Penman v. Hess Bakken Investments II, LLC

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IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NORTH DAKOTA
Ronald Penman and )
Adelante Oil & Gas, LLC, )
on behalf of themselves and a class of )
similarly situated royalty owners, ) ORDER GRANTING DEFENDANT’S
) MOTION TO STRIKE CLASS
Plaintiffs, ) ALLEGATIONS
)
vs. )
) Case No. 1:22-cv-097
Hess Bakken Investments II, LLC, )
)
Defendant. )
___________________________________ )
Sandy River Resources, LLC, and )
Sandy River Energy, LLC, )
on behalf of themselves and classes of )
similarly situated royalty owners, )
) Case No. 1:22-cv-108
Plaintiffs, )
)
vs. )
)
Hess Bakken Investments II, LLC, )
)
Defendant. )
______________________________________________________________________________
Before the Court is the Defendant’s motion to strike class allegations filed on August 11,
2025. See Doc. No. 87. The Plaintiffs filed a response in opposition to the motion on September
12, 2025. See Doc. No. 95. The Defendant filed a reply on September 23, 2025. See Doc. No. 98.
The Plaintiffs filed a sur-reply on September 25, 2025. See Doc. No. 100-1. The Defendant filed a
response to the Plaintiffs’ sur-reply on October 3, 2025. See Doc. No. 109-1. For the reasons set
forth below, the motion to strike class allegations is granted.
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I. BACKGROUND
The Defendant, Hess Bakken Investments II, LLC, (“Hess”), operates numerous oil and
gas wells in North Dakota. As the operator of those wells, Hess produces and markets oil, gas, and
related hydrocarbons. Hess then remits sales proceeds to parties who own interests in a given well,
including royalty owners who are entitled to a share of production under an oil and gas lease. The
Plaintiffs own interests in oil and gas produced from wells Hess operates in North Dakota.
On June 10, 2022, Ronald Penman brought an action on behalf of himself and a class of
similarly situated royalty owners. See Doc. No. 1. Penman filed an amended complaint on June
22, 2022, adding Adelante Oil & Gas, LLC as a Plaintiff. See Doc. No. 3. Hess filed a motion to
dismiss Penman and Adelante Oil & Gas, LLC’s (collectively “Penman”) claims on August 4,
2022. See Doc. No. 7. The motion was denied on March 23, 2023. See Doc. No. 11. On June 28,
2022, Sandy River Resources, LLC and Sandy River Energy, LLC (collectively “Sandy River”),
brought an action on behalf of themselves and a class of similarly situated royalty owners. See
Doc. No. 1 in Case No: 1:22-cv-108. Hess sought dismissal of Sandy River’s claims on September
6, 2022. See Doc. No. 11 in Case No. 1:22-cv-108. On February 7, 2023, the Court granted in part
and denied in part the motion to dismiss. See Doc. No. 15 in Case No. 1:22-cv-108. On December
6, 2023, the Court granted a motion to consolidate the cases. See Doc. No. 26.
Among other claims, the Plaintiffs allege Hess breached class members’ leases and
overriding royalty agreements by deducting gas post-production costs that exceeded gas revenues
from royalties for oil sales. The Plaintiffs refer to these deductions as “negative gas royalties.” The
Plaintiffs seek to certify a subclass of similarly situated royalty owners. Although the Plaintiffs’
subclass definitions are worded differently in each compliant, the substance is the same. The
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proposed subclasses include royalty owners that allegedly received a negative gas royalty. Penman
defines their negative gas royalty subclass, Subclass III, as:
All persons to whom Hess has paid or was obligated to pay royalties on oil or
natural gas produced from wells located in the State of North Dakota since May
2012 pursuant to an oil and gas lease or overriding royalty agreement where Hess’s
post-production expenses for gas were deducted from a royalty owner’s oil
royalties.
Excluded from Subclass III are: (a) the United States; (b) any person who has been
a working interest owner in a well located in North Dakota on whose behalf Hess
has paid royalties on oil or natural gas produced by Hess in North Dakota; and (c)
Hess and its affiliated entities, and their respective employees, officers, and
directors.
