Northern Natural Gas Co. v. ONEOK Field Services Co.

IN THE SUPREME COURT OF THE STATE OF KANSAS
No. 118,239
NORTHERN NATURAL GAS COMPANY,
Appellant,
v.
ONEOK FIELD SERVICES COMPANY, LLC; ONEOK MIDSTREAM GAS SUPPLY, LLC;
LUMEN ENERGY CORPORATION; and LUMEN MIDSTREAM PARTNERSHIP, LLC,
Appellees,
v.
NASH OIL & GAS, INC. and L.D. DRILLING, INC.,
Appellees,
and
VAL ENERGY, INC.,
Intervenor/Appellee.
SYLLABUS BY THE COURT
1.
Once the Kansas Corporation Commission or Federal Energy Regulatory
Commission approves its certification, a natural gas public utility's identifiable non-
native storage gas lying underneath a natural gas storage facility's certificated boundaries
is no longer subject to the common-law rule of capture—even if the utility has not yet
acquired storage rights through eminent domain or contract.
2.
A court of last resort will follow the rule of law established in its earlier cases
unless clearly convinced the rule was originally erroneous or is no longer sound because
of changing conditions and more good than harm will come by departing from precedent.
1
Appeal from Pratt District Court; FRANCIS E. MEISENHEIMER, judge. Opinion filed September 6,
2019. Reversed and remanded.
Richard A. Olmstead, of Kutack Rock LLP, of Wichita, argued the cause and was on the briefs
for appellant Northern Natural Gas Company.
James M. Armstrong, of Foulston Siefkin LLP, of Wichita, argued the cause on behalf of all
appellees, and Jim H. Goering and Daniel J. Buller, of the same firm, and Larry E. Keenan and Timothy
R. Keenan, of Keenan Law Firm, P.A., of Great Bend, were with him on the brief for appellee L.D.
Drilling, Inc.
Robert R. Eisenhauer, of Johnston & Eisenhauer, of Pratt, and Brad Welsh, pro hac vice, of Gable
& Gotwals, of Tulsa, Oklahoma, were on the brief for appellees ONEOK Field Services Company, LLC
and ONEOK Midstream Gas Supply, LLC.
Robert Christensen, of Law Office of Robert W. Christensen, of Medicine Lodge, and Mark
Banner, pro hac vice, of Hall Estill, of Tulsa, Oklahoma, were on the brief for appellees Lumen Energy
Corporation and Lumen Midstream Partnership, LLC.
Brian J. Madden, of Wagstaff & Cartmell, LLP, of Kansas City, Missouri, was on the brief for
appellee Nash Oil & Gas, Inc.
Jeffery L. Carmichael and Will B. Wohlford, of Morris, Laing, Evans, Brock & Kennedy, Chtd.,
of Wichita, were on the brief for appellee Val Energy, Inc.
David G. Seely, of Fleeson, Gooing, Coulson & Kitch, L.L.C., of Wichita, was on the brief for
amicus curiae Eastern Kansas Royalty Owners Association, and Gregory J. Stucky, of the same firm, was
on the brief for amicus curiae Southwest Kansas Royalty Owners Association.
2
The opinion of the court was delivered by
BILES, J.: Northern Natural Gas Company injects into underground storage
reservoirs large quantities of previously produced natural gas acquired from distant
locations so it can remove, transport, and resell that gas later during peak market
conditions. Some of its storage gas migrated beneath the earth to nearby wells in areas
Northern did not control through eminent domain or contract. The wells' operators
extracted that gas and sold it. A legal struggle has waged for more than a decade over the
disputed right to produce Northern's migrated storage gas. This is yet another round in
that high-dollar subsurface prize fight.
In a previous appeal, we applied the common-law "rule of capture" to conclude the
operators lawfully produced and sold Northern's storage gas taken before June 2, 2010.
Northern Natural Gas Co. v. ONEOK Field Services Co., 296 Kan. 906, 296 P.3d 1106(2013) (ONEOK I). That was the date when Northern received a certificate from the
Federal Energy Regulatory Commission permitting it to expand the authorized
boundaries of its then-existing underground storage field to encompass the offending
wells. We now consider whether that certification changes the right-to-produce analysis
for gas taken after June 2, 2010. We hold it does.
Once those new boundaries were certified, Northern's identifiable storage gas
within that designated area was no longer subject to the rule of capture—even though
Northern had not yet acquired storage rights through eminent domain or contract. See
Union Gas System, Inc. v. Carnahan, 245 Kan. 80, 88, 774 P.2d 962 (1989) ("[A]s soon
as Union's storage operation became authorized and its gas identifiable, the gas was no
longer ferae naturae and subject to the rule of capture. The title to Union's captured gas
remained in Union."). The district court erred when it granted judgment against Northern
by holding otherwise. We reverse and remand to the district court for further proceedings.
3
FACTUAL AND PROCEDURAL BACKGROUND
As mentioned, state and federal courts have wrestled with this controversy before.
The facts and interrelated procedural twists are detailed in other court decisions. See, e.g.,
ONEOK I, 296 Kan. at 911-16; Northern Natural Gas Co. v. L.D. Drilling, 862 F.3d
1221 (10th Cir. 2017), cert. denied 138 S. Ct. 747 (2018); Northern Natural Gas Co. v.
Appx. 9,117 Acres in Pratt, No. 10-1232-MLB-DWB, 2015 WL 471244 (D. Kan. 2015).
For our purposes, the relevant facts can be concisely described.
Northern has an underground natural gas storage facility known as the
Cunningham Storage Field in Pratt and Kingman counties. Northern holds certifications
from the Kansas Corporation Commission and FERC to inject and store previously
produced natural gas that is transported to the Field to await favorable market conditions
and resale. Nash Oil & Gas, Inc. and L.D. Drilling, Inc. operated oil and gas wells about
two to six miles from the Field's northern certificated boundary as it existed before June
2, 2010. ONEOK and Lumen were third-party purchasers of gas produced by Nash and
L.D.
In 2008, Northern sued Nash, L.D., and another producer, Val Energy, Inc., in the
United States District Court for the District of Kansas, alleging they aggravated the
subsurface movement of Northern's storage gas beyond the Field's then-certificated
boundaries by pumping atypical quantities of water to create artificial pressure sinks.
This, the allegation continued, drew Northern's storage gas from the Field toward the
producers' wells, where it was extracted and sold.
While that federal litigation progressed, Northern filed this state lawsuit in Pratt
County District Court against ONEOK and Lumen alleging they participated in
converting Northern's storage gas by buying it from Nash and L.D. Its conversion claims
state:
4
"43. Producers have produced and sold, and will continue to produce and sell
Northern's previously injected storage gas which migrated on or after July 1, 1993.
"44. Northern holds title to, and is the lawful owner of, all such previously
injected, but migrated storage gas.
"45. Based upon belief and recently acquired information and data, [ONEOK and
Lumen] have purchased from the Producers, or caused others to purchase from the
Producers, such migrated storage gas and, upon information and belief, transported and
re-sold such migrated storage gas.
"46. [ONEOK's and Lumen's] acts and/or omissions, including, but not limited
to, purchasing, transporting, and reselling Northern's migrated storage gas constitute the
unauthorized exercise of ownership rights by [ONEOK and Lumen] over Northern's
migrated storage gas, to the exclusion of Northern's rights.
....
"48. [ONEOK's and Lumen's] unauthorized exercise of ownership and control
over Northern's storage gas . . . is an unlawful conversion." (Emphases added.)
In response, ONEOK and Lumen admitted purchasing gas from Nash and L.D.,
denied Northern's conversion allegations, and asserted third-party indemnification claims
against Nash and L.D. as a precaution against the conversion claims. ONEOK and Lumen
insisted they were innocent good-faith purchasers for value; and "[a]s a matter of public
policy, innocent purchasers of previously injected storage gas can have no liability for
conversion because purchasers must be entitled to rely upon the assurances of title made
by sellers."
Nash and L.D. moved for summary judgment, asserting a legal right to produce
the migrated gas from their wells. They noted the Underground Storage of Natural Gas
5
Act, K.S.A. 55-1201 et seq., sets out circumstances when natural gas public utilities can
acquire property rights through condemnation for underground natural gas storage and
addresses ownership of storage gas migrating outside a designated area. But, they argued,
the Storage Act did not apply to the migrated gas they took and this statutory gap left in
place common-law principles permitting their operations.
The district court granted the motion, ultimately resolving not only ONEOK and
Lumen's third-party claims against Nash and L.D., but also Northern's conversion claims
against ONEOK and Lumen. The court agreed with Nash and L.D. that the Storage Act
did not apply because it expressly dealt only with gas that "migrated to adjoining
property or to a stratum, or portion thereof, which has not been condemned as allowed by
law or otherwise purchased." (Emphasis added.) K.S.A. 55-1210(c). And because the
producers' wells were not on land adjoining the Field, the court held the common-law
rule of capture applied and allowed Nash and L.D. to produce and sell migrated storage
gas taken from their wells.
Shortly thereafter, FERC issued the June 2, 2010 certificate authorizing Northern
to expand the Field's boundaries. The FERC order gave Northern authority to acquire
rights to property within the newly certificated boundaries. This effectively extended
Northern's buffer zone to better protect its migrating gas from capture by others.
The FERC certification caused the district court to modify its judgment to limit its
application to the time before June 2, 2010. The court also ordered ONEOK and Lumen
to suspend payments to Nash and L.D. for gas produced from their wells until further
court direction.
On appeal, the ONEOK I court affirmed the district court's ruling. It then
remanded the case to resolve "any remaining claims that may exist regarding matters
6
after June 2, 2010, and for resolution of the district court's standing order requiring
ONEOK and Lumen to suspend payments to Nash and L.D." ONEOK I, 296 Kan. at 942.
Meanwhile, with the ONEOK I appeal pending, Northern began condemnation in
the United States District Court for the District of Kansas for storage rights in the
expansion area authorized by the June 2, 2010 certification. Northern Natural Gas v.
9117.53 Acres in Pratt, 781 F. Supp. 2d 1155, 1158-59 (D. Kan. 2011). The date of
taking was set as March 30, 2012. The federal court ordered Northern to pay $8.5 million
for the condemned property rights. Much of that award resulted from the federal district
court's vigorously disputed decision to value Northern's migrated storage gas lying "in
place" underneath the condemned land. Northern Nat. Gas v. 9117 Acres in Pratt,
Kingman, 2 F. Supp. 3d 1174, 1187 (D. Kan. 2014).
Back in the state district court after our ONEOK I remand to consider the storage
gas taken by the producers after June 2, 2010, Northern narrowed its claims to only the
gas taken from within the expansion area and filed what it styled as a motion for partial
reconsideration, essentially arguing for a different result for the post-certification gas.
The district court denied the motion, finding Northern did not own the storage gas
produced from the expansion area before the March 30, 2012 taking date set in the
federal condemnation lawsuit. It reasoned Northern did not control the area where the
wells were located until the date of taking.
