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Boomtown: Risks and Rewards in the Peace Garden State

North Dakota’s oil boom has spawned sudden increases in population, business, and opportunity for roughnecks and lawyers alike.  But the challenges for practitioners and courts have grown apace.

Unless you have been living under a rock (that is, any rock other than the massive shale formation known as “The Bakken”), you have likely heard by now that our next-door neighbor to the west is thriving.  Separated from us in part by the Red River of the North, the state of North Dakota has been enjoying unprecedented financial and economic prosperity in recent years.  The state’s success is due in part to record farm commodity prices that have boosted the state’s substantial farming industry,1 but what is largely responsible for the state’s burgeoning economy is the significant oil boom occurring in the state’s western half.2

If you have traveled to western North Dakota lately, you’ve undoubtedly noticed that the landscape looks vastly different than it did just ten years ago.  Oil drilling and production apparatus sit along highways and cities throughout several North Dakota counties, thousands of semi-trucks pass along North Dakota’s highways every day, and restaurant prices mirror or exceed those you see here in the Twin Cities.  Rows of modular and other “trailer-style” homes (sometimes referred to as “man camps”) line the state’s fields and city edges, and gas stations and convenience stores pop up along highways with such frequency you can hardly go a few miles without running into a new one.  All of this economic activity has created several consequences for residents of North Dakota:  the state has more money, the state has more people, the state has more business transactions, and—although this factor has lagged slightly behind these other changes—North Dakota has more litigation than ever before.

For business litigators like me, this economic expansion provides endless opportunity.  Deals were happening so fast and furiously during the first few years of the oil boom that when disputes arose few people paused to commence litigation.  It was not that there weren’t legitimate legal claims in the early days of the oil boom; it was that to stop and sue someone meant you might miss out on the next deal.  As the drilling phase of the oil boom slows in pace ever so slightly and production ramps up, we are seeing an uptick in litigation.  While this increase has been great for my business litigation practice and other lawyers in the state, it has also created some issues that North Dakota practicing attorneys should be aware of.

Increased Population

Due in large part to growth in the western half of the state, North Dakota’s population has been increasing at a substantially faster pace than the remainder of the United States.  Population estimates from the United States Census Bureau reveal that between April 1, 2010 and July 1, 2012, the United States’ population increased by approximately 1.7 percent.  During that same period, North Dakota’s population increased by 4.3 percent.  The difference is even more staggering if 2013 is included.  Between April 1, 2010 and July 1, 2013, the United States’ population increased by 2.4 percent while North Dakota’s population increased by a whopping
7.6 percent.3

One of the practical implications of all of these additional people in the state is that supply and demand is out of whack. Grocery stores can’t seem to keep enough food on the shelves, and convenience stores can’t seem to get their hands on enough energy products like Red Bull®, Monster Energy®, and 5-Hour Energy®.  There are “Help Wanted” signs up everywhere.  Even restaurants are having a hard time finding workers.  During one of my trips to North Dakota last summer, my partner and I ate breakfast at a little diner in Watford City.  When we returned to the same restaurant the next morning for breakfast, we were greeted with a handwritten “closed” sign.  We later learned that the restaurant owner couldn’t find enough workers to help him run the restaurant that day so he couldn’t open his doors.

Another impact of the increased population is that rental rates are some of the highest in the country.  Right now an average 700-square-foot, one bedroom, one bathroom apartment in Williston, North Dakota will cost you at least $2,000 per month.  If you want three bedrooms and three bathrooms you might pay as much as $4,500.  These average entry level price points are greater than the cost of renting comparable apartments in New York, San Francisco, or anywhere else in the country.4

Hotels are in high demand too.  If you plan to travel to North Dakota to market, visit or appear in court, book your hotel early and check online for new hotels because they are popping up all over the place.  And be prepared to pay higher prices.

More Money

Another change North Dakota has experienced is that its government has more money than it has ever had at any point in its history.  It is one of only a few states that have not faced budget shortfalls in recent years, and the state has maintained record budget surpluses for at least the last four years.5

North Dakota’s government operates on a true “biennial” (two-year) budget.  The state is in the middle of its budgeting cycle of July 1, 2013 – June 30, 2015.  At the end of the 2001–2003 biennium, North Dakota’s general fund balance was approximately $15 million.  Just four terms later, at the end of the 2009–2011 biennium, the general fund balance had grown to a whopping $996 million—the highest amount North Dakota has ever seen in its budget in nominal terms and as a percent of the appropriated budget.6

One of the most incredible things about all of this revenue flowing out of The Bakken is that there is plenty more where that came from.  Discovery of The Bakken Formation is quite possibly the largest oil discovery in United States history.  Scientists estimate that The Bakken may contain as many as 24 billion barrels of oil, which would at current barrel price estimates equate to over $2.4 trillion of oil.  Although North Dakota is currently ranked fourth in the nation in oil production behind Texas, California and Alaska, it is expected to surpass both California and Alaska this year in terms of oil produced, putting it second only to Texas.7

