The Colorado Court of Appeals issued its opinion in Grant Brothers Ranch, LLC v. Antero Resources Piceance Corp. on Thursday, December 1, 2016.
Subject Matter Jurisdiction—Summary Judgment—Exhaustion of Administrative Remedies—Dismissal Without Prejudice.
Antero Resources Piceance Corporation (Antero), an oil and gas exploration and production company, received approval from the Colorado Oil and Gas Conservation Commission (the Commission) to establish a drilling and spacing unit to produce oil and gas. Antero wanted to produce oil and gas underlying Grant Brothers Ranch, LLC’s (Grant Brothers) property, which was within the unit, but Grant Brothers refused Antero’s offer to lease the minerals or participate in their production. Antero then requested that the Commission pool all nonconsenting interests in the unit and allow Antero to produce and sell the oil and gas of the nonconsenting owners. Following a hearing, the Commission granted the request. A year and a half later, to produce from a deeper formation, Antero sought to establish a new unit within the same lands. Again, Antero asked Grant Brothers to participate in their production, and Grant Brothers refused. Following objection by Grant Brothers and a hearing, the Commission granted this request and issued an order pooling all nonconsenting interests in the second unit. Pursuant to these pooling orders, Grant Brothers was entitled to receive its interest in the proceeds from the production and sale of oil and gas from wells in the units after the wells reached “payout.” Antero was required to furnish Grant Brothers monthly statements concerning its costs and proceeds.
Three years after the second order, Grant Brothers asked Antero for permission to audit its books and records regarding the wells. Antero refused, stating it had been sending Grant Brothers the required monthly statements.
Two years later, Grant Brothers sued Antero and Ursa Operating Company, LLC (which assumed operation of the wells in 2012) (Operators), requesting an equitable accounting and alleging the wells had reached payout, but Operators had not paid Grant Brothers. Operators filed a motion for summary judgment arguing that Grant Brothers had not exhausted its administrative remedies under the Oil and Gas Conservation Act (the Act) and therefore the district court lacked subject matter jurisdiction. The court agreed and dismissed the action with prejudice.
On appeal, Grant Brothers argued that the district court improperly granted summary judgment because Grant Brothers was not required under the Act to exhaust its administrative remedies. The Colorado Court of Appeals noted that because the district court had not resolved a number of factual disputes and resolved Antero’s motion solely on the basis that the court lacked subject matter jurisdiction, the summary judgment motion was more properly characterized as a motion to dismiss for lack of subject matter jurisdiction under C.R.C.P. 12(b)(1) and it therefore treated it as such.
The Act gives the Commission a broad grant of jurisdiction over operations for the production of oil and gas, including payment disputes, unless such dispute is one over interpretation of a payment contract, which would be resolved by a district court. In determining whether a court has subject matter jurisdiction where a party did not exhaust administrative remedies, courts examine whether (1) the claim was filed pursuant to the relevant statute, (2) the statute provides a remedy for the claim asserted, and (3) the legislature intended the statute to provide a “comprehensive scheme” addressing the issues underlying the claim.
First, Grant Brothers’ claim was one for payment of proceeds under C.R.S. §§ 34-60-116 and -118.5. Grant Brothers is entitled to receive payment only if and when payout occurs. Primary jurisdiction to make this determination rests with the Commission. Second, because there was no contract between the parties, Grant Brothers needed to first submit a written request for payment. If there is a payment dispute, Grant Brothers may request a hearing before the Commission, whose order would then be appealable to the courts. Third, the Act’s language and structure indicate that a proceeding before the Commission is the primary remedy for nonconsenting owners’ claims for the payment of proceeds when there is no contract between the parties. Grant Brothers was required to exhaust its administrative remedies and because it did not do so prior to filing suit in the district court, the court properly dismissed the action.
Grant Brothers also contended that the district court erred in dismissing its claim with prejudice solely on the basis that the court lacked subject matter jurisdiction. A dismissal under C.R.C.P. 12(b)(1) does not adjudicate the merits, but results from the court lacking the power to hear the claims asserted. Thus the dismissal is necessarily without prejudice.
The judgment was affirmed in part and reversed in part, and the case was remanded with directions.
Summary provided courtesy of The Colorado Lawyer.