Court Opinion

ID: 5270688
Source: CourtListenerOpinion
Date Created: 2022-01-06 21:07:52.789385+00
Date Added: 2024-06-11T08:28:13.941152
License: Public Domain

FILED
                                                                    IN THE OFFICE OF THE
                                                                 CLERK OF SUPREME COURT
                                                                       JANUARY 6, 2022
                                                                  STATE OF NORTH DAKOTA

                 IN THE SUPREME COURT
                 STATE OF NORTH DAKOTA

                                2022 ND 12

Phillip D. Armstrong,                               Plaintiff and Appellant
     v.
Lynn D. Helms, Director, Oil & Gas Division,
North Dakota Industrial Commission                 Defendant and Appellee

                                No. 20210227

Appeal from the District Court of Burleigh County, South Central Judicial
District, the Honorable David E. Reich, Judge.

AFFIRMED.

Opinion of the Court by Jensen, Chief Justice.

Phillip D. Armstrong, self-represented, Minot, ND, plaintiff and appellant;
submitted on brief.

Matthew A. Sagsveen, Assistant Attorney General, Bismarck, ND, for
defendant and appellee; submitted on brief.
                           Armstrong v. Helms
                              No. 20210227

Jensen, Chief Justice.

[¶1] Phillip Armstrong appeals from a judgment dismissing his amended
complaint. The district court granted dismissal of the amended complaint after
finding Armstrong had failed to exhaust his administrative remedies. The
court did not rule on any of Armstrong’s substantive claims. We conclude
federal regulations do not preempt the application of N.D.C.C. ch. 38-08,
Armstrong failed to exhaust his administrative remedies, and the court
properly dismissed the action. We affirm the dismissal of Armstrong’s
amended complaint.

                                      I

[¶2] In 1996, Armstrong filed a surety bond with the North Dakota Industrial
Commission when he became the operator of several oil wells on private land.
In 2001, Armstrong also began operating wells on federal lands. Armstrong is
currently engaged with federal authorities in formulating a reclamation plan
for the federal lands. The wells are not producing oil and Armstrong has
requested a release of his surety bond filed with the Commission. The
Commission conditioned the release of the bond on Armstrong performing a
geoprobe assessment of the wells, which Armstrong refused.

[¶3] Armstrong filed a complaint in the district court seeking release of his
bond. The State filed an answer and immediately moved for summary
judgment asserting, in part, the action should be dismissed because Armstrong
had failed to exhaust his administrative remedies. Armstrong responded with
his own motion for summary judgment and opposed the State’s motion for
summary judgment. Armstrong’s assertions in the district court included an
argument that federal regulations preempted the application of N.D.C.C. ch.
38-08. Armstrong also moved to amend his complaint.

[¶4] The district court granted Armstrong’s motion to amend his complaint
after finding the amendments did not impact its determination on the
competing motions for summary judgment. The court concluded Armstrong’s

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claims were barred by his failure to exhaust his administrative remedies,
rejected Armstrong’s argument state law did not apply because of federal
preemption, and entered a judgment dismissing the action.

[¶5] Armstrong filed a motion requesting the district court reconsider       the
dismissal of his action and filed a notice of appeal. This Court remanded    the
case to the district court for disposition of Armstrong’s motion              for
reconsideration. On remand, the court found Armstrong’s motion                for
reconsideration failed to state any legal or factual basis for relief from   the
judgment and the issues raised in the motion were more appropriate for       the
appeal.

[¶6] Armstrong argues that the powers of the Commission under his bond are
limited to the production phase of oil, do not extend through the reclamation
phase, and therefore there was no requirement for him to pursue
administrative remedies. While he indicates in his briefing to this Court he is
not asserting on appeal that state law is preempted by federal law, his
substantive arguments included within his briefing assert he is not required
to comply with both federal and state law.

                                       II

[¶7] “Our decisions have also consistently required exhaustion of remedies
before the appropriate administrative agency as a prerequisite to making a
claim in court.” Thompson v. Peterson, 546 N.W.2d 856, 861 (N.D. 1996) (citing
references omitted). Dismissal for lack of subject matter jurisdiction is
generally appropriate if the plaintiff failed to exhaust administrative remedies.
Vogel v. Marathon Oil Co., 2016 ND 104, ¶ 7, 879 N.W.2d 471 (citing reference
omitted). Our review of the dismissal of an action for lack of subject-matter
jurisdiction is de novo if the jurisdictional facts are not disputed. Id. (citing
reference omitted).

[¶8] “The Act for the Control of Gas and Oil Resources, N.D.C.C. ch. 38-08,
grants the Commission comprehensive powers to regulate oil and gas
development in the state[.]” Egeland v. Cont’l Res., Inc., 2000 ND 169, ¶ 11,
616 N.W.2d 861. Under N.D.C.C. § 38-08-04, the “commission has continuing

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jurisdiction and authority over all persons and property, public and private,
necessary to enforce effectively the provisions of this chapter.” Id.

