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Northern Natural Gas Co. v. Approximately 9117.53 Acres in Pratt

United States District Court, D. Kansas

March 2, 2018

NORTHERN NATURAL GAS COMPANY, Plaintiff,
v.
APPROXIMATELY 9117.53 ACRES IN PRATT, KINGMAN, AND RENO COUNTIES, KANSAS, AND AS FURTHER DESCRIBED HEREIN, et al., Defendants.

          MEMORANDUM AND ORDER

          J. THOMAS MARTEN, JUDGE

         This matter came before the court for a hearing to determine the scope of the issues remaining after the Tenth Circuit's remand. See Northern Nat. Gas Co. v. L.D. Drilling, et al., 862 F.3d 1221 (10th Cir. 2017); Dkt. 1046. The court heard arguments on February 20, 2018, and took the matter under advisement. The parties have now fully briefed their positions.

         I. Summary of District Court Judgment and Tenth Circuit Ruling

         The district court appointed a Commission pursuant to Fed.R.Civ.P. 71.1 to determine just compensation. (Dkt. 888). Acting under the court's instructions, the Commission conducted lengthy hearings and issued a comprehensive report. The report analyzed voluminous expert testimony and included extensive findings about the migration of storage gas from the Cunningham Storage Field to the 2010 Extension Area and the amount of gas that was likely present in the Extension Area on the date of taking.

         In a summary judgment ruling, Judge Belot determined the date of taking was March 30, 2012, when Northern obtained a right to physical possession of the Extension Area property through an injunction. (Dkt. 691). In so finding, he rejected an argument that the date of taking was June 2, 2010, the date of the FERC certificate, when Northern was authorized to proceed with condemnation of the property. (Id. at 1-18). Judge Belot also determined that under Kansas law, the landowners held a property interest in any gas (storage or native) remaining under their property on the date of taking, such that Northern was obligated to pay just compensation for the taking of it. (Dkt. 810 at 21-22). He instructed the Commission to consider the “fair market value of any economically recoverable hydrocarbons” in the Extension Area in determining just compensation. (Dkt. 848 at 6). As a result, the condemnation award included the value of recoverable storage gas that the Commission found was present in the Extension Area on the date of taking, which represented nearly $5.9 million of a total award of $7.3 million.

         On appeal, the Tenth Circuit determined that “the condemnation award should not have included either (1) the value of storage gas in and under the Cunningham Field on the date of taking, or (2) the lost value of producing such gas after the date of [FERC] certification, because certification extinguished any property interests the Landowners and Producers may have held in the gas before that date.” Northern Nat. Gas, 862 F.3d at 1225. The court stated that for purposes of appeal, “the parties agree the date of taking is March 30, 2012, which is when Northern perfected its right to take physical possession of the property….” Id. The circuit affirmed the only other aspects of the judgment challenged on appeal: the award for the storage lease potential of the Extension Area tracts, the award for the taking of eight Extension Area wells, and the denial of a request for attorney's fees. Id.

         According to the Tenth Circuit, “[c]ontemporaneously with certification … any injector acquires storage rights to the property and thus title to gas injected into its legally recognized storage area.” Id. at 1231 (citing Northern Nat. Gas Co. v. ONEOK Field Servs. Co., 296 Kan. 906, 296 P.3d 1106, 1120, 1125 (2013)).[1] The court further stated:

[W]hile the Landowners and Producers may have held certain property rights over the natural gas in and under their land at some point in time before Northern obtained the authority (via private lease agreements and proper regulatory certification) to include the property within the Cunningham Field's legal boundaries, these rights had been eliminated by the date of taking. On the date of taking, the gas “in place” in and under the Extension Area land was within the Cunningham Field's certified boundaries as required by Kansas law and, accordingly, was wholly Northern's property.

Id. at 1231-32.

         The circuit thus disagreed with what it characterized as an award for “valuation of lost future production from the Extension Area wells (i.e., the value attributable to recoverable gas reserves in the Viola formation within the 2010 Extension Area on the date of taking).” That award was error because “Northern owned all of the gas within its certified field boundaries after the date of certification.” Id. at 1232. The Producers “only had a right to produce the gas until the date of certification, ” and even “prior to the date of certification, the Producers had no right to produce the gas on the 3, 040 acres that Northern already leased….” Id.[2] The circuit added: “In calculating the loss of future production, the Producers should only be awarded the value of what they could prove they would have produced before June 2, 2010, and only on the Extension Area lands not including the 3, 040 acres that Northern had leased before the date of certification.” Id. See also Id. at 1232, n.11. The circuit thus reversed “the district court's inclusion of the value of storage gas in and under the Extension Area on the date of taking when calculating the condemnation award and its inclusion of future production to the extent that it conflicts with today's holdings.” Id. at 1236.

         II. Scope of Issues on Remand.

         A. Mandate Rule and Law of the Case Doctrine. The mandate rule “is a discretion-guiding rule that generally requires trial court conformity with the articulated appellate remand.” United States v. Hicks, 146 F.3d 1198, 1200 (10th Cir. 1998). It provides that a district court must strictly comply with the mandate of the reviewing court. “A lower court is ‘bound to carry the mandate of the upper court into execution and [cannot] consider the questions which the mandate laid at rest.'” Estate of Cummings by and through Montoya v. Community Health Systems, Inc., 881 F.3d 793, 801 (10th Cir. 2018). The court is to look to the mandate for any limitations on the scope of remand and, in the absence of such limits, exercise its discretion in determining the appropriate scope. Dish Network Corp. v. Arrowood Indem. Co., 772 F.3d 856, 864 (10th Cir. 2014) (citation omitted).

         The law of the case doctrine, by contrast, provides that when a court rules on an issue of law, the ruling should continue to govern the same issues in subsequent stages in the same case. Vehicle Market Research, Inc. v. Mitchell Int'l, Inc., 839 F.3d 1251, 1256 (10th Cir. 2016) (citation omitted). After an appeal, the decision of the appellate court establishes the law of the case and ordinarily will be followed on remand, with the principle applicable to all issues previously decided, either explicitly or by necessary implication. Id. (citing Rohrbaugh v. Celotex Corp., 53 F.3d 1181, 1183 (10th Cir. 1995) (internal quotation marks omitted)).

         B. Value of Storage Gas in ...


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