CIG Exploration, Inc. v. State

• Decision Date: 04 May 2001
• Docket Number: No. 990412.,990412.
• Citation: 24 P.3d 966,2001 UT 37
• Parties: CIG EXPLORATION, INC., Plaintiff and Appellant, v. STATE of Utah and Richard J. Mitchell, Director, Department of Natural Resources, Division of State Lands and Forestry, Defendants and Appellees.
• Court: Utah Supreme Court

24 P.3d 966

2001 UT 37

CIG EXPLORATION, INC., Plaintiff and Appellant, v. STATE of Utah and Richard J. Mitchell, Director, Department of Natural Resources, Division of State Lands and Forestry, Defendants and Appellees.

No. 990412.

Supreme Court of Utah.

May 4, 2001.

Maxwell A. Miller, Douglas R. Davis, Salt Lake City, Debra K. Broussard, Houston, for plaintiffs.

Rodney G. Snow, Neil A. Kaplan, Anneli R. Smith, Salt Lake City, for defendants.

HOWE, Chief Justice:

¶ 1 Plaintiff CIG Exploration, Inc. (CIGE) appeals from the trial court's judgment that the statute of limitations contained in section 78-12-25(1) of the Utah Code barred recovery of royalties it allegedly overpaid defendant State of Utah.

BACKGROUND

¶ 2 The material facts are undisputed. In the early 1970s, the Federal Power Commission (FPC) set specific wellhead prices that could be charged for natural gas. In 1973, CIGE and its parent company, Colorado Interstate Gas Company (CIG), entered into a settlement agreement with certain of CIG's customers providing that CIGE could charge CIG, and in turn CIG could charge its resale customers, higher prices than had previously been allowed by the FPC, provided the terms and conditions of the settlement agreement were met. The State of Utah was not a party to this agreement.¹

¶ 3 In 1978, Congress enacted the Natural Gas Policy Act (NGPA), 15 U.S.C. § 3317 (1982), which sharply curtailed the FPC's authority to set specific wellhead prices and established general statutory ceiling prices for various categories of gas. The NGPA ceiling prices were substantially higher than the previous specific wellhead prices, but private parties were free to bargain for lower rates. In 1981, CIGE started charging CIG and CIG started charging its resale customers the higher prices, including the incentive "tight sands" prices under § 107 of the NGPA, id. at § 3317(c)(5), for gas produced from state property leased to CIGE.² CIGE paid royalties and taxes based on the higher § 107 revenues.

¶ 4 In 1982, some of CIG's resale customers challenged CIG's gas prices under the NGPA claiming that those prices violated the settlement agreement. See Colorado Interstate Gas Co., et al., 32 FERC ¶ 63, 033, 1985 WL 68307 (1985).³ The Federal Energy Regulatory Commission (FERC) ruled on July 24, 1985, that CIG had breached the 1973 agreement because CIG's resale customers had not consented to pay "tight sands" prices. See generally id. That decision was affirmed in part and reversed in part on July 7, 1988, by FERC opinion 306 wherein FERC found that § 107 incentive pricing could be allowed on a case-by-case basis upon a determination of the contracting parties' intent in interpreting the specific contracts. See Colorado Interstate Gas Co., 44 FERC ¶ 61, 023, 1988 WL 245098 (opinion 306). FERC concluded, however, that while the settlement agreement allowed CIGE and CIG to charge certain NGPA prices, the agreement did not permit them to charge the higher "tight sands" prices under § 107 absent contract renegotiation with CIG's resale customers. Id. at pp. 61, 88-89. Finding that CIG had failed to reach a "negotiated contract price" with its resale customers to charge the "tight sands" prices, FERC ordered CIGE to refund the difference between the lower prices and the higher prices actually charged. Id. FERC denied rehearing on its decision on November 28, 1988. Colorado Interstate Gas Co., 45 FERC ¶ 61, 293, 1988 WL 246595 (1988) (opinion 306A).

¶ 5 CIGE was a lessee of the State by assignment of mineral leases on State property located in the Natural Buttes Unit in Uintah County. These leases required CIGE to pay a royalty to the State based on a percentage of the "reasonable market value" at the well on all gas produced from the leased premises. The State received royalties based on § 107 "tight sands" pricing from CIGE and other producers in the Natural Buttes Unit during the relevant time period. It is undisputed that the State did not approve in whole or conditionally any contract for the sale of gas to third parties by CIG or CIGE.⁴ None of the other producers have ever requested refunds based on FERC's disallowance of such incentive pricing. The last royalty payment at issue was received by the State in April 1985 for March 1985 production.

