United States Court of Appeals

FOR THE EIGHTH CIRCUIT

 ___________

 No. 96-4058

 ___________

JN Exploration & Production, *

 Plaintiff - Appellee, *

 v. *

Western Gas Resources, Inc., *

Defendant - Appellant. *

*

*

*

*

 ___________ Appeals from the United States

District Court for the

 No. 96-4134 District of North Dakota.

 ___________

JN Exploration & Production, *

Plaintiff - Appellant, *

 v. *

Western Gas Resources, Inc., *

Defendant - Appellee. *

*

*

*

*

___________

Submitted: October 20, 1997

Filed: September 1, 1998 

___________
The Honorable Richard S. Arnold stepped down as Chief Judge of the United 1

States Court of Appeals for the Eighth Circuit at the close of business on April 17,

1998. He has been succeeded by the Honorable Pasco M. Bowman, II.

JN is the successor-in-interest of Canterra Petroleum, Inc., which was in turn 2

the successor-in-interest of Al-Aquitaine Exploration, Ltd. Similarly, Western Gas

Resources is the successor-in-interest of Western Gas Processors, Ltd. In the interests

of clarity, we refer to the producer as JN and the processor as Western throughout.

-2-

Before RICHARD S. ARNOLD, Chief Judge, LOKEN and HANSEN, Circuit Judges. 1

___________

HANSEN, Circuit Judge.

Western Gas Resources, Inc. (Western) appeals from the district court's denial

of its motion for summary judgment and from the grant of JN Exploration &

Production's (JN) motion for summary judgment. JN cross-appeals, contesting the

district court's denial of JN's motion for attorneys' fees and the inclusion of an indemnity

clause in the judgment. JN has additionally moved to strike portions of Western's reply

brief. We reverse and remand on Western's appeal, we deny JN's motion to strike, and

we do not reach JN's cross-appeal.

I.

JN owns or leases mineral rights to various properties in Billings County, North

Dakota. JN is primarily concerned with the production of oil, but in producing its oil,

JN necessarily produces a certain amount of natural gas. Years ago, this gas was

"flared" at the site of the well. However, environmental legislation enacted in the late

1970s created incentives for oil producers to begin collecting the otherwise "flared" gas

for sale. On June 4, 1979, JN's predecessor-in-interest entered into a gas sales and

purchase contract with Western. Pursuant to this contract, JN agreed to sell, and

2

Western agreed to buy, "all the gas . . . now or hereafter produced from the said lease/s
-3-

and land/s" through 1999. (Appellee's App. at 34.) The parties agreed that Western

would construct a processing facility near the wells at which Western would process the

gas it bought from JN for resale by Western. The contract provided that Western would

receive title to the gas upon delivery at the wellhead. Pursuant to the contract, JN

would not be paid for the natural gas delivered to Western until such gas was processed

and sold by Western, and the price paid by Western to JN would be equal to "fifty

percent of the net sales proceeds" received by Western for the processed gas when

Western sold it. Once Western had reached "payout" (i.e., once it had recouped the

costs of constructing and operating its plant), JN's compensation would rise to sixty

percent of the net sales proceeds. 

JN's contract with Western did not specify at what price or to whom Western

would resell the processed gas. However, JN's predecessor had selected Western over

several competing processors, and one factor militating in favor of Western was

Western's then existing contract with Montana Dakota Utilities Co. (MDU). On March

16, 1979—several months before signing the gas sales and purchase contract with

JN—Western had entered into a gas purchase contract with MDU pursuant to which

MDU promised to purchase all of the plant's production up to 10,000,000 cubic feet of

gas per day from Western. At that time, MDU had the only interstate gas pipeline in

the area and was the only readily accessible market for processed natural gas. The

contract included a "take-or-pay" clause which obligated MDU, through 1999, to pay

for the daily contract quantity of gas even if it did not in fact take that amount. MDU

agreed to pay the highest price permitted under federal price regulations. Fifteen

months after signing the contract with JN, Western negotiated an amendment to its

contract with MDU pursuant to which MDU increased its maximum take to 30,000,000

cubic feet per day. 

