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BTU Western Resources, Inc. v. Berenergy Corporation

United States District Court, D. Wyoming

July 15, 2014

BTU WESTERN RESOURCES, INC.; and SCHOOL CREEK COAL RESOURCES, LLC, Plaintiffs,
v.
BERENERGY CORPORATION; ZAB, INC; DAVEN CORPORATION; ZALMAN RESOURCES, INC; and SPORT RESOURCES, INC., Defendants.

OPINION AND ORDER GRANTING DEFENDANTS' MOTION TO DISMISS FOR LACK OF FEDERAL QUESTION JURISDICTION

ALAN B. JOHNSON, District Judge.

This case arises from the dispute between plaintiff federal coal lessees and defendant federal oil and gas lessees. Plaintiffs instituted this action seeking an order allowing them to mine through defendants' oil and gas wellbores. Defendants filed the instant motions to dismiss for lack of federal question jurisdiction arguing that the Mineral Leasing Action of 1920 does not completely preempt state law and does not address the resolution of multiple mineral development conflicts. For the following reasons, Defendants' motion is GRANTED.

BACKGROUND

The conflict in this case arises between a current oil and gas operation and an approved coal mining operation in the east half of Section 26, Township 42 North, Range 70 West, 6th Prime Meridian in Campbell County, Wyoming. Section 26 is comprised of federal surface and minerals managed by the Bureau of Land Management, and the minerals are leased pursuant to the Mineral Leasing Act of 1920 ("MLA"), 30 U.S.C. § 181 et seq.

Plaintiffs BTU Western Resources, Inc. ("BTU Western") and School Creek Coal Resources, LLC ("School Creek Resources") (collectively "Plaintiffs") are land and lease holding subsidiaries of Peabody Energy Corporation. Plaintiff BTU Western currently holds lease WYW-173408, which was executed on October 1, 2012. Lease WYW-173408 covers Lots 3-6 and 9-16 of Section 26. School Creek Resources currently holds Lease WYW-172413, which is a modification by partial assignment of Lease WYW-0321779. Lease WYW-0321779 was originally executed on December 1, 1966 and covers Lots 1, 2, 7, and 8 of Section 26. Additionally, one of Plaintiffs' affiliates holds a federal coal lease covering lands in Section 35, which is immediately adjacent and to the south of Section 26. That lease was issued after the Janzen Lease, and it does not overlap the Janzen Lease

The coal seam in Section 26 averages 64 feet in thickness, and it lies approximately 245-264 feet below the surface of the ground. In order to access the coal, the mine operators must first strip off the topsoil. They next blast the overburden with explosives. This allows them to remove the overburden and create a series of benches to ultimately expose the coal seam.

Defendants Berenergy Corporation; ZAB, Inc.; Daven Corporation, Zalman Re-sources, Inc.; and Sport Resources, Inc. (collectively "Defendants") are all working interest owners in Federal Oil & Gas Lease WYW-4315 ("Janzen Lease"). The Janzen Lease was executed on April 13, 1967 and covers the eastern 1/2 of Section 26.

There are two wells that have been drilled on the Janzen Lease. The Janzen Govt No. 1 Oil Well ("Janzen No. 1 Well") was drilled in 1971. It is located in the NE 1/4 of Section 26. It has a casing leak and has been shut in since 2011 (but has not been plugged and abandoned). The year prior to it being shut-in, the Janzen No. 1 Well produced an average of less than 2 barrels per day of oil production.

The second well on the Janzen Lease is the Janzen No. 34-26 Oil Well (Janzen No. 34-26 Well). It is located in the SE 1/4 of Section 26 and was originally drilled in 1984. It lies the closest to Section 35 and is the first well that lies in the path of Plaintiffs' coal mining operations. The proposed depth of the Janzen 34-26 Well was 7, 515 ft. During 2012, the Janzen No. 34-26 Well produced an average of 2.7 barrels of oil per day.

Plaintiffs filed their Complaint, ECF No. 1, seeking to have this Court determine the parties' relative rights under the various leases at issue. They seek a determination that their relative rights are governed by the Accommodation Doctrine and that their coal mining operations have been unreasonably interfered with by Defendants. Plaintiffs also seek an order that requires Defendants to plug and abandon the Janzen No. 1 Well and the Janzen No. 34-26 Well so that they can mine through the coal seam that currently surrounding those wellbores. Lastly, Plaintiffs seek an order preventing Defendants from interfering with their future coal mining operations.

Plaintiffs alleged that this Court has jurisdiction pursuant to 28 U.S.C. § 1331 "because this action arises under laws of the United States" including the MLA and others. [ECF No. 1 at ¶ 9]. Plaintiffs and one or more of the Defendants are Delaware corporations, and there is no allegation that diversity of citizenship exists. Defendants previously filed a motion to dismiss Plaintiffs' Complaint for failure to join an indispensable party and exhaust administrative remedies. [ECF Nos. 16, 22]. This Court denied that request in ECF No. 68. Defendants filed the instant motion to dismiss for lack of federal question jurisdiction, ECF No. 64, arguing that the MLA and the Bureau of Land Management's regulations issued thereunder do not completely preempt state law and do not address how to resolve disputes between mineral lessees. Plaintiffs argue that their claim for relief arises under the MLA and that jurisdiction in this Court is proper. A hearing on this matter was held on May 28, 2014. Accordingly, the Court concludes as follows.

STANDARD OF REVIEW

Federal courts are "courts of limited jurisdiction, " possessing "only that power authorized by Constitution and statute." Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005). A court must "presume[] that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994) (citations omitted); see Merida Delgado v. Gonzales, 428 F.3d 916, 919 (10th Cir. 2005) ("Because the jurisdiction of federal courts is limited, there is a presumption against our jurisdiction, and the party invoking federal jurisdiction bears the burden of proof."); see also Raley v. Hyundai Motor Co., 642 F.3d 1271, 1275 (10th ...


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