Macquarie Bank Ltd. v. Knickel (723 F. Supp. 2d 1161, 2010)

United States District Court for the District of North Dakota 2010-06-30

Citations

Full opinion text

ORDER

DANIEL L. HOVLAND, District Judge.

Before the Court are the Plaintiffs’ and Third-Party Defendant’s “Motion for Partial Summary Judgment on Plaintiffs’ Breach of Contract Claim and Motion for Summary Judgment on Defendants’ Counter-Claims” and the Defendants’ and Counter-Claimants’ Motion for Summary Judgment filed on October 1, 2009. See Docket Nos. 99 and 104. The Defendants filed a response in opposition to the Plaintiffs’ and Third-Party Defendant’s motion on November 2, 2009. See Docket No. 112. The Plaintiffs and Third-Party Defendant filed a response in opposition to the Defendants’ motion on November 3, 2009. See Docket No. 114. The parties filed reply briefs on November 10, 2009 and November 13, 2009. See Docket Nos. 120 and 124. Oral argument on the motions was held in Bismarck, North Dakota on December 18, 2009. For the reasons set forth below, the Plaintiffs’ and Third-Party Defendant’s motion is granted in part and denied in part and the Defendants’ and Counter-Claimants’ motion for summary judgment is granted in part and denied in part.

I. BACKGROUND

Plaintiff Macquarie Bank Limited (“MBL”) is a bank incorporated under the laws of Australia, with its principal place of business in Sydney, Australia. Plaintiff Macquarie Americas Corp. (“Macquarie Americas”) is a Delaware corporation with its principal place of business in New York. Defendant KHL, Inc. (“KHL”) is a New Mexico corporation with its principle place of business in New Mexico. Defendant Mineral Land Services, Inc. (“Mineral Land Services”) is a North Dakota corporation with its principal place of business in North Dakota. Defendant Bradley Knickel is in the business of developing oil and gas reserves and is a resident of Texas. Defendant LexMac Energy, L.P. (“LexMac”) is a Nevada limited partnership with its principle place of business in Houston, Texas. Knickel has a 92-percent limited partnership interest in LexMac. See Docket No. 57-3, p. 3. Defendant Novus Operating Company, L.P. (“Novus”) is a Nevada limited partnership with its principle place of business in Houston, Texas. Knickel has a 99-percent limited partnership interest in Novus. See Docket No. 57-3, p. 3. Defendant Lexar Energy, Inc. (“Lexar”) is a corporation with its principle place of business in Houston, Texas. Knickel owns 100-percent of Lexar. See Docket No. 57-3, p. 5. Third-Party Defendant Macquarie Barnett, LLC (“Macquarie Barnett”) is a Delaware limited liability company.

At some point, LexMac and Novus decided to develop certain oil and gas leases in McKenzie County, North Dakota in what became known as the “Cedar Butte Project.” Most, if not all, of the leases relating to the Cedar Butte Project had originally been owned by Lexar but were transferred to LexMac to secure funding for oil and gas development. See Docket No. 57-3, pp. 61-62. LexMac and Novus needed funding to develop the Cedar Butte Project and, therefore, approached MBL. MBL is based in Australia and does business in the United States specializing in lending money for energy development.

On April 8, 2005, MBL, LexMac, and Novus finalized financing for the Cedar Butte Project. MBL, LexMac, and Novus executed numerous financial documents to secure funding for the project. The “lead agreement” was the “Senior First Lien Secured Credit Agreement” (“Credit Agreement”) wherein LexMac and Novus agreed to grant, assign, transfer, and convey to MBL a first priority mortgage lien and perfected security interest in the collateral subject to permitted encumbrances. See Docket No. 26-2, p. 33. The Credit Agreement provided that MBL would lend LexMac and Novus up to $20,000,000 for the project to be advanced in “tranches” for specific uses if certain conditions were met. The Credit Agreement provides for funding in accordance with the following tranches:

Section 2.2 Availability and Purpose of Advances. Beginning on the Closing Date and continuing through the applicable Availability Termination Date:

(a) Tranche A. Up to two million dollars ($2,000,000.00) of the Term Loan (“Tranche A ”), comprised of sub-Tranches A-l and A-2 described below, may be used by Borrower for the following purposes:

(i) Tranche A-l. Up to one million dollars ($1,000,000.00) of Tranche A (“Tranche A-l ”) may be used by Borrower exclusively for the purposes of paying:

(A) dry hole costs associated with the drilling of the Ann # 1 Well and incurred by Borrower pursuant to an AFE approved in writing by Lender in its sole and absolute discretion; and

(B) other fees and expenses incurred by Borrower in connection with the transactions contemplated by this Agreement, but only to the extent (1) those fees and expenses are included on Schedule 2.2(a) (i)(B) and (2) the payment of those fees and expenses does not result in insufficient availability remaining under Tranche A-l to pay the drilling costs contemplated by Section 2.2(a) (i) (A) above.

(ii) Tranche A-2. Up to one million dollars ($1,000,000.00) of Tranche A (“Tranche A-2 ”) may be used by Borrower exclusively for the purposes of paying completion costs associated with the Ann # 1 Well and incurred by Borrower pursuant to an AFE approved in writing by Lender in its sole and absolute discretion.

(Hi) Tranche A Generally. Notwithstanding the other terms and conditions of this Agreement, (A) Lender will have no obligation to make any Advance under Tranche A-l unless and until Lender is satisfied, in its sole and absolute discretion, with its due diligence review of the Properties, and (B) Lender will have no obligation to make any Advance under Tranche A-2 unless and until Lender is satisfied, in its sole and absolute discretion, with the results of all drilling activities related to the Ann # 1 Well and the geological and other technical information generated or acquired as a result of those activities. Additionally, to the extent the full amount of funds available for Tranche A are not needed for the purposes set out above, such funds shall not be available for any other purpose or under any other Tranche.

(b) Tranche B. Up to four million eight hundred sixty-five thousand dollars ($4,865,000.00) of the Term Loan (“Tranche B ”) may be used by Borrower exclusively for the following purposes:

(i) (A) up to sixty-five thousand dollars ($65,000) of Tranche B may be used for the acquisition of seismic [data] associated with the Cedar Butte Properties;

(B) up to four million eight hundred thousand dollars ($4,800,000.00) of Tranche B may be used to pay costs incurred by Borrower pursuant to an AFE approved in writing by Lender in its sole and absolute discretion in connection with [ ] drilling and completing two additional wells on the Cedar Butte Properties; and

(C) to pay the Advance Fee associated with each Advance (if any) made under Tranche B.

