Major Drilling America, Inc. v. Redemption Energy, LLC

Filing 34

ORDER by Magistrate Judge Charles S. Miller, Jr. granting 17 Motion for Relief from State Court Temporary Injunctive Order. (KT)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
NORTHWESTERN DIVISION
Major Drilling America, Inc.,
Plaintiff,
vs.
Redemption Energy, LLC,
Defendant.

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MEMORANDUM OPINION AND
ORDER VACATING THE
TEMPORARY INJUNCTION

Case No. 4:13-cv-048

Before the court is a “Motion for Relief from State Court Temporary Injunctive Order” filed
by defendant, Redemption Energy, LLC (“Redemption”), on May 17, 2013. For the reasons set
forth below, the motion is granted.
I.

BACKGROUND
Redemption is a Minnesota limited liability company in the business of developing and

operating saltwater disposal wells. On July 20, 2012, it obtained a “Saltwater Disposal Lease” from
landowners in McKenzie County, North Dakota. (Doc. No. 23-1). Under the terms of the lease, the
landowners granted Redemption the right to construct, operate, and maintain a well for the disposal
of saltwater on its property in McKenzie County. In return, they would receive eight cents per barrel
of salt water injected into the well. Notably, the lease did not authorize production of oil or gas.
On October 24, 2012, Redemption filed an application with the North Dakota Industrial
Commission (“Industrial Commission”) seeking permission to inject saltwater and other fluid wastes
into a new “commercial” saltwater disposal well to be drilled on the above tract it leased in
McKenzie County to be known as the “Alamo SWD-1.” Redemption’s application stated in part:

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Redemption Energy proposes to drill and operate commercial salt water disposal wells, the
subject well being Alamo #1. The Alamo #1 will be a new salt water disposal facility in Poe
field in NE NE, Section 7, T151N, R99W, McKenzie County, North Dakota. Redemption
Energy will provide salt water disposal services for operators in the local area. Salt water
will be hauled by truck to the facility, treated, and then stored in tanks before being injected
down the well. Injection water will be either produced water, flowback water, or pit water
from new Bakken and Three Forks wells in the local area.
(Doc. No. 23-4).
The Industrial Commission approved Redemption’s application and issued a “Permit for
Fluid Injection,” dated January 17, 2013, for the Alamo SWD-1 allowing Redemption to inject salt
water and other “Class II fluids” generated from the drilling and operating of oil and gas wells and
from gas plant operations. (Doc. No. 23-2).
On January 24, 2013, Redemption contracted with Major Drilling America, Inc. (“Major”),
a Utah corporation that provides surface and subsurface drilling services, to drill the Alamo SWD-1.
In accordance with the parties’ contract, Redemption pre-payed $200,000.00 to Major on January
25, 2013. Major mobilized on the well site the following day and commenced drilling.
Drilling came to a standstill in early February 2013. According to Major, a third-party acting
on Redemption’s instructions introduced fresh water into the well despite Major’s instruction that
only brine water be used. Shortly after the fresh water was introduced into the well, Major’s drilling
tools and equipment became stuck. Major’s efforts to recover its tools and equipment from the well
were unsuccessful.
On February 20, 2013, Major submitted two invoices to Redemption. (Doc. No. 1-3). The
first invoice was for labor, services, and materials it had provided from February 1 through
February 15, 2013. The second invoice was for the tools and equipment stuck in the well.

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On February 27, 2013, Major filed a Statement of Oil and Gas Well Lien (hereinafter
referred to as “the lien”) pursuant to N.D.C.C. ch. 35-24 on the following property associated with
the Alamo SWD-1:
A.

The whole of the leasehold for oil or gas purposes to which the materials or
services were furnished, or for which the labor was performed, and the
appurtenances thereunto belonging;

B.

All materials and fixtures owned by the owner or owners of such leasehold
and used or employed, or furnished to be used or employed in the drilling or
operating of the well known as The Alamo SWD #1, including, but not
limited to the following:
(1)
(2)
(3)
(4)

Any upright tanks;
All casing of any size or type attached to the well or sitting on said
leasehold;
Any and all landing joints attached to the well or sitting on said
leasehold;
Any semi-trailer, including the 20111 Freightliner Coronado, which
may be subject to this lien

C.