In the early 1980s, changes in the regulatory structure led to a significant

oversupply of natural gas. As a result, MDU was unable to take the amount of

processed gas it was obligated to purchase under its contract with Western. As a
MDU had been succeeded at this point by its wholly-owned subsidiary

3

Williston Basin Interstate Pipeline Co. For the sake of clarity, we refer to both MDU

and its subsidiary simply as MDU.

-4-

result, in 1983, 1984, and 1985, MDU requested a short-term abatement in its required

take from Western's processing facilities. In each of those years, Western agreed to such

reduction. As partial consideration, MDU agreed to pay an elevated price for the gas it

did buy during each of those years. 

In 1986, MDU again requested a temporary abatement of its take-or-pay

3

responsibilities. This time Western refused. On May 8, 1987, MDU and Western

entered into a settlement, pursuant to which Western released MDU from its take-or-pay

obligations and waived all claims against MDU. (See Appellee's App. at 127-31.)

Western additionally released MDU from the price requirements of the 1979 contract.

In consideration for these alterations, MDU agreed to pay Western three "annual

commitment fees" totaling $15,000,000. (Id. at 128.)

On June 30, 1987, Western sent a letter to each of its producers, including JN,

notifying them that "negotiations with [MDU] have resulted in a revision of the sales

contract resulting in [MDU] assuring Western of continued transportation but

significantly altering [MDU's] obligation to purchase gas." (Id. at 132.) Western made

clear that MDU would no longer provide "any significant market" for gas sold from

Western's processing facility. (Id.) However, Western never notified JN of the

$15,000,000 in annual commitment fees it was receiving from MDU.

In the very same letter, Western announced that it would begin purchasing

processed gas from the Western plant in the same daily quantities and at the same perunit price that MDU had been purchasing since the beginning of 1987. (See id. at 132.)

It wrote that it did so because "[i]t is Western's opinion that maintaining a market for the

gas that has been purchased by [MDU], at a price consistent with [MDU's] previous
-5-

purchases, is important to . . . [Western's plant] and to Western's producers behind the

plant." Id.

In 1993, JN received a communication from the North Dakota State Land

Department which made reference to the $15,000,000 Western had received pursuant to

its settlement with MDU. Less than one month later, JN initiated this action in the

District of North Dakota. JN claimed that it was entitled to a portion of the $15,000,000

under several contract theories or under an unjust enrichment theory. Both parties moved

for summary judgment. The district court granted summary judgment for JN on its unjust

enrichment claim. Western appeals both from the grant of summary judgment for JN and

from the denial of its own motion for summary judgment. JN cross-appeals, contesting

the denial of its motion for attorneys' fees and the inclusion of an indemnity clause in the

judgment.

II.

The district court held, in relevant part, "[t]hat although the negotiated settlement

of the 'take-or-pay' contract was done in good faith and for the probable market

advantage of producers and processor, the processor has been unjustly enriched, and

under the controlling law of the Eighth Circuit, plaintiff is entitled to relief . . . ."

(Appellant's App. at 21 (emphasis added).) The district court does not appear to have

considered any of JN's contract claims, and we therefore concentrate our analysis on the

unjust enrichment theory on which the court granted relief.

A. Standard of Review and Choice of Law

We review the district court's grant of summary judgment for JN de novo, applying

the same standard as the district court. Get Away Club, Inc. v. Coleman, 969 F.2d 664,

666 (8th Cir. 1992). In so doing, we construe the facts in the light most favorable to

Western, and we afford Western the benefit of all reasonable inferences.
-6-

Watson v. Jones, 980 F.2d 1165, 1166 (8th Cir. 1992). Summary judgment is

appropriate only where there is no genuine issue of material fact and the moving party is

entitled to judgment as a matter of law. Id.; Fed. R. Civ. P. 56(c).

Notwithstanding the district court's invocation of "the controlling law of the Eighth

Circuit," it is axiomatic that federal courts apply state substantive law in diversity suits.

See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78 (1938); Hiatt v. Mazda Motor Corp.,

75 F.3d 1252, 1255 (8th Cir. 1996). We review de novo the district court's application

of state law. First Colony Life Ins. Co. v. Berube, 130 F.3d 827, 829 (8th Cir. 1997).

Where state law is ambiguous, we predict how the state's highest court would resolve the

issue. Id. The parties agree that North Dakota law controls, and we therefore apply

applicable North Dakota statutes and precedents.

