Res., Inc. v. Colo. Oil & Gas Conservation Comm'n , 428 P.3d 657 ( 2018 )

The summaries of the Colorado Court of Appeals published opinions
constitute no part of the opinion of the division but have been prepared by
the division for the convenience of the reader. The summaries may not be
cited or relied upon as they are not the official language of the division.
Any discrepancy between the language in the summary and in the opinion
should be resolved in favor of the language in the opinion.
SUMMARY
March 22, 2018
2018COA40
No. 17CA0051, Maralex Res., Inc. v. Colo. Oil & Gas
Conservation Comm’n — Administrative Law — Oil and Gas
Conservation Act — Colorado Oil and Gas Conservation
Commission; Constitutional Law — Fourth Amendment —
Searches and Seizures — Administrative Searches
In this appeal of an administrative agency order, a division of
the court of appeals considers whether the Colorado Oil and Gas
Conservation Commission (COGCC) can constitutionally subject oil
and gas locations to unannounced, warrantless inspections. The
division concludes that a COGCC rule permitting warrantless
inspections of oil and gas locations does not violate the United
States or Colorado Constitution. Because it authorizes searches
falling within the administrative search exception to the warrant
requirement, the COGCC rule is constitutional. Further, the
division concludes that the inspection of the oil and gas locations at
issue here did not violate the surface owners’ constitutional rights.
The division also considers COGCC’s findings that Maralex
Resources, Inc., violated various agency rules at two oil and gas
locations. The division concludes that one of COGCC’s findings was
arbitrary and capricious in one respect, but otherwise affirms the
district court’s order enforcing COGCC’s order.
Accordingly, the division affirms in part, reverses in part, and
remands with directions.
COLORADO COURT OF APPEALS 2018COA40
Court of Appeals No. 17CA0051
City and County of Denver District Court No. 14CV34759
Honorable John W. Madden, IV, Judge
Maralex Resources, Inc., a Colorado corporation; A.M. O’Hare; and Mary C.
O’Hare,
Plaintiffs-Appellants,
v.
Colorado Oil and Gas Conservation Commission,
Defendant-Appellee.
ORDER AFFIRMED IN PART, REVERSED IN PART,
AND CASE REMANDED WITH DIRECTIONS
Division I
Opinion by JUDGE TAUBMAN
Booras and Casebolt*, JJ., concur
Announced March 22, 2018
Abadie Schill, P.C., William E. Zimsky, Durango, Colorado, for Plaintiffs-
Appellants
Cynthia H. Coffman, Attorney General, Jake Matter, Senior Assistant Attorney
General, David A. Beckstrom, Assistant Attorney General, Denver, Colorado,
for Defendant-Appellee
*Sitting by assignment of the Chief Justice under provisions of Colo. Const. art.
VI, § 5(3), and § 24-51-1105, C.R.S. 2017.
¶1 In this appeal of an administrative agency decision, plaintiffs,
Maralex Resources, Inc. (Maralex), A.M. O’Hare (O’Hare), and Mary
C. O’Hare, appeal the district court’s order affirming an order
finding violation (OFV) issued by defendant, the Colorado Oil and
Gas Conservation Commission (COGCC). On appeal, Maralex and
the O’Hares contend that a COGCC rule permitting random,
warrantless searches of oil and gas properties violates the United
States and Colorado Constitutions. As a matter of first impression,
we conclude that the COGCC rule is constitutional because it
permits searches falling within the administrative search exception
to the warrant requirement. To the extent the O’Hares separately
challenge the constitutionality of the rule, we similarly reject their
challenge.
¶2 Maralex also appeals the district court’s order enforcing
COGCC’s findings that it violated several rules at two of its oil and
gas locations. Because we agree with Maralex that one of COGCC’s
findings was arbitrary and capricious in one respect, we reverse the
district court’s order in part and affirm in part.
1
I. Background
A. Facts
¶3 In a prehearing statement submitted to the COGCC, the
parties stipulated to the following facts.
¶4 O’Hare was the president of Maralex, a Colorado corporation
licensed to conduct oil and gas operations in the state. Maralex
operated over 200 oil wells in Colorado. As relevant here, Maralex
was the operator of three producing wells in southwest Colorado —
Katie Eileen 34-7-35 2A (Katie Eileen 2A), Katie Eileen 34-7-35 2
(Katie Eileen 2), and Katie Eileen 34-7-35 3 (Katie Eileen 3).1 The
wells were located on the O’Hares’ ranch, and the O’Hares owned
both the surface and mineral rights, though they leased a mineral
interest to Maralex beginning in 1995.
¶5 The wells were located on two separate oil and gas locations.2
Katie Eileen 2A was located on a western location, while Katie
Eileen 2 and 3 were located on an eastern location. The Katie
1 A COGCC rule defines operator as “any person who exercises the
right to control the conduct of oil and gas operations.” Dep’t of Nat.
