John M. Denman Oil Co. v. State Corporation Comm’n.

No. 110,861

IN THE COURT OF APPEALS OF THE STATE OF KANSAS

JOHN M. DENMAN OIL CO., INC.,
Appellant,
AND
GARY AND KAYLA BRIDWELL, D/B/A BLACK RAIN ENERGY,
Appellees,

v.

STATE CORPORATION COMMISSION OF THE STATE OF KANSAS,
Appellee.


GARY AND KAYLA BRIDWELL, D/B/A BLACK RAIN ENERGY,
Petitioners,

v.

STATE CORPORATION COMMISSION OF THE STATE OF KANSAS,
Respondent.


SYLLABUS BY THE COURT


1.
Under K.S.A. 55-179, more than one party may be held legally responsible for
plugging an abandoned oil or gas well. One of the legally responsible parties is the
operator who initially abandoned the well.

2.
When more than one party is legally responsible for plugging an abandoned oil or
gas well under K.S.A. 55-179, the Kansas Corporation Commission may order all such
parties to do so, and the liability of those parties is joint and several.

2
Appeal from Shawnee District Court; FRANKLIN R. THEIS, judge. Opinion filed January 9, 2015.
Affirmed.

Thomas M. Rhoads, of Glaves, Irby & Rhoads, of Wichita, for appellant.

Dana Bradbury and Lane R. Palmateer, of Kansas Corporation Commission, for appellee.

Keith A. Brock, of Anderson & Byrd, LLP, of Ottawa, for petitioners.

Jeff Kennedy, of Martin, Pringle, Oliver, Wallace & Bauer, L.L.P., of Wichita, for amicus curiae
Kansas Independent Oil and Gas Association.

David E. Bengtson, of Stinson Leonard Street LLP, of Wichita, for amicus curiae Eastern Kansas
Oil & Gas Association.

Before GREEN, P.J., LEBEN and BRUNS, JJ.

LEBEN, J.: John M. Denman Oil Company has appealed a Kansas Corporation
Commission (KCC) order that Denman Oil must plug 41 abandoned oil wells. Denman
Oil contends that only one party may be held legally responsible for the wells under
K.S.A. 55-179 and that since another party took over the mineral lease from Denman Oil,
it is no longer responsible.

But K.S.A. 55-179(b) provides that "a person who is legally responsible shall
include, but is not limited to, one or more" of several parties defined in that statute. And
one of those who may be held responsible is "the original operator who . . . abandoned
such well." There's no dispute that Denman Oil was the original operator who abandoned
these wells, so the KCC's order requiring Denman Oil to plug them was proper.

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FACTUAL AND PROCEDURAL BACKGROUND

The trail leading to this appeal begins in August 2007, when the KCC received a
complaint about abandoned oil wells, spills, and debris on the 160-acre M.A. Alexander
oil-and-gas lease in Chautauqua County. When the KCC inspected the leased ground in
April 2008, it found 32 abandoned wells. The KCC found another 12 abandoned wells in
November 2010; those wells had been covered by tall native grasses and missed on the
first inspection.

The KCC's investigation eventually led it to order four parties—Denman Oil, Gary
and Kayla Bridwell, and TSCH, LLC (a Florida limited-liability company)—to plug the
wells.

Denman Oil operated the lease from at least 1939 until production ended in 1989.
It did not plug the wells.

In 2008, Denman Oil assigned the lease to the Bridwells. The KCC entered into a
compliance agreement with the Bridwells under which the Bridwells agreed to plug or
begin production from at least two wells each month until all the wells were plugged or
producing. The Bridwells returned three wells to production for a short time, but they
didn't sell any oil or plug any wells.

Unsure whether the original lease was still valid, the Bridwells obtained new
leases from the mineral owners in 2009. In 2010, they assigned the new leases to TSCH.

