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Northern Natural Gas Co. v. L.D. Drilling, Inc.

United States District Court, D. Kansas

October 18, 2019

Northern Natural Gas Co., Plaintiff,
v.
L.D. Drilling, Inc., et al., Defendants.

          MEMORANDUM AND ORDER

          J. THOMAS MARTEN, JUDGE

         Several motions in limine presently before the court were addressed in a hearing conducted October 15, 2019. Consistent with the rulings at that hearing, and for the reasons provided herein, the court issues the following orders for the fair and efficient trial of the present matter.

         Northern

         1. Evidence in contradiction of Condemnation Action Findings

         By prior Order, the court found that factual findings in the Condemnation Action were entitled to preclusive effect here to the extent those findings were essential to the condemnation judgment. At the time, Northern had identified some six facts which it argued were essential in the Commission Report's assessment of the gas migration, as adopted by the district court in the condemnation action. In its present motion in limine (and in its contemporaneous requested jury instructions), Northern has now identified 19 facts it alleges should be deemed to have preclusive effect under this standard.

         These requested factual findings are set forth in the Appendix to the present Order. Northern asks not only for the court to find that these facts are established as a matter of law, it requests an order in limine precluding the defendants from offering evidence to the contrary. In particular, it singles out the proposed testimony of defense expert Fred Baldassare, who would testify as to the nature of native gas as distinguished from storage gas, and expert Cary McGregor, who would testify that the Field was in fact not stable during what has been called the interim period.

         L.D. Drilling presents three arguments in opposition to the accepting the nineteen facts as having been preclusively established: (1) the cited findings were not essential to the judgment, as the only issue in the condemnation action was the appropriate value of the gas (native or storage) in the Extension Area on the date of taking, (2) the cited findings were not actual findings by the Commissioner, but were plucked by the plaintiff from the Commission's summary of Northern's position, and (3) precluding the defendants from challenging some of the findings would prevent them from challenging causation.[1]

         The first argument has already been resolved against the defendants. The valuation of the gas in place was the ultimate issue in the condemnation action, but to decide that, the court (and the Commission) had to address how the gas migrated. Thus, the condemnation court previously recognized as “patently obvious that the mechanism by which any storage gas occurred has a bearing on how much gas went into the Extension Area and when it did so.” (Dkt. 790, at 7-8). And this court recently determined that the Commissioners had reached “ultimate conclusions as to the nature and cause of the migration.” (Dkt. 711, at 35). While the amount and nature of native gas in the Extension area was not an ultimate issue, resolving the question was again an integral part of how the condemnation court reached its bottom line.

         The court agrees that general conclusions as to the size and nature of the migration were essential parts of the condemnation decision. And the calculation of native gas, if not an independent and explicit goal of the Commission, nevertheless was an essential part of the math. As the court in the condemnation action observed, evidence about “native gas in the Extension area remained essential to the Commission's methodology and calculations.” (Dkt. 1100, at 6).

         It is true that some of the 19 proposed findings appear within the section of the Commission Report which summarizes Northern's arguments, particularly with respect to Randal Bush's inventory analysis approach. But it is misleading to suggest that, because of this, they were only arguments. To the contrary, after summarizing the approaches of both parties, the Commission decisively rejected defendant's theories, and agreed that the inventory analysis was a “sound and reasonable approach.” (Report, at 28). The Commission specifically agreed with Brush's methodology, as did the district court when it adopted the Report and denied the defendant's various objections, including those specifically targeting Brush's assessments. The court concluded:

The commission's report is fundamentally sound and supported by the record. The commission thoroughly considered the evidence, the instructions, and the parties' arguments. Its resulting determination represents a fair resolution that is both supported by the evidence and consistent with the constitutional requirements of just compensation. The court hereby denies the parties' objections to the report and adopts the report of the commission in its entirety.

