MAASSEN, Justice.
This case involves competing claims of right to the pore space in a large limestone formation about a mile underground. Cook Inlet Natural Gas Storage Alaska, LLC (CINGSA) has leases with the holders of the mineral rights — the State of Alaska and Cook Inlet Region, Inc. (CIRI) — that allow it to use the porous formation as a reservoir for storing injected natural gas. But the City of Kenai, which owns a significant part of the surface estate above the reservoir, claims an ownership interest in the storage rights and sought compensation from CINGSA. CINGSA filed an interpleader action asking the court to decide who owns the storage rights and which party CINGSA should compensate for its use of the pore space. On summary judgment CINGSA argued that CIRI and the State own the pore space and attendant storage rights because of the State's reservation of certain subsurface interests as required by AS 38.05.125(a). The superior court granted CINGSA's motion. The City appeals both the grant of summary judgment and the superior court's award of attorney's fees to CIRI.
We affirm, concluding that the State and CIRI own the pore space and the gas storage rights and that the superior court's award of attorney's fees to CIRI was within its discretion.
The Cannery Loop Sterling C Gas Reservoir is located approximately a mile below the Kenai River. The reservoir began producing natural gas in 2000; gas was extracted from the "microscopic spaces between or within rocks" in the reservoir and from natural pools contained by "[s]urrounding formations of denser, nonporous rock." The reservoir's gas supply was eventually depleted.
Once gas is extracted from sedimentary rock, the emptied pore space — "microscopic spaces between or within rocks" — can be used to store "non-native gas," gas that has been extracted elsewhere. This method of gas storage can help stabilize supply and accommodate seasonal fluctuations in demand; utilities can store non-native gas in the summer and withdraw it in the winter when demand is higher. When the Sterling C Reservoir had been economically depleted, CINGSA, a public utility, proposed to convert the gas field into a storage facility for non-native gas owned by other gas and electric utilities in Southcentral Alaska.
CINGSA first had to acquire the necessary property rights from the owners of different interests in the surface and subsurface. It acquired many of those rights through negotiation and, where necessary, the process of eminent domain, available to CINGSA as a public utility. The only surface estate at issue here is that belonging to the City of Kenai, amounting to approximately 576 acres.
The City of Kenai received a patent for the relevant surface acreage in 1964, subject to the reservation of rights to the State required by AS 38.05.125(a) for all conveyances of State land.
In 1973 the State granted oil and gas leases in the property and other surrounding lands to Marathon Oil Company. The leases reserved the State's right to dispose of the surface estate,
CIRI received its rights to the subsurface estate under a three-way agreement with the State and the federal government pursuant to the Alaska Native Claims Settlement Act (ANCSA).
Accordingly, CIRI received the lands subject to the City's preexisting interest in the surface estate. As successor lessor of the Marathon leases, CIRI received royalties from the gas Marathon extracted.
After CINGSA secured its leases of gas storage rights in the Sterling C Reservoir from the State and CIRI, the City asserted its own claim to the ownership of those rights. But the City allowed the storage project to go forward pending negotiations, granting CINGSA a conditional right of entry in the meantime. The right of entry provided that should "either the City of Kenai or CINGSA, in its sole discretion," determine that the parties were not making progress in negotiations, CINGSA would file an action in eminent domain and allow the courts to decide the ownership issue.
The parties were unable to resolve their disagreement about gas storage rights, and CINGSA filed a complaint against the City in March 2012, seeking alternative forms of relief. In the first count of its complaint, CINGSA sought to acquire by condemnation "a gas storage easement and an easement upon the mineral interests" owned by the City in the Sterling C Reservoir. In another count, CINGSA interpleaded CIRI and the State as defendants in order "[t]o prevent double or multiple liability" given the "overlapping claims for compensation by CINGSA for use of the [property] for natural gas storage," and it asked the court to decide the party or parties CINGSA owed compensation. CINGSA also sought a "declaratory
CIRI and the City cross-moved for summary judgment on whether the City owned the gas storage rights. The State and CINGSA joined CIRI's motion, endorsing CIRI's position that the storage rights belonged to the State and CIRI rather than the City. The superior court granted summary judgment in favor of CINGSA, the State, and CIRI. It concluded that "the State reserved to itself the mineral estate, which includes the underground storage rights," and that "[t]he rights the City received [from the State] regarding the property in question were surface estate rights."
