Does The Mineral Owner’s Dominance Foreclose Environmental Advocacy by the Surface Owner?

Posted on August 8, 2019 by Thomas Hnasko

Since the beginning of recorded mineral law, the owner of the mineral interests has enjoyed an elevated status in its relationship with the surface owner, resulting in the universally accepted notion that the mineral estate is the “dominant” estate.  Based on this long-standing characterization, courts have traditionally declared that, even where the deed creating a split estate is silent, the mineral owner enjoys an implied easement to use so much of the surface estate as is reasonably necessary for the exploration and production of minerals.  A recent, unpublished state court decision explored the intriguing issue of whether the mineral estate’s dominance allows its owner to prevent the surface owner from advocating for environmental protections for the surface in a public forum.     

In the case of Lone Mountain Ranch, LLC v. Santa Fe Gold Corp., No. D-101-CV-2013-02581, in which the author represented the surface estate owner, the mineral estate owner asserted that the surface owner’s participation in public processes designed to impose environmental protections for the surface constituted a violation of, or interference with, the mineral estate’s easement for access to and use of the surface for mineral development. The mineral estate owner claimed that such participation by the subservient surface estate would be detrimental to the development of the minerals and, therefore, contrary to the “dominance” enjoyed by the mineral estate.  At bottom, the mineral estate owner claimed that its easement deprived the surface owner of its right to advocate in a public forum for environmental protection of the surface estate.

Lone Mountain, as the surface estate owner, countered that such an interpretation would transform an access easement into a restrictive covenant and re-write the deed reservation splitting the estates to include promissory and obligatory terms that have nothing to do with physical access.  After hearing from professorial experts in the oil and gas and mineral disciplines, the court agreed with Lone Mountain and held that the dominance enjoyed by the mineral estate refers only to physical access, which the surface owner has no right to obstruct.  The court reasoned that an implied or express easement for access and development does not have the characteristics of a restrictive covenant and thus could not foreclose protected public participation and advocacy for environmental protections of the land.  As a result, instead of acting as a mere bystander to mineral development, a surface owner under a split estate deed may contest and resist mineral development under that estate based on environmental concerns that are unrelated to issues of physical access granted by the easement.

WHO WINS WHEN FEDERAL MINERAL LESSEES COLLIDE WITHIN THE SAME ACREAGE?

Posted on June 14, 2019 by Tom Sansonetti

Berenergy Inc. has been operating seven oil and gas wells on three federal leases in the Powder River Basin area of Wyoming since the 1960s.  Peabody Energy has been strip mining coal on multiple federal leases in the same area since the 1970’s. Further background of this conflict is found in my previous post.

Peabody’s North Antelope Rochelle Mine is the largest coal mine in the United States with a mine plan that requires it to move in a south-to-north direction over several decades.  The mine has advanced to within a quarter mile of the Berenergy wells.  The wells are spaced as to form a picket-fence like barrier to the mine’s progress.

Berenergy’s well bores extend several thousand feet below the surface.  Peabody’s coal reserves are only 850 feet under the surface.  In order to mine through, Peabody would have to pull the piping and plug each of the well holes.

After passing through the well sites, Peabody could re-drill and replace the piping to allow the oil and gas production to continue. The cost to Peabody would be approximately $500,000. Mining through the well sites would take approximately four years. The cost to Peabody of moving the mining machinery around the seven wells would be approximately $180 million. 

The value of the 91 million tons of coal under or near the wells at current prices is $1 billion. Because of the mine plan’s northerly direction and the mammoth size of the operations, the cost of returning to the bypassed coal years later would be prohibitive. Thus, the coal would remain in place if bypassed.

Peabody offered to purchase the Berenergy wells for their appraised price of $477,000. Berenergy rejected the offer, instead requesting a much larger sum in order to “get out of the way.” Peabody refused to pay the requested amount and both Peabody and Berenergy approached the BLM, as the common lessor, to seek a resolution of the standoff.

As a valid lessee in good standing, Berenergy argued that its leases were “first in time” giving them the “first in right” to continue producing until the wells run dry. Berenergy pointed out that Peabody leased its coal with full knowledge of the existence of the wells and should have to wait to mine unless willing to meet Berenergy’s monetary demands. Berenergy petitioned the BLM to suspend Peabody’s leases.

As a valid lessee in good standing, Peabody argued that the “first in time” theory was not embodied in either statutes or regulations and without statutory guidance or legal precedent the BLM should adopt a “doctrine of accommodation” that would permit maximum recovery of both the oil and the coal. Peabody petitioned the BLM to suspend Berenergy’s leases so it could mine through.