Res. Rule 100, 2 Code Colo. Regs. 404-1.
2 A COGCC rule defines oil and gas location as “a definable area
where an operator has disturbed or intends to disturb the land
surface in order to locate an oil and gas facility.” Id.
2
Eileen 2 well was completed in 1996, and the Katie Eileen 3 well
was completed in 2007.
¶6 Additionally, there were two pits on the eastern location
adjacent to the Katie Eileen 2 and 3 wells.3 One pit was unlined,
and the other had a partially torn liner. The O’Hares used those
pits as stock ponds for their cattle.
¶7 In the afternoon of March 20, 2014, a COGCC field inspection
supervisor contacted a local Maralex office and requested access to
the Katie Eileen wells to conduct a routine inspection. Maralex
employees informed the inspection supervisor that the properties
were protected by locked gates and, because O’Hare was out of
town, they could not permit access that day. The inspection
supervisor agreed to delay the inspection for a day, provided that
Maralex contact him “oil-field early” — meaning, according to
industry custom, at 6:00 a.m. — the next day.
¶8 At 9:30 a.m. the following morning, not having heard from
Maralex, the inspection supervisor issued a notice of alleged
3A COGCC rule defines pit generally as “any natural or man-made
depression in the ground used for oil or gas exploration or
production purposes.” Id. The rule also lists various types of pits.
See id.
3
violation based on Maralex’s failure to provide access to the wells.
There was no communication between Maralex and the inspection
supervisor until mid-morning, when O’Hare called the inspection
supervisor.
¶9 The exact content of the March 21 phone call was disputed,
but the conversation was apparently heated and arguably
culminated in O’Hare threatening the inspection supervisor. O’Hare
emailed the inspection supervisor later that day offering to allow the
inspection supervisor access to the wells the following Monday
morning. However, he also wrote that, had the inspection
supervisor attempted to enter the property in spite of the locked
gates, he would have been at risk of being shot because the
O’Hares’ children had been instructed to shoot trespassers. O’Hare
added:
If your purpose is truly to inspect the locations
for adherence to the COGCC rules and
regulations then bring your notepad on
Monday and you can write up all the
deficiencies you find and we will address them
to the best of our ability as soon as we can. If
your intention is to run roughshod over our
Constitutional rights then you should be
prepared for a fight because I will defend my
rights and my family to the death! Any
questions?
4
¶ 10 COGCC then sought an administrative search warrant
authorizing entry to and inspection of the western and eastern
locations, which was granted by the La Plata County District Court.
On March 27, 2014, the COGCC executed that warrant.
B. COGCC’s Inspections and Order
¶ 11 During the initial March 27 inspection, COGCC staff noted
several rules violations, including, as relevant here, improperly
stored equipment at the Katie Eileen 2A well and unclosed pits at
the Katie Eileen 2 and 3 wells, one of which contained improperly
stored drill cuttings.4
¶ 12 About two weeks later, COGCC staff conducted a follow-up
inspection of the wells. That inspection revealed that the previously
observed violations were ongoing. Additionally, a COGCC
environmental protection specialist collected soil samples from the
pits adjacent to the Katie Eileen 2 and 3 wells. Those soil samples
showed levels of various contaminants that exceeded COGCC rules.
4 Drill cuttings “are bits of rock and soil cut from subsurface
formations by the drill bit during the process of drilling a well and
then lifted to the surface by circulation of oil-based drilling fluids.”
Osage Envtl., Inc. v. R.R. Comm’n, No. 03-08-00005-CV, 2008 WL
2852295, at *1 n.2 (Tex. App. July 24, 2008) (unpublished opinion).
5
¶ 13 Based on the inspections of the Katie Eileen wells, COGCC
issued Maralex multiple notices of alleged violations during June
and August of 2014. Challenging these notices, Maralex requested
an administrative hearing. COGCC held a hearing at which various
COGCC and Maralex employees testified. Following the hearing,
COGCC issued an OFV, concluding that Maralex had violated
several rules, including, as relevant here, Rules 204, 603.f, 905(a),
and 907(a)(1). See Dep’t of Nat. Res. Rule 204, 2 Code Colo. Regs.
404-1; Dep’t of Nat. Res. Rule 603.f, 2 Code Colo. Regs. 404-1;
Dep’t of Nat. Res. Rule 905(a), 2 Code Colo. Regs. 404-1; Dep’t of
Nat. Res. Rule 907(a)(1), 2 Code Colo. Regs. 404-1. In total,
Maralex was assessed a penalty of $94,000 for the violations.
