B. Lynn Winmill, Chief U.S. District Judge.
The Court has before it Plaintiffs' Motion for Partial Summary Judgment (Dkt. 23) and Defendants' Motion for Summary Judgment (Dkt. 24). The Court heard oral argument on July 19, 2018, and now issues the following decision.
Plaintiffs Charlene Quade and Rachael Holtry own residential property in Fruitland, Idaho. Compl. ¶¶ 3-4; Ans. ¶¶ 3-4. At various times in the years preceding this action, each was contacted by representatives from oil and gas operator Alta Mesa about the possibility of leasing their mineral rights. Quade Dep. at 34:15-22, Dkt. 31-3; Holtry Dep. at 27:8-21, Dkt. 31-5. Alta Mesa was interested in leasing the mineral rights of landowners in the area because it wished to develop a pool of natural gas that it believed to be located under the landowners' properties. Fugate Aff. Ex. 1 at 2, Dkt. 24-4 ("Pepper Aff."). However, Plaintiffs Quade and Holtry determined that they were not interested in leasing and did not respond to Alta Mesa's further inquiries. Quade Dep. at 34:15-22, Dkt. 31-3; Holtry Dep. at 29:6-30:21, Dkt. 31-5.
On or around November 25, 2016, Plaintiffs Quade and Holtry received a mailing from the Idaho Department of Lands ("IDL"). Compl. ¶ 16; Ans. ¶ 16. This mailing included a redacted copy of an integration application filed by AM Idaho, LLC and Alta Mesa Services, LP (collectively, "Alta Mesa"), and it stated that a prehearing conference would be held on December 8 and a hearing would be held on December 14. Durand Decl. Ex. A at 22, Dkt. 23-3 ("Notice of Hearing"); Def's Statement of Undisputed Facts ¶ 1, Dkt. 24-2. It also stated that the deadline to respond or object to the integration application was December 7. Id. The integration application included a proposed joint operating agreement (JOA) and lease. Fugate Aff. Ex. 4 at 15, Dkt. 24-5 ("Director's Order").
If approved, Alta Mesa's integration application would force landowners who had not voluntarily leased their mineral rights to Alta Mesa, like Plaintiffs Quade and
On December 7, 2016, Plaintiffs and several other mineral interest owners filed a written objection to the application through their attorney. Fugate Aff. Ex. 3, Dkt. 24-5. The objectors included members of Citizens Allied for Integrity and Accountability, Inc. ("CAIA"), one of the plaintiffs in this case. Fugate Aff. Ex. 11 at 19, Dkt. 24-5. CAIA is an Idaho non-profit corporation whose members include landowners with property that was subject to Alta Mesa's integration order, and brought suit in its associative representative capacity on behalf of those members. Compl. ¶ 2; Ans. ¶¶ 3-4.
The December 14 hearing, which continued into December 15, was led by a hearing officer and attended by Defendant Schultz, who was at that time the IDL Director. Hearing Transcript at 7:12-17, 294:12-13, Dkt. 24-5. Plaintiffs' attorney participated on behalf of Plaintiffs and several other uncommitted landowners who opposed the integration application. Id. at 9:23-10:5. The parties had the opportunity to present opening and closing statements, present evidence, and cross-examine witnesses. See generally Hearing Transcript, Dkt. 24-5.
However, the hearing officer did not allow Plaintiff's attorney to elicit testimony or introduce evidence on several subjects. For example, she sustained objections to questions on the following subjects on the grounds of relevance: potential groundwater contamination, effects of drilling operations on property values, and effects on noise levels from drilling operations. Id. at 247:8-21, 248:8-12, 249:4-10. She also declined to direct a witness to answer a
Defendant Schultz issued an order on January 23, 2017.
Id. at 21.
Id. at 22.
Plaintiffs appealed the Director's Order to the Idaho Oil and Gas Conservation
Plaintiffs filed a complaint in this Court on June 21, 2017.
Summary judgment is appropriate where a party can show that, as to any claim or defense, "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). One of the principal purposes of the summary judgment "is to isolate and dispose of factually unsupported claims...." Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). It is "not a disfavored procedural shortcut," but is instead the "principal tool[] by which factually insufficient claims or defenses [can] be isolated and prevented from going to trial with the attendant unwarranted consumption of public and private resources." Id. at 327, 106 S.Ct. 2548. "[T]he mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). There must be a genuine dispute as to any material fact — a
The evidence must be viewed in the light most favorable to the non-moving party, and the Court must not make credibility findings. Id. at 255, 106 S.Ct. 2505. Direct testimony of the non-movant must be believed, however implausible. Leslie v. Grupo ICA, 198 F.3d 1152, 1159 (9th Cir. 1999). On the other hand, the Court is not required to adopt unreasonable inferences from circumstantial evidence. McLaughlin v. Liu, 849 F.2d 1205, 1208 (9th Cir. 1988).