(ii) Tranche B Generally. Notwithstanding the other terms and conditions of this Agreement, Lender will have no obligation to make any Advance under Tranche B unless and until Borrower prepares and Lender approves in writing, in its sole

and absolute discretion, a revised Development Plan. Borrower agrees and acknowledges that Lender has no obligation, express or implied, to approve a revised Development Plan for the use of any proceeds under Tranche B. Additionally, to the extent the full amount of funds available for Tranche B are not needed for the purposes set out above, such funds shall not be available for any other purpose or under any other tranche,

(c) Tranche C. Up to thirteen million one hundred thirty-five thousand dollars ($13,135,000) of the Term Loan (“Tranche C”) may be used by the Borrower for the purpose of funding the acquisition and development of additional Properties pursuant to a revised Development Plan prepared by Borrower and approved in writing by Lender in its sole and absolute discretion. Notwithstanding the approval of a revised Development Plan, however, Lender has no obligation to make any Advance under Tranche C unless the results of development activities contemplated in that revised Development Plan for which Tranche B funds are utilized are satisfactory to Lender in its sole and absolute discretion. Borrower agrees and acknowledges that Lender has no obligation, express or implied, to approve a revised Development Plan for the use of any proceeds under Tranche C.

See Docket No. 26-2, pp. 24-26.

In accordance with the terms of the Credit Agreement, LexMac and Novus executed a “Term Note” in the amount of $20,000,000, along with a “Mortgage, Assignment of Production, Security Agreement and Financing Statement” (“Mortgage and Security Agreement”) which provided that the borrowers (LexMac and Novus) pledged as collateral a continuing security interest in, among other things, the leases that had been previously assigned by Lexar to LexMae for the Cedar Butte Project. The Mortgage and Security Agreement was amended two additional times, once on January 13, 2006 and also on June 1, 2006. The purpose of the amendments was to revise the listing of the collateral leases.

The Mortgage and Security Agreement also required LexMae and Novus to execute a “Net Profits Overriding Royalty Interest Conveyance” (“NPORIC”). Pursuant to the NPORIC, LexMae and Novus granted to Macquarie Americas a 40-per-cent “net profits” royalty interest from any production of the collateral leases. See Docket No. 101-12. Macquarie Americas is a wholly-owned subsidiary of MBL. The NPORIC continues even after the debt to MBL is satisfied:

FOR AND IN CONSIDERATION OF THE SUM OF ONE HUNDRED DOLLARS ($100.00) and other good and valuable consideration, the receipt, adequacy and sufficiency of which are hereby acknowledged, Assignor by these presents does hereby GRANT, CONVEY, ASSIGN and TRANSFER to Assignee the Net Profits Overriding Royalty Interest (defined below) in and to the Subject Interests (defined below).

TO HAVE AND TO HOLD the Net Profits Overriding Royalty Interest, together with all and singular the other rights, titles, interests, estates, remedies, powers, privileges and appurtenances thereto, unto Assignee, its successors and assigns, forever subject, however, to the terms and provisions of this Conveyance. Assignor hereby binds itself, its successors and assigns, to WARRANT and FOREVER DEFEND all and singular the Net Profits Overriding Royalty Interest unto Assignee, its successors and assigns, subject only to the Permitted Encumbrances, against every Person whomsoever lawfully claiming or to claim the same or any part thereof. The Net Profits Overriding Royalty Interest is not a contingent interest but is a fully and presently vested real property interest.

See Docket No. 101-12, p. 1. This provision in the NPORIC gave MBL an indirect interest in the success of the Cedar Butte Project and created a relationship between MBL and the borrowers that was more than a traditional lender-borrower relationship. Neither Bradley Knickel nor Lexar was a party to any of the lending agreements.

Shortly after the agreements were executed, LexMae and Novus ran into problems securing a drilling rig which put the entire project behind schedule, and increased the costs of developing the leases for production. Eventually, a drilling rig was obtained and the first and only well, the Ann # 1 Well, was completed. LexMac and Novus ran into additional problems in attempting to develop the Ann # 1 Well which ultimately halted its production.

The record reveals that costs ran higher than expected and LexMae and Novus owed more than $1,000,000 to the third-party vendors. See Docket No. 59-5, pp. 10, 24. MBL refused to fund payment to the vendors. MBL’s Sydney, Australia office ultimately made the decision to stop all funding on the development of the Cedar Butte Project and, as a result, drilling operations on the Ann # 1 Well ceased. See Docket No. 59-5, p. 10. On July 31, 2007, MBL issued a “Notice of Default and Notice of Intent to Accelerate.” See Docket No. 26-5.

In September 2007, MBL was aware of when LexMac’s leases would expire. See Docket No. 52-2, pp. 46-47. Discussions with Knickel allegedly began soon thereafter regarding the expiring leases.

On October 16, 2007, Brent Poe, a land-man working for Greenburg Taurig, LLP, the law firm handling the banks’ legal affairs, sent an email to its brokers to cease efforts in extending the expiring acreage:

[T]his communication serves as formal notice that Diamond Resources should cease its efforts to renew and/or extend those expiring leases that LexMac has pledged as collateral in its financial transaction with Macquarie Bank Limited. Ray Weems has made the business decision to allow Brad Knickel, through my interaction with LexMac, to renew and extend the leases that were previously identified with you as requiring negotiation to renew and/or extend. It is Brad Knickel’s desire to acquire these rights on behalf of Macquarie Barnett, LLC.

Should you be contacted by any of the land owners or Lessors of these particular tracts regarding your earlier proposals to acquire a lease, please advise them that your client Macquarie Barnett does not intend to renew these leases in their own name at this time.

See Docket No. 115-2.

On October 18, 2007, Raymond Weems, the executive director of MBL in the Houston, Texas office, sent the following email to Knickel to allegedly confirm the discussions they had regarding the expiring leases:

I am copying you on this e-mail to confirm your assurance to us that you/Lexmac will immediately endeavor to release all expired and expiring acreage that has served as collateral for Lexmac’s obligation to Macquarie Bank. That assurance you gave to us is the reason we instructed our lease brokers to step down. I expect Brent Poe to constantly monitor the situation and speak with you several times a week in an effort to get all relevant acreage released and immediately assigned to us. We will fund the acreage cost.

See Docket No. 115-2.

MBL filed a complaint, dated October 22, 2007, in McKenzie County District Court against LexMac, Novus, and Lexar, among others, to foreclose on LexMac’s and Novus’s rights, title, and interest in real property pursuant to the following leases that were pledged as collateral:

See Docket Nos. 26-6 and 105. Many of these leases have now expired by their own terms because of a lack of drilling and LexMac’s interest has expired along with it, namely the Patterson 2 and Sevigny 2 leases expired in October 2006; the Patterson 1 and Sevigny 1 leases expired in August 2007; the Lewis Sisters lease expired in October 2007; the Anderson, Mac-Master, and Berg leases expired in November 2007; the Burr lease expired in December 2007; the Lawrence and Ceynar leases expired in January 2008; the Hystad and Crone leases expired in February 2008; the Chisholm lease expired in March 2008; and the Steele-Gruman leases expired in April 2008.