It is important to note that two weeks before the state district court denied
Northern's reconsideration, the United States Court of Appeals for the Tenth Circuit
reversed a substantial part of the federal condemnation award. The circuit court held the
lower federal court erred by including the value of Northern's "in place" migrated storage
gas under the landowners' property on the date of taking. L.D. Drilling, 862 F.3d at 1231-
32 (holding Northern owned all storage gas within certified field boundaries after the
certification date). Nevertheless, the state district court did not revise its judgment, or
7
even mention the Tenth Circuit ruling, despite the federal appeals court's obvious
contradictions with the state district court's right-to-produce rationale for the post-June 2,
2010 storage gas issue, as well as a related question about whether landowners would
suffer an unconstitutional taking. See 862 F.3d at 1227-28 ("We disagree with the
inclusion of the value of storage gas in and under the Extension Area on the date of
taking because we find that the Landowners and Producers had no right to produce such
gas after the date of certification." [Emphasis added.]).
The district court certified its decision as a final order under K.S.A. 2010 Supp.
60-254(b). Northern timely appealed. We granted a motion to transfer the controversy to
our court. Jurisdiction is proper. See K.S.A. 60-2101(b) (providing Supreme Court
jurisdiction over appeals transferred under K.S.A. 20-3017).
NO RIGHT TO CAPTURE STORAGE GAS AFTER JUNE 2, 2010
Our question is whether the producers could take Northern's migrated non-native
storage gas from wells located within the newly certified boundaries for the storage field
after June 2, 2010. On summary judgment, the district court concluded the producers had
that right under the common-law rule of capture. We disagree.
Standard of review
"'"'Summary judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with the affidavits, show that there is no
genuine issue as to any material fact and that the moving party is entitled to judgment as
a matter of law. The trial court is required to resolve all facts and inferences which may
reasonably be drawn from the evidence in favor of the party against whom the ruling is
sought. When opposing a motion for summary judgment, an adverse party must come
forward with evidence to establish a dispute as to a material fact. In order to preclude
summary judgment, the facts subject to the dispute must be material to the conclusive
issues in the case. On appeal, we apply the same rules and where we find reasonable
8
minds could differ as to the conclusions drawn from the evidence, summary judgment
must be denied.'"' [Citation omitted.]" Trear v. Chamberlain, 308 Kan. 932, 935-36, 425
P.3d 297 (2018).
There are no material facts in dispute as to the issue on appeal, so we are presented
with a straightforward legal question. Our review is de novo as to the legal effect of the
undisputed facts. ONEOK I, 296 Kan. at 918.
Discussion
It is necessary for clarity to revisit some long-standing Kansas legal principles
affecting natural gas and its underground storage. This has been covered to some extent
in recent caselaw. See, e.g., ONEOK I, 296 Kan. at 919-24; Northern Natural Gas Co. v.
Martin, Pringle, et al., 289 Kan. 777, 788-91, 217 P.3d 966 (2009). A few applicable
principles date back more than 100 years.
In Anderson v. Beech Aircraft Corp., 237 Kan. 336, 699 P.2d 1023 (1985), the
court described the economic desirability and legal entanglements inherent in the
commercial practice of injecting non-native natural gas back into the ground for
storage—after it has already been produced, purchased, and transported from another
location—in this way:
"[T]he concept of underground storage of natural gas has become well accepted in the
natural gas industry. Today, natural gas is being stored in underground reservoirs in most
of the gas producing states. This tremendous increase in gas storage was the result of the
increased demand for, and popularity of, natural gas as a consumer fuel. The demand for
natural gas far exceeded the supply, and pipelines proved incapable of supplying peak
consumer demands which were mainly caused by cold weather. During periods of lesser
demand, the pipelines could transport more than enough gas. Above ground storage of
gas was impossible. It simply was not economically feasible to fabricate containers large
enough to serve all consumers. Experience proved that the problem of meeting peak
9
consumer demands for natural gas could be solved only by the use of underground
storage of gas. It became obvious that depleted oil and gas fields could be effectively
converted into vast storage containers. However, suitable formations for underground
storage of natural gas do not exist in all states. A formation must possess a high degree of
porosity in order to accommodate large quantities of gas and must also possess a high
degree of permeability to allow the gas to be injected and withdrawn rapidly. In addition
to these basic requirements, the formation must be sufficiently sealed geologically to
prevent migration of the injected gas.
"With the underground storage of natural gas, there developed many legal
problems involving the interrelationship between a gas company or a storage operator
and the owners of land or mineral interests included within the storage reservoirs. These
include competing claims asserting ownership of injected gas and ownership of the
storage formation. One problem was the matter of the title to the non-native gas injected
in an underground reservoir for storage. Other problems were concerned with the
acquisition of the necessary stratum and surface land for the storage reservoir and the
relative rights of the owner of the fee and the owner of a mineral interest which had
previously been severed from the surface interest. Problems have also arisen in regard to
the method of acquisition. One method involves voluntary acquisition by contract
between the gas company and the landowners. The other alternative is the exercise of the
power of eminent domain. There have been complications arising because of state
regulation and also federal regulation and the conflicts arising therefrom. Finally, there
has been the problem of income tax considerations as between the parties granting
storage rights and the party acquiring storage rights. Some of these problems have come
before the courts and some have not. They are mentioned to show the complexity of the
problems arising from the injection of non-native gas into the earth for underground
storage. [Citation omitted.]" 237 Kan. at 340-42.
Before 1951, a natural gas public utility lacked the power to condemn subsurface
property to create an underground storage facility. See Strain v. Cities Services Gas Co.,
148 Kan. 393, 397, 83 P.2d 124 (1938) ("The use of the earth as a storage place for gas is
an idea so novel we cannot believe the legislature had such matter in contemplation when
the power of eminent domain was given to pipe-line companies."). The Storage Act came
10
into being to facilitate and promote this commercial activity. See K.S.A. 55-1202
(underground natural gas storage is in the public interest).
The Storage Act, enacted in 1951, established procedures for a natural gas public
utility to use eminent domain to acquire subsurface property rights for underground
storage facilities. K.S.A. 55-1201; K.S.A. 55-1205. Notably, K.S.A. 55-1205 provided,
"The appraisers in awarding damages hereunder shall also take into consideration the
amounts of recoverable oil and native gas remaining in the property sought to be
appropriated . . . ." (Emphasis added.) "Native gas" is defined as gas not previously
withdrawn from the earth. K.S.A. 55-1201(c). In other words, the statute did not require
valuing non-native storage gas lying beneath the landowner's condemned property.
Northern is a natural gas public utility engaging in transporting and distributing
natural gas within or through Kansas for public use. It is undisputed Northern is eligible
to invoke the Storage Act's provisions and protections. Storage gas is statutorily
described as natural gas previously reduced to possession and then later injected into
underground storage fields. K.S.A. 55-1210(a).
When first enacted, the Storage Act was silent about how it related to the
previously mentioned common-law rule of capture. Court decisions filled in some gaps
case-by-case based on historical common-law principles for oil and gas. We review those
historical principles first, then return to their application to underground storage of
previously produced natural gas.
Generally, the peculiar migratory characteristics of oil and gas resulted in
developing the rule of capture in the common law. 1 Kuntz, Law of Oil & Gas, § 2.4.
(1987) ("Because the rights in oil and gas were subject to being lost by drainage from
operations on other land, it was difficult to describe in conventional property terms, the
nature of the rights to the oil and gas before capture."). In states such as Kansas, the rule
11
of capture operates as a corollary to the ownership-in-place theory that recognizes
ownership in oil and gas in the ground as part of the land. 1 Kuntz, Law of Oil & Gas,
§ 2.4. (1987) ("According to the ownership-in-place theory, the landowner owns all
substances, including oil and gas, which underlie his land. Such ownership is qualified,
however, in the case of oil and gas, by the operation of the law of capture. If the oil and
gas depart from beneath the owned land, ownership in such substances is lost."); see Zinc
Co. v. Freeman, 68 Kan. 691, 696, 75 P. 995 (1904) ("Petroleum and gas, so long as they
remain in the ground, are a part of the realty. They belong to the owner of the land, and
are a part of it as long as they are on it, or in it, or subject to his control. When they
escape and go into other lands, or come under another's control, the title of the former
owner is gone.").
Under the rule of capture, if oil or gas migrated from the owner's property, title
would pass to anyone who produced or "captured" that migrated gas, so long as that
person was acting within the person's right to do so, such as a nearby landowner with a
well properly bottomed on the landowner's property. The rule of capture made migrated
native gas the personal property of the first person who produced it. ONEOK I, 296 Kan.
at 919; see also 1 Kuntz, Law of Oil & Gas, § 4.1 (1987) (the nearby landowner "owns
the substance absolutely once it has been reduced to dominion and control"); 1 Summers,
Oil and Gas § 3:2 (3d ed. 2015) ("The rule of capture states that a mineral interest owner
in a common source of oil and gas supply is legally privileged to take oil and gas from
under the land, even though in so doing they may take some of the oil or gas from under
adjoining lands.").
In Kansas, the rule of capture dealt initially with native oil and gas that migrated
from another's property. In other words, it applied to the original capture of native gas.
Mobil Exploration & Producing U.S. Inc. v. Kansas Corporation Comm'n, 258 Kan. 796,
800, 908 P.2d 1276 (1995) ("[T]he common-law rule of capture applies to a common
pool. At common law, the owner of a tract of land acquired title to the oil and gas which
12
the owner produced from wells drilled thereon even though it could have been proved
that part of such oil or gas migrated from adjoining lands."); Carlock v. Krug, 151 Kan.
407, 411, 99 P.2d 858 (1940) ("It is well settled in Kansas that the owner of the land and
those holding under him own all the oil produced from wells located on the land and that
owners of adjoining tracts must protect themselves by development of their own land.");
Prewett v. Van Pelt, 118 Kan. 571, 576, 235 P. 1059 (1925) ("The rule seems to be that
when one drills a gas or oil well on his premises he becomes the owner of all the oil and
gas produced therefrom.").
The rule of capture and the ownership-in-place theory coexist, but obviously are
not the same. And in the context of injected non-native storage gas, there is tension
because the ownership-in-place theory considers gas to be personal property once severed
from the land. As we will see, our caselaw joined a line of cases rejecting an approach in
which injected gas always remained the injector's personal property in favor of the rule of
capture, which perhaps in the case of storage gas is better termed a rule of "recapture."
See Treadway, Oil & Gas Law—The Rule of Capture Applied to the Underground
Storage of Natural Gas—Anderson v. Beech Aircraft Corp., 34 U. Kan. L. Rev. 801, 815
(1986).
In 1985, the Anderson court considered for the first time whether the rule of
capture applied to a corporation's injected non-native gas originally produced elsewhere
and returned to the earth for storage for its own business use. Anderson, 237 Kan. at 342.
