Interstate Explorations, LLC v. Morgen Farm & Ranch, Inc.

January 26 2016

DA 15-0472
Case Number: DA 15-0472

IN THE SUPREME COURT OF THE STATE OF MONTANA
2016 MT 20

INTERSTATE EXPLORATIONS, LLC,

Plaintiff and Appellant,

v.

MORGEN FARM AND RANCH, INC.,

Defendant and Appellee.

APPEAL FROM: District Court of the Seventh Judicial District,
In and For the County of Wibaux, Cause No. DV-14-14
Honorable Richard A. Simonton, Presiding Judge

COUNSEL OF RECORD:

For Appellant:

Loren J. O’Toole, II, O’Toole & O’Toole; Plentywood, Montana

For Appellee:

William A. D’Alton, D’Alton Law Firm, P.C.; Billings, Montana

Submitted on Briefs: December 9, 2015

Decided: January 26, 2016

Filed:

__________________________________________
Clerk
Justice Jim Rice delivered the Opinion of the Court.

¶1 Interstate Explorations, LLC (Interstate), leases mineral rights beneath the surface

estate of Morgen Farm and Ranch, Inc. (Morgen). Interstate filed this action against

Morgen in the District Court of the Seventh Judicial District, Wibaux County, requesting

a declaration that Morgen had wrongfully denied an easement necessary for installing a

power line to operate the well drilled by Interstate on the property. Morgen answered and

counterclaimed regarding alleged hydrocarbon spills on the property, requesting

damages. Asserting that Morgen had failed to first exhaust administrative remedies

before initiating legal action for damages, Interstate moved to dismiss Morgen’s

counterclaims for lack of subject matter jurisdiction, which the District Court denied.

Interstate appeals. We affirm and state the issue as follows:

¶2 Did the District Court err by denying Interstate’s motion to dismiss Morgen’s
counterclaims for lack of subject matter jurisdiction because Morgen did not first exhaust
statutory remedies?

PROCEDURAL AND FACTUAL BACKGROUND

¶3 Morgen leased oil and gas rights on a portion of its property to Montana Oil

Properties, Inc. Morgen owns the surface rights to the property. Montana Oil Properties

later assigned its interest in the lease to Interstate, who drilled and completed a well on

the Morgen property.

¶4 In July 2014, Interstate initiated this lawsuit, alleging that Morgen “has refused to

execute the easement for [Montana-Dakota Utilities Co.] to enter the property to hook up

the electrical line necessary to operate the well.” Interstate requested a judgment

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declaring Interstate’s interests and rights in the property, and also requested damages for

the “increase in expenses . . . incurred by having to use a generator” to maintain the well

on the site.

¶5 Morgen answered by denying that an easement was necessary because Interstate

had the right to run power to the well by virtue of the lease, but counterclaiming that

Interstate had damaged the surface of the property by spilling hydrocarbons. Morgen

alleged that the damage had not been remedied by compensation and that Interstate was

wrongfully entering and remaining on the property until the damage was paid, stating

claims for trespass, unjust enrichment, and wrongful occupation. Interstate moved to

dismiss Morgen’s counterclaims for lack of subject matter jurisdiction, which the District

Court denied. Interstate again raises the issue of subject matter jurisdiction on appeal.

STANDARD OF REVIEW

¶6 “A district court’s decision to grant or deny a motion to dismiss for lack of subject

matter jurisdiction is a question of law that we review for correctness.” Pickett v.

Cortese, 2014 MT 166, ¶ 11, 375 Mont. 320, 328 P.3d 660 (citing Ballas v. Missoula City

Bd. of Adjustment, 2007 MT 299, ¶ 9, 340 Mont. 56, 172 P.3d 1232). “[A] district

court’s conclusion as to its jurisdiction is always subject to de novo review, regardless of

the context in which the conclusion is made.” Lorang v. Fortis Ins. Co., 2008 MT 252,

¶ 53, n. 5, 345 Mont. 12, 192 P.3d 186 (citing Stanley v. Lemire, 2006 MT 304, 334

Mont. 489, 148 P.3d 643).

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 DISCUSSION

¶7 Did the District Court err by denying Interstate’s motion to dismiss Morgen’s
counterclaims for lack of subject matter jurisdiction because Morgen did not first exhaust
statutory remedies?

¶8 The District Court explained that, pursuant to the provisions governing Surface

Owner Damage and Disruption Compensation, §§ 82-10-501, et seq., MCA (referred to

herein as the “Surface Damage Act” or “Act”), oil and gas developers and operators are

responsible for damages sustained by the surface owner caused by oil and gas operations.

Sections 82-10-504, 505, MCA. However, citing §§ 82-10-508 and 82-11-142(2), MCA,

the District Court reasoned that the Act was not the exclusive remedy for surface damage

claims, and that surface owners were entitled to seek other remedies permitted by law.

Therefore, the court concluded it had subject matter jurisdiction over Morgen’s claims.

