonwood
Natural Resources, LTD. is granted;

2.

Plaintiffs’ Complaint (Filing No. 1-2) is dismissed; and

3.

A separate judgment will be entered.

Dated this 14th day of September, 2015
BY THE COURT:
s/Laurie Smith Camp
Chief United States District Judge

document that refers to a lease bonus is the Letter Agreement and, for the reasons stated above, the
Plaintiffs have not alleged sufficient facts to demonstrate that the Letter Agreement was incorporated into
the parties’ contract.

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