By February 2008, MBL knew that many of the above-identified leases had expired. See Docket No. 59-6, p. 30. Some of the leases contained extension provisions which allowed the leases to be extended on their own terms. See Docket No. 59-5, p. 12. LexMac took steps to renew the leases with extension provisions, and Lexar began entering into new leases with the landowners on the expiring leases without extension provisions. Employees of MBL sent Knickel several emails regarding their concerns relating to the expiring leases.

On February 12, 2008, Raymond Weems sent Bradley Knickel an email, providing, in part:

As I mentioned on the phone last week, we are extremely concerned about the acreage situation and a possible diminution in our collateral. As you will recall, last year when we first brought up our concerns about acreage expirations and suggested we could send out a team of local landmen to release the acreage on behalf of Macquarie (in anticipation of a foreclosure event), you suggested that would be inappropriate as this was Lexmac’s responsibility and might send “mixed signals” to landowners. We therefore shut down the lease brokers we had reviewing the matter, as Lexmac requested, in order for Lexmac to release the acreage in an effort to [preserve] our collateral. Im sure you can therefore appreciate my concerns when I recently phoned John McMaster (see attached McMaster letter) concerning his letter in Dec., only to be informed that the lease was no longer available and was being assigned to someone else? ? ? Did your brokers obtain the lease and what about the other acreage that has expired? As we mentioned last Fall, Macquarie would gladly fund for Lexmac the bonus requirement for releasing acreage that secures our loan, but we have no idea as to what the current status really is? ? ? We look forward to a frank discussion tomorrow. Thank you.

See Docket No. 26-9.

On February 13, 2008, the McKenzie County District Court entered a judgment in the foreclosure action, declaring that all of LexMae’s and Novus’s rights in the nineteen leases shall be sold by the sheriff of McKenzie County, and finding that MBL was entitled to a judgment in the amount of $5,296,252.29, plus interest accruing from and after October 18, 2007, against LexMac and Novus. See Docket No. 26-7.

On February 15, 2008, following a meeting with Bradley Knickel, Raymond Weems sent Knickel the following email:

Thanks very much for stopping by earlier this week and bringing us up to date on your acreage renewal activities with regard to our collateral. I was particularly pleased to hear that the McMaster lease has been secured through your brokers, as well as others to follow. It is timely because we just learned today that Macquarie has finally been given judicial clearance to foreclose, which should technically occur in about five weeks. I understand, however, that these lease renewals are being secured in the name of “Lexar” and not “Lexmac”. Could you please, therefore, have those leases assigned to Lexmac as soon as possible, but in any case well before the final foreclosure date. I have asked Bill and Brent Poe to coordinate this with you on almost a “real-time” basis and truly hope that all of the acreage which has expired can be re-instated quickly. As you know, we will immediately fund payment to you of the lease bonus pymts. you have incurred, and please let us know if you are incurring any problems with regard to the renewals.

See Docket No. 26-10. Knickel testified that he did not respond to this email in writing. See Docket No. 57-3, pp. 65-66. Knickel denies ever informing MBL or its representatives that he intended to renew all of the leases that would expire before the foreclosure sale, and contends that he expressly made representations to MBL representatives that he would only renew the leases with extension provisions. See Docket No. 57-3, pp. 56-57.

On February 22, 2008, Weems again emailed Knickel expressing concerns as to the “exact status (broker involved, bonus pymts. due, recordings, net revenue interests, nature of royalties, etc.)” of each lease. See Docket No. 26-11. On February 28, 2008, Bill Jentsch, the associate director of MBL, emailed Knickel to verify that the “3000 + ‘at-risk’ acres [would be] re-leased, reconveyed and recorded.” See Docket No. 26-12. Knickel did not send Weems or Jentsch an email in response to indicate that he would only renew the leases with extension provisions. Nonetheless, Knickel asserts that he made numerous representations in person and over the phone expressing this intention, and that he provided spreadsheets of lease schedules to MBL to clarify the status of each lease. See Docket No. 57-3, pp. 60-62.

On April 3, 2008, Knickel notified MBL in writing of this intention, stating:

As we have discussed in the past, LexMac has and will take all action necessary to effectuate an extension of those leases that had a provision for extension and have not yet expired to assist in the preservation of the collateral of Macquarie. I believe that LexMac has taken such action. As to those leases that expired and new leases have been entered into, I disagree that I have any obligation to assign these leases to Macquarie. I am not aware of any provision in the agreement between LexMac and Macquarie which would require such an assignment. Please let me know if, in your opinion, such a provision does exist.

See Docket No. 57-5. MBL ultimately spent the sum of $500,000 to acquire an additional 1,600 acres surrounding the acreage that Lexar had acquired. See Docket No. 103-1, p. 30.

On April 7, 2008, a sheriffs sale was held at the McKenzie County Courthouse and Macquarie Barnett, a wholly-owned subsidiary of MBL, purchased LexMac’s and Novus’s rights, title, and interest in the original collateral, for the sum of $5,400,000. See Docket No. 101-6. Macquarie Barnett was fully aware when it placed this bid that LexMac’s and Novus’s interest had already expired in a majority of the leases that formed the original collateral.

MBL filed a “Notice of Lis Pendens,” dated May 27, 2008, with the McKenzie County Recorder providing, “[t]he action involves the title to and/or seeks to enforce a lien, charge or encumbrance against Lexar Energy, Inc.’s interest, as lessee” in a number of the leases owned by Lexar. See Docket No. 75-1. Thereafter, Macquarie Barnett “top leased” Lexar’s acreage. MBL filed an “Amended Notice of Lis Pendens,” dated August 21, 2008, but failed to include the reference numbers associated with Lexar’s ownership of the leases and instead included the reference numbers of the expired leases. See Docket No. 75-2.

The parties have each filed motions for summary judgment. The Plaintiffs and Third-Party Defendant seek: (1) summary judgment on the liability element of its breach of contract claim; and (2) the dismissal of the Defendants’ counterclaims. The Plaintiffs contend that there are five or six leases which Lexar currently owns that should have been placed in LexMac’s name during foreclosure, and they seek a net profits overriding royalty interest in those leases. See Docket No. 68, p. 11. The Defendants contend that they are entitled to summary judgment on (1) all of the Plaintiffs’ claims against them, (2) their claims for declaratory relief, and (3) their request to quiet title and remove the lis pendens.

