Title: CBC Holdings, LLC, et al. v. Dynatec Corp., USA, et al.

State: west-virginia

Issuer: West Virginia Supreme Court

Document:

__________ __________ __________________________________________________ __________________________________________________ IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA January 2009 Term FILED March 27, 2009 released at 10:00 a.m. No. 34267 RORY L. PERRY II, CLERK SUPREME COURT OF APPEALS OF WEST VIRGINIA CBC HOLDINGS, LLC, A WEST VIRGINIA LIMITED LIABILITY COMPANY, IN ITS OWN BEHALF AND IN BEHALF OF OTHER OWNERS OF UNDIVIDED INTERESTS IN THE MINERALS UNDERLYING THE REALTY IN QUESTION, Plaintiffs Below, Appellants v. DYNATEC CORPORATION, USA, A FOREIGN CORPORATION NOT LICENSED TO DO BUSINESS IN WEST VIRGINIA; DYNATEC ENERGY, INC., A FOREIGN CORPORATION LICENSED TO DO BUSINESS IN WEST VIRGINIA; DYNATEC DRILLING, INC., A FOREIGN CORPORATION LICENSED TO DO BUSINESS IN WEST VIRGINIA; NEW GAULEY COAL CORPORATION, A WEST VIRGINIA CORPORATION; AND THE OTHER UNKNOWN HEIRS, SUCCESSORS AND ASSIGNS OF HUGH K. COSGRAY, CATHARINE COSGRAY, CORA B. STEWART, E. E. STEWART, I. C. COSGRAY, W. B. COSGRAY, T. L. COSGRAY, JOHN A. COSGRAY, LUCY L. COSGRAY, TOLLA SOLE, LYDIA BOOTH, AND BERTHA D. COSGRAY, Defendants Below, Appellees Appeal from the Circuit Court of Wetzel County The Honorable John T. Madden, Judge Civil Action No. 07-C-9 REVERSED AND REMANDED Submitted: February 25, 2009 Filed: March 27, 2009 Larry L. Skeen Jonathan L. Anderson Skeen & Skeen Brian R. Swiger Charleston, West Virginia Blair M. Gardner Counsel for the Appellants Jackson Kelly PLLC Charleston, West Virginia Counsel for the Appellees SENIOR STATUS JUSTICE McHUGH delivered the Opinion of the Court. SENIOR STATUS JUSTICE McHUGH sitting by temporary assignment. SYLLABUS BY THE COURT 1. “Interpreting a statute or an administrative rule or regulation presents a purely legal question subject to de novo review.” Syl. Pt. 1, Appalachian Power Co. v. State Tax Dep’t, 195 W.Va. 573, 466 S.E.2d 424 (1995). 2. The provisions of the Coalbed Meth ane Act, W.Va. Code §§ 22-21-1 to -29 (2002 & Supp. 2008), make clear that the West Virginia Division of Oil and Gas does not have the authority to resolve issues of conf licting ownership claims to coalbed methane gas. 3. “The rule which requires the exha ustion of adm inistrative rem edies is inapplicable where no administrative remedy is provided by law.” Syl. Pt. 2, Daurelle v. Traders Fed. Savings & Loan Assn., 143 W.Va. 674, 104 S.E.2d 320 (1958). McHugh, Senior Status Justice:1 Appellant CBC Holdings , LLC (“CBC”) s eeks relief from an order of the Circuit Court of Wetzel County through which the trial court c oncluded that the declaratory judgment action CBC filed to resolve issues of ownership relating to the coalbed methane gas (“coalbed methane”) being extracted by Appellee Dynatec Corporation, USA, (“Dynatec”) was not ripe for decision due to Appellant’s failure to exhaust administrative remedies available under the Coalbed Methane Act (“Act”). 2 Contrary to the representations of Dynatec and the othe r corporate Appellees, 3 Appellant asserts that the Act does not grant authority to the Division of Oil and Gas (“Division”) to a ddress by ruling or rem edy the ownership issues it has rais ed. After carefully scrutinizing the Act’s provisions in conjunction with the arguments raised by the pa rties, we conclude that the trial court committed error by refusing to address the ow nership issues raised by Appellan t on the 1Pursuant to adm inistrative order entered March 23, 2009, the Honorable Thomas E. McHugh, Senior St atus Justice, was recalled fo r temporary assignment to the Supreme Court of Appeals of West Virginia under the provisions of Article III, section 8 of the Constitution of West Virginia. 2See W.Va. Code §§ 22-21-1 to -29 (2002 & Supp. 2008). 3Also named as Appellees are Dynate c Energy, Inc. and Dynatec Drilling, entities affiliated with Dynatec Corpation, U.S.A. that are engaged in the business of drilling for coalbed methane. New Gauley Corporation is the owner of the Pittsburgh seam of coal that was leased to two of the Dynatec Appellees. For ease of discussion, references to the position of Dynatec incorporate by reference the additional corporate defendants. 1 grounds of CBC’s failure to exhaust its administrative remedies. Accordingly, we reverse and remand this matter to the trial court. I. Factual and Procedural Background Appellant filed a declaratory judgm ent action with the lower court on January 22, 2007, through which it sought to challenge Dynatec’s right to extract coalbed methane from the Pittsburgh seam of coal on land situate in Wetzel County. 