Court Opinion

ID: 164873
Source: CourtListenerOpinion
Date Created: 2010-08-14 08:34:51+00
Date Added: 2024-06-11T12:49:12.031326
License: Public Domain

UNITED STATES COURT OF APPEALS

                                 TENTH CIRCUIT

 RAYMOND L. KYSAR; PATSY SUE
 KYSAR; KYSAR FAMILY TRUST,

              Plaintiffs - Appellants,

 v.                                                      No. 01-2359

 AMOCO PRODUCTION COMPANY,

              Defendant - Appellee.

 NEW MEXICO FARM AND
 LIVESTOCK BUREAU,

              Amicus Curiae.

                                      ORDER
                               Filed August 30, 2004

Before HENRY, PORFILIO, and BRISCOE, Circuit Judges.

      The “Kysars’ Petition for Limited Correction or Rehearing” is granted in

part and denied in part. The opinion is amended on page 6, line eleven to read,

“In exchange for the right of way, the Kysars receive a 2.5% overriding royalty . .

. .” The substituted opinion reflecting this change is attached.
The suggestion for the change on page 15 of the opinion is denied.

                                      Entered for the Court
                                      Patrick Fisher, Clerk of Court

                                      By:
                                            Amy Frazier
                                            Deputy Clerk

                                  2
                                                                F I L E D
                                      PUBLISH            United States Court of Appeals
                                                                 Tenth Circuit

                   UNITED STATES COURT OF APPEALS                JUL 26 2004

                               TENTH CIRCUIT                PATRICK FISHER
                                                                     Clerk

 RAYMOND L. KYSAR; PATSY SUE
 KYSAR; KYSAR FAMILY TRUST,

             Plaintiffs-Appellants,

       v.                                             No. 01-2359

 AMOCO PRODUCTION COMPANY,

             Defendant-Appellee.

 NEW MEXICO FARM AND
 LIVESTOCK BUREAU,

             Amicus Curiae.

  APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE
                 DISTRICT OF NEW MEXICO
               (D.C. NO. CIV-00-958 LFG/KBM)

Victor R. Marshall, Victor R. Marshall & Associates, Albuquerque, New Mexico,
for Plaintiffs-Appellants.

Tanya M. Trujillo (Bradford C. Berge with her on the briefs), Holland & Hart,
LLP, Santa Fe, New Mexico, for Defendant-Appellee.

Lee E. Peters, Hubert & Hernandez, P.A., Las Cruces, New Mexico, for Amicus
Curiae New Mexico Farm & Livestock Bureau.
Before HENRY, PORFILIO,        and BRISCOE, Circuit Judges.

HENRY , Circuit Judge.

      This case arises from a dispute over access to a gas well. The Kysar family

owns a ranch on the Animas River in San Juan County, New Mexico. Amoco is

the lessee under various leases of mineral estates under the Kysars’ ranch as well

as to lands owned by the Bureau of Land Management (BLM), adjacent to and

just north of the Kysars’ property. Several oil and gas wells drilled and operated

by Amoco are on these properties. This litigation centers around one Amoco

well, the Sullivan Gas Com E Well (the “Sullivan E well” or “the well”). See

attached schematic (Att. 1). The well is located on BLM land that is part of a

unit that also includes minerals under the Kysars’ surface estate. Both the BLM

land and a portion of the Kysars’ land are subject to a 1992 joint development

agreement with the federal government. The Kysars filed this tort action against

Amoco in New Mexico state court. Amoco removed the case to federal court

pursuant to 28 U.S.C. §§ 1331 and 1441(b). The Kysars’ complaint alleges that

Amoco’s use of the Kysars’ roads in order to operate and service the Sullivan E

well constituted unlawful trespass and unfair trade practices under New Mexico

law. The Kysars also raise an unjust enrichment claim. The Kysars did not seek

                                         2
certification to the New Mexico courts to resolve this issue of state law. We

certified two questions of state law to the New Mexico Supreme Court. Those

question have been answered, and, exercising our jurisdiction pursuant to 28

U.S.C. § 1291, we affirm the district court’s order in part, reverse in part, and

remand for further proceedings.

                          I. FACTUAL BACKGROUND

      The facts of this case are not in dispute. The lawsuit concerns Amoco’s

access to the Sullivan E well, which is part of the “Fruitland” coal formation, one

of many geologic mineral formations underlying both the Kysars’ land and the

BLM land. The Sullivan E well is located on a tract of BLM land, in Section 22,

adjacent to the Kysars’ ranch.

