Great Lakes Chemical Corp. v. Bruner

• Decision Date: 16 November 2006
• Docket Number: No. 06-73.,06-73.
• Parties: GREAT LAKES CHEMICAL CORPORATION, Appellant, v. Scott D. BRUNER, in his Official Capacity as Interim Director of the Arkansas Oil & Gas Commission, Spence A. Leamons, W. Frank Morledge, Chad White, Mike Davis, Carolyn Pollan, Charles Wohlford, and Bill Poynter, in their Official Capacities as Duly Appointed and Acting Commissioners of the Arkansas Oil & Gas Commission; and W.H. Arnold and Bill Bush, in their Official Capacities as Duly Appointed Special Commissioners of the Arkansas Oil & Gas Commission, Appellees, Albemarle Corporation, Cross-Appellant.
• Court: Arkansas Supreme Court

243 S.W.3d 285

368 Ark. 74

GREAT LAKES CHEMICAL CORPORATION, Appellant, v. Scott D. BRUNER, in his Official Capacity as Interim Director of the Arkansas Oil & Gas Commission, Spence A. Leamons, W. Frank Morledge, Chad White, Mike Davis, Carolyn Pollan, Charles Wohlford, and Bill Poynter, in their Official Capacities as Duly Appointed and Acting Commissioners of the Arkansas Oil & Gas Commission; and W.H. Arnold and Bill Bush, in their Official Capacities as Duly Appointed Special Commissioners of the Arkansas Oil & Gas Commission, Appellees, Albemarle Corporation, Cross-Appellant.

No. 06-73.

Supreme Court of Arkansas.

November 16, 2006.

Friday, Eldredge & Clark, LLP, by: R. Christopher Lawson, Fayetteville, AR, for appellant/cross-appellee, Great Lakes Chemical Corporation.

Mike Beebe, Att'y Gen., by: Thomas S. Gay, Sr. Ass't Att'y Gen., Arnold Jochums, Ass't Att'y Gen., and Elizabeth Thomas Smith, Ass't Att'y Gen., for appellees Scott D. Bruner; Spence A. Leamons; W. Frank Morledge; Chad White; Mike Davis; Carolyn Pollan; Charles Wohlford; Bill Poynter, W.H. Arnold, and Bill Bush.

Chisenhall, Nestrud & Julian, P.A., by: Jim L. Julian, Little Rock, AR; Bell Law Firm, by: Ronny J. Bell, Magnolia, AR, for appellee/cross-appellant, Albemarle Corporation.

ROBERT L. BROWN, Justice.

This appeal involves a petition for judicial review of an order from the Arkansas Oil and Gas Commission (Commission). The Union County Circuit Court affirmed the order of the Commission, and this appeal followed. We affirm the order of the Commission on direct appeal, and we further affirm the order of the Commission on cross-appeal.

On August 13, 1996, the Commission entered an order, which we will call the West Brine Unit Order in this opinion. That order authorized the unit operation of certain lands in Union County (the West Plant Unit) for the production of brine from the Smackover lime formation. The West Brine Unit Order designated Great Lakes Chemical Corporation as operator of the West Plant Unit and also approved a Brine Unit Operating Agreement (Operating Agreement), which was subsequently executed by both Great Lakes and Albemarle Corporation. Albemarle was the owner of a 16.785% non-operating, working interest in the West Plant Unit. Under the West Brine Unit Order, a percentage of production costs associated with the West Brine Field¹ would be borne solely by the unit operator, Great Lakes.

In 1998, without notice to the Commission or Albemarle, Great Lakes changed its accounting methodology with respect to the assessment of costs for the entire West Brine Field and allocated those field expenses to non-operating unit owners in the West Plant Unit, including Albemarle.²

On January 13, 1999, Albemarle notified Great Lakes of its election to begin taking brine through Great Lakes's pipeline system pursuant to the Operating Agreement. The parties then entered into a Brine Balancing Agreement to facilitate Albemarle's taking of brine and to provide a method of balancing the brine production from the West Plant Unit when one party takes more brine or natural gas than that party's proportionate share. Albemarle began taking brine in 2000 and, pursuant to the Brine Balancing Agreement, used pipelines, injection pumps, and disposal wells owned by Great Lakes for the disposal of spent brine.

On November 4, 2002, Albemarle filed an application with the Commission for an order to enforce the cost-allocation terms of the West Brine Unit Order and the Operating Agreement for the West Plant Unit. Albemarle asserted in that application that Great Lakes's 1998 change in accounting methods allocated expenses to non-operating, working interest owners that were not proper expenses under the Operating Agreement, and, thus, this assessment of costs was not in accordance with the West Brine Unit Order. Albemarle's application asked that Great Lakes be directed to discontinue immediately all cost allocations to non-operating, working interest owners that were not in strict compliance with the Operating Agreement. Albemarle's application further asked that failure to comply with the terms of the Operating Agreement and West Brine Unit Order be grounds for removal of Great Lakes as the operator of the West Plant Unit.