4 What CBC seeks to establish is that the lease agreement Dyna tec entered into with Appellee New Gauley Corporation does not include the m ineral rights to the coalbed m ethane based on the failure of the former surface owners to expressly transfer such rights.5 Through its complaint, CBC sought a d eclaration that Dynatec was legally entitled to remove coal from the Pittsburgh coal seam but that it ha d no correspondent right to extract coalbed m ethane from that seam . Appellant also sought an adjudication of 4The land at issue is cove red by two leases. Under one lease with Western Pocahontas Properties Lim ited Partnership (“WPP”) and New Gaul ey Coal Corporation, the leased area comprises 25,987 acres located in Church, Center, Clay, and Grant Districts in Wetzel County. The second lease is with WPP and covers 16,066 acres located in Church and Clay Districts in Wetzel County. 5When the surface rights of various tr acts of land owned by Hugh K. Cosgray, Catharine Cosgray, Cora B. Stewart, and E.E. Stewart were partitioned and allotted to children and heirs, the mineral rights were not specifically addressed. Consequently, CBC argues and seeks to establish that those mineral rights remain with the prior owners of the surface rights to the respective tracts of land. 2 subsurface trespass against Dynatec and an accounting as to the coalbed methane that has been produced and marketed from the property at issue. As alternative relief, CBC sought damages in connection with the alleged drainage of coalbed methane from its property based on the positioning of Dynatec’s wells.6 Arguing that CBC’s claims and the remedies for those claims “fall squarely within the ad ministrative procedures set fo rth in the Act,” Dynatec m oved to dism iss Appellant’s complaint for failing to exhaust its administrative remedies. Upon consideration of the arguments raised by Dynatec in support of its motion to dismiss, the trial court ruled by order of November 16, 2007, that CBC had not exhausted the remedies available to it under the Act. Rather than granting a dismissal of the complaint,7 however, the trial court sent the matter to the Division to allow it to rule on “the drilli ng permits an d coalbed methane formation ownership.” The trial c ourt expressly stayed a ruling on Dynatec’s motion to dism iss during the pendency of the Division’s c onsideration of the referred matter.8 6Appellant claims that the Dynatec boreholes and casings are placed so close to its property that the Dynatec Appellees ar e “taking and draining the coalbed m ethane from the plaintiffs’ [CBC’s] coalbed methane formations.” 7Appellant incorrectly asserted both in its docketing statement and in its petition for appeal that the trial court had dismissed its complaint. See infra n.8. 8 The record m akes clear that no final or der has been entered by the trial court. Our decision to issue an opinion, rather than dismissing this case as improvidently granted, (continued...) 3 Through this appeal, CBC seeks to reverse the trial court’s decision that the ownership issues Appellant rais ed in its com plaint must be ruled upon by the Division before the trial court can m ake any declaration as to Dynatec’s right to be extracting coalbed methane pursuant to the provisions of its lease with the New Gauley Corporation. II. Standard of Review As we recognized in White v. Haines, 217 W.Va. 414, 618 S.E.2d 423 (2005), “we accord plenary review to questions of la w, including the interpretation of statutory provisions: ‘Interpreting a statute or an administrative rule or regulation presents a purely legal question subject to de novo review.’ Syl. Pt. 1, Appalachian Power Co. v. State Tax Dep’t, 195 W.Va. 573, 466 S.E.2d 424 (1995).” Because the issues on appeal clearly involve the trial court’s interpretation of the Act, we apply a de novo standard of review to the order which is the subject of this appeal. III. Discussion At the heart of this appeal is disagree ment regarding the procedures that m ust be followed to reach the ultimate question of who rightfully owns the coalbed methane that 8(...continued) is compelled by the futility of referring this matter to the Division given the clear lack of administrative authority for resolving issues of coal bed methane ownership. See discussion infra. 4 Appellees are currently extracting from the P ittsburgh seam. Appellees convinced the trial court that the Division m ust first m ake certain factual determinations before the circuit court can rule upon the issue of coalbed methane ownership.9 CBC maintains that there is no predicate ruling required by the Division and, furtherm ore, that the Division lacks the authority to rule upon the issues that the trial court has directed through its order.10 In its November 16, 2007, order, the tr ial court expressly “acknowledge[d] that the Defendants [Dynatec Appellees] may not be the owners of the coalbed methane in the Pittsburgh Seam.” But rather than delve into this admittedly thorny issue which is the crux of Appellant’s declaratory judgment action, the trial court opted to send this matter to the Division for a ruling on “whether the Defendants had the right to drill and extract methane from the aforementioned coalbed.” Appellant argues that the Act’s provisions dem onstrate a narrowly tailored approach to the regulation of coalbed methane extraction, an approach that does not grant the Division authority to resolve issues of conflicting ownership. 