Kinder Morgan CO2 v. State Tax. and Rev.

• Citation: 2009 NMCA 019,203 P.3d 110
• Decision Date: 30 October 2008
• Docket Number: No. 27,734.,27,734.
• Parties: KINDER MORGAN CO2 COMPANY, L.P., Plaintiff-Appellee, v. STATE of New Mexico TAXATION AND REVENUE DEPARTMENT, Defendant-Appellant.
• Court: Court of Appeals of New Mexico

203 P.3d 110

2009 NMCA 019

KINDER MORGAN CO2 COMPANY, L.P., Plaintiff-Appellee, v. STATE of New Mexico TAXATION AND REVENUE DEPARTMENT, Defendant-Appellant.

No. 27,734.

Court of Appeals of New Mexico.

October 30, 2008.

Hinkle, Hensley, Shanor & Martin, L.L.P., Andrew J. Cloutier, Joel M. Carson, III, Roswell, NM, for Appellee.

Gary K. King, Attorney General, Carolyn A. Wolf, Special Assistant Attorney General, Santa Fe, NM, for Appellant.

OPINION

SUTIN, Chief Judge.

{1} In this appeal involving severance taxes, we address the concept of excusable neglect in a Rule 1-060(B)(1) NMRA proceeding where an attorney is careless in failing to meet a deadline. We are also required to interpret a regulation of the New Mexico Taxation and Revenue Department (the Department) that allows a purchaser of an interest in a pipeline to deduct transportation costs from the price of the product sold. We hold that the district court did not abuse its discretion in finding excusable neglect under the circumstances. We also hold that the district court erred in its interpretation of the regulation and in determining that the taxpayer was entitled to a refund of severance taxes assessed and paid.

BACKGROUND

{2} The Bravo Dome Pipeline (the pipeline) was constructed prior to 1985 to transport compressed carbon dioxide from the production unit to the oil fields where it is injected into reservoirs to enhance oil production. Sun Oil Company (Sun), one of several original constructors of the pipeline, made a capital investment of approximately $7.9 million in the construction of the pipeline.

{3} In 1991 the Department adopted regulations allowing taxpayers to deduct the cost of transportation from the price of products sold away from the production unit. The regulation at issue states, in part:

[a]llowable transportation costs are ... depreciation expense, which includes depreciation on the pipeline or gathering system and associated equipment determined on the straight-line method based on the class life of the pipeline or gathering system and equipment and an appropriate salvage value for equipment. A successor in business or purchaser of assets shall base depreciation expense for the purposes of Section 3.18.6.9 NMAC upon the depreciation schedules of the previous owner[.]

3 NMAC 18.6.9(H)(4) (1991, as amended through 2000). Prior to the adoption of this regulation, the only transportation deduction allowed was the "reasonable expense of trucking the product from the production unit to the first place of market."

{4} In 1985 Shell Oil Company or a related entity (Shell) bought Sun's 13 percent interest in the pipeline for $45 million, and Shell claimed transportation deductions that included depreciation of its $45 million interest in the pipeline. When Kinder Morgan CO₂ Company, L.P. (Kinder Morgan) purchased Shell's interest in 1998, it based its depreciation expense on Shell's depreciation schedule.

{5} In September 2001, the Department issued an assessment claiming that Kinder Morgan owed $838,935.60 in underpaid taxes, interest, and penalties covering the period November 1996 through June 2000. The Department claimed that Regulation 3.18.6.9(H)(4) required depreciation to be calculated on the basis of the initial $7.9 million capital outlay by Sun, instead of on the basis of Shell's $45 million purchase price.

{6} Kinder Morgan paid the entire amount of the assessment and then filed a claim for refund in the district court pursuant to NMSA 1978, Section 7-1-26(C)(2) (2001) (amended 2003). In September 2003, the district court granted partial summary judgment in favor of Kinder Morgan on the issue of liability, which required the Department to refund all monies paid by Kinder Morgan on the depreciation portion of the Department's assessment.

{7} The issue of the amount of refund to be awarded remained for trial. The parties entered into settlement negotiations. In May 2005, the court issued an order vacating all deadlines after the attorney for Kinder Morgan informed the court that a settlement had been reached "in principle." After a judge reassignment, the court, in April 2006, conducted an administrative review of pending cases and issued an order under Rule 1-041(E)(2) NMRA dismissing the case without prejudice for lack of prosecution with reinstatement for good cause if shown in a motion filed within thirty days. Kinder Morgan's counsel received notice of this thirty-day Rule 1-041(E)(2) deadline but failed to enter a reminder in the firm's calendaring system. Having missed the deadline for reinstatement, Kinder Morgan filed a Rule 1-060(B)(1) motion for relief in July 2006, asking the district court to vacate the dismissal on the basis of attorney excusable neglect, relying on Pioneer Investment Services Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993), which defines "excusable neglect." In October 2006, the court granted this motion and reinstated Kinder Morgan's claim. Kinder Morgan thereafter obtained a judgment in its favor for the full refund plus interest, from which the Department appealed.

