Maralex Res., Inc. v. Jewell

301 F.Supp.3d 976

MARALEX RESOURCES, INC., a Colorado corporation, Alexis M. O'Hare, and Mary C. O'Hare, Plaintiffs,

v.Sally JEWELL, in her official capacity as Secretary of the United States Department of the Interior, The United States Department of the Interior, and the United States of America, Defendants.

Civil Action No. 15–cv–01893–CMA

United States District Court, D. Colorado.

Signed October 19, 2017

William Edmond Zimsky, Abadie & Shill, PC, Durango, CO, for Plaintiffs.

Ian J. Kellogg, U.S. Attorney's Office, Denver, CO, for Defendants.

ORDER AFFIRMING AGENCY DETERMINATION

CHRISTINE M. ARGUELLO, United States District Judge

This matter is before the Court for review of an agency action pursuant to the Administrative Procedure Act, 5 U.S.C. §§ 701 et seq. The Court has reviewed the Administrative Record (Doc. # 16), the Plaintiffs' opening brief (Doc. # 21), the Defendants' response brief (Doc. # 25), and the Plaintiffs' reply brief (Doc. # 28). The Court holds that the Interior Board of Land Appeals' finding that the Federal Oil and Gas Management Act authorizes Bureau of Land Management representatives to conduct warrantless, unannounced inspections of oil wells on Plaintiffs' fee lands was not arbitrary, capricious, or otherwise contrary to law. The Court declines to address Plaintiffs' unpreserved argument that corrective action ordered by the BLM is not statutorily permissible.

I. BACKGROUND AND PROCEDURAL HISTORY

On February 11, 2013, Gabriel Trujillo, a Bureau of Land Management ("BLM") technician, contacted Maralex Resources, Inc. ("Maralex") to announce his intention to inspect oil wells operated by Maralex. (AR at 105.) A Maralex employee told Mr. Trujillo the wells were on property belonging to Mickey O'Hare, and that she foresaw problems with obtaining access to the lease sites. (Id. ) She directed Mr. Trujillo to contact Mr. O'Hare. (Id. ) Mr. O'Hare told Mr. Trujillo that the BLM had "no rights to be on his land" to inspect the wells "because the surface and minerals were owned by him." (Id. at 44.)

After speaking with Mr. O'Hare, Mr. Trujillo and a BLM law enforcement officer attempted to inspect the wells, but were unable to do so because of a locked gate blocking access to the property. (Id. at 43–44.)

On February 26, 2013, the BLM issued four Notices of Incidents of Noncompliance ("INCs") to Maralex for refusing to permit inspection of the wells. (Id. at 13–21.) The INCs classified Maralex's violations as "minor" and did not assess any fines. (Id. at 14, 16, 18, 20.) As a corrective action, however, the INCs mandated that Maralex provide keys to the locked gates, or, alternatively, allow the BLM to place its own locks on the gates so that the BLM could access the wells. (Id. at 14–21.)

On August 13, 2013, six months after Mr. Trujillo attempted to inspect the wells, Mr. O'Hare met a BLM inspector at the gate to his property and "allowed [him] to enter and inspect the wells and facilities." (Id. at 108.)

Maralex eventually appealed the INCs to the Interior Board of Land Appeals ("IBLA"), thereby exhausting its administrative remedies. On July 10, 2015, the IBLA upheld the INCs. (Id. at 469.)

A. The Communitization Agreement

The oil wells in dispute are subject to a Communitization Agreement ("CA"). (Id. at 26.) The parties to the CA include, among others, lessee Maralex, of which Mr. O'Hare is the President, and the Southern Ute Indian Tribe ("the Tribe"). (Id. at 38–40.) The CA states that "[t]he Communitized Area shall be developed and operated as an entirety, with the understanding and agreement between the parties hereto that all Communitized Substances produced therefrom shall be allocated among the leaseholds comprising said area in the proportion that the acreage interest of each leasehold bears to the entire acreage interest committed to this agreement." (Id. at 28.)

The parties recognized that their mineral interests "under the leases and lands subject to this agreement ... cannot be independently developed and operated." (Id. at 27.) They agreed to "communitize and pool their respective mineral interests in lands subject to this agreement for the purpose of developing and producing communitized substances." (Id. at 27.) The interests committed to the CA are treated as a single entity. (Id. at 28, 41.) The oil production is proportionally allocated among the parties based on the number of acres they each committed to the agreement. (Id. )

B. The Federal Oil and Gas Royalty Management Act

Congress enacted the Federal Oil and Gas Royalty Management Act of 1982, 30 U.S.C. §§ 1701 et seq. ("FOGRMA"), to improve the royalty payments accounting system from oil and gas leases on federal and Indian lands. See 30 U.S.C. § 1701 ; H.R. Rep. No. 97–859 at 15–19 (1982). It also authorizes the Secretary of Interior to conduct "any investigation or other inquiry necessary and appropriate" to carry out his or her duties under FOGRMA. 30 U.S.C. § 1717.

