Real Estate Litigation

By: Neal McConomy

On August 14, 2014, the Tenth Circuit vacated and remanded the lower court’s decision regarding a dispute between a surface owner’s and a subsurface owner’s respective rights to access and enjoy land and property rights.  Entek GRB, LLC v. Stull Ranches, LLC, 763 F.3d 1252 (10th Cir. 2014).  The decision reached in Entek GRB, LLC v. Stull Ranches, LLC addresses a debate occurring throughout Colorado and the United States: what controls do surface owners have regarding subsurface owners’ claims for access to and occupation of surface areas in their pursuit to exercise their rights to the oil, gas, and other minerals beneath the surface owner’s land.  The Tenth Circuit’s logic behind its conclusion speaks to the deference currently granted subsurface owners in pursuing their rights to gather resources.

Plaintiff Entek GRB, LLC (“Entek”) brought suit after Stull Ranches, LLC (“Stull”) refused to grant Entek permission to enter Stull’s surface estate, both to develop new oil well sites on Stull’s land and to access existing wells located on an adjacent surface estate owned by the Bureau of Land Management.  Entek GRB, LLC, 763 F.3d at 1253.  Entek is an energy development firm.  Id.  Stull runs a grouse hunting operation on its property.  Id.  Stull worried Entek’s actions of accessing Stull’s property would interrupt and impair its hunting operations by unsettling the grouse on the property.  Id.

The district court ruled on summary judgment that Entek was entitled to access portions of Stull’s surface to mine Entek’s subsurface leases but also held that Entek could not cross Stull’s surface estate to access the pre-existing wells on adjacent lands.  Id.  On appeal, Entek argued that it was, indeed, entitled to access Stull’s surface estate to mine its subsurface leases, but that it was also entitled to use the only road that reached its wells on the adjacent parcel, which ran through Stull’s surface estate.  Id.  The Tenth Circuit agreed with Entek.  See generally id.

In reciting the facts leading to the dispute before it, the Court in Entek GRB, LLC expressly addressed that “the only available road to the well on BLM’s estate crosses Stull’s land.”  Id.  The mention of this fact implied that an easement by necessity would be an issue in this dispute, but the Entek GRB, LLC Court never addressed the topic of easement by necessity.  Further, the Court never applied this fact to any of its analysis.  Instead, the Court spent a significant portion of the opinion discussing the history of severed surface and mineral rights.

Part of this discussion was the advent of pooling agreements: agreements that provide a subsurface owner the right to enter and perform mining operations on any surface owner’s estate that forms part of the larger pool, field, or other area to which the subsurface owner has rights.  Id. at 1255.  The Court held the presence of such a pooling agreement provided Entek the right to use the road that crosses Stull’s property.  Id. at 1256.  This choice to employ a contractual right for Entek to enter Stull’s land, rather than an easement by necessity, is interesting because the choice greatly expands Entek’s rights.

The Court possibly chose not to address an easement by necessity because the facts in the case may not have met the elements.  “To establish an implied easement of necessity for access to land, three requirements must be met: (1) there must be unity of ownership of the entire tract prior to division; (2) the necessity for the easement must exist at the time of severance; and (3) the necessity for the particular easement must be great.”  Thompson v. Whinnery, 895 P.2d 537, 540 (Colo. 1995); accord United States v. Jenks, 129 F.3d 1348, 1353 (10th Cir. 1997).  While the federal government likely had ownership of the entire tract prior division, there is no evidence in the opinion that the necessity for the easement existed when the federal government divided the tract.  See generally, Entek GRB, LLC, 763 F.3d 1252.  More important than the lack of an easement by necessity discussion is the breadth of the rights Entek received through the Court’s contractual basis for its holding.

Holding that a contract provides Entek the right to enter Stull’s property provides Entek the right to enter and use as much of Stull’s surface estate as “reasonably incident to the exploration and removal of mineral deposits.”  Id. at 1256.  This is much broader than the limited access to only the road crossing Stull’s property that any easement by necessity would have granted Entek.

