Maralex Resources, Inc. v. Barnhardt

          ORDER AFFIRMING IN PART AND REJECTING IN PART AGENCY DETERMINATION

          CHRISTINE M. ARGUELLO UNITED STATES DISTRICT JUDGE

         This matter is before the Court upon the Court of Appeals for the Tenth Circuit's Opinion (Doc. # 39) reversing and remanding this Court's Order Affirming Agency Determination (Doc. # 31). Consistent with the Court of Appeals' Order, the Court now affirms in part and rejects in part determinations of the Department of the Interior and its Interior Board of Land Appeals (“IBLA”). It affirms the IBLA's conclusion that the Bureau of Land Management (“BLM”) had authority to inspect the wells at issue, owned by Plaintiff Maralex Resources, Inc. (“Maralex”). However, the BLM lacks authority to require an operator or landowner to provide it with a key to the landowner's locked gates or to allow the BLM to place its own locks on the landowner's gates.

         I. PROCEDURAL HISTORY

         The Court detailed the factual background of this case in its Order Affirming Agency Determination (Doc. # 31), as did the Court of Appeals when it reversed that Order in Maralex Resources, Inc. v. Barnhardt, 913 F.3d 1189 (10th Cir. 2019), see (Doc. # 39). This Court's previous Order and the Court of Appeals' Opinion are incorporated by reference, and the factual background explained therein need not be repeated here. The Court recounts only the facts necessary to address the Court of Appeal's instructions on remand.

         Briefly, this matter concerns a 320-acre parcel of land in La Plata County, Colorado (the “Parcel”). Plaintiffs Alexis O'Hare and Mary O'Hare (together, the “O'Hares”) own the surface and mineral estate in a 120-acre tract of land (the “O'Hare Tract”) of the Parcel. In 1995, the O'Hares issued Maralex a private oil and gas lease for the O'Hare Tract. The Southern Ute Indian Tribe holds the surface and mineral estate in an 80-acre tract of land of the Parcel; the remainder is privately owned by the O'Hares and others. In 1996, all parties “communitized” their coal and gas interests in the Parcel under the terms of a Communitization Agreement, pursuant to which they agreed to develop and operate the Parcel as a single entity. The Southern Ute Indian Tribe and the Bureau of Indian Affairs approved the Communitization Agreement on May 1, 1996.

         The four wells at issue in this matter are operated by Maralex and are located on the O'Hare Tract, where they are enclosed by fences and locked gates. The four wells draw minerals from the coal formation below the area's surface; the production of these minerals is, under the terms of the Communitization Agreement, allocated to all of the oil and gas interests, including that of the Southern Ute Indian Tribe.

         On February 11, 2013, a BLM technician contacted Maralex to gain access to the four wells so that he could inspect them. Maralex directed the BLM technician to Mickey O'Hare, who in turn told the technician that the BLM did not have a right to be on his land to inspect the wells and that “the surface and minerals were owned by him.” The BLM technician and a BLM law enforcement officer attempted to inspect the wells but were blocked from doing so by a locked gate on February 22, 2013.

         On February 26, 2013, the BLM issued four Notices of Incidents of Noncompliance (“INCs”) to Maralex for refusing to allow inspection of the wells. The BLM alleged in the INCs that Maralex was in violation of 43 C.F.R. § 3162.1(b) and gave Maralex one month to provide the BLM with access to the wells. A BLM official wrote on the INCs, “For corrective action, I will need a key to access the location or be able to put a BLM lock in with it.” This demand for corrective action is central to the issues before the Court of Appeals and now again before this Court. Maralex and the O'Hares sent a letter appealing the four INCs to the BLM, which the BLM treated “as a request for State Director's review (SDR) . . . under 43 CFR 3165.3.” On July 9, 2013, the BLM's Deputy State Director for Energy, Lands, and Minerals of Colorado replied to each of Maralex's assertions in a letter. Relevant here, the BLM cited the Federal Oil and Gas Royalty Management Act of 1982 (“FOGRMA”), 30 U.S.C. § 1711, as authorizing the BLM to “perform the production related inspection which necessitates physical access to the subject wells and their associated facilities without advance notice.” The BLM stated that “the four INCs covering denied access to the subject wells were properly issued and are upheld” and ordered Maralex to “provide the BLM Tres Rios Field Office access without advance notice as required by the INCs and the regulations.” Maralex sent the BLM a Notice of Appeal of the BLM's July 9, 2013 decision and a Statement of Reasons for Appeal shortly thereafter.

         Some two years later, on July 10, 2015, the IBLA issued a written decision affirming the BLM's July 9, 2013 decision. See (Doc. # 1-1.) The IBLA relied on FOGRMA, 30 U.S.C. §§ 1711(a) and 1718(b), as authorizing the BLM's actions. The IBLA did not address whether Plaintiffs were required to provide the BLM with a key to locked gates or to permit the BLM to place its own locks on the gates.

         Plaintiffs initiated this action against Defendants on September 1, 2015, seeking reversal of the IBLA's decision, as well as declaratory relief. (Doc. # 1.) Relevant here, Plaintiffs argued in their Opening Brief that, assuming arguendo that the BLM has authority pursuant to 30 U.S.C. § 1718(b) to conduct inspections of oil and gas facilities on fee lands without advanced notice, “there is no statutory or regulatory requirement that an operator or landowner provide the BLM with a key to the landowner's locked gates or allow the BLM to place its own locks on the landowner's locked gates.” (Doc. # 21 at 19-21.) Plaintiffs also argued that if such a requirement existed, it would constitute “an unreasonable search and seizure of [the landowner's] fee lands in violation of their rights guaranteed by the Fourth Amendment” and would constitute “a physical taking of [the landowner's] property in violation of their substantive due process rights guaranteed by the Takings Clause of the Fifth Amendment.” (Id. at 21-24.)

         The Court held in its October 19, 2017 Order Affirming Agency Determination that the IBLA's “finding that [FOGRMA] authorizes [BLM] representatives to conduct warrantless, unannounced inspections of oil wells on Plaintiffs' fee lands was not arbitrary, capricious, or otherwise contrary to law.” (Doc. # 31 at 1.) The Court declined to address Plaintiffs' statutory and constitutional concerns about the corrective action the BLM ordered-keys to Plaintiffs' locks or access to put its own locks on Plaintiffs' gates-because Plaintiffs “did not present to the IBLA th[at] particular argument” and thereby waived it for purposes of the appeal. (Id. at 11-12.)

         Plaintiffs appealed this Court's Order Affirming Agency Determination to the Court of Appeals on November 17, 2017. See (Doc. # 34.)

         II. DISCUSSION

         A. THE COURT OF ...