9Appellees argue that the following fact ual issues must be addressed by the Division: (1) identify the specific well that is affecting lands owned by Appellant; (2) determine the drainage pattern of that well; and (3) decide wh ether Appellant’s land is being affected by the drainage of the Dynatec well. 10Appellees acknowledged in their memorandum in support of the motion to dismiss that the circuit court is the proper tr ibunal to decide issues of coalbed m ethane ownership: “To the extent the Plaintiff has a conflicting claim to the actual ownership of [coalbed methane], the Defendants agree that this narrow issue is one to be decided by this Court.” 5 With the adoption of the Act in 1994, the Legislature included a recitation of the public policy concerns and legislative fi ndings that impelled its passage. Among those findings was a declaration that the objective of the Act was to “encourage and ensure the fullest practical recovery of coal and coalbed me thane in this state and to further ensure the safe recovery of bot h natural resources.” 11 W.Va. Code § 22-21-1(a). Through the procedures specified in the Act, the Legisl ature sought to “provide all coalbed m ethane operators and coalbed methane owners with an opportunity to recover their just and equitable share of production.” Id. Under the Act, it is unlawful for any en tity to extract coalbed methane without first obtaining a perm it from the Division. See W.Va. Code § 22-21-6(a). To obtain a permit, the applicant must iden tify each coal operator and coal owner of record for any coal seam which is to be penetrated by a proposed well; is within 750 horizontal feet of any portion of the proposed well bore; or is within 100 vertical feet of the designated com pletion coal seams of the proposed well. See W.Va. Code § 22-21-6(b). The application must be 11As an initial matter, the Legislature recognizes that “the value of coal is far greater than the value of coalbed methane and any development of the coalbed m ethane should be undertaken in such a wa y as to protect and preserve co al for future safe m ining and maximum recovery of the coal.” W.Va. Code § 22-21-1(a). 6 accompanied by “the consent and agreement of the coal owner” and a certificate indicating compliance with the notice provisions set forth in West Virginia Code § 22-21-9.12 Any person entitled to notice under the Act is authorized to file comments with the Division in response to an appli cation to extract coalbed m ethane. See W.Va. Code § 22 ­ 21-10 (providing fifteen days for filing com ments after filin g o f p ermit application). Similarly, all coal owners have fifteen days to file written objections to the application for permission to drill for coalbed methane. See W.Va. Code § 22-21-11. Upon its review of the application, the Chief of the Division can issue a permit at any time if the ap plicant certifies that the Act’s notice provisions have been met and that there are no objections to 12Notice has to be provided under the Act to the following entities: (1) The owners of record of the surface of the tract on which the coalbed methane well is to be located; (2) The owners of record of the surface of any tract which is to be utilized for roads or other land disturbance; (3) Each coal owner and each ope rator (i) from whom a consent and agreement provided for in sec tion seven [§ 22-21-7] of this article is required, or (ii) whos e coal seam will be penetrated by the proposed coalbed methane well or is within seven hundred fifty feet of any portion of the well bore; and (4) Each owner and lessee of reco rd and each operator of natural gas surrounding the well bore and existing in formations above the top of the upperm ost member of the “Onodaga Group” or at a depth less than six thousand feet, whichever is shallower. Notices to gas operators shall be sufficient if served upon the agent of record with the office of oil and gas. W.Va. Code § 22-21-9(a). 7 the application.13 Only if there are comments or objections filed in connection with the permit application is a hearing required before the Review Board. 14 See W.Va. Code § 22­ 21-13. In the event of a timely filed comment or objection, a hearing is scheduled before the Review Board. At this hearing, the Review Board is charged to consider twelve factors15 for the purpose of assuring that stimulation of an affected workable coal seam “will 13Based on the limited nature of the record before us and disagreement of the parties on this issue, we are unclear as to whether the permits obtained by Dynatec were issued by the Division in the stream lined manner allowed under the Act where no objection is filed or whether there were hearings held before the Review Board. See infra. n.14. 