See Doc. No. 3, p. 3. Sandy River defines their negative gas royalty subclass, Subclass II, as:
All persons and entities to whom Hess has paid royalties, including into suspense
accounts, on oil and gas produced from wells located in the State of North Dakota
since June 2012, where Hess has paid a gas royalty in an amount which was
negative.
Excluded from the class are: (1) the United States; (2) any working interests in a
well located in the State of North Dakota held by any person or entity who has
received oil royalties from Hess; and (3) Hess and its affiliated entities, and their
respective employees, officers, and directors.
See Doc. No. 1, p. 3 in Case No. 1:22-cv-108. The sole claim Penman and Sandy River bring on
behalf of their negative gas royalty class is a breach of contract claim. On February 7, 2024, the
Plaintiffs defined the combined putative class definition (“negative gas royalty class”) in their
consolidated discovery as:
All mineral owners and overriding royalty holders or their successors-in-interest to
whom Hess has paid or was obligated to pay royalties on oil and natural gas
produced from wells located in the State of North Dakota since May 2012 pursuant
to an oil and gas lease or overriding royalty agreement where Hess has deducted
post-production costs related to its gas production, or administrative costs, from
mineral owners’ or overriding royalty holders’ royalties.
Excluded from Subclass II are: (a) the United States; and (b) any person who has
been a working interest owner in a well located in North Dakota on whose behalf
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Hess has paid royalties on oil or natural gas produced by Hess in North Dakota; and
(c) Hess and its affiliated entities, and their respective employees, officers, and
directors.
See Doc. Nos. 39-1, p. 3.
On August 11, 2025, Hess filed a motion to strike class allegations. See Doc. No. 87. Hess
requests the Court strike all portions of the complaints that seek certification of the negative gas
royalty class that alleges Hess breached leases and overriding royalty agreements by deducting gas
post-production costs that exceeded gas revenues from royalites for oil sales. The motion has been
fully briefed and is ripe for consideration.
III. LEGAL DISCUSSION
A. NEW THEORIES OF LIABILITY
This Court previously struck a near-identical subclass on the pleadings because it could not
satisfy Rule 23’s typicality and predominance requirements. The negative gas royalty class in this
case presents the same issues. The Plaintiffs attempt to evade the class certification issues by
asserting new theories of liability that were not pled in their complaints. First, the Plaintiffs’ claims
are limited to their pleadings. The Court may not consider the Plaintiffs’ unpled theories. Second,
even if the Court could consider the Plaintiffs’ unpled theories, the theories are legally deficient.
The Plaintiffs’ sole claim as to the negative gas royalty class is breach of contract. In the
complaints, the Plaintiffs allege Hess breached class members’ oil and gas leases or overriding
royalty agreements by deducting post-production expenses from royalty owners’ oil royalties. The
Plaintiffs now argue a new theory for why Hess cannot deduct negative gas royalties. In their
response in opposition to the motion, the Plaintiffs argue for the first time that their negative gas
royalty claims are based on Hess’ alleged failure to follow its internal policies. The Plaintiffs assert
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that Hess has an internal policy that royalty owners should not be charged negative amounts for
each production month. The Plaintiffs contend that Hess’ violation of this policy supports class
certification. The Plaintiffs essentially abandoned their breach of contract claim in favor of this
new theory of Hess’ violation of their internal policy. Despite pleading a breach of contract claim,
the Plaintiffs argue that “the duty to avoid negative royalites has absolutely nothing to do with
lease provisions, but instead it arises from the nature of the relationship between working interests
and royalty owners.” See Doc. No. 95, p. 6.
The Plaintiffs’ new theory regarding Hess’ alleged failure to follow its internal policy is
not pled in their complaints. In the Sandry River complaint the Plaintiffs include a single paragraph
that quotes testimony from Hess at a hearing before the North Dakota Finance and Taxation
Committee. According to the complaint, Hess has a practice that “royalty owners do not go
negative on the combined gas stream, thus preserving the full oil revenue.” See Doc. No. 1 in Case
No. 1:22-cv-108. This is the only reference to Hess’ alleged internal policy in the Sandy River
complaint. Notably, there is no reference to the internal policy in the Penman complaint. The
Plaintiffs do not allege a violation of this policy in their complaints. Nor do the Plaintiffs allege
that their leases and royalty agreements incorporate Hess’ internal policy. The Plaintiffs do not
relate this alleged policy to any claim they pled. The Plaintiffs’ short factual statement regarding
the policy in the Sandy River complaint does not constitute a claim or a legal theory. The Plaintiffs
fail to explain how this factual statement bares relevance to the breach of contract claims.