B. North Dakota Precedents

"Unjust enrichment is a broad equitable doctrine which rests upon quasi or

constructive contracts implied by law to prevent a person from unjustly enriching

[himself] at the expense of another." In re Estate of Hill, 492 N.W.2d 288, 295 (N.D.

1992) (emphasis added); see also D.C. Trautman Co. v. Fargo Excavating Co., 380

N.W.2d 644, 645 (N.D. 1986) ("The doctrine [of unjust enrichment] rests upon

quasi-contractual principles[.]"); First Nat'l Bank of Belfield v. Burich, 367 N.W.2d 148,

154 (N.D. 1985) ("The equitable remedy of unjust enrichment generally rests upon the

concept of quasi or constructive contract implied by law[.]"); Sykeston Township v.

Wells County, 356 N.W.2d 136, 140 (N.D. 1984) (same). In fact, quasi contract and

unjust enrichment are two terms for the same theory of relief. See, e.g., Dove Valley

Bus. Park Assocs., Ltd. v. Board of County Comm'rs, 945 P.2d 395, 403 (Co. 1997) (en

banc) ("Unjust enrichment [is] also known as a quasi contract[] or contract implied in

law[.]"), cert. denied, 118 S. Ct. 1302 (1998); Henning v. Security Bank, 564 N.W.2d

398, 403 (Iowa 1997) (unjust enrichment is a "modern designation[] for the older terms

of quasi contracts or contracts implied in law").
This accords with the resolution of the matter in other jurisdictions. See, e.g.,

4

Sutter Home Winery, Inc. v. Vintage Selections, Ltd., 971 F.2d 401, 408-09 (9th Cir.

1992) (Arizona law) ("'[W]here there is a specific contract which governs the

relationship of the parties, the doctrine of unjust enrichment has no application[.]'")

(quoting Brooks v. Valley Nat'l Bank, 548 P.2d 1166, 1171 (Ariz. 1976)); Thurston v.

Cedric Sanders Co., 125 N.W.2d 496, 498 (S.D. 1963) (South Dakota law) ("There is

no question but what, where there is a valid express contract existing between parties

in relation to a transaction fully fixing the rights of each, there is no room for an implied

promise, or suit on quantum meruit.") (internal quotations omitted); see also Murray v.

ABT Assocs., Inc., 18 F.3d 1376, 1379 (7th Cir. 1994) (applying Illinois law); In re

-7-

Under North Dakota law, courts may only apply quasi contractual principles in the

absence of a valid express or implied in fact contract. See, e.g., Estate of Hill, 492

N.W.2d at 294-95 n.1 (N.D. 1992) ("A finding of an express contract negates a possible

finding of an implied one as the two are mutually exclusive. . . . 'An express contract and

an implied contract cannot coexist with respect to the same subject matter, and the former

supersedes the latter.'") (quoting Chariton Feed & Grain, Inc. v. Harder, 369 N.W.2d

777, 791 (Iowa 1985)); Cavalier County Mem. Hosp. Assoc. v. Kartes, 343 N.W.2d 781,

785 (N.D. 1984) (implied contract cannot exist where express contract exists relative to

same subject matter); Beck v. Lind, 235 N.W.2d 239, 250 (N.D. 1975) ("A quasi

contract, implied in law, arises where a transaction between parties gives them mutual

rights or obligations, but does not involve an express agreement between them.")

(emphasis added). 

Because unjust enrichment is synonymous with quasi contract, and because in

North Dakota quasi contractual principles find no application in the face of an express

contract, it follows necessarily that in the face of an express contract, an action for unjust

enrichment cannot lie. The Supreme Court of North Dakota has repeatedly recognized

this, stating, "the doctrine [of unjust enrichment] serves as a basis for requiring restitution

of benefits conferred in the absence of an express or implied in fact contract." Sykeston

Township, 356 N.W.2d at 139 (emphasis added); see also D.C. Trautman Co., 380

N.W.2d at 645 (unjust enrichment applies in the absence of an express or implied in fact

contract); Burich, 367 N.W.2d at 154 (same). In Burich, the 4
Chateaugay Corp., 10 F.3d 944, 957 (2d Cir. 1993) (New York law); Harden v. TRW,

Inc., 959 F.2d 201, 204 (11th Cir. 1992) (Georgia law); Marple v. Kurzweg, 902 F.2d

397, 401 (5th Cir. 1990) (Louisiana law).

