CHAPTER 22. Redefining the Relationship Between the Surface Owner and the Mineral Developer

Transcription

1 CHAPTER 22 Redefining the Relationship Between the Surface Owner and the Mineral Developer Introduction The New Surface Damage Acts. [1]--The North Dakota Act. [2]--Statutes Modeled on the North Dakota Act. [3]--The Oklahoma Statute. [4]--The Illinois/Kentucky Acts. [5]--The Indiana Act The Common Law Background. [1]--The Implied Easement. [2]--Doctrinal Theory of Implied Easement. [3]--Deviations From Easement Doctrine Constitutionality of Surface Damage Acts. [1]--Retroactive Application of Acts. [2]--Validity of Expectations of Mineral Developers. [3]--Constitutional Analysis. [4]--Decisions Upholding the Statutes Conclusion. Ronald W. Polston Professor of Law Indiana University School of Law Indianapolis Indianapolis, Indiana Synopsis Introduction. (1) A number of states have adopted statutes in recent years imposing upon the mineral developer the obligation to pay surface damages. These statutes represent a departure from the rules developed by courts to cover this situation in that they apparently require the payment of damages regardless of whether or not the mineral developer's operations represent a reasonable use of the surface estate and whether or not these operations have been conducted in a negligent manner. In fact most of the statutes seem, if read literally, to require payment even if the right of the mineral developer to use the surface has been expressly created. (2)

2 The New Surface Damage Acts. The states adopting surface damage statutes in recent years are: North Dakota, (3) Montana, (4) South Dakota, (5) Tennessee, (6) West Virginia, (7) Illinois, (8) Kentucky, (9) and Oklahoma. (10) A statute which has the same effect was adopted in Indiana in (11) The North Dakota statute seems to have provided the model for those of South Dakota, Montana, West Virginia, and Tennessee, where it has been copied with few changes. The Kentucky Act is almost a verbatim copy of the Illinois Act, with all of its imperfections and a few more added by the Kentucky drafters. (12) The Oklahoma statute has very much the same effect as the North Dakota Act, and those modeled on it, but appears to have been an original drafting effort. [1]--The North Dakota Act. The North Dakota statute, and its progeny, simply provide that the mineral developer must pay the surface owner for damages resulting from drilling operations. (13) To make clear that the reference is not simply to situations where the common law would require the payment of damages, it goes on to enumerate these situations in which damages must be paid. It provides that damages must be paid for "loss of agricultural production and income, lost land value, lost use of and access to the surface owner's land and lost value of improvements." Thus damages are not limited to those which might result from use of more land than reasonably necessary. Instead, "loss" includes all damages that result from the drilling operation. There is no exception in favor of those who may have expressly reserved an easement to enter the surface. Nor does it except situations where the right to recover damages was expressly waived by the surface owner at the time of severance of the minerals from the surface. The North Dakota Act also requires twenty days' notice of intent to drill and provides that an offer of settlement must accompany the notice. Failure to give the notice may result in an award of punitive damages in an action by the surface owner to recover damages. (14) If the surface owner rejects the mineral developer's offer of settlement and subsequently recovers a greater amount in a legal action, that subsequent award may include attorneys fees, costs, and interest from the day drilling commenced. (15) [2]--Statutes Modeled on the North Dakota Act. Those acts that are modeled on the North Dakota Act also seem to require payment for all damages caused by the drilling operation. In fact, the South Dakota and Montana statutes (16) use exactly the same phrase as the North Dakota Act to describe their scope. The copied phrase requires payment for "loss of agricultural production and income, lost land value, and lost value of improvements caused by drilling operations." (17) The West Virginia and Tennessee acts have about the same coverage but describe the damage categories in more detail. They include lost income, diminution in the value of the land, and damage to improvements. Those acts add a couple of items of damage that may not be included under the more general language of the other acts such as damage to water supply and cost of repair of damaged personal property. (18) All of the foregoing acts contain a clause indicating that remedies previously available at common law are preserved. The North Dakota, (19) South Dakota, (20) Montana, (21) and West Virginia (22) acts all contain a simple statement to that effect, apparently without realizing that their substantive provisions alter very substantially the common law remedies of the mineral owner or developer. (23) The Tennessee Act, presumably in recognition of this inconsistency in the statutes on which it is modeled, preserves only the common law remedies of the surface owner. (24)

