Maralex Resources, Inc., a Colorado corporation; A.M. O'Hare; and Mary C. O'Hare, Plaintiffs-Appellants,
Colorado Oil and Gas Conservation Commission, Defendant-Appellee.
of Appeals No. 17CA0051 City and County of Denver District
Court No. 14CV34759 Honorable John W. Madden, IV, Judge
Announced March 22, 2018 Abadie Schill, P.C., William E.
Zimsky, Durango, Colorado, for Plaintiffs-Appellants
Cynthia H. Coffman, Attorney General, Jake Matter, Senior
Assistant Attorney General, David A. Beckstrom, Assistant
Attorney General, Denver, Colorado, for Defendant-Appellee
1 In this appeal of an administrative agency decision,
plaintiffs, Maralex Resources, Inc. (Maralex), A.M.
O'Hare (O'Hare), and Mary C. O'Hare, appeal the
district court's order affirming an order finding
violation (OFV) issued by defendant, the Colorado Oil and Gas
Conservation Commission (COGCC). On appeal, Maralex and the
O'Hares contend that a COGCC rule permitting random,
warrantless searches of oil and gas properties violates the
United States and Colorado Constitutions. As a matter of
first impression, we conclude that the COGCC rule is
constitutional because it permits searches falling within the
administrative search exception to the warrant requirement.
To the extent the O'Hares separately challenge the
constitutionality of the rule, we similarly reject their
2 Maralex also appeals the district court's order
enforcing COGCC's findings that it violated several rules
at two of its oil and gas locations. Because we agree with
Maralex that one of COGCC's findings was arbitrary and
capricious in one respect, we reverse the district
court's order in part and affirm in part.
3 In a prehearing statement submitted to the COGCC, the
parties stipulated to the following facts.
4 O'Hare was the president of Maralex, a Colorado
corporation licensed to conduct oil and gas operations in the
state. Maralex operated over 200 oil wells in Colorado. As
relevant here, Maralex was the operator of three producing
wells in southwest Colorado - Katie Eileen 34-7-35 2A (Katie
Eileen 2A), Katie Eileen 34-7-35 2 (Katie Eileen 2), and
Katie Eileen 34-7-35 3 (Katie Eileen 3). The wells were
located on the O'Hares' ranch, and the O'Hares
owned both the surface and mineral rights, though they leased
a mineral interest to Maralex beginning in 1995.
5 The wells were located on two separate oil and gas
locations.Katie Eileen 2A was located on a western
location, while Katie Eileen 2 and 3 were located on an
eastern location. The Katie Eileen 2 well was completed in
1996, and the Katie Eileen 3 well was completed in 2007.
6 Additionally, there were two pits on the eastern location
adjacent to the Katie Eileen 2 and 3 wells. One pit was
unlined, and the other had a partially torn liner. The
O'Hares used those pits as stock ponds for their cattle.
7 In the afternoon of March 20, 2014, a COGCC field
inspection supervisor contacted a local Maralex office and
requested access to the Katie Eileen wells to conduct a
routine inspection. Maralex employees informed the inspection
supervisor that the properties were protected by locked gates
and, because O'Hare was out of town, they could not
permit access that day. The inspection supervisor agreed to
delay the inspection for a day, provided that Maralex contact
him "oil-field early" - meaning, according to
industry custom, at 6:00 a.m. - the next day.
8 At 9:30 a.m. the following morning, not having heard from
Maralex, the inspection supervisor issued a notice of alleged
violation based on Maralex's failure to provide access to
the wells. There was no communication between Maralex and the
inspection supervisor until mid-morning, when O'Hare
called the inspection supervisor.
