July 22, 2018

Colorado Court of Appeals: Statute of Limitations Does Not Begin when Party Signs Prepared Document

The Colorado Court of Appeals issued its opinion in Bell v. Land Title Guarantee Co. on Thursday, May 17, 2018.

Buy and Sell Contract—Mineral Rights—Warranty Deed—Negligence—Breach of Contract—Statute of Limitations—Third Party—Cause of Action—Accrual Date.

The Bells hired Orr Land Company LLC (Orr) and its employee Ellerman to represent them in selling their real property. Orr found a buyer and the Bells entered into a buy and sell contract with the buyer, which provided, as pertinent here, that the sale excluded all oil, gas, and mineral rights in the property. Orr then retained Land Title Guarantee Company (Land Title) to draft closing documents, including the warranty deed. In 2005 the Bells signed the warranty deed and sold the property to the buyer. The Bells didn’t know that the warranty deed prepared by Land Title didn’t contain any language reserving the Bells’ mineral rights as provided in the buy and sell contract. For over nine years, the Bells continued to receive the mineral owner’s royalty payments due under an oil and gas lease on the property. In 2014 the lessee oil and gas company learned that the Bells didn’t own the mineral rights, so it began sending the payments to the buyer. After that, the Bells discovered that the warranty deed didn’t reserve their mineral rights as provided in the buy and sell contract. In 2016 the Bells filed this negligence and breach of contract action against defendants Land Title, Orr, and Ellerman. Defendants moved to dismiss, arguing that the Bells’ claims were untimely because the statute of limitations had run. The district court granted defendants’ motion to dismiss.

On appeal, the Bells contended that the district court erred in granting defendants’ motions to dismiss because they sufficiently alleged facts that, if true, establish that the statute of limitations didn’t begin to accrue on their claims until the oil and gas company ceased payment in September 2014, which is when they contended they discovered that the warranty deed didn’t reserve their mineral rights. A plaintiff must commence tort actions within two years from the date the cause of action accrues, and contract actions within three years from the date the cause of action accrues. A cause of action accrues on the date that “both the injury and its cause are known or should have been known by the exercise of reasonable diligence.” The trial court relied on the legal principle that one who signs a document is presumed to know its contents, so the Bells should have known on the day they signed the deed that the mineral rights reservation language was not included, and thus their claims accrued on that date. However, the presumed-to-know principle applies conclusively only where a party (for example, a grantor) seeks to avoid the legal effects of a deed in an action against another party to the conveyance (a grantee), not where a party (a grantor) asserts claims against third parties who failed to conform the deed to an underlying agreement on that party’s behalf. Here, the Bells claims against defendants, who aren’t parties to the deed, don’t seek to avoid the deed, but seek damages for negligent preparation of the deed, and the purpose of the presumed-to-know principle isn’t applicable. Taking the complaint’s factual allegations as true, the Bells filed their negligence and breach of contract claims within the statute of limitations and stated a plausible claim for relief. The court erred in granting defendants’ motions to dismiss.

The order of dismissal was reversed.

Summary provided courtesy of Colorado Lawyer.

Tenth Circuit: Declaratory Judgment Action Moot where Business Interests Sold During Litigation

The Tenth Circuit Court of Appeals issued its opinion in Schell v. OXY USA, Inc. on Monday, December 14, 2015, and modified the opinion on February 9, 2016.

The plaintiff class (appellees and cross-appellants in the Tenth Circuit) consists of approximately 2200 surface owners of Kansas land burdened by oil and gas leases held or operated by OXY, the appellant and cross-appellee. The leases contained a “free gas” clause that, in substance, purported to grant the lessor access to free gas for domestic use. In August 2007, OXY sent letters warning free gas users that their gas may become unsafe to use, either because of high hydrogen sulfide content or low pressure at the wellhead, as a result of the well reaching the end of their productive life.

On August 31, 2007, leaseholders David Schell, Donna Schell, Howard Pickens, and Ron Oliver filed this action on behalf of themselves and others similarly situated, seeking a permanent injunction and a declaratory judgment based on alleged breaches of mineral leases entered into with OXY for failure to supply free usable gas. The district court certified a class of all surface owners of Kansas land burdened by oil and gas leases held or operated by OXY which contain a free gas clause. Plaintiffs and OXY then filed cross-motions for summary judgment. The district court denied OXY’s motion for summary judgment and granted the plaintiffs’ motion for summary judgment. The district court granted the plaintiffs declaratory relief requiring OXY to provide free useable gas under the contract; however, the district court denied the plaintiffs’ motion for a permanent injunction.

