Ark. Oil & Gas Comm'n v. Hurd

• Citation: 564 S.W.3d 248,2018 Ark. 397
• Decision Date: 20 December 2018
• Docket Number: No. CV-18-223,CV-18-223
• Court: Supreme Court of Arkansas
• Parties: ARKANSAS OIL & GAS COMMISSION ; Lawrence Bengal, in His Official Capacity as Director of the Arkansas Oil & Gas Commission ; W. Frank Morledge, Mike Davis, Lee Dawkins, Jerry Langley, Jim Phillips, Chris Weiser, Timothy Smith, Charles Wohlford, and Thomas McWilliams, in Their Official Capacities as Commissioners of the Arkansas Oil & Gas Commission; and SWN Production (Arkansas), LLC, Appellants/Cross-Appellees v. J.R. HURD; Sara Smith Hurd; Patricia Hurd McGregor; Victoria Hurd Goebel; David W. Killam; Adrian Kathleen Killam; Tracy Leigh Killam-Dileo; Hurd Enterprises, Ltd.; and Killam Oil Co., Ltd., Appellees/Cross-Appellants

2018 Ark. 397

564 S.W.3d 248

ARKANSAS OIL & GAS COMMISSION ; Lawrence Bengal, in His Official Capacity as Director of the Arkansas Oil & Gas Commission ; W. Frank Morledge, Mike Davis, Lee Dawkins, Jerry Langley, Jim Phillips, Chris Weiser, Timothy Smith, Charles Wohlford, and Thomas McWilliams, in Their Official Capacities as Commissioners of the Arkansas Oil & Gas Commission; and SWN Production (Arkansas), LLC, Appellants/Cross-Appellees

v.J.R. HURD; Sara Smith Hurd; Patricia Hurd McGregor; Victoria Hurd Goebel; David W. Killam; Adrian Kathleen Killam; Tracy Leigh Killam-Dileo; Hurd Enterprises, Ltd.; and Killam Oil Co., Ltd., Appellees/Cross-Appellants

No. CV-18-223

Supreme Court of Arkansas.

Opinion Delivered: December 20, 2018

Leslie Rutledge, Att'y Gen., by: Lee Rudofsky, Solicitor Gen.; Jennifer L. Merritt, Sr. Ass't Att'y Gen.; Monty V. Baugh, Ass't Att'y Gen.; and Kesia Morrison, Ass't Att'y Gen., for State appellant/cross-appellee.

PPGMR Law, PLLC, Little Rock, by: G. Alan Perkins and Kimberly D. Logue, for SWN Production (Arkansas), LLC, appellant/cross-appellee.

Friday, Eldredge & Clark, LLP, Little Rock, by: William A. Waddell, Jr., Robert S. Shafer, and Joshua C. Ashley ; and Morgan Law Firm, P.A., by: M. Edward Morgan, Clinton, for appellees/cross-appellants.

ROBIN F. WYNNE, Associate Justice

Appellants Arkansas Oil and Gas Commission (AOGC); Lawrence Bengal, in his official capacity as director of the AOGC; the AOGC commissioners¹ in their official capacities (collectively, the AOGC); and separate appellant SWN Production (Arkansas), LLC (SWN), appeal from an order of the Pulaski County Circuit Court (1) dismissing with prejudice, based on sovereign immunity, this administrative appeal from final orders of the AOGC; (2) declaring the adjudicatory provisions of the Arkansas Administrative Procedure Act (APA) unconstitutional; (3) declaring the AOGC orders at issue void ab initio; and (4) dismissing the petition for review. The petitioners before the circuit court (appellees/cross-appellants, hereinafter referred to as appellees)² cross-appealed. We reverse the circuit court's dismissal order in its entirety and remand for further proceedings pursuant to the APA.

I. Background

Appellees are the owners/lessors and lessees of mineral interests in Sections 25 and 36, Township 9 North, Range 11 West, Cleburne County, Arkansas. The mineral interests at issue, which lie in the Moorefield Shale Formation (below the Fayetteville Shale Formation), are integrated into SWN's drilling units by virtue of integration orders issued by the AOGC in March 2017. SWN subsequently filed supplemental applications with the AOGC seeking a determination of "the reasonable royalty rate consistent with royalty negotiated for depth-limited leases below the base of the Fayetteville Shale formation, made at arm's length in the [same] general area." In essence, SWN argued that the oil and gas leases between the mineral owners and Hurd Enterprises and Killam Oil were "self-dealing, non-arm's length" transactions and that the 25 percent royalty rate was "grossly excessive." Appellees objected to the supplemental application and contended, among other things, that the AOGC did not have the authority to disregard the royalty rate in an existing lease when the lessee elects to go non-consent. After a public hearing, the AOGC ordered that "[t]he leasehold royalty payable to the parties ... by the Consenting Parties during the recoupment period shall not exceed 1/7th." Thus, the AOGC reduced the royalty rate agreed to by Hurd Enterprises and Killam Oil and the mineral owners.