9 The exact content of the March 21 phone call was disputed,
but the conversation was apparently heated and arguably
culminated in O'Hare threatening the inspection
supervisor. O'Hare emailed the inspection supervisor
later that day offering to allow the inspection supervisor
access to the wells the following Monday morning. However, he
also wrote that, had the inspection supervisor attempted to
enter the property in spite of the locked gates, he would
have been at risk of being shot because the O'Hares'
children had been instructed to shoot trespassers. O'Hare
If your purpose is truly to inspect the locations for
adherence to the COGCC rules and regulations then bring your
notepad on Monday and you can write up all the deficiencies
you find and we will address them to the best of our ability
as soon as we can. If your intention is to run roughshod over
our Constitutional rights then you should be prepared for a
fight because I will defend my rights and my family to the
death! Any questions?
10 COGCC then sought an administrative search warrant
authorizing entry to and inspection of the western and
eastern locations, which was granted by the La Plata County
District Court. On March 27, 2014, the COGCC executed that
COGCC's Inspections and Order
11 During the initial March 27 inspection, COGCC staff noted
several rules violations, including, as relevant here,
improperly stored equipment at the Katie Eileen 2A well and
unclosed pits at the Katie Eileen 2 and 3 wells, one of which
contained improperly stored drill cuttings.
12 About two weeks later, COGCC staff conducted a follow-up
inspection of the wells. That inspection revealed that the
previously observed violations were ongoing. Additionally, a
COGCC environmental protection specialist collected soil
samples from the pits adjacent to the Katie Eileen 2 and 3
wells. Those soil samples showed levels of various
contaminants that exceeded COGCC rules.
13 Based on the inspections of the Katie Eileen wells, COGCC
issued Maralex multiple notices of alleged violations during
June and August of 2014. Challenging these notices, Maralex
requested an administrative hearing. COGCC held a hearing at
which various COGCC and Maralex employees testified.
Following the hearing, COGCC issued an OFV, concluding that
Maralex had violated several rules, including, as relevant
here, Rules 204, 603.f, 905(a), and 907(a)(1). See
Dep't of Nat. Res. Rule 204, 2 Code Colo. Regs. 404-1;
Dep't of Nat. Res. Rule 603.f, 2 Code Colo. Regs. 404-1;
Dep't of Nat. Res. Rule 905(a), 2 Code Colo. Regs. 404-1;
Dep't of Nat. Res. Rule 907(a)(1), 2 Code Colo. Regs.
404-1. In total, Maralex was assessed a penalty of $94, 000
for the violations.
District Court's Order
14 Maralex and the O'Hares sought judicial review of
COGCC's order. They raised constitutional challenges to
COGCC's rule permitting warrantless inspections of oil
and gas locations and sought injunctive and declaratory
relief. The O'Hares (but not Maralex) raised a separate
constitutional challenge to the inspection rule based on
their status as surface owners. Maralex (but not the
O'Hares) also challenged COGCC's determination of
rules violations in the OFV.
15 In a thorough and well-reasoned order, the district court
denied Maralex and the O'Hares declaratory and injunctive
relief, concluding that COGCC's inspection rule did not
violate either the United States or Colorado Constitution.
Similarly, the district court concluded that the
O'Hares' constitutional rights were not violated. The
district court also affirmed the OFV in full, finding that
all the violations were supported by competent evidence in
the agency's record.
Constitutionality of Rule 204
16 Maralex and the O'Hares argue that COGCC "lacks
statutory authority" to conduct unannounced, warrantless
searches of oil and gas locations. Although they do not
characterize it as such, we construe this claim as a facial
challenge to the constitutionality of Rule 204, which permits
authorized COGCC staff "the right at all reasonable
times to go upon and inspect any oil or gas properties."
Dep't of Nat. Res. Rule 204, 2 Code Colo. Regs. 404-1;
see City of Los Angeles v. Patel, 576 U.S.___, ___,
135 S.Ct. 2443, 2449 (2015) ("[F]acial challenges under
the Fourth Amendment are not categorically barred or
especially disfavored."). We conclude that Rule 204
passes constitutional muster.
Standard of Review
17 Because it is a question of law, we review the
constitutionality of an agency rule de novo. See Indep.
Inst. v. ...