Kysar v. Amoco Production

UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
RAYMOND L. KYSAR; PATSY SUE
KYSAR; KYSAR FAMILY TRUST,
Plaintiffs - Appellants,
v. No. 01-2359
AMOCO PRODUCTION COMPANY,
Defendant - Appellee.
NEW MEXICO FARM AND
LIVESTOCK BUREAU,
Amicus Curiae.
ORDER
Filed August 30, 2004
Before HENRY, PORFILIO, and BRISCOE, Circuit Judges.
The “Kysars’ Petition for Limited Correction or Rehearing” is granted in
part and denied in part. The opinion is amended on page 6, line eleven to read,
“In exchange for the right of way, the Kysars receive a 2.5% overriding royalty . .
. .” The substituted opinion reflecting this change is attached.
The suggestion for the change on page 15 of the opinion is denied.
Entered for the Court
Patrick Fisher, Clerk of Court
By:
Amy Frazier
Deputy Clerk
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F I L E D
PUBLISH United States Court of Appeals
Tenth Circuit
UNITED STATES COURT OF APPEALS JUL 26 2004
TENTH CIRCUIT PATRICK FISHER
Clerk
RAYMOND L. KYSAR; PATSY SUE
KYSAR; KYSAR FAMILY TRUST,
Plaintiffs-Appellants,
v. No. 01-2359
AMOCO PRODUCTION COMPANY,
Defendant-Appellee.
NEW MEXICO FARM AND
LIVESTOCK BUREAU,
Amicus Curiae.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEW MEXICO
(D.C. NO. CIV-00-958 LFG/KBM)
Victor R. Marshall, Victor R. Marshall & Associates, Albuquerque, New Mexico,
for Plaintiffs-Appellants.
Tanya M. Trujillo (Bradford C. Berge with her on the briefs), Holland & Hart,
LLP, Santa Fe, New Mexico, for Defendant-Appellee.
Lee E. Peters, Hubert & Hernandez, P.A., Las Cruces, New Mexico, for Amicus
Curiae New Mexico Farm & Livestock Bureau.
Before HENRY, PORFILIO, and BRISCOE, Circuit Judges.
HENRY , Circuit Judge.
This case arises from a dispute over access to a gas well. The Kysar family
owns a ranch on the Animas River in San Juan County, New Mexico. Amoco is
the lessee under various leases of mineral estates under the Kysars’ ranch as well
as to lands owned by the Bureau of Land Management (BLM), adjacent to and
just north of the Kysars’ property. Several oil and gas wells drilled and operated
by Amoco are on these properties. This litigation centers around one Amoco
well, the Sullivan Gas Com E Well (the “Sullivan E well” or “the well”). See
attached schematic (Att. 1). The well is located on BLM land that is part of a
unit that also includes minerals under the Kysars’ surface estate. Both the BLM
land and a portion of the Kysars’ land are subject to a 1992 joint development
agreement with the federal government. The Kysars filed this tort action against
Amoco in New Mexico state court. Amoco removed the case to federal court
pursuant to 28 U.S.C. §§ 1331 and 1441(b). The Kysars’ complaint alleges that
Amoco’s use of the Kysars’ roads in order to operate and service the Sullivan E
well constituted unlawful trespass and unfair trade practices under New Mexico
law. The Kysars also raise an unjust enrichment claim. The Kysars did not seek
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certification to the New Mexico courts to resolve this issue of state law. We
certified two questions of state law to the New Mexico Supreme Court. Those
question have been answered, and, exercising our jurisdiction pursuant to 28
U.S.C. § 1291, we affirm the district court’s order in part, reverse in part, and
remand for further proceedings.
I. FACTUAL BACKGROUND
The facts of this case are not in dispute. The lawsuit concerns Amoco’s
access to the Sullivan E well, which is part of the “Fruitland” coal formation, one
of many geologic mineral formations underlying both the Kysars’ land and the
BLM land. The Sullivan E well is located on a tract of BLM land, in Section 22,
adjacent to the Kysars’ ranch.
The Kysars purchased the ranch in 1983, subject to a reservation of
previously leased oil, gas and other minerals, “[w]ith right of ingress and egress
for removal of the same.” Aplts’ App. 158 (Warranty deed, dated May 14, 1956).
