Maralex Res., Inc. v. Barnhardt

• Decision Date: 18 January 2019
• Docket Number: No. 17-1421,17-1421
• Citation: 913 F.3d 1189
• Parties: MARALEX RESOURCES, INC., a Colorado Corporation; Alexis M. O'Hare; Mary C. O'Hare, Plaintiffs - Appellants, v. David BARNHARDT, in His Official Capacity as Acting Secretary of the United States Department of the Interior; The United States Department of Interior; The United States of America, Defendants - Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

913 F.3d 1189

MARALEX RESOURCES, INC., a Colorado Corporation; Alexis M. O'Hare; Mary C. O'Hare, Plaintiffs - Appellants,

v.David BARNHARDT, in His Official Capacity as Acting Secretary of the United States Department of the Interior; The United States Department of Interior; The United States of America,^* Defendants - Appellees.

No. 17-1421

United States Court of Appeals, Tenth Circuit.

FILED January 18, 2019

William E. Zimsky, Abadie & Schill, PC, Durango, Colorado, appearing for the Appellants.

Tamara N. Rountree, Attorney, Environmental and Natural Resources Division, United States Department of Justice, Washington, DC (Jeffrey H. Wood, Acting Assistant Attorney General, and Eric Grant, Deputy Assistant Attorney General, United States Department of Justice, Washington, DC; William Lazarus and John L. Smeltzer, Attorneys, Environmental and Natural Resources Division, United States Department of Justice, Washington, DC; and Philip C. Lowe, Rocky Mountain Regional Solicitor’s Office, Department of the Interior, Lakewood, Colorado, with her on the brief), appearing for the Appellee.

Before BRISCOE, LUCERO, and MATHESON, Circuit Judges.

BRISCOE, Circuit Judge.

Plaintiffs Maralex Resources, Inc. (Maralex), Alexis O’Hare and Mary C. O’Hare (the O’Hares) filed this action against the Secretary of the Department of the Interior (Secretary), the Department of the Interior, and the United States seeking review of a decision of the Interior Board of Land Appeals (IBLA) upholding four Notices of Incidents of Noncompliance that were issued by the Bureau of Land Management’s (BLM’s) Tres Rios Field Office to Maralex for failing to allow a BLM representative to access certain oil and gas lease sites operated by Maralex on land owned by the O’Hares. The district court affirmed the IBLA’s decision. Plaintiffs now appeal.

Exercising jurisdiction pursuant to 28 U.S.C. § 1291, we conclude that the BLM, in issuing the Notices of Incidents of Noncompliance, lacked authority to require plaintiffs to provide BLM with a key to a lease site on privately-owned land or to allow the BLM to install its own locks on the gates to such lease site. Consequently, we reverse and remand to the district court with instructions to enter judgment in favor of plaintiffs on this "key or lock" issue.

I

The Parcel and its component Tracts

At issue in this case is a 320-acre parcel of land (the Parcel) that is located in the S1/2 of Section 35, Township 34 South, Range 7 West in La Plata County in southwestern Colorado. The Parcel, which is comprised of 240 acres of private surface/mineral estate and 80 acres of Indian surface/mineral estate, lies over the Ignacio Blanco gas field and the Fruitland coal formation.

The O’Hares own the surface and mineral estate in a 120-acre tract of land in the SW1/4SE1/4 and E1/2SW1/4 of the Parcel (the O’Hare Tract). The Southern Ute Indian Tribe (Tribe) holds the surface and mineral estate in the W1/2SW1/4 of the Parcel (the Tribe Tract). The remainder of the Parcel (the Remainder Tract)—the N1/2SE1/4 and SE1/4SE1/4—is privately-owned by the O’Hare family, J. Elmer and Wanda Lee Kenner, and Irma Rowse.

The leases of the Tracts

On June 6, 1974, the Tribe, acting pursuant to the Indian Mineral Leasing Act of 1938, 25 U.S.C. §§ 396a - 396g (2012), issued to Sun Oil Company an Indian oil and gas lease, Mining Lease Contract No. MOO-C-1420-1531, for its mineral estate in the Tribe Tract. Amoco Production Company (Amoco) later took over as the lessee.

On April 28, 1995, the O’Hares issued to Maralex¹ a private oil and gas lease for the O’Hare Tract. SG Interests III, Ltd. (SG III) later joined Maralex as co-lessee.

The O’Hares, Kenners, and Rowse issued three private oil and gas leases covering the Remainder Tract. SG III and Maralex became the lessees of those leases.

The Communitization Agreement

In 1996, all of the parties (SG III, Maralex, the Tribe, the O’Hares, Kenners, and Rowse) "communitized" their coal and gas interests in the Parcel under the terms of a written agreement. More specifically, in a written Communitization Agreement (CA) dated May 1, 1996, the parties agreed to develop and operate the Parcel "as an entirety, with the understanding and agreement ... that all Communitized Substances produced therefrom [would] be allocated among the leaseholds comprising said area in the proportion that the acreage interest of each leasehold bears to the entire acreage interest committed to [the CA]." Aplt. App. at 3. The CA further stated, in pertinent part, that "[t]he royalties payable on Communitized Substances allocated to the individual leases comprising the [Tract] ... shall be determined and paid on the basis prescribed in each of the individual leases." Id.