Because the district court found that the free gas clauses were ambiguous and interpreted them according to principles of Kansas law, OXY moved to vacate the judgment to permit it to discover extrinsic evidence of the clauses’ meaning. The district court agreed and vacated its judgment. The district court subsequently granted plaintiffs’ resubmitted motion for summary judgment. It also denied plaintiffs’ motion for attorneys’ fees, expenses, and incentive awards. OXY then filed this appeal, and the plaintiffs cross-appealed. After the appeal and cross-appeal were filed, OXY sold all of its interests in the Kansas leases to Merit Hugoton, L.P. (“Merit”). The plaintiff class filed a motion to dismiss the appeal as moot based on this sale. The Tenth Circuit Court of Appeals permitted the appeal to proceed to briefing and oral argument. One week after oral argument, Merit filed a motion to intervene as an appellant and cross-appellee, which was denied by the Tenth Circuit.

The Tenth Circuit concluded the appeal is moot, thereby granting the motion of the plaintiff class to dismiss the appeal, reasoning OXY’s sale of the leases to Merit leads to the conclusion that its conduct cannot be affected by a declaratory judgment concerning the same leases. The Tenth Circuit dismissed OXY’s argument that the leaseholders could sue OXY over its prior conduct during the time when it was operating the wells, considering the fact that allowing OXY to continue the present litigation in order to protect itself from hypothetical unfiled future litigation would render the instant declaratory judgment action a prohibited advisory opinion. Further, the court stated Merit’s request to intervene does not change the conclusion that the declaratory judgment action is moot, in that the record is devoid of any evidence suggesting that a judgment against OXY would bind Merit with respect to the plaintiff class.

Next, the Tenth Circuit determined it was appropriate to dismiss the appeal without vacating the district court’s granting of the plaintiff class’s declaratory judgment action. Although the general rule is to vacate the judgment below when the case becomes moot on appeal, the court found OXY’s intentional conduct (i.e., selling of the leases to Merit) caused the issue over the free gas clauses of the leases to be moot, and that no other entity was more responsible for mooting the controversy, thereby justifying the equitable resolution of leaving in place the district court’s judgment granting the plaintiffs declaratory relief. To act otherwise, the court noted, would permit OXY to benefit from its voluntary act by wiping away a loss.

Lastly, with respect to plaintiffs’ cross-appeal challenging the district court’s denial of their motion for attorneys’ fees, expenses, and an incentive award, the Tenth Circuit determined it had jurisdiction over the matter, as the issue of attorneys’ fees (and related issues) was not moot, despite the mootness of the merits of the appeal. The Tenth Circuit then affirmed the district court’s holding that the plaintiff class has not shown a legally sound basis for an award of attorneys’ fees and other related relief. In so holding, the court found that neither the common-benefit exception to the American Rule nor 28 U.S.C. § 2202 was applicable. Because OXY sold all of the leases to Merit, the common benefit exception does not apply, as an award of attorneys’ fees under the exception would be an impermissible penalty on OXY. The Tenth Circuit affirmed the district court’s statement that there is no independent statutory or contractual basis for attorneys’ fees under § 2202.

Max Montag is a 2016 J.D. Candidate at the University of Denver Sturm College of Law.

Colorado Court of Appeals: Reservation of Rights in 1950 Deed Conveyance Preserved Mineral Interests

The Colorado Court of Appeals issued its opinion in Owens v. Tergeson on Thursday, November 5, 2015.

Mineral Rights—Summary Judgment.

Plaintiffs and defendants both asserted they were the rightful owners of certain mineral interests located in four adjacent tracts of land (Tracts A–D) in Weld County. The claims revolved around an interpretation of two warranty deeds dated November 25, 1950 (1950 Deeds). One deed conveyed Tract A; the other conveyed Tracts B–D. The disagreement was whether the language in the 1950 Deeds reserved all oil, gas, and other mineral interests in the land to the original grantors or fully conveyed those interests to the deeds’ grantees. Plaintiffs argued that as successors-in-interest to the deeds’ grantors, they were the rightful owners of the mineral rights reserved in the deeds. Defendants, as successors-in-interest to the grantees, argued they owned the mineral rights.