All oil or gas wells located on such leasehold, and the oil or gas produced
therefrom and the proceeds thereof inuring to the working interest therein as
such working interest existed on the date such labor was first performed or
such material or services were first furnished; or

D.

The whole of the pipeline to which the materials or services were furnished,
or for which labor was performed, and all buildings and appurtenances
thereunto belonging, including, without limiting the generality of the
foregoing, gates, valves, pumps, pump stations, and booster stations, and
upon all materials and fixtures owned by the owner of such pipeline and used
or employed or furnished to be used or employed in the construction thereof.

(Doc. No. 1-3).
On April 8, 2013, Major filed in state district court: (1) a complaint against Redemption for
breach of contract, foreclosure of the lien, and injunctive relief under N.D.C.C. ch. 35-24; and (2)
an Expedited Motion for Temporary Injunctive Order pursuant to N.D.R. Ct. 3.2 and N.D.C.C. §§
35-24-17, 32-06-02, and 32-06-03. (Doc. Nos. 1-2, 1-3, and 1-5). On April 11, 2013, the state
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district court granted Major’s motion and issued a “Temporary Injunctive Order” enjoining
Redemption from removing or disposing of the property attached to Major’s lien until the injunction
was either vacated by the court or final judgment was entered. The court also stated in its order that
it would hold a hearing if requested by either party to determine whether the injunction should be
vacated or made permanent. (Doc. Nos. 1-2 and 1-9).
On April 24, 2013, Redemption filed a Notice of Removal with this court. On May 17, 2013,
it filed a motion requesting this court to dissolve the state court’s temporary injunctive order. (Doc.
No. 17). On June 28, 2013, the court convened a hearing on Redemption’s motion after the briefing
was completed.
Redemption contends that the Alamo SWD-1 cannot be the subject of a lien authorized by
N.D.C.C. ch. 35-24 because it is not an oil or gas well. Redemption also contends the state court’s
temporary restraining order must be dissolved because of procedural errors committed by Major and
the state court.
For the reasons set forth below, the court agrees with Redemption’s first argument, and, for
that reason, need not address the second.
II.

DISCUSSION
It is clear from the material submitted by the parties that the Alamo SWD-1 could only be

used for the disposal of salt water and other waste fluids. Not only was this the sole use allowed by
the injection permit issued by the Industrial Commission, Redemption’s lease with the surface owner
provided only for the disposal of salt water and other fluid waste and did not authorize production
of oil or gas.1

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In fact, there is no indication that Redemption’s lessor even owned the mineral interest.

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In addition, the Alamo SWD-1 was to be a stand-alone, commercial disposal facility where
third parties drilling or operating oil or gas wells in the area could dispose of salt water and other
fluid wastes upon payment to Redemption. In other words, the Alamo SWD-1 was not dedicated
to, nor an integral part of the operation of, any particular oil or gas well or wells - much less
physically connected to oil or gas wells located on the same leased acres, which is a point of some
relevance as noted later.2 In fact, Redemption’s counsel acknowledges that Redemption was formed
for the purpose of operating one or more salt water disposal wells and does not own any oil or gas
wells.
In deciding whether a salt water disposal well can be the subject of a lien under N.D.C.C.
ch. 35-24, the court starts first, as it must, with the statutory language. E.g., Locken v. Locken, 2011
ND 90, ¶ 9, 797 N.W.2d 301. But before doing so, the court will outline briefly the contentions of the
parties so that they can be kept in mind as the statutory language is considered.
Redemption contends that ch. 35-24 only authorizes liens for material and services furnished
for the drilling and operation of “oil or gas wells” (putting aside for the moment the provisions relating
to pipelines) and that a salt water disposal well is not an oil or gas well within the meaning of the
chapter. Major, on the other hand, contends that Redemption’s reading of the statutory language is too
narrow. Major argues that the language of the chapter can be interpreted more broadly to include any

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In particular, Redemption’s permit application for the subject well states in part:

Redemption Energy proposes to drill and operate commercial salt water disposal wells, the subject
well being Alamo #1. The Alamo #1 will be a new salt water disposal facility in Poe field in NE NE,
Section 7, T151N, R99W, McKenzie County, North Dakota. Redemption Energy will provide salt
water disposal services for operators in the local area. Salt water will be hauled by truck to the
facility, treated, and then stored in tanks before being injected down the well. Injection water will be
either produced water, flowback water, or pit water from new Bakken and Three Forks wells in the
local area.
(Doc. No. 23-4).