CINGSA and the City filed a stipulation — later approved by the superior court — to resolve all remaining condemnation issues "regarding authority and necessity, possession and just compensation and entry of final judgment against the property rights held by the City." The superior court entered final judgment in favor of CINGSA, the State, and CIRI.
CIRI moved for an award of attorney's fees against the City, seeking 20% of its reasonable actual fees under Alaska Civil Rule 82(b)(2). The City opposed the motion, arguing that CINGSA had initiated the suit, bringing in CIRI as a party "in its sole discretion," and that the City had not alleged any claims against CIRI that could make the City liable for CIRI's fees. But the superior court concluded that CIRI was entitled to attorney's fees under Rule 82(b)(2) because it prevailed on the main issue in the case: "that CIRI owns the subsurface gas storage pore spaces in dispute." The superior court found that the amount of work done by CIRI's attorneys was reasonable, but it awarded an amount less than the scheduled 20% because it found that CIRI's Anchorage-based attorneys charged at rates higher than those customarily charged in Kenai Peninsula communities.
The City appeals the superior court's decision on summary judgment and its award of attorney's fees and costs to CIRI.
"We review a superior court's decision on summary judgment de novo, drawing all inferences in favor of, and viewing the facts in the record in the light most favorable to, the non-moving party."
The central issue in this case is the ownership of the pore space when the mineral and surface estates have been severed, as they commonly are under Alaska's mineral reservation statute, AS 38.05.125, a provision of the Alaska Land Act.
The City contends that as the owner of the surface it also owns the underlying pore space or natural gas storage rights. According to the City, the superior court erred when, in granting summary judgment to the other parties, it reasoned that (1) determining ownership of the storage rights is a question of statutory rather than deed interpretation; (2) the reserved rights under AS 38.05.125(a) include natural gas storage rights; and (3) the "American rule" — by which the surface owner owns the rights to underground spaces that have been depleted of their minerals — did not apply.
The State patents conveying the land at issue to the City recited verbatim the reservation of mineral rights that AS 38.05.125(a) generally requires. The City argues that the superior court, when determining whether the parties intended to convey or to reserve the pore-space rights, should have interpreted these reservations using rules of deed interpretation rather than statutory interpretation. We interpret the language of a deed using a three-step process: We first "look at the four corners of the document to see if it unambiguously presents the parties' intent"; if it is ambiguous, we next "consider `the facts and circumstances surrounding the conveyance' to discern the parties' intent"; and finally, "[i]n the event
We conclude that statutory reservation language in an instrument of conveyance is governed by the rules of statutory interpretation. "A patent cannot convey what has been reserved by law."
The language of AS 38.05.125(a) relevant here — that "[e]ach contract for the sale, lease, or grant of state land, and each deed to state land, ... is subject to" the statutory reservation — is mandatory.
Alaska Statute 38.05.125(a) requires that "[e]ach contract for the sale, lease, or grant of state land, and each deed to state land, properties, or interest in state land" be made subject to the State's reservation of the rights to listed natural resources: "all oils, gases, coal, ores, minerals, fissionable materials, geothermal resources, and fossils of every name, kind or description, and which may be in or upon said land above described." The statute also requires the reservation of rights of entry for exploration and the extraction of minerals, the reservation of surface rights necessary to support extraction, and a catchall reservation of "generally all rights and power in, to, and over said land, whether herein expressed or not, reasonably necessary or convenient to render beneficial and efficient the complete enjoyment of the property and rights hereby expressly reserved."
The City contends that gas storage rights are unambiguously outside the scope of the statutory reservation because the statute reserves only "specific, identified natural resources" and the "various rights that facilitate exploitation of those [identified] natural resources." The City argues further that use of the pore space to store non-native gas does not further "exploration, development or removal of oil, gas, coal or other minerals reserved by the State." In short, according to the City, the statute reserves only "specifically identified natural resources in the land and the right to make use of the land to aid in the development and extraction of those resources," not "a place or location — the `subsurface'" — that would include non-mineral pore space.