II. STANDARD OF REVIEW

Summary judgment is appropriate when the evidence, viewed in a light most favorable to the non-moving party, indicates that no genuine issues of material fact exist and that the moving party is entitled to judgment as a matter of law. Davison v. City of Minneapolis, Minn., 490 F.3d 648, 654 (8th Cir.2007); see Fed.R.Civ.P. 56(c). Summary judgment is not appropriate if there are factual disputes that may affect the outcome of the case under the applicable substantive law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). An issue of material fact is genuine if the evidence would allow a reasonable jury to return a verdict for the non-moving party.

The Court must inquire whether the evidence presents a sufficient disagreement to require the submission of the case to a jury or whether the evidence is so one-sided that one party must prevail as a matter of law. Diesel Mach., Inc. v. B.R. Lee Indus., Inc., 418 F.3d 820, 832 (8th Cir.2005). The moving party bears the burden of demonstrating an absence of a genuine issue of material fact. Simpson v. Des Moines Water Works, 425 F.3d 538, 541 (8th Cir.2005). The non-moving party “may not rely merely on allegations or denials in its own pleading; rather, its response must ... set out specific facts showing a genuine issue for trial.” Fed. R.Civ.P. 56(e)(2).

III. LEGAL DISCUSSION

A. PLAINTIFFS’AND THIRD-PARTY DEFENDANT’S SUMMARY JUDGMENT MOTION

The Plaintiffs and Third-Party Defendant seek summary judgment on their claim for breach of contract of the Net Profits Overriding Royalty Interest Conveyance and on all of the Defendants’ counterclaims. LexMac, Novus, and Lexar have filed the following counterclaims: (1) a declaratory judgment action; (2) an action to quiet title and remove the lis pendens; (3) misappropriation and misuse of confidential and proprietary information; (4) tortious interference; (5) alter ego; (6) conspiracy; (7) breach of the duty of good faith and fair dealing; and (8) unfair lending practices and lender liability-

1) BREACH OF CONTRACT OF THE NET PROFITS OVERRIDING ROYALTY INTEREST CONVEYANCE

LexMac and Novus entered into a Net Profits Overriding Royalty Interest Conveyance wherein it and its “successors and assigns” agreed to give Macquarie Americas a 40-percent net profits overriding royalty interest. See Docket No. 101-12, p. 1. In Section 4.3 of the NPORIC, under the heading “Surrender or Termination,” LexMac and Novus agreed that, without Macquarie Americas’ written consent,

it will neither terminate any of the Leases nor surrender or release any of the lands covered thereby except (a) in connection with the abandonment of a well in compliance with Section 1.2 above, or (b) any undeveloped lands or any Lease covering only undeveloped lands which may be surrendered, released or terminated so long as no Affiliate or Assignor shall acquire an interest in such lands within one (1) year after the release or surrender thereof (whether voluntarily or involuntarily). The expiration of a Lease in accordance with its terms (other than by termination, surrender or release by Assignor) shall not be considered to be a voluntary surrender or abandonment thereof; provided, however, Assignor shall have an obligation to give Assignee written notice of any Lease which will expire or terminate ninety (90) days prior to the expiration or termination of such Lease. If Assignor or any Affiliate of Assignor releases or re-lets the lands covered by a lapsed, teiminated or released Lease within one (1) year from the lapse, termination or release of the Lease, such renewal or new lease shall become subject to the terms of this Conveyance.

See Docket No. 101-12, p. 11 (emphasis added). The NPORIC is governed by the laws of the State of North Dakota. See Docket No. 101-12, p. 18.

The interpretation of a contract is a question of law. Lire, Inc. v. Bob’s Pizza Inn Rests., Inc., 541 N.W.2d 432, 433 (N.D.1995). It is the goal of courts when interpreting contracts to give effect to the mutual intent of the parties as it existed at the time of contracting. ACUITY v. Burd & Smith Constr., Inc., 721 N.W.2d 33, 36 (N.D.2006) (citing State v. N.D. State Univ., 694 N.W.2d 225, 229 (N.D.2005)). “The parties’ intent must be ascertained from the entire instrument, and every clause-, sentence, and provision should be given effect consistent with the main purpose of the contract.” U.S. Bank, Nat’l Ass’n v. Koenig, 650 N.W.2d 820, 823 (N.D.2002). Pursuant to N.D.C.C. § 9-07-04, the court must construe the intention of the parties from the written contract alone, if possible. Unambiguous language must be given its clear meaning. Kief Farmers Coop. Elevator Co. v. Farmland Mut. Ins. Co., 534 N.W.2d 28, 32 (N.D.1995). “ ‘A contract is ambiguous when rational arguments can be made for different interpretations.’ ” Spagnolia v. Monasky, 660 N.W.2d 223, 227 (N.D.2003) (quoting Gawryluk v. Poynter, 654 N.W.2d 400, 404 (N.D.2002)). When a contract is ambiguous, extrinsic evidence may be considered in determining the parties’ intent. Whether a contract is ambiguous is a question of law. Kerzman v. N.D. Workers Comp. Bureau, 590 N.W.2d 888, 892 (N.D.1999). When there is ambiguity in a contract, the maker of the contract bears the responsibility for the ambiguity and the contract must be construed in the light most favorable to the other party. Minette v. Associated Chinchilla Breeders, Inc., 173 N.W.2d 485, 493-94 (N.D.1970).

The Court finds that Section 4.3 of the NPORIC is ambiguous in that it is unclear if the “expiration” of a lease is distinct from the “termination” or “lapse” of the lease. The confusion is caused by two sentences in Section 4.3, wherein it states,

The expiration of a Lease in accordance with its terms (other than by termination, surrender or release by Assign- or) shall not be considered to be a voluntary surrender or abandonment thereof; provided, however, Assignor shall have an obligation to give Assignee written notice of any Lease which will expire or terminate ninety (90) days prior to the expiration or termination of such Leasé. If Assignor or any Affiliate of Assignor re-leases or re-lets the lands covered by a lapsed, terminated or released Lease within one (1) year from the lapse, termination or release of the Lease, such renewal or new lease shall become subject to the terms of this Conveyance.

See Docket No. 101-12, p. 11 (emphasis in original). In accordance with North Dakota law, the Court will construe the ambiguity against the maker of the contract, Macquarie Americas, and in favor of LexMac and Novus.

The first sentence reads as follows: “The expiration of a Lease in accordance with its terms (other than by termination, surrender or release by Assignor) shall not be considered to be a voluntary surrender or abandonment thereof; provided, however, Assignor shall have an obligation to give Assignee written notice of any Lease which will expire or terminate ninety (90) days prior to the expiration or termination of such Lease.” See Docket No. 101-12, p. 11 (emphasis in original). The sentence is confusing because it references expired leases, in an attempt to distinguish expired leases from terminated, surrendered, or released leases, but provides that the lease will not be considered a voluntary surrender or abandonment provided that notice is given as to the “expiration” or “termination” of the lease. Therefore, in the latter part of the sentence, terminated and expired leases are grouped together. The NPORIC does not define the terms “expire,” “terminate,” “sin-render,” or “release.”

