Opinion
Case No. 19-CV-802-SMY
2021-02-22
FINITE RESOURCES, LTD., Southern Cross Energy, LLC and Durango Group, Inc., Plaintiffs, v. DTE METHANE RESOURCES, LLC and Keyrock Energy, LLC, Defendants.
William C. Illingworth, Illingworth Renner Basin Law Group LLP, Chad J. Sullivan, James Darrell Johnson, Jackson Kelly PLLC, Evansville, IN, for Plaintiffs. Benjamin L. Riddle, Steptoe & Johnson PLLC, Louisville, KY, for Defendant DTE Methane Resources, LLC. John E. Rhine, Dentons Bingham Greenebaum LLP, Evansville, IN, V. Brandon McGrath, Dentons Bingham Greenebaum LLP, Cincinnati, OH, G. Patrick Murphy, Murphy & Murphy, LLC, Marion, IL, for Defendant Keyrock Energy LLC.
William C. Illingworth, Illingworth Renner Basin Law Group LLP, Chad J. Sullivan, James Darrell Johnson, Jackson Kelly PLLC, Evansville, IN, for Plaintiffs.
Benjamin L. Riddle, Steptoe & Johnson PLLC, Louisville, KY, for Defendant DTE Methane Resources, LLC.
John E. Rhine, Dentons Bingham Greenebaum LLP, Evansville, IN, V. Brandon McGrath, Dentons Bingham Greenebaum LLP, Cincinnati, OH, G. Patrick Murphy, Murphy & Murphy, LLC, Marion, IL, for Defendant Keyrock Energy LLC.
MEMORANDUM AND ORDER
YANDLE, District Judge This matter is before the Court for consideration of the motions for summary judgment filed by Defendants Keyrock Energy, LLC ("Keyrock") (Doc. 86) and DTE Methane Resources, LLC ("DTE") (Doc. 92). Plaintiffs Finite Resources, Ltd., Southern Cross Energy, LLC and Durango Group, Inc. filed responses in opposition (Docs. 102, 103).
Background
Plaintiffs are collectively the owners and operators of the Orient #1 Mine, a coal mine operated in Franklin County, Illinois. Coal mine methane ("CMM"), which is methane released from coal and surrounding strata due to mining activities, exists in the Orient #1 Mine. DTE acquired certain rights in the Orient #1 Mine by assignments and leases in 2004 and began operating two wells which produce CMM from the Orient #1 Mine – the Orient No. M1-1 and the Orient No. M1-2.
In 2007, DTE applied for and was granted a vacuum permit from the Illinois Department of Natural Resources ("IDNR"). DTE did not notify Plaintiffs of the application for the vacuum permit. In 2012, Keyrock was assigned DTE's interest in the Orient #1 Mine. In August 2018, Plaintiffs discovered Keyrock's use of the vacuum pump. Plaintiffs have since monitored their wellbore shut-in pressures and performed flow tests on the Orient #1 Mine which determined that Keyrock's use of a vacuum pump has caused drainage of CMM from areas of the Orient #1 Mine owned by Plaintiffs.
A vacuum pump is a tool used by oil or gas operators to enhance the recovery of minerals.
Plaintiffs filed the instant lawsuit in Franklin County, Illinois Circuit Court; it was removed to this Court on July 24, 2019 (Doc. 1). In the Second Amended Complaint (Doc. 63), Plaintiffs assert claims against Defendants for conversion (Count I), intentional trespass (Count II), request that the Court enjoin Keyrock's current operations (Count III), request that the Court declare that Keyrock is not entitled to continue its current operations (Count IV), request that the Court compel an accounting of Defendants’ operations (Count V), and assert a claim for common law unitization (Count VI).
Discussion
Summary judgment is proper only if the moving party can demonstrate that there is no genuine issue as to any material fact or where the non-moving party "has failed to make a sufficient showing on an essential element of her case with respect to which she has the burden of proof." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; Fed. R. Civ. P. 56(a). If the evidence is merely colorable, or is not sufficiently probative, summary judgment may be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249–50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Any doubt as to the existence of a genuine issue of material fact must be resolved against the moving party. Lawrence v. Kenosha County , 391 F.3d 837, 841 (7th Cir. 2004).
