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Bill Barrett Corp. v. Lembke

Court of Appeals of Colorado, Division A

September 6, 2018

Bill Barrett Corporation and Bonanza Creek Energy, Inc., Plaintiffs-Appellants,
v.
Robert Lembke; 70 Ranch L.L.C.; South Beebe Draw Metropolitan District, f/k/a Bromley Park Metropolitan District No. 1; and United Water and Sanitation District, Defendants-Appellees. and Noble Energy, Inc., Intervenor-Appellant,

          Adams County District Court No. 17CV68 Honorable Jaclyn C. Brown, Judge.

          Davis Graham & Stubbs, LLP, R. Kirk Mueller, Paul D. Swanson, Denver, Colorado, for Plaintiffs-Appellants

          Hogan Lovells US, LLP, Elizabeth H. Titus, Lacy G. Brown, Denver, Colorado, for Intervenor-Appellant

          Shook, Hardy & Bacon, LLP, S. Kirk Ingebretsen, Denver, Colorado, for Defendants-Appellees Robert Lembke and 70 Ranch L.L.C.

          Brown Dunning Walker PC, Douglas W. Brown, David C. Walker, Drew P. Fein, Denver, Colorado; Wass Campbell Rivera Johnson Velasquez LLP, Darrell G. Waas, Mikaela V. Rivera, Denver, Colorado, for Defendant-Appellee South Beebe Draw Metropolitan District

          Hamre Rodriguez Ostrander Dingess PC, Donald M. Ostrander, Richard F. Rodriguez, Joel M. Spector, Denver, Colorado; Wass Campbell Rivera Johnson Velasquez LLP, Darrell G. Waas, Mikaela V. Rivera, Denver, Colorado, for Defendant-Appellee United Water and Sanitation District

          OPINION

          WEBB, JUDGE.

         ¶ 1 Plaintiffs Bill Barrett Corporation and Bonanza Creek Energy, Inc., and intervenor Noble Energy, Inc., (collectively, lessees) appeal the trial court's order denying their motion for a preliminary injunction to prevent defendant South Beebe Draw Metropolitan District (South Beebe) from taxing oil and gas that lessees produce from the mineral estate underlying an approximately 13, 000-acre tract (the 70 Ranch) located in unincorporated Weld County. Defendants Robert Lembke and 70 Ranch L.L.C. (the L.L.C.) own the surface estate, where all of lessees' well heads are located.[1]Lessees also appeal the court's entry of summary judgment on one of their claims.

         ¶ 2 We affirm the entry of summary judgment, vacate the denial of the motion for preliminary injunction, and remand for further findings consistent with this opinion.

         I. Nature and Course of Proceedings

         ¶ 3 On appeal, lessees raise three challenges to South Beebe's taxing authority. The trial court entered summary judgment on the first of these issues.

. Under section 32-1-401, C.R.S. 2017, the severed mineral estate[2] underlying the 70 Ranch could not be included within South Beebe because all the owners and lessees of that estate did not petition for and consent to inclusion.
. By including the 70 Ranch within its boundaries to further its regional operations in several counties, South Beebe modified its service plan, but did not obtain statutorily required approval from the board of county commissioners (BOCC) in each of the affected counties.
. By including the 70 Ranch within its boundaries, South Beebe violated section 32-1-107(2), C.R.S. 2017, because its services overlapped with those of Sand Hills Metropolitan District (Sand Hills).

         ¶ 4 Preservation of these contentions is undisputed.

         ¶ 5 Lessees obtained a temporary restraining order in the Weld County District Court that prohibited the Weld County Treasurer, who had collected the disputed taxes, from disbursing the monies to South Beebe. Venue was transferred to the Adams County District Court. That court held an evidentiary hearing on lessees' motion for a preliminary injunction. Finding that lessees had not shown a reasonable probability of success on the merits, the court denied the motion for a preliminary injunction and dissolved the temporary restraining order. Later, the court entered a final judgment under C.R.C.P. 54(b) and 56(h) against lessees on their section 32-1-401 claim.