      The Kysars purchased the ranch in 1983, subject to a reservation of

previously leased oil, gas and other minerals, “[w]ith right of ingress and egress

for removal of the same.” Aplts’ App. 158 (Warranty deed, dated May 14, 1956).

In addition, the conveyance was subject to all easements of record for pipe and

pipe lines, roads and rights of way passage and other easements. See id. The

conveyance was also subject to a right-of-way granted in 1954 to the Southern

Union Gas Company for the purpose of constructing a road to and from Southern

Union’s “contemplated well location.” Aplts’ App. at 41 (Right-of-Way Grant,

dated May 10, 1954).

                                          3
      Amoco is the successor-in-interest to the mineral rights underlying the

Kysars’ ranch and the BLM land. Amoco’s mineral rights under the Kysars’

ranch are dictated under two substantively identical leases: the Keys lease that

governs 344 northern acres of the Kysars’ ranch, and the Jaquez lease that covers

the remaining southern portion of the ranch (which cover all of Section 27 and

portions of Sections 28, 33, and 34).

      The Keys and Jaquez leases were signed in 1948. In 1953, the Keys and

Jaquez leases were amended to provide that the mineral rights lessee (i.e.,

Amoco’s predecessor-in-interest), at its option, and without the surface owners’

“joinder or further consent,” could pool and unitize the leasehold estate with any

other land or lease covering adjacent lands. Aplts’ App. at 39 (Amendment to Oil

and Gas Lease, dated June 10, 1953); see also Supl. App. at 10 (Amendment to

Oil and Gas Lease, dated June 15, 1953) (same).

      Specifically, the amendments gave the mineral rights lessee:

             the power and right, at any time during the term of this
             lease, as to all or any part of the land . . . and as to any one
             or more of the formations thereunder and the oil, gas, and
             all by-products therein or produced therefrom, at its option
             and without Lessor’s joinder or further consent, to pool
             and unitize the leasehold estate and the Lessor’s royalty
             estate created by this lease with the rights of any third
             parties in all or any part of the land . . . and with any
             other land, lands, lease, leases, oil, gas, and all by-
             products therein and royalty rights, or any of them,
             adjacent, adjoining or located within the immediate
             vicinity of the land covered by this lease, whether owned

                                            4
             by Lessee or some other person . . . so as to create by such
             pooling and unitization, one or more drilling or production
             units. Each such drilling or production unit shall not
             exceed 320 acres.

Aplts’ App. at 39; Supl. App. at 10 (same). In the amendment, the parties also

             agreed that the commencement, drilling, completion of
             or production from a well, on any portion of a unit
             created hereunder, shall not have the effect of
             continuing this lease in force insofar as it covers the
             land not included within such unit, and no unit shall be
             created which covers and includes land in more than one
             Section.

Aplts’ App. at 39; Supl. App. at 10 (same). Amoco, as the successor to the rights

of the original mineral lessee, retains these rights.

      In 1992, Amoco entered into a communitization agreement that committed

36.84 acres in Section 22 that Amoco held under the amended Keys lease to a

joint development project with several other tracts of land. As the attached

schematic indicates, the 36.84 acres of Section 22 constitute a relatively small

segment of the Kysars’ ranch. The communitization agreement covered the

Fruitland coal gas seam geologic formation underlying the specified tracts.

Pursuant to 30 U.S.C. § 226(j), the federal government approved the

communitization agreement with Amoco and the other signatories.

      In considering where to locate the Sullivan E well, Amoco approached the

Kysars about placing the well within the boundaries of the 36.84 acres of the

Kysars’ ranch that are subject to the communitization agreement. None of the six

                                           5
wells on the Kysars’ ranch are on the communitized property. After the Kysars

indicated that they did not want the Sullivan E well on their land (because it

would hinder their cultivation of alfalfa), Amoco drilled the well on BLM land.

      Two private roads access the Sullivan E well: (1) the north branch or bridge

road, extending through Sections 27 and 28, which crosses the Kysars’ property

held under the amended Keys lease and includes a suspension bridge (“bridge

road”) and (2) the longer branch road, extending through Sections 27 and 34,

which crosses both Keys and Jaquez lease property (“back gate road”). Amoco

acceded to a request by the Kysars that Amoco not use the bridge road, based on

the Kysars’ fear that the bridge could not sustain heavy equipment. Amoco

maintains that although it has thus far been able to limit itself to using the less

convenient back gate road, it nevertheless has the right to use both roads to access

the Sullivan E well.