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well that supports oil and gas production, even if it does not itself produce oil or gas, either by broadly
construing the term “oil or gas well” or by looking to other language in the statute that references “oil
or gas purposes.”
Major also argues that the salt water disposal wells are covered by ch. 35-24 because they are
regulated by the Industrial Commission, which regulates oil and gas production generally. In addition,
Major argues that, while the Alamo SWD-1 was permitted as a saltwater disposal well, it physically
would have been capable of producing oil or gas if converted for that purpose. Finally, Major argues
that some oil would have been skimmed and recovered from waste water to be disposed of in the
Alamo SWD-1, but acknowledges this waste water would have come from other wells and would not
have been generated by the Alamo SWD-1.
After careful review, the court concludes that the controlling language in terms of whether the
Alamo SWD-1 can be subject to a lien under ch. 35-24 is set forth in § 35-24-02, which reads as

follows:
§ 35-24-02. Who entitled to lien--Amount of lien
Any person who shall, under contract with the owner of any leasehold for oil or gas
purposes or any pipeline, perform any labor or furnish any material or services used
or employed, or furnished to be used or employed in the drilling or operating of any
oil or gas well upon such leasehold, or in the construction of any pipeline, or in the
constructing, putting together, or repairing of any material so used or employed, or
furnished to be used or employed, is entitled to a lien under this chapter, whether or
not a producing well is obtained and whether or not such material is incorporated in
or becomes a part of the completed oil or gas well, or pipeline, for the amount due
that person for the performance of such labor or the furnishing of such material or
services, including without limitation transportation and mileage charges connected
therewith, and interest from the date the same was due.
(italics added).
Under this section, two categories of persons are entitled to claim a lien: (1) persons who
furnish material or services used or employed in the drilling or operating of an oil or gas well and
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(2) persons who furnish material or services used or employed in the construction or repair of a
pipeline as defined by the chapter. In this case, since there is no basis for claiming that the Alamo
SWD-1 is a “pipeline,” Major’s claim of a lien under ch. 35-24 rises or falls upon whether the well
fits within the first category.
A straightforward reading of § 35-24-02 indicates that three elements have to be satisfied
before a lien can be claimed under the first category:
1.

The person claiming the lien must have had a contract “with the owner of any
leasehold for oil or gas purposes;”

2.

The person claiming the lien must have furnished material or services for the
“drilling or operating of any oil or gas well;” and

3.

The oil or gas well for which the lien is claimed must have been located “upon such
leasehold.”

Applying this language here, a lien can only be obtained if the Alamo SWD-1 is an “oil or gas well”
within the meaning of the statute. In other words, the language of § 35-24-02 forecloses the
argument that, even if the Alamo SWD-1 is not itself an “oil or gas well” within the meaning of the
statutory language, it is a covered facility because it supports oil or gas production from other wells.
An “oil or gas well” is commonly understood to be a well drilled into the ground from which
oil or gas is obtained. Oxford English Dictionary (online 3rd ed. updated March 2004) (“oil well”
is “[a] well or shaft drilled into rock strata, from which petroleum is obtained”); Webster’s New
World Dictionary, Third College Edition, p. 942 (1988) (“oil well” is “a well bored through layers
of rock, etc. to a supply of petroleum”); The American Heritage Dictionary, Second College Edition,
p. 865 (1985) (“oil well” is “a hole dug or drilled in the earth from which petroleum flows or is

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pumped”). This is also the sense in which it used by the Industrial Commission in its regulations,
which provide the following definitions of oil and gas wells:
23.

“Gas well” means a well producing gas or natural gas from a common source
of gas supply as determined by the commission.

***
33.

“Oil well” means any well capable of producing oil or oil and casinghead gas
from a common source of supply as determined by the commission.