Defendants also asserted that a 1973 quiet title action (1973 Action) and a subsequent conveyance also gave them ownership in at least some of the disputed mineral rights. Plaintiffs argued that the 1973 Action was void because they were not named as parties and their predecessors-in-interest were not properly served. On cross-motions for summary judgment, the district court ruled in favor of plaintiffs, and the Court of Appeals affirmed.

The Court noted that the clear modern rule that a reservation of mineral interests referenced only in a deed’s habendum clause is effective despite the absence of a similar restriction in the deed’s granting clause. In other words, the deed is read as a whole. The 1950 Deeds both contained clear reservation of mineral interests contained only in the habendum clauses. The Court found it clear that the parties intended the mineral rights to be reserved to the grantors.

The parties agreed that, based on the Court’s interpretation of the 1950 Deeds, the 1973 Action only affected Tract A. The district court held the 1973 Action void because of inadequate service of process on plaintiffs’ predecessors-in-interests. They were served only by publication based on assertions that their address was unknown notwithstanding the 1950 Deeds listing the address as “Tulsa, Oklahoma” and a 1960 oil and gas lease (1960 Lease) also of public record listing a specific street address in Tulsa. The district court voided the 1973 Action judgment for failure to use due diligence in searching for an address and withholding pertinent information when moving for service by publication. The Court agreed with the district court’s analysis. It rejected an argument by defendants that they only had to demonstrate there was no address in Colorado for the defendants in the 1973 Action. The judgment was affirmed.

Summary and full case available here, courtesy of The Colorado Lawyer.

Tenth Circuit: Subsurface Mineral Rights Lessee May Cross Surface Owner’s Property to Access Leasehold

The Tenth Circuit Court of Appeals issued its opinion in Entek GRB, LLC v. Stull Ranches, LLC on Thursday, August 14, 2014.

Stull Ranches is the surface owner of a tract of property in rural Colorado. Entek GRB leases subsurface mineral rights, and, in order to access those subsurface rights, sought to access them by installing oil wells on the surface of Stull’s property. Entek’s subsurface oil leasehold rights extend onto neighboring property owned by the Bureau of Land Management, and Entek sought to traverse Stull’s property in order to reach the subsurface minerals on BLM’s property, since the only way to access the BLM property was on the existing road crossing Stull’s property. Stull objected, arguing that Entek’s drilling would disrupt Stull’s grouse hunting business. The district court granted summary judgment to Entek regarding access to its wells on Stull’s property, but denied Entek’s request to cross Stull’s property in order to access the BLM land. Entek appealed to the Tenth Circuit.

The Tenth Circuit explored the history of the government’s land grants, specifically as to separate grants of surface ownership and rights to subsurface minerals and water. Stull is the successor in interest of land acquired under the Stock-Raising Homestead Act of 1916, which expressly reserved to the government all mineral rights, along with the right to enter and use as much of the surface as is “reasonably incident” to the exploration and removal of mineral deposits, and the right to enact future laws and regulations regarding “disposal” of the mineral estate. The subsequently-enacted Mineral Leasing Act granted the Secretary of the Interior the right to amend mineral leases, which it did for the lease encompassing the subsurface mineral rights on Stull’s property and the adjacent BLM property in the Focus Ranch Unit Agreement. This agreement deems all drilling and producing operations on one part of a leasehold interest will be accepted and performed on all leasehold interests. Because Entek is allowed to drill through Stull’s surface estate to access its subsurface mineral lease, it is deemed access to all leasehold interests, including the leasehold interest on BLM’s surface property. Entek has the right to use the existing road that traverses Stull’s property in order to achieve efficient access to its subsurface leasehold.

Stull also argued that, in a case involving the prior holder of Entek’s current rights, the district court ruled that the lessee of the mineral rights was not permitted to access a different property in order to reach a well on an adjacent tract. However, that case was not appealed because the prior lessee entered into an agreement with Stull allowing it to traverse Stull’s property. The Tenth Circuit ruled that preclusion was precluded by this prior agreement.

The district court’s grant of summary judgment to Stull was vacated and the case was remanded for further proceedings consistent with the Tenth Circuit opinion.