¶9 Interstate argues that the District Court erred by not holding that Morgen’s failure

to exhaust administrative remedies set forth in Title 82, chapter 10, MCA, addressing

surface damage compensation, deprived the District Court of subject matter jurisdiction

to entertain Morgen’s counterclaims seeking damages. Noting that § 82-11-141(1),

MCA, provides that “the Montana Administrative Procedure Act (MAPA) applies to this

chapter,” Interstate argues that § 2-4-702(1)(a), MCA, MAPA’s administrative

exhaustion provision, requires that Morgen’s surface damage claims first be pursued

before the Montana Board of Oil and Gas Conservation (Board).

¶10 “To determine whether or not [a party] must exhaust administrative remedies, we

look first to the statutory language, and where that is unclear, to legislative intent.”

Stanley v. Holms, 267 Mont. 316, 320, 883 P.2d 837, 839 (1994) (citation omitted)

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(considering whether administrative remedies within the Commissioner of Labor and

Industry divested district courts of subject matter jurisdiction over statutory wage claims).

This case is resolved by a careful review of the language and structure of the governing

statutes.

¶11 The parties’ arguments involve two chapters. Chapter 10 of Title 82 of the

Montana Code Annotated governs oil and gas issues generally and includes the

provisions of the Surface Damage Act in Part 5. Part 5 provides for notification to the

surface owner of planned drilling operations, notification to the oil or gas operator of any

surface damage, and a process of exchanging offers of settlement to resolve damages

issues. Sections 82-10-501, et seq., MCA. Then, Chapter 11 of Title 82 governs oil and

gas conservation and Part 1 thereof includes the extensive provisions entitled “Regulation

by Board of Oil and Gas Conservation.” Sections 82-11-101, et seq., MCA.

¶12 Notably, the Surface Damage Act, in Chapter 10, is not structured under the

regulatory powers of the Board set forth in Chapter 11. Further, the Board is not

expressly given any role within the damage resolution provisions of the Act, and, indeed,

is not even referenced by the Act. While § 82-10-510, MCA, adopts the penalty

provision of Chapter 11 for violation of “the notice requirements of § 82-10-503” by an

oil and gas operator, see Pinnacle Gas Res., Inc. v. Diamond Cross Properties, LLC,

2009 MT 12, ¶ 28, 349 Mont. 17, 201 P.3d 160, the Act gives the Board no other duty in

the damage resolution process. The Board’s lack of involvement with the process under

Chapter 10 was confirmed during the 2007 Legislative Session, when Senate Bill 19 was

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passed to make a minor revision to the Act.1 During a hearing before the Senate Natural

Resources Committee, the following exchange occurred between Senator Greg Lind and

Tom Richmond, administrator of the Board:

Senator Lind: ‘Under [] existing law, how often under § 82-10-505,
liability and damages, can you give me an idea of the magnitude of the
activity, does that come through your office? Are you aware of those
actions and disputes?’

Tom Richmond: ‘Mr. Chairman, we typically are not. We don’t have
direct enforcement and rule-making authority under Chapter 10. Our
enforcement is under Chapter 11, that’s why you’ll see the penalty section
referring to the penalties in Section [sic] 11, because there are no penalties
in Section [sic] 10. That was one of the rabbit holes we went down, trying
to figure out what to do about penalties. We decided to best defer to
existing law.’

Mont. S. Comm. on Natural Res., Hearing on S. Bill 19, 60th Legis., Reg. Sess. (Jan. 15,

2007).

¶13 Thus, consistent with the plain language of the Act, the Board assumes no direct

enforcement or rule-making authority under Chapter 10 regarding the dispute resolution

process. Rather, the Act is an attempt to facilitate communication between surface

owners and oil and gas operators to help resolve damage disputes. As such, while a

statutory process has been enacted, it is not an agency or administrative proceeding that

must be exhausted before litigation may be commenced.

¶14 Even if the process created by the Act were considered to be an administrative

process, the Act specifically provides that the process is not an exclusive one. Section

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SB 19 added the following language to § 82-10-504(1)(a), MCA: “The surface owner and the
oil and gas developer or operator shall attempt to negotiate an agreement on damages.” Sec. 3,
Ch. 57, L. 2007.
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82-10-511, MCA, states that “[t]he remedies provided by this part do not preclude any

person from seeking other remedies allowed by law.” Thus, by statute, the process is not

mandatory and need not be completed prior to initiation of litigation. While we need not

cite legislative history in light of the statute’s clear language, that history also

demonstrates that the Legislature did not intend this process to be exclusive.2

¶15 Interstate’s MAPA argument is likewise unavailing. Section 82-11-141(1), MCA,

provides that MAPA is applicable “to this chapter”—meaning Chapter 11, the Board’s

enforcement powers, and not Chapter 10, which includes the Surface Damage Act.

¶16 The District Court correctly held that a surface owner is not required to exhaust an

administrative remedy under the Surface Damage Act before litigating a damage claim in

the courts, and correctly denied Interstate’s motion to dismiss Morgen’s counterclaims on

this basis.

¶17 Affirmed.

/S/ JIM RICE

We concur:

/S/ MIKE McGRATH
/S/ MICHAEL E WHEAT
/S/ LAURIE McKINNON
/S/ JAMES JEREMIAH SHEA

2
See Mont. S. Comm. on Natural Res., Hearing on S. Bill 19, 60th Legis., Reg. Sess. (Jan. 15,
2007).
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