In the Plaintiffs’ response they also argue the negative gas royalty class can be certified
based on Hess’ violation of North Dakota law on withholding taxes. The Plaintiffs claim Hess has
a uniform practice of withholding taxes from royalties based on the gross price of gas, causing
some royalty owners to go negative. The Plaintiffs’ complaints are void of any factual allegations
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or claims regarding Hess’ violation of North Dakota law on withholding taxes. Further, the
Plaintiff does not explain how this new legal theory is relevant to the negative gas royalty’s breach
of contract claims. The Plaintiffs cannot save their class by pleading new theories in their response
in opposition to the Defendant’s motion to strike class allegations. See Morgan Distrib. Co. v.
Unidynamic Corp., 868 F.2d 992, 995 (8th Cir. 1989) ([I]t is axiomatic that a complaint may not
be amended by the briefs in opposition to a motion to dismiss.”) The Plaintiffs are limited to their
pleadings. Accordingly, the Court cannot consider their new theories of liability raised in their
response to the motion to strike. The only claims the Plaintiffs may advance are the breach of
contract claims as pled in their complaints. The Court will consider only the allegations and claims
contained in the complaints for the Defendant’s motion to strike class allegations.
Even if the Court could consider the Plaintiffs’ new legal theories, the theories do not
support the breach of contract claims. The violation of the alleged internal policy is not relevant to
the Plaintiffs’ breach of contract claims. The Plaintiffs do not allege this internal policy is included
in the class member’ contracts. Nor do they allege the class members are even aware of the policy.
The Plaintiffs solely argue class certification is proper because Hess violated an internal policy.
They provide no explanation as to how this policy in any way affects the breach of contract claims.
Rather, the Plaintiffs suggest the Court should disregard the contractual language of the leases and
overriding royalty agreements to instead focus on the violation of the internal policy. The Plaintiffs
argue “the contract language is inconsequential.” See Doc. No. 95, p. 2. The Plaintiffs frame the
relevant issue in this case as whether Hess “adopt[ed] a uniform policy not to take royalty and
overriding royalty owners negative on their combined gas stream, regardless of the language in
their leases.” Id. at p. 11-12 (emphasis added). The Court cannot ignore the contractual language
when considering the Plaintiffs’ breach of contract claims. North Dakota law provides that
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language of a contract is to govern if the language is clear. See N.D.C.C. § 9-07-02. The Court
finds the contractual language is highly relevant to the Plaintiffs’ claims. The Plaintiffs’ new
allegation regarding Hess’ violation of North Dakota law by withholding taxes is also irrelevant
to their breach of contract claims. Accordingly, the Court rejects the Plaintiffs’ arguments that
Hess’ violation of an internal policy and North Dakota tax law satisfies Rule 23’s typicality and
predominance requirements. As discussed below, the Plaintiffs’ class allegations do not meet Rule
23’s requirements.
B. RULE 23 REQUIREMENTS
Penman and Sandy River bring this class action pursuant to Rule 23(b)(3) of the Federal
Rules of Civil Procedure.1 Rule 23(a) sets forth the prerequisites to a class action. It provides:
(a) Prerequisites. One or more members of a class may sue or be sued as representative
parties on behalf of all members only if:
(1) the class is so numerous that joinder of all members is impracticable;
(2) there are questions of law or fact common to the class;
(3) the claims or defenses of the representative parties are typical of the claims or defenses
of the class; and
(4) the representative parties will fairly and adequately protect the interests of the class.
Fed. R. Civ. P. 23(a). Additionally, the Eighth Circuit Court of Appeals recognizes an implicit
requirement of Rule 23 that “a class must be adequately defined and clearly ascertainable.”
McKeage v. TMBC, LLC, 847 F.3d 992, 998 (8th Cir. 2017) (internal quotation marks omitted).
1 The Court’s findings and conclusions regarding the Rule 23 requirements are equally applicable to Penman’s
subclass definition (Doc. No. 3, p. 3), Sandy River’s subclass definition (Doc. No. 1, p. 3 in Case No. 1:22-cv-108),
and the Plaintiffs’ combined negative gas royalty subclass definition (Doc. No. 39-1, p. 3).