Three cases from the 1970s suggest that the Supreme Court of North Dakota

5

had not as of then fully worked out this doctrine. See Cargill, Inc. v. Kavanaugh, 228

N.W.2d 133, 140 (N.D. 1975) (in the absence of "unjust enrichment, fundamental

unfairness, or miscarriage of law requiring intervention of equity," court's equitable

powers may not be invoked in a contract case); Fiebiger v. Fischer, 276 N.W.2d 241,

246 (N.D. 1979) (same, citing Kavanaugh); Trauger v. Helm Bros., Inc., 279 N.W.2d

406, 414 (N.D. 1979) (same, citing Kavanaugh). However, in none of these cases did

the Supreme Court of North Dakota find unjust enrichment or award equitable relief.

More importantly, as discussed below, the Supreme Court of North Dakota has made

clear in the intervening years that the existence of a valid contract between the parties

to a dispute bars relief on a theory of unjust enrichment. 

-8-

Supreme Court of North Dakota highlighted the incompatibility of unjust enrichment and

an express contract when it concluded, "[i]n this instance, an express contract existed

between Burich and the Bank and therefore it was error to rely on the theory of unjust

enrichment." 367 N.W.2d at 154. In short, because unjust enrichment is grounded in

quasi contract, where, as here, the parties have voluntarily entered into an express written

contract which defines the rights of each, unjust enrichment is a non sequitur.

5

The express written contract between Western and JN provided that JN would

receive compensation from Western equal to a percentage of "net proceeds from the sale

of gas." JN does not argue that the contract had been rescinded or that it was invalid or

unenforceable at the time of Western's alleged breach. Rather, the sole issue presented

in this case is whether the $15 million Western received in settlement of its contract with

MDU constitutes such "net proceeds" under the terms of the JN-Western contract. JN's

remedy therefore lies in contract rather than in quasi contract.
-9-

C. Eighth Circuit Precedents

JN argues that a different result is required by Klein v. Arkoma Prod. Co., 73 F.3d

779 (8th Cir.), cert. denied, 117 S. Ct. 65 (1996), and Frey v. Amoco Prod. Co., 603

So.2d 166 (La. 1992) (answering certified question) (subsequent history omitted). We

disagree.

In Klein v. Arkoma, this court determined that, under Arkansas law, a lessor was

entitled to share in proceeds acquired by the lessee in a settlement of take-or-pay

obligations. See 73 F.3d at 786. In so doing, we invoked the "Harrell rule," writing,

"[B]ecause the evidence establishes as a matter of law that Jones and McCoy settled the

take-or-pay claims, and because the Harrell rule entitles lessors to share in all proceeds

from the land, we hold that the royalty owners are entitled to recover from Jones and

McCoy on their unjust enrichment claim." Id.; see also Klein v. Jones, 980 F.2d 521,

531-32 (8th Cir. 1992) (Harrell rule applies to oil and gas leases under Arkansas law).

In Frey, the Supreme Court of Louisiana invoked the Harrell rule en route to a similar

holding under Louisiana law. See 603 So.2d at 171 ( lessor is entitled to royalties on

take-or-pay payments made to lessee by natural gas pipeline purchaser); id. at 173-74

(recognizing Harrell rule). Frey similarly involved an oil and gas lease, and similarly was

governed by state non-Uniform Commercial Code (U.C.C.) law. The Harrell rule

provides that, because of the unique nature of the lessor/lessee relationship, lessors and

lessees are joint venturers, and "oil and gas leases should be construed in a manner so

that the lessee and lessor split all economic benefits arising from the land." Klein v.

Arkoma, 73 F.3d at 783; see also Alameda Corp. v. Transamerican Natural Gas Corp.,

950 S.W.2d 93, 99 (Tex. App. 1997) ("the Harrell rule considers the gas lease a

co-operative venture where the lessor contributes the land and the lessee contributes the

capital and expertise necessary to develop the minerals for the mutual benefit of both

parties.") (alterations and internal quotation marks omitted); Thomas A. Harrell,

Developments in Nonregulatory Oil and Gas Law, 30 Inst. on Oil & Gas L. & Tax'n 311,

334 (1979) (source of Harrell rule).
-10-

JN cites Klein v. Arkoma and Frey in support of its argument that Western was

unjustly enriched. For the reasons discussed below, we do not believe that the Supreme

Court of North Dakota would find those cases persuasive.