In Fuller v. Phillips Petrol. Co., 872 F.2d 655, 659-60 (5th Cir.1989) (emphasis added), the Fifth Circuit Court of Appeals defined “surrender” as:

In the oil and gas industry, the term “surrender” refers to the contractual right of a lessee to voluntarily relinquish to the lessor all or part of the leased premises, thereby allowing the lessee to retain the most profitable portion of a lease while at the same time releasing the least profitable portion of the lease. 8 Williams & Meyers, Oil and Gas Law § 966 (1985). Moreover, while a lease may be terminated by the act of one party by surrendering its rights under the lease, such a surrender may only occur while the lease is in effect.

The Oxford English Dictionary defines “release” as “[t]o withdraw, recall, revoke, cancel.” 13 Oxford English Dictionary 558 (2d ed.2001).

“Termination,” on the other hand, is the result of either a voluntary act or of the expiration of a lease’s primary term. “ ‘A lease may be terminated by a lessee by the exercise of a surrender clause in the lease, and under contemporary forms of leases, failure of production in paying quantities at or after expiration of the primary term will cause the lease to be terminated unless it can be preserved by some savings clause in the lease Sun Operating Ltd. P’ship v. Murphy Oil Corp., 1999 WL 423044, at *4 n. 15 (5th Cir. June 1, 1999) (unpublished) (quoting Howard R. Williams & Charles J. Meyers, Manual of Oil and Gas Terms 597 (4th ed.1976)). “In the absence of production of oil or gas, the termination of such a lease occurs automatically upon the expiration of the primary term, without the necessity of any action by either party to the lease.” Energetics, Ltd. v. Whitmill, 442 Mich. 38, 497 N.W.2d 497, 502 n. 16 (1993) (citing J.J. Fagan & Co. v. Burns, 247 Mich. 674, 226 N.W. 653, 655 (1929); McCullough Oil, Inc. v. Rezek, 176 W.Va. 638, 346 S.E.2d 788, 794 (1986)).

The second sentence at issue in Section 4.3 reads as follows: “If Assignor or any Affiliate of Assignor re-leases or re-lets the lands covered by a lapsed, terminated or released Lease within one (1) year from the lapse, termination or release of the Lease, such renewal or new lease shall become subject to the terms of this Conveyance.” See Docket No. 101-12, p. 11. The NPORIC does not define “lapse.” It is unclear from the language of Section 4.3 whether the parties intended an expired lease to be synonymous with a lapsed lease. The Oxford English Dictionary defines “lapse” as “[t]o fall away by slow degrees; to pass or sink gradually through absence of effort or sustaining influence.” 8 Oxford English Dictionary 652 (2d ed.2001). In other words, a lapsed lease is a lease which is allowed to let slip by way of time or a term in the lease.

In construing the ambiguity against the maker of the contract, Macquarie Americas, the Court finds that Section 4.3 was intended to prevent the Assignors, LexMac and Novus, from voluntarily acting in some way so as to release itself of the duties under the NPORIC and then having its affiliates, successors, or assigns re-lease the original collateral. The record reveals that LexMac and Novus defaulted on the loans due to events not entirely under their control, including the delay in obtaining a drilling rig in North Dakota.

At some point in 2007, MBL ceased funding the operations of the Cedar Butte Project and sent LexMac and Novus a “Notice of Default and Notice of Intent to Accelerate.” See Docket No. 26-5. Each lease provided by LexMac and Novus as collateral for the loans contained a date on which the lease would expire if drilling operations ceased. Drilling operations ceased when MBL stopped funding the project as a result of the default. The leases ultimately expired on the date established in the leases or on the date drilling operations ceased, whichever was later. The record is devoid of any evidence that LexMac or Novus voluntarily terminated the leases by their own actions, surrendered or released the leases prior to their expiration, or allowed the leases to lapse. The leases expired according to their own terms as a result of MBL finding the loan in default and ceasing any additional funding under the Credit Agreement.

More important, under Section 4.3, the expiration of the leases is not considered to be a voluntary surrender if Knickel provided MBL ninety days’ notice of the expiration dates. Knickel testified that he provided MBL a lease schedule which indicated the expiration dates of the collateral leases prior to the ninety-day deadline:

Q. [Counsel for the Plaintiffs]: Did you provide — did you provide that 90 days notice to Macquarie for the leases that expired?

A. [Bradley Knickel]: I — I believe so. Q. [Counsel for the Plaintiffs]: Okay.

Do you have any proof of that?

A. [Bradley Knickel]: I think some of the lease schedules that — that I provided — I mean, I’m just going from memory here and have to — have to point to them, but those lease schedules — there was one sent back in early — early 2007, and it has expiration dates on that lease schedule.

Q. [Counsel for the Plaintiffs]: And you think that that’s sufficient to be written notice of any lease which will expire or terminate 90 days prior to the expiration?

A. [Bradley Knickel]: Yes, in my opinion.

See Docket No. 57-3, pp. 48-49.

On July 31, 2007, MBL filed a notice of default and sometime thereafter discontinued funding the drilling operations of the Cedar Butte Project. None of the leases had expired on their terms or otherwise prior to July 31, 2007. See Docket No. 26-5. The earliest leases that were set to expire on their terms were Patterson 2 and Sevigny 2 in October 2006, but the continued drilling operations on the Ann # 1 Well extended the duration of the leases. ' Therefore, the Patterson 2 and Sevigny 2 leases expired when the drilling operations ceased, sometime after July 31, 2007. LexMac and Novus provided lease schedules to MBL' in “early 2007.” See Docket No. 57-3, pp. 48-49. The Court has not been provided with the actual date the lease schedules were provided to MBL and, therefore, is unable to determine whether the ninety days’ notice was provided. Pursuant to Section 4.3, the alleged failure of LexMac and Novus to provide ninety days’ notice results in the expiration of the leases being treated as a voluntary action under the NPORIC.

“If Assignor or any Affiliate of Assignor re-leases or re-lets the lands covered by a lapsed, terminated or released Lease within one (1) year from the lapse, termination or release of the Lease, such renewal or new lease shall become subject to the terms of this Conveyance.” See Docket No. 101-12, p. 11. Lexar is an affiliate of LexMac and Novus. The evidence establishes that Lexar entered into new leases on the acreage that formed the original collateral within one year after the original leases expired and, therefore, Lexar’s leases are subject to the terms of the NPORIC.

Nonetheless, Section 4.1 of the NPORIC provides, in relevant part:

No obligations, either express or implied shall arise by reason of this Conveyance, which shall obligate Assignor to keep and maintain the Leases in force and effect either by the payment of rentals, compensatory royalties or other payments or by the drilling of any wells upon the lands with respect to which the Net Profits Overriding Royalty Interest in the Leases is herein assigned, it being expressly understood that Assignee is to receive said Net Profits in such production only out of the Minerals, if, as and when produced and saved under the terms and provisions of the Leases.