(Order of February 5, 2015, Dkt. 941, at 52-53). The court recognized that “the commission proceeded to conduct extensive hearings in an expeditious and fair manner. It then produced a comprehensive and clear report that addressed a welter of arguments and issues arising from a complex set of facts.” Order of February 5, 2015 (Dkt. 941 at 52). The court accepted the Brush-derived conclusions that “'[t]he evidence showed there was about 4.55 BCF of gas within the Extension Area on the date of taking. The property taken by Northern should be valued based on that total.” (Id. at 4). The court specifically rejected the objection that the Commission had erred in this calculation, agreeing with Brush's assessment as the most reasonable assessment, finding that only 1.4 BCF migrated during the initial fill-up of the Field, and that the Expansion Area was “saturated with water prior to 1978.” (Id. at 24, 28. See also id. at 26 (“had it not been for defendants' production of water and gas, the Cunningham Storage Field inventory would have remained stable at about 44 BCF”)).

         The court previously emphasized the high standard required for preclusion. “Facts from the condemnation action are preclusive only to the extent they were essential for the ultimate condemnation award.” (Dkt. 771, at 36 n. 9) (emphasis in original). In resolving the issue, “narrowly-focused factual findings from the Commissioner are likely to be excluded as not necessarily essential to the condemnation award.” Id. The court finds that, of the 19 facts originally cited by Northern, preclusive effect should exist for 1-13, 16, and 19. These establish the mechanism and scale of the gas migration, the stability of the field at various times, and the absence of native gas; all were essential to the court's ultimate conclusions. Defendants are precluded from offering evidence in contradiction to these facts.

         On the other hand, the court finds that the remaining fact conclusions of the Commission, however persuasive in their reasoning and however strongly corroborated and supported by the facts in that case, were not essential to the judgment. Such findings provide additional support for the Commission's conclusion, but it is possible that the Commission might have reached a similar conclusion (reflecting the scale of migration and the absence of native gas) without deciding (for example) that the gas moved “along a highly-fractured zone, ” that native gas is distinguishable by the presence of helium, or production in the Extension Area was closely correlated with Field pressure.

         The Commission was not charged with deciding if any actions of Northern contributed to the migration, was not required to separately and directly address causation, and its conclusions do not necessarily or completely preclude Producer's pushing theory of migration.. Accordingly, the court believes some cited factual conclusions require modification. Thus references to the stated amount of gas being “drawn out of the Cunningham Storage Field, “ (Report at 13-14) (emphasis added) will be modified.[2]

         The court grants Northern's motion to clarify that there shall be no testimony tending conflict with the findings identified here as essential.

         2. Trans Pac Litigation

         Northern notes that defendants' witness and exhibit lists contained proposed testimony by expert and fact witnesses as well as nearly 100 exhibits from the Trans Pac litigation. Northern acknowledges that it did not succeed in that action, and that “limited testimony is appropriate” in order to explain “the history and development” of the Field. (Dkt. 787, at 14). However, “any detailed … testimony or exhibits” would be irrelevant and wasteful. (Id.).

         In its response, L.D. Drilling complains that Northern's motion fails to specifically identify which evidence it seeks to exclude, and that as the gas migrated “during some of the same time period involved in this case, many exhibits will be relevant, even if the theories of recovery and defenses may differ.” (Dkt. 807, at 10-11). It also argues that evidence of title and the rule of capture remain relevant to the balance of equities, that the factual rulings about migration control here, that Northern raised the issue itself, that the matter was mentioned in Northern's 2005 letter to the KCC, and that the matter is relevant to Northern's knowledge and to the defendants' knowledge. (Id. at 12-13).

         None of the defendant's proffered rationales warrant wholesale reference to evidence of findings from the Trans Pac case. And notably, while castigating Northern for failing to specifically identify evidence from Trans Pac that it seeks to exclude, L.D. Drilling does not in its response suggest that it will only offer limited reference to Trans Pac - that it does not intend to use those 100 exhibits, or otherwise essentially try Trans Pac II. Further, the court notes that the defendants themselves have expressed strong concern with the dangers of importing findings from other actions - vigorously opposing any use of findings by the Commission in the condemnation case, and arguing that references to the preliminary injunction and the FERC certification should be for historical purposes only.

         The court will deny Northern's motion. The court has previously determined that the findings in Trans Pac do not have preclusive effect here. The case asserted trespass and conversion claims relating to one specific well which has long been out of service. Still, evidence as to the result of the Trans Pac litigation is admissible to show the parties' knowledge of the potential migration. The motion in limine is accordingly denied, but the defendants are cautioned to limit the amount of time they spend on the issue, and the court will issue a cautionary instruction, similar to what is in the proposed instructions, as to the preliminary injunction and the FERC order, that this action is controlled by the evidence actually presented here.