There, Beech Aircraft, which was not a natural gas public utility, used a depleted
subsurface formation to store non-native gas. That formation was underneath Beech
Aircraft's property and Anderson's property, but Beech Aircraft did not have Anderson's
permission for the subsurface storage. The court held the Storage Act did not apply
because its protections were available only to a natural gas public utility, so the court
resorted to the common-law rule of capture. 237 Kan. at 347.
13
In doing so, the Anderson court engaged in a detailed discussion of out-of-state
cases about the rule of capture as well as an alternative that preserved an injector's title in
non-native storage gas wherever it roamed. 237 Kan. at 342-45; cf. 237 Kan. at 344
(noting rule of capture criticized by some as "illogical and invalid for the reason that once
man has reduced natural gas to possession, and processed and transported it to the storage
area, the gas in no way resembles gas in its natural state").
To show the alternative, the Anderson court cited White v. New York Natural Gas
Corporation, 190 F. Supp. 342 (W.D. Pa. 1960), and Lone Star Gas Company v.
Murchison, 353 S.W.2d 870 (Tex. Civ. App. 1962), in which the courts held title to
natural gas once reduced to possession was not lost by injecting that gas into an
underground storage facility even though it migrated elsewhere, rejecting the "wild
animal" analogy known as mineral ferae naturae that underlies the rule of capture.
Anderson, 237 Kan. at 344-45. Stated differently, these courts held oil and gas, once
severed from realty, became personal property and remained so unless abandoned. Lone
Star, 353 S.W.2d at 879; see also White, 190 F. Supp. at 347.
After comparing the different legal approaches, the Anderson court determined for
Kansas that the rule of capture should apply to non-native gas injected into the common
pool for storage. Anderson, 237 Kan. at 347. The court reasoned it was best to stick with
the traditionally followed rule to effectuate what the court perceived as legislative intent
to limit the Storage Act's protections to natural gas public utilities. 237 Kan. at 348. The
court further held Beech Aircraft lost title when it used Anderson's property for gas
storage without permission and that injected non-native gas was then produced from the
common reservoir located under Anderson's property. 237 Kan. at 348. But in so holding,
the court cautioned that its decision was limited to circumstances when a natural gas
utility was not involved, no certificate authorizing an underground gas storage facility
had been issued, and when a landowner had used an adjoining landowner's property for
storage without authorization or consent. 237 Kan. 336, Syl. ¶ 3.
14
The question relating to a natural gas public utility's ownership of migrated non-
native gas withdrawn by a neighboring landowner after injection into a certificated
storage facility presented itself four years later in Union Gas System, Inc., 245 Kan. 80.
Those circumstances yielded a more nuanced result by limiting how the rule of capture
applied to storage gas injected by a natural gas public utility. There, Union had an
underground facility, and its storage gas migrated to adjoining property. The neighboring
landowners and their oil and gas lessee refused to grant storage rights and began taking
Union's storage gas for themselves, believing the rule of capture permitted this. 245 Kan.
at 83-84, 88. ("This created a clever circle of purloined production, and a successful one
under the rule of capture as stated in Anderson."). Union sued to recover for the gas
taken.
While the lawsuit was pending, Union received a regulatory certificate permitting
it to condemn the landowners' property, and it began condemnation proceedings. 245
Kan. at 84; see K.S.A. 55-1204. This presented a legal question about how to treat the
"purloined production" for Union's conversion claim for gas taken both before the
certification date and after. 245 Kan. at 86, 88-89. The Union Gas court laid out lessons
applicable to Northern's present controversy.
First, the court held Union was not entitled to recover for gas produced before the
certificate issued. As to this period, the rule of capture applied under a straightforward
application of Anderson. 245 Kan. at 86-87. But it reached a different result for storage
gas taken after the certificate issued and before the condemnation's date of taking months
later. 245 Kan. at 88 ("[T]he question remains as to [Union's] rights to its own gas from
January 13, 1986, to April 9, 1987." [Emphasis added.]). The Union Gas court held:
"Since Union established itself as a public utility and was authorized to store its gas
underground by the Commission certificate issued on January 13, 1986, it thereafter
15
acquired a changed status. Its operation was given official sanction and its gas was
identified. Thereafter it became an exception to the rule of capture expressed in
Anderson." (Emphases added.) 245 Kan. at 88.
And since "[t]he law abhors a forfeiture," the Union Gas court explained,
"[A]s soon as Union's storage operation became authorized and its gas identifiable, the
gas was no longer ferae naturae and subject to the rule of capture. The title to Union's
captured gas remained in Union. Thus, Union did not forfeit its natural gas produced
after January 13, 1986, [the certificate date,] even though it acquired no title to the
[neighboring] property [through condemnation] until the date of taking, April 9, 1987."
245 Kan. at 88.
Importantly, while the Union Gas court sanctioned the lessee's production and sale
of storage gas before the certificate date under the rule of capture, it held title to the
storage gas produced after that date remained in Union—as if the injected gas' status as
personal property was never lost, even though it migrated and was produced by someone
else. The key features for this continuity of title were (1) an authorized storage operation,
and (2) the ability to identify the storage gas. 245 Kan. at 88 ("So, as soon as Union's
storage operation became authorized and its gas identifiable, the gas was no longer ferae
naturae and subject to the rule of capture.").
With this approach, the Union Gas court adopted what amounted to the alternative
rule discussed in Anderson that kept title in the storage gas with the injector. See
Anderson, 237 Kan. at 344-45. But it did so only for non-native gas taken from wells
located within the storage field's newly certificated boundaries where it would be clear
the injector's intent was to retain ownership for retrieval on a later date. Union Gas, 245
Kan. at 88; see also 1 Kuntz, Law of Oil & Gas, § 4.1 (1987) ("The law of capture should
be recognized for what it is, a rule of convenience and necessity used to strike a balance
between protecting rights in oil and gas in place while preserving to another the fruits of
16
his industry."). Union Gas fixes the limits of the Anderson court's rule-of-capture
approach when the unique circumstance is injected storage gas that is "no longer ferae
naturae." Union Gas, 245 Kan. at 88.
Based on this rationale, the Union Gas court determined Union was entitled to a
setoff in the condemnation action for the value of its injected gas produced after the
certification date. 245 Kan. at 88-89. The court held its value was the selling price less
Union's share of production costs based on the ratio of injected gas versus native gas
taken, including a reasonable rental for the storage rights during this period—the latter
rental concept being consistent with treating Union's migrating gas as trespassing. 245
Kan. at 89. Further supporting its rationale, the court noted, was the Storage Act's
provisions specifying landowners were entitled to condemnation awards valuing only the
native gas in place, rather than including the value of unproduced injected gas that had
migrated to the condemned property. 245 Kan. at 89; see K.S.A. 55-1201(c); K.S.A. 55-
1204(a)(2); K.S.A. 55-1205.
Justice Johnson's dissent argues Union Gas is distinguishable because in that case
the surface area above the migrated storage gas adjoined the field while the storage gas at
issue in the present case is two to six miles away. Slip op. at 34-35. But there is nothing
in the Union Gas court's application of the common-law rule-of-capture principles that
turns on geographic proximity to the field. The Union Gas court did not use geographical
qualifiers when it proclaimed "[a] natural gas utility is exempted from the rule of capture
enunciated in [Anderson] only after receiving a certificate from the [KCC]." 245 Kan. 80,
Syl. ¶ 1. And his dissent points to no portion of the Union Gas analysis that would be
different only because of the distance the storage gas travelled in the subsurface
geological formations before being extracted. To be sure, no other legal authority or
secondary source that has discussed Union Gas makes the geographic distinction Justice
Johnson views as analytically critical. See L.D. Drilling, 862 F.3d at 1229-30
(summarizing Union Gas as holding utility that injected gas without certificate could not
17
recover for gas "produced by others" before certificate date); Reese Exploration v.
Williams Natural Gas, 983 F.2d 1514, 1523 n.9 (10th Cir. 1993) ("The Kansas Supreme
Court held that a public utility is exempt from the rule of capture only after it receive[s]
certification . . . ."); Pierce, 2015 Survey on Oil & Gas, Kansas, 2 Tex. A&M L. Rev. 81,
83 (2015) (describing Union Gas as "balancing . . . the storage operator's rights with
those of the surrounding landowners"); 4 Summers, Oil and Gas, § 53.13, n.5 (3d ed.
2017) ("In [Union Gas], the court held that the landowner's right to the protection of the
rule of capture ceased on the date that the gas company obtained the corporation
commission approval required by state law to condemn storage.").
Similarly, Justice Stegall's dissent misunderstands Union Gas in the process of
denouncing it. He claims Union Gas is "unequivocally wrong" even though none of the
appellate or academic authorities listed above have ever criticized it as such. Slip op. at
48. And Justice Stegall further asserts Union Gas authorized the non-consensual storage
of injected gas on the property of another. Slip op. at 48. But Union Gas simply applied
the rule of capture for extracted non-native gas under two factual scenarios—before
certification and after. Its holding for the after-certification timeframe determined an
offset was appropriate for the injector in calculating a condemnation award. That offset
credited the value of the injected gas produced by landowners after the certification date,
which the court determined was the selling price less Union's share of production costs
based on the ratio of injected gas versus native gas taken. And the court expressly held
landowners were entitled to a reasonable rental for the storage that occurred between the
certification date and the condemnation. Union Gas, 245 Kan. at 88-89.
Far from any "windfall" storage benefit realized by the injector, Union Gas
required that once the subsurface storage is deemed necessary and in the public interest
through the certification process, landowners must be compensated for storage in the
course of the condemnation proceedings. What Union Gas did not do was give
18
landowners the fruits of their "purloined production" after landowners refused to lease the
injector storage rights and the certificate issued. Union Gas, 245 Kan. at 88.
In 1993, the Legislature added K.S.A. 55-1210 to the Storage Act. L. 1993, ch.
102, § 1. This addition introduced for natural gas public utilities engaged in underground
storage operations new statutory protections against the rule of capture—but only for
specified circumstances. ONEOK I, 296 Kan. at 920. Relevant to this litigation, the
statute provides:
"(a) All natural gas which has previously been reduced to possession, and which
is subsequently injected into underground storage fields, sands, reservoirs and facilities,
whether such storage rights were acquired by eminent domain or otherwise, shall at all
times be the property of the injector, such injector's heirs, successors or assigns, whether
owned by the injector or stored under contract.
"(b) In no event shall such gas be subject to the right of the owner of the surface
of such lands or of any mineral interest therein, under which such gas storage fields,
sands, reservoirs and facilities lie, or of any person, other than the injector, such injector's
heirs, successors and assigns, to produce, take, reduce to possession, either by means of
the law of capture or otherwise, waste, or otherwise interfere with or exercise any control
over such gas. . . .
"(c) With regard to natural gas that has migrated to adjoining property or to a
stratum, or portion thereof, which has not been condemned as allowed by law or
otherwise purchased:
(1) The injector, such injector's heirs, successors and assigns shall not lose title to
or possession of such gas if such injector, such injector's heirs, successors or assigns can
prove by a preponderance of the evidence that such gas was originally injected into the
underground storage.
....
