Enter GRB, LLC v. Stull Ranches, LLC

FILED
United States Court of Appeals
Tenth Circuit
PUBLISH August 14, 2014
Elisabeth A. Shumaker
UNITED STATES COURT OF APPEALS Clerk of Court
TENTH CIRCUIT
ENTEK GRB, LLC,
Plaintiff - Appellant,
v.
STULL RANCHES, LLC,
No. 13-1172
Defendant - Appellee.
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WESTERN ENERGY ALLIANCE,
Amicus Curiae.
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 1:11-CV-01557-PAB-KLM)
Lucy H. Deakins (L. Poe Leggette with her on the briefs), of Fulbright &
Jaworski LLP, Denver, Colorado, for Plaintiff-Appellant/Cross-Appellee.
Dudley W. Von Holt (Bruce D. Ryder and James M. Cox with him on the briefs),
of Thompson Coburn LLP, St. Louis, Missouri, for Defendant-Appellee/Cross-
Appellant.
William E. Sparks and Bret A. Sumner, of Beatty & Wozniak, P.C., Denver,
Colorado, for Amicus Curiae Western Energy Alliance.
Before GORSUCH, BALDOCK, and BACHARACH, Circuit Judges.
GORSUCH, Circuit Judge.
When you own property in the West you don’t always own everything from
the surface to the center of the Earth. Someone else might own the minerals lying
underground and the right to access them. Someone else still might own the right
to use the water flowing through your property. All this can invite confusion —
and litigation.
Ours is such a case, a battle between ranchers and miners over property
claims they trace back to separate government grants an age ago. Stull runs a
grouse hunting business on its surface estate in rural Colorado. Entek leases from
the federal government the right to explore for and develop minerals under much
of Stull’s surface and adjoining surface estates. This dispute arose when Entek
asked permission to enter Stull’s surface estate — both to develop new oil well
sites on Stull’s land and to get at one of its existing wells located on an adjacent
surface estate owned by the Bureau of Land Management. Along the way, Entek
pointed out that the only available road to the well on BLM’s estate crosses
Stull’s land. Still, Stull was not moved. Concerned that Entek’s presence would
unsettle its grouse, Stull refused any access. With that, Entek was left to seek
relief from the district court. At summary judgment, the district court held that
Entek was entitled to access portions of Stull’s surface to mine certain leases
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lying below. But the court also held that Entek was entitled to no more than this
— in particular, Entek could not cross Stull’s surface to service the well on the
adjacent BLM land. Entek appeals, asking us to supply the fuller relief it sought,
not merely what the district court granted. We believe we must do just that.
The reason why takes us back some way. Everyone knows that through the
late nineteenth and early twentieth centuries the government sought to induce
westward expansion by affording generous land grants to homesteaders.
Everyone knows, too, that as time wore on that generosity waned. By 1916, some
complained that the government’s policy of trying to induce ranchers and farmers
to work the land had turned into a bonanza for mining interests — with the
government giving away not only the surface but also the oil, gas, and other
minerals lying beneath. In response to this criticism and with the belief that the
buried riches under these lands should inure to the benefit of the whole people,
not lucky homesteaders, Congress passed the Stock-Raising Homestead Act of
1916 and ensured future homestead grants would come with strings attached.
Pub. L. No. 64-290, 39 Stat. 862 (codified at 43 U.S.C. §§ 291-301); see also
Watt v. W. Nuclear, Inc., 462 U.S. 36, 47-51 (1983); United States v. Midwest Oil
Co., 236 U.S. 459, 466-67 (1915); Aulston v. United States, 915 F.2d 584, 585-87
(10th Cir. 1990); Matthew L. King, Prospectors’ Access to Stock-Raising
Homestead Act Lands, 20 Colo. Law. 247 (1991).
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Those strings still bind. Stull is the successor in interest to land grants
provided under the 1916 Act. And under that law all mineral rights are expressly
reserved by the government, along with at least two other rights: (1) the right to
enter and use so much of the surface as might be “reasonably incident” to the
exploration and removal of mineral deposits, and (2) the right to enact future laws
and regulations regarding the “disposal” of the mineral estate. See 43 U.S.C.