         ¶ 6 Lessees appealed. They requested that this court preserve the status quo by enjoining the treasurer from disbursing taxes collected to South Beebe. A motions division of this court granted the requested relief, expedited briefing, and ruled that the appeal would be decided without oral argument.

         II. Background

         ¶ 7 In 2009, Sand Hills included the 70 Ranch within its boundaries and began assessing ad valorem taxes on the oil and gas extracted from the mineral estate. Much as lessees have done in this case, they challenged the taxes levied by Sand Hills and obtained summary judgment in Weld County District Court. Both sides appealed.

         ¶ 8 In Bill Barrett Corp. v. Sand Hills Metropolitan District, 2016 COA 144, the division agreed with the district court that when Sand Hills included the 70 Ranch, the combination of its change in purpose and its complete shift in geography constituted a material departure from its 2004 service plan under section 32-1-207(2)(a), C.R.S. 2017. Id. at ¶¶ 21, 23, 30. The division also agreed that this material modification of the existing service plan required - but Sand Hills had not obtained - approval from the Weld County BOCC. Id. at ¶ 32. For these reasons, the division held that Sand Hills lacked taxing authority after 2009. Id. at ¶ 37.

         ¶ 9 Following the entry of summary judgment and before the Sand Hills appeal was filed, Lembke and the L.L.C. petitioned South Beebe to include the 70 Ranch. Lessees were not notified of this action. South Beebe resolved to include the 70 Ranch, agreed to assume development and construction of the regional water infrastructure commenced by Sand Hills, and committed to provide services to the 70 Ranch. The Adams County District Court approved inclusion of the 70 Ranch into South Beebe, as required by section 32-1-401(1)(c)(I), which states that "[i]f a petition [for inclusion] is granted [by the district's board] . . ., the board shall . . . file [an order] with the clerk of the court, and the court shall thereupon order the property to be included in the special district." (Emphasis added.)[3]

         III. Law

         A. Preliminary Injunction Standard

         ¶ 10 "Preliminary injunctive relief is an extraordinary remedy designed to protect a [party] from sustaining irreparable injury and to preserve the power of the district court to render a meaningful decision following a trial on the merits." Rathke v. MacFarlane, 648 P.2d 648, 651 (Colo. 1982).

         ¶ 11 Preliminary "injunctive relief should not be indiscriminately granted"; rather, it should be granted sparingly, cautiously, and with the trial court's full conviction of the urgent necessity for the relief. Id. at 653. Before granting relief, the trial court must find that the moving party has shown:

(1) a reasonable probability of success on the merits;
(2) a danger of real, immediate, and irreparable injury which may be prevented by injunctive relief;
(3) that there is no plain, speedy, and adequate remedy at law;
(4) that the granting of a preliminary injunction will not disserve the public interest;
(5) that the balance of equities favors the injunction; and
(6) that the injunction will preserve the status quo pending a trial on the merits.

Id. at 653-54 (citations omitted). If the moving party fails to establish any criterion, injunctive relief is not available. Id. at 654.

         B. Special District Act

         ¶ 12 The General Assembly enacted the Special District Act (the Act) with the intent that special districts "promote the health, safety, prosperity, security, and general welfare" of their inhabitants and of the State of Colorado. § 32-1-102(1), C.R.S. 2017; see also Sand Hills, ¶ 15; Todd Creek Vill. Metro. Dist. v. Valley Bank & Tr. Co., 2013 COA 154, ¶ 37. Special districts are political subdivisions of the state that possess proprietary powers. Todd Creek, ¶ 38. But they possess only those powers expressly conferred on them. Sand Hills, ¶ 15.

         ¶ 13 Once established, a special district must conform to its service plan "so far as practicable." § 32-1-207(1). Any material modifications to the service plan must be approved by the appropriate governing authority. § 32-1-207(2)(a).