As an initial matter, DTE argues that the statute of limitations has expired with respect to Plaintiffs’ conversion and trespass claims. The statute of limitations in Illinois for both common law trespass and conversion claims is five years. 735 Ill. Comp. Stat. Ann. 5/13-205. Under the Illinois discovery rule, "[a] cause of action accrues, and the limitations period begins to run, when the party seeking relief knows or reasonably should know of its injury and that it was wrongfully caused." Underwood v. City of Chicago , 416 Ill.Dec. 438, 84 N.E.3d 420, 433 (Ill. App. 2017). The statute of limitations may be tolled under one or more equitable doctrines. Shropshear v. Corp. Counsel of City of Chicago , 275 F.3d 593, 595 (7th Cir. 2001).
DTE asserts that almost twelve years have passed since Plaintiffs’ alleged injury and argues that the discovery rule does not operate to render Plaintiffs’ claims timely. Specifically, DTE contends its activities were easily discoverable because the vacuum permit granted by the IDNR was publicly available. It further contends that even if the discovery rule applies, Plaintiffs knew or should have known of the alleged injuries by 2009 at the latest when DTE informed Plaintiffs of their CMM extraction in the area.
Plaintiffs argue that the discovery rule applies and the facts relevant to the issue are disputed, making summary judgment on this point inappropriate. They also argue that DTE is estopped from asserting the statute of limitations defense because it fraudulently concealed the existence and location of the M1-2 Well, thereby inducing the delay in the commencement of this action. Finally, Plaintiffs assert that the continuing violation doctrine applies because Defendants continue to extract CMM from Plaintiffs’ mine void, and, therefore, five years have not elapsed since Defendants’ last trespass and conversion of Plaintiffs’ property for Defendants’ use.
The discovery rule applies in this case. But, when Plaintiffs should have known of an allegedly wrongfully caused injury is a question of fact that cannot be properly determined on summary judgment. That said, the Court does find as a matter of law that Plaintiffs’ claims were timely filed by virtue of the continuing violation doctrine. "[U]nder the ‘continuing tort’ or ‘continuing violation’ rule, ‘where a tort involves a continuing or repeated injury, the limitations period does not begin to run until the date of the last injury or the date the tortious acts cease.’ " Feltmeier v. Feltmeier , 207 Ill.2d 263, 278 Ill.Dec. 228, 798 N.E.2d 75, 85 (Ill. 2003) ; City of Evanston v. Texaco, Inc. , 19 F. Supp. 3d 817, 827 (N.D. Ill. 2014) (holding the continuing violation doctrine would save Plaintiff's nuisance and trespass claims from dismissal on limitations grounds because containments continue to leak onto the Plaintiff's property). Here, Defendants’ continue to extract CMM from the Orient #1 Mine. Thus, the allegedly wrongful conduct and injury are of a continuing nature and the 5-year statute of limitations has not been triggered. Having then resolved the statute of limitations issue, the question the Court must answer is "does the ‘rule of capture’ subject Plaintiffs claims to summary dismissal?"
To prove conversion in Illinois, a plaintiff must show that: (1) he has a right to the property at issue; (2) he has an absolute and unconditional right to the immediate possession of the property; (3) he made a demand for possession; and (4) the defendant wrongfully and without authorization assumed control, dominion, or ownership over the property. Stevens v. Interactive Fin. Advisors, Inc. , 830 F.3d 735, 738 (7th Cir. 2016) (quoting In re Karavidas , 376 Ill.Dec. 413, 999 N.E.2d at 310 ). Similarly, to sustain a cause of action for trespass to real property, a plaintiff must establish a wrongful interference with his actual possessory rights in the property. Loftus v. Mingo , 158 Ill.App.3d 733, 110 Ill.Dec. 368, 511 N.E.2d 203, 210 (1987). The intrusion must be such that it subtracts from the owner's use of the property. Geller v. Brownstone Condominium Association , 82 Ill.App.3d 334, 37 Ill.Dec. 805, 402 N.E.2d 807, 809 (1980). Of course, there can be no conversion or trespass absent the complaining party's ownership of the property in question.