§ 299(a). This second right, moreover, sweeps broadly when it places the
minerals at the government’s “disposal,” signifying not just the government’s
power to “bestow[]” or “assign[]” the minerals, but also a power to “manage[],”
“make use of,” and “deal with [them] as [it] pleases.” 4 The Oxford English
Dictionary 820 (2d ed. 1989). No doubt Congress reserved a broad right to enact
future laws regarding its mineral estate because by 1916 it hadn’t yet settled on
the “procedure by which all mineral resources were to be administered” and in the
meantime “sedulously sought to preserve” the chance to do just that. United
States v. Union Pac. R.R. Co., 353 U.S. 112, 116 (1957); see also W. Nuclear,
462 U.S. at 47-51; Andrus v. Utah, 446 U.S. 500, 509 (1980).
At least one of those subsequently enacted laws poses a problem for Stull.
To see why, though, still a little more history is helpful. Pursuant to the rights it
reserved in 1916, Congress passed the Mineral Leasing Act in 1920, a first step
toward establishing a legal framework for the exploitation of minerals lying
underneath homestead lands. Pub. L. No. 66-146, 41 Stat. 437 (codified in
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scattered sections of 30 U.S.C.); see also Kirkpatrick Oil & Gas Co. v. United
States, 675 F.2d 1122, 1124 (10th Cir. 1982); Aulston, 915 F.2d at 587; Kinney-
Coastal Oil Co. v. Kieffer, 277 U.S. 488, 504 (1928); Union Pac. R.R. Co., 353
U.S. at 136 (Frankfurter, J., dissenting) (in the Mineral Leasing Act “Congress
did what it had not done [before] — it set forth a plan for the development of the
minerals that the 1909-1916 Acts had reserved for the United States”). But as
sometimes happens with well-meaning legislation, the Mineral Leasing Act
wound up inviting new and unintended problems of its own. The statute allowed
the Secretary of Interior to lease mineral development rights for individual tracts
of land to private mining concerns. The problem, of course, is that mineral
deposits don’t always follow plat lines. And soon enough developers began
draining pools of oil and gas lying partially within their own lease boundaries but
extending into contiguous leaseholds. At first, the law reacted to all this in a very
wild west sort of way — first come, first served. In time, though, Congress came
to judge this arrangement inefficient because it often yielded frantic, duplicative,
and crazy-quilt exploration activities in what amounted to a single oil and gas
field. See, e.g., 1 Nancy Saint-Paul, Summers Oil and Gas § 3:7 (3d ed. 2013);
Robert E. Hardwicke, The Rule of Capture and Its Implications as Applied to Oil
and Gas, 13 Tex. L. Rev. 391 (1935); Bruce M. Kramer & Owen L. Anderson,
The Rule of Capture — An Oil and Gas Perspective, 35 Envtl. L. 899 (2005).
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Bowing to geologic reality, Congress responded with an amendment to the
Mineral Leasing Act allowing all the lessees in a single field or area to develop “a
cooperative or unit plan of development or operation of such pool, field, or like
area.” 30 U.S.C. § 226(m); see also Amoco Prod. Co. v. Heimann, 904 F.2d
1405, 1410 (10th Cir. 1990). Under the law, these “unitization” agreements must
be approved by the Secretary of Interior, and the Secretary is empowered to alter
existing federal minerals leases to accommodate these agreements in any way “he
may deem necessary or proper to secure the proper protection of the public
interest.” 30 U.S.C. § 226(m).
That’s where the trouble really starts for Stull. It does because the
Secretary has approved a unitization agreement covering a 40,000 acre region that
includes the relevant portions of Stull’s surface estate and BLM’s land. Known
as the Focus Ranch Unit Agreement, the Agreement seeks to ensure the efficient
distribution of mining assets and profits among the region’s mineral leaseholders.
Toward that end, the document provides that drilling and producing operations
“upon any tract of unitized lands will be accepted and deemed to be performed
upon and for the benefit of each and every tract of unitized land.” The document
further explains that the Secretary has exercised his authority to declare any
contrary provision in any individual mineral lease or federal regulation
subservient to this new plan. See Aplt. App. at 1816. Neither is language in the
Focus Ranch Unit Agreement unique — it tracks a model agreement that appears
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in the code of federal regulations. See 43 C.F.R. § 3186.1(18)(b). Indeed, the
Focus Ranch Unit Agreement tracks the statute itself, which codifies the
understanding that “operations or production pursuant to [a unitization] agreement
shall be deemed to be operations or production as to each such lease committed
thereto.” 30 U.S.C. § 226(m).