3 [3]--The Oklahoma Statute. The Oklahoma statute, which came along only about three years after the North Dakota Act, is also an interesting study in legislative drafting. (25) Prior to the adoption of the statute, the Oklahoma courts very clearly utilized an implied easement theory in defining the relationship between the mineral owner and the surface owner and gave the mineral owner the right to use so much of the surface as was reasonably necessary without charge. (26) There were, of course, many situations, under the common law in which damages would have been owed to the surface owner as a result of the mineral operation. That would be true if more of the surface were used than was reasonably necessary or if the driller conducted operations in a negligent manner as a result of which the surface owner was injured. (27) It may also be true that these claims were being asserted in regard to nearly every drilling operation and that developers were paying some damages in nearly every situation. (28) Nevertheless, it remains true that the Oklahoma courts refused to award damages in favor of surface owners in many situations and steadfastly maintained that there was no right to recover damages from the mineral developer in the absence of excess use or negligence. (29) The Oklahoma statute does not appear, on its face, to change the common law approach which allows the mineral owner the free use of the surface. The first substantive section of the statute simply requires the developer to give notice of the intent to drill and to begin "good faith negotiations to determine the surface damages." (30) A subsequent section reiterates the obligation of the developer to "negotiate with the surface owner for the payment of any damages which may be caused by the drilling operations." (31) While this language may imply that the developer is liable for all damages, it does not so state. It says "any damages," thereby implying that there may be none. Indeed, the same section goes on to require the developer to bring an action for the appointment of appraisers to determine the amount of damage in the event of no agreement or of an inability to locate the surface owners. That latter provision, in describing the role of the appraisers, states that they are to determine "the amount of damages, if any." (32) The possibility that there may be no damages seems a clear indication that the common law relationship between the developer and mineral owner was not intended to be changed by the statute. (33) The Oklahoma statute concludes with a provision that "nothing herein contained shall be construed to impair existing contractual rights...." (34) If the developer had a right of entry without obligation to pay, whether it arose expressly or as a result of implication, arguably that right would constitute an "existing contractual right." (35) Therefore, this provision would seem to be another indication that the statute did not intend to upset the existing regime, at least with respect to existing interests. Despite these indications, and after an initial subordinate appellate court decision to the contrary, (36) the Oklahoma Supreme Court held that the statute created an obligation on the part of the mineral developer to pay for all surface damage occasioned by the drilling operations and that the obligation applied to interests created before the adoption of the statute. (37) Interestingly, before the Oklahoma court so construed the statute, industry people in Oklahoma reached the same conclusion. (38) [4]--The Illinois/Kentucky Acts. The Illinois statute, (39) which was later copied almost verbatim in Kentucky, (40) would appear to be an industry effort to head off legislation similar to that enacted in North Dakota and Oklahoma. The Illinois statute applies only to situations where the surface owner has not consented in writing to the drilling operations. It proceeds to enumerate, and limit, the application of the Act to the two situations in which that can occur in Illinois: (1) instances of forced pooling, and (2) situations where a minority owner's

4 interest is developed pursuant to a legal proceeding brought by the majority owners. The latter is possible in Illinois because that state is one of two or three which does not recognize the right of a cotenant to develop minerals without the consent of the other cotenants. (42) Thus, in Illinois, if a mineral interest is held in common by two or more people and they cannot agree, development may be had through a statutory proceeding brought by the majority owner(s). (43) The Kentucky statute contains provisions regarding applicability which parallel those of the Illinois statute even though Kentucky law differs from Illinois law as to the situations where a surface owner may not have signed the developmental document. (44) Thus the Kentucky Act states that it applies only to situations where the surface owner has not consented in writing to the development and "(a) There has been a complete severance...; or (b) The surface owner owns an interest in the oil and gas." (45) Subsections (a) and (b) appear to be redundant; the statute would have accomplished the same thing if they had been simply left off. Apparently they were included expressly to cover the situation where a cotenant might develop without the consent of an objecting cotenant surface owner. The provisions of the Illinois and Kentucky Acts which specify the items for which damages may be recovered appear to have been modeled upon a damage provision which appears frequently in oil and gas leases. (46) Liability is provided only for "damages to growing crops, trees, fences, roads, structures, improvements and livestock...." (47) The same section continues with a statement that the "operator shall not utilize any more of the surface estate than is reasonably necessary..." with the implication that, with the exception respecting the enumerated items of damage, the right to use so much of the surface as is reasonably necessary under the common law easement analysis remains intact. Neither of the Acts, of course, alters the common law rights of the mineral owner in any situation where the surface owner authorizes the development. The effect of using the provision commonly found in oil and gas leases to fix the extent of surface damage for which the developer is liable is, of course, to give the non-consenting surface owner the same rights as are extended to those who do sign common form oil and gas leases. The Illinois and Kentucky Acts conclude with a provision that nothing in the Acts "shall be construed to diminish the rights of the operator or surface owner as they exist by established common law." (48) That provision is, of course, entirely inconsistent with the substantive provisions of the Acts which impose liability for "growing crops" and other similar items. [5]--The Indiana Act. The Indiana statute, adopted in 1951, also provides for the payment of surface damages by the oil and gas developer to surface owners who have not signed an oil and gas lease. (49) It creates a right of entry in the severed mineral owner or mineral developer but requires payment to the "owner of the surface of such lands for the actual damage resulting therefrom to the surface of such lands or improvements or growing crops...." (50) It then excepts from its operation any situation in which an oil and gas lease between the parties "purports to deal with the subject of damages." (51) Thus, it has about the same coverage as the Illinois and Kentucky Acts in that it only applies where the surface owner has not signed an oil and gas lease. It differs from those Acts in that it requires the payment of damages for land consumed in the drilling operation rather than just "growing crops" and other items specified in the Kentucky and Illinois Acts. The Indiana Act concludes, similar to many of the subsequently adopted statutes, with a statement to the effect that it does not change the existing common law rules governing the relationship between the parties. The Indiana statement is that the Act is "intended to declare the common law of this state... as such law existed prior to the passage of this act." (52) Since the Indiana courts were, at the time of the adoption of the statute, applying the universally accepted rules with respect to surface rights of mineral owners, (53) that