         IV. Standard of Review

         ¶ 14 Statutory interpretation is a question of law subject to de novo review. See, e.g., Jefferson Cty. Bd. of Equalization v. Gerganoff, 241 P.3d 932, 935 (Colo. 2010). Likewise, appellate courts review de novo the application of law to undisputed facts. See Camp Bird Colo., Inc. v. Bd. of Cty. Comm'rs, 215 P.3d 1277, 1281 (Colo.App. 2009). And the de novo standard applies to review of summary judgments. Rocky Mountain Expl., Inc. v. Davis Graham & Stubbs LLP, 2018 CO 54, ¶ 27.

         ¶ 15 "The grant or denial of a preliminary injunction lies within the sound discretion of the trial court." MDC Holdings, Inc. v. Town of Parker, 223 P.3d 710, 716 (Colo. 2010). Generally, the conclusion reached by the trial court will be not overturned unless it is manifestly unreasonable, arbitrary, or unfair. Evans v. Romer, 854 P.2d 1270, 1274 (Colo. 1993). "If, however, the issue being reviewed concerns only legal, rather than factual questions, a trial court's preliminary injunction ruling is subject to de novo appellate review." State ex rel. Salazar v. Cash Now Store, Inc., 31 P.3d 161, 164 (Colo. 2001). The same is true when the ruling rested only on stipulated facts or documentary evidence. MDC Holdings, 223 P.3d at 716.

         ¶ 16 On review of a preliminary injunction, the trial court's factual findings will be upheld unless they are so clearly erroneous as to find no support in the record. Phoenix Capital, Inc. v. Dowell, 176 P.3d 835, 846 (Colo.App. 2007).

         ¶ 17 Whether a special district's action constitutes a "material modification" of the service plan presents a question of law. Indian Mountain Corp. v. Indian Mountain Metro. Dist., 2016 COA 118M, ¶¶ 59, 61-62. A court looks to the language of the service plan and gives effect to its plain and ordinary meaning. See Todd Creek, ¶¶ 10-11.

         ¶ 18 The standard of review as to whether material modifications were approved by the appropriate BOCC is unresolved. But in Friends of the Black Forest Regional Park, Inc. v. Board of County Commissioners, the division noted, "[t]he application of particular facts to a statute involves a mixed question of fact and law." 80 P.3d 871, 882 (Colo.App. 2003). Because whether the requisite approval was obtained will turn on particular facts, the mixed question standard of review applies. See also Hawes v. Colo. Div. of Ins., 65 P.3d 1008, 1017 (Colo. 2003) (case-by-case issue is mixed question). In mixed-question cases, an appellate court reviews the district court's factual findings for clear error and its legal conclusions as to those facts de novo. Sheridan Redevelopment Agency v. Knightsbridge Land Co., 166 P.3d 259, 262 (Colo.App. 2007).

         ¶ 19 According to South Beebe, because the trial court's denial of a preliminary injunction is not a final judgment on the merits, review of the second and third issues can be only for an abuse of discretion. To the extent that some of the court's conclusions rested on documentary evidence or undisputed facts, however, we review de novo. And in any event, "[a] trial court abuses its discretion when it . . . misapplies the law." Clubhouse at Fairway Pines, L.L.C. v. Fairway Pines Estates Owners Ass'n, 214 P.3d 451, 456 (Colo.App. 2008).

         V. Discussion

         A. Application of Section 32-1-401(1)(a) to Owners and Lessees of Severed Mineral Estates

         ¶ 20 According to lessees, without their consent - as "fee owners" - and that of the other mineral estate owners, the 70 Ranch - or at least the underlying mineral estate - could not have been included within South Beebe. South Beebe responds that because the mineral and surface estates are severed, only the surface owners needed to petition for and consent to inclusion, and all of them did.[4] Alternatively, South Beebe asserts that because lessees' well heads are located on the 70 Ranch, it could tax lessees' oil and gas production for that reason alone.

         ¶ 21 The following facts are undisputed. The mineral estate underlying the 70 Ranch has been severed from the surface estate. Lembke and the L.L.C. owned some but not all of the mineral estate. No other mineral estate owner petitioned for or consented to including this property within South Beebe. Nor did lessees.

         ¶ 22 In resolving this issue against lessees, the trial court found that the services provided by South Beebe did not benefit the subsurface mineral estate. Lessees do not challenge this finding.