How does this pose a problem for Stull? No one seriously disputes that
Entek may enter Stull’s surface estate above a particular mineral lease to explore
or mine the part of that leasehold that lies under Stull’s surface. This right
clearly traces back to the federal government’s first reserved right in the 1916
Stock-Raising Homestead Act — the right to “reenter and occupy” as much of the
surface as needed for purposes “reasonably incident” to the mining of minerals
beneath. 43 U.S.C. § 299(a). Still, Stull says, this statutory language does not
authorize Entek to cross the surface above one of its leaseholds to service either a
different leasehold under Stull’s property or even the same leasehold under a
surface estate owned by someone else. But even assuming Stull’s reading of the
first right reserved in the 1916 statute is correct in this respect, it still fails to
account for the second right reserved in that same law. Under the second
reserved right — the right to adopt future rules regarding the disposition of its
mineral estate — the government has enacted § 226(m) and approved the Focus
Ranch Unit Agreement. Under those provisions, any mining activity on any
leasehold in the unitized area is deemed to occur on all leaseholds. Given this,
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and given the first reservation in the 1916 Act, it follows that Entek, the
designated Focus Ranch Unit operator, can enter and occupy the surface above
any leasehold in the unitized area to the extent that surface access is reasonably
incident to mining in any leasehold in the unitized area. No longer is the right to
enter and occupy the surface even arguably limited to particular leaseholds or
surface estates. The agreement’s designated operator may now use any portion of
the surface in the unit to aid its mining activities in the unit without respect to
individual lease or surface boundaries. Put differently, the operator may now
“reenter and occupy” so much of the surface in the unitized area as may be
“reasonably incident” to extracting minerals from the unit. 1
Neither is there anything novel about any of this. In Coosewoon v.
Meridian Oil Co., this court recognized some time ago that the purpose and effect
of unitization is often to ensure an entire oil and gas field may “be operated as a
single entity, without regard to surface boundary issues.” 25 F.3d 920, 923 n.1
(10th Cir. 1994). The Ninth Circuit has reached the same conclusion — and so
1
Of course, the 1916 Act requires that a mineral lessee seeking to exercise
its right to “reenter and occupy” must obtain the surface owner’s agreement or
post with the federal government a bond of a “good and sufficient” amount. 43
U.S.C. § 299(a); see also Gilbertz v. United States, 808 F.2d 1374, 1379 (10th
Cir. 1987) (suggesting that an agreement or bond is a “condition[] precedent” to
exercising the right to “reenter and occupy”). Obviously Entek lacks Stull’s
agreement, so it would seem the company must post a bond. We do not mean to
suggest that unitization eliminates this statutory requirement. Neither do we
mean to suggest Entek has satisfied the requirement; the question of a bond
simply has not been raised in this case.
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has the Department of Interior. See Norfolk Energy, Inc. v. Hodel, 898 F.2d 1435,
1438 (9th Cir. 1990) (“Unitization permits the entire oil and gas field (or a
substantial portion of it) to be operated as a single entity, without regard to
surface boundary issues.”) (internal quotation marks and brackets omitted);
Bureau of Land Management, Draft Handbook H-3180-1: Unitization
(Exploratory) 1 (1992) (“By effectively eliminating internal property boundaries
within the unit area, unitization permits the most efficient and cost-effective
means of developing the underlying oil and gas resources.”); see also 6 Howard
R. Williams & Charles J. Meyers, Oil and Gas Law §§ 901, 910, 921.3
(LexisNexis 2013); Bruce M. Kramer & Patrick H. Martin, The Law of Pooling
and Unitization § 20.06[1] (3d ed. 2013).
This result conforms as well with § 226(m)’s express statutory purposes.