On April 12-14, 2004, the Commission held a public hearing on Albemarle's application. Following that hearing, it granted Albemarle's application by order dated September 23, 2004, and directed Great Lakes to return to the accounting procedures agreed to in the Operating Agreement and approved by the Commission in its 1996 order. Prior to the hearing, Great Lakes moved the Commission for partial summary judgment, seeking a determination that Great Lakes be permitted to charge Albemarle for its use of Great Lakes's disposal pipeline system for transporting spent brine. In its 2004 order, the Commission granted that motion and ruled that Great Lakes could charge Albemarle for its proportionate use of the system.

Great Lakes then petitioned the Union County Circuit Court for judicial review of the Commission's decision pursuant to Arkansas Code Annotated § 15-76-321 of the Arkansas Brine Production Act and § 25-15-212 of the Administrative Procedures Act (APA) and sought reversal of the Commission's order granting Albemarle's application. Albemarle cross-petitioned for judicial review and asked for reversal of the Commission's ruling that allowed Great Lakes to charge Albemarle for its use of the disposal pipeline system to transport spent brine.

In an order entered on September 29, 2005, the circuit court affirmed the Commission's order. In doing so, it ruled that the Commission had subject-matter jurisdiction to decide the cost-assessment dispute and that all findings made by the Commission were supported by substantial evidence. The circuit court also granted a motion filed by the Commission to exclude additional evidence from being filed in that court and limited the evidence it would consider to that contained in the record before the Commission.

I. Jurisdiction of the Commission

We first address the issue of the Commission's subject-matter jurisdiction to hear Albemarle's petition regarding cost allocation. It is Great Lakes's position that the allocation of field costs to owners in the West Plant Unit involves only the Operating Agreement between Great Lakes and Albemarle, which is a private contract. Accordingly, Great Lakes urges that this contract dispute is more appropriately decided by the circuit court and not by the Commission:k

The Brine Production Act gives the Commission jurisdiction and authority over all parties and property necessary to enforce the Act's provisions. See Ark.Code Ann. § 15-76-306(a) (Repl.1994). Under the Act, it is the Commission that has the authority to enforce brine production unit orders and to enforce the cost and expense allocations of operations incorporated into those orders. See Ark.Code Ann. § 15-76-311(3) and (4) (Repl.1994). According to the Brine Production Act, brine production unit orders must include a provision describing the costs of the unit, as well as credits, charges, and other expenses involved in the operation and development of the unit and the time and manner in which owners of the unit are responsible for payment. See Ark.Code Ann. § 15-76-311(3), (4), and (5) (Repl.1994).

In the instant case, the 1996 West Brine Unit Order does not contain a separate provision for costs as required by the Brine Production Act, but rather relies on the Operating Agreement approved and subsequently executed by Albemarle and Great Lakes. This is clear from the terms of the Order itself. In the Order's finding of facts, the Commission states that the Operating Agreement "contains a provision for any credit and charges to be made in the adjustment among the owners in the unit for both their allocated costs of the total investment in wells, ... pumps, machinery, materials, and equipment required by such brine production." The Order further concludes that "the creation of such brine production unit by the approval of the [Operating Agreement] ... together with the exhibits annexed thereto is necessary to prevent waste, to secure the greatest possible economic recovery of brine and the chemical substances contained therein and to protect the correlative rights of all owners and the plan of development and operation thereof is therefore hereby approved." Finally, the Order states that "all owners in such unit who have not otherwise agreed to participate therein by the execution and delivery of a salt water (brine) lease and who may desire to pay their share of the costs ... and participate in the operations of the unit may elect to do so within sixty (60) days from the effective date hereof by executing the [Operating Agreement] in form identical to that introduced as Exhibit J herein...."

Hence, the Operating Agreement was reviewed and approved by the Commission. Had the Operating Agreement not been approved, the West Brine Unit Order could not have been entered. Further, the' West Brine Unit Order specifically states that the Commission retains jurisdiction over the parties and subject matter involved to enter any further orders as necessary.

Great Lakes cites to several cases from other states for the proposition that an oil and gas commission cannot adjudicate disputes between parties arising from private operating agreements. In particular, it cites to Leede Oil & Gas, Inc. v. Corporation Commission, 747 P.2d 294 (Okla.1987) and Samson Resources Co. v. Corporation Commission, 702 P.2d 19 (Okla.1985), where the Oklahoma Supreme Court held that the Oklahoma Corporation Commission (Oklahoma's equivalent to the Arkansas Oil and Gas Commission) did not have jurisdiction to resolve disputes between parties arising out of private operating agreements,

Both cases, however, are distinguishable from the facts presented here. In those cases, the parties entered into a private...