In addition, the conveyance was subject to all easements of record for pipe and
pipe lines, roads and rights of way passage and other easements. See id. The
conveyance was also subject to a right-of-way granted in 1954 to the Southern
Union Gas Company for the purpose of constructing a road to and from Southern
Union’s “contemplated well location.” Aplts’ App. at 41 (Right-of-Way Grant,
dated May 10, 1954).
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Amoco is the successor-in-interest to the mineral rights underlying the
Kysars’ ranch and the BLM land. Amoco’s mineral rights under the Kysars’
ranch are dictated under two substantively identical leases: the Keys lease that
governs 344 northern acres of the Kysars’ ranch, and the Jaquez lease that covers
the remaining southern portion of the ranch (which cover all of Section 27 and
portions of Sections 28, 33, and 34).
The Keys and Jaquez leases were signed in 1948. In 1953, the Keys and
Jaquez leases were amended to provide that the mineral rights lessee (i.e.,
Amoco’s predecessor-in-interest), at its option, and without the surface owners’
“joinder or further consent,” could pool and unitize the leasehold estate with any
other land or lease covering adjacent lands. Aplts’ App. at 39 (Amendment to Oil
and Gas Lease, dated June 10, 1953); see also Supl. App. at 10 (Amendment to
Oil and Gas Lease, dated June 15, 1953) (same).
Specifically, the amendments gave the mineral rights lessee:
the power and right, at any time during the term of this
lease, as to all or any part of the land . . . and as to any one
or more of the formations thereunder and the oil, gas, and
all by-products therein or produced therefrom, at its option
and without Lessor’s joinder or further consent, to pool
and unitize the leasehold estate and the Lessor’s royalty
estate created by this lease with the rights of any third
parties in all or any part of the land . . . and with any
other land, lands, lease, leases, oil, gas, and all by-
products therein and royalty rights, or any of them,
adjacent, adjoining or located within the immediate
vicinity of the land covered by this lease, whether owned
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by Lessee or some other person . . . so as to create by such
pooling and unitization, one or more drilling or production
units. Each such drilling or production unit shall not
exceed 320 acres.
Aplts’ App. at 39; Supl. App. at 10 (same). In the amendment, the parties also
agreed that the commencement, drilling, completion of
or production from a well, on any portion of a unit
created hereunder, shall not have the effect of
continuing this lease in force insofar as it covers the
land not included within such unit, and no unit shall be
created which covers and includes land in more than one
Section.
Aplts’ App. at 39; Supl. App. at 10 (same). Amoco, as the successor to the rights
of the original mineral lessee, retains these rights.
In 1992, Amoco entered into a communitization agreement that committed
36.84 acres in Section 22 that Amoco held under the amended Keys lease to a
joint development project with several other tracts of land. As the attached
schematic indicates, the 36.84 acres of Section 22 constitute a relatively small
segment of the Kysars’ ranch. The communitization agreement covered the
Fruitland coal gas seam geologic formation underlying the specified tracts.
Pursuant to 30 U.S.C. § 226(j), the federal government approved the
communitization agreement with Amoco and the other signatories.
In considering where to locate the Sullivan E well, Amoco approached the
Kysars about placing the well within the boundaries of the 36.84 acres of the
Kysars’ ranch that are subject to the communitization agreement. None of the six
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wells on the Kysars’ ranch are on the communitized property. After the Kysars
indicated that they did not want the Sullivan E well on their land (because it
would hinder their cultivation of alfalfa), Amoco drilled the well on BLM land.
Two private roads access the Sullivan E well: (1) the north branch or bridge
road, extending through Sections 27 and 28, which crosses the Kysars’ property
held under the amended Keys lease and includes a suspension bridge (“bridge
road”) and (2) the longer branch road, extending through Sections 27 and 34,
which crosses both Keys and Jaquez lease property (“back gate road”). Amoco
acceded to a request by the Kysars that Amoco not use the bridge road, based on
the Kysars’ fear that the bridge could not sustain heavy equipment. Amoco
maintains that although it has thus far been able to limit itself to using the less
convenient back gate road, it nevertheless has the right to use both roads to access
the Sullivan E well.
In 2000, the Kysars negotiated a right of way with Coleman Oil, another oil
company, that planned to drill a well on BLM lands within the communitized unit.
