West et al v. Abc Oil Company Inc et al

FIRST MOTION to Dismiss for Lack of Jurisdiction Amended Complaint

W.D. Okla.December 2, 2016

IN THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF OKLAHOMA LISA WEST and STORMY HOPSON, ) on behalf of themselves and others ) similarly situated, ) ) Plaintiffs, ) ) vs. ) Case No. CIV-16-264-F ) ABC OIL COMPANY, INC. et al., ) ) Defendants. ) DEFENDANT LEASEHOLD MANAGEMENT CORP.‘S MOTION AND BRIEF TO DISMISS AMENDED COMPLAINT FOR LACK OF JURISDICTION COMES NOW, Leasehold Management Corp., a herein named defendant, and moves to dismiss the above-styled action pursuant to Fed. R. Civ. P. 12(b)(1) and (2) for lack of jurisdiction. Defendant Leasehold Management Corp. respectfully denies that this Honorable Court has jurisdiction over this matter and/or herein named Defendants due to the holdings of the U.S. Supreme Court, the laws of the Oklahoma State Constitution and the Oklahoma Statutes. Defendant hereby adopts and incorporates the argument and authority set forth in the motions filed by other Defendants seeking to dismiss this action as if incorporated herein. 1 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 1 of 15 I. STATEMENT OF CASE The two Plaintiffs assert that the named Defendants and the putative class of defendants are operators of Arbuckle wastewater injection wells in and around Pottawatomie County. (Amended Complaint “AC” P. 2). Plaintiffs assert that since 2008 new earthquake activity has occurred in Oklahoma. (“AC” P. 5). The Plaintiffs allege that in 2011 each was affected by an earthquake which caused great shaking and damages to each of their property. (“AC” P. 17-19). Plaintiffs filed this case in the District Court of Pottawatomie County but the case was later moved to Federal Court in March of 2016. After multiple motions to dismiss by Defendants, the Plaintiffs filed this Amended Complaint on October 14, 2016 expanding their alleged putative plaintiff class to cover 26 counties and include “all persons owning an interest in real property in the class area from 2011 through the time the class is certified, and thereafter while any injunctive relief granted remains in force.” (“AC” P. 33). In their Amended Complaint Plaintiffs allege that Defendants are liable to the Plaintiffs and putative class of plaintiffs under the theories of private nuisance, strict liability, negligence and trespass. (Amended Compliant “AC” P. 97-107). Plaintiffs seek a temporary injunction for reimbursement of earthquake insurance premiums (“AC” P. 43); a permanent injunction for earthquake insurance premiums incurred past, present and future (“AC” P. 43-44); and “injunctive relief” for damages to real and personal property incurred by the 2011 Prague earthquake. (“AC” P. 44). 2 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 2 of 15 Petitioners assert (“AC” P. 37), this relief is necessary to protect the putative class’ interests because the oil and gas industry could not bear the monetary burden of liability associated with potential earthquake damage. (“AC” P. 37). Plaintiffs deny the Oklahoma Corporation Commission has jurisdiction over the claims due to the holding in Ladra v. New Dominion, et al., 2015 OK 53, 353 P.3d 529. (“AC” P. 19). II. ARGUMENT AND AUTHORITIES Due to the nature of the relief sought, the putative class of plaintiffs, the putative class of defendants, and the subject matter involved, so affects the community at large that it affects public rights as a body politic. Public rights of this nature are to be regulated exclusively by the Oklahoma Corporation Commission (OCC), and the Oklahoma Supreme Court. Further, the result of the action would be an attempt to defeat or deny the force and effect of a final order of the OCC. This matter should be dismissed for lack of jurisdiction for the following reasons: a. First, Plaintiffs’ prayer for relief of a monetary injunction on Leasehold Management Corp.’s legally and properly operated underground injection well amounts to a collateral attack on a final order of the OCC. This litigation presents a unique problem wherein two legally constituted courts of record are pitted against each other. The Defendants herein are legally relying on unappealable orders of the OCC to operate said disposal wells as a legally authorized activity. Plaintiffs cause of action requests another legally constituted court of record, the district court, to 3 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 3 of 15 penalize such legally constituted activity. The result would be a collateral attack on the first court, the OCC. To allow such to occur in district court is a violation of the authority of an Article III court. b. Second, the subject and parties to this litigation are a matter of public rights of a body politic. The question of “private nuisance, strict liability, negligence and trespass” is herein not between two or more persons but rather as a body politic. Due to the economic importance of Oklahoma’s oil and gas industry in the United States, such monetary injunction upon legally and properly maintained underground injection wells would heavily affect the industry and would be heavily intertwined with the community at large. This combined with the enormity of the the putative class of plaintiffs, inures this putative class to become itself a body politic. Thus, the litigation becomes a matter of public interest. As such it is no longer a private