On May 14, 2014, US District Judge Daniel L. Hovland dismissed thirteen proposed class actions in which the plaintiffs sought payment of royalties for gas that was flared by oil and gas companies after flaring was permitted by North Dakota statute. The Judge ruled that the US District Court did not have subject matter jurisdiction because the plaintiffs had not exhausted their administrative remedies through the North Dakota Industrial Commission, the state agency that regulates oil and gas activities, including flaring violations.

The plaintiffs did not file a complaint with the Industrial Commission, arguing that exhaustion of administrative remedies was not required because the primary issues in the lawsuits concerned statutory construction or pure questions of law.

The Court disagreed, stating that the cases rest “upon the resolution of fairly technical and complex questions of fact and law,” including “(1) the volume of gas flared…, (2) the value of such flared gas; and (3) the application of the relevant Industrial Commission orders that pertain to each well.” The Court concluded that “[n]o decision-maker is better equipped to resolve such issues than the Industrial Commission itself which is possessed of the authority, experience and expertise to make such determinations.”

While recognizing “this may not be the Plaintiff’s preferred remedy, but it is the remedy nonetheless…,” the Court found no implied private right of action that would make the administrative remedy moot and that the plaintiffs could appeal any adverse decision from the NDIC in court.

Here is a copy of the order in one of the thirteen lawsuits, Scott Wisdhal, et al. v. XTO Energy, Inc., Case No. 4:13-cv-136, In the US District Court for the District of North Dakota, Northwestern Division. For additional information on all thirteen lawsuits, see the White Paper: Analysis of Litigation Involving Shale and Hydraulic Fracturing which is attached to this blog.

It should be noted that a fourteenth lawsuit based on the same allegations is in state court, Vogel, et al. v. Marathon Oil Company, Case No. 31-2013-cv-00163 (In District Court of Mountrail County, North Dakota, Northwest Judicial District).

This post was written by Barclay Nicholson (barclay.nicholson@nortonrosefulbright.com or 713.651.3662) from Norton Rose Fulbright’s Energy Practice Group.