Here, Plaintiffs’ ownership of the Orient #1 Mine is not in dispute; the dispute surrounds the ownership of the coalbed methane gas. Defendants argue that pursuant to Illinois’ rule of capture, Plaintiffs do not have an absolute and unconditional right to the CMM at issue and, therefore, their conversion and trespass claims fail.
Under the rule of capture, gas that migrates from one property to another is subject to recovery and possession by the holder of the gas estate on the property to which the gas migrates. Cont'l Res. of Illinois, Inc. v. Illinois Methane, LLC , 364 Ill. App. 3d 691, 301 Ill.Dec. 887, 847 N.E.2d 897 (2006). Noting that coalbed gas is similar to and migrates in the same manner as other natural gas, the court in Continental held that the rule of capture and the laws governing the ownership of migratory natural gas apply to coalbed methane gas – meaning, it cannot be owned until it is reduced to possession. Id. , 301 Ill.Dec. 887, 847 N.E.2d at 696.
Plaintiffs first argue that there is a distinction between coalbed methane ("CBM") and coal mine methane ("CMM") which is at issue here:
... these terms refer to different types of gas and cannot be used interchangeably. CMM refers to methane which has already been extracted from the coal as result of mining and has settled in the mine void after extraction. CMM can then be produced and placed into a pipeline for sale to the market, used to generate power, or for other end uses ... CBM refers to methane which has been adsorbed or trapped within a coal seam ... This absorbed gas is then removed from the coal by stimulating the coal through fracturing ... (Doc. 103, pp. 2-3).
They then argue that Illinois law does not support the pure form application of the rule of capture presented by Defendants. Specifically, Plaintiffs contend: (1) the rule of capture articulated in Continental applies to CBM, not CMM; and (2) the rule of capture only applies to the natural migration of gas ... not the use of artificial means such as a vacuum.
Significantly, Continental arose from the operation of the Corinth Project by DTE's predecessor in interest, Illinois Methane and involved the same plant at issue in case. (Doc. 92-6, pp. 95-96). Like Plaintiffs, Continental Resources argued that the rule of capture should not apply to CMM operations in abandoned mines and should only apply to gas contained in natural reservoirs and only in situations where there is a natural migration of gas. (Doc. 92-11). Clearly rejecting Continental Resources’ argument, the Court of Appeals for the Fifth Circuit of Illinois noted:
Continental argues that the coalbed methane found in mine voids, however, should not be treated the same as that found in coal seams or active mines. It is true that natural gas produced and reduced to possession is personal property. And gas injected into underground, defined, and controlled reservoirs belongs to whoever produced or bought the gas and transported it to those reservoirs. Coalbed methane gas found in mine voids has never been produced or reduced to possession by someone above the ground and therefore is not personal property. The coalbed methane gas in those voids is there as a result of natural deadsorption or deabsorption from the
coal formations and mine workings. Given that Illinois also follows the container space doctrine, a doctrine which states that the holder of coal rights also holds the rights to the void after the coal is mined, coalbed methane gas found in the mine voids must therefore still be a part of the coal estate, subject to the rule of capture. Continental , 301 Ill.Dec. 887, 847 N.E.2d at 696. (internal citations omitted)
The court went on to hold:
We therefore conclude that coalbed methane gas found in coal seams and/or in mine voids is controlled by the coal estate. Under the rule of capture, coalbed methane gas cannot be owned until it is reduced to possession. Consequently, Continental does not and cannot own the coalbed methane gas at issue here. We further conclude that defendants’ production of coalbed methane gas from wells located outside Continental's lands is not a violation of Continental's rights. Id. (emphasis added) (internal citations omitted)
This Court finds no reference to a "pure form" application of the rule of capture under Illinois law or support for the distinction urged by Plaintiffs.