"To establish the meaning of a statute, we examine both its text and its purpose."
Examining the text and purpose of AS 38.05.125(a), we reject the City's argument that rights to the pore space were not reserved to the State. We conclude that pore space is mineral and therefore within the express reach of the statutory reservation of "all ... minerals ... of every name, kind or description." And storage rights in a
"Minerals" are not defined by the Alaska Land Act. Nor have we defined the term in the context of AS 38.05.125(a), though we have stated that "[t]he question of what is a mineral is a vexatious one."
"Pore space" is defined as "microscopic voids within rocks that are unoccupied by solid material";
Such an interpretation is supported by the statute's apparent purpose. We have recognized that "the overall purpose of the Alaska Land Act is to maximize revenue for the state"
As CIRI points out, a number of federal cases have interpreted the term "minerals" in the context of statutory mineral reservations. In Watt v. Western Nuclear, Inc., the United States Supreme Court held that gravel found on lands patented under the Stock-Raising Homestead Act (SRHA) was a "mineral" reserved to the United States by statute.
Western Nuclear is instructive to the extent it shows how legislative purpose drives the definition of "minerals" in different statutory
Courts facing the issue of pore-space ownership have considered "two main theories": the American rule and the English rule.
The City cites Ellis v. Arkansas Louisiana Gas Co. as illustrating the proper application of the American rule to gas storage rights. But the court in Ellis, with no statutory reservation at issue, looked first and primarily to the intent of the private parties as reflected in "the deeds which effect[ed] the severance" of the mineral estate; the deeds used only words denoting "exploration, production and development," not injection, occupation, or storage.
Alaska Civil Rule 82(b)(2) provides that in cases resolved without trial "[i]n which the prevailing party recovers no money judgment," the court may award the prevailing party 20% of the party's reasonable attorney's fees actually incurred. The superior court in this case concluded that CIRI was a prevailing party and entitled to attorney's fees from the City because CIRI was granted summary judgment on its claim to ownership of the disputed pore-space storage rights, which the City opposed.
The City contends this was error for two reasons. The City first argues that Rule 82 does not apply to this case, but rather Civil Rule 72, which prohibits an award of fees and costs against the condemnee in a condemnation action "[a]s a general rule." Second, the City maintains that CIRI cannot recover attorney's fees even under Rule 82 because "the City did not assert any ... claims against CIRI," which was nominally aligned as its co-defendant in CINGSA's suit to determine the respective rights of all the parties.
We conclude that Rule 82 governs CIRI's claim for attorney's fees. We have recognized Rule 72 as "creat[ing] a narrow exception" to the general applicability of Rule 82 for "those cases involving `the condemnation of property under the power of eminent domain.'"
Even with Rule 82 as the applicable standard, the City contends that CIRI should have pursued attorney's fees "against the party that sued it — CINGSA." It argues that CIRI cannot be the "prevailing party" because CIRI and the City were co-defendants, the City asserted no cross-claims against CIRI, and the City should not be "saddled" with an award of attorney's fees based on CINGSA's "unilateral decision" to name CIRI as a defendant.
But we have rejected the argument that a party cannot be liable for attorney's fees to a party it did not sue. Recently, in BP Pipelines (Alaska) Inc. v. State, Department of Revenue, we reaffirmed the long-established rule that "regardless of how parties are formally arranged, fees and costs may be awarded based on actual adversity of interests."
Here, the City's argument that CIRI should seek attorney's fees from CINGSA lacks merit because the "actual adversity" was between the City and the other parties, not CIRI and CINGSA. After CIRI moved for summary judgment, both CINGSA and the State joined CIRI's motion and aligned with CIRI on all issues, including the primary one of whether the City owned the storage rights. Like the owners and the municipalities in BP Pipelines, CIRI and the City asserted no claims against each other but still acted as the "primary litigants" in arguing opposite sides of the main issue.
We conclude that the superior court did not abuse its discretion in its determination that CIRI was a prevailing party against the City or in its award of attorney's fees to CIRI pursuant to Rule 82(b)(2).
We AFFIRM the judgment of the superior court.
FABE, Justice, not participating.