[¶9] Under N.D.C.C. § 38-08-04(1)(a)(12), the Legislature has provided the
Commission with the authority to require reclamation of oil wells. Under
N.D.C.C. § 38-08-04(1)(b)(1), the Commission has been provided the authority
to regulate the restoration of drilling and production sites. Through the
adoption of administrative rules, “any person who proposes to drill a well for
oil, gas, injection, or source well for use in enhanced recovery operations, shall
submit to the commission, and obtain its approval, a surety bond or cash bond.”
N.D. Admin. Code § 43-02-03-15(1). The terms of those bonds are as follows:

      Bond terms. Bonds shall be conditioned upon full compliance with
      North Dakota Century Code chapter 38-08, and all administrative
      rules and orders of the commission. It shall be a plugging bond, as
      well as a drilling bond, and is to endure up to and including
      approved plugging of all oil, gas, and injection wells as well as dry
      holes. Approved plugging shall also include practical reclamation
      of the well site and appurtenances thereto. If the principal does not
      satisfy the bond’s conditions, then the surety shall satisfy the
      conditions or forfeit to the commission the face value of the bond.

N.D. Admin. Code § 43-02-03-15(4).

[¶10] Section 38-08-11, N.D.C.C., provides a procedure for addressing matters
under the jurisdiction of the Commission. The Commission may act either on
its own motion or on the filing of a petition. N.D.C.C. § 38-08-11(4). Following
the filing of a petition, the Commission shall hold a hearing and issue a
decision. Id. A decision of the Commission may be appealed to the district
court. N.D.C.C. § 38-08-14.

[¶11] The reclamation of oil wells is within the jurisdiction of the Commission.
See N.D.C.C. §§ 38-08-04(1)(a)(12) and 38-08-04(1)(b)(1). The bond at issue was
required by rules promulgated by the Commission. See N.D. Admin. Code § 43-
02-03-15. Armstrong has an administrative remedy available to request a
release of the bond. See N.D.C.C. § 38-08-11. We conclude Armstrong has failed

                                        3
to exhaust his administrative remedies prior to initiating an action in the
district court.

                                     III

[¶12] On appeal, Armstrong asserts he is not arguing that the state laws are
preempted by the federal laws. However, he argues that he is not required to
comply with both the federal regulations and state regulations for reclamation
processes on the federal lands. Because application of federal law to the
exclusion of state law would eliminate the need to exhaust state administrative
remedies, we address Armstrong’s assertion. We treat this argument as a
preemption argument, and we consider whether the federal law preempts state
law.

[¶13] Federal preemption of state laws occurs in three circumstances: express
preemption, field preemption, and conflict preemption. State ex rel. Stenehjem
v. FreeEats.com, Inc., 2006 ND 84, ¶ 19, 712 N.W.2d 828. Preemption of state
law is not favored, and there is an assumption that Congress did not intend to
preempt state law. Id. at ¶ 20.

[¶14] In this case, the district court found there was no indication that
Congress has preempted state laws regarding reclamation and bonding.
Armstrong’s argument does not appear to be that Congress completely occupies
the field or has expressly stated it occupies the entire field, or that it is
impossible for him to comply with both the state and federal regulations.
Rather, his challenge appears to be against the cost associated with the
assessment the State has requested to release his bond before the term expires,
and that the assessment is not required by the federal plan and cannot be
added by the State.

[¶15] The federal regulations expressly provide that if the state regulations
are more stringent, the operator can comply with both the federal and state
requirements by meeting the more stringent state requirement. See, e.g.,
response to comments in Onshore Oil and Gas Operations; Federal and Indian
Oil and Gas Leases; Onshore Oil and Gas Order Number 1, Approval of
Operations; Final Rule, 72 Fed. Reg. 10,308, 10,311 (Mar. 7, 2007) (“The Order

                                      4
only addresses Federal obligations for operations on Federal lands which may
be distinct from state obligations or private surface owner agreements. The
Order would only impact state law or private agreements to the extent that
they conflict with Federal obligations. In addition, the Order does not negate
or preempt other Federal, state, or local laws and/or ordinances.”). It is possible
for Armstrong to comply with both the federal laws and state laws, and the
cost of any added state regulation is not relevant to deciding whether the state
law is preempted. We conclude the state laws relating to reclamation and
bonding are not preempted by federal law.

                                       IV

[¶16] The district court properly dismissed Armstrong’s cause of action
because he had failed to exhaust his available administrative remedies. The
state laws relating to bonding and reclamation are not preempted by federal
law. We affirm the district court’s judgment dismissing Armstrong’s claims.

[¶17] Jon J. Jensen, C.J.
      Gerald W. VandeWalle
      Daniel J. Crothers
      Lisa Fair McEvers
      Jerod E. Tufte

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