19
(3) The owner of the stratum and the owner of the surface shall be entitled to
such compensation, including compensation for use of or damage to the surface or
substratum, as is provided by law, and shall be entitled to recovery of all costs and
expenses, including reasonable attorney fees, if litigation is necessary to enforce any
rights under this subsection (c) and the injector does not prevail.
"(d) The injector, such injector's heirs, successors and assigns shall have the right
to compel compliance with this section by injunction or other appropriate relief by
application to a court of competent jurisdiction." (Emphasis added.) K.S.A. 55-1210.
Subsection (c) responded in part to Union Gas and Anderson, "both of which
involved disputes between landowners on adjoining properties and both of which
resulted in the injector losing title to the storage gas." ONEOK I, 296 Kan. at 932-33. In
that regard, subsection (c) "preserves the rule of capture as to injected gas which migrates
horizontally beyond property adjoining the certificated boundaries of a storage field."
(Emphasis added.) 296 Kan. at 936.
But ONEOK I expressly did not resolve ownership of migrated storage gas
produced after the certification date from within the storage field's newly certificated
boundaries. 296 Kan. at 942. That question was left for the current proceedings.
With this additional background, we must now decide whether the rule of capture
applies to Northern's migrated gas taken after the June 2, 2010 certificate from wells
located within its newly certificated boundaries.
Notably, if Union Gas remains good law, it dictates the outcome. Union Gas held
the injector retained title to identifiable migrated storage gas after the KCC certificate
date—even though the injector had not yet acquired storage rights to the neighboring
property as of that date. Union Gas, 245 Kan. at 88-89. And the dispositive KCC
20
certificate in Union Gas was simply the statutory prerequisite to beginning formal
condemnation proceedings, just like Northern's FERC certificate. See 15 U.S.C.
§ 717f(h) (2012). Factually, our present case squares with Union Gas, despite Justice
Johnson's insistence that geographic proximity controlled the outcome.
Northern contends Union Gas applies because K.S.A. 55-1210 does not directly
speak to our present circumstance, so it advances stare decisis to argue that the portion of
Union Gas dealing with newly certificated boundaries controls the outcome. If so, this
would cut off the rule of capture for the identifiable, non-native storage gas on the FERC
certification date, June 2, 2010, for those wells affected by the certificated boundaries.
See Union Gas, 245 Kan. at 88.
The district court disagreed, concluding the landowners and their producers
retained the right to capture Northern's migrated storage gas until Northern acquired
storage rights through its federal condemnation action, i.e., the date of taking, March 30,
2012. The district court based its decision on three premises: (1) the Union Gas ruling
was superseded in 1993 by K.S.A. 55-1210; (2) Northern Natural Gas Co., 289 Kan.
777, overruled Union Gas; and (3) Union Gas constitutes an unconstitutional taking of
property. We reject the district court's reasoning.
(1) K.S.A. 55-1210 did not supersede Union Gas in this circumstance.
The district court relied on ONEOK I for its belief that K.S.A. 55-1210 superseded
Union Gas, noting the ONEOK I court described K.S.A. 55-1210(c) as enacted in
response to Union Gas and Anderson. But ONEOK I did not overrule Union Gas nor was
it even critical of Union Gas. And the portion of ONEOK I cited by the district court as
supporting its view does not refer to any holding of that case. It simply sets out
preparatory "historical context" for the discussion to follow. See ONEOK I, 296 Kan. at
21
919 ("Although the entity that stored the gas in Anderson . . . was not a natural gas public
utility, this court extended Anderson's holding to public utilities in [Union Gas].").
The question in ONEOK I was the breadth of K.S.A. 55-1210(c)'s new protections
for gas that migrated beyond a field's certified boundaries, i.e., whether there were
circumstances in which our Anderson and Union Gas rules still applied, or whether the
statutory protections had unlimited geographical reach. See ONEOK I, 296 Kan. at 930
("Northern concedes that applying its interpretation, gas which migrates beyond the
certificated boundaries of a storage field—whether the gas migrates 1 mile or 1 million
miles—remains the property of the injector.").
ONEOK I held, in part, that K.S.A. 55-1210(c) "preserves the rule of capture as to
injected gas which migrates horizontally beyond property adjoining the certificated
boundaries of a storage field." (Emphasis added.) 296 Kan. at 936. Indeed, if the pre-
certificate storage gas at issue in Anderson and Union Gas was taken from adjoining
property where the injectors lacked storage rights, the portions of those decisions
divesting the injector of title to the gas others produced would appear infirm. See K.S.A.
55-1210(c) (providing circumstance in which injector keeps title to gas that migrates to
adjoining property where it has not acquired storage rights).
But once the ONEOK I court concluded the statute did not entirely replace our
earlier rule-of-capture caselaw, it reached an outcome consistent with Union Gas—the
producers were entitled to keep storage gas taken before the certificate expansion. See
ONEOK I, 296 Kan. at 936, 942; see also Union Gas, 245 Kan. at 86-87 (holding Union
not entitled to recover for gas produced before certificate issued).
It is important to keep in mind Union Gas dealt with both pre- and post-
certification scenarios. And our rationale in ONEOK I—that storage gas protections in
K.S.A. 55-1210 are not comprehensive, so our pre-statute caselaw continued to control in
22
situations not governed by the statute—does not countermand Union Gas's holding that
the rule of capture did not authorize taking storage gas from within a certificated
boundary. Accordingly, under Union Gas, Northern became exempt from the common-
law rule of capture enunciated in Anderson once it received the FERC certificate
authorizing it to condemn additional acreage encompassing the offending wells. See
Union Gas, 245 Kan. at 88.
The district court erred when it concluded K.S.A. 55-1210 superseded Union Gas
in some way meaningful to the issue in this appeal.
Similarly, Justice Johnson's dissent declares K.S.A. 55-1210 "legislatively
overruled" Union Gas. Slip op. at 35. But that notion is dispelled by the statute itself and
ONEOK I, which described the statute's geographic boundaries and expressly held
common-law rule of capture caselaw for non-native migrated gas controls in this case
because the property involved is not "adjoining" as required by K.S.A. 55-1210(c).
ONEOK I, 296 Kan. at 936. Likewise, it is wrong to suggest K.S.A. 55-1210(a) and (b)
apply because those subsections operate only when storage rights have been acquired.
That is not the case here, just as it was not the case in Union Gas. Another curious thing
about this suggestion concerning subsections (a) and (b) is that if they were applicable,
Northern would prevail under those provisions.
The legal question here, as it was in Union Gas, is how the common-law rule of
capture operates during the time between certificate issuance and storage rights
acquisition. And that is precisely the question Union Gas answered. See Union Gas, 245
Kan. at 88 ("[T]he question remains as to [Union's] rights to its own gas from January 13,
1986, to April 9, 1987." [Emphasis added.]). And its answer to that question is unaffected
by K.S.A. 55-1210 as explained above.
23
(2) Martin, Pringle does not overrule Union Gas.
In ruling against Northern, the district court made much of the following statement
from Martin, Pringle:
"[P]rior to July 1, 1993, the landowners adjoining Northern's underground gas storage
area possessed the legal right to produce and keep the injected gas which had migrated
onto their property, unless and until Northern obtained a certificate to expand its storage
area onto their land and paid them for that privilege through a condemnation action.
K.S.A. 55-1210 abolished that right, as well as permitting migrating gas to trespass upon
adjoining land." (Emphasis added.) Martin, Pringle, 289 Kan. at 791.
Based on the italicized language, the district court concluded the right to produce
the migrated storage gas could not be taken from landowners and their producers unless
Northern obtained a certificate to expand its storage area onto their land and paid them
through the federal condemnation action. Put more simply, in the district court's view, the
producers could keep taking Northern's gas after the certificate date until the federal
condemnation proceedings settled on a date of taking. The dissenters take a similar view.
But this interpretation of Martin, Pringle would circumvent the Union Gas court's
express declaration that an injector retained title to migrated storage gas after the
certificate date, even after it had been reduced to possession by someone else. Union Gas,
245 Kan. at 88. This raises a question as to whether the Martin, Pringle court intended to
disturb the Union Gas decision on this point. We hold it did not.
To begin with, Martin, Pringle simply presented a certified question from a
Nebraska federal court. Martin, Pringle, 289 Kan. 777. And the state district court's
interpretation that Martin, Pringle somehow overruled Union Gas would extend Martin,
Pringle beyond the federal court's question and the Kansas court's answer, which were:
24
"Does an injector of natural gas into underground storage, who demonstrates such gas was
originally injected into underground storage but migrated to adjoining property or to a stratum or
portion thereof which has not been condemned as allowed by law or otherwise purchased, lose
title to or possession of the migrated gas when the gas migrated before July 1, 1993, the effective
date of the controlling statute, K.S.A. 55-1210, and was not captured or reduced to possession by
another prior to July 1, 1993? As presented in this case, the answer to the certified question is
'yes.'" 289 Kan. 777, Syl.
The submitted question asked only about Northern's title to storage gas that
migrated to adjoining property before July 1, 1993. And the court's holding tracks the
common-law contours as traditionally followed. See Anderson, 237 Kan. at 347-48
(injector "lost its ownership of the stored gas after injecting it into the reservoir in this
case"); see also 1 Kuntz, Law of Oil & Gas, § 2.4 (1987) (Ownership-in-place theory "is
qualified . . . in the case of oil and gas, by the operation of the law of capture. If the oil
and gas depart from beneath the owned land, ownership in such substance is lost.").
More importantly, the Martin, Pringle court did not explicitly state it was
overruling Union Gas, nor did it employ any analysis critical of Union Gas. And, unlike
Union Gas, Martin, Pringle did not involve questions about title to migrated storage gas
or the rule of capture in an area within a certificated storage area. Indeed, the Martin,
Pringle court relied on that very distinction when it held
"Union Gas clarified that such a utility has the statutory ability to obtain a certificate for
an underground storage area and that the failure to use that remedy places the utility
squarely under the rule of Anderson. [Citation omitted.] Given that Northern did not
obtain a certificate to condemn the adjacent landowners' property prior to July 1, 1993,
the adjoining landowners possessed a right, title, and interest in and to the gas which had
migrated to the adjoining property as of that date." (Emphases added.) 289 Kan. at 790-
91.
25
This statement follows the portion of Union Gas addressing the rule of capture
before certification. That is to say, once the storage gas migrated offsite, it was subject to
capture by adjoining landowners, who could produce it and obtain title for themselves if
they did. Union Gas, 245 Kan. at 86-87. And the Martin, Pringle court did not even
suggest Union Gas was wrongly decided as to either of its holdings, i.e., title remained
with the injector of storage gas after certification, or that the rule of capture was
extinguished within the newly designated boundaries upon certification. Union Gas, 245
Kan. at 88.