First, the Harrell rule appears to have won acceptance in only a small minority of

jurisdictions. The Texas Court of Appeals recently declined to adopt the Harrell rule

even in the context of oil and gas leases, stating:

The "co-operative venture" theory . . . is derived from unique state statutes

that expand the definition of "royalty" in mineral leases. Most states have

no such legislation and therefore, these cases may stand alone. In fact, the

co-operative venture theory has not received very much additional support,

and several recent cases have eschewed that approach in favor of a literal

reading of the lease terms. Accordingly, we decline Alameda's invitation

to depart from precedent and follow the minority "co-operative venture"

rule. 

Alameda, 950 S.W.2d at 99 (citations, alterations, and internal quotation marks omitted).

Of the several cases discussing the limited applicability of the Harrell rule, the Tenth

Circuit's decision in Harvey E. Yates Co. v. Powell, 98 F.3d 1222, 1233-34 (10th Cir.

1996), is particularly instructive. There the court noted that the Frey and Klein decisions

were based on peculiarities of Louisiana and Arkansas lease law. Id. at 1233. Finding

that New Mexico lease law differed in relevant respects from that of Arkansas and

Louisiana, the court found the Harrell rule inapplicable under New Mexico law. In so

doing, it noted that its decision was in accordance with the modern trend of construing

leases literally. Id. at 1233-34. Thus, even if we were faced with a lease, the Harrell rule

would not necessarily apply.

However, we are not presented with a lease, but rather with a purchase and sale

agreement negotiated between large corporate entities, each with squads of lawyers and
-11-

industry and marketing experts, in a commercial setting. JN is not a lessor, and Western

is not a lessee. The production of gas from JN's wells was always ancillary and

subservient to JN's primary purpose—the production of oil. JN cites, and we find, no

case in which the Harrell rule has been applied in this very different context. In North

Dakota, oil and gas purchase and sale agreements are governed by Article II of the

U.C.C. See Koch Hydrocarbon Co. v. MDU Resources Group, Inc., 988 F.2d 1529,

1534 (8th Cir. 1993) (North Dakota U.C.C. applies to contract for sale of natural gas)

(citing N.D. Cent. Code § 41-02-05(2)). Pre-extraction oil and gas leases, on the other

hand, fall beyond the scope of the U.C.C. See N.D. Cent. Code § 41-02.1-03(1)(h) (the

term "goods," for purposes of U.C.C. lease chapter, excludes "minerals or the like,

including oil and gas, before extraction"); accord Ark. Code Ann. § 4-2A-103(1)(h).

Therefore, while the contract between JN and Western is governed by the U.C.C. as

adopted in North Dakota, the leases at issue in Klein v. Arkoma were governed by the

non-U.C.C. statutory and common law of Arkansas. To our knowledge, the Harrell rule

has never been invoked in the context of a U.C.C. governed contract, and we believe that

the Supreme Court of North Dakota would find the Harrell rule unpersuasive in this

U.C.C. governed case. 

This result makes good sense as well as good law. While lessors are often

commercially unsophisticated, ordinary landowners who have deposits of oil and gas

under their farms and ranches and who lack the knowledge, expertise, and capital

necessary to extract and market these mineral resources, oil and gas producers like JN

are large, sophisticated, corporate merchants who can be trusted to guard their own

interests. Therefore, in the absence of procedural unconscionability, the role of courts

under the U.C.C. is simply to assure each merchant the benefit of its bargain. See

LaSociete Generale Immobiliere v. Minneapolis Community Dev. Agency, 44 F.3d 629,

637 (8th Cir. 1994) ("[W]here, as here, two sophisticated parties negotiated a commercial

contract which was executed in the absence of fraud, duress, or any other form of

unconscionability, we will not rewrite the contract in order to save a contracting party

from its own poor decisions."), cert. denied, 516 U.S. 810 (1995);
-12-

Morello v. Federal Barge Lines, Inc., 746 F.2d 1347, 1351 (8th Cir.1984) ("[C]ourts of

law do not sit in order to save parties from their contractual mistakes."); Gelderman &

Co. v. Lane Processing, Inc., 527 F.2d 571, 576 (8th Cir. 1975) ("It is not the province

of the courts to scrutinize all contracts with a paternalistic attitude and summarily

conclude that they are partially or totally unenforceable merely because an aggrieved

party believes that the contract has subsequently proved to be unfair or less beneficial

than anticipated."). 