Before TSCH took over the leases, the KCC informed TSCH that if it took the
lease assignment, it would be required to plug or produce from all the wells. TSCH got
KCC authorization for injection into one well, ran pipe into two or three wells, and
moved two pump jacks onto the lease. But it did not produce from or plug any wells.
4

In June 2011, the KCC issued a show-cause order to Denman Oil, the Bridwells,
and TSCH, ordering the parties to show cause why they should not be held responsible
for plugging the wells and for paying the costs of investigating the matter. Denman Oil
and the Bridwells participated in a hearing before the KCC on the issue; TSCH did not
appear for that hearing.

Based on the hearing record, the KCC concluded that all 44 wells on the lease had
been abandoned. The KCC also concluded that the abandoned wells "are causing or are
likely to cause pollution of usable water or supply or loss of useable water" and that
many of the wells "had rotted casing and high fluid levels." The KCC ordered Denman
Oil to plug all of the wells except for the three that the Bridwells had briefly produced
from. The KCC ordered the Bridwells to plug all 44 wells and TSCH to plug 32 wells (on
the understanding that TSCH had only taken assignment of those wells). The KCC
ordered that these parties be jointly and severally liable for plugging the wells in common
among them. The KCC rejected Denman Oil's claim that it should not be held liable since
it had transferred the leases to the Bridwells: "An assignment of the lease to [the]
Bridwell[s] . . . some 19 years after production ceased on the lease does not change the
fact that Denman abandoned the wells in 1989 and should have plugged them at that
time."

Denman Oil and the Bridwells (but not TSCH) appealed to the Shawnee County
District Court. The district court granted partial relief to the Bridwells, ordering that they
were only responsible for plugging the three wells they had produced from. The district
court affirmed the KCC's order that Denman Oil plug the remaining 41 wells, and
Denman Oil has appealed to this court. The Bridwells did not appeal, and the KCC has
not appealed the district court's limitations of the agency's original order to the Bridwells.
On appeal, then, the only matter before us is Denman Oil's appeal of the KCC's order that
Denman Oil plug 41 wells.
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STANDARDS OF REVIEW ON APPEAL

The KCC is an administrative agency, so we review its ruling based on the
standards set out in the Kansas Judicial Review Act, K.S.A. 77-601 et seq. That act
provides eight bases for a court to grant relief from an agency's action. Denman Oil
contends that three of them apply: (1) that the KCC erroneously interpreted the law; (2)
that the KCC's ruling was based on facts not supported by substantial evidence; and (3)
that the KCC's action was arbitrary and capricious or otherwise unreasonable. See K.S.A.
2013 Supp. 77-621(c)(4), (7), (8). Denman Oil has the burden of showing KCC error,
K.S.A. 2013 Supp. 77-621(a)(1), and we can set aside the KCC's order if Denman Oil
shows error on any of the three points.

As is usually the case in administrative appeals, evidence was gathered in the
agency proceeding, and the district court did not independently hear any evidence.
Accordingly, we review even evidence-based issues without any required deference to
the district court's decision. Kansas Dept. of Revenue v. Powell, 290 Kan. 564, 567, 232
P.3d 856 (2010); Muir v. Kansas Health Policy Authority, 50 Kan. App. 2d __, 334 P.3d
876, 878 (2014). There are no factual disputes of significance here, so this case ultimately
comes down to a question of statutory interpretation. We also review those issues
independently, without any required deference to the district court. Golden Rule Ins. Co.
v. Tomlinson, 300 Kan. ___, 335 P.3d 1178, 1188 (2014).

ANALYSIS

Kansas law has long protected the state's water resources. Since 1907, a statute has
prohibited putting sewage or chemical waste into the state's waters. See K.S.A. 65-164;
Nunn v. Chemical Waste Management, Inc., 856 F.2d 1464, 1468 (10th Cir. 1988).

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Unsurprisingly, oil and gas wells present a significant potential source for water
pollution. So Kansas law also has long provided that these wells must be plugged when
they are abandoned. An 1891 statute required plugging wells and made the owner guilty
of a misdemeanor for failing to do so. See R.S. 1923, 55-116, 55-117; State v. Foster,
106 Kan. 852, 189 P. 953 (1920). Present law provides that the failure to plug a well is a
felony offense. The statute that does so, K.S.A. 55-156, provides that the operator
"protect usable groundwater or surface water from pollution and from loss through
downward drainage by plugging the well, in accordance with the rules and regulations
adopted by" the KCC. The failure to comply with those regulations is a felony. K.S.A.
55-156. KCC regulations require operators to plug wells within 90 days after operations
cease or file an application for temporary-abandonment authority. K.A.R. 82-3-111(a).
Denman Oil does not claim that it ever obtained temporary-abandonment authority.