5 statement would not appear to be accurate The Common Law Background. [1]--The Implied Easement. The position announced by most courts, before the onslaught of these statutes, was that, in the absence of an express provision in the document severing the minerals from the surface, the mineral owner acquired the right to use as much of the surface as reasonably necessary to obtain access to the minerals. (54) The right was generally referred to, in those judicial decisions where an effort was made to characterize it, as an implied easement. (55) Often, of course, the document transferring developmental rights would deal expressly with the surface rights of the mineral owner or developer and, often, it too would describe the rights being created as an easement. It is clear that in either situation it was universally stated by the courts that the mineral owner had the right to the free use of as much of the surface as was reasonably necessary to obtain access to the minerals. (56) [2]--Doctrinal Theory of Implied Easement. In situations where the easement was created by implication, the doctrine employed was virtually identical with that which results in the creation of other implied easements. (57) This is particularly true when the comparison is made to easements implied to give surface tracts a way of access to a public highway system. The doctrine there employed is referred to as an easement by necessity. The easement is implied in those cases, as in the mineral severance situation, because the transferred interest would be valueless without it. (58) There may be many cases in which the implication of such an easement actually reflects the intention of the parties or produces a result the parties would have agreed upon if they had considered the matter. There are also cases where it frustrates the actual intention of the parties as where the lack of access is reflected in the price paid for the landlocked land or the parties assumed that another means of access would be obtained. (59) The doctrine operates in either case; and, because it does, it is apparent that a principal reason for it is to effectuate a policy regarding the efficient utilization of land. (60) That policy reason, in fact, sometimes seems to dominate the cases rather than any supposed intention that the parties may have had at the time of the conveyance. To the extent this is true, the property of the servient owner is being given to the dominant owner without compensation so as to make the land of the dominant owner more useable. Further emphasizing the policy aspect of the doctrine is the fact that it is generally held that the access easement lasts only so long as the necessity exists. (61) If it were being implied on the basis of intention alone, it would, presumably, be perpetual. One of the leading cases which illustrates the extent to which the policy component dominates the access easement cases is Finn v. Williams. (62) At the time of the execution of the deed which severed the otherwise inaccessible tract from the balance of the land owned by the grantor, there was a permissive way across the land of a third party which provided access to the otherwise landlocked tract. The permissive way was obviously the only access the parties had in mind for the conveyed tract at the time of the conveyance, and it continued to be the only access for the grantee until the permissive way was closed by the third party some forty years later. Nevertheless, upon the closing of the permissive way, an easement for access across the land retained by the grantor was held to have been created by implication in the conveyance severing the title to the two tracts. Further indicating the extent to which the access easement cases are policy driven, rather than based on intent, are decisions holding that the existence of the right of eminent domain on the part of the landlocked owner may be a basis for denying an implied easement. (63) These decisions represent a frank recognition

6 that the doctrine underlying the implication of easements has little to do with volition and, in fact, represents a system of eminent domain without the requirement of compensation. In many states, persons owning landlocked property are given a right of eminent domain to acquire access to a public road system. (64) These statutes recognize that the most equitable way to deal with the problem of lack of access is to give the landlocked party the right to buy a way out. The recently enacted surface damage statutes discussed above may represent the same natural evolutionary process in the mineral law area as the private eminent domain statutes illustrate in regard to the access easement cases. Indeed, the judicially developed doctrines in the mineral law area seem to have been heading in that same direction without the aid of statutes and, in some cases, had already arrived at that result. [3]--Deviations From Easement Doctrine. Although the common law provided that a mineral owner need not compensate the surface owner for surface damages, long standing breaches of the otherwise universally accepted rule exist. In Wiser Oil Co. v. Conley, (65) the Kentucky court held that an oil and gas lessee was required to compensate its lessor for damages occasioned by the institution of a secondary recovery system known as "water flooding," which would consume the majority of the surface. (66) The court recognized that the lessee had the right to use the property, but concluded that "principles of justice and humanity... require that reasonable compensation be paid the landowner for the devastation wrought." (67) The court reasoned that the parties had not anticipated this new form of production when the lease was executed in (68) Because the parties had not anticipated the degree of damage that would result from water flooding, the lessee was required to compensate the lessor for the devastation brought about by this new type of production. (69) The result in Wiser is predicated upon an implied right of access, coupled with an obligation to compensate the surface owner for damages caused by the exercise of that right. (70) This obligation to pay, however, is apparently restricted to cases in which the surface is substantially damaged. (71) The court's decision indicates that the conventional easement approach would determine the rights of the parties in most cases. (72) Until 1987, the doctrine announced in Wiser existed side by side with a line of authority in Kentucky, from the coal area, which seemed to deny to coal owners (73) the right to strip mine unless the deed severing the minerals from the surface gave extensive surface rights to the coal owner, in which case the right to strip mine belonged to the coal owner with no obligation to pay damages. (74) These two lines of authority were inconsistent in that the owner of the oil and gas had the implied right to use all the surface but the obligation to pay if substantial damage was done while the coal owner had no implied right to cause substantial damage to the surface. In Akers v. Baldwin, (75) the coal cases were made consistent with the Wiser doctrine. (76) In Akers, the coal owner was given the right to strip mine, but an obligation to pay surface damages was imposed on the strip mining coal owner. (77) A strip mining case from Colorado reached a result similar to that of the Kentucky decisions. In Barker v. Mintz, (78) the Colorado Supreme Court determined that the owner of a coal interest did not have the right to strip mine, even though the severance deed expressly granted the mineral owner the right to use as much of the surface as was reasonably necessary to sever the coal. (79) The court reasoned that the word "use" could not be construed to mean "destroy." (80) The court did, however, deny the surface owner an injunction to prevent the strip mining operation. (81) The denial was premised on the adequacy of the legal remedy of damages and on the inequity which would result if the coal owner were denied access to the coal. (82) The