As we’ve seen and the statute itself says, its aim is to “avoid waste” in the
exploration and exploitation of an oil or gas field. 30 U.S.C. § 226(m); see also
43 C.F.R. § 3186.1; Union Pac. R.R. Co., 353 U.S. at 116. Instead of worrying
about a checkerboard of titles and leases for lawyers to play on and fight over, the
law seeks to permit geologists and engineers to arrange their assets on the surface
efficiently in order to follow the underground boundary lines of mineral deposits
that nature dictates. In this case, that means Entek has the right (among other
things) to use an already existing road above one leasehold to service an existing
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well above another — rather than being forced to incur the waste of having to
build a new and duplicative byway. 2
To all this, Stull responds by pointing to a passage in Mountain Fuel Supply
Co. v. Smith, in which this court stated that surface rights are not affected by
unitization “other than to the extent that the particular leases covering the
minerals under the defendants’ surface may have been actually and legally
modified thereby.” 471 F.2d 594, 597 (10th Cir. 1973). But this statement hardly
helps Stull. Mountain Fuel didn’t hold that unitization never has an effect on
surface access rights — it simply observed that any alteration to surface access
rights depends on the terms of the unitization agreement in question and whether
it “actually and legally” modifies the “particular leases covering the minerals
under the defendants’ surface.” Id. at 597. And that is precisely what the Focus
Ranch Unit Agreement does. The Agreement expressly modifies all mineral
leases in the region to make plain that operations “upon any tract of unitized
lands” are deemed to occur on all other portions of unitized lands. The plain
2
Unitization policies exist as well under analogous state laws. Though it’s
hardly dispositive when it comes to interpreting federal law, it is perhaps not
nothing either that the “majority rule” in the states is the same as it is in federal
law, permitting parties to “pool[] . . . the right to use the surface of any tract in
the drilling unit to produce gas or oil . . . .” Miller v. N.R.M. Petroleum Corp.,
570 F. Supp. 28, 30 (N.D. W. Va. 1983); see also Kysar v. Amoco Prod. Co., 93
P.3d 1272 (N.M. 2004); Reimer v. Gulf Oil Corp., 664 S.W.2d 456 (Ark. 1984);
Nelson v. Texaco Inc., 525 P.2d 1263 (Okla. Civ. App. 1974); Miller v. Crown
Cent. Petroleum Corp., 309 S.W.2d 876 (Tex. Civ. App. 1958). But see Robinson
v. Robbins Petroleum Corp., 501 S.W.2d 865 (Tex. 1973).
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upshot of that language is to pool the mineral exploitation rights of all
leaseholders, including their surface access rights. 3
Separately, Stull complains it wasn’t party to the Focus Ranch Unit
Agreement. But it doesn’t begin to suggest why it had to be. Stull doesn’t
question that back in 1916 the government expressly retained the minerals under
what’s become Stull’s surface estate for the benefit of the public; expressly
retained the right to enter and occupy the surface estate as needed to reach those
minerals; and expressly retained the (unilateral) right to modify its plans for
disposing of its minerals as needed in the future. Stull doesn’t dispute that
§ 226(m) represents one such law — or that § 226(m) authorized the Department
of the Interior to issue 43 C.F.R. § 3186.1(18) and approve the Focus Ranch Unit
Agreement. Maybe — despite all this — some lawful authority limits the
government’s ability to update its disposition plans or at least affords some
measure of compensation to those property owners the updates adversely affect.
3
Stull’s citation to Bourdieu v. Seaboard Oil Corp., 146 P.2d 256 (Cal. Ct.
App. 1944), is similarly unhelpful to its cause. That 1944 state court decision
doesn’t address (and couldn’t have addressed) the effect of the unitization
agreement at issue here — or the federal regulation on which it was based — all
of which came many years later. A similar problem attends Stull’s reliance on an
administrative decision, International Petroleum & Exploration Operating Corp.,
178 IBLA 1 (2009). In that case, the Interior Department Board of Land Appeals
didn’t try to give effect to § 226(m) and 43 C.F.R. § 3186.1(18)(b), let alone the
specific unitization agreement before us. Meanwhile, the Board has itself
elsewhere acknowledged that unitization can permit an entire field to be
“operated as a single entity, without regard to lease boundaries.” Gas Dev. Corp.,
177 IBLA 201, 208 (2009). So, too, has the BLM, as we’ve already noted.
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See generally U.S. Const. amend. V (takings clause); Ark. Game & Fish Comm’n
v. United States, 133 S. Ct. 511, 522 (2012) (private property invasions
authorized by the government may give rise to takings claims). But in this case
Stull hasn’t seriously attempted any argument along these lines. If a legal
argument in this area does exist, it seems it will have to come from future
litigants in a future case. For its part, Stull leaves us at the end of the day with
only a policy complaint — a complaint that federal policy as currently
constructed is too generous to subsurface interests and insufficiently solicitous to
surface interests. We can certainly understand that point of view. But in the
never-ending tug of war between ranchers and miners — all of whom derive their
interests from federal land grants — it is for Congress to set policy and this court
to construe it. If Stull seeks revisions to federal land use policy its efforts would
be better directed to legislators than courts. 4
Finally, Stull argues that we should employ nonmutual offensive issue
preclusion to bar Entek from pursuing any argument about the scope of its rights
4
The closest Stull comes to mustering an argument that the government is
legally powerless to do as it has done comes when it cites state law for the
general principle that a contract usually can’t be enforced against those who
aren’t party to it. But in dealing with land grants from the federal government
we’re about as far removed from private contracting as it gets. No one’s
suggesting Stull contracted away rights it had; rather Entek’s arguing that the
federal government reserved mineral rights back in 1916 and is exercising those
rights through its lessee today. Cf. W. Nuclear, 462 U.S. at 59 (Supreme Court
instructing that “[l]and grants are construed favorably to the Government . . .