HB 14-1217: Clarifying Legal Rights of a County Regarding Mineral Rights to Real Property

On January 30, 2014, Rep. Bob Rankin introduced HB 14-1217 – Concerning a Clarification of the Legal Rights of a County Government in Connection with Property Owned by a County. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

As introduced, the bill clarifies the legal rights of county governments in connection with real property owned by the county in the following respects:

  • The bill modifies existing statutory provisions pertaining to county powers in connection with the purchase and possession of real and personal property to clarify that the county may own, besides purchasing and holding, such property and expressly specifies that such property includes oil, gas, mineral, and other property interests for county revenue generation and other county government operations, projects, or purposes.
  • The bill clarifies requirements relating to the publication of notice of a sale by the county of mineral rights. The bill clarifies that oil and gas reserved rights are included within the mineral rights that the board of county commissioners (board) may lease for exploration, development, and production purposes. The bill deletes language placing a time limit on a lease of mineral rights by the county and clarifies that leases entered by the board prior to January 1, 2014, are legal and within the board’s authority.
  • The bill clarifies that revenue generation is among the purposes for which the county may lease real estate or other interests and that the board has authority to approve the terms and conditions of such leases. The bill also deletes existing statutory requirements imposing time limits on the length of a lease of oil and gas rights and imposing other conditions on the lease.
  • The bill adds oil, gas, and minerals to modify the word “lands” in the definition of “public projects.” The bill also provides that a public project may be acquired, owned, held, or developed by a county to generate county revenue.
  • Existing statutory provisions hold that certain places designated as public use on a map or plat are the public property of a city or town and that fee title is vested in the city or town. The bill adds counties and city and counties to the list of local governments whose interests are protected under these provisions.
  • The bill eliminates outmoded legal language from an existing statutory provision specifying when a fee simple estate of land is a fee simple estate of inheritance.
  • The bill clarifies that, whenever land is acquired for road, transit, or mass transit purposes, the right to subsurface support of the land surface is deemed to be acquired as well regardless of whether a fee, limited fee, or right-of-way is acquired. This section of the bill also deletes existing statutory language denying a governmental entity the right to acquire certain mineral resources beneath the real property through condemnation under certain circumstances.
  • The bill modifies existing statutory provisions allowing the acquisition by counties of land for highways including by means of condemnation to specify that nothing in these provisions modifies or restricts the powers or authority conferred on counties or the board with respect to county roads or revenue generation. The bill addresses existing statutory provisions governing the declaration of certain land as public highways. The bill specifies that public highways include all lands dedicated to public use by deed conveying a fee simple, limited fee, easement, or right-of-way, filed with the county clerk and recorder of the county in which the land is located, when the dedication has been accepted by the board and board has approved the surface of the land for use as a public road. The bill goes on to clarify that the fee or other estate conveyed from the grantor to the grantee is conclusively established by the language in the deed of conveyance that is pre-printed or inserted by the grantor or the grantee. The bill also clarifies that roads include certain strips of land, and that the acquiring government also owns in fee simple mineral rights under such strips of land.

On March 6, the Local Government Committee amended the bill and laid it over for a final vote.

e-Legislative Report: March 10, 2014

CBA Legislative Policy Committee

For readers who are new to CBA legislative activity, the Legislative Policy Committee (LPC) is the CBA’s legislative policy-making arm during the legislative session. The LPC meets weekly during the legislative session to determine CBA positions on requests from the various sections and committees of the Bar Association.

Action taken at the LPC meeting on Friday, March 7:

  • The Committee voted to take a neutral position on HB 14-1285. Concerning a requirement that a professional tax preparer provide certain disclosures to a client when preparing tax documents for the client but suggest amendments to exclude attorneys from the application of the act.
  • The Committee voted to support and offer amendments to SB 14-98 Concerning clarifications to statutory language on crimes against at-risk elders.

At the Capitol—Week of March 3

A scorecard of the committee and floor work follows.