7 result is exactly the same as in the Kentucky cases: the mineral owner has the right to destroy the surface, and the surface owner is entitled to compensation for the value of the surface so used. (83) Another line of cases reached a similar result. These cases involved coal severance deeds that granted the coal owner the right to use as much of the surface as was reasonably necessary to mine the coal but only upon payment of a stated amount per acre. (84) In cases from Ohio (85) and Kansas, (86) the courts held that the clauses were exercisable only upon payment of the current market value of the land, rather than the undervalued amount stated in the deed. (87) When the clause is modified in this manner, there seems to be no reason why it should not be construed to permit strip mining. Ultimately, the Ohio and Kansas cases reach the result of the Kentucky decisions they require the mineral owner to make reasonable payment for use of the surface. (88) Moreover, the Kansas court stated that the surface owner is entitled to payment when a mineral owner uses the surface pursuant to an implied easement, as well as when the surface is used pursuant to an express easement. (89) A series of cases exists in which courts have attempted to mitigate the harshness of the common law easement doctrine through construction of the phrase "other minerals." Mineral leases often convey "other minerals" immediately after the conveyance of a specified mineral. (90) The courts have limited the meaning of "other minerals" to those minerals that can be extracted without undue damage to the surface. (91) This construction is, perhaps, best illustrated by a pre-1948 line of Texas cases that begins with Acker v. Guinn. (92) In Acker the Texas Supreme Court held that a substance was not a mineral, within the meaning of the phrase "other minerals," if the extraction of the substance might be surface destructive. (93) The key word in the holding is "might." Thus, in each case, courts must determine whether the available methods of extracting the particular substance could possibly cause destruction of the surface. If extraction might destroy the surface, the substance is not considered a mineral. (94) In Reed v. Wylie (95) the Texas Supreme Court gave the rule an unusual twist. Here the court held that the time for determining whether a particular substance could be extracted without destroying the surface was when a dispute actually arose concerning ownership of the mineral. (96) Thus, ownership of a mineral substance changes as the technology relating to its extraction changes. As long as the substance is not extractable without surface destruction, it is not a mineral and, therefore, is not part of the estate conveyed to the mineral owner. But once the industry develops a method to extract the substance without surface destruction, it becomes a mineral and belongs to the mineral owner. In Texas, at the time the Acker and Reed cases were decided, the common law rule concerning the surface rights of mineral owners was in full force. (97) Thus, if a substance was a mineral for the purpose of construing the phrase "other minerals," the mineral owner had the right to use as much of the surface as was reasonably necessary to remove it. (98) In June of 1983, the Acker-Reed line of cases was overruled by Moser v. United States Steel. (99) Moser, however, operates prospectively only. (100) Thus, the Acker-Reed rules are still in effect for deeds executed prior to June of In Moser, the Texas Supreme Court delivered a major blow to the traditional easement approach in some cases but reaffirmed its validity in others. The court held that the traditional implied easement approach would govern the surface rights for minerals specifically named in the mineral severance deed. (101) Thus,