In exchange for the right of way, the Kysars receive a 2.5% overriding royalty on
all production from the new well, plus various payments for improvements and
maintenance on the roads.
II. THE DISTRICT COURT’S FINDINGS
Before the district court, the Kysars argued that (1) the communitization
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does not authorize Amoco to cross the portion of their ranch contained within the
communitized area to access the Sullivan E gas well on the adjacent BLM land
(Section 22); (2) Amoco is not entitled to cross the non-communitized portion of
the Kysars’ ranch via the bridge road (sections 27 and 28); and (3) Amoco is not
authorized to cross the southern portion of the Kysars’ ranch via the back gate
road (sections 34 and 27). The district court rejected each of these arguments.
First, the district court determined that the communitization agreement
granted Amoco the right to access the Sullivan E well by crossing that portion of
the Kysars’ surface estate overlying the communitized formations. The district
court concluded that, by virtue of the oil and gas leases and the later
communitization agreement, a mineral rights lessee could use the surface area of
the lease to access and develop a well located on a nearby tract owned by others
even where the lease did not expressly grant this right. The district court
determined that the communitization agreement affected “‘both the lands
described as being committed to the communitization area and each lease
committed to the agreement.’” Aplts’ App. at 236 (quoting Wolff v. Belco Dev.
Corp., 736 P.2d 730, 733 (Wyo. 1987) (emphasis in original)). “If production
anywhere in a unit is considered to be production from each tract, then each
surface tract within a unit is subject to the right of reasonable ingress and egress
by lessees . . . [to] extract[] minerals from the unit.” Id. at 234. Second, the
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district court also determined that Amoco is entitled to use both the bridge road
and back gate road for its access to wells on the Kysars’ ranch and for access to
the Sullivan E well. The court found that because the “communitization
agreement . . . ‘modifies and changes’ the Keys lease,” id. at 238, access should
be unrestricted. The court continued, “‘if any acreage within [a] lease is unitized
with a producing well, the surface of the leased tract may be used to transport
production from the unit well.’” Id. at 236 (quoting Acree v. Shell Oil Co., 548 F.
Supp. 1150, 1154 (M.D. La. 1982), aff’d, 721 F.2d 524 (5th Cir. 1983)).
The district court recognized that the lease at issue in Acree specifically
provided for access to the surface lands not covered by a unitization agreement,
and that the Keys lease and the 1953 amendment lacked any language regarding
transport over non-unitized or unitized surfaces of the lease. However, the
district court stated that even with the omission of specific language, “the result
should nevertheless be the same.” Id. The court noted that “[t]his right is, as
always, subject to Amoco’s duty of reasonable and non-negligent surface use, so
that any danger to the bridge would have to be taken into account.” Id. at 241
n.2. In making this finding, the court relied on Amoco Production Co. v. Carter
Farms Co., 703 P.2d 894 (N.M. 1985), which held that “the mineral lessee[] is
entitled to use as much of the surface area as is reasonably necessary for its
drilling and production operations.” Id. at 896.
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Next, the court reasoned that the back gate road, which crossed land
governed by the Jaquez lease, was also available for access by Amoco. Having
found no errors in Amoco’s access and use of the Kysars’ land, the district court
rejected the Kysars’ allegations involving state tort claims for trespass, unjust
enrichment, and a violation of the New Mexico Unfair Trade Practices Act.
III. ISSUES ON APPEAL
On appeal, the Kysars argue that the district court misconstrued and
misapplied New Mexico law when it drew the above conclusions. Specifically,
they contend that (1) the communitization agreement did not expand Amoco’s
rights to allow Amoco to access the surface of the communitized portion of the
Kysars’ ranch to develop the well; (2) the communitization agreement did not
expand Amoco’s rights to allow Amoco to access the surface of the non-
communitized Kysars’ ranch to develop the well; and (3) New Mexico law does
not liberally construe implied easements.
We certified the following questions to, and received the following answers
from, the New Mexico Supreme Court:
(1) Under New Mexico law, does a mineral rights lessee, by virtue of
a Communitization Agreement to which the mineral rights lessee is a
party, gain a right of access over the surface estate of the unitized
portion of the leased area in connection with the operations on other
premises or lands pooled or unitized therewith where the lease did not
expressly grant this right?