C. The District Court’s Order
¶ 14 Maralex and the O’Hares sought judicial review of COGCC’s
order. They raised constitutional challenges to COGCC’s rule
permitting warrantless inspections of oil and gas locations and
sought injunctive and declaratory relief. The O’Hares (but not
Maralex) raised a separate constitutional challenge to the inspection
rule based on their status as surface owners. Maralex (but not the
6
O’Hares) also challenged COGCC’s determination of rules violations
in the OFV.
¶ 15 In a thorough and well-reasoned order, the district court
denied Maralex and the O’Hares declaratory and injunctive relief,
concluding that COGCC’s inspection rule did not violate either the
United States or Colorado Constitution. Similarly, the district court
concluded that the O’Hares’ constitutional rights were not violated.
The district court also affirmed the OFV in full, finding that all the
violations were supported by competent evidence in the agency’s
record.
II. Constitutionality of Rule 204
¶ 16 Maralex and the O’Hares argue that COGCC “lacks statutory
authority” to conduct unannounced, warrantless searches of oil and
gas locations. Although they do not characterize it as such, we
construe this claim as a facial challenge to the constitutionality of
Rule 204, which permits authorized COGCC staff “the right at all
reasonable times to go upon and inspect any oil or gas properties.”
Dep’t of Nat. Res. Rule 204, 2 Code Colo. Regs. 404-1; see City of
Los Angeles v. Patel, 576 U.S. ___, ___, 135 S. Ct. 2443, 2449 (2015)
(“[F]acial challenges under the Fourth Amendment are not
7
categorically barred or especially disfavored.”). We conclude that
Rule 204 passes constitutional muster.
A. Standard of Review
¶ 17 Because it is a question of law, we review the constitutionality
of an agency rule de novo. See Indep. Inst. v. Coffman, 209 P.3d
1130, 1135 (Colo. App. 2008).
B. Administrative Searches
¶ 18 The Fourth Amendment protects “[t]he right of the people to be
secure in their persons, houses, papers, and effects, against
unreasonable searches and seizures.” U.S. Const. amend. IV.
Likewise, the Colorado Constitution prohibits “unreasonable
searches and seizures.” Colo. Const. art II, § 7. As a general rule, a
warrantless search is presumptively unreasonable. Patel, 576 U.S.
at ___, 135 S. Ct. at 2452. The Fourth Amendment’s prohibition on
unreasonable searches and seizures is applicable to commercial
premises. New York v. Burger, 482 U.S. 691, 699 (1987).
¶ 19 However, the Supreme Court has carved out certain
exceptions to the requirement that searches be conducted pursuant
to a warrant issued upon probable cause. One such exception is in
the context of administrative searches. See Eddie’s Leaf Spring
8
Shop & Towing LLC v. Colo. Pub. Utils. Comm’n, 218 P.3d 326, 332
(Colo. 2009). Developed in two Supreme Court cases, Colonnade
Catering Corp. v. United States, 397 U.S. 72 (1970), and United
States v. Biswell, 406 U.S. 311 (1972), this exception has been
referred to as the Colonnade-Biswell exception. See, e.g., Exotic
Coins, Inc. v. Beacom, 699 P.2d 930, 942 (Colo. 1985).
¶ 20 Under this exception, “a warrantless inspection made
pursuant to a regulatory scheme of a closely regulated industry is
reasonable if three requirements are met.” Eddie’s Leaf Spring
Shop, 218 P.3d at 332. First, the regulatory scheme must “be
informed by a substantial government interest.” Id. Second,
warrantless searches must be necessary to further that government
interest. Id. Third, the regulatory scheme must “provide a
‘constitutionally adequate substitute’ for a warrant in terms of the
certainty and regularity of the program’s application.” Id. (quoting
Burger, 482 U.S. at 700).
¶ 21 The Colonnade-Biswell exception is rooted in the principle
that, because there is a reduced expectation of privacy on the part
of an owner of commercial premises in a pervasively regulated
industry, the traditional warrant and probable cause requirements
9
have lessened application. See Marshall v. Barlow’s, Inc., 436 U.S.
307, 313 (1978) (“[W]hen an entrepreneur embarks upon such a
business, he has voluntarily chosen to subject himself to a full
arsenal of governmental regulation.”).
¶ 22 The Supreme Court has stated that this exception to the
warrant requirement is a narrow one. In a recent decision, the
Court noted that it had applied the administrative search exception
to only four closely regulated industries: “liquor sales, firearms
dealing, mining, or running an automobile junkyard.” Patel, 576
U.S. at ___, 135 S. Ct. at 2454 (citations omitted). In Patel, the
Court held that the hotel industry was not “pervasively regulated”
because it was subject only to “general regulations” like licensure,
tax, rate postage, and sanitary requirements. Id. at ___, 135 S. Ct.
at 2455 (noting that such regulations “hardly . . . put[] hotel owners
on notice that their ‘property will be subject to periodic inspections
undertaken for specific purposes’” (quoting Burger, 482 U.S. at 705
n.16)).