8 the mineral owner would obtain an easement to use the surface, and would incur no liability to pay for surface use. Concerning the minerals conveyed pursuant to the phrase "other minerals," however, the court stated that a mineral owner must pay for the surface consumed in the acquisition of these minerals. (102) The mineral owner does, however, acquire an easement to use as much of the surface as is reasonably necessary to acquire "other minerals." (103) With this system, it is no longer necessary to continue the pre-moser approach to the construction of the phrase "other minerals." (104) Because the surface owner is entitled to compensation for the surface consumed, substances could be considered minerals without regard to whether extraction would destroy the surface. The decision in Moser accommodates several interests. It gives certainty to the phrase "other minerals." At the same time, the decision assures surface owners that they will be paid for the surface consumed by operations other than those relating to minerals specifically mentioned in the deed. (105) Since oil is often specifically referred to in severance deeds, (106) the oil industry continues to enjoy the traditional approach to surface rights. Although the Texas court broke new ground in the Moser case, it merely accomplished directly what the strip mining cases accomplished indirectly. In the strip mining cases, when the courts held that the coal owner had no right to use strip mining methods without compensating the surface owner, (107) the effect was to require the mineral owner to purchase the right from the surface owner. The Moser decision gives the right as a matter of law; but, with the extraction of "other minerals," the right is accompanied by an obligation to pay for damages caused by the extraction of those minerals. (108) Constitutionality of Surface Damage Acts. [1]--Retroactive Application of Acts. While the Texas court provided for prospective operation of the judicially created obligation to pay for surface access, the several surface damage acts all seem to have retroactive effect in that they apply to existing relationships. They, therefore, would seem to raise questions as to their validity under the due process (109) and contracts (110) clauses of the United States Constitution (111) and corresponding provisions of state constitutions. This would be true because they have the effect of terminating apparently valid easements which were knowingly created in favor of mineral owners in arm's length commercial transactions. The constitutional question would be more obvious with respect to those easements which were expressly created, and most affected easements were created in that manner. Even as to those easements which owe their origin to implication, the fact remains that they appear to represent fixed and definite rights of the mineral owner which were created at the time of the conveyance out of which they arose and that those rights were in every respect identical to those which would have arisen out of express easements. At least, the foregoing is true if any credence is given to the judicial doctrines developed in response to the conflicts litigated between mineral developers and surface owners. Those judicial doctrines seem to leave little doubt concerning the content of the relationship between the mineral developer and the surface owner. [2]--Validity of Expectations of Mineral Developers. One of the problems with analyzing the constitutionality of the statutes, however, is that the content of the relationship involved has never been as clear and simple as would appear from the judicial opinions. There seems to have always been an expectation on the part of surface owners that they be paid for any

9 damages which result from the mineral development, (112) and that expectation has persisted regardless of judicial statements to the contrary and without regard to the language of the documents which created the developmental rights. Not only have surface owners held those expectations, mineral developers seem to have always recognized their validity by paying for damages. (113) While mineral developers may have rationalized these payments as being made voluntarily to maintain good relations with the surface owners rather than because of any legal obligation, (114) the fact is that the payments were universally made. In fact, it would appear that the only surface owners who did not get paid were those whose demands were regarded as exorbitant by the developer and were, for that reason, litigated. Not only have the actions of the parties to the mineral developer/surface owner relationship reflected a belief that the mineral developer must pay for damages, that also seems to have been the belief of the legislators who have dealt with the problem. (115) What other explanation can there be for the fact that almost every legislative enactment imposing an obligation on the mineral developer to pay for surface damages has contained a statement which seems to indicate that the legislation was consistent with existing common law rules governing the relationship? One can only speculate as to why a body of law developed which so clearly failed to reflect the expectations of the parties to the transactions being litigated. The most likely explanation would appear to be that courts were limited by conventional approaches to the characterization process. The only collection of legal interests that seemed to solve the policy problems presented by the surface owner/mineral developer relationship was labeled "easement." Having selected easement as the label for the solution to the problem of giving mineral owners and developers access to the surface, courts were bound to hold that the right of use could not involve an obligation to pay for the exercise of the right. Easement, then, was the only prepackaged collection of rights and duties that seemed to solve the problem of the need for surface access by mineral owners; and courts are inclined, in the property area, to look for these prepackaged concepts when searching for solutions to new problems. Furthermore, a more appropriate prepackaged collection of legal interests, one in which the mineral developer would be given the right of access but with an obligation to pay for the property taken while gaining access, had a label which seemed to make it unavailable for solving the problem at hand. It was "eminent domain." (116) State constitutions sometimes provide that the right of eminent domain can only be exercised for "public purposes." (117) Furthermore, the right of eminent domain is controlled by the legislative and executive branches. It would be encroaching on the turf of those two branches if courts created a new right of eminent domain in favor of mineral owners and then supervised its implementation. The same problem existed with respect to the landlocked property problem and resulted in the same kind of mismatch between judicial doctrine and the needs of the parties to the transaction. In the landlocked property situation, the mismatch is eliminated by statutes which extend the right of eminent domain to landlocked owners. (118) The evolution of judicial doctrine in the mineral developer/surface owner situation seems to be in the same direction--toward a judicially developed doctrine of eminent domain which is being hastened along by statutes which insist that this was always the case regardless of what a court may have previously said on the subject. [3]--Constitutional Analysis. To recognize that the expectations of the parties to the relationship were not accurately reflected in the judicial opinions dealing with the subject is one thing. To factor that set of expectations into the constitutional analysis, when considering the validity of statutes which retroactively give effect to those expectations, is quite another thing. Is there a valid argument that the rights which courts said existed did not in fact exist in the sense that parties to those transactions used a different and contrary set of rules to govern