See Docket No. 101-12, pp. 10-11. Thus, it is clear that Macquarie Americas’ interest in the net profits was conditional, arising only when production ensued and net profits were generated. See also Davis v. Cities Serv. Oil Co., 338 F.2d 70, 74 (10th Cir.1964) (stating that an agreement to pay a net profits overriding royalty interest “arises only when, and if, the assignee obtains production from the leasehold in paying quantities.”). It is undisputed that Lexar’s leases have not been developed and, therefore, there are no net profits on the leases. Accordingly, Macquarie Americas has not suffered any damages. Summary judgment is granted in favor of the Defendants and Counter-Claimants on the breach of contract claim.

2) DEFENDANTS’ COUNTERCLAIMS

LexMac, Novus, and Lexar have filed numerous claims against the Plaintiffs and Third-Party Defendant: (1) a declaratory judgment action; (2) an action to quiet title and remove the lis pendens; (3) misappropriation and misuse of confidential and proprietary information; (4) tortious interference; (5) alter ego; (6) conspiracy; (7) breach of the duty of good faith and fair dealing; and (8) unfair lending practices and lender liability.

a) DECLARATORY JUDGMENT

LexMac and Novus have filed a declaratory judgment action pursuant to Rule 57 of the Federal Rules of Civil Procedure and 28 U.S.C. §§ 2201 and 2202, seeking a declaration that “they [had] no duty to obtain new leases when the leases expire[d] according to their own terms.” See Docket No. 75. The Plaintiffs and Third-Party Defendant contend that there is no reason for the Court to declare the parties’ rights under the loan documents because the foreclosure procedures ended any ongoing lending relationship between the parties.

Pursuant to 28 U.S.C. § 2201, “[i]n a case of actual controversy within its jurisdiction, ... any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration.... ” “[A]n actual controversy is ‘a substantial controversy, between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.’ ” Diagnostic Unit Inmate Council v. Films Inc., 88 F.3d 651, 653 (8th Cir.1996) (quoting Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941)).

In the Plaintiffs’ second amended complaint, they cite to the loan documents in an attempt to establish that LexMac and Novus had a duty to maintain the oil and gas leases. See Docket No. 78, ¶¶ 15-21. The Plaintiffs have maintained a position that the “Defendants have wrongfully exercised control over” the expired leases. See Docket No. 78, ¶ 52. In a March 3, 2009 telephonic conference with the Court, the Plaintiffs expressed that LexMac and Novus had a contractual duty to obtain new leases on the expired leases:

Q. [The Court]: So the theory of your case essentially is that, what, Mr. Kniekel became some sort of a leasing agent for the bank to protect its collateral?

A. [Counsel for the Plaintiffs]: No, he’s a debtor in possession of these leases, and under the relevant — all of the relevant loan agreements — there’s probably four or five — he had certain duties, which were clearly spelled out in our Complaint, that he didn’t comply with.

Q. [The Court]: Are you saying that the promise comes from the contractual arrangements, or are you saying that the promise comes from some independent conversations where, in effect, this debtor became a leasing agent for the bank’s collateral?

A. [Counsel for the Plaintiffs]: I think both, Your Honor.

See Docket No. 68, pp. 14-15. The Court finds that there is an actual dispute as to whether there was a contractual duty under the loan documents for LexMac and Novus to renew the expiring acreage. Thus, the Court will consider whether the loan documents provided such a duty.

The Plaintiffs rely on specific provisions of the Credit Agreement and Mortgage and Security Agreement in support of their position. The Credit Agreement is governed by the laws of Texas. See Docket No. 26-3, p. 39. The Mortgage and Security Agreement is governed by the laws of North Dakota. See Docket No. 26-4, p. 30.

Under the laws of both North Dakota and Texas, the terms to a contract are given their plain and ordinary meaning unless the parties used them in a different or technical sense within the contract. City of Bismarck v. Mariner Constr., Inc., 714 N.W.2d 484, 491, 492 (N.D.2006); Zurich Am. Ins. Co. v. Hunt Petrol. (AEC), Inc., 157 S.W.3d 462, 465 (Tex.App.2004). If the contract is unambiguous, then it should be construed as a matter of law. City of Bismarck, 714 N.W.2d at 491; Zurich Am. Ins. Co., 157 S.W.3d at 465.

The Plaintiffs cite to Sections 6.3(f) and 7.4(c) of the Credit Agreement in support of their proposition that LexMac and Novus were under a duty to renew the expiring leases. See Docket No. 78. Section 6.3(f) provides that LexMac and Novus will

promptly (i) pay and discharge, or make reasonable and customary efforts to cause to be paid and discharged, all delay rentals, royalties, expenses, severance taxes and other taxes and indebtedness accruing under the leases or other agreements affecting or pertaining to its Properties, (ii) perform or make reasonable and customary efforts to cause to be performed, in accordance with industry standards, the obligations required by each and all of the assignments, deeds, leases, sub-leases, contracts and agreements affecting its interests in its Properties and (in) will use commercially reasonable efforts to cause the Operator to do all other things necessary to keep unimpaired, except for Liens described in Section 7.5, its rights with respect to its Properties and prevent any forfeiture thereof or a default thereunder, except to the extent a portion of such Properties is no longer capable of producing in paying quantities.

See Docket No. 26-3, p. 8 (emphasis added). Section 6.3(f) does not mention expiring leases nor does it mention an obligation concerning expiring leases. Section 6.3(f) only pertains to existing encumbering leases with taxes or liens.

In Section 7.4(c) of the Credit Agreement, LexMac and Novus agree not to “sell, transfer, assign or grant any Person an option to acquire any of its assets ... or take any similar action except for the sale of production or inventory in the ordinary course of Borrower’s business.” See Docket No. 26-3, p. 18. The evidence establishes that the leases had already expired before Lexar purchased them. Once the leases expired on their own terms, LexMac’s and Novus’s interests in the leases reverted back to the lessors (the landowners). See Natural Gas Pipeline Co. of Am. v. Pool, 124 S.W.3d 188, 192 (Tex.2003). Therefore, once the leases expired, the leases were no longer LexMac’s and Novus’s assets under the terms of the Credit Agreement. Accordingly, the Court finds that neither Section 6.3(f) nor Section 7.4(c) of the Credit Agreement created a duty upon LexMac and Novus to obtain new leases in LexMac’s name when the leases expired.