When cross-motions for summary judgment are filed, the Court must independently search the record for factual disputes. Fair Housing Council of Riverside County, Inc. v. Riverside Two, 249 F.3d 1132, 1136 (9th Cir. 2001). The filing of cross-motions for summary judgment — where both parties essentially assert that there are no material factual disputes — does not vitiate the court's responsibility to determine whether disputes as to material fact are present. Id.
Defendants argue that the Court lacks jurisdiction over Plaintiffs' claims because a question of state law underlies Plaintiffs' due process claims. Def.'s Br. at 20, Dkt. 24-1. Specifically, they contend that because Plaintiffs allege that they were not allowed to present evidence of "just and reasonable" terms, and the scope of "just and reasonable" terms is a question of state law, Plaintiffs' claims are not cognizable under § 1983.
Defendants are correct that the scope of "just and reasonable" is a question of state law, because the term was created by a state statute: the OGCA. However, it does not follow that this Court lacks jurisdiction to hear Plaintiffs' due process challenge under the federal Constitution. Federal due process requirements define the minimum level of process that states must provide, regardless of state procedures. See Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 541, 105 S.Ct. 1487, 84 L.Ed.2d 494 (1985) ("[O]nce it is determined that the Due Process Clause applies, the question remains what process is due ... [t]he answer to that question is not to be found in the [state] statute."); Voigt v. Savell, 70 F.3d 1552, 1563 (9th Cir. 1995) ("What procedures are constitutionally required if the state seeks to deprive the defendant of a protected interest is determined by federal law.") (citations omitted). Thus, the Court has jurisdiction to evaluate Plaintiff's due process claims even though the scope and meaning of "just and reasonable" is a question of state law.
AM Idaho, LLC ("AM") filed an amicus curiae brief (Dkt. 29) in which it argues that Plaintiffs lack standing because they failed to establish that inadequate process caused them any actual or likely harm. Amicus Br. at 2, Dkt. 29. In support of this argument, AM pointed to evidence purportedly showing the weaknesses of Plaintiffs' claims that drilling could negatively impact their property and
AM also argues that "the entirely speculative nature of the risk of harm asserted by Plaintiffs renders their claims unripe." Amicus Br. at 6, Dkt. 29. Again, however, procedural due process violations are a harm in and of themselves, and thus the harm that Plaintiffs assert is not "speculative"; it has already happened. Additionally, as discussed below, the damage is ongoing because Final Order still in effect.
For the foregoing reasons, the Court finds that Plaintiffs have standing to bring their due process claims, and their claims are ripe for adjudication.
"[T]he Due Process Clause provides that certain substantive rights — life, liberty, and property — cannot be deprived except pursuant to constitutionally adequate procedures." Cleveland Bd. of Educ. v. Loudermill, 470 U.S. 532, 541, 105 S.Ct. 1487, 84 L.Ed.2d 494 (1985). It applies to the states through the Fourteenth Amendment. See Dusenbery v. United States, 534 U.S. 161, 167, 122 S.Ct. 694, 151, L.Ed.2d 597 (2002) ("The Due Process Clause of the Fifth Amendment prohibits the United States, as the Due Process Clause of the Fourteenth Amendment prohibits the States, from depriving any person of property without `due process of law.'")
To establish a due process violation, a plaintiff must first show that he or she had a protected property interest under the Due Process Clause, and must then establish that he or she was deprived of the property without receiving the process that he or she was constitutionally due. Levine v. City of Alameda, 525 F.3d 903, 905 (2008) (citing Clements v. Airport Authority of Washoe Cnty., 69 F.3d 321, 331 (9th Cir. 1995)). Courts evaluate whether a plaintiff has satisfied the second part of this test using the three-part balancing test of Mathews v. Eldridge: (1) "the private interest that will be affected by the official action;" (2) "the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards;" and (3) "the Government's interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail." 424 U.S. 319, 335, 96 S.Ct. 893, 47 L.Ed.2d 18 (1976).
"The fundamental requirement of due process is the opportunity to be heard `at a meaningful time and in a meaningful manner.'" Id. at 333, 96 S.Ct. 893. However, "due process is flexible and calls for such procedural protections as the particular situation demands," and "must be tailored to the capacities and circumstances of those who are to be heard." Morrissey v. Brewer, 408 U.S. 471, 481, 92 S.Ct. 2593, 33 L.Ed.2d 484 (1972); Goldberg v. Kelly, 397 U.S. 254, 268-69, 90 S.Ct. 1011, 25 L.Ed.2d 287 (1970).