In any event, the phrase "and paid them for that privilege through a condemnation
action" in Martin, Pringle is dicta and devoid of any caselaw support or analytical
explanation. The question posed by the Nebraska federal court dealt with the injector's
title under the specific circumstances presented. That question was answered within the
common law recited in Anderson as noted above. Any notion Union Gas was overruled
would necessarily include at least some critical analysis of its rationale, which Martin,
Pringle does not provide. The district court and the dissents read more into Martin,
Pringle than was there.
Similarly, the contention that Martin, Pringle overruled Union Gas is unsupported
by ONEOK I. As discussed above, the ONEOK I court specifically clarified K.S.A. 55-
1210 superseded the rule of capture described in Union Gas and Anderson only for
property adjoining the injectors' certificated storage areas. ONEOK I, 296 Kan. at 932-33
(reasoning that the phrase "adjoining property" carried geographic limitations because
K.S.A. 55-1210 was enacted in "response to" the "narrow circumstances" of Union Gas
and Anderson, which "involved disputes between landowners on adjoining properties and
. . . resulted in the injector losing title"). The ONEOK I court expressly held the statute
did not address all ownership questions for injected natural gas in all situations. And we
further note that when the ONEOK I court addressed Northern's taking argument based
on Union Gas, the court dispatched it on the merits instead of simply saying Martin,
26
Pringle overruled Union Gas. ONEOK I, 296 Kan. at 938-40. The ONEOK I court would
not have analyzed this point as it did if Union Gas was no longer good law.
Moreover, to the extent the dissenters believe Martin, Pringle demonstrates the
mineral interest owners in this case acquired a real-property interest, described as "the
landowner's right to capture," that could not be divested other than through a
condemnation proceeding, they are mistaken. Regardless of whether the right to produce
is an interest that runs with the land, that right's cessation is not a taking of property. And
despite the problems Justice Johnson perceives in the caselaw that applies the label of
"title," it is clear that until the moment migrated storage gas is extracted and sold, the
injector retains some interest in it. See Union Gas, 245 Kan. at 87 ("The element of
exclusiveness is not met because Union shared occupancy of the subsurface with the
DeTars' native gas." [Emphasis added.]); slip op. at 42 (referring to landowners' "right to
capture" Northern's gas "that trespassed onto" their property).
Contrary to the dissenters' view, government action did not "take" property from
the landowners. The storage certificate, in combination with our rule-of-capture caselaw,
terminated the right to produce and keep Northern's migrated gas. That is because the
landowners could not have any reasonable expectation that the right would continue past
that point. See Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1005, 104 S. Ct. 2862, 81 L.
Ed. 2d 815 (1984) (noting whether a taking occurred is an ad hoc factual inquiry; factors
include character of government action, economic impact, and whether it interferes with
reasonable investment-backed expectations). In other words, the accurate description of
the landowners' interest under Kansas law was an interest in producing and keeping the
storage gas until the certificate date. Property interests "are created and their dimensions
are defined by existing rules or understandings that stem from an independent source
such as state law—rules or understandings that secure certain benefits and that support
claims of entitlement to those benefits." Board of Regents v. Roth, 408 U.S. 564, 577, 92
S. Ct. 2701, 33 L. Ed. 2d 548 (1972); see Monsanto, 467 U.S. at 1001 (citing Roth
27
definition of property interest in a takings case). This was the Tenth Circuit's point when
it reversed the federal district court's condemnation award. L.D. Drilling, 862 F.3d at
1227-28 ("We disagree with the inclusion of the value of storage gas in and under the
Extension Area on the date of taking because we find that the Landowners and Producers
had no right to produce such gas after the date of certification." [Emphasis added.]).
Anderson created a right to take migrated gas prior to the certification date, and
Union Gas placed landowners on notice that this right terminated once the injector
obtained certificated storage authority. See Monsanto, 467 U.S. at 1006-07 (government
disclosure of health, safety, and efficacy data submitted by private company was not a
taking because statute prescribed time limit on confidentiality period); cf. Penn Central
Transp. Co. v. New York City, 438 U.S. 104, 136, 98 S. Ct. 2646, 57 L. Ed. 2d 631 (1978)
(noting landmark preservation law did "not interfere with what must be regarded as Penn
Central's primary expectation concerning the use of the parcel," i.e., a railroad terminal,
and that owner "may continue to use the property precisely as it has been used for the
past 65 years").
(3) Union Gas does not constitute an unconstitutional taking of property.
The state district court supplied one other rationale for concluding the Union Gas
rule could not allow Northern an ownership interest in its own storage gas produced by
others after the certificate date. It viewed such an outcome as an unconstitutional taking
of property without just compensation based on the federal district court's decision in
Northern Natural Gas Co. v. Appx. 9,117 Acres in Pratt, No. 10-1232-MLB-DWB, 2015
WL 471244 (D. Kan. 2015). And the state district court reached its conclusion even
though the Tenth Circuit reversed the portion of the federal district court's rationale the
state court relied on. L.D. Drilling, 862 F.3d at 1232 ("[T]he commission erred by
including the value of that [storage] gas in the condemnation award when the
Landowners and Producers had no vested property rights or ownership interests in the gas
28
on the date of taking."). The state district court did not even mention the Tenth Circuit's
contrary analysis.
The federal circuit court explained its ruling in this way:
"[K]ansas case law and the statutory scheme set forth in § 55-1210 emphasize the
importance of timing and certification. Applying those principles here, the date of taking
was March 30, 2012, the date on which Northern perfected its right to take physical
possession of the property by posting security and providing notice to relevant
landowners. [Citation omitted]. On this date, Northern held certificates expanding its
field boundaries to include all of the Extension Area land. Indeed, it obtained private
storage leases covering over 3,000 acres of the 2010 Extension Area in February 2009
(more than three years before the date of taking) and obtained certificate authority over
the entire 2010 Extension Area on June 2, 2010 (nearly two years before the date of
taking).
"Thus, while the Landowners and Producers may have held certain property
rights over the natural gas in and under their land at some point in time before Northern
obtained the authority (via private lease agreements and proper regulatory certification)
to include the property within the Cunningham Field's legal boundaries, these rights had
been eliminated by the date of taking. On the date of taking, the gas 'in place' in and
under the Extension Area land was within the Cunningham Field's certified boundaries as
required by Kansas law and, accordingly, was wholly Northern's property. Because of
Northern's ownership, the gas was not subject to the rule of capture." 862 F.3d at 1231-
32.
The state district court's view hinges on its belief that storage gas migrating
outside Northern's original certificated area became part of the real estate and the
property of someone other than Northern. But, as discussed previously, this ignores that
the right landowners and producers had up to the certification date was based entirely on
the common-law rule of capture. See ONEOK I, 296 Kan. at 919. And as the Tenth
Circuit explained in rejecting the Fifth Amendment unconstitutional taking claim:
29
"[T]his argument relies on a fundamental misconception about the rule of capture, which
the Landowners and Producers suggest gives them vested property interests in all gas that
has migrated, or will ever migrate, to their property. The rule of capture, however,
confers only a right to produce the migrated gas. It confers no right to the gas itself."
(Emphasis added.) L.D. Drilling, 862 F.3d at 1232.
The Tenth Circuit correctly described the operation of Kansas common law. The
rule of capture does not vest title, it simply recognizes an ability to produce. Mobil
Exploration, 258 Kan. at 800; Carlock, 151 Kan. at 411; Prewett, 118 Kan. at 576. But
once Northern obtained its new certification, that common-law right to produce this gas
was no longer operative. See Union Gas, 245 Kan. at 88 ("The title to Union's captured
gas remained in Union.").
Admittedly, the federal courts were addressing a different legal question, i.e.,
whether to value unproduced migrated gas for condemnation purposes as opposed to the
ability to keep migrated gas produced after certification of Northern's expanded
boundaries. Even so, the Tenth Circuit correctly viewed our state's common law in its
lead up to answering the federal issue. The state district court erred when it relied on the
federal district court's rationale that was overruled by the federal circuit.
Union Gas controls
As previously discussed, Union Gas limited how the rule of capture applied to
storage gas injected by a natural gas public utility after the certification date for new
acreage. Its lessons are applicable to this appeal, and we hold Union Gas should control.
The defendants, third-party defendants, and amici landowners and producers ask us to
overrule Union Gas. We decline that invitation.
30
The doctrine of stare decisis maintains that once a point of law is established by a
court, it will generally be followed by the same court and all courts of lower rank in later
cases when the same legal issue is raised. A court of last resort will follow that doctrine
unless clearly convinced it was originally erroneous or is no longer sound because of
changing conditions and that more good than harm will come by departing from
precedent. Rhoten v. Dickson, 290 Kan. 92, 112, 223 P.3d 786 (2010). Stare decisis
"'promote[s] system-wide stability and continuity by ensuring the survival of decisions
that have been previously approved by a court.'" Crist v. Hunan Palace, Inc., 277 Kan.
706, 715, 89 P.3d 573 (2004) (quoting Samsel v. Wheeler Transport Services, Inc., 246
Kan. 336, 356, 789 P.2d 541 [1990], overruled on other grounds Bair v. Peck, 248 Kan.
824, 844, 811 P.2d 1176 [1991]).
Stare decisis considerations are strong "'in cases involving property and contract
rights, where reliance interests are involved.'" Crist, 277 Kan. at 715 (refusing to overturn
a rule of general liability insurance contract interpretation established 30 years earlier).
Our caselaw addressing the common-law rule of capture and its inapplicability to non-
native storage gas within the boundaries of a certificated underground gas storage facility
involves specialized property and contract rights, so our stare decisis concerns are
weighty.
Professor David E. Pierce conceptualizes the outcomes in our court's storage gas
cases in a way that supports the Union Gas view as a part of the rule-of-capture caselaw
the ONEOK I court held was preserved. He characterizes Anderson as "what [the court]
thought was an elegant solution to the presence of storage gas that migrated into lands not
subject to a gas storage agreement." Pierce, 2015 Survey on Oil & Gas, Kansas, 2 Tex.
A&M L. Rev. 81, 82 (2015). And in his view, the "Union Gas approach maintained the
elegance of the Court's Anderson solution without over-compensating the landowner." 2
Tex. A&M L. Rev. at 83. He views Union Gas as establishing that
31
"once the party injecting the gas sought to condemn the right to use the surrounding parts
of the reservoir, the self-help capture option would end. In return, the landowner would
receive payment for the right to use its underlying reservoir for gas storage, in addition to
any gas it was able to produce and sell prior to condemnation." 2 Tex. A&M L. Rev. at
82-83.
Professor Pierce notes the court "in Anderson, Union Gas, and ONEOK [I] was
careful to describe the right at issue as the right to capture the gas." 2 Tex. A&M L. Rev.
at 86. And he argues:
"The Kansas Supreme Court's recognition of a limited right to capture does not require
that the court recognize any greater property interest. The Anderson/Union Gas analysis
limited capture rights were designed to strike a remedial balance between the parties to
gas storage disputes. It was not intended, nor required, that the Court rationalize the
remedy in the context of the Kansas ownership-in-place theory for fee ownership of
minerals." 2 Tex. A&M L. Rev. at 86.