In the House

Monday, March 3

Passed 3rd Reading:

  • HB 14-1171. Concerning rules on forensic medical evidence in sexual assault cases. Vote: 59 yes, 0 no, and 6 excused.
  • SB 14-48. Concerning use of the most recent United States census bureau mortality table as evidence of the expectancy of continued life of any person in a civil action in Colorado. Vote: 59 yes, 0 no, and 6 excused.
  • HB 14-1002. Concerning the establishment of a grant program under the “Colorado Water Quality Control Act” to repair water infrastructure impacted by a natural disaster, and, in connection therewith, making an appropriation. Vote: 51 yes, 8 no, and 6 excused.
  • HB 14-1003. Concerning the exemption from state income tax of income that is earned by a nonresident individual working temporarily in the state to assist with disaster emergency relief activities, and, in connection therewith, making an appropriation. Vote: 59 yes, 0 no, and 6 excused.
  • HB 14-1006. Concerning the remittance of the marketing and promotion tax collected by lodging establishments in a local marketing district, and, in connection therewith, making an appropriation. Vote: 53 yes, 3 no, and 6 excused.

Tuesday, March 4

Passed 3rd Reading:

  • SB 14-83. Concerning reimbursement to be paid by a county to the state for costs incurred by the state in connection with the reappraisal of property in the county. Vote: 60 yes, 0 no, and 5 excused.
  • HB 14-1206. Concerning modifications to the “Colorado Charitable Solicitations Act,” and, in connection therewith, prohibiting certain charitable solicitation practices, modifying the secretary of state’s fining authority, adjusting registration statement requirements, and specifying requirements for appointing registered agents. Vote: 60 yes, 0 no, and 5 excused.
  • HB 14-1017. Concerning measures to expand the availability of affordable housing in the state, and, in connection therewith, making modifications to statutory provisions establishing the housing investment trust fund, the housing development grant fund, and the low-income housing tax credit; and making an appropriation. Vote: 36 yes, 24 no, and 5 excused.

Thursday, March 6

Passed on 3rd Reading:

  • HB 14-1186. Concerning the release of medical records to a person other than the patient, and, in connection therewith, setting reasonable fees to be paid for the release of the medical records. Vote: 58 yes, 0 no, and 7 absent or excused.
  • HB 14-1089. Concerning the qualification for a person to use the 10th mountain division license plate. Vote: 53 yes, 8 no, and 4 absent or excused.
  • HB 14-1148. Concerning guidelines for ensuring the rights of victims of crime to participate in the criminal justice system. Vote: 61 yes, 0 no, and 4 absent or excused.
  • SB 14-105. Concerning the elimination of the requirement that a portion of the fees collected for the water resources cash fund be transferred to the state general fund. Vote: 61 yes, 0 no, and 4 absent or excused.
  • SB 14-107. Concerning the continuation of the department of law’s authority to accept gifts, grants, and donations. Vote: 61 yes, 0 no, and 4 absent or excused.
  • SB 14-120. Concerning the continuous appropriation of certain amounts in the state employee workers’ compensation account in the risk management fund. Vote: 52 yes, 9 no, and 4 absent or excused.
  • HB 14-1274. Concerning the modification of certain limitations on the managers of a bank chartered by Colorado. Vote: 61 yes, 0 no, and 4 absent or excused.
  • HB 14-1271. Concerning extending a mental health provider’s duty to warn to include specific entities that, if purposefully damaged or attacked as a result of a mental health patient’s violent behavior, would jeopardize public health and safety. Vote: 61 yes, 0 no, and 4 absent or excused.
  • SB 14-59. Concerning eliminating the statute of limitations for offenses that accompany sex offenses that are not subject to a statute of limitations. Vote: 58 yes, 3 no, and 4 absent or excused.
  • SB 14-9. Concerning a disclosure of possible separate ownership of the mineral estate in the sale of real property. Vote: 46 yes, 15 no, and 4 absent or excused.

Friday, March 7

Passed on 3rd Reading:

  • HB 14-1042. Concerning access by birth parents to records relating to the relinquishment of parental rights, and, in connection therewith, making an appropriation. Vote: 61 yes, 0 no, and 4 excused.
  • HB 14-1257. Concerning the authority of the state auditor to conduct a performance audit of the Colorado health benefit exchange. Vote: 60 yes, 1 no, and 4 excused.
  • SB 14-43. Concerning the inclusion of certain land areas used to grow products that originate above the ground within the classification of “all other agricultural property” for property tax purposes. Vote: 61 yes, 0 no, and 4 excused.