Additionally, JN's theory is precluded by our decision in Koch Hydrocarbon, 988

F.2d at 1547. There we applied North Dakota law to a producer/processor relationship

nearly identical to the one in the case at bar. There, as here, the processor paid for the

gas it resold to MDU with a percentage of the proceeds obtained from such resale.

There, as here, MDU was unable to meet its take-or-pay obligations. The only difference

between Koch Hydrocarbon and the case at bar is that instead of settling, as Western did,

Koch sued MDU and won. However, the district court reduced Koch's damage award

so that it reflected only the percentage of MDU's contract obligations which would have

been retained by Koch. In other words, it denied recovery of the portion of gas proceeds

which Koch would have passed through to its producers. On appeal, we declined to

invoke the doctrine of unjust enrichment. Rather, we upheld this reduction in damages,

writing, "[i]f the gas was not sold, [the processor] did not owe the producers their cut[.]"

988 F.2d at 1547. Faced with nearly identical facts and an analogous contract in the case

at hand, we can hardly reverse course and determine that, under the same North Dakota

law, the processor does owe the producers a "cut," even though no gas was sold. (See

Dist. Ct. Mem. & Order, Apr. 15, 1996, at 3; Appellant's App. at 19 ("The $15,000,000

payment is not for gas sold.")).

Most importantly, as discussed above, the jurisprudence of the Supreme Court of

North Dakota clearly forecloses relief on claims for unjust enrichment in the face of an

express contract. While the Supreme Court of North Dakota may see fit to carve out

exceptions to its rule, we decline to do so here, because "the views of the state's
-13-

highest court with respect to state law are binding on the federal courts." Wainright v.

Goode, 464 U.S. 78, 84 (1983).

III.

"We may affirm on any ground supported by the record." Doe v. Norwest Bank

Minnesota, N.A., 107 F.3d 1297, 1301 (8th Cir. 1997). We therefore consider JN's other

theories of relief to determine if they support the district court's ruling. At the district

court, JN advanced four theories of relief. In addition to its unjust enrichment theory, JN

alleged three other theories. First, JN alleges that Western breached the express terms

of the contract. Second, JN alleges that Western breached the duty of fair dealing

implied in the contract. Last, JN claims to be a third party beneficiary of Western's

contract with MDU, and alleges that Western breached that contract when it appropriated

the proceeds due JN. 

All of JN's remaining claims ring in contract. Both JN's contract with Western and

Western's contract with MDU are primarily for the sale of natural gas and are thus

governed by the North Dakota U.C.C. See Koch Hydrocarbon, 988 F.2d at 1534 (North

Dakota U.C.C. applies to contract for sale of natural gas) (citing N.D. Cent. Code § 41-

02-05(2)). Western argues that JN's contract claims are time-barred pursuant to North

Dakota Century Code § 41-02-104, which provides in relevant part:

An action for breach of any contract for sale must be commenced

within four years after the claim for relief accrued.

. . . .

A claim for relief accrues when the breach occurs, regardless of the

aggrieved party's lack of knowledge of the breach.

. . . .

This section does not alter the law on tolling of the statute of limitations . . . .

Id. (emphasis added).
-14-

All of JN's contract claims contest Western's May 11, 1987, settlement with MDU.

JN filed its complaint on May 6, 1993—nearly six years after the settlement, and more

than four years after the last annual payment of $4,000,000 was made on April 26, 1989.

The district court applied the discovery rule and found that the statute of limitations had

not run, writing, "[t]he action is not time barred, the plaintiff's becoming aware of the

$15,000,000.00 payment only when the State of North Dakota demanded a tax payment

arising from the payment." Dist. Ct. Mem. and Order, Apr. 15, 1996, at 5. When it

applies, the discovery rule provides that a cause of action "accrues when the plaintiff

discovers[] or should have discovered the cause of injury." Osborn v. United States, 918

F.2d 724, 731 (8th Cir. 1990). When a claim accrues is a question of law. See id.