Busy Courts

The population increase, financial impact, and uptick in business activity have created a significant additional burden on North Dakota courts.  It generally takes longer to find dates on court calendars than it did in the past, and depending on which court you are in it may take much longer to receive a decision from the presiding judge.  Many of the judges in the state court system now have to travel between counties in order to meet the needs of the counties’ growing caseloads.  As the courts adjust to the changes in the calendars, it is important that the attorneys do too.  Attorneys practicing in North Dakota should expect their cases to take longer to get to trial, and they should plan motion practice and other court matters appropriately.  Do not wait until the motion practice deadline to file or serve your motion.  Schedule court matters early and well in advance of the time you would normally contact the court to schedule a hearing, status conference, or other item requiring the court’s attention.

The increased workload has caused changes in the state’s judicial districts.  On January 1, 2014, following a 2012–2013 study by the North Dakota Judicial Planning Committee, the North Dakota Supreme Court issued an order In the Matter of Judicial Redistricting, 2013 ND 135, No. 20130153.  Through the order, certain counties were moved from one judicial district to another judicial district and a new judicial district was created in the state.8  Previously part of the South Central Judicial District, the counties of Kidder, Logan, and McIntosh were moved to the Southeast Judicial District.9  The new Northwest Central Judicial District was formed.10   The new Northwest Central Judicial District comprises Burke, Mountrail and Ward counties, all of which were previously part of the Northwest Judicial District.11

To achieve balanced redistricting, the North Dakota Judicial Planning Committee conducted a weighted caseload study, reviewed case filings and population, and looked at trends in both.12  They also studied chamber locations, work location for judicial officers and court personnel, and travel commitments based on the judges’ locations.  The committee’s “principal objective” in conducting the study was to achieve “approximate parity among the judicial districts in judge need, workload, and population served by judicial officers and court personnel.”13  In addition, Administrative Rules 6 and 6.1 were amended to reflect the order.14

Unique Legal Issues

As the court system in North Dakota expands in volume and complexity, so do the legal issues.  A case I am currently litigating for one of my North Dakota clients illustrates the point.

In October 2012, I commenced litigation on behalf of my client against four defendants companies.  Two of the companies were organized under the laws of the state of Minnesota, one of the companies was organized under the laws of Nevada, and the other company was organized under the laws of Florida.  All of these out-of-state residents were conducting business with my client on the Fort Berthold Indian Reservation in New Town, North Dakota, as a part of the booming oil industry.  (Another fascinating aspect of North Dakota’s judicial landscape is that there are several independent tribal courts separate from the state and federal court systems.  An in-depth look at North Dakota tribal courts will have to be saved for another article.)  My client is a member of the federally recognized Mandan, Hidatsa, and Arikara Native American Nations, also known collectively as the “MHA Nation” or the “Three Affiliated Tribes.”  For a variety of reasons, my client chose to commence its case in Fort Berthold District (Tribal) Court.

In response to the complaint, the four defendants moved to dismiss my client’s case for “lack of nonmember tribal court jurisdiction.”  We opposed the motion and explained to the tribal court judge that it could and should retain jurisdiction under Montana v. United States, 450 U.S. 544 (1981), the Supreme Court case that gave tribal courts the authority to regulate the activities of nonmembers on reservation land owned in fee by non-Indians.  Under Montana, tribal courts can regulate the activities of nonmembers (and in turn, assert jurisdiction over nonmembers in tribal court) where: (1) the nonmembers “enter consensual relationships with the tribe or its members, through commercial dealing, contracts, leases, or other arrangements,” or (2) the nonmembers’ “conduct threatens or has some direct effect on the political integrity, the economic security, or the health or welfare of the tribe.”15  If the circumstances of a case fit either exception, then the tribal court has jurisdiction over the dispute.16

We argued that the court had jurisdiction over the key non-Indian defendant because we met both Montana exceptions with respect to that defendant.  The focus of our analysis was that the defendant contracted with my client so the first Montana exception was easily met.  Defendants argued that because my client is a company and not a human, it could not be a “member” of the tribe for jurisdictional purposes.  We argued that my client, a limited liability partnership, was owned by an Indian, which meant that it was a “member” of the tribe for jurisdictional purposes.

The Fort Berthold Tribal Court agreed with us.  The court’s decision turned on the novel and narrow legal issue of whether a limited liability partnership was more akin to a limited liability company or a corporation for jurisdictional purposes.  We argued that the United States Supreme Court has held that the citizenship of a limited partnership for purposes of diversity jurisdiction is determined according to the citizenship of its limited and general partners, citing Carden v. Arkoma Associates, 494 U.S. 185, 195-96 (1990).  Several courts have held that this holds true for limited liability partnerships too.17  Defendants argued that the limited liability partnership was more analogous to a corporation, should be treated as a separate legal “person,” and cited cases in which the courts held that a corporate person could not be a “member” of an Indian tribe.