N.D.A.C. § 43-02-03-01(23)&(33).
Here, the Alamo SWD-1 is not an oil or gas well within this commonly understood meaning
of the term since, as a stand-alone commercial disposal well located on land leased solely for the
purpose of disposal of waste fluids and permitted by the Industrial Commission for only the same
limited purpose, it cannot produce oil or gas. See, e.g., United States v. Overholt, 307 F.3d 1231,
1243 (10th Cir. 2002) (referencing Oklahoma’s definition of a disposal well); Royalco Oil & Gas
Corp. v. Stockhome Trading Corp., 361 S.W.3d 725 (Tex. Ct. App. 2012) (concluding that a lease
agreement for a salt water disposal well was subject to the laws governing leases generally and not
the law governing oil and gas leases, even though the regulatory agency governing oil and gas
production in Texas had issued a permit for the salt water disposal well); Dick Properties, LLC v.
Paul H. Bowman Trust, 221 P.3d 618, 621 (Kan. App. 2010) (noting difference between an oil and
gas lease and a salt water disposal agreement).
Even under the Industrial Commission’s regulations, the Alamo SWD-1 is treated differently
than oil or gas wells. Rather than being subject to N.D.A.C. ch. 43-02-03, which applies to oil or
gas wells, it is governed by ch. 43-02-05, which regulates underground injection, and is classified
as an “injection well” that is to be used for underground “emplacement of fluids,” including, relevant

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here, those that are “brought to the surface in connection with natural gas storage operations, or
conventional oil or natural gas production and may be commingled with wastewaters from gas plants
which are an integral part of production operations . . . .” N.D.A.C. § 43-02-05-01(2); see also
N.D.A.C. § 33-25-01-02(2) (corresponding North Dakota Department of Health regulation).3
North Dakota law4 requires that this court give the words used in ch. 35-24 their ordinary
and commonly understood meaning “unless a contrary intention plainly appears.” Locken v.
Locken, 2011 ND 90 at ¶ 9; N.D.C.C. § 1-02-02.5 And here, there is nothing in the language already

discussed or in the remainder of ch. 35-24 that plainly expresses an intention that the term “oil or
gas well” means anything other than its commonly understood meaning and that it would include
a stand-alone, commercial salt water disposal well that cannot be used for the production of oil or
gas.
In fact, the tenor of the language in ch. 35-24 is to the contrary. In addition to the provisions
of § 35-24-02 that have already been discussed, the court notes the following:
C

After providing that liens can be obtained for the furnishing of materials or services
for an “oil and gas well” pursuant to a contract with the owner of the leasehold, § 3524-02 goes on to state that the lien can be obtained “whether or not a producing well
is obtained[.]” Here, the use of the word “producing” would be awkward, at best, to
refer to the disposal of saltwater or other waste fluid by injection. Further, in yet

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The court is cognizant that wells within the Class II classification can be permitted for other purposes, but
here the permit issued by the Industrial Commission was only for the disposal of salt water and other fluid waste.
4

This court is bound by North Dakota’s rules of statutory interpretation in reviewing one of its statutes.
Roubideaux v. North Dakota Dept. of Corrections and Rehabilitation, 570 F.3d 966, 972 (8th Cir. 2009).
5

Technical terms are to be accorded their special meaning when used in a technical sense under N.D.C.C.
§ 1-02-03, but there is no difference in this case.

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another proviso, § 35-24-02 states that a lien for material can be obtained even if the
material is not incorporated or does not become a part of a “completed oil or gas
well.”
C

Section 35-24-03 sets forth what property can be the subject of a lien acquired under
the chapter. The tenor of its language suggests that ch. 35-24 extends only to “oil or
gas wells” as that term is commonly understood:
§ 35-24-03. Property subject to lien. Liens created under section
35-24-02 extend to:
1.
The whole of the leasehold for oil or gas purposes to
which the materials or services were furnished, or for
which the labor was performed, and the
appurtenances thereunto belonging; and
2.
All materials and fixtures owned by the owner or
owners of such leasehold and used or employed, or
furnished to be used or employed in the drilling or
operating of any oil or gas well located thereon; and
3.
All oil or gas wells located on such leasehold, and the
oil or gas produced therefrom, and the proceeds
thereof inuring to the working interest therein as such
working interest existed on the date such labor was
first performed or such material or services were first
furnished; or
4.
****
(italics added).
C

Section 35-24-02 provides that a lien can be obtained for materials and
services provided for the construction and operation of a “pipeline,” but
“pipeline” is defined by § 35-24-01(11) to mean only “any pipeline laid and
designed as a means of transporting natural gas, oil, or gasoline, or their
components or derivatives, and the right of way therefor.” Notably, there is
no language extending the lien to pipelines used to convey salt water or other