This contractual right to access as much of Stull’s surface as is reasonably incident to exploration and removal of mineral deposits, both on and around Stull’s surface estate, significantly limits Stull’s future options to restrain Entek’s access to Stull’s surface estate.  Instead of arguing any use of Stull’s surface estate for the purpose of mineral deposit exploration and removal on adjoining lands is outside the scope of the easement by necessity granted to Entek, Stull must instead argue the use is unreasonable.  Reasonableness is, of course, a much more factually intensive issue than whether or not Entek is remaining within the confines of its easement by necessity, i.e., only traveling the road and not using any other portion of the surface estate for mineral deposit exploration and removal on adjoining lands.

The deference the Court showed toward Entek embodies the rights Congress has granted subsurface owners.  Addressing Stull’s policy argument that “federal policy is too generous to subsurface interests and insufficiently solicitous to surface interests,” the Court noted that it is Congress’ job to set policy and the courts’ job only to construe such policy.  Id. at 1258.  The Court went on to suggest that if Stull wished to have greater rights and protections against subsurface owners’ rights Stull’s actions should be directed toward the legislature, not the Court. Id.  Aside from the Court’s civic lesson, this opinion serves as a strong reminder of the power held by subsurface owners in states with split property rights.

Disagreements like the one in Entek GRB, LLC are not unusual.  Rural property is routinely at issue in battles between subsurface owners and surface owners.  However, as hydraulic fracturing has increased over the past several years and horizontal drilling has allowed for greater access to areas once thought unsuitable for mining operations, suburban and urban properties are ripe to become the subjects of these same disputes.  Kirk Siegler, Fracking Moves to the Suburbs, Marketplace (Dec. 27, 2011), http://www.marketplace.org/topics/sustainability/fracking-moves-suburbs.  The impact of Entek GRB, LLC on such disputes is unknown, but as the land over which such disputes takes place changes, the opinion stands as a reaffirmation of subsurface owners’ rights.

The issue going forward is whether changes in the type of land and the parties involved in the disputes will change the policy at the core of the holding in Entek GRB, LLC.  Complicating such disputes is the interplay between different levels of government, as many municipalities (and even the state of New York) begin to pass legislation banning hydraulic fracturing.  Lesley McClurg, Colo. Cities Vote to Ban Fracking, Colorado Matters (Nov. 6, 2013), http://www.cpr.org/news/story/colo-cities-vote-ban-fracking; Reid Wilson, Cuoma Administration Rules Against Fracking, Washington Post (Dec. 17, 2014), http://www.washingtonpost.com/blogs/govbeat/wp/2014/12/17/cuomo-administration-rules-against-fracking/.  In July of this year, a Colorado district court overturned a fracking ban in the city of Longmont, Colorado.  Elizabeth Miller, Fracking Ban Court Decision Pushes Conversation Toward Constitutional Rights, Boulder Weekly (July 31, 2014), http://www.boulderweekly.com/article-13164-fracking-ban-court-decision-pushes-conversation-toward-constitutional-rights.html.  A similar challenge has been filed in Texas after Denton residents voted to ban hydraulic fracturing.  Jim Malewitz, First Lawsuits Filed over Denton’s New Fracking Ban, Texas Tribune (Nov. 5, 2014), http://www.texastribune.org/2014/11/05/denton-fracking-ban-sees-first-lawsuit/.  For now, with Longmont’s ban in the Colorado appellate courts and the Texas case in its infancy, only time will tell if the holding of Entek GRB, LLC and similar state decisions will remain good law.  As well, whether courts will find a legal hook to uphold bans that current precedent render invalid or whether courts will look to legislative branches for additional policy guidance is equally unclear.  What is clear is that as the nature of hydraulic fracturing changes due to technological innovations the scope of subsurface owners’ and surface owners’ rights will remain a hotly contested topic for real estate litigation across the country.