The New Mexico Supreme Court construed the question to read:
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(1) [W]hether, as a result of the 1992 Communization Agreement,
Amoco has the right to use the surface of the Kysars’ property located
within Section 22 to reach the Sullivan E Well.
In response, the New Mexico Supreme Court
conclude[d] that under New Mexico law a mineral rights lessee, having
entered into a communitization agreement with the permission of the
prior fee owner, enjoys a right of access over the surface estate of the
portion of the leased area subject to the agreement. Thus, we answer
the first question “Yes.”
Kysar v. Amoco Prod. Co. , No. 28,231 at 1 (N.M. June 15, 2004).
Our second certified question asked:
(2) Under New Mexico law, does a mineral rights lessee, by virtue of
a Communitization Agreement to which the mineral rights lessee is a
party, gain a right of access over the surface estate of the non-unitized
portion of the leased area in connection with the production and
extraction of minerals on other premises or lands pooled or unitized
therewith where the lease did not expressly grant this right?
The New Mexico Supreme Court reformulated the second question to ask:
(2) [W]hether, as a result of the 1992 Communitization Agreement,
Amoco has the right to use the surface of the Kysars’ property acquired
from Keys and located within Sections 27 and 28 to reach the Sullivan
E well.
See N.M. Stat. Ann. § 39-7-7(A)(3). In response to the second question, the Court
conclude[d] that under New Mexico law a mineral rights lessee does
not, by virtue of having entered into a communitization agreement with
the permission of the prior fee owner, enjoy a right of access over the
surface estate of the portion of the leased area that is not subject to the
agreement. Thus, we answer the second question “No.”
Id. at 2.
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A. Standard of Review
“We review the district court’s grant of summary judgment de novo,
applying the same legal standards used by that court. Summary judgment should
not be granted unless the evidence, viewed in the light most favorable to the party
opposing the motion, shows there are no genuine issues of material fact and the
moving party is due judgment as a matter of law.” Blackhawk-Central City
Sanitation Dist. v. Am. Guar. & Liab. Ins. Co., 214 F.3d 1183, 1187-88 (10th Cir.
2000). “When, as here, a federal court is exercising diversity jurisdiction, it must
apply the substantive law of the forum state,” here, New Mexico. Id. at 1188.
We review the district court’s determination of New Mexico law de novo. See id.B. Access of the Surface of the Communitized Portion of the Kysars’
Ranch to Develop the Well
In light of the New Mexico Supreme Court’s answers to the above
questions, it is clear that the district court was correct that Amoco may have
reasonable access to the surface of the 36.84 acre portion of the Kysars’ ranch
that is committed to the communitization agreement. The Court held:
that under New Mexico law a mineral lessee’s implied surface right of
reasonable ingress and egress to reach a well located inside the
production unit that the lessee is operating pursuant to a pooling
arrangement extends across lease boundaries within the unit to the
surface of the entire area subject to the arrangement, regardless of
where within the unit production is taking place.
Kysar, No. 28,231 at 2o.
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C. Access of the Surface of the Non-Communitized Portion of
the Kysars’ Ranch in Sections 27 and 28 Governed by the Keys
Lease
It is also clear that the district court’s conclusion that the communitization
agreement had the effect of binding the entire Kysars’ ranch to the agreement for
purposes of reasonable surface access was in error. The Court
conclude[d] that the 1992 Communitization Agreement did not modify
the 1953 lease amendment. . . . Amoco does not enjoy an implied right
of access by virtue of the communitization agreement over the portion
of the Kysars ranch acquired from Keys within Sections 27 and 28.
Id. at 27-28. The Court continued: “Amoco is not entitled by virtue of [the 1992
Communitization Agreement] to use the Bridge Road or the portions of the Back
Gate Road that cross the land the Kysars obtained from Keys to access the
Sullivan E Well.” Id. at 28. Having received the New Mexico Supreme Court’s
thorough and detailed analysis of the above questions, we need not address the
Kysars’ arguments regarding New Mexico’s construction of implied easements as
applied to these sections.
