Finite Res., Ltd. v. DTE Methane Res., LLC

44 F.4th 680

FINITE RESOURCES, LTD., Southern Cross Energy, LLC, and Durango Group, Inc., Plaintiffs-Appellants,

v.DTE METHANE RESOURCES, LLC and Keyrock Energy, LLC, Defendants-Appellees.

No. 21-1512

United States Court of Appeals, Seventh Circuit.

Argued November 8, 2021

Decided August 11, 2022

William C. Illingworth, Attorney, Illingworth Law Group, LLC, Evansville, IN, for Plaintiffs-Appellants.

Benjamin L. Riddle, Attorney, Steptoe & Johnson PLLC, Louisville, KY, for Defendant-Appellee DTE Methane Resources, LLC.

V. Brandon McGrath, Attorney, Dentons Bingham Greenebaum LLP, Cincinnati, OH, G. Patrick Murphy, Attorney, Murphy & Murphy LLC, Marion, IL, John E. Rhine, Attorney, Dentons Bingham Greenebaum LLP, Evansville, IN, for Defendant-Appellee Keyrock Energy, LLC.

Before Scudder, Kirsch, and Jackson-Akiwumi, Circuit Judges.

Jackson-Akiwumi, Circuit Judge.

The question in this case is whether the doctrine of correlative rights prohibits defendants from using a vacuum pump to extract coal mine methane from their property. Plaintiffs Finite Resources, Ltd., Southern Cross Energy, LLC, and Durango Group, Inc. (collectively, "Finite") take the position that it does, so they sued Defendants DTE Methane Resources LLC and Keyrock Energy LLC for using a vacuum pump to extract valuable gas from defendants' property, which abuts Finite's property. The district court concluded that under the rule of capture, Finite did not own the gas, which could not be owned until extracted. Because Finite's claims depended on ownership of the gas, the district court granted summary judgment for defendants. Finite appeals, arguing that the doctrine of correlative rights negates the rule of capture and prohibits the use of a vacuum pump. To the extent Illinois law is not clear on this issue, Finite asks us to certify the question to the Illinois Supreme Court. We decline to certify the question and affirm.

I

Finite is the majority owner of the Orient #1 Mine, an abandoned coal mine in Franklin County, Illinois. It owns 90.9% of the property, while the other 9.1% belongs to the Royal Talon Company. In 2004, DTE acquired a lease and interest in the Orient #1 Mine for the purpose of extracting coal mine methane from its section of the property. Coal mine methane is gas released from the coal and surrounding strata due to mining activities. Once treated as a safety hazard, coal mine methane is now considered a commercially valuable resource.

To extract coal mine methane from the property, DTE drilled two wells on its section of the Orient #1 Mine and, in 2007, obtained a vacuum permit from the Illinois Department of Natural Resources. The permit allowed DTE to use a vacuum pump to assist in extracting coal mine methane from the wells. DTE used a vacuum pump until 2012, and then assigned its operations to Keyrock.

For more than ten years, Finite was unaware that defendants obtained a vacuum permit to extract coal mine methane from the wells on the property. Finite discovered defendants' use in 2018, after a shut-in test revealed that coal mine methane had been drained extensively from the Orient # 1 Mine. At first, Finite petitioned the IDNR for compulsory unitization,¹ seeking to unitize the parties' properties and to require Keyrock to ratably share their coal mine methane production with Finite. But the IDNR denied Finite's request. So Finite sued defendants in state court alleging conversion, trespass, accounting, and common law unitization. Finite also sought to enjoin defendants from using a vacuum pump to extract coal mine methane from the mine.

Defendants removed the case to federal court, where the district court granted summary judgment in favor of defendants. At summary judgment, the district court determined that, under the rule of capture, Finite was not the owner of the coal mine methane, which could not be owned until extracted. The district court explained that this rule applied regardless of whether extraction occurred by means of a vacuum pump. Because Finite's claims hinged on ownership, the district court concluded that the rule of capture foreclosed Finite's trespass, conversion, and accounting claims, as well as injunctive and declaratory relief. The district court also granted summary judgment to defendants on Finite's common law unitization claim because the IDNR previously denied Finite's petition for unitization. This appeal followed.

II

We review de novo a district court's ruling on a motion for summary judgment. Flexible Steel Lacing Co. v. Conveyor Accessories, Inc. , 955 F.3d 632, 643 (7th Cir. 2020). Summary judgment is appropriate when "there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." FED. R. CIV. P. 56(a).

This case concerns two core principles of oil and gas law—the rule of capture and correlative rights. The rule of capture, which governs the ownership of natural resources including gas, provides that "gas that migrates from one property to another is subject to recovery and possession by the holder of the gas estate on the property to which the gas migrates." Cont'l Res. of Illinois, Inc. v. Illinois Methane, LLC , 364 Ill. App. 3d 691, 694, 301 Ill.Dec. 887, 847 N.E.2d 897 (5th Dist. 2006) ; see also Brown v. Spilman , 155 U.S. 665, 670, 15 S.Ct. 245, 39 L.Ed. 304 (1895). Stated simply, the first to "capture" the gas becomes the owner of the gas. See 3 JOYCE PALOMAR , PATTON AND PALOMAR ON LAND TITLES § 730.3 (3d ed. 2003). The rule of capture permits an owner to extract gas from the owner's land, even if the oil and gas migrated from a neighboring tract, and even when extraction depletes a single pool or gas reservoirs lying beneath adjoining lands. See Briggs v. Southwestern Energy Production Co. , 224 A.3d 334, 337 (Pa. 2020).

Because the rule of capture allows an owner to extract gas from their property without restraint, it limits the "correlative" rights of neighboring owners. That's where the doctrine of correlative rights comes in. The doctrine of correlative rights protects adjoining landowners by permitting them to "go and do likewise." Williams and Meyers, Oil and Gas Law, 4th ed., (1990) § 204.4; see also Stephens County v. Mid-Kansas Oil & Gas Co. , 113 Tex. 160, 167, 254 S.W. 290 (1923) ("[i]f the owners of adjacent lands have the right to appropriate, without liability, the gas and oil underlying their neighbor's land, then their neighbor has the correlative right to appropriate, through like methods of drainage, the gas and oil underlying the tracts adjacent to his own"). This means that "a mineral interest owner [has] an opportunity to produce his ‘fair share’ " of minerals beneath the land. Texas Producing, Inc. v. Fortson Oil Co. , 798 S.W.2d 622, 624 (Tex. App. 1990). But, as relevant here, the doctrine of correlative rights also imposes a duty on owners not to waste natural resources intentionally or negligently as to injure their neighbor. See 58 C.J.S. Mines and Minerals § 181 ("[o]ne owner may not waste the product to the injury of a neighbor ... and has no right to waste, spoil, damage, or maliciously deplete the common source of supply or do anything that deprives another of a reasonable opportunity to extract his or her fair share of the deposit").

On appeal, Finite does not dispute that the rule of capture governs coal mine methane. They insist that they "do not claim absolute ownership rights in [the] coal mine['s] gas." Rather, Finite argues that the defendants' use of a vacuum pump violates their correlative rights because it causes damage or waste. Therefore, Finite reasons, they should be able to proceed on their trespass claim. But we find no support for this contention.

To begin, the IDNR—the state agency tasked with regulating oil and gas—specifically issued a vacuum permit to defendants. Before issuing a permit, the IDNR considers an owners' correlative rights. 62 Ill. Admin. Code § 240.1050. If the IDNR later determines that a permit violates an owners' correlative rights, or causes damage or...