Union Gas is part of the body of our state's capture-law in the unique context of
migrated storage gas. It held the gap-filling rule permitting others to capture and keep an
injector's gas, as developed in our caselaw, does not apply after a natural gas public
utility obtains certificated authority to use a storage area and its gas within that area is
identifiable. Its principles have been relied on in later caselaw as discussed above, which
speaks to its durability.
We hold the Union Gas exception to the common-law capture rule should
continue. The district court erred when it entered judgment against Northern.
Reversed and remanded.
32
BEIER, J., not participating.
MIKE KEELEY, District Judge, assigned.1
***
JOHNSON, J., dissenting: I disagree with the notion that a federal executive branch
agency can administratively take a property interest from a Kansas landowner and give it
to a for-profit corporation, even one designated as a public utility. An appropriate order
issued by a Kansas judge in a condemnation action conducted in accordance with Kansas
statutes is required to effect that transfer. Moreover, in my view, the majority adulterates
the doctrine of stare decisis, ignores the doctrine of law of the case, and misinterprets the
controlling statutory scheme. Therefore, I dissent.
As a prelude, I would emphasize that these parties were previously before this
court on the same dispute involving the same underground storage facility in Northern
Natural Gas Co. v. ONEOK Field Services Co., 296 Kan. 906, 296 P.3d 1106 (2013)
(designated as ONEOK I by the majority). In that appeal, we decided the issues that had
been considered by the district court but remanded for the lower court to consider the
issues that arose subsequently. The case returns to us on those subsequent issues but in
the context of the legal points declared the first time around. That circumstance has a
significance that is apparently unappreciated by the majority. See State v. Kleypas, 305
Kan. 224, Syl. ¶ 2, 382 P.3d 373 (2016) ("Under the law of the case doctrine, when a
second appeal is brought in the same case, the first decision is the settled law of the case
1
REPORTER'S NOTE: District Judge Keeley was appointed to hear case No. 118,239
vice Justice Beier under the authority vested in the Supreme Court by art. 3, § 6(f) of the
Kansas Constitution.
33
on all questions involved in the first appeal, and reconsideration will not normally be
given to such questions.").
Instead of law of the case, the majority relies on its notion of the doctrine of stare
decisis. But I submit that stare decisis is being misapplied here. Union Gas System, Inc. v.
Carnahan, 245 Kan. 80, 774 P.2d 962 (1989), is not controlling precedent in this appeal
for multiple reasons: (1) Union Gas did not decide the same legal issue that is presented
here; (2) Union Gas was superseded by statutory amendment; and (3) Union Gas is not
this court's latest pronouncement on the point the majority contends it controls.
On the first point, we recently described the doctrine of stare decisis as instructing
"'that points of law established by a court are generally followed by the same court and
courts of lower rank in later cases in which the same legal issue is raised.' [Citation
omitted.]" (Emphasis added.) State v. Spencer Gifts, 304 Kan. 755, 766, 374 P.3d 680(2016). Although the factual distinctions between Union Gas and the instant case can be
gleaned from a close reading of the majority opinion, its analysis conveniently ignores
that Union Gas presented a different issue than is before us now.
The majority identifies the issue in Union Gas as "relating to a natural gas public
utility's ownership of migrated non-native gas withdrawn by a neighboring landowner"
and describes the circumstance involved as "Union had an underground facility, and its
storage gas migrated to adjoining property." (Emphasis added.) Slip op. at 15. In the
Union Gas opinion, Union's storage operations were described as being "on adjacent
property" to the landowners. 245 Kan. at 83. Indeed, in this same case, we stated
unequivocally that both Union Gas and Anderson v. Beech Aircraft Corp., 237 Kan. 336,
347-48, 699 P.2d 1023 (1985), involved disputes between natural gas injectors and
"landowners on adjoining properties." ONEOK I, 296 Kan. at 932-33. In contrast, the
majority's factual recitation acknowledges that the non-native gas at issue in this case was
not withdrawn from adjoining property but rather it was produced from land "two to six
34
miles" from the boundary of the underground storage facility. Slip op. at 3-4; see
ONEOK I, 296 Kan. at 922 (citing to Williams Natural Gas Co. v. Supra Energy, Inc.,
261 Kan. 624, 931 P.2d 7 [1997], for the definition of "adjoining property" as used in
K.S.A. 55-1210[c] meaning a section of land touching a section of the storage area).
That difference in the point of withdrawal by the landowner is legally significant.
We specifically held—in this case—that, subsequent to the passage of K.S.A. 55-
1210(c), a gas storage utility's interest in migrating injected gas depends upon whether
the gas has migrated only to the adjoining property or has migrated beyond the adjoining
property. ONEOK I, 296 Kan. at 928-29 (K.S.A. 55-1210[c] "preserves the rule of
capture except as to gas that has migrated horizontally to adjoining property or vertically
to a stratum or portion thereof not leased or condemned by the injector." [Emphasis
added.]). In other words, the legal principles that apply to determine the ownership of
injected gas under adjoining property (the circumstance involved in Union Gas) are now
different than the legal principles that apply to determine the ownership of gas that
migrated beyond adjoining land (the circumstance involved in this appeal).
The majority responds that Union Gas "did not use geographical qualifiers." Slip
op. at 17-18. But the Kansas Legislature did when it enacted K.S.A. 55-1210(c) and this
court did when it construed the "adjoining property" language of the statute to mean a
section of land touching a section of the storage area. Moreover, Union Gas had no
reason to talk about runaway gas six miles from the storage field.
Next, besides involving a different legal issue, the relevant holdings in Union Gas
do not invoke the doctrine of stare decisis because those holdings have been abrogated
and superseded by statute. The majority does not explain why a legislatively overruled
decision should be considered binding precedent.
35
The relevant holdings in Union Gas were that Union was not entitled to recover
compensation for any of its gas produced by the adjoining landowner prior to Union
obtaining a Kansas Corporation Commission certificate to include the adjoining land in
its storage field, i.e., the rule of capture applied prior to the expansion certification. But
Union could obtain an offset against the condemnation award for the value of identified
non-native gas produced after the certification of the storage field expansion; in other
words, after certification, Union "acquired a changed status." Union Gas, 245 Kan. at 88.
Neither of those holdings survive the enactment of K.S.A. 55-1210(c), which
changed the common law with regard to the rule of capture on property adjoining a
storage field. ONEOK I, 296 Kan. at 923-24 ("[E]ffective July 1, 1993, K.S.A. 55-1210
abolished the right of capture as to storage gas that migrates to adjoining property.").
Under a statutory analysis, Union would have been able to recover all of its identifiable
injected gas that migrated to the adjoining property, from and after the date it was
injected into the ground. The date of the certification of the storage field expansion would
matter not a whit; Union's status with regard to the injected gas would not have changed
upon certification. Again, both of Union Gas' holdings—that the rule of capture applies
to injected gas that migrates to adjoining property and that the rule of capture on
adjoining property terminates upon the certification of storage field expansion to include
the adjoining property—were invalidated by the 1993 amendment to K.S.A. 55-1210 and
no longer have the force of law, much less the binding effect of stare decisis.
Apparently, the majority fails to recall what all of its members said about the
precedential value of Union Gas the first time this case was before us on appeal. Then,
we referred to the Union Gas case as being "superseded by statute as stated in [Northern
Natural Gas Co. v.] Martin, Pringle[, et al.], 289 Kan. 777[, 217 P.3d 966 (2009)]."
ONEOK I, 296 Kan. at 920.
36
Nevertheless, the majority attempts to breathe life into Union Gas by
characterizing one of the case's holdings as being that "the rule of capture did not
authorize taking storage gas from within a certificated boundary," and asserting that
Union Gas still governs on that point of law. Slip op. at 23. While that creativity furthers
the majority's stare decisis argument in this review, it is directly contradicted by the law
of this case. We were very plain in ONEOK I that, subsequent to the 1993 amendments to
K.S.A. 55-1210, ownership rights within a storage field were governed by statute, not any
common law from pre-amendment cases. Specifically, we said that "we interpret K.S.A.
55-1210(a) and (b) to govern ownership rights to previously injected storage gas that
remains within a designated underground storage area." (Emphasis added.) 296 Kan. at
936. The point that the right to take gas from within a storage field's certificated
boundary is now governed by statute, rather than prior caselaw, was corroborated in
ONEOK I's syllabus, to-wit: "K.S.A. 55-1210(a) and (b) govern ownership rights to
previously injected storage gas that remains within a designated underground storage
area." 296 Kan. 906, Syl. ¶ 7; see also 296 Kan. 906, Syl. ¶ 6 ("K.S.A. 55-1210[a] gives
an injector title to gas injected into its legally recognized storage area. By its plain terms,
however, section [a] does not apply to gas that has migrated outside the injector's
certificated storage area.").
Finally, the majority acknowledges that the overruled holdings in Union Gas were
not our last word on the topic, albeit the members of the majority who previously
participated in contradicting Union Gas must be having second thoughts. In Martin,
Pringle, 289 Kan. at 791—decided 20 years after Union Gas was filed and 16 years after
the case was superseded by statute—we said that certification of an expansion of the
underground gas storage area was not enough; the gas storage utility had to complete the
process through the date of taking in a condemnation action. Four years later, ONEOK I
(again, the same case that we have before us now) repeated that proposition:
37
"In response to the common law as it had developed in Union Gas and Anderson,
the legislature enacted in 1993 the statute at issue in this case, K.S.A. 55-1210. In Martin,
Pringle, we succinctly described the state of the law preceding the effective date of the
statute:
"'[P]rior to July 1, 1993, the landowners adjoining Northern's underground gas
storage area possessed the legal right to produce and keep the injected gas which
had migrated onto their property, unless and until Northern obtained a certificate
to expand its storage area onto their land and paid them for that privilege through
a condemnation action. K.S.A. 55-1210 abolished that right, as well as
permitting migrating gas to trespass upon adjoining land.' 289 Kan. at 791."
(Emphasis added.) ONEOK I, 296 Kan. at 920.
The majority faults both Martin, Pringle and ONEOK I for failing to specifically
overrule Union Gas. But, as pointed out above, the Legislature had already done that by
enacting K.S.A. 55-1210 a quarter-century ago. Moreover, our opinion in ONEOK I, at
296 Kan. at 919-20, refers to Union Gas as "superseded by statute." That seems plain
enough. But if a researcher is unclear about Union Gas' status after reading ONEOK I, a
cursory look at WestlawNext will clarify matters. There, one first encounters a red flag,
denoting the case is no longer good law, followed by the explanation: "Superseded by
Statute as Stated in Northern Natural Gas Co. v. ONEOK Field Services Co., Kan.,
March 15, 2013." That notification to future litigants certainly undermines the majority's
rationale that Union Gas must control this case because "'reliance interests are involved.'"
Slip op. at 31. Is reliance on a case that has been superseded by statute justifiable?
Pointedly, none of the current majority who participated in ONEOK I wrote
separately to object to or contradict the plainly stated precedential status of Union Gas.