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A district court may grant a motion to strike class allegations prior to the filing of a motion
for class certification when “it is apparent from the pleadings that the class cannot be certified
because unsupportable class allegations bring impertinent material into the pleading and permitting
such allegations to remain would prejudice the defendant by requiring the mounting of a defense
against claims that ultimately cannot be sustained.” Donelson v. Ameriprise Fin. Servs., Inc., 999
F.3d 1080 (8th Cir. 2021) (internal quotation marks omitted). A class cannot be certified when it
contains members who lack standing. Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023, 1034 (8th
Cir. 2010). Therefore, a class must “be defined in such a way that anyone within it would have
standing.” Id. “If members who lack the ability to bring a suit themselves are included in a class,
the court lacks jurisdiction over their claims.” Johannessohn v. Polaris Indus. Inc., 9 F.4th 981,
987 (8th Cir. 2021) (citations omitted).
Hess contends the Plaintiffs’ negative gas royalty class allegations fail to meet the
requirements of Rule 23 of the Federal Rules of Civil Procedure. Specifically, Hess argues the
Plaintiffs cannot meet the typicality and predominance requirements because the proposed class
definition would require an individual examination for each and every class member. The Plaintiff
argues the proposed class definition meets all of Rule 23’s requirements based on the new legal
theories the Court rejected above.
Hess cites to recent orders by this Court that struck substantively similar class allegations.
The Court concluded that nearly identical classes could not satisfy Rule 23’s typicality and
predominance requirements in Colton v. Lime Rock Res. GP V, L.P. (“Colton I”), No. 1:22-CV-
123, 2024 WL 1637480 (D.N.D. Apr. 16, 2024) and Colton v. Lime Rock Res. GP V, L.P., (“Colton
II”), No. 1:22-CV-123, 2025 WL 2061692 (D.N.D. July 23, 2025). In Colton I and Colton II the
plaintiff failed to narrow the class definition to any specific contractual language and did not
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specify the contractual language the defendant allegedly breached. The Court found that the class
allegations required an individual examination of each class member. Therefore, the class
definition lacked the cohesion necessary to warrant class certification. Penman and Sandy Rivers’
negative gas royalty class definition is substantively similar to the proposed definition that the
Court struck in Colton II. The Plaintiffs’ class allegations in this case present similar typicality and
predominance issues. The negative gas royalty class requires extensive individual examinations
for class members, which prevents class certification. Based on the pleadings in this case and the
relevant case law, the Court finds no reason to depart from its recent rulings.
1. TYPICALITY
Under Rule 23(a)(3), the claims of the representative must be typical of the claims of the
class. “When the claim arises out of the same legal or remedial theory, the presence of factual
variations is normally not sufficient to preclude class action treatment.” Donaldson v. Pillsbury
Co., 554 F.2d 825, 831 (8th Cir. 1977). However, “[t]he presence of a common legal theory does
not establish typicality when proof of a violation requires individualized inquiry.” Elizabeth M. v.
Montenez, 458 F.3d 779, 787 (8th Cir. 2006).
The Plaintiffs assert a breach of contract claim for all class members. In their complaints,
the Plaintiffs assert Hess breached its contractual obligations to class members under leases and
overriding royalty agreements by paying class members a negative gas royalty. However, the
Plaintiffs did not limit the negative gas royalty class definition to leases or agreements with the
same or similar language. Notably, the Plaintiffs did not limit the definition to contracts that
prohibit Hess from paying a negative gas royalty, despite the Plaintiffs’ argument that the negative
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gas royalty prohibition is the contractual obligation that was breached. The Plaintiffs argue that
variations in lease language do not matter for purposes of class certification. The Court disagrees.
Under North Dakota law, the language of a contract is to govern if the language is clear.
See N.D.C.C. § 9-07-02. There could be numerous variations of lease language in the class
members’ leases, which prevents a finding of typicality in the negative gas royalty class. The
Plaintiffs cannot advance a collective breach of contract action on the basis of multiple different
contracts. See Broussard v. Meineke Disc. Muffler Shops, Inc., 155 F.3d 331 (4th Cir. 1998)
(Multiple contract actions cannot be amalgamated into one because of the possibility that a breach
occurred with some class members but not with others). The leases may vary greatly in detail.
