Rosette, Inc. v. U.S. Dept. of the Interior

• Decision Date: 05 January 2007
• Docket Number: No. 26,013.,26,013.
• Citation: 169 P.3d 704,2007 NMCA 136
• Parties: ROSETTE, INC., a New Mexico Corporation, Plaintiff-Appellant, v. The UNITED STATES of America DEPARTMENT OF the INTERIOR, United States Bureau of Land Management, State of New Mexico State Engineer, State of New Mexico Commissioner of Public Lands, Roy A. Hatch, Fred Kerr, Sr., Gregory D. Kerr and Cody G. Kerr, Farm Credit Bank of Wichita, Farmers Home Administration, Van Martin Wamel, Clinton E. Dugan, William M. Massey and Billy F. Massey, Andy and Louise Peterson, Bill Veck and Deming National Bank, Truman and Elaine Shannon, Santa Fe Ingredients Co., Inc., A.G. Ramos and Langford Keith, Equitable Life Assurance Soc., Don Burton and Federal Land Bank, Armando Dominguez, Paul Rodriguez, Jerry Vack, W.W. Roark, Thelma Wartman Smith, Western Bank, Houston and F.L.B. Moore, Americulture, Inc., Devaun Richins, Archie Payne, Federal Land Bank of Wichita, John C. and Jody Hatch, Pearl M. Kerr, and Eddie Hale Kerr, Defendants-Appellees.
• Court: Court of Appeals of New Mexico

169 P.3d 704

2007 NMCA 136

ROSETTE, INC., a New Mexico Corporation, Plaintiff-Appellant, v. The UNITED STATES of America DEPARTMENT OF the INTERIOR, United States Bureau of Land Management, State of New Mexico State Engineer, State of New Mexico Commissioner of Public Lands, Roy A. Hatch, Fred Kerr, Sr., Gregory D. Kerr and Cody G. Kerr, Farm Credit Bank of Wichita, Farmers Home Administration, Van Martin Wamel, Clinton E. Dugan, William M. Massey and Billy F. Massey, Andy and Louise Peterson, Bill Veck and Deming National Bank, Truman and Elaine Shannon, Santa Fe Ingredients Co., Inc., A.G. Ramos and Langford Keith, Equitable Life Assurance Soc., Don Burton and Federal Land Bank, Armando Dominguez, Paul Rodriguez, Jerry Vack, W.W. Roark, Thelma Wartman Smith, Western Bank, Houston and F.L.B. Moore, Americulture, Inc., Devaun Richins, Archie Payne, Federal Land Bank of Wichita, John C. and Jody Hatch, Pearl M. Kerr, and Eddie Hale Kerr, Defendants-Appellees.

No. 26,013.

Court of Appeals of New Mexico.

January 5, 2007.

Certiorari Denied, No. 30,213, March 19, 2007.

Domenici Law Firm, P.C., Charles N. Lakins, Albuquerque, NM, for Appellant.

Sue Ellen Wooldridge, Assistant Attorney General, United States Department of Justice, Environment & Natural Resources Division, Kathryn E. Kovacs, John E. Arbab, Sarah L. Inderbitzin, U.S. Department of the Interior, of Counsel, Washington, DC, for Federal Appellees.

DL Sanders, Stacey J. Goodwin, Special Assistant Attorneys General, Santa Fe, NM, for Appellee State of New Mexico ex rel. New Mexico State Engineer.

OPINION

PICKARD, Judge.

{1} Plaintiff, Rosette, Inc. (Rosette), appeals an order granting summary judgment to Defendant, United States Department of Interior (United States), and an order dismissing its petition to adjudicate all underground water rights in the Animas Valley Underground Water Basin. We hold that (1) the district court properly concluded it did not have jurisdiction to determine ownership of geothermal resources reserved by the United States; (2) relitigation of Rosette's claim is barred by res judicata and collateral estoppel; (3) Rosette's claim fails on the merits under the Geothermal Steam Act of 1970, 30 U.S.C. §§ 1001-28 (2000), and the Stock-Raising Homestead Act of 1916, 43 U.S.C. §§ 299, 301 (2000); and (4) NMSA 1978, § 71-5-2.1 (2003), does not preempt or modify existing federal law that defines the heated water at issue as a geothermal resource subject to royalty payments to the United States. We therefore affirm the order granting summary judgment in favor of the United States. We also hold that the district court did not err in dismissing Rosette's petition for an adjudication of all underground water rights.

I. BACKGROUND

{2} Rosette grows roses in greenhouses for commercial distribution. Rosette owns the surface estate to the real property in Hidalgo County on which the greenhouses are located. Rosette traces title to that property back to patents issued in 1933 and 1935 by the United States under the Stock-Raising Homestead Act. Patents issued under the Stock-Raising Homestead Act reserved all minerals in the land for the United States. 43 U.S.C. § 299(a). The patented lands held by Rosette are subject to such a reservation.

{3} The Federal Geothermal Steam Act authorizes the Secretary of the Interior to lease geothermal resources owned or reserved by the United States. 30 U.S.C. § 1002. "Geothermal resources" are defined, in part, as "all products of geothermal processes, embracing indigenous steam, hot water and hot brines" and "heat or other associated energy found in geothermal formations." 30 U.S.C. § 1001(c). The Geothermal Steam Act establishes a system of rents and royalties for the use of such geothermal resources. 30 U.S.C. § 1004.

