Rorke v. Savoy Energy, LP , 260 Mich. App. 251 ( 2004 )

677 N.W.2d 45 (2003) 260 Mich. App. 251

John A. RORKE and Pamela G. Rorke, Plaintiffs-Appellants,
v.
SAVOY ENERGY, LP, Defendant-Appellee.

Docket No. 239747.

Court of Appeals of Michigan.

Submitted October 6, 2003, at Marquette. Decided December 30, 2003, at 9:10 a.m. Released for Publication March 19, 2004.

Rosi Law Offices, P.C. (by Philip R. Rosi and Gary Allen Gardner) (Jo Ann M. Carlson, of counsel), Traverse City, Lake Leelanau, for the plaintiffs.

Miller, Johnson, Snell & Cummiskey, PLC (by James R. Peterson and D. Andrew Portinga), Grand Rapids, for the defendant.

Before: METER, P.J., and SAAD and SCHUETTE, JJ.

METER, J.

Plaintiffs appeal as of right from the circuit court's order granting defendant's motion for summary disposition. We affirm.

Plaintiffs owned the surface rights to a piece of property, while defendant owned the oil, gas, and mineral rights. Defendant reopened a capped oil well on plaintiffs' property and used it to drill underneath and beyond plaintiffs' land. Plaintiffs objected to the reopening of the well, claiming that defendant could not use plaintiffs' surface to drill to a bottom hole located under another surface owner's land. The circuit court granted summary disposition to defendant under MCR 2.116(C)(8) and (C)(10), reasoning that (1) defendant acted properly and in accordance with the lease granting it subsurface rights and (2) plaintiffs failed to object to defendant's actions at a particular administrative hearing concerning the scope of the drilling operation and therefore could not bring a circuit court claim.

On appeal, plaintiffs argue that the circuit court erred in concluding that the lease permitted defendant to drill from plaintiffs' surface to a bottom hole located under another surface owner's land.

We review de novo a circuit court's decision with regard to a motion for summary disposition. Trost v. Buckstop Lure Co., Inc., 249 Mich.App. 580, 583, 644 N.W.2d 54 (2002). A motion brought under MCR 2.116(C)(10) tests the factual support for a claim. Lewis v. LeGrow, 258 Mich.App. 175, 192, 670 N.W.2d 675 (2003). In reviewing a motion granted under MCR 2.116(C) (10), this Court "``must consider the available pleadings, affidavits, depositions, and other documentary evidence in a light most favorable to the nonmoving party and determine whether the moving party was entitled to judgment as a matter of law.'" Michigan Ed. Employees Mut. Ins. Co. v. Turow, 242 Mich.App. 112, 114, 617 N.W.2d 725 (2000), quoting Unisys Corp. v. Comm'r of Ins., 236 Mich.App. 686, 689, 601 N.W.2d 155 (1999). A motion brought under MCR 2.116(C)(8) tests the "legal sufficiency of the complaint" and permits dismissal of a claim if the opposing party has failed to state a claim on which relief can be granted. Maiden v. Rozivood, 461 Mich. 109, 118-119, 597 N.W.2d 817 (1999). Only the pleadings are examined; documentary evidence is not considered. Id. at 119-120, 597 N.W.2d 817. If the claim is clearly unenforceable as a matter of law and no factual development could lead to recovery, a motion under MCR 2.116(C)(8) should be granted. Maiden, supra at 119, 597 N.W.2d 817.

The owner of a fee simple estate may sever the ownership of the surface estate from the ownership of subsurface mineral, oil, and gas interests. See Southwestern Oil Co. v. Wolverine Gas & Oil Co., 181 Mich.App. 589, 591, 450 N.W.2d 1 (1989). This is typically accomplished by leasing the subsurface rights. The lease at issue in this case states, in part:^[1]

Lessor does hereby grant, lease and let exclusively unto Lessee, his heirs, legal representatives, successors and assigns, all of the land hereinafter described, including all interests Lessor may acquire by operation of law, reversion or otherwise therein, for the purpose of exploring by geological, geophysical and all other methods, and of drilling, producing and operating wells or mines for the recovery of oil, gas and other hydrocarbons, and all other gaseous substances, including but not limited to carbon dioxide and all other minerals or substances, whether similar or dissimilar, that may be produced from any well or mine on the leased premises, including primary, secondary, tertiary, cycling, pressure maintenance methods of recovery and all other methods, whether now known or unknown, with all incidental rights thereto, and to utilize abandoned wells and/or drill wells for surface and subsurface disposal of salt water, whether produced from the below land or otherwise, and to use existing roadways and to construct, maintain, and remove roadways, tanks, pipelines, electric power and telephone lines, power stations, machinery and structures thereon, to produce, store, transport, treat, own and remove all substances described above, and the products therefrom, together with the right of ingress and egress to and from said land and on, over and across land owned or claimed by Lessor adjacent and contiguous thereto. [Emphasis added.]