On August 17, 2018, the BLM Wyoming State Director issued a decision allowing Peabody to mine through the well areas based on the provisions of Section 209 of the Mineral Leasing Act. This provision allows the Secretary of the Interior to suspend mineral leases in order to conserve natural resources.

Peabody immediately began pulling and plugging the well closest to its operations. Berenergy obtained a temporary restraining order in Wyoming federal district court and appealed the BLM decision to the Interior Board of Land Appeals. The IBLA ruled against Berenergy’s motion for stay of the BLM order and Peabody demanded that Berenergy post a multi-million-dollar bond in order to continue the litigation before the IBLA. Berenergy was not able to post the bond and dismissed its IBLA appeal, opting to return to the Wyoming federal district court for resolution of its “first in time” claim naming the BLM as the defendant. Peabody intervened in the case to support the BLM decision.

After lengthy briefing and an oral argument, Wyoming District Judge Scott Skavdahl ruled on May 13, 2019 in favor of the BLM and Peabody. The court ruled that the MLA’s Section 209 permitted the BLM to suspend leases in the name of the conservation of natural resources when two valid federal leases developed a conflict over acreage where the minerals in question could not be simultaneously produced. Given the vast disparity between the value of the remaining oil and gas reserves versus the coal reserves to be bypassed, the court found that the BLM’s use of a comparative valuation standard to aid in its decision-making was reasonable. The court noted that it could not find regulatory authority on “first in time” that contradicted the language in Section 209.

On June 11, Berenergy filed its appeal in the Tenth Circuit Court of Appeals. Stay tuned.

The Government’s “Bare Legal Title” CERCLA Defense Wears Thin

Posted on August 29, 2017 by Theodore Garrett

The United States has encouraged economic activities such as mining on federal lands.  Such activities have resulted in contamination and subsequent CERCLA cleanup orders.  Companies undertaking such cleanups have sought contribution from responsible parties including the United States.  Two recent decision reject the government’s argument that its “bare legal title” should not give rise to CERCLA owner liability.  A logical result and also poetic justice, since the United States has consistently urged that CERCLA be construed broadly and liberally as a remedial statute.  Turnabout is fair play.  

In Chevron Mining Inc. v. United States, the 10th Circuit on July 19, 2017 held that the United States was liable as an owner under CERCLA 107(a) because it owned national forest lands in New Mexico.  The lands were mined over several generations by Chevron Mining.  Chevron began remediation expected to cost more than $1 billion pursuant to three EPA administrative orders.  Chevron then filed suit against the United States seeking contribution.  The 10th Circuit held that owner liability attaches to the United States as the owner of portions of the site, and plaintiff need not show that the defendant caused the release of hazardous wastes that required cleanup.  The court rejected the government’s argument that “bare legal title” is insufficient to trigger owner liability, noting that CERCLA contains neither an express nor an implied exception for owners of “bare legal title.”  The court’s opinion also notes that Chevron received loans from the United States, under the Defense Production Act, to fund its exploration activities and received authorization from the Forest Service for pipelines to dispose of mine tailings.  The case was remanded to the district court for further proceedings to determine the government’s equitable share. 

Similarly, in El Paso Natural Gas Company v. United States, the District of Arizona ruled on August 15, 2017 that the United States is liable under CERCLA as an owner of 19 uranium mines.  The mines are located on the Navajo Reservation and are being remediated by El Paso.  The court cited longstanding law that the United States owns fee title to reservation land.  The fact that the Navajo Nation has significant rights in reservation land is not inconsistent with the power of the United States over reservation land.  The court cited the Chevron Mining case above with approval, and also noted dicta from the 9th Circuit that the passive title owner of real property is liable.  Given CERCLA’s broad remedial purposes, the district court held that the United States, as a fee title holder with plenary and supervisory powers over reservation land, is an owner for purposes of CERCLA.  The court’s decision does not address the extent of the government’s liability, to be addressed in the equitable allocation phase of the case. 

These and other decisions will support efforts by companies responsible for remediation at CERCLA sites on federal land to have the government contribute an appropriate share of the cleanup costs.  Also, mindful of its potential liability, perhaps the government will more carefully consider risks and costs when making remedy decisions, which would be welcomed at all sites, whether or not on federal lands.