Protected property interests do not from the Constitution, but rather from "an independent
Historically, underground oil and gas extraction was governed by the common law rule of capture in almost all jurisdictions. The Law of Pooling and Unitization, 3rd Edition § 2.01 (2017). Under the rule of capture, a landowner with property overlaying an underground oil or gas pool could drill a well on his or her land and would own all of the oil or gas that he or she brought to the surface, without limit. Id. Unfortunately for neighboring landowners with property overlying the pool, the "fugacious" nature of oil and gas meant such a landowner could extract oil and gas not only from under his or her own property, but also from theirs, and would be under no obligation to share his or her profits with them. Id. The only remedy that other landowners had would be to drill their own wells and try to extract as much oil and gas as they could before the pool was dry. Id.
To prevent the kind of wasteful extraction and harm to neighboring landowners that this kind of "race to the bottom" caused, state legislatures adopted conservation laws that modified the rule of capture. Id. Under these laws, landowners no longer have an absolute right to all the oil they can bring to the surface. Id. Rather, they have "correlative rights," defined in Idaho as "the opportunity of each owner in a pool to produce his just and equitable share of oil and gas in a pool without waste." Id.; Idaho Code § 47-310(4). To accomplish the goals of protecting correlative rights and preventing waste, these laws direct state oil and gas agencies to regulate the spacing of oil wells and approve both voluntary and involuntary "pooling" (or "integration") of ownership rights through integration orders. Frank Sylvester, Robert W. Malmsheimer, Oil and Gas Spacing and Forced Pooling Requirements: How States Balance Energy Development and Landowner Rights, 40 U. Dayton L. Rev. 47, 49-50 (2015). Landowners whose mineral rights have been integrated are entitled to share in the value of the oil and gas production on fair and reasonable terms. Id. at 50.
In Idaho, integrated landowners are given several options for participation in oil and gas production, with varying levels of risk and reward. See Idaho Code § 47-320. "Deemed leased" landowners like Plaintiffs Quade and Holtry are each entitled to a one-eighth royalty and a bonus payment set at "the highest bonus payment per acre that the operator paid to another owner in the spacing unit prior to the filing of the integration application." All landowners, regardless of the option chosen, are entitled to have integration orders "be upon terms and conditions that are just and reasonable." Id. Thus, while Plaintiffs do not have an absolute property right in the oil and gas beneath their land, they do each have a protected property interest in a reasonable share of the oil and gas production, as determined by the Idaho Legislature. "Property consists in a bundle of rights." Mishler v. Nevada State Bd. of Med. Examiners, 896 F.2d 408, 410 (9th Cir. 1990). The Idaho Legislature has decided that for landowners with property overlying a pool of hydrocarbons, that "bundle" consists not only of a royalty and bonus payment, but also "just and reasonable" terms and conditions. See Idaho Code § 47-320. For Plaintiffs, as "deemed leased" landowners in an integrated unit where the highest
During the hearing, Defendants suggested that Plaintiffs' interest in "just and reasonable" terms is not a protected property interest because the determination of whether the terms are "just and reasonable" lies within the discretion of the hearing officer. It is true that "[a] benefit is not a protected entitlement if officials have discretion to grant or deny it." Town of Castle Rock, Colo. v. Gonzales, 545 U.S. 748, 748, 125 S.Ct. 2796, 162 L.Ed.2d 658 (2005). However, even assuming that just and reasonable terms constitute a "benefit" for due process purposes, they are not discretionary. The OGCA, by its own terms, prevents hearing officers from approving an integration order that does not contain just and reasonable terms. See Idaho Code § 47-320 (Each such integration order shall be upon terms and conditions that are just and reasonable.") (emphasis added). In other words, the Commission has a significant amount of discretion to decide what "just and reasonable" means, but not so much discretion that they can decide it means nothing. See United States v. LSL Biotechnologies, 379 F.3d 672, 679 (9th Cir. 2004) (stating that courts "strive to avoid constructions that render words meaningless").
Therefore, because the inclusion of just and reasonable terms is not discretionary, Plaintiffs have a protected property interest not only in the royalty and bonus payment, but also in just and reasonable terms and conditions.
Because Plaintiffs have a protected property interest in a one-eighth royalty, $100 bonus payment, and just and reasonable terms, they cannot be deprived of them except pursuant to constitutionally adequate procedures. See Loudermill, 470 U.S. at 541, 105 S.Ct. 1487. It is undisputed that Plaintiffs were not deprived of the royalty and bonus payment — they are written into the statute and cannot be lowered by the IDL Director or the Commission.
As explained above, Plaintiffs' property right included "just and reasonable" terms. The Court must therefore apply the Mathews test to determine whether Plaintiffs received a meaningful opportunity to be heard on the issue of whether the integration order contained
The second Mathews factor weighs more heavily in favor of Plaintiffs. Plaintiffs faced a high risk of erroneous deprivation of their interest in just and reasonable terms because the hearing officer did not adequately explain the basis on which she determined that the terms of the integration order were just and reasonable.