Significantly, this lease was executed before the land was subdivided and sold to different surface owners. Although plaintiffs purchased a portion of the surface area affected by the lease, they did not purchase all of it. Accordingly, while the bottom hole of defendant's well was not located under plaintiffs' surface land, it was located within the subsurface land granted to defendant in the lease. Plaintiffs cite no Michigan authority for the proposition that even though defendant's lease covered all the areas in question, defendant was prohibited from using plaintiffs' surface to drill to another area of its own leased land. The foreign cases plaintiffs cite to support its position are not binding on us, and, additionally, they do not clearly present the situation at issue here, in which the surface land was subdivided after the subsurface rights were leased.

Scenarios involving subdivided surface parcels have been addressed in Rice v. Stapleton, 502 S.W.2d 522 (Ky.1973), and Schlueter v. Shawnee Operating Co., 141 Misc. 2d 1000, 535 N.Y.S.2d 867 (1988). In Rice, the court considered the rights of the parties where the plaintiff owned a sixtyacre surface estate and the defendant owned an underlying, ninety-five-acre mineral estate. Rice, supra at 523. The defendant owned the mineral rights before the tract was subdivided, with part being sold to the plaintiff and the remaining thirty-five acres being sold to another person. Id. The plaintiff asserted that the defendant only had the right to mine directly beneath the thirty-five acre plot. Id. With regard to that contention, the court held, "The right to extract minerals underneath both tracts was granted in 1903 and the rights of the mineral owner were fixed by that instrument. We fail to see how the rights of the mineral owner could be eroded or whittled away by a subsequent subdivision of the surface." Id.

In Schlueter, supra at 1001, 535 N.Y.S.2d 867, a subdivided parcel was also at issue. The defendant owned the subsurface rights to a parcel of land of which plaintiff owned part of the surface. Id. at 1001-1002, 535 N.Y.S.2d 867. The defendant placed an oil pipeline over the plaintiff's surface, and the plaintiff claimed trespass. Id. at 1002, 535 N.Y.S.2d 867. The court noted that in Wall v. Shell Oil Co., 209 Cal. App. 2d 504, 25 Cal. Rptr. 908 (1962), "the owners of an oil and gas lease were entitled to use any portion of the land subject to the lease to effectuate their rights without regard to any subsequent divisions to the surface ownership...." Schlueter, supra at 1003, 535 N.Y.S.2d 867. The court stated:

"[E]ach subsequent purchaser of a subdivision thereof, taking with notice of the prior sale and reservation of rights, takes knowing that his surface ownership may be burdened in part, and, in very rare cases perhaps, in its totality, by the reasonable exercise of the rights of the owner of the oil and mineral estate; and this without regard to whether or not the oil or mineral underlies the particular subdivision, or whether the facilities located thereon serve facilities located without the subdivision, so long as they do not lie beyond the original tract."

"If a particular facility is necessary and convenient to the operations of the oil and mineral owner, it may be placed anywhere upon the surface area in which he has the right of user, so long as such placement is reasonable under prevailing conditions and even though such placement in particular instances may work a hardship on the surface owner." [Id. at 1003-1004, 535 N.Y.S.2d 867, quoting Wall, supra at 513, 517, 25 Cal. Rptr. 908.]

We agree with the reasoning in Rice, supra at 523, and Schlueter, supra at 1003-1004, 535 N.Y.S.2d 867. There is no authority for the proposition that when the surface of land covered by an oil and gas lease is later subdivided, that subdivision somehow diminishes the lessee's right to drill. The lease in the instant case states that the lessee can extract oil "from any well or mine on the leased premises," and defendant simply did so.

Additionally, as defendant persuasively argues, plaintiffs' desired result is illogical. If, for example, a surface owner subdivided a surface estate into fifty small parcels, and the lessee entitled to the oil and gas rights was not permitted to use a well bore to drill anywhere other than straight down, the lessee would be forced to construct fifty wells to explore the subsurface. In the face of Michigan's strong policy against waste, see MCL 324.61502, MCL 324.61504, and MCL 324.61505, which the Legislature has defined as, inter alia, drilling unnecessary wells, see MCL 324.61501(q)(ii)(D), plaintiffs' proposition is not tenable.

The terms of the lease were clear, and therefore the circuit court properly ruled, as a matter of law, that the lease permitted defendant's actions.^[2] See, generally, Michaels v. Amway Corp., 206 Mich.App. 644, 649, 522 N.W.2d 703 (1994) (if the terms of a contract are clear, factual development is unnecessary and summary disposition may be granted). While we agree with plaintiffs that whether the lease permitted defendant's actions was a question of property rights and contract interpretation—and that plaintiffs, therefore, were not required to object to defendant's actions at the administrative level before suing in circuit court—we nonetheless cannot agree that plaintiffs are entitled to appellate relief. The circuit court correctly granted summary disposition to defendant. Moreover, the court did not abuse its discretion, see Backus v. Kauffman (On Rehearing), 238 Mich.App. 402, 405, 605 N.W.2d 690 (1999), in denying plaintiffs' motion to amend the complaint to add claims related to a second drilling that defendant performed in the same surface location. Indeed, the proposed amended complaint largely involved the issues addressed and resolved in defendant's favor in this opinion. See Weymers v. Khera, 454 Mich. 639, 658, 563 N.W.2d 647 (1997) (leave to amend may be denied if the amendment would be futile). To the extent that the proposed amended complaint contained new issues, plaintiffs have not sufficiently demonstrated in their appellate arguments that these new issues would have been viable. See, generally, Goolsby v. Detroit, 419 Mich. 651, 655 n. 1, 358 N.W.2d 856 (1984).^[3]