“Even slight variations in contract language could result in differing findings for [class members’]
breach of contract claims.” Colton II, 2025 WL 2061692 at *6. The inherent variability in the
language of the leases and overriding royalty agreements necessitates an individual review of every
class member’s contract to assess whether the contract contains the operative language and, if so,
whether Hess breached the operative language. The individualized inquiries necessary to review
and interpret every lease for every class member precludes typicality. In the absence of common
contractual language, the Plaintiffs’ claims are not typical of the class they seek to represent.
Further, as the Court noted in Colton I, even “if claims are legitimate and proven, damages must
be separately calculated for every class member.” 2024 WL 1637480 at *6. The Plaintiffs contend
that the class members’ grievances are identical because every class member suffered the same
type of injury. The presence of a common injury alone is insufficient to establish typicality when
proof of a claim requires individual inquiries. Therefore, the Court finds Rule 23(a)(3)’s typicality
requirement is not met.
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2. PREDOMINANCE
Under Rule 23(b)(3), a class action may be maintained if Rule 23(a) is satisfied and if “the
court finds that the questions of law or fact common to class members predominate over any
questions affecting only individual members, and that a class action is superior to other available
methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). The
negative gas royalty class fails to meet the predominance requirement of Rule 23(b)(3).
The Eighth Circuit Court of Appeals addressed the predominance requirement of Rule
23(b)(3) in Ebert v. General Mills, 823 F.3d 472 (8th Cir. 2016). “Rule 23(b)(3) is qualitative
rather than quantitative. Thus, that there is a common question does not end the inquiry.” Id. at
478. “The requirement of predominance under Rule 23(b)(3) is not satisfied if ‘individual
questions ... overwhelm the questions common to the class.’” Id. at 478-79 (citing to Amgen Inc.
v. Connecticut Ret. Plans & Tr. Funds, 568 U.S. 455 (2013)). “An individual question is one where
members of a proposed class will need to present evidence that varies from member to member,
while a common question is one where the same evidence will suffice for each member to make a
prima facie showing [or] the issue is susceptible to generalized, class-wide proof.” Id. at 479
(internal quotation marks omitted). “The predominance inquiry tests whether proposed classes are
sufficiently cohesive to warrant adjudication by representation and goes to the efficiency of a class
action as an alternative to individual suits.” Id. (citations omitted).
In Avritt v. Reliastar Life Ins. Co., 615 F.3d 1023 (8th Cir. 2010), the Eighth Circuit Court
of Appeals concluded that the defendant’s liability to the entire class for a breach of contract claim
could not be established with common evidence. The existence of more than one reasonable
interpretation of the contract “opens the door for extrinsic evidence about what each party intended
when it entered the contact.” Avritt, 615 F. 35 at 1030. In addition to extrinsic evidence about
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intent, the parties may introduce evidence regarding how the contract was explained to class
members and whether each class member’s understanding of the contract was consistent with the
theory the Plaintiffs’ advanced.
In this case, Hess’ liability to the entire class for its breach of contract cannot be established
with common evidence. The substance of a royalty obligation arises from the lease language. The
proposed class members’ leases could involve countless variations. Consequently, the Court would
need to review and interpret every contract to determine whether the language creates the necessary
type of obligation to meet the class definition. Some contracts may require the resolution of
ambiguities and a review of extrinsic evidence. The adjudication of the breach of contract claims
would necessitate individual inquires and potential legal analyses for the more than 1,000 class
members, some of whom may be paid under more than one lease. The individualized issues in this
case predominate over the common claim for relief by the proposed class. The negative gas royalty
class lacks the cohesion necessary to warrant class certification. Accordingly, the Court grants the
Defendant’s motion to strike the class allegations.
III. CONCLUSION
The Court has carefully reviewed the entire record, the parties’ briefs, and relevant case
law. For the reasons set forth above, the Defendant’s motion to strike class allegations (Doc. No.
87) is GRANTED.
IT IS SO ORDERED.
Dated this 20th day of October, 2025.
/s/ Daniel L. Hovland
Daniel L. Hovland, District Judge
United States District Court
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