¶ 23 Despite the Court’s admonition that the closely regulated
industry “is the exception,” Marshall, 436 U.S. at 313, other courts
have found that many and varied industries fall within that
10
exception. See Eddie’s Leaf Spring Shop, 218 P.3d at 333
(nonconsensual towing); Gora v. City of Ferndale, 576 N.W.2d 141,
147 (Mich. 1998) (massage parlors); State v. Klager, 797 N.W.2d 47,
53 (S.D. 2011) (taxidermy); Hill v. Commonwealth, 624 S.E.2d 666,
671-72 (Va. Ct. App. 2006) (food production).
C. Analysis
¶ 24 Maralex and the O’Hares contend that COGCC lacks authority
to conduct unannounced, warrantless searches of oil and gas
locations. While they opaquely reference the analysis set forth in
Supreme Court and Colorado cases discussing administrative
searches, neither their opening brief nor their reply brief addresses
COGCC’s contention that the Colonnade-Biswell exception applies
here. We conclude that COGCC’s inspection scheme, as codified in
Rule 204, does not violate the United States or Colorado
Constitution.
¶ 25 We first address whether the oil and gas industry is “closely
regulated.” Eddie’s Leaf Spring Shop, 218 P.3d at 332. “The key
factors in determining whether an industry is closely regulated are
the pervasiveness and regularity of the regulation and the effect of
such regulation upon an owner’s expectation of privacy.” Id.
11
¶ 26 We conclude that the oil and gas industry is closely regulated.
The Oil and Gas Conservation Act (Act), §§ 34-60-101 to -130,
C.R.S. 2017, provides COGCC with substantial authority to regulate
oil and gas facilities. See generally Chase v. Colo. Oil & Gas
Conservation Comm’n, 2012 COA 94M, ¶¶ 24-29, 284 P.3d 161,
165-67 (detailing COGCC’s history and authorizing legislation).
Indeed, COGCC is empowered to “do whatever may reasonably be
necessary to carry out the provisions of th[e Act].” § 34-60-105(1),
C.R.S. 2017. To that end, COGCC has promulgated comprehensive
rules regulating multitudinous aspects of the oil and gas industry.
See City of Fort Collins v. Colo. Oil & Gas Ass’n, 2016 CO 28, ¶ 29,
369 P.3d 568, 593 (characterizing COGCC’s rules as “exhaustive”
and “comprehensive[]”); City of Longmont v. Colo. Oil & Gas Ass’n,
2016 CO 29, ¶ 52, 369 P.3d 573, 584 (same). The inevitable effect
of this exhaustive regulatory scheme is a lessened expectation of
privacy in commercial premises for operators in Colorado’s oil and
gas industry. See Eddie’s Leaf Spring Shop, 218 P.3d at 332-33.
¶ 27 Moreover, courts in other jurisdictions have concluded that
the oil and gas industry is closely regulated. See United States v.
Stinson, No. 1:12CR-00012-JHM, 2013 WL 1221937, at *3 (W.D.
12
Ky. Mar. 25, 2013) (unpublished opinion) (oil and gas industry is
“highly regulated”); Matter of Mullins & Pritchard, Inc., 549 So. 2d
872, 876-77 (La. Ct. App. 1989) (“[I]t is obvious that the oil and gas
production facilities subject to the warrantless searches fall under
the ‘pervasively regulated industry’ exception to the warrant
requirement.”). We similarly conclude that the comprehensive
scheme governing oil and gas operations in Colorado renders the
industry closely regulated.
¶ 28 Next, we consider whether the three additional criteria
necessary to make warrantless inspections reasonable are satisfied.
First, we must determine whether the state has a substantial
interest in regulating oil and gas operations. We conclude that it
does.
¶ 29 According to the Act’s legislative declaration, it is “in the
public interest” to “[f]oster the responsible, balanced development,
production, and utilization of the natural resources of oil and gas in
the state of Colorado in a manner consistent with protection of
public health, safety, and welfare, including protection of the
environment and wildlife resources.” § 34-60-102(1)(a)(I), C.R.S.
2017. The Act “and the Commission’s pervasive rules and
13
regulations . . . convince us that the state’s interest in the efficient
and responsible development of oil and gas resources includes a
strong interest in the uniform regulation” of oil and gas operations.
City of Fort Collins, ¶ 29, 369 P.3d at 593.