         3. Northern as Reasonable and Prudent Operator

         In its previous Order, the court granted the defendants' motion seeking to prevent Northern's experts from offering the opinion that in various respects the Producer Defendants did not act as a reasonable operator. (Dkt. 771 at 41-44). Defendants argued, and the court accepted, that the repeated contention might confuse the jury by suggesting a negligence standard. See id., at 46 (“such opinions inherently tend to diminish the level of intent required to establish intentional nuisance”). That is, the evidence could lead the jury to infer that the Producers could be liable if they departed from a standard of reasonable care; whereas intentional nuisance requires either an intent to cause a substantial and unreasonable interference, or a substantial certainty of such interference.

         Northern's motion argues that same should be true of defendant's evidence. The plaintiff cites the proffered testimony of defendant expert Doug Johnson to the effect that Northern did not act as a reasonably prudent operator, or that it should have acted in a certain way. Conversely, Northern points out that that defense experts John Paul Dick and Lanny Butner propose to testify that L.D. Drilling and VAL Energy did act as reasonably prudent operators.

         L.D. Drilling argues in response that the rationale for exclusion (potentially confusing the jury about intentional nuisance) doesn't apply here - there is no nuisance if they were merely negligent. Second and further, “regardless of whether Northern acted prudently, ” defendant argues that Northern's conduct remains relevant to show both causation and mitigation, particularly with reference to whether there is unreasonable interference.” (Dkt. 807, at 15) (citing N. Nat. Gas Co. v. L. D. Drilling, 697 F.3d 1259, 1270 (10th Cir. 2012) (quoting St. David's Episcopal Church v. Westboro Baptist Church, 22 Kan.App.2d 537, 921 P.2d 821, 828 (1996)).

         This is not persuasive. L.D. Drilling is arguing for a trial where its experts can testify that it was a reasonably prudent operator, but Northern's experts cannot disagree. This would generate as much confusion for the jury as the problem the court was originally trying to address. Further, to the extent that the defendants are pointing to the totality of the circumstances “balance of utility” standard for determining an unreasonable interference, that is a two-edged sword - it is a balance of utilities, including that of the defendants.[3] If balancing utilities weighing requires judging whether Northern acted as a reasonable gas storage operator, the same test supports judging whether the Producer Defendants acted a reasonable gas producers.

         The court concludes that the best approach is to deny the motion in limine while also modifying the prior order barring Northern (and only Northern) from referencing the “reasonably prudent” standard. As a result, both sides may use the term if the evidence otherwise supports it, and the court will address any potential jury confusion by cautionary instruction.[4]

         4. Expert testimony of corporate knowledge

         This is similar to the preceding argument. The court previously granted defendants' motion to bar Northern's experts from testifying about the state of any corporate defendant's knowledge. The court acknowledged the general rule disfavoring expert testimony as to a company's knowledge, and held that the issue should be addressed by documentary evidence or fact witnesses. Northern's motion seeks to apply the same ruling to defendants' experts.

         L.D. Drilling's response states that they “agree that expert testimony regarding a corporation's knowledge or state of mind is not helpful or appropriate and do not intend to offer such expert testimony.” (Dkt. 807, at 16). However, it then proceeds to state it will show Northern knew of the gas migration by “fact witness testimony and primary exhibits” and that their “experts may rely on such facts in formulating the opinions to which they testify, and the court will be in a much better position to rule as to the propriety of any opinion testimony thereon in the context of trial.” Id.

         Of course, a court will always be in better position to judge context during trial, but the whole point of a motion in limine is that by the time you have that context, irrelevant or prejudicial evidence will already have been presented. Notably, L.D. Drilling does not now say how such evidence could then be used by its experts. Northern's motion is otherwise valid and the court will not withhold a ruling on the possibility that L.D. Drilling may come up with a rational basis for having expert testimony on corporate knowledge. The court grants the motion, providing that if defendant subsequently wishes to present expert testimony, it may argue for such a result outside the presence of the jury.

         5. ...


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