New Mexico Supreme Court to Determine if Copper Rule Prevents, Rather Than Encourages, Ground Water Pollution

Posted on September 23, 2016 by Thomas Hnasko

The New Mexico Water Quality Control Commission enacted what is arguably the most comprehensive copper mine remediation rule in the country.  The Copper Rule requires copper mines to uniformly implement prescriptive measures of pollution control and to protect ground water at “foreseeable places of withdrawal.”  But does the Copper Rule really prevent pollution, as required by the New Mexico Water Quality Act?  Not so, say the Attorney General and various NGOs, who appealed the case to the New Mexico Court of Appeals.  They claimed that the Copper Rule’s uniform monitoring criteria, which require the placement of a monitoring well network as close as practicable around the perimeter of mine units, does not sufficiently protect ground water and therefore fails to satisfy the Water Quality Act’s mandate that contaminant concentrations not exceed permissible standards at places of withdrawal.  The Court of Appeals affirmed the Commission’s rule-making in Gila Resources Information Project v. N.M. Water Quality Control Comm’n, holding that the determination of a “place of withdrawal” has always been and remains a matter committed to the Commission’s discretion. [Link to Case.] 

The New Mexico Supreme Court will now consider whether the New Mexico Water Quality Control Commission has the authority, under the Water Quality Act, to adopt the regulations imposing prescriptive pollution controls and defining by rule, rather than on a case-by-case basis, the type of monitoring controls which essentially define protectable ground water as that existing on the exterior of active mine units.  After a number of swings of the bat, the petitioners in the Supreme Court have refined their arguments. They now claim that the Water Quality Act requires a case-by-case determination of a place of withdrawal, based on particular aquifer characteristics, rather than a definition derived by rule.  To succeed with this challenge, the petitioners must overcome the legislature’s mandate, in the 2009 amendments to the Water Quality Act, that the Commission adopt uniform monitoring requirements for the entire copper industry.  The battle seems to be whether the Copper Rule is sufficiently flexible to protect all places of withdrawal – regardless of where located – or whether the rule imposes a de facto definition of a place of withdrawal based on criteria that may not be tailored specifically to the aquifer characteristics at a particular site.  Oral argument is set for September 28, 2016.

The California Supreme Court Hoovers Up More Pieces of the Mining Law of 1872

Posted on September 1, 2016 by James Holtkamp

Once both a paradigm of brevity in the federal code and a fertile source of work for generations of mining lawyers, the Mining Law of 1872 has been picked away at (pun intended) for many years. The romance of throwing a pack and a pick on a mule, nailing an old tobacco tin to a post with a location notice, and wresting riches from your very own mining claim is largely gone. The restrictions in federal and state law on surface disturbances from mining have made operations by individuals on mining claims more anachronistic than ever.

On August 22, 2016, the California Supreme Court knocked off another big chunk when it unanimously held that California’s ban on suction mining for gold is not preempted by the Mining Law. People v. Rinehart, No. S222620 (Aug. 22, 2016). Mr. Rinehart was convicted of engaging in suction dredge mining for gold on his mining claim in violation of a moratorium on the practice imposed by the California Department of Fish and Wildlife. Not surprisingly, the department found that suction dredge mining has significant adverse impacts on water quality, protected species, and the environment generally.

Rinehart went ahead with suction dredge mining anyway, and when charged criminally, argued that the Mining Law preempted any state laws that would restrict his right to mine on his mining claim. He was convicted, but the California Court of Appeals reversed the conviction, agreeing with Rinehart that the Mining Law preempts any state restriction on mining on a mining claim.

The Supreme Court reversed the Court of Appeals, explaining in great detail how the Mining Law was not intended to allow mining without regard to the application of state police power on a duly located mining claim, notwithstanding that the purpose of the law is to facilitate the development of mining on public lands. The court relied heavily on precedents going back over a century, including a series of U.S. Supreme Court decisions holding that in order to displace the application of state law on federal lands, Congress must act affirmatively. The court was doubtless influenced by an extensive amicus brief filed by the United States, which agreed that the state’s moratorium was not preempted by the Mining Law.

The California decision is not surprising given the increased emphasis on state and federal regulation of the environmental impacts of mining operations, which began with the major environmental legislation of the 1970s. For example, many years ago the BLM and Forest Service issued regulations requiring permits for surface disturbances on unpatented mining claims. The federal Surface Mining Control and Reclamation Act and the various state programs operating under delegation from that statute also regulate surface impacts of mining operations. Other environmental laws, including federal and state clean water statutes, air quality laws, and waste management requirements have been applied to mining operations without regard to whether the right to mine is based on fee simple ownership, leasehold interests, or unpatented mining claims.

Opponents of the Mining Law view the law as an anachronistic give-away of federal resources but have not succeeded in repealing it. But environmental regulations such as the suction dredge mining moratorium in California and increasingly insurmountable economic challenges in operating a small mining operation are slowly strangling the Mining Law. It is death by a thousand . . . picks.