Section 3.2(c) of the Mortgage and Security Agreement requires LexMac and Novus to maintain the oil and gas leases in the mortgaged properties. Section 3.2(c) provides:

That Mortgagor will cause the oil, gas or oil and gas (or oil, gas and mineral) leases included in or relating to the Mortgaged Properties (herein called “Subject Leases ”) to be maintained and operated for the production of oil or gas in a good and workmanlike manner and in accordance with sound field practices and all applicable federal, state and local laws, rules and regulations and will not allow any of Subject Leases to be surrendered, abandoned, or terminated or impaired in any manner.

See Docket No. 26-4, p. 8. Section 3.2(c) imposes an obligation on LexMac and Novus to not allow the leases to be surrendered, abandoned, or terminated. However, Section 3.2(c) does not impose an obligation on LexMac and Novus to prevent a lease from expiring on its expiration date. The Plaintiffs have not alleged that the leases expired due to any improper action of LexMac and Novus. Accordingly, the Court finds that Section 3.2(c) of the Mortgage and Security Agreement does not impose an obligation on LexMac and Novus to prevent the leases from expiring on their own terms, after the passage of time, nor does it require LexMac and Novus to obtain new leases on the expiring leases.

The Plaintiffs contend that because the Credit Agreement defines lease as including “any extension” and “renewals” the document imposed a duty on LexMac and Novus to renew the expiring leases. The definition of “leases” merely clarifies that it includes oil and gas leases already obtained and “any extension, renewals, corrections, modifications, elections or amendments” to the leases that have or will be obtained. The provisions of the loan documents do not provide that LexMac and Novus are obligated to obtain extensions, renewals, corrections, modifications, elections, or amendments on the expiring leases.

Section 12.6 of the Credit Agreement contains a merger clause providing that it and the other agreements to which it refers constitute the entire agreement between the parties. Both the Credit Agreement and the Mortgage and Security Agreement contain provisions providing that its terms will not be superseded by any subsequent oral agreements.

The Court finds that the plain language of the Credit Agreement and the Mortgage and Security Agreement does not evidence a mutual intent by the parties to impose a duty on LexMac and Novus to obtain new leases on the expiring acreage. The Credit Agreement and Mortgage and Security Agreement imposed duties on LexMac and Novus with respect to the then existing leases that comprised the collateral, but no mention was made in the agreements as to the duties upon LexMac and Novus once the leases expired on their own terms, after the passage of time. The Credit Agreement and Mortgage and Security Agreement are voluminous and their provisions are designed with detail and precision to bind LexMac and Novus. The Plaintiffs could have added provisions pertaining to the expiration of the leases but chose not to do so. The Court finds and declares that LexMac and Novus did not have a duty under either the Credit Agreement or the Mortgage and Security Agreement to obtain new leases when the collateral leases expired in accordance with their own terms.

b) ACTION TO QUIET TITLE AND REMOVE THE LIS PENDENS

Lexar argues that “Macquarie Bank has filed the lis pendens based on damage claims that arise from a non-existent duty on the part of Novus Operating and LexMac to take wholly new leases for the benefit of Macquarie Bank.” See Docket No. 75, ¶ 54. Lexar also argues that the “lis pendens is a direct impediment to Lexar Energy’s ability to develop the leases, and coupled with the top leases by Macquarie Barnett completely inhibits the development of the leases. This is a harsh and arbitrary effect that must be remedied.” See Docket No. 75, ¶ 56. The Plaintiffs contend that MBL was within its rights to file the lis pendens because the NPORIC continued to encumber the leases obtained by Lexar.

The lis pendens was filed by MBL, a third-party to the NPORIC. The Court finds that MBL had standing to file the lis pendens on behalf of Macquarie Americas because the NPORIC “was intended to provide Macquarie Bank and/or Macquarie Americas an overriding royalty interest in the subject leases.” See Docket No. 112 (Defendants’ and Counter-Claimants’ Response to the Plaintiffs’ and Third-Party Defendant’s Motion for Summary Judgment).

Section 28-05-08 of the North Dakota Century Code allows a court to cancel a lis pendens:

The court in which the action was commenced, at any time, on application of any person aggrieved and on good cause shown and on such notice as directed or approved by the court, may order the notice authorized by section 28-05-07 to be canceled of record in whole or in part by the recorder of any county in whose office the same may have been filed for record, and such cancellation must be made by an endorsement to that effect on the margin of the record which shall refer to the order.

Section 32-17-01 of the North Dakota Century Code authorizes a party with an interest in real property to bring a quiet title action against another party claiming an interest in the property to determine adverse claims. “[A] quiet title action is a direct action to determine what, if any, interest each party has in a tract of land, and a court’s decision shall adjudicate the nature and extent of the parties’ claims and shall determine the validity, superiority, and priority of the claims.” Dennison v. N.D. Dep’t of Human Servs., 640 N.W.2d 447, 453 (N.D.2002).

The Court has determined that Lexar is an affiliate of LexMac and Novus, and that it entered into new leases on the acreage within one year of its expiration. As a result, the Court finds that new leases are subject to the terms of the NPORIC. The record is clear that Lexar’s leases have not been developed and, therefore, there are no net profits due under the NPORIC. If the leases were developed, any net profits would be subject to the terms of the NPORIC. Accordingly, the Court denies the Defendants’ and Counter-Claimants’ request to quiet title and remove the lis pendens on the subject leases, and grants summary judgment in favor of the Plaintiffs and Third-Party Defendant on this claim.

c) MISAPPROPRIATION AND MISUSE OF CONFIDENTIAL AND PROPRIETARY INFORMATION

The Defendants and Counter-Claimants contend that LexMac and Novus provided confidential and proprietary information to MBL to secure loans, and that MBL misappropriated and used this information for its own purposes to acquire leases in North Dakota. The Plaintiffs contend they have no contractual duty of confidentiality, and that the record is devoid of any evidence they misappropriated and misused confidential information.

Knickel concedes that the parties have not entered into a written confidentiality agreement. See Docket No. 57-3, p. 45. Nor did Knickel ever request a written confidentiality agreement because he believed that “it’s kind of a standard given in the industry.” See Docket No. 57-3, p. 46.

There is no general tort claim for “misappropriation of confidential information” under either North Dakota or Texas law. See Stewart & Stevenson Servs., Inc. v. Serv-Tech, Inc., 879 S.W.2d 89 (Tex.App.1994). Texas recognizes a claim for “misappropriation of trade secrets.” Calce v. Dorado Exploration, Inc., 309 S.W.3d 719, 737-38 (Tex.App.2010) (unpublished). To recover for a misappropriation of trade secrets, a plaintiff is required to prove “(1) existence of a trade secret, (2) breach of a confidential relationship or improper discovery of a trade secret, (3) use of the trade secret without the plaintiffs authorization, and (4) resulting damages.” Id.