cause of action. The Plaintiffs are not asking for a remedy to an infringement of a common law right, but rather are seeking to gain monetary reward in the area of regulating a body politic for a body politic. Recently, the Oklahoma Supreme Court in Ladra v. New Dominion, LLC. , 353 P. 3d 529 (2015) at 539 had two important holdings that affect this case at bar. First, a district court may not levy a collateral attack upon the orders, rules and regulations of the OCC. Id. Second, citing multiple authorities, it reaffirmed that the OCC is without 4 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 4 of 15 authority to hear and determine disputes between two or more private persons or entities in which the public interest is not involved. The Powers of Oklahoma Corporation Commission The Oklahoma Corporation Commission (OCC) is a legal construct pursuant to power vested by Article I of the United States Constitution. The legal principal for the OCC was established in 1877 by the U.S. Supreme Court which states that when a private company’s business affects the community at large, it becomes a public entity subject to state regulation. Munn v. Illinois, 94 U.S. 113 (1876). The Oklahoma Corporation Commission (OCC) was first established upon statehood in 1907 by Article IX of the Oklahoma Constitution, Sec. 15-33: “No court of this State, except the Supreme Court, shall have jurisdiction to... interfere with the Corporation Commission in the performance of its official duties; provided, however, that writs of mandamus or prohibition shall lie from the S u p r e m e Court to the Corporation Commission in all cases where such writs respectively would lie to any inferior court or officer.” The OCC has judicial, legislative and administrative authority. It is subject to ultimate review by the Oklahoma Supreme Court (an Article III Court). Currently the Oklahoma Statutes throughout Title 17 and 52 mandate that the Oklahoma Corporation Commission is hereby vested with exclusive jurisdiction, power, and authority with reference to injection of fluids related to oil and gas operations and all fees associated with such. The OCC is also given the power to enforce federal regulations for 5 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 5 of 15 underground injection of water and chemicals and underground disposal of certain oil and gas waste fluids. OCC History, Occeweb.com, State of Oklahoma, 2016. Judicial matters which do not affect the public rights are properly before Article III courts-like the federal district courts. COLLATERAL ATTACK ON FINAL ORDER OF OCC Although the prayer for relief appears as a tort claim, the effect of the monetary injunctions sought by Plaintiffs upon the named Defendants and putative class of defendants amounts to an fee and impingement upon the legal and proper disposal of saltwater as regulated by the OCC. The Oklahoma legislature has conferred upon the OCC exclusive authorization and direction to prescribe rules for the determination of: the natural flow of oil, gas, and disposal wells; prevention of waste and protection of the public interests; and correlative rights of the parties thereto. OKLA. STAT. Tit. 52, § 239 (1995). See also O.S. 17, Sec.52(A)(a)(b)(c)(d)(f) and (B). This authority specifically confers upon the OCC the exclusive jurisdiction, power and authority to make and enforce rules and orders regulating the handling, storage and disposition of saltwater, mineral brines, waste oil and etc. as are reasonable and necessary. OKLA. STAT. Tit. 52, § 139 (2012). Article IX of the State Constitution prohibits any court except the state supreme court from reviewing a Commission Order. Tenneco Oil Co. v. El Paso Natural Gas Co., 687 P.2d 1049 (Okla. 1984) {Tenneco II} at 1058. 6 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 6 of 15 The Oklahoma Corporation Commission has issued orders allowing each of the named Defendants to operate saltwater disposal wells pursuant to the OCC’s determination of the correlative rights of all parties. Such an order was issued on February 2, 1983, by the OCC to Leasehold Management Corp. by Order Number 232612. This order allows Leasehold Management Corp. to operate the Earlsboro #5, a saltwater disposal well, in Pottawatomie County. This litigation attempts to place a monetary injunction upon the legally allowed operation of not just one well, but of all wells in the Arbuckle formation which are allowed to operate by orders of the OCC. These OCC orders are directly related to correlative rights of the parties in the Arbuckle formation. Injection wells are an integral part of oil and gas production. Injection wells would not exist but for the necessity in the production of oil and gas. Therefore, injection wells directly affect correlative rights of parties who either own royalty interests, operators or working interest owners. The issue of correlative rights, as noted by the court, embraces the correlative rights of owners in a common source of supply to take oil or gas by legal operations limited by duties to the other owners, 1) not to injure the common source of supply, and 2) not to take an undue proportion of the oil and gas. 11 OKLA. L. Rev. 125, 127-28 (discussing and categorizing types of oil and gas waste). The facts of the instant case are distinguishable from other cases wherein the court has found proper jurisdiction in the district courts. In cases wherein the jurisdiction