D. Access of the Surface of the Non-Communitized Portion of the
Kysars’ Ranch Acquired under the Amended Jaquez Lease
The New Mexico Supreme Court’s reformulation of the second certified
question did not directly consider “Amoco’s right to use those portions of the
Back Gate Road that cross the surface of the Kysars’ property acquired from
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Jaquez.” Id. at 8. 1 This question seemingly does not need to be answered, as it
would be impossible to access the Sullivan E well through the property governed
by the amended Jaquez lease without also traversing the land that the Kysars
governed by the amended Keys lease, which the New Mexico Supreme Court held
Amoco is not entitled to do by virtue of the communitization agreement. We
note, however, that the New Mexico Supreme Court’s answer to the second
certified question above appears to foreclose Amoco’s arguments when it
concluded that Amoco did “not enjoy a right of access over the surface estate of
the portion of the leased area not subject to the [communitization] agreement
when the lease did not expressly grant this right.” Id. at 28. We hold that Amoco
is not entitled by virtue of the 1992 Communitization Agreement to use the
portions of the back gate road that cross the land covered by the amended Jaquez
lease (in Sections 27 and 34) to access the Sullivan E Well.
E. Outstanding Issues
The district court dismissed the Kysars’ remaining claims for trespass,
unjust enrichment, and violation of the New Mexico Unfair Practices Act, finding
1
Although the record is not precisely clear, most if not all of this land was
sold to the Keys family, specifically Jessie Maude Keys, in 1950. See Supl. App.
at 1036 (Deed). It is also not clear whether the New Mexico Supreme Court had
the entire record, including the Supplemental Appendix, before it. However, we
note that the legal descriptions are not identical. For purposes of this opinion, we
shall refer to the land at issue as the land covered or governed by the amended
Jaquez lease so as to avoid confusion.
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that (1) Amoco’s “actions do not constitute trespass as a matter of law,” Aplt’s
App. doc. 10, at 242, and (2) the “claims for unjust enrichment and statutory
violations are dependent on the existence of a trespass and misrepresentation as to
the right of access and, there being no trespass and no misrepresentation, those
claims will be dismissed.” Id.
As to the unfair trade practices claim, we hold that the Kysars’ claim does
not fall within the ambit of the New Mexico Unfair Practices Act, N.M. S TAT .
A NN . § 57-12-2(D). That section explains that
“unfair or deceptive trade practice” means an act specifically declared
unlawful pursuant to the Unfair Practices Act, a false or misleading
oral or written statement, visual description or other representation of
any kind knowingly made in connection with the sale, lease, rental or
loan of goods or services or in the extension of credit or in the
collection of debts by a person in the regular course of his trade or
commerce.
Id. (emphasis added). The Unfair Practices Act “does not apply to sales of real
estate.” McElhannon v. Ford, 73 P.3d 827, 832 (N.M. Ct. App. 2003). The
Kysars based their claim on Amoco’s alleged misrepresentations regarding its
right of access to the Sullivan E well. Because the alleged misrepresentations are
unconnected to a good or service, we hold that the claim does not fall within the
parameters of the Unfair Practices Act.
As to the Kysars’ claims for trespass and unjust enrichment, Amoco argues
that these claims are barred by the four-year statute of limitations for each claim.
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We hold that there are unresolved factual issues which prevent our resolving the
statute of limitations issue, and we remand to the district court to make these
determinations. In closing, we also note that any calculation of damages (as well
as the determination of whether the tort or contract claims lie at all) in this case
must take into account the Kysars’ request and Amoco’s agreement not to locate
the well on the Kysars’ alfalfa field, but rather to use existing roads to other wells
as far as possible.
IV. CONCLUSION
Amoco may access the surface of the Kysars’ ranch that comprises the
36.84 acres committed to the communitization agreement in Section 22, and we
AFFIRM the district court’s grant of summary judgment as to this finding.
The 1992 Communitization Agreement did not confer upon Amoco the right
to access the surface of the Kysars’ ranch acquired from either Ms. Keys, located
within Section 27 and 28, or that land governed by the amended Jaquez lease,
located in Sections 27 and 34. Accordingly, as to the Kysars’ claim regarding
Amoco’s use of the surface of their ranch acquired from Ms. Keys in Section 27
and 28, and Amoco’s use of the surface of the ranch governed by the amended
Jaquez lease in Section 27 and 34, we REVERSE the district court’s grant of
summary judgment in favor of Amoco; we AFFIRM the dismissal of the Unfair
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Practices Act claim, and we REMAND for further proceedings, including the
consideration of the statutes of limitations for the trespass and unjust enrichment
claims, consistent with this opinion.
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