      In 2000, the Kysars negotiated a right of way with Coleman Oil, another oil

company, that planned to drill a well on BLM lands within the communitized unit.

In exchange for the right of way, the Kysars receive a 2.5% overriding royalty on

all production from the new well, plus various payments for improvements and

maintenance on the roads.

                   II. THE DISTRICT COURT’S FINDINGS

      Before the district court, the Kysars argued that (1) the communitization

                                           6
does not authorize Amoco to cross the portion of their ranch contained within the

communitized area to access the Sullivan E gas well on the adjacent BLM land

(Section 22); (2) Amoco is not entitled to cross the non-communitized portion of

the Kysars’ ranch via the bridge road (sections 27 and 28); and (3) Amoco is not

authorized to cross the southern portion of the Kysars’ ranch via the back gate

road (sections 34 and 27). The district court rejected each of these arguments.

      First, the district court determined that the communitization agreement

granted Amoco the right to access the Sullivan E well by crossing that portion of

the Kysars’ surface estate overlying the communitized formations. The district

court concluded that, by virtue of the oil and gas leases and the later

communitization agreement, a mineral rights lessee could use the surface area of

the lease to access and develop a well located on a nearby tract owned by others

even where the lease did not expressly grant this right. The district court

determined that the communitization agreement affected “‘both the lands

described as being committed to the communitization area and each lease

committed to the agreement.’” Aplts’ App. at 236 (quoting Wolff v. Belco Dev.

Corp., 736 P.2d 730, 733 (Wyo. 1987) (emphasis in original)). “If production

anywhere in a unit is considered to be production from each tract, then each

surface tract within a unit is subject to the right of reasonable ingress and egress

by lessees . . . [to] extract[] minerals from the unit.” Id. at 234.      Second, the

                                            7
district court also determined that Amoco is entitled to use both the bridge road

and back gate road for its access to wells on the Kysars’ ranch and for access to

the Sullivan E well. The court found that because the “communitization

agreement . . . ‘modifies and changes’ the Keys lease,” id. at 238, access should

be unrestricted. The court continued, “‘if any acreage within [a] lease is unitized

with a producing well, the surface of the leased tract may be used to transport

production from the unit well.’” Id. at 236 (quoting Acree v. Shell Oil Co., 548 F.

Supp. 1150, 1154 (M.D. La. 1982), aff’d, 721 F.2d 524 (5th Cir. 1983)).

      The district court recognized that the lease at issue in Acree specifically

provided for access to the surface lands not covered by a unitization agreement,

and that the Keys lease and the 1953 amendment lacked any language regarding

transport over non-unitized or unitized surfaces of the lease. However, the

district court stated that even with the omission of specific language, “the result

should nevertheless be the same.” Id. The court noted that “[t]his right is, as

always, subject to Amoco’s duty of reasonable and non-negligent surface use, so

that any danger to the bridge would have to be taken into account.” Id. at 241

n.2. In making this finding, the court relied on Amoco Production Co. v. Carter

Farms Co., 703 P.2d 894 (N.M. 1985), which held that “the mineral lessee[] is

entitled to use as much of the surface area as is reasonably necessary for its

drilling and production operations.” Id. at 896.

                                          8
      Next, the court reasoned that the back gate road, which crossed land

governed by the Jaquez lease, was also available for access by Amoco. Having

found no errors in Amoco’s access and use of the Kysars’ land, the district court

rejected the Kysars’ allegations involving state tort claims for trespass, unjust

enrichment, and a violation of the New Mexico Unfair Trade Practices Act.

                             III. ISSUES ON APPEAL

      On appeal, the Kysars argue that the district court misconstrued and

misapplied New Mexico law when it drew the above conclusions. Specifically,

they contend that (1) the communitization agreement did not expand Amoco’s

rights to allow Amoco to access the surface of the communitized portion of the

Kysars’ ranch to develop the well; (2) the communitization agreement did not

expand Amoco’s rights to allow Amoco to access the surface of the non-

communitized Kysars’ ranch to develop the well; and (3) New Mexico law does

not liberally construe implied easements.

      We certified the following questions to, and received the following answers

from, the New Mexico Supreme Court:

      (1) Under New Mexico law, does a mineral rights lessee, by virtue of
      a Communitization Agreement to which the mineral rights lessee is a
      party, gain a right of access  over the surface estate of the unitized
      portion of the leased area in connection with the operations on other
      premises or lands pooled or unitized therewith where the lease did not
      expressly grant this right?