{4} Pursuant to the Geothermal Steam Act, the United States claims ownership of the geothermal resources beneath Rosette's surface estate as mineral interests and leases rights to various leaseholders for their use. In 1978, Rosette entered into an agreement with leaseholders to use the geothermal resources to heat its commercial greenhouses. As a designated operator under the lease, Rosette agreed to make royalty payments to the United States.

{5} In its greenhouse operations, Rosette uses hot water pumped from beneath its surface estate. The water, which is heated by geothermal sources beneath Rosette's property, is drawn from wells and piped through the greenhouses, where it radiates heat. After the water is used for its heat value, it is discharged. As will be discussed below, federal courts have held that the heat carried by the water is a geothermal resource that belongs to the United States because it is a mineral interest reserved by the Stock-Raising Homestead Act. See Rosette Inc. v. United States (Rosette I), 141 F.3d 1394 (10th Cir.1998); Rosette, Inc. v. United States (Rosette II), 64 F.Supp.2d 1116 (D.N.M.1999); Rosette Inc. v. United States (Rosette III), 277 F.3d 1222 (10th Cir.2002).

{6} Rosette uses water from separate wells located on its surface estate for irrigation. Rosette has permits issued under New Mexico law for beneficial use of groundwater from the wells for "irrigation within greenhouses and related purposes." Rosette's groundwater supply is derived from the Animas Valley Underground Water Basin. The priority dates of Rosette's wells range from 1936 to 1958.

{7} Despite its agreement to pay royalties to the Department of Interior, Rosette filed suit in federal district court against the United States, claiming that geothermal resources were not reserved minerals under the Stock-Raising Homestead Act and that the United States lacked the authority to regulate them. See Rosette I, 141 F.3d at 1395 (discussing the proceedings in district court). The lawsuit alleged that the United States has no interest in the geothermal resources used by Rosette to heat its greenhouses. Id. at 1396. Rosette asked the district court to quiet title to the geothermal resources and to enjoin the United States from asserting authority over them. Id. The district court dismissed Rosette's claim, a decision that was affirmed in Rosette I. Id. at 1398. The Tenth Circuit held that because Rosette sought a declaration as to ownership of the geothermal resources, Rosette's exclusive remedy was the Quiet Title Act, 28 U.S.C. § 2409a (2000). Rosette I, 141 F.3d at 1397 (stating that the Quiet Title Act "is Rosette's only recourse for haling the United States into court on the issue of ownership of the geothermal resources"). Because Rosette knew that the United States claimed an interest in the geothermal resources in 1978 when Rosette entered into the leases and agreed to pay royalties, the Tenth Circuit concluded that Rosette's lawsuit was barred by the Quiet Title Act's twelve-year statute of limitations. Rosette I, 141 F.3d at 1398.

{8} After Rosette's claim was dismissed, the United States moved for summary judgment on its counterclaim, which sought to enjoin Rosette from utilizing geothermal resources. Rosette II, 64 F.Supp.2d at 1118. Rosette filed a cross-motion for summary judgment offering as an affirmative defense that Rosette owned and had title to the disputed resources by virtue of the patents that gave Rosette ownership of the surface lands. Id. The central issue facing the district court was whether the right to use geothermal resources as a heat source for the greenhouses passed to Rosette or was retained by the United States under the reservation of minerals in the Stock-Raising Homestead Act. Rosette II, 64 F.Supp.2d at 1119.

{9} Although Rosette asserted that it had a prior vested state property right in the water it used to heat its greenhouses, the federal district court concluded that the geothermal resources located under the patented land were retained by the United States as a reserved mineral pursuant to the Stock-Raising Homestead Act. See Rosette II, 64 F.Supp.2d at 1121-25. Recognizing a critical distinction between potable water and the heat it transports, the district court held that title to the geothermal resources in question was vested in the United States as a matter of law under the patent reservation in the deed issued under the Stock-Raising Homestead Act. See Rosette II, 64 F.Supp.2d at 1125. This decision was affirmed by Rosette III, which held that (1) geothermal resources qualify as minerals under the Stock-Raising Homestead Act, (2) geothermal resources in land for which owners are surface holders are subject to the act's reservation of mineral rights, and (3) any rights Rosette has to use minerals in connection with its rights as a surface holder under the patents do not extend to the use of geothermal resources to heat greenhouses to produce roses for commercial sale. Rosette III, 277 F.3d at 1230, 1234. Thus, in Rosette II and III, the federal district court and Tenth Circuit held that the geothermal resources at issue were minerals owned by the United States and that Rosette was obligated to pay royalties to use them to heat its greenhouses. The district court observed that a contrary result would bestow a windfall on Rosette, which knew from the beginning that its geothermal rights derived from the federal lease. Rosette II, 64 F.Supp.2d at 1125.

{10} Following the litigation in the federal courts, Rosette refused to pay $671,430 in past due federal royalties and interest despite having assets between $4 and $20 million, and was held in contempt by the federal district court. Rosette subsequently entered into a settlement agreement with the United States. As part of the agreement, Rosette agreed not to litigate any issue related to royalties.

{11} In 2004, Rosette filed this suit in state district court as a petition for an adjudication of all underground water rights in the Animas Valley Underground Water Basin. As part of the adjudication suit, Rosette claimed that the litigation in federal courts did not adjudicate the...