So there's no dispute here that the 41 wells Denman Oil had abandoned in 1989
and was ordered to plug were subject to the well-plugging statute and rule. What Denman
Oil disputes is whether it may be required to plug the wells after it had turned them over
to the Bridwells. Denman Oil argues that only one party may be held liable for plugging a
well.

But that's contrary to the language found in K.S.A. 55-179(b), which everyone
agrees is the applicable statute. It provides a list of parties who may be legally
responsible and states that the responsible parties "shall include . . . one or more" of a list
of parties that include both the last operator of the lease and the original lease operator
who abandoned the well:
"For the purposes of this section, a person who is legally responsible for the
proper care and control of an abandoned well shall include, but is not limited to, one or
more of the following: [1] Any operator of a waterflood or other pressure maintenance
program deemed to be causing pollution or loss of usable water; [2] the current or last
operator of the lease upon which such well is located, irrespective of whether such
7
operator plugged or abandoned such well; [3] the original operator who plugged or
abandoned such well; and [4] any person who without authorization tampers with or
removes surface equipment or downhole equipment from an abandoned well."

Here, the first operator to abandon the wells was Denman Oil, which quit producing the
wells in 1989 but didn't plug them.

Denman Oil argues that the singular reference in K.S.A. 55-179(b) to "a person
who is legally responsible" signals that only one person or entity may be responsible. But
the legislature provided a list—all referenced in the singular—of parties who may be
responsible: "[a]ny operator" of a pressure-maintenance program causing pollution; "the
current or last operator" of the lease; "the original operator who . . . abandoned" the well;
and "any person" who tampers with an abandoned well without authorization. Of those
parties, the statute says that "one or more" may be responsible. In addition, the legislature
has told us that "[w]ords importing the singular number . . . may be extended to several
persons or things" unless doing so is "inconsistent with the manifest intent of the
legislature." K.S.A. 77-201 Third. Here, reading K.S.A. 55-179(b) to allow more than
one party to be responsible is consistent with both the language of the statute and with its
obvious purpose of making sure that wells are plugged by the parties responsible for
them, not at state expense.

Denman Oil also notes a reference to "a particular person" (singular) in K.S.A. 55-
179(c), the statutory subsection that allows the KCC to issue a show-cause order when it
"has reason to believe that a particular person is legally responsible" for an abandoned
and leaking well. But once again, "[w]ords importing the singular number . . . may be
extended to several persons or things," K.S.A. 77-201 Third. Doing so here makes sense
based on the plain language of K.S.A. 55-179(b) that we have just discussed. See
Robinson v. Jones, 119 Kan. 609, 614, 240 P. 957 (1925) (applying R.S. 1923, 77-201
and interpreting "owner" in a statute involving oil-and-gas royalties to mean "owners").
8
In context, K.S.A. 55-179(c) simply provides that the KCC may not issue a show-cause
order until it has "reason to believe that a particular person is legally responsible" for an
abandoned well; the provision does not limit the KCC's show-cause authority so that it
must choose a single party to bear responsibility when issuing the initial show-cause
order.

Denman Oil also suggests that since the statute never mentions joint and several
liability, only one party may be held liable. But the statute makes clear that more than one
party may be held responsible. When liability is joint and several, "each liable party is
individually responsible for the entire obligation," although any party who pays may have
a right of contribution or indemnification from other liable parties. Black's Law
Dictionary 1054 (10th ed. 2014); see Burlington N. & S.F.R. Co. v. United States, 556
U.S. 599, 613-19, 129 S. Ct. 1870, 173 L. Ed. 2d 812 (2009) (approving a right of
contribution between parties jointly and severally liable under a federal environmental-
protection statute). Following the plain meaning of K.S.A. 55-179(b), which allows more
than one party to be legally responsible, furthers the purpose of getting wells plugged and
preventing further pollution. The legislature clearly has adopted serious tools to get wells
plugged—the potential for felony criminal prosecutions and KCC authority both to order
parties to plug wells and to plug wells itself and assess the costs.