On July 28, 2017, appellees filed a petition for review in the Pulaski County Circuit Court pursuant to the APA, Arkansas Code Annotated section 25-15-212 (Repl. 2014), and the Arkansas Oil and Gas Conservation Act, Arkansas Code Annotated section 15-72-110 (Repl. 2009). They alleged that the AOGC lacks statutory authority to (1) disregard the royalty rate in an existing lease when a lessee is forcibly integrated into a drilling unit and then elects to go non-consent; (2) single out in its orders "leases negotiated at non-arms-length between affiliated parties"; or, (3) by virtue of the language of the supplemental orders, authorize SWN as the operator to make the practical determination of which leases in the unit were "negotiated at non-arms-length between affiliated parties." Among other claims, appellees alleged that the AOGC's actions were ultra vires. Pursuant to Arkansas Code Annotated section 25-15-212(g), appellees requested that the circuit court set a briefing schedule and hear oral argument; ultimately, appellees sought to have the supplemental orders regarding royalty rates vacated and reversed.

On January 18, 2018, this court issued a decision concerning the doctrine of sovereign immunity in Board of Trustees of the University of Arkansas v. Andrews , 2018 Ark. 12, 535 S.W.3d 616. On January 21, 2018, the AOGC filed a motion to dismiss the petition for review for lack of subject-matter jurisdiction. The AOGC argued that, under Andrews , it has sovereign immunity from suit in this matter and that the action should be dismissed. Appellees filed a response the following day, on which a hearing was scheduled, arguing that the complaint stated a valid claim for an ultra vires and illegal act that was not subject to the sovereign immunity doctrine. At the hearing, the circuit court considered the parties' arguments regarding sovereign immunity as set out in the motion to dismiss and response, allowed the parties to make any further arguments for the record, and announced its decision to grant the AOGC's motion to dismiss and declare the orders that were the subject of the petition for review void ab initio and of no force and effect. In its February 12, 2018 order, the circuit court wrote:

On January 22, 2018, came on for hearing the motion to dismiss of separate Respondents, the Arkansas Oil & Gas Commission, Lawrence Bengal, W. Frank Morledge, Mike Davis, Lee Dawkins, Jerry Langley, Jim Phillips, Chris Weiser, Timothy Smith, Charles Wohlford and Thomas McWilliams ("Agency Respondents") and the response of the petitioners, J.R. Hurd, Sara Smith Hurd, Patricia Hurd McGregor, Victoria Hurd Goebel, David W. Killam, Adrian Kathleen Killam, Tracy Leigh Killam-Dileo, Hurd Enterprises, Ltd., and Killam Oil Co., Ltd. ("Petitioners"), and from the pleadings and the arguments of the parties, the Court hereby finds and concludes as follows:

1. On January 22, 2018, the Agency Respondents filed a Motion to Dismiss based upon the recent decision of the Arkansas Supreme Court in the case of Board of Trustees of the University of Arkansas v. Andrews , Supreme Court Case Number CV-17-168 issued on January 18, 2018. Petitioners responded to the motion the same day.

2. The Andrews case did not specifically address the interaction of Article 2, Section 13 of the Arkansas Constitution about whether the State had waived sovereign immunity, or to what extent sovereign immunity and Article 2, Section 13 might work together.

3. In this administrative appeal the Court has seen nothing that the State has done that would constitute a fact-based waiver of sovereign immunity. As soon as reasonably possible after the Supreme Court announced a sea change in the parameters of sovereign immunity, the Agency Respondents brought the issue of sovereign immunity to the Court's attention and addressed it in a motion to dismiss. In the event that was something left open in the Andrews case, it is not open in this case.

4. Both Article 2, Section 13 of the Arkansas Constitution and the due process clause of the United States Constitution require both a procedural and a substantive remedy for every alleged injury, wrong, or taking.

5. This matter is not an original action. It is an administrative appeal under the adjudicatory provisions of the Arkansas Administrative Procedures Act. The adjudicatory provisions are not the entire act. The specific statutes are Ark. Code Ann. §§ 25-15-206, 207, 208, 209, 210, 212, 213, and 214. Those statutes together create a specific, seamless adjudicatory framework that has always satisfied the procedural and substantive requirements of due process because there was an administrative provision, and then there was an opportunity to appeal. By statute, the appeal of an agency decision was to circuit court for any party who felt aggrieved by an agency's administrative action. The General Assembly, in the Administrative Procedures Act, specifically legislated in A.C.A. § 25-15-2 14 that any appeal of an agency decision must go to circuit court.

6. The Court is not aware of any statutory authority allowing any administrative appeals to be heard by the Arkansas State Claims Commission. Ark. Code Ann. § 19-10-204(b)(2)(A) does give the Claims Commission jurisdiction over claims which are barred by the doctrine of sovereign immunity from being litigated in a court of general jurisdiction. But as previously noted, the present matter is not an original claim; it is an administrative appeal that is part of a seamless process set up by the General Assembly.

7. To the extent that the Arkansas Supreme Court's decision in Andrews is applicable to administrative appeals under the Arkansas Administrative Procedures Act, the adjudicatory provisions of the Arkansas Administrative Procedures Act are now violative of Article 2, Section 13 of the Arkansas Constitution and violative of the due process clause of the United States Constitution until such time as the General Assembly can meet and amend the APA to be in conformity with both the Andrews case, Article 2, Section 13, and the due process clause.

8. The Defendants' Motion to Dismiss is granted with prejudice, and this case is dismissed. Ark. Code Ann. §§ 25-15-206, 207, 208, 209, 210, 212, 213, and 214 that are the adjudicatory provisions of the Arkansas Administrative Procedures Act are declared to be unconstitutional as written under th

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