¶ 30 Second, we consider whether warrantless searches are
necessary to further the state’s substantial interest in the safe and
efficient operation of oil and gas facilities. We conclude that they
are. Imposing a warrant (and, as a result, probable cause)
requirement would frustrate COGCC’s ability to effectively enforce
the Act by inspecting between 19,000 and 23,500 oil and gas
facilities each year. See Oil & Gas Conservation Commission, Field
Inspection Unit 1, https://perma.cc/9VR8-G59G. Requiring that
inspectors apply to a court for a warrant before each inspection
would dramatically reduce COGCC’s enforcement power, and might
allow operators to conceal violations. Cf. Donovan v. Dewey, 452
U.S. 594, 603 (1981) (noting, in the context of the mining industry,
the “notorious ease with which many safety or health hazards may
be concealed if advance warning of inspection is obtained” (quoting
S. Rep. No. 95-181, at 27 (1977))).
14
¶ 31 To the extent Maralex and the O’Hares argue that the
legislature must affirmatively declare that warrantless inspections
are necessary to further a given agency’s regulatory interest, we find
no authority for such a conclusion. In contrast, as COGCC points
out, this position has been expressly rejected by other courts. See,
e.g., Balelo v. Baldrige, 724 F.2d 753, 765 (9th Cir. 1984) (referring
to a similar argument as a “novel constitutional proposition” and
determining that “[t]he law is to the contrary”). Moreover, a 2013
amendment to the Act instructed COGCC to begin conducting
inspections pursuant to a “risk-based strategy” targeting “the
operational phases that are most likely to experience spills, excess
emissions, and other types of violations and that prioritizes more
in-depth inspections.” § 34-60-106(15.5), (15.5)(b), C.R.S. 2017.
That amendment was enacted prior to the inspections of the Katie
Eileen wells here. In enacting that amendment, the legislature
could have, but did not, impose any warrant requirement for
COGCC inspections. In fact, the legislature specifically stated that
the purpose of the legislative amendment was “to increase the
frequency of inspections of oil and gas wells.” S. 13-202, 69th Gen.
Assemb. § 1(c) (Colo. 2013).
15
¶ 32 Last, we consider whether the occurrence of warrantless
COGCC inspections was “so random, infrequent, or unpredictable
that the owner, for all practical purposes, has no real expectation
that his property will from time to time be inspected by government
officials.” Donovan, 452 U.S. at 599. In this case, neither party
describes the frequency with which COGCC typically inspects any
given location. However, a COGCC document states that “[o]n
average, active wells are inspected once every 2.4 years.” See Field
Inspection Unit at 1. Maralex and the O’Hares concede that the
Katie Eileen 2 and 3 wells had been inspected four times between
July 2000 and June 2006.
¶ 33 Further, as Maralex and the O’Hares acknowledge, Rule 204
imposes a reasonableness requirement that circumscribes COGCC’s
authority to conduct random inspections. We therefore conclude
that COGCC’s inspection regime “provid[es] a constitutionally
adequate substitute for a warrant.” Burger, 482 U.S. at 703
(quoting Donovan, 452 U.S. at 603).
16
¶ 34 Because Rule 204 meets the Colonnade-Biswell criteria, we
conclude that warrantless inspections made pursuant to the rule do
not violate the Fourth Amendment.5
¶ 35 We reach the same outcome under the Colorado Constitution.
Although article 2, section 7 of the Colorado Constitution has in
some contexts been interpreted as providing broader privacy
protections than its federal counterpart, Maralex and the O’Hares
have not argued that any distinction between the two provisions is
significant here. Cf. Eddie’s Leaf Spring Shop, 218 P.3d at 334.
“Additionally, our precedent provides no basis to distinguish
between the rights under the [United States] and the Colorado
Constitutions with regard to administrative searches.” Id.
5Maralex and the O’Hares pointed us to separate litigation also
concerning the Katie Eileen wells. Considering a challenge to the
Bureau of Land Management’s (BLM’s) inspection scheme, a federal
district court concluded that the BLM had statutory authority to
conduct unannounced, warrantless searches under the Federal Oil
and Gas Royalty Management Act of 1982, 30 U.S.C. § 1701 (2012).
Maralex Res., Inc. v. Jewell, No. 15-cv-01893-CMA, 2017 WL
6033694 (D. Colo. Oct. 19, 2017) (unpublished opinion) (order
affirming agency determination).
17
¶ 36 In sum, we conclude that Rule 204 does not run afoul of the
United States or Colorado Constitution. The facial challenge to the
inspection rule therefore fails.
III. Other Constitutional Claims
¶ 37 The O’Hares also raise constitutional challenges to Rule 204 in
their capacity as surface owners of land including oil and gas
locations subject to COGCC oversight.
¶ 38 First, the O’Hares contend that Rule 204 is unconstitutional
as applied to surface owners because, unlike the operators of oil
and gas locations, they maintain an expectation of privacy in the
property searched. However, in this case, the O’Hares granted
Maralex an extraordinarily broad set of rights under the surface
agreement. Specifically, the O’Hares gave Maralex “the right to do
whatever they want on [their] property.” Under these
circumstances, the O’Hares substantially lessened any objective
expectation of privacy by granting the corporation an unlimited
easement on the surface estate. Because we have already
concluded that Rule 204 permitted COGCC’s inspection of
Maralex’s operations, the O’Hares’ derivative claim must fail. We
agree with the district court that, “[b]ecause Maralex has an
18
obligation to comply with [COGCC] orders, rules, and policies, the
O’Hares do not have an expectation of privacy in property over
which they willingly transferred access and control rights to
Maralex.”