In the Senate

Tuesday, March 4

Passed on 3rd Reading:

  • Consent Calendar: Vote: 34 yes, 0 no, and 1 excused.
    1. HB 14-1112. Concerning limited authorization for a county clerk and recorder to redact the first five digits of a social security number from a public document recorded with the clerk and recorder at the request of the individual to whom the social security number is assigned.
    2. HB 14-1051. Concerning a strategic plan for enrolling all eligible persons with intellectual and developmental disabilities into programs at the time services and supports are needed, and, in connection therewith, requiring the department of health care policy and financing to develop and implement the strategic plan and to report annually on the number of persons waiting for services and supports.
    3. HB 14-1174. Concerning the sunset review of the natural areas council. Vote: 33 yes, 1 no, and 1 excused.
  • SB 14-22. Concerning certified community development financial institutions, and, in connection therewith, authorizing such institutions to serve as a qualified holder and to present a request for full or partial release of collateral pledged without presentation of the original promissory note. Vote: 19 yes, 15 no, and 1 excused.
  • HB 14-1073. Concerning the recording of legal documents. Vote: 33 yes, 1 no, and 1 excused.
  • HB 14-1052. Concerning an increase in the enforcement authority of ground water management districts. Vote: 22 yes, 12 no, 1 excused.
  • HB 14-1122. Concerning provisions to keep legal marijuana from underage persons. Vote: 34 yes, 0 no, and 1 excused.
  • HB 14-1166. Concerning the renewal of concealed handgun permits by Colorado county sheriffs. Vote: 34 yes, 0 no, and 1 excused.

Wednesday, March 5

Passed on 3rd Reading:

  • HB 14-1065. Concerning limits on indemnification provisions in motor carrier transportation contracts. Vote: 33 yes and 2 no.
  • HB 14-1121. Concerning notice requirements for county highway contract bid solicitations, and, in connection therewith, increasing the threshold value of a contract for which a county must advertise in a newspaper in the county or post notice in the county courthouse from five thousand dollars to the amount at which a contract requires a contractor’s bond. Vote: 22 yes and 13 no.

Friday, March 7

Passed on 3rd Reading:

  • Consent Calendar: Vote 34 yes, 0 no and 1 excused.
    1. HB 14-1229. Concerning authorizing sharing information between state and local government agencies related to legal marijuana.
    2. HB 14-1215. Concerning the ability of a federal home loan bank to enforce its rights with regard to collateral subject to a security agreement.
    3. HB 14-1183. Concerning the reinstatement of the authority for active military personnel to practice professionally. Vote: 33 yes, 1 no, and 1 excused.

Stay tuned for ten bills of interest.

Tenth Circuit: Plaintiffs Bear Burden of Showing Class Complies with F.R.C.P. 23

The Tenth Circuit Court of Appeals published its opinion in Wallace B. Roderick Revocable Living Trust v. XTO Energy, Inc. on Thursday, July 11, 2013.

Defendant-Appellant XTO Energy Inc. (XTO) appealed from the district court’s order certifying a class of Kansas royalty owners, represented by Plaintiff-Appellee Wallace B. Roderick Revocable Living Trust (the Trust), who seek recovery for XTO’s alleged underpayment of royalties. Specifically, the Trust claims XTO violated Kansas law by improperly deducting costs associated with placing the gas into “marketable condition.” The district court certified the class under F.R.C.P. 23(b)(3).

The Tenth Circuit found that the district court improperly shifted the burden of proof by requiring XTO to disprove commonality and this was an abuse of discretion. The court also instructed the district court to conduct a more rigorous Rule 23(b) predominance analysis on remand.

The court rejected the Trust’s argument that XTO should be estopped from litigating class certification issues here based on XTO’s previous settlement in another royalty class action. The Trust had not met its burden of showing the issues were identical in both cases.

The court vacated class certification and remanded.

HB 13-1268: Requiring Separate Disclosure in Sale of Real Property Regarding Separate Ownership of Mineral Estate

On March 18, 2013, Rep. Dominick Moreno and Sen. Mary Hodge introduced HB 13-1268 – Concerning a Disclosure of Possible Separate Ownership of the Mineral Estate in the Sale of Real Property. This summary is published here courtesy of the Colorado Bar Association’s e-Legislative Report.

The bill requires a seller to disclose in the sale of real property that a separate mineral estate may subject the property to oil, gas, or mineral extraction. A standard disclosure or a substantially similar disclosure is required. A seller that provides this disclosure is not liable for any damages of the purchaser from oil, gas, or mineral extraction. The bill cleared the House on April 2 and is assigned to the State, Veterans, & Military Affairs Committee in the Senate.