In a footnote, plaintiffs also appear to claim that the original well was abandoned and that the title transferred to them. Plaintiffs have not established that they are entitled to relief with respect to this issue. With regard to abandoning wells, MCL 554.291 states:

Any interest in oil or gas in any land owned by any person other than the owner of the surface, which has not been sold, leased, mortgaged or transferred by instrument recorded in the register of deeds office for the county where such interest is located for a period of 20 years shall, in the absence of the issuance of a drilling permit as to such interest or the actual production or withdrawal of oil or gas from said lands, or from lands covered by a lease to which such interest is subject, or from lands pooled, unitized or included in unit operations therewith, or the use of such interest in underground gas storage operations, during such period of 20 years, be deemed abandoned, unless the owner thereof shall, within 3 years after the effective date of this act or within 20 years after the last sale, lease, mortgage or transfer of record of such interest or within 20 years after the last issuance of a drilling permit as to such interest or actual production or withdrawal of oil or gas, from said lands, or from lands covered by a lease to which such interest is subject, or from lands pooled, unitized, or included in unit operations therewith, or the use of such interest in underground gas storage operations, whichever is later, record a claim of interest as hereinafter provided. Any interest in oil or gas deemed abandoned as herein provided shall vest as of the date of such abandonment in the owner or owners of the surface in keeping with the character of the surface ownership.

The phrase "drilling permit" shall mean a permit to drill an oil or gas well issued by the conservation department or its successor.

As noted by this Court in Mask v. Shell Oil Co., 77 Mich.App. 25, 30-32, 257 N.W.2d 256 (1977), a lessee under a new lease will be held not to have abandoned gas and oil rights to the surface owners under MCL 554.291 if any of the specified activities occurred within twenty years. Plaintiffs' abandonment claim is without merit under this statute because the lease has not in fact lain dormant for twenty years. Plaintiffs cite Toles v. Maneikis, 162 Mich.App. 158, 168-169, 412 N.W.2d 263 (1987), in which the Court concluded that certain fixtures originally owned by subsurface lessees had transferred to the surface owners because the lessees failed to remove the fixtures within five years after the end of production of a well. However, the Court in Toles rested its opinion on the fact that the lease had expired by its terms. Id. at 167-168, 412 N.W.2d 263. Plaintiffs make no attempt to analogize the instant case to Toles by demonstrating a comparable expiration under the specific terms of the lease. A party may not rely on this Court to make his arguments for him. See Goolsby, supra at 655 n. 1, 358 N.W.2d 856.

Affirmed.

NOTES

[1] We note that an earlier lessee assigned the lease to defendant.

[2] Plaintiffs argued below, as part of their claim, that defendant acted unreasonably in its drilling. On appeal, plaintiffs contend that whether defendant acted unreasonably must be decided by a trier of fact. However, in their appellate brief, plaintiffs continually tie the "reasonableness" issue to the issue of the directional drilling. In other words, plaintiffs argue that defendant acted unreasonably because it used plaintiffs' surface to drill to a bottom hole located under another surface owner's land. This argument involves the application of a clearly worded contract and was properly resolved by the circuit court. To the extent plaintiffs are attempting to argue that defendant acted unreasonably in the general manner of its drilling, their briefing is inadequate. See, generally, Goolsby v. Detroit, 419 Mich. 651, 655 n. 1, 358 N.W.2d 856 (1984). At any rate, questions of reasonableness are within the purview of the specialized knowledge of the supervisor of wells. See, generally, MCL 324.61501 et seq. Plaintiffs failed to exhaust their administrative remedies with regard to the reasonableness of the general manner of the drilling. While the trial court, in its opinion, did not use the phrase "failure to exhaust administrative remedies" and instead referred to plaintiffs' silence at one particular administrative hearing, we note that an appellate court may affirm a circuit court's order if it reaches the right result for the wrong reason. Becker-Witt v. Bd. of Examiners of Social Workers, 256 Mich.App. 359, 365, 663 N.W.2d 514 (2003). Further, we decline to accept plaintiffs' unripe assertion that the administrative procedures surrounding the granting of drilling permits do not comport with basic notions of due process.

[3] In a footnote in their appellate brief, plaintiffs briefly suggest that the assignment of the oil and gas lease to defendant did not extend to the date of some of the disputed drilling. We decline to address this issue because plaintiffs give it such cursory treatment. Id. Moreover, plaintiffs did not raise the "expiration of assignment" argument in the original complaint or the proposed amended complaint.