Of course, if the majority wants to repurpose Union Gas' overruled holding on the
change-of-status effect of a storage field expansion certificate to assist in construing how
K.S.A. 55-1210 operates under this different factual scenario, it is free to do so. But such
a tack should have to stand on its own merits, not on a pseudo-stare decisis declaration.
38
Moreover, the majority should have to explain why it is resurrecting Union Gas'
continuity-of-title fiction, when it clearly rejected the notion of retained title earlier in this
case. See ONEOK I, 296 Kan. at 936 ("Before June 2, 2010, Northern lost title to such
[migrated] gas." [Emphasis added.]).
Further, given that ONEOK I declared this case to be a matter of statutory
construction, one might have expected a discussion of such matters as the legislative
intent in overruling Union Gas while making specific provision only for adjoining
property, or a discussion of construing K.S.A. 55-1210 in harmony with the statutory
provisions governing condemnation actions. Nevertheless, in my view, our more recent
pronouncements on when the rule of capture terminates on migrating gas, i.e., on the date
of taking in the condemnation action, is the only supportable and logical holding.
To begin, the majority reads Union Gas as expressly declaring that "an injector
retained title to migrated storage gas after the certificate date, even though it had been
reduced to possession by someone else." Slip op. at 24. But what Union Gas baldly
asserted was simply: "The title to Union's captured gas remained in Union." 245 Kan. at
88. Neither the declaration by the Union Gas court nor the creative interpretation of that
declaration by the majority can withstand closer scrutiny.
Initially, I'm unclear as to what the majority means by the phrase, "retained title to
migrated storage gas." Slip op. at 24. With respect to the word "title," Black's Law
Dictionary 1712 (10th ed. 2014) defines that term as referring to either the quality of
ownership interest a person has in the subject property or the evidence of that person's
ownership interest, e.g., a deed. Given that there is nothing in the record to suggest that
any documentary evidence of ownership exists for fungible migrating gas, the majority
must be using "title" to mean the injector's legal interest in the migrating gas. That
qualitative part of Black's definition reads as follows: "title. (15c) 1. The union of all
39
elements (as ownership, possession, and custody) constituting the legal right to control
and dispose of property; the legal link between a person who owns property and the
property itself . Cf. ownership; possession." Black's Law
Dictionary 1712 (10th ed. 2014). Over a century ago, our predecessors on this court, in
construing an insurance policy, opined that "[t]he word 'interest' as used in the policy is
not synonymous with title," because "'title' as there used was intended to mean the entire
estate." (Emphasis added.) Garner v. Insurance Co., 73 Kan. 127, 130, 84 P. 717 (1906).
In other words, one with the "title" to property owns the entire estate and is invested with
all of the elements or incidents of ownership.
In that vein, this court has previously instructed that "incidents of ownership in
property generally include the right to its possession, use and the enjoyment of its
products, in addition to legal title and the right to sell or otherwise dispose of it. (73
C.J.S., Property, § 13, p. 192; 63 Am. Jur. 2d, Property, § 36, p. 321.)" Central Kansas
Power Co. v. State Corporation Commission, 221 Kan. 505, 515-16, 561 P.2d 779(1977). To be abundantly clear, "[a] right of sale is an incident to the ownership of
property." Wood v. Hatcher, 199 Kan. 238, 243, 428 P.2d 799 (1967). More recently, we
explained the concept of ownership incidents as follows:
"As noted in Black's Law Dictionary, '[i]t is common to describe property as a
"bundle of rights." These rights include the right to possess and use, the right to exclude,
and the right to transfer.' Black's Law Dictionary 1410 (10th ed. 2014); see also Black's
Law Dictionary 1517 (10th ed. 2014) ('right' is 'power, privilege, or immunity secured to
a person by law'); Black's Law Dictionary 1358 (10th ed. 2014) ('power': 'The legal right
or authorization to act or not act; a person's or organization's ability to alter, by an act of
will, the rights, duties, liabilities, or other legal relations either of that person or of
another.')." In re Tax Appeal of BHCMC, 307 Kan. 154, 166, 408 P.3d 103 (2017).
Under the law of this case, the landowners had the right to capture and produce,
possess and use, sell and transfer, and keep and enjoy the profits gained from the injected
40
gas that migrated horizontally to their property, prior to the time the injector obtained
storage rights in the landowners' property or in adjoining properties. See ONEOK I, 296
Kan. at 933 ("[S]ection [c] preserved the rule of capture as to injected gas which migrates
horizontally within a stratum and beyond adjoining property . . . in which the injector has
not obtained storage rights."). If, prior to June 2, 2010, all of the elements constituting the
legal right to control and dispose of the migrated gas were united in the landowners, i.e.,
the landowners held all essential rights with respect to the gas, how could Northern (the
injector) retain title (the entire estate) to that same gas? The short answer is that it could
not; the entire estate in the migrating gas cannot be concurrently held by both the injector
and the landowner. The injector might well "regain" or "reacquire" title to the migrated
gas through some process, but the injector could not "retain" title while the landowner
possessed all of the important rights in the bundle.
Again, most importantly, we clearly rejected the continuity-of-title fiction from
Union Gas in the earlier appeal of this case when we explicitly declared that Northern
had "lost title" to the gas that migrated prior to expanding its storage field. ONEOK I, 296
Kan. at 936. Losing title to the gas is the antithesis of retaining title.
The majority avoids this conundrum by pointing to the Tenth Circuit's declaration
that "[t]he rule of capture, however, confers only a right to produce the migrated gas. It
confers no right to the gas itself." Northern Natural Gas Co. v. L.D. Drilling, 862 F.3d
1221, 1232 (10th Cir. 2017), cert. denied 138 S. Ct. 747 (2018). Of course, it is this
court's responsibility and authority to construe Kansas statutes; no deference need be
given to a federal court's interpretation of our State's laws. Only this court can
definitively and finally declare such a counterintuitive rule of property law that gives a
landowner the right to personally profit from the sale of gas without having any right to
the gas itself.
41
But more to the point here, the precise issue to be decided by the Tenth Circuit
was "whether Northern owned the relevant [migrated] storage gas on March 30, 2012,"
the date of taking in the condemnation action. 862 F.3d at 1228. I agree with the Tenth
Circuit's result—upon condemnation, the injector does not have to pay the landowner for
the migrated gas. But I take exception to its unnecessary holding that the rule of capture
terminates upon certification. That declaration was unnecessary because the same result
obtains as a matter of statutory interpretation. K.S.A. 55-1205 directs the appraiser in the
condemnation action to "take into consideration the amounts of recoverable oil and native
gas remaining in the property sought to be appropriated." (Emphasis added.) Under the
statutory construction maxim, expressio unius est exclusio alterius, the inclusion of
native gas implies the exclusion of migrated non-native gas. Given that we normally
expect that the Legislature acts with full knowledge of existing law, State v. Henning,
289 Kan. 136, 144-45, 209 P.3d 711 (2009), K.S.A. 55-1205 must mean that on the date
of taking in the condemnation proceeding, the landowner loses the right to capture.
Perhaps recognizing the absence of logic in the Tenth Circuit's pronouncement of
Kansas law, the majority pivots to a law professor's law review article in a Texas
publication. Slip op. at 31-32. In the article, the professor opines that the Kansas Supreme
Court recognized a "limited right to capture" in order to fashion a compromise remedy in
gas storage disputes that did not need to comport with property ownership principles.
Pierce, 2015 Survey on Oil & Gas, Kansas, 2 Tex. A&M L. Rev. 81, 86 (2015). If that
were true, it would mean that this court is setting public policy in gas storage disputes by
divining a hybrid rule of capture. But the "'declaration of public policy is normally the
function of the legislative branch of government.'" Bland v. Scott, 279 Kan. 962, 966, 112
P.3d 941 (2005) (quoting Ling v. Jan's Liquors, 237 Kan. 629, Syl. ¶ 5, 703 P.2d 731[1985]). Indeed, the Legislature has injected itself into the gas storage dispute arena
through its amendments to K.S.A. 55-1210, and "[c]ourts should avoid making public
policy where the statutory law has developed." O'Bryan v. Columbia Ins. Group, 274
Kan. 572, 575, 56 P.3d 789 (2002). But, even so, the majority curiously quotes from a
42
portion of the article where the professor says that Union Gas established that "'the
landowner would receive . . . any gas it was able to produce and sell prior to
condemnation.'" (Emphasis added.) Slip op. at 32; 2 Tex. A&M L. Rev. at 82-83. With
that, I agree. The landowner's right to produce and sell the migrated gas terminates on the
date of taking in the condemnation proceeding, not upon agency certification.
Perhaps my disconnect with the majority is most firmly rooted in its singular focus
on the "title" to the injected gas without perceiving that the rule of capture involves an
interest in real estate, regardless of who is assigned the title to the gas. The majority does
not dispute that we have already decided in this case that the landowners involved here
possessed the right to capture the injected gas that trespassed onto their property. The
landowner could produce, possess, use, sell, and profit from the trespassing gas.
Moreover, that right of capture was inextricably tied to the ownership of the real estate;
no one else had the right to put down a vertical well and produce the gas from the
landowner's real estate without the landowner's consent. Prior to June 2, 2010, if a
landowner had sold the real estate subject to the rule of capture by warranty deed, without
exceptions or reservations, the buyer would then have possessed the right to produce,
possess, and profit from the sale of the injected gas, i.e., the right to capture would pass to
the buyer as part of the purchased real estate. In other words, the right to capture is an
incident of real estate ownership that runs with the land. That right exists regardless of
whether the landowner exercises the right. Consequently, when the majority terminates
the landowner's right to capture, it takes an interest in real estate from the landowner and
gives it to the injector.
The majority's conclusory assertion that government action did not take a property
interest from the landowners puts me in mind of my predecessor's response to a similarly
illogical assertion: "Obviously, the majority subscribes to the view that if it looks like a
duck, walks like a duck, and quacks like a duck, it's a chicken." State v. Lessley, 271 Kan.
780, 800, 26 P.3d 620 (2001) (Allegrucci, J., concurring and dissenting).
43
Having said all that, I arrive at the core question in this case, in my view: Who
should be empowered to take an interest in real estate from the landowner—that is, the
right to capture the gas underlying the real estate—and give it to a natural gas utility?
Should the power to extinguish a Kansas landowner's right of capture be invested in a
state or federal executive branch regulatory agency? Or should that power be reserved to
the same court of law that has the sole authority to condemn the landowner's other rights
in the land, such as the right to possess the substratum and the right to capture native gas?
Viewing the statutory scheme as a whole points us to the court of law.
As the majority points out, prior to the enactment of the Underground Storage of
Natural Gas Act, K.S.A. 55-1201 et seq., a privately owned, for-profit corporation in the
business of transporting or distributing natural gas via pipelines in this state could not
take another's subsurface property without the owner's consent. The Storage Act changed
that by granting any person, firm, or corporation meeting the definition of a natural gas
public utility the right to appropriate land to use for the underground storage of natural
gas under certain circumstances. In other words, the Legislature chose to occupy this area
of the law. Yet, the majority does not appear to consider the actual provisions of the
Storage Act.