DISCUSSION

{8} On appeal, the Department asserts that (1) the district court abused its discretion under Rule 1-060(B)(1) when it vacated its Rule 1-041(E)(2) dismissal for failure to prosecute, and (2) the district court erred in granting summary judgment to Kinder Morgan on the issue of tax liability. The first issue turns on the legal definition of "excusable neglect" and whether we adopt the standard set forth in Pioneer. We adopt the Pioneer standard and conclude that the circumstances of this case are appropriate for granting Kinder Morgan relief despite its admitted failure to make a motion to reinstate within the thirty-day deadline required by Rule 1-041(E)(2). The second issue requires us to determine whether Regulation 3.18.6.9(H)(4) required Kinder Morgan to use Sun's original construction cost in calculating pipeline depreciation or instead use Shell's depreciation schedule because Shell was Kinder Morgan's immediate predecessor in ownership. We conclude that the district court erred in its interpretation and application of the regulation favoring Kinder Morgan. We discuss the circumstances giving rise to the foregoing issues in more detail later in this opinion.

I. Excusable Neglect Under Rule 1-060(B)(1)

A. Standard of Review

{9} "We generally review the district court's grant of relief under Rule 1-060(B) for an abuse of discretion except in those instances where the issue is one of pure law[.]" Martinez v. Friede, 2004-NMSC-006, ¶ 19, 135 N.M. 171, 86 P.3d 596 (citation omitted), superseded on other grounds by Rule 1-059 NMRA as stated in State v. Moreland, 2008-NMSC-031, ¶ 11, 144 N.M. 192, 185 P.3d 363; see also Meiboom v. Watson, 2000-NMSC-004, ¶ 29, 128 N.M. 536, 994 P.2d 1154 (addressing Rule 1-060(B)(6)); Edens v. Edens, 2005-NMCA-033, ¶¶ 13-14, 137 N.M. 207, 109 P.3d 295 (addressing Rule 1-060(B)(1), (3), (5), and (6)). The scope of Rule 1-060(B)(1) and application of the rule to the facts involve questions of law which we review de novo. See N.M. Right to Choose/NARAL v. Johnson, 1999-NMSC-028, ¶ 7, 127 N.M. 654, 986 P.2d 450 ("[E]ven when we review for an abuse of discretion, our review of the application of the law to the facts is conducted de novo." (internal quotation marks and citation omitted)). We review the district court's decision as to whether neglect was excusable for abuse of discretion.

An abuse of discretion occurs when the ruling is clearly against the logic and effect of the facts and circumstances of the case. We cannot say the trial court abused its discretion by its ruling unless we can characterize it as clearly untenable or not justified by reason. When there exist reasons both supporting and detracting from a trial court decision, there is no abuse of discretion.

Moreland, 2008-NMSC-031, ¶ 9, 144 N.M. 192, 185 P.3d 363 (internal quotation marks and citations omitted). To reverse the district court under an abuse-of-discretion standard, we must determine that the court's decision as to excusable neglect under Rule 1-060(B)(1) was "arbitrary, fanciful, or unreasonable." Meiboom, 2000-NMSC-004, ¶ 29, 128 N.M. 536, 994 P.2d 1154 (internal quotation marks and citation omitted).

B. Definition of Excusable Neglect

{10} In general, proper application of Rule 1-060(B) requires courts to balance interests of finality versus relief from unjust judgments. See Phelps Dodge Corp. v. Guerra, 92 N.M. 47, 50, 582 P.2d 819, 822 (1978). We currently have no explicit guidance in New Mexico decisions on what constitutes "excusable neglect" for purposes of granting relief under Rule 1-060(B)(1). See Rodriguez v. Conant, 105 N.M. 746, 747, 750, 737 P.2d 527, 528, 531 (1987) (mentioning, but not reaching, the issue of whether "mere carelessness" is excusable neglect under Rule 1-060(B)(1)); Capco Acquisub, Inc. v. Greka Energy Corp., 2007-NMCA-011, ¶ 27, 140 N.M. 920, 149 P.3d 1017 (applying excusable neglect to Rule 12-201(E)(2) NMRA, and stating that "there are few New Mexico cases elaborating on the concept of excusable neglect"); Adams v. Para-Chem Southern, Inc., 1998-NMCA-161, ¶ 8, 126 N.M. 189, 967 P.2d 864 (addressing "`admittedly inexcusable conduct'" under Rule 1-060(B)(1)). In Rodriguez, our Supreme Court overruled an unpublished decision of this Court which held that "mere carelessness did not constitute excusable neglect under Rule 1-060(B)(1)." Rodriguez, 105 N.M. at 750, 737 P.2d at 531 (internal quotation marks omitted). However, the Supreme Court in Rodriguez did not address whether that holding was correct because it decided the case under Rule 1-060(B)(6) instead. Rodriguez, 105 N.M. at 750, 737 P.2d at 531. Nonetheless, the Court noted that under Rule 1-060(B)(1) it is for the district court, in the first instance, "to determine what is a good excuse, and that the district court should be liberal in that...