falls 7 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 7 of 15 properly with the district court it was found that neither protection of production, wasteful production, correlative rights nor public rights was in question. Rogers v. Quiktrip Corp., 2010 OK 3, ¶ 7, 230 P.3d 853, 857 (contract dispute and damages); Northern Pipeline Construction Co. v. Marathon Pipe Line Co., 458 U.S. 50, 70 (1982) (suit for damages); Kingwood Oil Co. v. Hall-Jones Oil Corp, 396 P.2d (Okla. 1964) at 511 (damages suit). The relief sought herein is ultra vires no matter its particulars because the relief sought is a fee and impingement of all injection wells injecting into the Arbuckle formation. Thus, the injunction sought herein is a collateral attack upon all properly operated and permitted wells by orders of the OCC. Thus, this matter can not properly be before this Federal Court. BODY POLITIC The Supreme Court holds that when a private company’s business affects the community at large, it becomes a public entity subject to state regulation. Munn v. Illinois, 94 U.S. 113 (1876). It is for these reasons that regulation of this matter and parties properly lies in the jurisdiction of the Oklahoma Corporation Commission. Although this litigation may appear to be a matter of private rights, the issue is so tightly intertwined with production of oil and gas in this state that it must be considered a public right and all legal matters regarding such rightfully rest in the purview of the OCC. 8 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 8 of 15 The question of what constitutes a “public right” is hotly debated but there is a clear purpose for the legal theory. The Oklahoma Supreme Court has held "questions in an action concerning the relationship of private parties, their duties, rights and obligations, and the existence of liability for the breach of such duties to be matters particularly with[in] the province of the district court." Rogers v. Quiktrip Corp., 2010 OK 3, ¶ 7, 230 P.3d 853, at 858. More specifically, regarding oil and gas regulation, Oklahoma Courts hold when the conflict affects the rights within a common source of supply, it affects a public interest and thus, the OCC has jurisdiction. Grayhorse Energy, LLC, 2010 OK CIV APP 145, at ¶ 12, 245 P.3d at 1255 (when the conflict does not affect a common source of supply then it" does not affect "the public interest in the protection of production from that source as a whole," the district courts, and not the OCC, have jurisdiction)(citing Samson Resources Co. v. Corporation Comm'n, 1985 OK 31, ¶ 9, 702 P.2d 19, 22). See also Rogers at ¶ 6, 230 P.3d at 857; Meinders v. Johnson, 2006 OK CIV APP 35, at ¶ 27, 134 P.3d at 867 (citing Tenneco Oil Co., 1984 OK 52, at ¶ 20-23, 687 P. 2d at 1053-54). The subject matter in the instant litigation affects the rights and public interest in the protection of production of oil and gas from the Arbuckle common source of supply, therefore, the OCC and not the district courts have jurisdiction. See Grayhorse Energy, LLC, 2010 OK CIV APP 145. Although the facts of Tenneco II are distinguishable from the instant case, the court did set forth a guideline as to when a private contract will 9 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 9 of 15 become a "public issue" under the new public right/private right boundary when it noted that: "The limitation being always omni-present is that no private contract or operating agreement may cause or grant a license to commit waste, or diminish correlative rights, control of which is exclusively within power of Corporation Commission.” Tenneco Oil Company v. El Paso Natural Gas Company, 687 P .2d 1049 (Okl. 1984) {Tenneco II} at 1053. Due to the nature of the relief sought, the putative class of plaintiffs, the putative class of defendants, and the subject matter involved, so affects the community at large that it affects public rights. When a matter such as the prayer of this Amended Petition is so heavily intertwined with the community at large, the putative class of plaintiffs and putative class of defendants becomes a public entity subject to state regulation by Article I courts. The litigants become a “body politic” which should be governed by certain laws for the common good, as stated by the U.S. Supreme Court in 1876: “…A body politic," as aptly defined in the preamble of the Constitution of Massachusetts, "is a social compact by which the whole people covenants with each citizen, and each citizen with the whole people, that all shall be governed by certain laws for the common good." Munn v. Illinois, 94 U.S. 113(1876) at 124. The nature of the relief sought herein is posed in such a manner that the economic importance of the Oklahoma oil and gas industry in United States should be considered. Placement of a monetary injunction upon every legal and properly maintained underground injection well in the Arbuckle would severely affect the industry. That alone 10 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 10 of 15 could be enough to make the subject of this litigation a body politic. The U.S. Supreme Court holds a seemingly private cause of action between private parties will also be deemed “public” rights, when Congress, acting for a valid legislative purpose pursuant to its Article I powers (ie.regulation of the oil and gas industry), fashions a cause of action that is analogous to a common–law claim and so closely integrates it into a public regulatory scheme that it becomes a matter appropriate for agency resolution with limited involvement by the Article III judiciary. Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 51–55 (1989). Norberg is a seventh amendment jury–trial case, the decision is critical to the Article III issue (Article III court jurisdiction) as well, because, as the Court makes clear what was implicit before, that Congress can submit a legal issue to an Article I tribunal (OCC) and it can dispense with a civil jury on that legal issue. The question must be answered by the same analysis. Id., 52–53.Id., 52–54. The Court reiterated that the Government need not be a party as a prerequisite to a matter being of “public right.” Id., 54. In Oklahoma, the Supreme Court holds, "the enactments [of the Commission] for the conservation of oil and gas are public in nature and that the spacing order, the pooling order, and the order fixing allowables, to name but a few of its functions, are within the realm of the public rights to be protected." The court further reasoned the purpose of the Commission is to "look after the rights of the body politic." By law, the Commission must protect this "body politic" to achieve its purpose. Tenneco Oil Co. v. El Paso 11 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 11 of 15 Natural Gas Co., 687 P.2d 1049 (Okla. 1984) [Tenneco II] at 1056. See OKLA. STAT. tit. 52, § 112 (1981); Amarex, Inc. v. Baker, 655 P.2d 1040 (Okla. 1982); Crest Resources & Exploration CORP. v. Corporation Commission, 617 P.2d 215 (Okla. 1980). Matters of the OCC are subject to review by the Article III court supervising it- the Oklahoma Supreme Court. Article IX of the Oklahoma Constitution, Sec. 20. The State Chamber of Oklahoma Research Foundation reports that Oklahoma is home to the second largest concentration of oil and gas activity in the U.S. “Top Economic Facts About Oklahoma’s Oil and Gas Industry”, Okstatechamber.com, January, 2014, Economic Assessment of Oil and Gas Tax Policy in Oklahoma. It reports the oil and gas industry is the state’s key job engine in the past decade and it is the largest source of state tax revenue in the state of Oklahoma. The federal importance of the country’s oil and gas industry cannot be understated, in fact the U.S. Department of Homeland Security has implemented an Energy Sector with an Oil and Natural Gas Subsector for the general purpose of protecting the industry. Energy Sector, www.dhs.gov, Homeland Security, Sept. 21, 2015. Further, making this cause of action a body politic is the enormity and extensive inclusion of the putative class of plaintiffs. The putative class of plaintiffs, “all persons owning an interest in real property in the class area from 2011 through the time the class is certified, and thereafter while any injunctive relief granted remains in force” should by itself be considered a body politic. Thus, properly in the jurisdiction of the OCC. 12 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 12 of 15 CONCLUSION Jurisdiction is improper in this Honorable Court because the Plaintiff’s prayer for relief of monetary injunction amounts collateral attack on valid orders of the OCC for the operation of all Defendants’ and putative defendants’ disposal wells. The prayer for relief for all persons with interests in real property in the 26 named counties to be compensated for past, present and future insurance premiums sought amounts to a collateral attack on OCC orders of all legally and properly operated underground injection wells in the class area. This is a violation of both Article I and Article III of the U.S. Constitution. This litigation may appear to be a matter of private rights, but the enormous and inclusive putative class of plaintiffs combined with the entirety of Arbuckle disposal well operators in the named defendant class is a body politic. This relief is so tightly intertwined with production of oil and gas in this state that it must be considered a public right and all legal matters regarding such do not rest in the jurisdiction of the district courts. IT IS FOR THESE REASONS that the Defendant prays its request for Dismissal for Lack of Jurisdiction be sustained. 13 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 13 of 15 Respectfully Submitted, Attorneys for Leasehold Management Corp. s/ Kelly Basey Kelly Basey OBA# 16,395 Liberty Law Center Regency Park Plaza 1900 N. MacArthur, Ste. 109 Oklahoma City, OK 73127 Telephone: (405) 833-9922 Fax: (405) 858-8718 baseylaw@gmail.com s/ Harry E. Brown, Jr. (Signed by Filing Attorney with permission of Attorney) Harry E. Brown, Jr., OBA #1193 Brown and Associates 5811 N. Linn Oklahoma City, Ok 73112 Telephone: (405)812-9084 brownlaw@cox.net 14 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 14 of 15 Certificate of Service I hereby certify that on December 2, 2016, I filed the attached document with the Clerk of Court. Based on the records currently on file in this case, the Clerk of Court will transmit a Notice of Electronic Filing to those registered participants of the Electronic Case Filing System. s/ Kelly Basey Kelly Basey OBA# 16,395 Attorney for Defendant Leasehold Management Corp. Liberty Law Center Regency Park Plaza 1900 N. MacArthur, Ste.109 Oklahoma City, OK 73127 Telephone: (405) 833-9922 Fax: (405) 858-8718 baseylaw@gmail.com 15 Case 5:16-cv-00264-F Document 182 Filed 12/02/16 Page 15 of 15