      The New Mexico Supreme Court construed the question to read:

                                          9
       (1) [W]hether, as a result of the 1992 Communization Agreement,
       Amoco has the right to use the surface of the Kysars’ property located
       within Section 22 to reach the Sullivan E Well.

In response, the New Mexico Supreme Court

       conclude[d] that under New Mexico law a mineral rights lessee, having
       entered into a communitization agreement with the permission of the
       prior fee owner, enjoys a right of access over the surface estate of the
       portion of the leased area subject to the agreement. Thus, we answer
       the first question “Yes.”

Kysar v. Amoco Prod. Co. , No. 28,231 at 1 (N.M. June 15, 2004).

       Our second certified question asked:

       (2) Under New Mexico law, does a mineral rights lessee, by virtue of
       a Communitization Agreement to which the mineral rights lessee is a
       party, gain a right of access over the surface estate of the non-unitized
       portion of the leased area in connection with the production and
       extraction of minerals on other premises or lands pooled or unitized
       therewith where the lease did not expressly grant this right?

The New Mexico Supreme Court reformulated the second question to ask:

       (2) [W]hether, as a result of the 1992 Communitization Agreement,
       Amoco has the right to use the surface of the Kysars’ property acquired
       from Keys and located within Sections 27 and 28 to reach the Sullivan
       E well.

See N.M. Stat. Ann. § 39-7-7(A)(3).      In response to the second question, the Court

       conclude[d] that under New Mexico law a mineral rights lessee does
       not, by virtue of having entered into a communitization agreement with
       the permission of the prior fee owner, enjoy a right of access over the
       surface estate of the portion of the leased area that is not subject to the
       agreement. Thus, we answer the second question “No.”

Id. at 2.

                                           10
      A. Standard of Review

      “We review the district court’s grant of summary judgment de novo,

applying the same legal standards used by that court. Summary judgment should

not be granted unless the evidence, viewed in the light most favorable to the party

opposing the motion, shows there are no genuine issues of material fact and the

moving party is due judgment as a matter of law.” Blackhawk-Central City

Sanitation Dist. v. Am. Guar. & Liab. Ins. Co., 214 F.3d 1183, 1187-88 (10th Cir.

2000). “When, as here, a federal court is exercising diversity jurisdiction, it must

apply the substantive law of the forum state,” here, New Mexico. Id. at 1188.

We review the district court’s determination of New Mexico law de novo. See id.

      B. Access of the Surface of the Communitized Portion of the Kysars’
      Ranch to Develop the Well

      In light of the New Mexico Supreme Court’s answers to the above

questions, it is clear that the district court was correct that Amoco may have

reasonable access to the surface of the 36.84 acre portion of the Kysars’ ranch

that is committed to the communitization agreement. The Court held:

      that under New Mexico law a mineral lessee’s implied surface right of
      reasonable ingress and egress to reach a well located inside the
      production unit that the lessee is operating pursuant to a pooling
      arrangement extends across lease boundaries within the unit to the
      surface of the entire area subject to the arrangement, regardless of
      where within the unit production is taking place.

Kysar, No. 28,231 at 2o.

                                         11
      C. Access of the Surface of the Non-Communitized Portion of
      the Kysars’ Ranch in Sections 27 and 28 Governed by the Keys
      Lease

      It is also clear that the district court’s conclusion that the communitization

agreement had the effect of binding the entire Kysars’ ranch to the agreement for

purposes of reasonable surface access was in error. The Court

      conclude[d] that the 1992 Communitization Agreement did not modify
      the 1953 lease amendment. . . . Amoco does not enjoy an implied right
      of access by virtue of the communitization agreement over the portion
      of the Kysars ranch acquired from Keys within Sections 27 and 28.

Id. at 27-28. The Court continued: “Amoco is not entitled by virtue of [the 1992

Communitization Agreement] to use the Bridge Road or the portions of the Back

Gate Road that cross the land the Kysars obtained from Keys to access the

Sullivan E Well.” Id. at 28. Having received the New Mexico Supreme Court’s

thorough and detailed analysis of the above questions, we need not address the

Kysars’ arguments regarding New Mexico’s construction of implied easements as

applied to these sections.