As Denman Oil points out, the statute may be ambiguous about whether multiple
responsible parties are jointly and severally liable; the statute does not specifically use
those terms. But the KCC's interpretation, under which "legally responsible" parties are
jointly and severally liable, is consistent with the statute's purpose and the KCC's
authority.

This appeal does not consider whether Denman Oil may be entitled to
reimbursement from either TSCH or the Bridwells. We note that the statute does not
provide any authority for the KCC to apportion costs between various responsible parties.
9
That's understandable: determining the respective duties of these parties might well
require the determination of contractual relations between the parties to lease
assignments, something that is not within the KCC's statutory jurisdiction. But the statute
clearly authorizes the KCC to hold more than one party responsible, and the most
sensible interpretation is that the parties would be jointly and severally liable. Interpreting
the statute in this way supports the obvious statutory purpose of avoiding pollution to the
waters of our state.

Two industry groups filed friend-of-the-court briefs. They agreed with another
argument Denman Oil raised based on a 2008 KCC decision, Quest Cherokee, KCC
Docket No. 07-CON-S155-CSHO. In Quest Cherokee, the KCC said that when a new
operator took over a lease, it would generally be responsible for plugging an abandoned
well from a prior lease if it physically operated the abandoned well or took responsibility
for it. Denman Oil and the industry groups seek to apply Quest Cherokee here, but we do
not find it controlling or persuasive in deciding Denman Oil's case. First, Kansas courts
do not defer to administrative agencies when interpreting a statute. Golden Rule Ins. Co.,
335 P.3d at 1188. Second, even an administrative agency is not bound by its prior
decisions in contested cases; the doctrine of stare decisis—the principle that a judicial
body should follow its past ruling when the same question arises again—normally doesn't
apply to agencies. S ee In re Tax Appeal of Gentsler Eye Center & Clinic, 40 Kan. App.
2d 411, 419, 192 P.3d 666 (2008). So the Quest Cherokee decision is neither binding nor
persuasive authority for this court. Moreover, no matter what Quest Cherokee may have
held, K.S.A. 55-179(b) plainly makes it possible for multiple parties to be responsible for
plugging an abandoned well—and it just as plainly makes Denman Oil a responsible
party for plugging these wells.

Because Denman Oil is a responsible party under K.S.A. 55-179(b), the KCC's
ruling was not based on any legal error.

10
Denman Oil also argues that the KCC's decision should be set aside either as not
supported by substantial evidence or as arbitrary or unreasonable. As for substantial
evidence, Denman Oil says that the evidence showed that TSCH had obtained all rights
to the wells, so it should be held responsible. That's merely another way of arguing that
the statute allows only one party to be responsible, an argument we have already rejected.

As for the claim of arbitrary or unreasonable action, Denman Oil argues that it's
unreasonable to hold all of these parties jointly and severally responsible for plugging the
wells. Denman Oil and the industry groups argue that the KCC should defer to the
contractual arrangements between the parties and here require only that TSCH, which
accepted the final lease assignment, be responsible for plugging the wells.

But such a rule would greatly hinder the KCC's ability to get wells plugged. If a
leaseholder assigned its rights to a party financially unable to plug the wells, pollution
could continue. That may well be the case here. Denman Oil notes that TSCH once
committed to the KCC that it would either plug or return to production each of the
abandoned wells. But TSCH not only has failed to do so, it did not participate in the KCC
hearing or in this appeal either. In addition, the record shows that TSCH's license to
operate wells had expired before the KCC held its hearing; operators must annually
demonstrate financial responsibility (through performance bonds or letters of credit) to
maintain the operator's license. See K.S.A. 55-155(d).

Denman Oil has not shown any reason to set aside the KCC's order, which was
affirmed by the district court. No issues are before us regarding the orders the KCC
issued to the Bridwells and TSCH. We affirm the district court's judgment.