To the extent that the district court was speaking of JN's contract claims, its

reliance on the discovery rule is clearly misplaced. While the Supreme Court of North

Dakota has found the discovery rule applicable to some statutes of limitations, see

Hebron Pub. Sch. Dist. No. 13 v. United States Gypsum Co., 475 N.W.2d 120, 124

(N.D. 1991), it has not adopted this rule in the context of the U.C.C. Moreover, the

North Dakota Century Code expressly prohibits the application of the discovery rule in

this context. It provides that actions for breach of contract under Article II of the U.C.C.

accrue "when the breach occurs, regardless of the aggrieved party's lack of knowledge

of the breach." N.D. Cent. Code § 41-02-104(2) (U.C.C. § 2-725). The clear import of

this sentence is to prevent the application of the discovery rule, and to apply the

discovery rule here would be to write section 41-02-104(2) out of the code. Accordingly,

JN's knowledge or lack of knowledge of the alleged breach is irrelevant, and JN's

contract claims are barred by the application of section 41-02-104 absent some grounds

for equitable relief from the effect of the statute of limitations. 

JN argues that the statute of limitations should be tolled because Western

fraudulently concealed its settlement with MDU. The North Dakota legislature has
-15-

codified the doctrine of fraudulent concealment at section 28-01-24, which provides: 

When, by fraud or fraudulent concealment, a party against whom a

claim for relief exists prevents the person in whose favor such claim for

relief exists from obtaining knowledge thereof, the latter may commence an

action within one year from the time the claim for relief is discovered by

him or might have been discovered by him in the exercise of diligence.

N.D. Cent. Code § 28-01-24 (1991). Article II of the North Dakota U.C.C. indicates that

tolling doctrines such as fraudulent concealment are not preempted by the U.C.C. statute

of limitations provisions. See id. § 41-02-104(4) ("This section does not alter the law on

tolling of the statute of limitations . . . ."). In the absence of any authority supporting the

contrary position, we therefore conclude that the Supreme Court of North Dakota would

apply the doctrine of fraudulent concealment to actions falling under Article II of the

U.C.C. 

In order to defeat the statute of limitations, JN must establish fraudulent

concealment "to the satisfaction of the court or jury, as the case may be, by a fair

preponderance of the evidence." Id. § 28-01-24. The district court did not determine

whether Western fraudulently concealed its alleged breach of contract. Nor did it

determine when, in the exercise of proper diligence, JN might first have discovered

Western's settlement with MDU. We therefore remand to the district court for

consideration of these issues. See, e.g., Icicle Seafoods, Inc. v. Worthington, 475 U.S.

709, 714 (1986) ("If the Court of Appeals believed that the District Court had failed to

make findings of fact essential to a proper resolution of the legal question, it should have

remanded to the District Court to make those findings."). If, on remand, the district court

finds that fraudulent concealment did occur and that JN satisfied the time requirements

of section 28-01-24, the court should then proceed to consider the merits of JN's contract

claims, which it did not do in the first instance. If the court finds that Western did not

engage in fraud or that JN failed to satisfy the time requirements of
We note that JN included in the second claim made in its complaint that

6

Western breached its "duty of fair dealing" and also breached "its fiduciary

responsibility" to JN. Neither party argued "breach of fiduciary duty" before us, nor

did the district court include any discussion of such a claim in its order on the summary

judgment motion. Accordingly, we do not address such a claim here. 

-16-

section 28-01-24, then JN's contract claims are barred and summary judgment for

Western will be appropriate. 

6

IV.

We hold that the district court erred in entering summary judgment for JN on an

unjust enrichment theory, and we reverse. We further hold that Article II of the North

Dakota U.C.C. prohibits courts from applying the discovery rule to breach of contract

actions arising under it. We remand to the district court for a determination of whether

Western engaged in fraudulent concealment and, if fraudulent concealment is found, a

decision on the merits of JN's contract claims. Because we reverse the district court's

judgment, we do not reach JN's cross appeal. We deny JN's motion to strike.

A true copy.

Attest:

CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.