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waste fluids, which, given the relationship between oil or gas wells and
pipelines used to convey petroleum products under the existing provisions of
ch. 35-24, one would expect to see if the intent was also to include saltwater
disposal wells like the Alamo SWD-1.
C

Section 35-24-03 provides that one of the items of property that can be
subjected to ch. 35-24’s lien is oil or gas produced from a well subject to the
lien. In addition, § 35-24-06 requires that notice of the lien be given to the
purchaser of the oil or gas if a lien upon the production is claimed. Notably,
there are no provisions that would accomplish the same purpose for disposal
wells, i.e., any provision making payments received by the well owner for
disposal of material into the well subject to the lien.

When ch. 35-24 is considered as a whole, it is clear the legislature intended to enact special
provisions for obtaining liens for material and services furnished for the drilling and operating of
oil and gas wells and for the construction and operating of pipelines used to convey oil, gas, and
associated byproducts. For whatever reason (or, perhaps, for no reason at all), the legislature elected
not include other wells or pipelines, including: salt water disposal wells; wells used to produce water
for industrial, municipal, or residential use; pipelines for conveying non-hydrocarbon gases such
CO2; pipelines used for conveying rural drinking water; city water lines, etc.
Major argues it only makes sense for salt water disposal wells to be included within the
coverage of ch. 35-24, given they are used for oil and gas purposes, they are regulated by the
Industrial Commission, which also regulates oil and gas wells, and that ch. 35-24 provides remedies

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more suited to such a well than the state’s other lien laws. All of these are good arguments for the
state legislature expanding the coverage of ch. 35-24 to include saltwater disposal wells.6
But here, where the statutory language is clear and unambiguous, the court is prohibited from
disregarding it under the pretext of pursuing its spirit. Haggard v. Meier, 368 N.W.2d 539, 541 (N.D.
1985) (“Where constitutional and statutory provisions are clear and unambiguous, it is improper for
the courts to attempt to construe the provisions so as to legislate additional requirements or
proscriptions which the words of the provisions do not themselves provide.”); N.D.C.C. § 1–02–05
(“When the wording of a statute is clear and free of all ambiguity, the letter of it is not to be
disregarded under the pretext of pursuing its spirit.”). In other words, it is not the role of the courts

to improve upon the statutory language by making it better or more comprehensive. If the North
Dakota Legislature believes that the state’s other lien laws provide an insufficient remedy for those
persons furnishing material and services for the drilling and operation of wells of the type involved
here,7 then it can amend ch. 35-24 or enact a new law. See id.; accord United States v. Ron Pair
Enterprises, Inc., 489 U.S. 235, 241-43 (1989).

Also, the mere fact that the state legislature decided to have the same regulatory agency that
permits oil and gas wells regulate commercial saltwater disposal wells is not enough to justify this
court ignoring statutory language that is clear and unambiguous. Royalco Oil & Gas Corp. v.

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Louisiana’s lien law applying to oil and gas facilities specifically includes wells used to inject or dispose of
substances from wells that produce hydrocarbons. La.Rev.Stat.Ann. § 9:4861. Texas makes specific reference to “oil,
gas, or water well” when referencing covered wells under its lien law. V.T.C.A. Property Code §§ 56.001(1)-(2) (italics
added).
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North Dakota’s construction (previously mechanic’s) lien law is set forth in ch. 35-27. No opinion is
expressed whether this law would have been applicable here if it had been relied upon. In addition, any person or entity
furnishing material or services for the drilling or operation of salt water disposal well presumably could negotiate for
a contractual lien.

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Stockhome Trading Corp., 361 S.W.3d at 730-31. The same applies for the remainder of Major’s
arguments.
III.

CONCLUSION AND ORDER
Because the court concludes for the foregoing reasons that Major is not entitled to a lien under

ch. 35-24 for the material and supplies it furnished for Redemption’s salt water disposal well,
Redemption’s Motion for Relief from State Court Temporary Injunctive Order (Doc. No. 17) is

GRANTED and the state court’s temporary injunctive order (Doc. No. 1-9) is hereby VACATED.
IT IS SO ORDERED.
Dated this 12th day of July, 2013.

/s/ Charles S. Miller, Jr.
Charles S. Miller, Jr.
United States Magistrate Judge

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