¶ 6 About three years after FERC issued opinion 306, CIGE brought this action against the State in July 1991 alleging that throughout the early 1980s CIGE "systematically overpaid royalties to the State." Two weeks earlier, it also filed a nearly identical action in the United States District Court for the District of Utah seeking reimbursement from certain overriding royalty interest owners. CIG Exploration, Inc. v. Hill, 824 F.Supp. 1532 (D.Utah 1993). The federal district court recognized a federal common law cause of action for equitable reimbursement, but granted summary judgment to the overriding royalty interest owners because CIGE's action was barred by the four-year statute of limitations in section 78-12-25(1) of the Utah Code. Id. That judgment was affirmed by the Court of Appeals for the Tenth Circuit. See CIG Exploration, Inc. v. Tenneco Co., 83 F.3d 431, 1996 WL 194994 (10th Cir.1996). The court of appeals declined to address whether a federal common law claim existed, holding instead that any such claim, if it existed, would be time-barred. Tenneco Co., 1996 WL 194994, n. 1, 1996 U.S.App. Lexis 9272, at 3, n. 1.

¶ 7 The instant action was stayed in the trial court pending the outcome of CIGE's appeal to the Tenth Circuit. After an adverse ruling by the court of appeals in Tenneco, CIGE stipulated in this action that collateral estoppel barred five of the six theories it had initially relied upon. However, CIGE asserted that its federal common law equitable claim for reimbursement should survive because the federal district court mistakenly applied section 78-12-25(1) to the federal equitable claim. On October 9, 1996, CIGE amended its complaint to add a claim for relief for breach of the implied covenant of good faith and fair dealing. The trial court did not reach judgment on the merits of CIGE's claims, but followed the federal district court and granted summary judgment for the State, holding that both of CIGE's claims were time-barred under section 78-12-25(1). CIGE appeals.

ANALYSIS

¶ 8 While the parties have extensively briefed and argued the merits of the claims, we limit our review to whether the trial court accurately applied the statute of limitations to each claim. Although we must discuss the nature of CIGE's claims to determine the applicability of the statute of limitations, we do not undertake here to decide the merits of either claim.

I. EQUITABLE REIMBURSEMENT UNDER FEDERAL COMMON LAW

¶ 9 The trial court relied on section 78-12-25(1) to bar the equitable reimbursement claim. That section provides that

An action may be brought within four years:

(1) upon a contract, obligation, or liability not founded upon an instrument in writing;. . . provided, that action in all of the foregoing cases may be commenced at any time within four years after the last charge is made or the last payment is received.

Utah Code Ann. § 78-12-25(1) (1996).

¶ 10 In its amended complaint, CIGE pleaded: "Justice and fairness demand that CIGE have a cause of action under federal common law for reimbursement of the overcharges which were received by the State as royalty owner." Because CIGE's federal common law cause of action is based upon "justice and fairness," it sounds in equity and is not based on a written contract. Thus, we must apply the four-year statute of limitations in section 78-12-25(1). Claims falling within this limitation period are time-barred "within four years after the last charge is made or the last payment is received." Id. CIGE made its last payment to the State in April 1985 and filed this action in July 1991 after the four-year period had lapsed.

¶ 11 CIGE argues that the equitable principle of laches, not section 78-12-25(1), should apply to the federal equity claim. In support of this position, CIGE relies on Louisiana Land & Exploration Co. v. Unocal Corp., 863 F.Supp. 306 (E.D.La.1994), where the federal district court held that a state statute of limitations did not apply to a federal common law claim for equitable restitution of a percentage of a settlement paid to the Department of Energy for overcharges of crude oil under various federal acts. However, that decision is inconsistent with the general rule that federal courts apply state statutes of limitations by analogy to like causes of action. See Lampf, Pleva, Lipkind, Prupis & Petigrow v. Gilbertson, 501 U.S. 350, 355-56, 111 S.Ct. 2773, 2778, 115 L.Ed.2d 321, 331 (1991)

; Pipkin v. USPS, 951 F.2d 272, 274 (10th Cir.1991); Shell v. Strong, 151 F.2d 909, 911 (10th Cir.1945). Equitable claims will be barred after the time fixed by the analogous statute of limitations unless extraordinary circumstances make the application unjust. See id.

¶ 12 The federal district court addressed this same issue in Hill, determining that the equitable tolling doctrine did not shield CIGE from the reach of section 78-12-25(1). See824 F.Supp. at 1548-49. The court reasoned that when several of CIG's resale customers sued for overpayment in 1982, CIGE was put on notice of questions regarding the legality of its use of tight sands prices. See id. at 1548. Nevertheless, CIGE continued to make royalty payments to royalty interest owners based on the "tight sands" prices until April 1985. On July 24, 1985, an administrative law judge ruled that CIG was not allowed to charge tight sands prices because CIG's resale customers had not consented to those prices. On July 7, 1988, FERC affirmed that CIG did not have authority to charge the "tight sands" prices. In 1989, the parties entered into a settlement, wherein CIG agreed to refund overcharges to its customers. FERC approved the 1989 settlement on August 1,...