10 their relationships, a set of rules which required payment for the use of the surface? If there never was an expectation on the part of the mineral developer as to the availability of the free use of the surface, and if property rights are simply socially legitimized expectations, then does a statute which retroactively requires payment by the mineral developer eliminate any property rights of the developer? Does it matter what the courts may have stated in the past with respect to the rights of these persons? To the extent that the analysis, in cases involving the validity of statutes interfering with property rights, rests upon the strength of the expectations of the affected party, then the reality with respect to those expectations would seem to be the important factor rather than what the courts may have said with respect to the rights of that party. The United States Supreme Court seems to have adopted an approach to property rights which is consistent with this analysis. Property has been defined, for example, as those expectations "on which people rely in their everyday life." (119) That statement was made for the purpose of extending protection to rights which had not theretofore been regarded as property by the courts. Perhaps the converse is true, that judicially declared rights do not rise to the level of property when they do not reflect actual expectations. The difficulty of weighing, in the constitutional balance, the value of rights which owe their existence to state law, when that law does not reflect the actual expectations of the parties claiming those rights, is undoubtedly one of the factors which has resulted in some vague and confusing constitutional doctrine in the cases which have considered the constitutionality of the retroactive application of these surface damage acts. (120) [4]--Decisions Upholding the Statutes. Constitutional attacks were rejected by the Eighth Circuit Court of Appeals, with respect to the North Dakota statute, and the Oklahoma Supreme Court in regard to that state's statute. Murphy v. Amoco Production Co. (121) and Davis Oil Co. v. Cloud, (122) respectively, sustain those acts against constitutional objections on the basis that they simply change the standard of liability from one of negligence or reasonable use to one of absolute liability; each cites authority to the effect that no one has a vested right in a standard of liability. This rationale seizes upon the use of the terms "reasonable use" and "negligence" in the surface damage cases. It reflects a failure to understand how those terms are used in those cases, however. The mineral owner, under the common law, supposedly had an easement which entitled it to use, without liability, so much of the surface as was reasonably necessary. The word "reasonably" in that rule was a means of describing the area in which the mineral owner's rights were as absolute as those of any easement owner. (123) It was only a "reasonable" area. So long as the mineral owner was operating in that area, it was to be regarded as using its own property; (124) and there was, of course, no requirement to pay anyone for doing so. Reasonableness had no other meaning than that. (125) While liability might also occasionally be justified on the basis that the mineral owner was negligent, the use of the word "negligent" did not detract from the foregoing analysis. Such a term might signify that the mineral owner had carelessly used more land than it should have, in which case it would have trespassed on the excessive property; or it might mean that the developer had failed, as an easement owner, to use due care for the protection of those who might come on the area occupied by the easement. (126) The latter cases might include those in which the surface owner's animals or children came onto the drill site and were injured. (127) The doctrine of accommodation, which also limits the surface rights of the mineral owner, utilizes a concept of reasonableness. It requires the mineral owner, when selecting among options with respect to a particular surface use, to select that which has the least impact upon the surface estate. However, if there is no

11 reasonable alternative to the one complained of by the surface owner, and the activity is consistent with industry standards, the mineral owner is entitled to proceed. (128) Again, the existence of the obligation to accommodate the surface owner does not detract from the absolute right of the mineral owner, according to the courts, to proceed with the surface use, free of charge, once the accommodation has been made at the option selection level. (129) The fact that the words "reasonable" and "negligence" were used in describing the liability of the mineral owner, in those cases in which liability was imposed or in determining when and how the mineral owner must accommodate the surface owner, does not signify that the courts meant to establish less than an absolute right on the part of the mineral developer when acting within the area to which its right related and when utilizing the most accommodating means of accomplishing a particular objective. The courts in Murphy (130) and Davis (131) have seized upon the use of these terms, however, to suggest that there was always liability and that the only question related to the standard by which that liability was to be judged. In fact, they sanction the creation of a totally new liability and the extinction of a previously held right. This is at least true if the judicial decisions which established and gave content to the relationship between the mineral owner and surface owner are taken at face value. It is to be wondered if the same constitutional result would be reached, and the same analysis used, if, instead of the surface damage statutes, the courts were faced with a statute which terminated all existing surface easements, whether created expressly or impliedly, and substituted for the rights theretofore held by the easement owners a right to buy a way across the servient estate. (132) Such a statute would seem to have exactly the same effect as the surface damage statutes if, again, the judicial decisions relating to the surface rights of mineral owners are to be taken at face value. In this situation, the easement would be much more likely to be called "property" and given protection under the due process clause of the state and federal constitutions. (133) There is an alternate rationale, which was used in Murphy, for sustaining the surface damage statutes. This rationale is, to some extent, consistent with accepted constitutional doctrine, and the line of reasoning that comes from cases following in the wake of Euclid v. Ambler. (134) That reasoning would hold that the police power justifies taking some aspects of ownership so long as that which is left to the private owner still has substantial value. (135) One of the difficulties with this line of reasoning is that, in the surface damage act cases, the only effect of the act is to enrich the surface owner at the expense of the mineral developer. There is, thus, a problem with finding the necessary overriding public purpose in statutes which simply adjust rights as between private parties. (136) The stated legislative purpose in the surface damage statutes, of protecting the agricultural resources of the state, would seem to fall short of that objective. The statutes have no effect on the agricultural productivity of the lands in the state because they do nothing to prevent the land from being used by the mineral developer. They simply require payment to be made where none was supposedly required before. (137) It was undoubtedly for this reason that an alternative ground for the decision was sought in Murphy v. Amoco Production Co. (138) Neither the constitutional analysis based upon the lack of a vested right in a standard of liability, nor that which uses a police power justification for taking property, however, focuses upon the proper constitutional issues. The "standard of liability" analysis fails to take into account what the courts were actually saying with respect to the right of the mineral developer when they characterized the right as that of easement. It turns legal analysis into a semantic exercise by simply recharacterizing the easement/property relationship of the surface owner/mineral developer, in which the mineral owner supposedly also owned the right to free use of the surface, into a tort relationship in which there was always liability and the only question becomes the standard by which that liability is measured. While the end result of that reasoning process may be to recognize that the traditional easement/property characterization did not reflect the actual expectations of the