¶ 39 To the extent that the O’Hares challenge the application of
Rule 204 to all surface owners, we must reject that facial challenge.
We conclude that, in other cases where a surface owner has granted
a mineral lessee a broad surface easement, warrantless entry of the
surface estate would not necessarily violate the surface owner’s
rights. See City & Cty. of Denver v. Casados, 862 P.2d 908, 913
(Colo. 1993) (stating that a facial challenge is “the most difficult
challenge to mount successfully, since the challenge must establish
that no set of circumstances exists under which the [rule] would be
valid”).
¶ 40 The O’Hares also purport to raise a takings claim under the
Fifth Amendment. U.S. Const. amend. V (“[N]or shall private
property be taken for public use, without just compensation.”). As
they did in the district court, the O’Hares argue with extremely
broad strokes that Rule 204 interferes with their property rights to
such a degree as to constitute an uncompensated government
19
taking. Because this claim is set forth in a perfunctory manner, we
decline to address it. See People v. Mershon, 874 P.2d 1025, 1034
n.13 (Colo. 1994) (declining to address constitutional arguments
that were only raised in a cursory fashion before the trial court); see
also Wagner v. Georgetown Univ. Med. Ctr., 768 A.2d 546, 554 n.9
(D.C. 2001) (“[I]ssues adverted to in a perfunctory manner,
unaccompanied by some effort at developed argumentation, are
deemed waived.” (quoting United States v. Zannino, 895 F.2d 1, 16
(1st Cir. 1990))).
IV. COGCC’s Order
¶ 41 Maralex also challenges the COGCC’s order concluding that it
violated multiple rules in relation to the Katie Eileen wells. We
reject its contentions, with one minor exception.
¶ 42 COGCC final orders are subject to judicial review in
accordance with the State Administrative Procedure Act. § 34-60-
111, C.R.S. 2017 (citing § 24-4-106, C.R.S. 2017). A “reviewing
court may overturn an administrative agency’s determination only if
the court finds the agency acted in an arbitrary and capricious
manner, made a determination that is unsupported by the record,
erroneously interpreted the law, or exceeded its constitutional or
20
statutory authority.” Sapp v. El Paso Cty. Dep’t of Human Servs.,
181 P.3d 1179, 1182 (Colo. App. 2008) (citing § 24-4-106(7)). We
defer to an agency’s findings of fact unless they are “unsupported
by substantial evidence when the record is considered as a whole.”
§ 24-4-106(7).
¶ 43 We address each violation in turn.
A. Rule 204
¶ 44 In its OFV, COGCC concluded that Maralex had violated Rule
204 by denying the inspectors access for a period of seven days
starting on March 20, 2014, the day the inspection supervisor first
contacted Maralex. Maralex contends that COGCC erred for two
reasons. First, it asserts no Rule 204 violation occurred on March
20 because the inspection supervisor agreed to postpone the
inspection until the next day after he was informed that O’Hare was
unavailable. Second, Maralex contends there was no Rule 204
violation from March 21 through March 27 because nothing
effectively prevented COGCC staff from entering the property during
that period.
¶ 45 We agree with the first of Maralex’s contentions. We conclude
that COGCC’s finding that Maralex violated Rule 204 on March 20
21
was arbitrary and capricious. The undisputed facts in the record
reflect that the inspection supervisor first contacted Maralex in the
afternoon of March 20, and did not actually speak to an employee
until nearly 4:00 p.m. that day. The inspection supervisor agreed
to delay the inspection until the next day. Accordingly, we conclude
there was not substantial evidence to support COGCC’s
determination that Maralex failed to provide access to its wells at
“all reasonable times.” See Dep’t of Nat. Res. Rule 204, 2 Code
Colo. Regs. 404-1. Thus, we reverse the district court’s order
affirming that part of the OFV concluding Maralex violated Rule 204
on March 20, 2014. Accordingly, we also reverse the penalty
assessed for the March 20 Rule 204 violations, which amounted to
$2000.
¶ 46 However, we perceive no basis for disturbing COGCC’s
conclusion that Maralex “effectively denied staff access through
threats to staff’s safety” between March 21 — when O’Hare emailed
the inspection supervisor stating that he had instructed his family
to shoot trespassers — and March 27, when COGCC staff executed
the search warrant. As COGCC noted in the OFV, the inspection
supervisor testified that he was “quite terrified for his safety” and
22
felt threatened by O’Hare’s email and phone call. This evidence
supports COGCC’s determination that Maralex violated Rule 204 for
the duration of that six-day period.