14While Appellees represent that CBC did not file any objections or comments to Dynatec’s permit applications, Appellant st ated during oral argum ent that it had filed objections and comments to those permits. 15Those twelve factors are: (1) Whether the drilling location is above or in close proximity to any m ine opening, shaft, entry, travelway, airway, haulageway, drainageway or pa ssageway, or to any proposed extension thereof, any abandoned, operating coal mine or any coal mine already surveyed and platted but not yet being operated; (2) Whether the proposed drilling c an reasonably be done through an existing or planned pillar of coal, or in close proximity to an existing or pl anned pillar of coal, taking into consideration the surface topography; (3) Whether the proposed well can be drilled safely, taking into consideration the dangers from creeps, squeezes or other disturbances due to the extraction of coal; (4) The extent to which the proposed drilling location (continued...) 8 not render such seam or any ot her workable coal seam . . . unm ineable or unsafe for m ining.” W.Va. Code § 22-21-13(c). Following the conclusion of the hearing, the Review Board is required to issue written findings of fact that address relevant considerations regarding the 15(...continued) unreasonably interferes with the safe recovery of coal or coalbed methane; (5) The extent to which the proposed drilling location will unreasonably interfere with present or future coal mining operations on the surface including, but not lim ited to, operations subject to the provisions of article three [§§ 22-3-1 et seq.] of this chapter; (6) The feasibility of m oving the proposed drillin g location to a m ined-out area, below the coal outcrop, or to som e other location; (7) The feasibility of a drilling moratorium for not more than one year in order to pe rmit the completion o f imminent coal mining operations; (8) The methods proposed for the recovery of coal and coalbed methane; (9) The practicality of locating the well on a uniform pattern with other wells; (10) The surface topography and use; (11) Whether any stim ulation of the coal seam will render such seam or any other workable coal seams unmineable or unsafe for mining; and (12) Whether the director of the office of miners’ health, safety and training has submitte d recommendations as to th e safety of any proposed stim ulation. In c onsidering any recommendations made by the director of the office of miners’ health, safety and training, the board shall incorporate su ch recommendations in its findings, conclusions and order unless the board determ ines that there is clear and convincing evidence on the record supporting a fi nding, conclusion or order inconsistent with such recommendations. W.Va. Code § 22-21-13(b). 9 twelve factors delineated in subsection (b). See W.Va. Code § 22-21-13(b). We observe that not one of these twelve factors includes any concern regarding a challenge to the ownership of the coalbed methane.16 In addition to the permitting process, th e Act sets forth procedures sanctioning the pooling of interests to create a drilling unit which may be followed in the absence of a voluntary pooling agreem ent.17 See W.Va. Code §§ 22-21-15 to 21. Pursuant to these provisions, individuals with rela tively minor ownership interests are allowed to benefit from the drilling operations of others at a reduced financial outlay. Appellees suggest that had CBC availed itself of the involuntary pooling procedures outlined in the Act it could have remedied the issues that were raised in the declaratory judgment action. We disagree. As support for its position, Appellees re ference the provision that permits a party seeking a pooling arrangem ent to raise issues concerning the “nature and extent of ownership of each coalbed methane owner or cl aimant and whether conf licting claims exist.” W.Va. Code § 22-21-17(b)(6). While this statutory provision acknowledges the potential for disagreement regarding the ownership of coalbed methane, the Act does not seek to 16See supra n.15. 17The Act provides that a “party claiming an ownership interest in the coalbed methane may file an application with the chief [of the Division] to pool . . . (ii) separately owned tracts . . . to form a drilling unit for the production of coalbed methane from one or more coalbed methane wells.” W.Va. Code § 22-21-15(a). 