FOGRMA includes guidance regarding the inspection of lease sites and the right of the Secretary to travel across sites. Id. § 1718. Pertinent provisions provide:

Authorized and properly identified representatives of the Secretary may without advance notice, enter upon, travel across and inspect lease sites on Federal or Indian lands and may obtain from the operator immediate access to secured facilities on such lease sites, for the purpose of making any inspection or investigation for determining whether there is compliance with the requirements of the mineral leasing laws and this chapter. The Secretary shall develop guidelines setting forth the coverage and the frequency of such inspections. Id. § 1718(b).

For the purpose of making any inspection or investigation under this chapter, the Secretary shall have the same right to enter upon or travel across any lease site as the lessee or operator has acquired by purchase, condemnation, or otherwise. Id. § 1718(c).

Congress further directed the Secretary to "establish procedures to ensure that authorized and properly identified representatives of the Secretary will inspect at least once annually each lease site producing or expected to produce significant quantities of oil or gas...." Id. § 1711(b)(1). It permitted the Secretary to "prescribe such rules and regulations as he deems reasonably necessary" to carry out the Act. Id. § 1751(a).

II. JURISDICTION AND VENUE

Plaintiffs seek judicial review of the IBLA's decision to uphold the BLM's INCs. (Doc. # 21.) Pursuant to 43 C.F.R. §§ 4.1(b)(3) and 4.21(c), the IBLA's decision constitutes a final agency action for purposes of judicial review under the Administrative Procedure Act, 5 U.S.C. § 704 ("APA"). Although the APA itself "does not afford an implied grant of subject-matter jurisdiction" to review federal administrative action, this Court can exercise federal question jurisdiction to review administrative action under 28 U.S.C. § 1331. See Califano v. Sanders , 430 U.S. 99, 105, 97 S.Ct. 980, 51 L.Ed.2d 192 (1977).

Plaintiffs also claim the BLM actions in question are facially unconstitutional and unconstitutional as applied because they violate Mr. O'Hare's Fourth Amendment right to be free from unreasonable searches and seizures, and constitute a regulatory taking of his property. (Doc. # 1.)

This Court, therefore, has jurisdiction over this matter pursuant to 5 U.S.C. § 704, 28 U.S.C. § 1331 (federal question), 28 U.S.C. § 1343 (a)(3) (deprivation of constitutional rights), and 28 U.S.C § 1346 (United States as defendant). Venue is proper pursuant to 28 U.S.C. § 1391(e) because the events giving rise to the claims took place in this district.

III. STANDARD OF REVIEW

The question presented by this administrative appeal is whether the IBLA's decision upholding the INCs was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law. (Doc. ## 1, 25; see also 5 U.S.C. § 706(2)(A).)

"The duty of a court reviewing agency action under the ‘arbitrary or capricious’ standard is to ascertain whether the agency examined the relevant data and articulated a rational connection between the facts found and the decision made." Olenhouse v. Commodity Credit Corp. , 42 F.3d 1560, 1576 (10th Cir. 1994) (citing Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co. , 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983) ). The focus is on the rationality of the decision-making process, not on the wisdom of the decision itself. Olenhouse , 42 F.3d at 1575. The Supreme Court instructs:

[A]n agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. Motor Vehicle , 463 U.S. at 43, 103 S.Ct. 2856.

When a court is applying the arbitrary and capricious standard to ensure factual support for an agency's decision, the inquiry is equivalent to the "substantial evidence" standard. Olenhouse, 42 F.3d at 1575–76 (quoting Ass'n of Data Processing v. Bd. of Governors , 745 F.2d 677, 684 (D.C. Cir. 1984) ). In this context, evidence is "substantial" if it is "enough to justify, if the trial were to a jury, a refusal to direct a verdict when the conclusion to be drawn is one of fact." Illinois Cent. R.R. Co. v. Norfolk & Western Ry. , 385 U.S. 57, 66, 87 S.Ct. 255, 17 L.Ed.2d 162 (1966). "This is something more than a mere scintilla but something less than the weight of the evidence." Foust v. Lujan , 942 F.2d 712, 714 (10th Cir. 1991).

The IBLA did not rule on Plaintiffs' constitutional arguments. (AR at 486.) Accordingly, the Court will review de novo the question of whether the IBLA's decision upholding the INCs violated Plaintiffs' constitutional rights. See, e.g. , Copar Pumice Co., v. Tidwell , 603 F.3d...