¶ 47 Maralex attempts to minimize the impact of O’Hare’s email by
characterizing it as stating “what any reasonable person should
know — do not jump a locked gate and traverse across a private
ranch in a rural area because you might be mistaken as a
trespasser and if you are deemed a threat, you might get shot.”
While O’Hare apparently believed he could legally shoot a person
merely for entering his property without permission, his position is
not supported by Colorado law.6
¶ 48 Thus, we affirm the district court’s enforcement of that part of
the OFV concluding Maralex violated Rule 204 from March 21
through March 27, 2014, including its imposition of $12,000 in
fines for that period.
6 Colorado statutes provide that a person may lawfully use physical
force against another person in certain limited circumstances. See
§§ 18-1-703 to -706, C.R.S. 2017. Further, a person may lawfully
use deadly physical force against another person in limited
circumstances. See § 18-1-704(2), C.R.S. 2017; § 18-1-704.5(2),
C.R.S. 2017. However, nothing in those provisions authorizing use
of physical force would have permitted O’Hare to legally shoot
trespassers merely for entering his property without his permission.
23
B. Rule 603.f
¶ 49 Rule 603.f requires that oil and gas locations “be kept free of
. . . [unnecessary] equipment, vehicles, and supplies” and “rubbish,
and other waste material.” Dep’t of Nat. Res. Rule 603.f, 2 Code
Colo. Regs. 404-1. The rule applies to “[a]ll locations, including
wells.” Id. COGCC concluded that Maralex had violated Rule 603.f
at both Katie Eileen locations based on its finding that there was
unnecessary equipment and debris at the locations. Maralex
appeals only the violation arising from equipment and debris at the
Katie Eileen 2A location.
¶ 50 Maralex argues, as it did before COGCC and in the district
court, that the surface owners — the O’Hares — had reclaimed use
of the relevant land and thus the area no longer constituted an “oil
and gas location” within COGCC’s jurisdiction. Because the
O’Hares had “exclusive possession and control” of the property,
Maralex argues that it did not violate Rule 603.f.
¶ 51 We reject this argument. Referring to its definition of “oil and
gas location” in Rule 100, COGCC determined that the location fell
within its jurisdiction. Our review of the record leads us to the
same result. See Colo. Citizens for Ethics in Gov’t v. Comm. for Am.
24
Dream, 187 P.3d 1207, 1219 (Colo. App. 2008) (“An agency’s
determination of its own jurisdiction is reviewed de novo.”). The
area on which the equipment and debris were observed is a
“definable area where an operator has disturbed . . . the land
surface in order to locate an oil and gas facility” — namely, the
Katie Eileen 2A well. See Dep’t of Nat. Res. Rule 100, 2 Code Colo.
Regs. 404-1. Especially in this context, where the O’Hares as
surface owners granted Maralex an unchecked right of access to the
surface estate, we conclude that Maralex violated Rule 603.f by
failing to remove unnecessary equipment and debris from the area
near the well.
¶ 52 Alternatively, Maralex asserts that the equipment belonged to
O’Hare alone, and thus Maralex could not have violated the rule.
However, as COGCC found, O’Hare’s testimony significantly
undermined that argument. O’Hare contradictorily testified that he
had purchased the equipment and that Maralex owned the
equipment. As a result, COGCC found O’Hare not to be credible on
this matter, and we defer to that finding. Similarly, we defer to
COGCC’s finding that the equipment was Maralex’s.
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¶ 53 Accordingly, we affirm COGCC’s determination that Maralex
violated Rule 603.f at the Katie Eileen 2A location.
C. Rule 905(a)
¶ 54 Rule 905(a) states that “[d]rilling pits shall be closed in
accordance with the 1000-Series Rules.” Dep’t of Nat. Res. Rule
905(a), 2 Code Colo. Regs. 404-1. The “1000-Series Rules”
“establish the proper reclamation of the land and soil affected by oil
and gas operations.” Dep’t of Nat. Res. Rule 1001(a), 2 Code Colo.
Regs. 404-1. Accordingly, Rule 1003(d)(2) requires that, on
non-crop land (such as the O’Hares’ ranch), drilling pits be closed
no later than six months after “drilling and completion activities
conclude.” Dep’t of Nat. Res. Rule 1003(d)(2), 2 Code Colo. Regs.
404-1.
¶ 55 Rule 1001(c) states that COGCC will not require compliance
with Rule 1003
if the operator can demonstrate to the
Director’s or [COGCC’s] satisfaction both that
compliance with such rule[] is not necessary to
protect the public health, safety and
welfare . . . and that the operator has entered
into an agreement with the surface owner
regarding topsoil protection and reclamation of
the land.