12 parties to those relationships, its use prevents a more direct approach to the constitutional question which would weigh the validity of the acts on the basis of the extent to which legitimate expectations have been upset by the legislature. The "police power" analysis is also beside the mark because it assumes that someone's property (i.e., socially legitimized expectations) has been taken to accomplish some overriding social objective. It seems to establish a constitutional precedent which is inconsistent with those cases which hold that an easement is property, for which compensation must be paid when taken for a public purpose, or which can only be destroyed, in regulating for the public good, when there are important and overriding public health and welfare considerations Conclusion. To the extent that the recently enacted surface damage statutes require payment for all surface damages resulting from oil and gas development, they seem to give the force of law to what was probably industry practice for many years. In doing so they have rendered obsolete the characterization, heretofore employed by the courts, of the mineral owner's surface rights as "easement." The more appropriate label would now seem to be of a right by "eminent domain." Indeed, the content of the relationship has, because of industry practice, probably always been more consistent with the eminent domain characterization. The divergence between the legal doctrine which supposedly established the content of the relationship between surface owner and mineral developer and the actual expectations of the parties to those relationships has resulted in vague and confusing constitutional analysis in the decisions in which those statutes have been challenged. To the extent that the due process and contracts clauses of the United States and state constitutions are designed to protect legitimate expectations, the statutes would seem to be valid. Such a simple, straightforward approach to the problem requires one to conclude, however, that no one had any legitimate expectations to the enforcement of the doctrine being stated by the courts concerning the content of the relationship Portions of this article first appeared in Polston, "What Happens When Judges Make Law and Nobody Listens?," 63 N.D.L. Rev. 41 (1987), and are reprinted with permission The flurry of legislative activity in this area has resulted in an effort by the Commissioners on Uniform State Laws to produce what began as a Uniform Statute but which has now been designated a Model Statute. Earlier drafts of what was to be the Uniform Act dealt with the subject of surface damages and created some obligation on the part of the mineral developer in that regard. See Polston, "Oil and Gas Law Developments," 10 Eastern Min. L. Inst [3] (1989). The final draft of the Model Act has dropped all of the provisions regarding the obligation to pay surface damages and limits its intrusion into the mineral developer/surface owner relationship to defining and giving content to the "accommodation doctrine." While the Model Act has not yet been published, a near final version was furnished to this writer by the Reporter, Professor Robert E. Beck of Southern Illinois University N.D. Cent. Code to -10 (1987) Mont. Code Ann to -511 (1989) S.D. Codified Laws 45-5A-1 to -11 (1983) Tenn. Code Ann to -608 (1989) W. Va. Code 22B-2-1 to -8 (1985) Ill. Ann. Stat. Ch. 96½, (Smith-Hurd 1990) Ky. Rev. Stat (Michie 1990).