      D. Access of the Surface of the Non-Communitized Portion of the
      Kysars’ Ranch Acquired under the Amended Jaquez Lease

      The New Mexico Supreme Court’s reformulation of the second certified

question did not directly consider “Amoco’s right to use those portions of the

Back Gate Road that cross the surface of the Kysars’ property acquired from

                                         12
Jaquez.” Id. at 8. 1 This question seemingly does not need to be answered, as it

would be impossible to access the Sullivan E well through the property governed

by the amended Jaquez lease without also traversing the land that the Kysars

governed by the amended Keys lease, which the New Mexico Supreme Court held

Amoco is not entitled to do by virtue of the communitization agreement. We

note, however, that the New Mexico Supreme Court’s answer to the second

certified question above appears to foreclose Amoco’s arguments when it

concluded that Amoco did “not enjoy a right of access over the surface estate of

the portion of the leased area not subject to the [communitization] agreement

when the lease did not expressly grant this right.” Id. at 28. We hold that Amoco

is not entitled by virtue of the 1992 Communitization Agreement to use the

portions of the back gate road that cross the land covered by the amended Jaquez

lease (in Sections 27 and 34) to access the Sullivan E Well.

      E. Outstanding Issues

      The district court dismissed the Kysars’ remaining claims for trespass,

unjust enrichment, and violation of the New Mexico Unfair Practices Act, finding

      1
          Although the record is not precisely clear, most if not all of this land was
sold to the Keys family, specifically Jessie Maude Keys, in 1950.     See Supl. App.
at 1036 (Deed). It is also not clear whether the New Mexico Supreme Court had
the entire record, including the Supplemental Appendix, before it. However, we
note that the legal descriptions are not identical. For purposes of this opinion, we
shall refer to the land at issue as the land covered or governed by the amended
Jaquez lease so as to avoid confusion.

                                          13
that (1) Amoco’s “actions do not constitute trespass as a matter of law,” Aplt’s

App. doc. 10, at 242, and (2) the “claims for unjust enrichment and statutory

violations are dependent on the existence of a trespass and misrepresentation as to

the right of access and, there being no trespass and no misrepresentation, those

claims will be dismissed.” Id.

      As to the unfair trade practices claim, we hold that the Kysars’ claim does

not fall within the ambit of the New Mexico Unfair Practices Act, N.M. S TAT .

A NN . § 57-12-2(D). That section explains that

      “unfair or deceptive trade practice” means an act specifically declared
      unlawful pursuant to the Unfair Practices Act, a false or misleading
      oral or written statement, visual description or other representation of
      any kind knowingly made in connection with the sale, lease, rental or
      loan of goods or services or in the extension of credit or in the
      collection of debts by a person in the regular course of his trade or
      commerce.

Id. (emphasis added). The Unfair Practices Act “does not apply to sales of real

estate.” McElhannon v. Ford, 73 P.3d 827, 832 (N.M. Ct. App. 2003). The

Kysars based their claim on Amoco’s alleged misrepresentations regarding its

right of access to the Sullivan E well. Because the alleged misrepresentations are

unconnected to a good or service, we hold that the claim does not fall within the

parameters of the Unfair Practices Act.

      As to the Kysars’ claims for trespass and unjust enrichment, Amoco argues

that these claims are barred by the four-year statute of limitations for each claim.

                                          14
We hold that there are unresolved factual issues which prevent our resolving the

statute of limitations issue, and we remand to the district court to make these

determinations. In closing, we also note that any calculation of damages (as well

as the determination of whether the tort or contract claims lie at all) in this case

must take into account the Kysars’ request and Amoco’s agreement not to locate

the well on the Kysars’ alfalfa field, but rather to use existing roads to other wells

as far as possible.

                                 IV. CONCLUSION

      Amoco may access the surface of the Kysars’ ranch that comprises the

36.84 acres committed to the communitization agreement in Section 22, and we

AFFIRM the district court’s grant of summary judgment as to this finding.

      The 1992 Communitization Agreement did not confer upon Amoco the right

to access the surface of the Kysars’ ranch acquired from either Ms. Keys, located

within Section 27 and 28, or that land governed by the amended Jaquez lease,

located in Sections 27 and 34. Accordingly, as to the Kysars’ claim regarding

Amoco’s use of the surface of their ranch acquired from Ms. Keys in Section 27

and 28, and Amoco’s use of the surface of the ranch governed by the amended

Jaquez lease in Section 27 and 34, we REVERSE the district court’s grant of

summary judgment in favor of Amoco; we AFFIRM the dismissal of the Unfair

                                          15
Practices Act claim, and we REMAND for further proceedings, including the

consideration of the statutes of limitations for the trespass and unjust enrichment

claims, consistent with this opinion.

                                         16