Knickel testified that LexMac and Novus provided confidential information consisting of structure maps, isopach maps, petrophysical evaluations, seismic interpretations, well histories, geophysical data and interpretations from those maps, and log valuations of land in the Cedar Butte Project area. See Docket No. 57-3, pp. 40, 44. The Defendants contend that the data provided by LexMac and Novus could not be gleaned merely from public sources, but included reports and analyses that took substantial time and effort to complete. The Texas Supreme Court has stated, “It is undisputed that the oil and gas industry typically treats seismic data and other methods for obtaining subsurface geological information as trade secrets.” In re Bass, 113 S.W.3d 735, 740 (Tex.2003). Texas courts and courts in other jurisdictions also consider seismic data as trade secrets. See id. at 740, 742 (citing Musser Davis Land Co. v. Union Pac. Res., 201 F.3d 561, 569 (5th Cir.2000); Tidelands Royalty “B ” Corp. v. Gulf Oil Corp., 804 F.2d 1344, 1351 (5th Cir.1986); Phillips Petrol. Co. v. Stryker, 723 So.2d 585, 587 (Ala.1998); Amoco Prod. Co. v. Laird, 622 N.E.2d 912, 918 (Ind.1993)). Data consisting of subsurface gas reserves, including reserve estimates and future revenue projections are also trade secrets in Texas. See In re XTO Res. I, LP, 248 S.W.3d 898, 900-04 (Tex.App.2008). The Court finds that the data provided by LexMac and Novus to MBL is a trade secret under Texas law.

North Dakota also recognizes a claim for “misappropriation of trade secrets.” North Dakota follows the Uniform Trade Secrets Act (UTSA) which is codified at N.D.C.C. ch. 47-25.1. See CDI Energy Servs., Inc. v. West River Pumps, Inc., 2007 WL 4180581, at *3 (D.N.D. Nov. 20, 2007) (unpublished). Pursuant to N.D.C.C. § 47-25.1-03, a plaintiff is entitled to recover damages for the misappropriation of a trade secret.

Under the UTSA, a “trade secret” is defined as follows:

information, including a formula, pattern, compilation, program, device, method, technique, or process, that:

(a) Derives independent economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use; and

(b) Is the subject of efforts that are reasonable under the circumstances to maintain its secrecy.

N.D.C.C. § 47-25.1-01(4).

In N. States Power Co. v. N.D. Pub. Serv. Comm’n, 502 N.W.2d 240 (N.D. 1993), the North Dakota Supreme Court affirmed the Public Service Commission’s decision that price and volume data in publicly filed copies of gas transportation contracts were trade secrets under North Dakota law because the data was not generally known or readily ascertainable. The Defendants assert that the data which LexMac and Novus provided to MBL to secure financing was not generated entirely by public means nor was it readily ascertainable, but required substantial time and effort to determine the oil and gas development potential in the Cedar Butte Project area. The Court finds that under North Dakota law the data provided by LexMac and Novus to MBL, which consisted of structure maps, isopach maps, petrophysical evaluations, seismic interpretations, well histories, geophysical data and interpretations from those maps, and log valuations of land in the Cedar Butte Project area, constitutes a trade secret under the UTSA.

Even though the data is a “trade secret” under North Dakota and Texas law, the Plaintiffs are not liable unless they misappropriated the trade secret. The UTSA defines “misappropriation” as follows:

(a) Acquisition of a trade secret of another by a person who knows or has reason to know that the trade secret was acquired by improper means; or

(b) Disclosure or use of a trade secret of another without express or implied consent by a person who:

(1) Used improper means to acquire knowledge of the trade secret;

(2) At the time of disclosure or use, knew or had reason to know that the person’s knowledge of the trade secret was:

(a) Derived from or through a person who had utilized improper means to acquire it;

(b) Acquired under circumstances giving rise to a duty to maintain its secrecy or limit its use; or

(c) Derived from or through a person who owed a duty to the person seeking relief to maintain its secrecy or limit its use; or

(3) Before a material change of the person’s position, knew or had reason to know that it was a trade secret and that knowledge of it had been acquired by accident or mistake.

N.D.C.C. § 47-25.1-01(2).

The Credit Agreement and Mortgage and Security Agreement gave MBL a security interest in LexMac’s and Novus’s geophysical and seismic data. The Credit Agreement gave MBL “a first-priority mortgage lien and a first-priority perfected security interest in all of the real and personal property” of LexMac and Novus. See Docket No. 26-2, p. 8. “Personal property” under the Credit Agreement includes “all general intangibles (including all payment intangibles and rights to seismic and other geophysical data) and all permits, licenses, books and records related to the Properties or the business of Borrower as it relates to the Properties in any way whatsoever.” See Docket No. 26-2, p. 19.

The Mortgage and Security Agreement gave MBL a continuing security interest in “[a]ll accounts, equipment, inventory and contract rights and other general intangibles as such terms are defined in the Uniform Commercial Code from time to time in effect in the State of North Dakota (including, without limitation, all seismic data, geological data, geophysical data and interpretations of any of the foregoing to the extent a security interest therein may be assigned) constituting a part of, relating to, or arising out of the property and collateral....” See Docket No. 26-4, p. 4.

The Defendants must establish that MBL misappropriated the geophysical and seismic data despite the provisions in the Credit Agreement and Mortgage and Security Agreement. The evidence establishes that LexMac and Novus voluntarily provided the geophysical and seismic data to MBL to secure financing and, therefore, N.D.C.C. §§ 47-25.1-01(2)(a), (b)(1), (b)(2)(a), and (b)(3) are inapplicable. The only possible means by which the Defendants could establish misappropriation is if MBL disclosed the geophysical and seismic data but owed a duty to maintain the secrecy of the information under N.D.C.C. §§ 47-25.1-01(2)(b)(2)(b) or (b)(2)(c).

The Defendants allege that MBL, as a bank, owed a duty of confidentiality to its customers, LexMac and Novus. See Docket No. 112 (citing United Jersey Bank v. Kensey, 306 N.J.Super. 540, 704 A.2d 38 (N.J.Super.Ct.App.Div.1997); Barnett Bank of Marion County, N.A. v. Shirey, 655 So.2d 1156 (Fla.Dist.Ct.App.1995); Djowharzadeh v. City Nat’l Bank & Trust Co. of Norman, 646 P.2d 616 (Okla.Civ.App.1982); Richfield Bank & Trust Co. v. Sjogren, 309 Minn. 362, 244 N.W.2d 648 (1976)).

In Djotvharzadeh, the plaintiff alleged that the bank wrongfully disclosed his investment information to the wives of the bank’s president and of the chairman of the board of directors. In considering whether the bank owed a duty of confidentiality to its customers, the Oklahoma Court of Appeals stated:

Customer has the duty to fairly and fully disclose his assets, personal credit history and circumstances, intimate intra-family situations, past conduct, future plans and a myriad of other sometimes highly personal