In order to reach its result, the majority has to equate the agency certification of an
expansion to an underground natural gas storage area with the authority to actually use
the added expansion land for storage. In discussing Union Gas' holding that the injector
retained title to the migrated gas after the certification date, as if title to that gas was
never lost, the majority states: "The key features for this continuity of title were (1) an
authorized storage operation, and (2) the ability to identify the storage gas. 245 Kan. at
88." (Emphasis added.) Slip op. at 16. It reiterates this concept in concluding that Union
Gas "held the gap-filling rule permitting others to capture and keep an injector's gas, as
developed in our caselaw, does not apply after a natural gas public utility obtains
certificated authority to use a storage area and its gas within that area is identifiable."
44
Slip op. at 32. But the Storage Act provisions do not now, nor did they ever, support such
an elevated status for agency certification.
As is often the case, the Storage Act begins with definitions. K.S.A. 55-1201.
Then, K.S.A. 55-1202 declares the public interest and welfare in storing natural gas
underground. Here, we first encounter the role that the Kansas Corporation Commission
(Commission) is to perform in the process, to-wit: "Therefore in the manner hereinafter
provided the commission may find and determine that the underground storage of natural
gas as hereinbefore defined is in the public interest." K.S.A. 55-1202. In other words, the
Commission's certification process assures that a particular storage field "promotes the
public interest and welfare of this state." K.S.A. 55-1202.
Next, K.S.A. 55-1203 provides for the appropriation of certain property for the
underground storage of natural gas and reiterates the Commission's role in the process,
i.e., "the commission shall have found [the subsurface stratum or formation] to be
suitable and in the public interest for the underground storage of natural gas." K.S.A. 55-
1204 is more explicit; it labels Commission certification as merely a "condition
precedent" to the exercise of eminent domain, indicating that it is condemnation that
gives rise to the utility's ability to use property for underground storage of natural gas.
Specifically, K.S.A. 55-1204(a) states:
"Any natural gas public utility desiring to exercise the right of eminent domain as
to any property for use for underground storage of natural gas shall, as a condition
precedent to the filing of its petition in the district court, obtain from the commission a
certificate setting out findings of the commission:
(1) That the underground stratum or formation sought to be acquired is suitable
for the underground storage of natural gas and that its use for such purposes is in the
public interest; and
45
(2) the amount of recoverable oil and native gas, if any, remaining therein."
In the event the foregoing was not clear enough that Commission certification,
standing alone, does not create "an authorized storage operation" and does not authorize
the natural gas utility to use the proposed new storage area, the Legislature provided us
with K.S.A. 55-1205, labeled, "Eminent domain procedure." That provision explains as
follows:
"Any natural gas public utility, having first obtained a certificate from the
commission as hereinbefore provided, desiring to exercise the right of eminent domain
for the purpose of acquiring property for the underground storage of natural gas shall do
so in the manner provided in K.S.A. 26-501 to 26-516, inclusive. The petitioner shall file
the certificate of the commission as a part of its petition and no order by the court
granting said petition shall be entered without such certificate being filed therewith. The
appraisers in awarding damages hereunder shall also take into consideration the amounts
of recoverable oil and native gas remaining in the property sought to be appropriated and
for such purposes shall receive as prima facie evidence of such amounts the findings of
the commission with reference thereto."
Clearly, then, the Legislature intended the Commission certificate to be merely a
preliminary step in the process to condemn land for an underground natural gas storage
area, albeit a mandatory condition precedent. The only authority emanating from the
certificate is the right to file an eminent domain action pursuant to K.S.A. 26-501 to 26-
516, inclusive.
To help grasp the role of certification here, one might view the certificate as being
analogous to a marriage license. Just as an entity proposing to create an underground
natural gas storage area must show the Commission that it meets the statutory criteria to
do so, e.g., that it is a natural gas public utility, a person proposing to enter into a
marriage contract in Kansas must show a clerk or judge of the district court that he or she
46
is statutorily entitled to marry, e.g., that the person is old enough. See K.S.A. 2018 Supp.
23-2505 (provisions governing the issuance of a marriage license). Just as a certificate is
a condition precedent to condemning an underground storage area, a marriage license is a
condition precedent to solemnizing a marriage in this state. See K.S.A. 23-2504(a)
("Marriage may be validly solemnized and contracted in this state, after a license has
been issued for the marriage."). Just as the judge in an eminent domain action can rely on
the Commission certificate as prima facie evidence that the petitioner is statutorily
entitled to condemn the land sought, a preacher or other person authorized to solemnize a
marriage can rely on the marriage license as prima facie evidence that the parties to be
joined in marriage are statutorily entitled to marry. Finally, just as the issuance of a
certificate is no guarantee that the natural gas utility will carry through with condemning
the new storage area, the issuance of a marriage license is no guarantee that the licensee
will carry through with the wedding.
But the distinct difference I discern is that surely no one in the majority would say
that the issuance of a marriage license, standing alone, invests the licensee with any of
the rights and privileges of marriage. Before the process is complete, i.e., before the
marriage is solemnized and the paperwork executed, a fiancé does not acquire any
property or marital support interests simply by holding a license to marry. Yet, the
majority invests the natural gas utility with the landowner's right to capture gas upon the
issuance of a certificate—in effect, upon the issuance of a license to condemn—
regardless of whether the injector ever uses the certificate to commence and complete the
eminent domain procedures of K.S.A. 26-501 et seq. That concept is enigmatic. Without
the order in condemnation, the certificated injector would hold the right to capture its
injected gas under the landowner's property but would not have the legal right to store it
there and would not have the legal right to go upon the landowner's surface to actually
capture the gas. Surely, that is not what our Legislature intended. Indeed, the last time we
reviewed this case, we recited the well-established canon of statutory construction that
47
we avoid unreasonable or absurd results and presume the Legislature does not intend to
enact useless or meaningless legislation. ONEOK I, 296 Kan. at 918.
Perhaps the majority is enamored with the certification process because it includes
a determination of "the amount of recoverable oil and native gas, if any, remaining" in the
property proposed to be used for underground storage. K.S.A. 55-1204(a)(2). But the
Legislature did not make the Commission's determination the final word on that topic.
Under the eminent domain procedure of K.S.A. 55-1205, the appraisers' award in
condemnation "shall also take into consideration the amounts of recoverable oil and
native gas remaining in the property sought to be appropriated and for such purposes
shall receive as prima facie evidence of such amounts the findings of the commission
with reference thereto." In other words, the Commission's certificate as to the amount of
native gas remaining under the property is not determinative; it is prima facie evidence
which "'carries the inference that such evidence may be rebutted and overcome.'" State v.
Smith, 223 Kan. 192, 194, 573 P.2d 985 (1977). The point is that the Legislature intended
the respective property interests to be determined in the judicial condemnation action, not
the administrative certification process.
In short, I would affirm the district court's determination that Northern was not
entitled to the value of the storage gas produced from the expansion area before the
March 30, 2012 date of taking in the condemnation action.
STEGALL, J., joins in the foregoing dissenting opinion.
***
STEGALL, J., dissenting: I agree with and join Justice Johnson's dissent. I write to
provide some added color. First, I do not see much benefit in the dispute over whether
Union Gas System, Inc. v. Carnahan, 245 Kan. 80, 774 P.2d 962 (1989), was "overruled"
48
by either statute or our prior caselaw. This is because on the key point, Union Gas is
unequivocally wrong. The Union Gas court held that a utility's "storage operation" on
property owned by others "became authorized" on the day it received a regulatory
certificate that included that land. See Union Gas 245 Kan. at 88. This remains the
lynchpin holding relied on by today's majority. The majority recites this holding at the
outset and applies it to today's case by concluding that on the "date when Northern
received a certificate from the Federal Energy Regulatory Commission" the "authorized
boundaries" of its storage operation were "expand[ed] . . . to encompass the offending
wells." See slip op. at 3.
The majority says I have misunderstood the holding of Union Gas when I "assert[]
Union Gas authorized the non-consensual storage of injected gas on the property of
another." Slip op. at 18. Insisting that the holding of Union Gas is more modest than I
suggest, the majority claims Union Gas "simply applied the rule of capture for extracted
non-native gas under two factual scenarios—before certification and after." Slip op. at 18.
I am unable to square the majority's contradictory descriptions and uses of Union Gas.
Either a regulatory commission certificate authorizes the storage of gas within the defined
boundaries or it doesn't.
Both Union Gas and today's majority rely on the legal conclusion that such a
certificate does authorize the storage operation. This, in turn, serves as a basis and
justification for the secondary holding that the rule of capture should not apply to gas
being stored in an "authorized" field. The majority's protest that both Union Gas and our
decision today are merely about the rule of capture suggests (to me) that my colleagues
are uncomfortable owning up to the legal foundations of today's holding. But more
importantly, as Justice Johnson's dissent makes clear, the federal certificate obtained by
Northern cannot and does not "authorize"—as a matter of state law—Northern's use of
someone else's real property. A legislatively sanctioned condemnation is required for
that.
49
Second, any analysis of these kinds of situations—and the choices courts make
when picking which rule should govern—benefits from a consideration of incentives.
Here, one party or another will necessarily receive a windfall. Either the public utility
will have the benefit of unauthorized gas storage, or the private property owner will
realize the benefit of non-native gas production. Which rule will most effectively
incentivize the prevention of this less-than-optimal circumstance? Historically, Kansas
has chosen the rule of capture as the best incentive to prevent unauthorized gas migration.
This makes sense because of the two parties, the public utility has greater control over the
gas. (Of course, if a private party creates conditions to usurp that control, the rules may
change. And while that was an allegation in this case, we have no facts or findings in the
record before us substantiating that claim.)
The rule of capture incentivizes the public utility to pay attention to where its gas
is physically located. The alternative incentive—permitting the private property owner to
recover damages for trespass after the fact—is by comparison relatively weak. For
starters, it's an after-the-fact incentive and thus suffers from a kick-the-can tendency. That
is, a public utility may justify lax safeguarding of its gas (or slow prosecution of
condemnation actions) by reasoning that it can just pay for the storage right later on (and
only if the landowner chooses to enforce his or her rights). Indeed, this rule will actually
dis-incentivize what the law requires—a condemnation. Why condemn at all when
unauthorized storage is both free and immediate? In addition, even if the value of the
unauthorized storage is ultimately paid to the landowner, the landowner has lost
something that can never be recouped—the opportunity to say no to the storage operation
in the first instance. I see no reason to depart from our historic and well-settled choice to
apply the rule of capture in these circumstances.
Finally, our consideration of these rule choices in the realm of common law ought
to be informed by a healthy dose of pragmatism. What is the best rule for the people of
Kansas? In my judgment, the rule of capture has proven to be the best rule, pragmatically,
50
for both the management and delivery of the necessary services public utilities perform
and for the protection of private landowners who happen to find themselves within
migration range of such utilities.
51