13 8. Okla. Stat. Ann. tit. 52, (West 1991) Ind. Code Ann (c) (West 1979) The Illinois Act, for example, has an incomplete definition of the term "surface owner." See Polston, "Oil and Gas Law Developments," 10 Eastern Min. L. Inst (1989); Beck, "Natural Resources Law," 11 S. Ill. U.L.J. 885 (1987). Kentucky adopted the same definition. Ky. Rev. Stat (1)(e) (Michie 1990) N.D. Cent. Code (1987) N.D. Cent. Code (1987) N.D. Cent. Code (1987) For a comparison of the Montana statute and the North Dakota statute, see Hultin, "Recent Developments in Statutory and Judicial Accommodation Between Surface and Mineral Owners," 28 Rocky Mtn. Min. L. Inst. 1021, 1036 (1983) Mont. Code Ann (1989); S.D. Codified Laws 45-5A-4 (1983) Tenn. Code Ann (1989); W. Va. Code 22B-2-3 (1985) N.D. Cent. Code (1987) S.D. Codified Laws 45-5A-10 (1983) Mont. Code Ann (1989) W. Va. Code 22B-2-8 (1985) Under the common law easement analysis, the mineral owner/developer would, of course, have an absolute right of entry and could assert that right as an absolute defense to any action by the surface owner to recover damages. See Wilcox Oil Co. v. Lawson, 341 P.2d 591 (Okla. 1959) Tenn. Code Ann (1989) For an analysis of the Oklahoma Act, see Note, "Surface Damages in Oklahoma: Procedures for Payments and Penalties," 18 Tulsa L.J. 338 (1982); Note, "Oil and Gas: Legislative Damage to Surface Rights," 36 Okla. L. Rev. 386 (1983) See, e.g., Wilcox Oil Co. v. Lawson, 341 P.2d 591, 594 (Okla. 1959). In Wilcox Oil the court stated the following concerning the basis of a mineral lessee's liability: The holder of a valid oil and gas lease has the right and privilege to go on the land and do all those things necessary and incidental to the drilling of wells, including the right to the use of the surface, and in the absence of a provision that lessee would be liable for growing crops, the only basis for recovery of damages is proof of wanton or negligent destruction, or that damages were to [a] portion of land not reasonably necessary for oil and gas development. See also, Note, "Oil and Gas: Surface Damages, Operators, and the Oil and Gas Attorney," 36 Okla. L. Rev. 414 (1983) Id For an empirical study of the attitudes of surface owners and mineral developers with respect to the obligation to pay surface damages, see Polston, "What Happens When Judges Make Law and Nobody Listens?," 63 N.D.L. Rev. 41 (1987); see also Kuntz, "Discussion Notes," 10 O. & G.R. 996, following Wilcox Oil Co. v. Lawson, 341 P.2d 591 (Okla. 1959), 10 O. & G.R. 991 (Okla. 1959); and Lowe, "Eastern Oil and Gas Operations: Do Recent Developments Suggest New Answers to Old Problems?," 4 Eastern Min. L. Inst [1][b] (1983).

14 See Wilcox Oil Co. v. Lawson, 341 P.2d 591 (Okla. 1959) Okla. Stat. Ann. tit. 52, (West 1991) Okla. Stat. Ann. tit. 52, (West 1991) Okla. Stat. Ann. tit. 52, (West 1991) (emphasis added) The fact that the Oklahoma Act requires that these negotiations be conducted in advance of entry would indicate the opposite intent, however Okla. Stat. Ann. tit. 52, (West 1991) The Oklahoma court has indicated, however, that the express reservation of an easement would not be preserved as an "existing contractual right." Davis Oil Co. v. Cloud, 766 P.2d 1347 (Okla. 1986), seems to so hold. The opinion in that case treats leases and mineral severances the same for purposes of the operation of the Surface Damages Act despite the fact that leases normally reserve an express easement. Furthermore, a footnote in the opinion states that the exception for "existing contractual rights" applies only to "contracts in which damage provision standards are specifically set forth in the contract." 766 P.2d at 1351 n.11. Dictum in Alpine Const. Corp. v. Fenton, 764 P.2d 1340 (Okla. 1988), suggests that a provision for payment of a specific amount of damages would be an "existing contractual right." See Polston, "Oil and Gas Law Developments," 10 Eastern Min. L. Inst [5] (1989) Bowles v. Kretchmar, 55 Okla. B.J. 967 (Okla. Int. App. Ct. 1984). For a discussion of the judicial treatment of the Oklahoma Act, see Collins v. Oxley, 897 F.2d 456 (10th Cir. 1990) Davis Oil Co. v. Cloud, 766 P.2d 1347 (Okla. 1986) See Polston, "What Happens When Judges Make Law and Nobody Listens?," 63 N.D.L. Rev. 41 at 65 (1987) Ill. Ann. Stat. Ch. 96½, 9651 to 9657 (Smith-Hurd 1990) Ky. Rev. Stat (Michie 1990) Ill. Ann. Stat. Ch. 96½, 9653 (Smith-Hurd 1990) Zeigler v. Brenneman, 86 N.E. 597 (Ill. 1908). [See generally Anderson & Cuda, "The Nonconsenting Cotenant in Oil and Gas Development: The Oil Patch Version of the `Little Red Hen,'" 12 Eastern Min. L. Inst. ch. 16 (1991) and Hurtt & Jordan, "Co- Ownership: The Problem It Creates for the Oil and Gas Producer," 6 Eastern Min. L. Inst. ch. 16 (1985) -- Ed.] Ill. Ann. Stat. Ch. 96½ 4901 (Smith-Hurd 1990) While Kentucky has compulsory pooling under some circumstances, Ky. Rev. Stat (Michie 1983), it does not have any statutory proceedings for development by majority owners, such as Illinois does, because in Kentucky a cotenant can develop without the consent of the other cotenants. New Domain Oil & Gas Co. v. McKinney, 221 S.W. 245 (Ky. 1920) Ky. Rev. Stat (2) (Michie 1990) See Polston, "What Happens When Judges Make Law and Nobody Listens?," 63 N.D.L. Rev. 41, 64 (1987); and Pierce, "Toward a Functional Mineral Jurisprudence for Kansas," 27 Washburn L.J. 223, 241 (1988) Ill. Ann. Stat. Ch. 96½, 9656(A) (Smith-Hurd 1990); Ky. Rev. Stat (5) (Michie 1990) Ill. Ann. Stat. Ch. 96½, 9657 (Smith-Hurd 1990); Ky. Rev. Stat (8) (Michie 1990).