10 provide any basis for resolving conflicts of ownership when they occur. In Energy Development Corp. v. Moss, 214 W.Va. 577, 591 S.E.2d 135 ( 2003), we observed that “ the [Coalbed Methane] statute completely avoids and eschews any attempt at deciding ownership of coalbed methane.” Id. at 594, 591 S.E.2d at 152 (e mphasis supplied). The only suggestion the Act provides for resolvi ng conflicts regardi ng ownership, as we explained in Moss, is to en courage parties to a pot ential pooling arrangement to reach a “voluntary agreement,” or, alternatively, rely upon a “final judicial determ ination.” W.Va. Code § 22-21-17(k); see Moss, 214 W.Va. at 595, 591 S.E.2d at 153. In view of the clear decisio n of the Legislature to circum vent the issue of coalbed methane ownership, which is the gravam en of Appellant’s complaint, giving the Division an additional opportunity to essentially affirm that Dynatec produced the necessary documentation required under the Act fo r issuing coalbed m ethane permits18 seems ill- advised. In our opinion, referring this matter to the Division w ill not assist the trial court in making a decision regarding who owns the subject mineral rights because the provisions of the Act make clear that the West Virginia Division of Oil and Gas does not have the authority to resolve issues of conflicting ownership cl aims to coalbed methane. Consequently, the administrative referral dire cted by the trial court appears unlikely to 18And, if Dynatec is correct in asserti ng that Appellant had notice of the perm it applications and did not file timely comments or objections, CBC should not be allowed to belatedly raise objections with the Division predicated on mineral ownership. 11 produce a ruling bearing on the merits of the ultimate issue – the ownership of the coalbed methane currently being extracted from the Pittsburgh seam by Dynatec. We are sim ilarly unpersuaded by Appelle es’ argument that CBC failed to heed remedies available under the Act before filing its declaratory judgme nt action with the circuit court. Other than the pooling provisions of the Act, which clearly are not aimed at resolving conflicting issues of owne rship as discussed above, 19 the only other provision of the Act that Appellees claim that CBC failed to seek relief under is West Virginia Code § 22-21-27. Under that section, the Chief of the Division and the Review Board both have authority to seek injunctive relief in connecti on with contem plated or actual violations of the Act. While the statute extends its remedial reach to “any person who is or will be adversely affected by such violation or threatened violation,” the av ailability of injunctive relief is of no effect to CBC unless it can cite to a specific provision of th e Act that Dynatec has violated or is about to violate. W.Va. Code § 22-21-7(e). Because there is no provi sion under the Act that makes dem onstration of ownership a prere quisite to obtaining a perm it, there is no foundational statutory provision that Appellant could rely upon to obtain injunctive relief under West Virginia Code § 22-21-17. 19See W.Va. Code § 22-21-17(k) (contem plating “resolution of conflicting claims either by voluntary agreement of the parties or a final judicial determination”). 12 Appellant maintains that the absenc e of any provisions authorizing the Division to address the im proper rem oval and/ or conversion of m inerals lends further support to its argument that the Act fails to provide a rem edy for the issues it has raised. Similarly lacking from the Act, as Appellant observes, are provisions designed to perm it an accounting so that aggrieved parties can quantif y the resources that have been sold from particular wells. As we rec ognized in syllabus point two of Daurelle v. Traders Fed. Savings & Loan Assn., 143 W.Va. 674, 104 S.E.2d 320 (1958), “[t]he rule which requires the exhaustion of administrative remedies is inapplicable where no administrative remedy is provided by law.” Following a careful review of the Act’s provisions in conjunction with the allegations raised in A ppellant’s declaratory judgm ent action, we are com pelled to conclude that the Act does not contain remedies aimed at addressing the issues CBC raised below. As a result, we find no basis for the trial court’s conclusion that Appellant failed to exhaust its administrative remedies. Finally, Appellees argue that the adm inistrative scheme established by the Act would be disrupted in “the ab sence of the Division reviewing its own conclusions previously reached about the lands in question.” Given the Legislatu re’s careful limitation on the authority extended to the Division under the Act, we fail to see how the regulatory framework will be disturbed if the Division is denied the opportunity to review its decision to issue coalbed methane permits to Dynatec. The Legislature was clear in its designation 13 of the Division’s regulatory responsibilities. Noticeably absent from those delin eated powers is authority to interpre t mineral rights and leasehold ow nership issues. Because there are no provisions in the Act that contem plate relief for the issues set forth in Appellant’s complaint, there is simply no procedural basi s for referring this matte r back to the Division. Based on the foregoing, the decision of the Circuit Court of Wetzel County is reversed and this matter is remanded to the tria l court for further proc eedings consistent with this opinion. Reversed and remanded. 14