We have been proceeding in the tribal court ever since and we will eventually have a trial.  But there is a conundrum.  While the other side’s motion to dismiss was under advisement in tribal court, the contracting party defendant in the tribal court action started an action against my client in North Dakota state court related to alleged oil spills at the exact property they are fighting about in tribal court.  My client moved to dismiss or transfer the state court case, and the same issues were argued to the state court judge that had just been decided in tribal court.  The short story is that the state court judge disagreed with the tribal court judge and retained jurisdiction over the second case.  In other words, we now have two cases pending in two courts involving the same two parties and the same contract.  Suffice it to say that we are working hard to resolve both.

Could this conflict have happened between parallel courts in any state?  Sure.  But the combination of the burgeoning oil industry, the rapid pace of the economic activity, the complexities of the business transactions, and the influx
of nonresidents conducting business throughout the state creates a unique litigation landscape.  One thing is for sure—North Dakota is unlike anywhere else in the country.  I’m glad it’s next door.


 

Oil Spells Opportunity

The good news is that increased court activity has created numerous job opportunities in the North Dakota court system.  North Dakota courts have been hiring at a rapid pace and new job opportunities are identified each week.  In May and June 2014 alone, the North Dakota Supreme Court posted all of the following job openings:

  1. May 5, 2014 – Term Law Clerk with the U.S. District Court in Bismarck
  2. May 6, 2014 – Court Reporter with the District Court in Mandan; Contract Attorney with the Commission on Legal Counsel for Indigents in the Northeast Judicial District
  3. May 8, 2014 – Court Reporter with the District Court in Jamestown
  4. May 14, 2014 – Deputy Supreme Court Clerk I with the North Dakota Supreme Court in Bismarck
  5. May 16, 2014 – Deputy Clerk of District Court I with the District Court in Williston; Clerk of District Court I with the District Court in Rolla
  6. May 19, 2014 – Juvenile Court Officer I with the Juvenile Court in Jamestown; City Attorney with the City of Minot
  7. May 22, 2014 – Court Reporter with the District Court in Bismarck and Mandan
  8. May 23, 2014 – City Prosecutor/Assistant City Attorney with the City of Fargo; part-time Electronic Court Recorder with the District Court in Dickinson
  9. May 27, 2014 – Clerk of Court/Recorder for Steele County in Finley
  10. June 2, 2014 – Attorney with the Legal Division of the Office of State Tax Commissioner
  11. June 5, 2014 – Legal Secretary with the McKenzie County State’s Attorney’s office in Watford City
  12. June 13, 2014 – Deputy Clerk of District Court I with the District Court in Mandan

For more information on open positions in the North Dakota judicial system, visit the North Dakota Supreme Court website at: http://www.ndcourts.gov/Court/New.htm and search for “job announcement” or go to http://agency.governmentjobs.com/ndcourts/default.cfm


 

Kristin B. Rowell is a shareholder at Anthony Ostlund Baer & Louwagie P.A., a business litigation boutique firm located in Minneapolis, Minnesota.  Ms. Rowell is licensed to practice in Minnesota and North Dakota.  She represents developers, property owners, facility managers, fuel haulers, water recyclers, and environmental solutions companies in a variety of business disputes in Minnesota and North Dakota.  


Notes

1 North Dakota Budget Primer: A Guide to North Dakota’s Budget, North Dakota Economic Policy Project, http://www.ndepp.org/data/upfiles/news/primersourced.pdf (last visited 07/31/2014), at p. 2.

2 Id.

3 http://quickfacts.census.gov/qfd/states/38000.html (last visited, 07/31/2014).

4 http://www.apartmentguide.com/blog/williston-nd/ (last visited, 07/31/2014).

5 North Dakota Budget Primer:
A Guide to North Dakota’s Budget, North Dakota Economic Policy Project, http://www.ndepp.org/data/upfiles/news/primersourced.pdf (last visited 07/31/2014), at p. 2.

6 Id.

7 Id.

8 In the Matter of Judicial Redistricting, No. 20130153, 2013 ND 135.

9 Id. ¶3.

10 Id. ¶4.

11 Id.

12 Id. ¶1.

13 Id.

14 Id. ¶5.

15 450 U.S. at 565-566.

16 See, Strate v. A-1 Contractors, 520 U.S. 438, 456 (1997) (explaining that party must show only one of the two exceptions to establish tribal court jurisdiction).

17 See, e.g., Haak Motors LLC v. Arangio, 670 F. Supp. 2d 430, 432 n.1 (D. Md. 2009); Mudge Rose Guthrie Alexander & Ferdon v. Pickett, 11 F. Supp. 2d 449, 452 (S.D.N.Y. 1998); Reisman v. KPMG Peat Marwick LLP, 965 F. Supp. 15, 176 (D. Mass. 1997).

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