26
Dep’t of Nat. Res. Rule 1001(c), 2 Code Colo. Regs. 404-1. Rule
1001(c) then states that, “[a]bsent bad faith conduct by the
operator, penalties may only be imposed for non-compliance with a
[COGCC] order issued after a determination that, notwithstanding
such agreement, compliance is necessary to protect public health,
safety and welfare.” Id.
¶ 56 COGCC concluded that Maralex had violated Rule 905(a) on
the basis of the two open drilling pits on the Katie Eileen 2 and 3
location. Maralex contends that it had waived the requirement that
the pits be closed within six months of the completion of the drilling
operations by converting the pits into stock ponds. Further,
Maralex contends that the second sentence of Rule 1001(c)
“precludes any fine being levied against [it] for failing to reclaim the
stock ponds” because COGCC never determined that compliance
with Rule 1003 was necessary to protect public health, safety, and
welfare.
¶ 57 COGCC rejected Maralex’s interpretation of Rule 1001(c),
stating that, in order to waive the closure requirements, the surface
owner must get COGCC approval for delaying closure or
reclamation. It was undisputed that COGCC had not granted
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Maralex a waiver or variance approving the use of the open pits as
stock ponds.
¶ 58 An agency’s interpretation of its own rule is entitled to great
deference. Abromeit v. Denver Career Serv. Bd., 140 P.3d 44, 49
(Colo. App. 2005). Thus, we will accept COGCC’s interpretation if it
has a reasonable basis in law and is warranted by the record. See
Bd. of Cty. Comm’rs v. Colo. Oil & Gas Conservation Comm’n, 81
P.3d 1119, 1125 (Colo. App. 2003). Here, we accept COGCC’s
interpretation of Rule 1001(c) as imposing a requirement that an
operator affirmatively seek a waiver before being able to invoke the
protection of the rule’s second sentence.
¶ 59 Accordingly, we conclude there is no basis for reversing
COGCC’s determination that Maralex violated Rule 905(a).
D. Rule 907(a)(1)
¶ 60 COGCC has defined exploration and production waste as
“wastes associated with operations to locate or remove oil or gas
from the ground.” Dep’t of Nat. Res. Rule 100, 2 Code Colo. Regs.
404-1. Rule 907(a) generally requires that operators properly store,
handle, or dispose of exploration and production waste. Dep’t of
Nat. Res. Rule 907(a), 2 Code Colo. Regs. 404-1. The rule also
28
refers to a table, Table 910-1, setting forth acceptable concentration
levels of various contaminants. Id. Operators must manage
exploration and production waste “to the extent necessary to ensure
compliance” with Table 910-1. Id.
¶ 61 COGCC concluded that Maralex violated Rule 907(a)(1) at the
Katie Eileen 2 and 3 location based on exploration and production
waste observed in the pit with the partially torn liner. According to
the OFV, the violation was based only on the presence of
“weathered drill cuttings” in the pit, which were visible due to the
contrast in color between the cuttings and the native soil.
¶ 62 At the agency’s hearing, COGCC’s environmental protection
specialist also testified that, based on soil samples he had taken
from the edge of the pit, the soil exceeded the permissible levels of
electrical conductivity, sodium absorption, and arsenic. However,
the environmental protection specialist did not take background
samples that would show that the elevated levels were unique to the
area around the pit and not merely common to the nearby soil.
¶ 63 Maralex contends that COGCC staff erred in failing to take
background soil samples. We conclude that Maralex’s reliance on
the footnote in Table 910-01 is misplaced. While that footnote
29
states that “[c]onsideration shall be given to background
[contaminant] levels in native soils,” Dep’t of Nat. Res. Table 910-1
n.1, 2 Code Colo. Regs. 404-1, nothing in COGCC’s rules mandates
that an inspector take background soils samples.
¶ 64 Regardless, COGCC’s conclusion with regard to Rule 907(a)(1)
was based only on the inspectors’ testimony and photographs
demonstrating that there were drill cuttings in the pit with the torn
liner. Specifically, the OFV read, “[COGCC] finds Maralex in
violation of Rule 907.a(1) at the Katie Eileen 2 [and] 3 Location,
because drill cuttings were not properly treated or stored in the pit
with the torn liner.” Because that finding is supported by
substantial evidence, we perceive no basis for reversing the agency’s
decision that Maralex violated Rule 907(a)(1).
V. Conclusion
¶ 65 Accordingly, the district court’s order enforcing COGCC’s OFV
is reversed insofar as it upheld the agency’s determination that
Maralex violated Rule 204 on March 20, 2014, and assessed a
$2000 penalty for that violation. In all other respects, the district
court’s order is affirmed. We remand to the district court to return
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the case to COGCC for further proceedings consistent with this
opinion.
JUDGE BOORAS and JUDGE CASEBOLT concur.
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