Two other provisions of the CA are relevant to this case. First, the CA stated: "This agreement shall be subject to all applicable Federal and State laws or executive orders, rules and regulations ...." Id. at 4. In addition, the CA stated: "It is agreed between the Parties Hereto that the Secretary of the Interior, or his duly Authorized Officer, shall have the right of supervision over all operations within the Communitized Area to the extent same includes the oil and gas lease(s) under which the ... Tribe is lessor and insofar as governed by applicable oil and gas regulations of the Department of Interior." Id. at 5.

The CA was approved by the Tribe and the Bureau of Indian Affairs (BIA) effective May 1, 1996.

The wells operating under the CA

There are four wells associated with the CA and arising from the underlying leases, all of which are operated by Maralex. The four wells are physically situated in two areas on the O’Hares’ private surface estate in the O’Hare Tract. Each such area is enclosed by a fence and a locked gate. All four of the wells are producing "both fee and Tribal minerals" from the Fruitland coal formation. Id. at 32. Although the oil and gas at issue is produced from private mineral interests and from wells situated on private surface estates, such production is, under the terms of the CA, allocated to all of the oil and gas interests, including that of the Tribe, as the owner of record title to the mineral estate in the Tribe’s Section of the Parcel.

BLM’s attempt to inspect the wells

On February 11, 2013, Gabriel Trujillo, a Petroleum Engineering Technician employed by the BLM, sent an email to Maralex stating that he planned to inspect the four wells. On February 12, 2013, Christi Reid, a Maralex employee, responded by email, noted that the wells were situated "on Mickey O’Hare’s property," and stated that she envisioned "problems with him granting access" to Trujillo. Id. at 18. One day later, on February 13, 2013, Reid emailed Trujillo again, stating: "I talked to Mickey O’Hare and let him know that you want to inspect the ... wells. He wants to talk to you directly ...." Id.

On February 22, 2013, Trujillo drove to the Parcel in an attempt to examine the wells. Upon arrival, Trujillo found that there was a locked gate that prevented him from examining the wells. That same day, Trujillo spoke by phone with Mickey O’Hare. O’Hare informed Trujillo that he had no right to inspect the wells because O’Hare owned both the surface and mineral rights.

BLM’s issuance of INCs to Maralex

On February 26, 2013, Trujillo completed four official BLM forms entitled "Notice of Incidents of Noncompliance" (INC). Id. at 23. The INCs noted that Trujillo had attempted unsuccessfully to access the wells on February 22, 2013. The INCs, which were sent to Maralex, alleged that Maralex was in violation of 43 C.F.R. § 3162.1(b), and they gave Maralex until March 25, 2013, to provide Trujillo and the BLM with access to the wells. In the "Remarks" section of the INCs, Trujillo stated: "For corrective action, I will need a key to access the location or be able to put a BLM lock in with it." Id. at 24.

Maralex’s administrative appeal of the INCs

On March 27, 2013, a law firm representing Maralex and the O’Hares sent a letter to BLM appealing the four INCs. The letter asserted that the BLM had misinterpreted its authority to inspect oil and gas wells located on private land. More specifically, the letter asserted that the BLM "ha[d] limited authority to inspect facilities on Fee Tracts" and that the applicable regulations "only allow[ed] annual inspections" of such wells. Id. at 33. The letter also asserted that "there [wa]s no statutory authority nor ... any legitimate justification for giving the BLM unbridled discretion to search the facilities at issue in order to ensure that there [wa]s adequate site security measurement and that Maralex [wa]s properly measuring the production and operation of the wells." Id."Thus," the letter asserted, "BLM’s request for a key to any gates to conduct inspections [wa]s violative of Maralex’s constitutionally guaranteed protection against unreasonable searches under the Fourth Amendment." Id. Lastly, the letter asserted that "there [wa]s no legal authority for the BLM’s demand for unfettered access to the O’Hare’s surface." Id. And the letter argued that "[i]f the BLM was entitled to unfettered right to access O’Hare’s property under Section 3162.1(b), it would constitute a regulatory taking of O’Hare’s property in violation of O’Hare’s property rights as guarantee [sic] by the takings clause of the Fifth Amendment." Id. at 34.

On April 10, 2013, the BLM notified Maralex’s counsel that it was treating the March 27, 2013 letter "as a request for State Director’s review (SDR) ... under 43 CFR 3165.3." Id. at 88.

On July 9, 2013, the BLM’s Deputy State Director, Energy, Lands, and Minerals, Colorado State Office, sent a letter to Maralex’s counsel responding to each point raised by Maralex’s counsel. The letter disagreed that the applicable regulations allowed only for "annual inspections for fee tracts in a CA." Id. at 90. Rather, the letter asserted, the "inspected annually" language in the regulation merely established a minimum standard as to...