Colorado Court of Appeals: Oil and Gas Conservation Commission Correctly Declined to Interpret Lease Provision Due to Lack of Jurisdiction

The Colorado Court of Appeals issued its opinion in Chase v. Colorado Oil & Gas Conservation Commission on June 7, 2012.

Mineral Estate—Designated Outdoor Activity Area—Drilling Permits—Jurisdiction—Colorado Oil and Gas Conservation Commission.

Plaintiffs Laura Chase and Michael Sutak (collectively, landowners) appealed the district court’s judgment affirming orders of defendant Colorado Oil and Gas Conservation Commission (COGCC): (1) declining to interpret the lease between defendants Magpie Operating, Inc. (Magpie) and the Colorado State Board of Land Commissioners (Board); (2) denying landowners’ request to have their property deemed a Designated Outdoor Activity Area (DOAA); and (3) granting a permit to drill for natural gas to Magpie. The judgment was affirmed in part and reversed in part, and the case was remanded for further findings by the COGCC.

In 1997, landowners purchased a 77-acre surface estate in Larimer County, knowing it was subject to a mineral rights reservation. The 1916 patent reserved to the state all mineral rights and “the right of ingress and egress for the purpose of mining together with enough of the surface of [the property] as may be necessary for the proper and convenient working of such minerals and substances.” The Board owns the mineral estate and manages it for the benefit of the School Trust pursuant to the Colorado Constitution.

An irrigation ditch divides the property into two parcels. The south parcel is used for agricultural purposes and also contains a residence, agricultural outbuildings, and an indoor riding arena.

Since 1977, the Board had been a party to an Oil and Gas Lease (lease) over a 640-acre section of land that includes the property. The lease was assigned many times, most recently to Magpie. The first attempt to access the mineral estate occurred in June 2008, when Magpie submitted applications for permits to drill (APD) wells on the property.

Magpie consulted with landowners before submitting its APDs. Landowners contacted the COGCC in December 2007 to request onsite inspection of the property to assist in identifying a drilling site. Consultation and an inspection occurred in 2008, principally to address landowners’ concerns about the potential impact of drilling on their equestrian activities.

After submitting the APDs but before COGCC’s evaluation was completed, landowners applied to have their surface estate declared a DOAA. Magpie and the Board protested. The COGCC evaluation was completed in November 2009 and revealed that the proposed alternative drilling site was outside the drilling window. COGCC staff recommended that the COGCC address the request for a DOAA and, if it was denied, allow drilling on the alternative site. The Board approved the alternative well site on December 12, 2009. The staff also recommended a number of conditions of approval of the APDs.

On February 22, 2010, the COGCC held a hearing on the DOAA request and expressed a number of concerns. It ultimately denied the request by a vote of six to three.

Magpie tried to resolve the conflict with landowners by offering to withdraw the request for one well and to move the other. Landowners responded with multiple additional conditions for the well site. The COGCC granted Magpie’s APD for one well at the location suggested by landowners and approved many of their proposed conditions.

Landowners appealed the denial of the DOAA request, as well as the grant of the permit to drill. The district court affirmed the denial of the DOAA and the grant of the APD. Landowners appealed.

Landowners argued that the COGCC erred in granting Magpie a permit to drill because the lease between Magpie and the Board prohibits Magpie from conducting exploration or drilling operations within 200 feet of any improvement on the property without landowners’ consent. The COGCC determined it lacked jurisdiction to interpret the lease. The Court of Appeal agreed, finding that the COGCC’s interpretation of its Statement of Basis was reasonable and that it limited its jurisdiction, which did not extend to “contracts between surface owners and operators governing surface use. . . . ”

Landowners argued that the COGCC erred in denying their DOAA request because the COGCC failed to apply the clear and unambiguous requirements of the DOAA rule. Landowners stated that the rule provides that the subject area be occupied by at least twenty people for forty days or more, but does not require that all the occupants be present at any one time. The Court agreed but found that the COGCC failed to make the necessary factual findings concerning the DOAA request. Accordingly, the case was remanded for detailed findings on whether the property meets the criteria of a DOAA under the COGCC rules.

Summary and full case available here.