         ¶ 23 First, we address whether mineral estate owners and lessees are "fee owners." We answer affirmatively only as to mineral estate owners. Because the parties agree - and the record supports - that not all of the mineral estate owners consented to the 70 Ranch's inclusion, we next consider whether South Beebe's services can benefit the mineral estate. But since lessees do not argue that the mineral estate can benefit, we further conclude that lack of consent by all mineral estate owners does not preclude South Beebe from taxing lessees.

         1. Law

         ¶ 24 Section 32-l-401(1)(a) provides:

The boundaries of a special district may be altered by the inclusion of additional real property by the fee owner or owners of one hundred percent of any real property capable of being served with facilities of the special district filing with the board a petition in writing requesting that such property be included in the special district. The petition shall set forth a legal description of the property, shall state that assent to the inclusion of such property in the special district is given by the fee owner or owners thereof, and shall be acknowledged by the fee owner or owners in the same manner as required for conveyance of land.

The parties have not cited Colorado authority, nor have we found any, applying this section in the context of severed mineral estate owners or the interests of mineral lessees.

         2. Application

         a. Is an Owner or a Lessee of a Severed Mineral Estate a "Fee Owner" Under the Statute?

         ¶ 25 Answering this question - which the trial court decided against lessees - involves statutory interpretation and application of law to undisputed facts, both subjects of de novo review. We first conclude that an owner of a severed mineral estate is a "fee owner."

         ¶ 26 "[W]hile in place, minerals are real property." Smith v. El Paso Gold Mines, Inc., 720 P.2d 608, 609 (Colo.App. 1985). Unsurprisingly, then, our supreme court has concluded that "[a]n estate in oil and gas may be severed from the remainder of the realty, and as severed owned in fee simple." Corlett v. Cox, 138 Colo. 325, 333, 333 P.2d 619, 623 (1958); accord Clevenger v. Cont'l Oil Co., 149 Colo. 417, 420, 369 P.2d 550, 551 (1962) ("Oil, gas and other mineral rights in lands may be severed and held by other than the owner of the surface, and a fee simple title thereto may vest in the person to whom said rights are granted.").

         ¶ 27 South Beebe's attempt to distinguish Corlett, on which Clevenger relied, as limited to interpreting the phrase "reserves 1/2 of the usual 1/8 royalty" in a deed, falls short. After all, the supreme court framed the issue as follows:

Does the Holcomb-Hamilton deed reserve an estate in fee simple to 1/16% of the oil and gas under the land in question, as found by the trial court, or do these words merely reserve the right to share in such oil and gas after it has been severed from the land and reduced to possession?

Corlett, 138 Colo. at 329, 333 P.2d at 621 (emphasis added). Then it rejected a request to overrule Simson v. Langholf, 133 Colo. 208, 217, 293 P.2d 302, 307 (1956), which noted, "an estate in fee simple is thus created."

         ¶ 28 Of course, we are bound by our supreme court's case law. Bernal v. Lumbermens Mut. Cas. Co., 97 P.3d 197, 203 (Colo.App. 2003). And in any event, South Beebe cites no contrary Colorado authority.

         ¶ 29 South Beebe's reliance on statutes other than the Act, where the legislature supposedly "distinguishes between fee owners and mineral interest owners," is misplaced. "[D]efinitions of somewhat similar terms in other, generally unrelated statutes . . . do not assist in deciding what the Legislature meant in this specific context." Coal. of Concerned Cmtys., Inc. v. City of Los Angeles, 101 P.3d 563, 566 (Cal. 2004); see also Bertrand v. Bd. of Cty. Comm'rs, 872 P.2d 223, 228 (Colo. 1994) ("[T]he interpretation of one statute by reference to an unrelated statute is an unreliable means of ascertaining legislative intent.").

         ¶ 30 For example, South Beebe cites section 24-65.5-101, C.R.S. 2017. But that section is limited to "surface development." And in any event, section 24-65.5-102(4), C.R.S. 2017, describes a "mineral estate" ...


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