[and] if there are doubts they are resolved for the Government, not against it.”).
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under the Focus Ranch Unit Agreement. Stull points out that Entek’s current
leases were previously held by Clayton Williams. Stull notes that some years ago
Clayton Williams fought another surface owner (Three Forks Ranch) over the
right to traverse that owner’s property to reach a well on an adjacent surface
owner’s tract — the very issue presented here. Stull observes, too, that before the
district court Clayton Williams lost its argument that the Focus Ranch Unit
Agreement permitted the access it sought. So, Stull reasons, Entek should be
precluded from pursuing that same issue here.
But Stull’s story paints only half the picture. Although a never-appealed
district court judgment may sometimes support preclusion, it turns out that
Clayton Williams didn’t appeal the judgment in its case only because it reached a
deal with Stull — a deal allowing it to traverse Stull’s property to reach the well
in question. And, it turns out that Stull eventually terminated the agreement.
Neither was Entek ever assigned any rights under this agreement, or otherwise its
beneficiary. Indeed, the parties don’t dispute the fact that Entek lacks any
authority to pursue a claim related to the agreement’s demise.
This fuller picture of the facts, we believe, precludes preclusion. Before
applying nonmutual offensive issue preclusion, we require evidence of “privity”
between a party in the former litigation and the party against whom preclusion is
asserted in the current litigation. See, e.g., Century Indem. Co. v. Hanover Ins.
Co., 417 F.3d 1156, 1159 (10th Cir. 2005). Of course, privity is but a label. But
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it is a label that seeks to convey the existence of a relationship sufficient to give
courts confidence that the party in the former litigation was an effective
representative of the current party’s interests. See, e.g., Taylor v. Sturgell, 553
U.S. 880, 894 n.8 (2008) (in issue preclusion doctrine the term privity has come
to be used “as a way to express the conclusion that nonparty preclusion is
appropriate”); Headwaters Inc. v. U.S. Forest Serv., 399 F.3d 1047, 1052-53 (9th
Cir. 2005) (“Privity is a legal conclusion designating a person so identified in
interest with a party to former litigation that he represents precisely the same
right in respect to the subject matter involved.” (internal quotation marks and
ellipsis omitted)); 18A Charles Allen Wright et al., Federal Practice and
Procedure §§ 4448-49 (2d ed. 2014); Restatement (Second) of Judgments §§ 34,
43 (1982).
That much is lacking here. True, Clayton Williams and Entek bear a close
relationship. Entek is the successor in interest to Clayton Williams when it comes
to the federal mineral leases. And successors and assigns to a property interest
are often considered sufficiently “in privity” for preclusion purposes. Normally,
after all, the predecessor has the same economic interests to worry about and
defend as the successor. See, e.g., 18A Wright et al., supra, § 4448. But as
we’ve seen, Entek is not a successor in interest to all of Clayton Williams’s
relevant rights and interests. When Clayton Williams decided to forgo future
litigation because of a deal it struck with Stull, it sought to (and did) protect only
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its personal interests — not those of similarly situated future lessees of the same
property. In a critical respect, then, Clayton Williams didn’t — and didn’t intend
to — serve as a proxy for its successor’s interests. Neither could Stull have
reasonably thought itself protected against other future adversaries. At the time
of the deal, Stull knew (even insisted) that the deal necessary to end the litigation
would be good for Clayton Williams only. To be clear, we don’t mean to suggest
that the mere fact a case settles through private agreement before an appeal is
decided suffices to preclude preclusion in all cases. Instead, we much more
narrowly decline to find sufficient “privity” for issue preclusion purposes when
the parties to a litigation-ending agreement could not have reasonably thought the
deal would inure to the benefit of other parties and so protect against their future
claims. See generally 18A Wright et al., supra, § 4462 (in determining “privity”
question “substantial weight should be given to the reasonable expectations of the
victor” in the prior litigation as to whether or not it “would protect against
relitigation by any future adversary”); Restatement (Second) of Judgments § 43
cmt. a (“privity” lacking where predecessor to a property interest litigated only a
“personal” right rather than one that “affect[ed] the property itself”).
With that said, and having explained that the Focus Ranch Unit Agreement
has the effect of providing Entek all the relief it seeks (under what it calls claim
three), we have no need to address the company’s alternative legal theories for
reaching the same result (what it calls claims one and two). The district court’s
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grant of summary judgment in favor of Stull is vacated and the case is remanded
for further proceedings consistent with the terms of this opinion.
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