The Director's Order failed to meet these minimum due process requirements. It stated that the terms of the integration order were just and reasonable because the terms of the proposed lease and JOA were "reasonable and standard in the industry throughout the greater geographic region." Director's Order at 21-22, Dkt. 24-5. In part, this statement shows circular reasoning by suggesting that the terms are "just and reasonable" because they are reasonable. The statement that the terms were "standard in the industry throughout the greater geographic region," on the other hand, may be a valid reason to find the terms to be just and reasonable.
At no point in the December hearing did the hearing officer indicate that her decision on whether the integration order's terms were just and reasonable would be based on standards used in the industry and in the greater geographic reason. Neither did the Commissioners do so in the March 8 hearing. The notice of hearing also lacked any mention of this. As a result, there was no way for Plaintiffs to know what evidence would be relevant to the hearing officer's decision. If the standards to be used in the hearing officer's decision had been clear, Plaintiffs could have focused their arguments on those factors that would actually affect the determination of "just and reasonable" terms.
Plaintiffs' particular "capacities and circumstances" further support the conclusion that the hearing failed to satisfy due process. Integration applications like the ones at issue here are relatively new in Idaho, and the term "just and reasonable" has not been interpreted by the Idaho Supreme Court. See Pl's Br. at 2, Dkt. 23-1 ("As hydrocarbon development is new to Idaho, [the December 14-15 hearing] was the first hearing under the new law."); Hearing Transcript at 113:23-114:7, Dkt. 24-5 (hearing officer stating "we are inventing the wheel" and "we are all sort of doing some of these things for the first time and getting a feel for these new regulations, also setting precedents for hearings to come"); Def.'s Br. at 15, Dkt. 24-1 ("The Idaho Supreme Court has not interpreted the term "just and reasonable" as it appears in the Act."). As private citizens who are not experts in the complex and specialized field of oil and gas law, Plaintiffs were especially disadvantaged by the lack of precedent to inform their understanding of what factors may be considered in a determination of "just and reasonable" terms. Therefore, Plaintiffs' capacities and circumstances support a finding that here, due process required a clear explanation of the factors considered in applying the "just and reasonable" standard.
As to the third Mathews factor, holding a new hearing will impose relatively few financial or administrative costs on Defendants. The hearing will involve the same issues, parties, and facts that the previous one did. The only change required will be specification of the basis on which Defendants determine factors to be relevant or irrelevant to the determination of "just and reasonable" terms. Additionally, Defendants have an interest in ensuring that the integration hearing complies with due process in order to set an example for future hearings and thereby reduce the probability of further litigation.
This conclusion does not affect the hearing officers' ability to exclude irrelevant or unnecessary testimony or evidence, or the Commission's discretion to determine what factors should be considered when determining whether the terms and conditions of integration order are "just and reasonable." Rather, it simply recognizes that due process requires a meaningful opportunity to be heard, and in these circumstances, that Plaintiffs and other nonconsenting landowners know the standard which the hearing officer will apply in considering whether the integration order is just and reasonable.
This is a close case. Plaintiffs were provided with a hearing and an opportunity to be heard, and the hearing officer provided a reason for her decision. However, the lack of any explanation as to what would guide the decision of whether the terms of the integration order were just and reasonable
Defendants argue that Plaintiffs are precluded from seeking monetary damages. Def.'s Br. at 20-21, Dkt. 24-1. The Court agrees. As a general rule, a plaintiff may not bring a § 1983 claim
Though Plaintiffs do not cite to this exception in their complaint or briefs, the fact that they seek summary judgment only on the issue of injunctive and declaratory relief, and not monetary relief, suggests their understanding that the Ex parte Young doctrine applies here. See Compl. ¶ 24 (seeking declaratory relief, permanent injunctive relief, fees and costs, and "such other and further relief as the Court deems just and proper"); Pl's Br. at 16, Dkt. 23-1 (conceding that there are disputed issues of material fact as to financial damages). Additionally, Defendants' due process violation is ongoing because the Final Order is still in effect and Defendants have not revised their regulations or otherwise signaled an intent to more clearly explain the standards governing determination of just and reasonable terms in the future. See Verizon Maryland, Inc. v. Pub. Serv. Comm'n of Maryland, 535 U.S. 635, 645, 122 S.Ct. 1753, 152 L.Ed.2d 871 (2002) (suit for injunctive relief preventing state officials from enforcing an order that contravenes federal law "clearly satisfies" requirements for Ex parte Young exception). Therefore, the Court will grant summary judgment to Defendants on the issue of money damages, but will allow Plaintiffs to seek prospective declaratory and injunctive relief under the Ex parte Young doctrine.
Plaintiffs moved for partial summary judgment on all of their claims except as to the issue of financial damages. For the reasons discussed above, the Court will grant Plaintiff's motion.