Next, Plaintiffs argue that Defendants’ utilization of artificial means for extraction – a vacuum pump – negates the application of the rule of capture. Again, this Court finds no authority for this proposition under Illinois law; no court has held that the utilization of artificial extraction methods negates or alters the rule of capture in any way. As Defendants correctly point out, ["t]here have been innumerable advances in oil and gas production technology over the 170 years since oil and gas were first produced, all aimed at increasing production – extracting more oil and gas from the reservoir of origin and extracting it more efficiently." (Doc. 86, p. 8). While no court either in sitting in Illinois or applying Illinois law has squarely confronted the issue, the Manual of Oil and Gas Terms contained in Williams and Meyers treatise on oil and gas law speaks directly to the implications:
"The owner of a tract of land acquires title to the oil and gas which he produces from wells drilled thereon, though it may be proved that part of such oil or gas migrated from adjoining lands." Hardwick, " The Rule of Capture and Its Implications as Applied to Oil and Gas," 13 Texas L. Rev. 391 at 393 (1935) .... Under this rule, absent some state regulation of drilling practices, a landowner, however small his tract, or wherever located on the producing structure, may drill as many wells on his land as he pleases and at such locations as meet his fancy, and he is not liable to the adjacent landowners whose lands are drained as a result of such operations. Likewise, he may by means of a compression or vacuum pump, increase the production from his well though the result may be to drain his neighbor's property. The remedy of the injured landowner under such circumstances has generally been said to be that of self-help – "go and do likewise." W illiams and Meyers, Oil and Gas Law, 4th ed., Manual of Oil and Gas Terms, p. 519 (1990). (emphasis added).
And recently, the Pennsylvania Supreme Court expressly rejected the notion that extraction by artificial stimulation invalidates the rule of capture. In Briggs v. Southwestern Energy Production Co. , 224 A. 3d 334 (Pa. 2020), the court found that the "rule of capture applies even where devices such as pumps are used to bring the mineral to the surface and thereby reduce the production of neighboring wells ... [A]ll drilling for subsurface fugacious minerals involves the artificial stimulation of the flow of that substance. The mere act of drilling interferes with nature and stimulates the flow of the minerals toward artificially-created low pressure areas, most notably, the well bore." Id. at 337, 347-348. The court then noted that a "natural-versus-artificially-induced-flow" test for application of the rule of capture, suggested by the plaintiffs in that case, "rests on a false distinction." Id. at 353. This Court finds the Briggs decision well-reasoned and persuasive.
Plaintiffs also argue that Defendants’ illegal use of the vacuum pump negates the application of the rule of capture in this case. Specifically, although Plaintiffs made no such allegation in the Second Amended Complaint, they now maintain that Defendants’ activities illegally created a vacuum at the M1-2 wellhead at some point prior to them acquiring a vacuum permit in September 2007. And, while Plaintiffs do allege that Defendants applied for the permit without proper notification to them, it is undisputed that Defendants’ well was and is authorized by the IDNR and that Keyrock was granted a permit from that agency for its use of the vacuum pump. The permit has not been revoked or otherwise subject to sanction in the intervening 14 years. As such, the Court cannot conclude that Defendants’ activities are illegal or negate the rule of capture.
The rule of capture applies – Plaintiffs do not possess or own and are not entitled to the CMM Defendants are capturing through the M1-2 Well in the Orient #1 Mine. Because Plaintiffs’ claims in Counts I-V hinge on their ownership of the CMM, Defendants are entitled to summary judgment with respect to those claims.
Finally, in Count VI, Plaintiffs assert a "common law unitization" claim, seeking to have this Court unitize the parties’ properties and require Keyrock to ratably share their CMM production with Plaintiffs. Plaintiffs admittedly sought the same relief from IDNR through a Petition for Unitization on May 13, 2019. (Doc. 86-8). However, IDNR returned Plaintiffs’ Petition because mine voids are not "natural pools" in the eyes of the agency. (Doc. 86-6, p. 2-3). Nevertheless, Plaintiffs assert that IDNR's regulations authorizing unitization under the Illinois Oil and Gas Act are inadequate to protect the rights of adjoining mineral owners and ask this Court to take action when the agency statutorily charged with regulating the industry and addressing the very issue involved refused to do so. The Court declines the invitation. Defendants are entitled to summary judgment as to Count VI as well.
Conclusion
For the foregoing reasons, Defendants’ Motions for Summary Judgment (Docs. 86 and 92) are GRANTED as to all claims asserted in the Second Amended Complaint. All remaining pending motions are DENIED as MOOT .